Fundamental Texts On European Private Law 9781782258643, 9781782258674, 9781782258667

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FUNDAMENTAL TEXTS ON EUROPEAN PRIVATE LAW Among the most significant legal developments of our time is the emergence of a European private law. The European Union enacts directives that profoundly affect the practice, teaching and study of core areas of ‘classical’ private law. Internationally, commissions have formulated principles of European trusts, contract and commercial law. Furthermore, uniform private law can be found in a number of international conventions. This second edition gathers together fundamental texts from these three sources into one convenient volume. Its emphasis is on general civil and commercial law, particularly on the obligations and property aspects of these. This second edition is a sister volume to the original German edition, now in its 5th edition. The Editors would like to thank Lucy Olley and Daniela Esposito, both of Warwick University, for their help in gathering and preparing the material for this edition.

ii

Fundamental Texts on European Private Law Second Edition

Edited by

Oliver Radley-Gardner, Hugh Beale and Reinhard Zimmermann

OXFORD AND PORTLAND, OREGON 2016

Hart Publishing An imprint of Bloomsbury Publishing plc Hart Publishing Ltd Kemp House Chawley Park Cumnor Hill Oxford OX2 9PH UK

Bloomsbury Publishing Plc 50 Bedford Square London WC1B 3DP UK

www.hartpub.co.uk www.bloomsbury.com Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA www.isbs.com HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc First published 2016 © The Editors The Editors 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) excepted where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998–2015. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: HB: 978-1-78225-864-3 ePDF: 978-1-78225-866-7 ePub: 978-1-78225-865-0 Library of Congress Cataloging-in-Publication Data Names: Radley-Gardner, Oliver, editor.  |  Beale, H. G., editor.  |  Zimmermann, Reinhard, 1952 October 10– editor. Title: Fundamental texts on European private law / Edited by Oliver Radley-Gardner, Hugh Beale and Reinhard Zimmermann. Description: Second edition.  |  Portland, Oregon : Hart Publishing, 2016.  |  Includes bibliographical references and index. Identifiers: LCCN 2016021696 (print)  |  LCCN 2016022052 (ebook)  |  ISBN 9781782258643 (pbk. : alk. paper)  |  ISBN 9781782258650 (Epub) Subjects: LCSH: Contracts—European Union countries.  |  Liability (Law)—European Union countries.  |  Commercial law—European Union countries.  |  Employee rights—European Union countries.  |  Civil law—Europe. Classification: LCC KJE1640 .A42 2016 (print)  |  LCC KJE1640 (ebook)  |  DDC 346.24—dc23 LC record available at https://lccn.loc.gov/2016021696 Typeset by Compuscript Ltd, Shannon

Contents Part I: European Union Legislation Treaty and Charter provisions Treaty on European Union

5

Treaty on the Functioning of the European Union

10

Charter of Fundamental Rights

44 Regulations

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)

59

Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II)

79

Council Regulation (EU) No 1259/2010 of 20 December 2010 implementing enhanced cooperation in the area of the law applicable to divorce and legal separation

96

Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession

108

Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

155

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 (Regulation on consumer ODR)

189

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast)

208

vi  Contents Directives Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products

277

Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents

286

Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours

294

Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

302

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

310

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market

319

Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin

344

Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation

354

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements

367

Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications)

384

Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC

404

Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage

421

Council Directive 2004/113/EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services

438

Contents vii 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’)

449

Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast)

472

Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/ EC and repealing Directive 97/5/EC

492

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

558

Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts

593

Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests (Codified version)

606

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (recast)

614

Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 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

629

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 (Directive on consumer ADR)

666

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

696

viii  Contents Current Commission Proposals Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content COM(2015) 634 final

781

Proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods COM(2015) 635 final

820

Part II: Uniform Law European Convention for the Protection of Human Rights and Fundamental Freedoms of 4 November 1950

859

Protocol 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms

866

Protocol 4 to the Convention for the Protection of Human Rights and Fundamental Freedoms

869

Protocol 7 to the Convention for the Protection of Human Rights and Fundamental Freedoms of 22 November 1984

871

Convention providing a Uniform Law on the Form of an International Will of 26 October 1973 (Washington DC)

873

United Nations Convention on the Limitation Period in the International Sale of Goods of 14 June 1974 (New York)

880

United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (Vienna)

893

Convention on Agency in the International Sale of Goods of 17 February 1983 (Geneva)

919

Convention on the law applicable to Trusts and their Recognition of 1 July 1985 (The Hague)

929

UNIDROIT Convention on International Financial Leasing of 20 May 1988 (Ottawa)

937

UNIDROIT Convention on International Factoring of 28 May 1988 (Ottawa)

946

Convention on International Interests in Mobile Equipment of 16 November 2001 (Cape Town)

950

United Nations Convention on the Assignment of Receivables in International Trade of 12 December 2001 (New York)

978

Contents ix Part III: Common Principles Principles of European Contract Law prepared by the Commission for European Contract Law, Parts I and II (2000)

1003

Principles of European Contract Law prepared by the Commission for European Contract Law, Part III (2003)

1032

Principles of the Existing EC Contract Law (Acquis Principles)

1047

Draft Common Frame of Reference (Outline Edition, 2009)

1097

Guiding and Revised Principles of European Contract Law

1335

Commission Expert Group on European Contract Law: Feasibility study for a future instrument in European Contract Law of 3 May 2011

1382

Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law

1442

UNIDROIT Principles of International Commercial Contracts 2016

1530

Principles of European Insurance Contract Law

1576

Principles of European Tort Law

1600

Principles of European Trust Law

1609

Principles of European Family Law Regarding Divorce and Maintenance Between Former Spouses

1612

Principles of European Family Law Regarding Parental Responsibilities

1616

ALI/UNIDROIT Principles of Transnational Civil Procedure

1624

Principles of European Insolvency Law

1635

x

Part I

European Union Legislation

2

Treaty and Charter Provisions

4

Treaty on European Union PREAMBLE HIS MAJESTY THE KING OF THE BELGIANS, HER MAJESTY THE QUEEN OF DENMARK, THE PRESIDENT OF THE FEDERAL REPUBLIC OF ­GERMANY, THE PRESIDENT OF IRELAND, THE PRESIDENT OF THE HELLENIC ­REPUBLIC, HIS MAJESTY THE KING OF SPAIN, THE PRESIDENT OF THE FRENCH REPUBLIC, THE PRESIDENT OF THE ITALIAN REPUBLIC, HIS ROYAL HIGHNESS THE GRAND DUKE OF LUXEMBOURG, HER MAJESTY THE QUEEN OF THE NETHERLANDS, THE PRESIDENT OF THE PORTUGUESE REPUBLIC, HER MAJESTY THE QUEEN OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND [1], RESOLVED to mark a new stage in the process of European integration undertaken with the establishment of the European Communities, DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe, from which have developed the universal values of the inviolable and inalienable rights of the human person, freedom, democracy, equality and the rule of law, RECALLING the historic importance of the ending of the division of the European continent and the need to create firm bases for the construction of the future Europe, CONFIRMING their attachment to the principles of liberty, democracy and respect for human rights and fundamental freedoms and of the rule of law, CONFIRMING their attachment to fundamental social rights as defined in the ­European Social Charter signed at Turin on 18 October 1961 and in the 1989 ­Community Charter of the Fundamental Social Rights of Workers, DESIRING to deepen the solidarity between their peoples while respecting their history, their culture and their traditions, DESIRING to enhance further the democratic and efficient functioning of the institutions so as to enable them better to carry out, within a single institutional framework, the tasks entrusted to them, RESOLVED to achieve the strengthening and the convergence of their economies and to establish an economic and monetary union including, in accordance with the provisions of this Treaty and of the Treaty on the Functioning of the European Union, a single and stable currency,

6  Part I: European Union Legislation DETERMINED to promote economic and social progress for their peoples, taking into account the principle of sustainable development and within the context of the accomplishment of the internal market and of reinforced cohesion and e­ nvironmental protection, and to implement policies ensuring that advances in economic integration are accompanied by parallel progress in other fields, RESOLVED to establish a citizenship common to nationals of their countries, RESOLVED to implement a common foreign and security policy including the progressive framing of a common defence policy, which might lead to a common defence in accordance with the provisions of Article 42, thereby reinforcing the European identity and its independence in order to promote peace, security and progress in Europe and in the world, RESOLVED to facilitate the free movement of persons, while ensuring the safety and security of their peoples, by establishing an area of freedom, security and justice, in accordance with the provisions of this Treaty and of the Treaty on the Functioning of the European Union, RESOLVED to continue the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as closely as possible to the citizen in accordance with the principle of subsidiarity, IN VIEW of further steps to be taken in order to advance European integration, HAVE DECIDED to establish a European Union and to this end have designated as their Plenipotentiaries: (List of plenipotentiaries not reproduced) WHO, having exchanged their full powers, found in good and due form, have agreed as follows: Article 1 By this Treaty, the HIGH CONTRACTING PARTIES establish among themselves a EUROPEAN UNION, hereinafter called “the Union”, on which the Member States confer competences to attain objectives they have in common. This Treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen. The Union shall be founded on the present Treaty and on the Treaty on the Functioning of the European Union (hereinafter referred to as “the Treaties”). Those two Treaties shall have the same legal value. The Union shall replace and succeed the European Community. Article 2 The Union is founded on the values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights, including the rights of

Treaty on European Union 7 persons belonging to minorities. These values are common to the Member States in a society in which pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail. Article 3 (ex Article 2 TEU) 1. The Union’s aim is to promote peace, its values and the well-being of its peoples. 2. The Union shall offer its citizens an area of freedom, security and justice without internal frontiers, in which the free movement of persons is ensured in conjunction with appropriate measures with respect to external border controls, asylum, immigration and the prevention and combating of crime. 3. The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance. It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote economic, social and territorial cohesion, and solidarity among Member States. It shall respect its rich cultural and linguistic diversity, and shall ensure that Europe’s cultural heritage is safeguarded and enhanced. 4. The Union shall establish an economic and monetary union whose currency is the euro. 5. In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, in particular the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter. 6. The Union shall pursue its objectives by appropriate means commensurate with the competences which are conferred upon it in the Treaties. Article 4 1. In accordance with Article 5, competences not conferred upon the Union in the Treaties remain with the Member States. 2. The Union shall respect the equality of Member States before the Treaties as well as their national identities, inherent in their fundamental structures, political and constitutional, inclusive of regional and local self-government. It shall respect their essential State functions, including ensuring the territorial

8  Part I: European Union Legislation integrity of the State, maintaining law and order and safeguarding national security. In particular, national security remains the sole responsibility of each Member State. 3. Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties. The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union. The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives. Article 5 (ex Article 5 TEC) 1. The limits of Union competences are governed by the principle of conferral. The use of Union competences is governed by the principles of subsidiarity and proportionality. 2. Under the principle of conferral, the Union shall act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein. Competences not conferred upon the Union in the Treaties remain with the Member States. 3. Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level. The institutions of the Union shall apply the principle of subsidiarity as laid down in the Protocol on the application of the principles of subsidiarity and proportionality. National Parliaments ensure compliance with the principle of subsidiarity in accordance with the procedure set out in that Protocol. 4. Under the principle of proportionality, the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties. The institutions of the Union shall apply the principle of proportionality as laid down in the Protocol on the application of the principles of subsidiarity and proportionality. Article 6 (ex Article 6 TEU) 1. The Union recognises the rights, freedoms and principles set out in the ­Charter of Fundamental Rights of the European Union of 7 December 2000, as adapted at Strasbourg, on 12 December 2007, which shall have the same legal value as the Treaties.

Treaty on European Union 9 The provisions of the Charter shall not extend in any way the competences of the Union as defined in the Treaties. The rights, freedoms and principles in the Charter shall be interpreted in accordance with the general provisions in Title VII of the Charter governing its interpretation and application and with due regard to the explanations referred to in the Charter, that set out the sources of those provisions. 2. The Union shall accede to the European Convention for the Protection of Human Rights and Fundamental Freedoms. Such accession shall not affect the Union’s competences as defined in the Treaties. 3. Fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, shall constitute general principles of the Union’s law. … Article 9 In all its activities, the Union shall observe the principle of the equality of its citizens, who shall receive equal attention from its institutions, bodies, offices and agencies. Every national of a Member State shall be a citizen of the Union. Citizenship of the Union shall be additional to and not replace national citizenship.

Treaty on the Functioning of the European Union PREAMBLE HIS MAJESTY THE KING OF THE BELGIANS, THE PRESIDENT OF THE FEDERAL REPUBLIC OF GERMANY, THE PRESIDENT OF THE FRENCH ­ REPUBLIC, THE PRESIDENT OF THE ITALIAN REPUBLIC, HER ROYAL HIGHNESS THE GRAND DUCHESS OF LUXEMBOURG, HER MAJESTY THE QUEEN OF THE NETHERLANDS, [1] DETERMINED to lay the foundations of an ever closer union among the peoples of Europe, RESOLVED to ensure the economic and social progress of their States by common action to eliminate the barriers which divide Europe, AFFIRMING as the essential objective of their efforts the constant improvements of the living and working conditions of their peoples, RECOGNISING that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition, ANXIOUS to strengthen the unity of their economies and to ensure their ­harmonious development by reducing the differences existing between the various regions and the backwardness of the less favoured regions, DESIRING to contribute, by means of a common commercial policy, to the progressive abolition of restrictions on international trade, INTENDING to confirm the solidarity which binds Europe and the overseas countries and desiring to ensure the development of their prosperity, in accordance with the principles of the Charter of the United Nations, RESOLVED by thus pooling their resources to preserve and strengthen peace and liberty, and calling upon the other peoples of Europe who share their ideal to join in their efforts, DETERMINED to promote the development of the highest possible level of knowledge for their peoples through a wide access to education and through its continuous updating,

Treaty on the Functioning of the European Union 11 and to this end HAVE DESIGNATED as their Plenipotentiaries: (List of plenipotentiaries not reproduced) WHO, having exchanged their full powers, found in good and due form, have agreed as follows. PART ONE PRINCIPLES Article 1 1. This Treaty organises the functioning of the Union and determines the areas of, delimitation of, and arrangements for exercising its competences. 2. This Treaty and the Treaty on European Union constitute the Treaties on which the Union is founded. These two Treaties, which have the same legal value, shall be referred to as “the Treaties”. TITLE I CATEGORIES AND AREAS OF UNION COMPETENCE Article 2 1. When the Treaties confer on the Union exclusive competence in a specific area, only the Union may legislate and adopt legally binding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of Union acts. 2. When the Treaties confer on the Union a competence shared with the Member States in a specific area, the Union and the Member States may legislate and adopt legally binding acts in that area. The Member States shall exercise their competence to the extent that the Union has not exercised its competence. The Member States shall again exercise their competence to the extent that the Union has decided to cease exercising its competence. 3. The Member States shall coordinate their economic and employment policies within arrangements as determined by this Treaty, which the Union shall have competence to provide. 4. The Union shall have competence, in accordance with the provisions of the Treaty on European Union, to define and implement a common foreign and security policy, including the progressive framing of a common defence policy. 5. In certain areas and under the conditions laid down in the Treaties, the Union shall have competence to carry out actions to support, coordinate or supplement the actions of the Member States, without thereby superseding their competence in these areas. Legally binding acts of the Union adopted on the basis of the provisions of the Treaties relating to these areas shall not entail harmonisation of Member States’ laws or regulations.

12  Part 1: European Union Legislation 6. The scope of and arrangements for exercising the Union’s competences shall be determined by the provisions of the Treaties relating to each area. Article 3 1. The Union shall have exclusive competence in the following areas: (a) customs union; (b) the establishing of the competition rules necessary for the functioning of the internal market; (c) monetary policy for the Member States whose currency is the euro; (d) the conservation of marine biological resources under the common fisheries policy; (e) common commercial policy. 2. The Union shall also have exclusive competence for the conclusion of an international agreement when its conclusion is provided for in a legislative act of the Union or is necessary to enable the Union to exercise its internal competence, or in so far as its conclusion may affect common rules or alter their scope. Article 4 1. The Union shall share competence with the Member States where the Treaties confer on it a competence which does not relate to the areas referred to in Articles 3 and 6. 2. Shared competence between the Union and the Member States applies in the following principal areas: (a) internal market; (b) social policy, for the aspects defined in this Treaty; (c) economic, social and territorial cohesion; (d) agriculture and fisheries, excluding the conservation of marine biological resources; (e) environment; (f) consumer protection; (g) transport; (h) trans-European networks; (i) energy; (j) area of freedom, security and justice; (k) common safety concerns in public health matters, for the aspects defined in this Treaty. 3. In the areas of research, technological development and space, the Union shall have competence to carry out activities, in particular to define and implement programmes; however, the exercise of that competence shall not result in Member States being prevented from exercising theirs. 4. In the areas of development cooperation and humanitarian aid, the Union shall have competence to carry out activities and conduct a common policy; however, the exercise of that competence shall not result in Member States being prevented from exercising theirs.

Treaty on the Functioning of the European Union 13 Article 5 1. The Member States shall coordinate their economic policies within the Union. To this end, the Council shall adopt measures, in particular broad guidelines for these policies. Specific provisions shall apply to those Member States whose currency is the euro. 2. The Union shall take measures to ensure coordination of the employment policies of the Member States, in particular by defining guidelines for these policies. 3. The Union may take initiatives to ensure coordination of Member States’ social policies. Article 6 The Union shall have competence to carry out actions to support, coordinate or supplement the actions of the Member States. The areas of such action shall, at European level, be: (a) protection and improvement of human health; (b) industry; (c) culture; (d) tourism; (e) education, vocational training, youth and sport; (f) civil protection; (g) administrative cooperation. TITLE II PROVISIONS HAVING GENERAL APPLICATION Article 7 The Union shall ensure consistency between its policies and activities, taking all of its objectives into account and in accordance with the principle of conferral of powers. Article 8 (ex Article 3(2) TEC) [2] In all its activities, the Union shall aim to eliminate inequalities, and to promote equality, between men and women. Article 9 In defining and implementing its policies and activities, the Union shall take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health.

14  Part 1: European Union Legislation Article 10 In defining and implementing its policies and activities, the Union shall aim to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. Article 11 (ex Article 6 TEC) Environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development. Article 12 (ex Article 153(2) TEC) Consumer protection requirements shall be taken into account in defining and implementing other Union policies and activities. Article 13 In formulating and implementing the Union’s agriculture, fisheries, transport, internal market, research and technological development and space policies, the Union and the Member States shall, since animals are sentient beings, pay full regard to the welfare requirements of animals, while respecting the legislative or administrative provisions and customs of the Member States relating in particular to religious rites, cultural traditions and regional heritage. Article 14 (ex Article 16 TEC) Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of this Treaty, and given the place occupied by services of general economic interest in the shared values of the Union as well as their role in promoting social and territorial cohesion, the Union and the Member States, each within their respective powers and within the scope of application of the Treaties, shall take care that such services operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfil their missions. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of Member States, in compliance with the Treaties, to provide, to commission and to fund such services. …

Treaty on the Functioning of the European Union 15 Article 16 (ex Article 286 TEC) 1. Everyone has the right to the protection of personal data concerning them. 2. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall lay down the rules relating to the protection of individuals with regard to the processing of personal data by Union institutions, bodies, offices and agencies, and by the Member States when carrying out activities which fall within the scope of Union law, and the rules relating to the free movement of such data. Compliance with these rules shall be subject to the control of independent authorities. The rules adopted on the basis of this Article shall be without prejudice to the specific rules laid down in Article 39 of the Treaty on European Union. … Article 18 (ex Article 12 TEC) Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt rules designed to prohibit such discrimination. Article 19 (ex Article 13 TEC) 1. Without prejudice to the other provisions of the Treaties and within the limits of the powers conferred by them upon the Union, the Council, acting unanimously in accordance with a special legislative procedure and after obtaining the consent of the European Parliament, may take appropriate action to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. 2. By way of derogation from paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt the basic principles of Union incentive measures, excluding any harmonisation of the laws and regulations of the Member States, to support action taken by the Member States in order to contribute to the achievement of the objectives referred to in paragraph 1. …

16  Part 1: European Union Legislation Article 21 (ex Article 18 TEC) 1. Every citizen of the Union shall have the right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in the Treaties and by the measures adopted to give them effect. 2. If action by the Union should prove necessary to attain this objective and the Treaties have not provided the necessary powers, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt provisions with a view to facilitating the exercise of the rights referred to in paragraph 1. 3. For the same purposes as those referred to in paragraph 1 and if the Treaties have not provided the necessary powers, the Council, acting in accordance with a special legislative procedure, may adopt measures concerning social security or social protection. The Council shall act unanimously after consulting the European Parliament. … PART THREE UNION POLICIES AND INTERNAL ACTIONS TITLE I THE INTERNAL MARKET Article 26 (ex Article 14 TEC) 1. The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties. 2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. 3. The Council, on a proposal from the Commission, shall determine the guidelines and conditions necessary to ensure balanced progress in all the sectors concerned. Article 27 (ex Article 15 TEC) When drawing up its proposals with a view to achieving the objectives set out in Article 26, the Commission shall take into account the extent of the effort that certain economies showing differences in development will have to sustain for the establishment of the internal market and it may propose appropriate provisions.

Treaty on the Functioning of the European Union 17 If these provisions take the form of derogations, they must be of a temporary nature and must cause the least possible disturbance to the functioning of the internal market. TITLE II FREE MOVEMENT OF GOODS Article 28 (ex Article 23 TEC) 1. The Union shall comprise a customs union which shall cover all trade in goods and which shall involve the prohibition between Member States of customs duties on imports and exports and of all charges having equivalent effect, and the adoption of a common customs tariff in their relations with third countries. 2. The provisions of Article 30 and of Chapter 3 of this Title shall apply to products originating in Member States and to products coming from third countries which are in free circulation in Member States. Article 29 (ex Article 24 TEC) Products coming from a third country shall be considered to be in free circulation in a Member State if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in that Member State, and if they have not benefited from a total or partial drawback of such duties or charges. CHAPTER 1 THE CUSTOMS UNION Article 30 (ex Article 25 TEC) Customs duties on imports and exports and charges having equivalent effect shall be prohibited between Member States. This prohibition shall also apply to customs duties of a fiscal nature. Article 31 (ex Article 26 TEC) Common Customs Tariff duties shall be fixed by the Council on a proposal from the Commission.

18  Part 1: European Union Legislation Article 32 (ex Article 27 TEC) In carrying out the tasks entrusted to it under this Chapter the Commission shall be guided by: (a) the need to promote trade between Member States and third countries; (b) developments in conditions of competition within the Union in so far as they lead to an improvement in the competitive capacity of undertakings; (c) the requirements of the Union as regards the supply of raw materials and semi-finished goods; in this connection the Commission shall take care to avoid distorting conditions of competition between Member States in respect of finished goods; (d) the need to avoid serious disturbances in the economies of Member States and to ensure rational development of production and an expansion of consumption within the Union. CHAPTER 2 CUSTOMS COOPERATION Article 33 (ex Article 135 TEC) Within the scope of application of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall take measures in order to strengthen customs cooperation between Member States and between the latter and the Commission. CHAPTER 3 PROHIBITION OF QUANTITATIVE RESTRICTIONS BETWEEN MEMBER STATES Article 34 (ex Article 28 TEC) Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States. Article 35 (ex Article 29 TEC) Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.

Treaty on the Functioning of the European Union 19 Article 36 (ex Article 30 TEC) The provisions of Articles 34 and 35 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. Article 37 (ex Article 31 TEC) 1. Member States shall adjust any State monopolies of a commercial character so as to ensure that no discrimination regarding the conditions under which goods are procured and marketed exists between nationals of Member States. The provisions of this Article shall apply to any body through which a Member State, in law or in fact, either directly or indirectly supervises, determines or appreciably influences imports or exports between Member States. These provisions shall likewise apply to monopolies delegated by the State to others. 2. Member States shall refrain from introducing any new measure which is contrary to the principles laid down in paragraph 1 or which restricts the scope of the articles dealing with the prohibition of customs duties and quantitative restrictions between Member States. 3. If a State monopoly of a commercial character has rules which are designed to make it easier to dispose of agricultural products or obtain for them the best return, steps should be taken in applying the rules contained in this Article to ensure equivalent safeguards for the employment and standard of living of the producers concerned. … TITLE IV FREE MOVEMENT OF PERSONS, SERVICES AND CAPITAL CHAPTER 1 WORKERS Article 45 (ex Article 39 TEC) 1. Freedom of movement for workers shall be secured within the Union. 2. Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment.

20  Part 1: European Union Legislation 3. It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health: (a) to accept offers of employment actually made; (b) to move freely within the territory of Member States for this purpose; (c) to stay in a Member State for the purpose of employment in accordance with the provisions governing the employment of nationals of that State laid down by law, regulation or administrative action; (d) to remain in the territory of a Member State after having been employed in that State, subject to conditions which shall be embodied in regulations to be drawn up by the Commission. 4. The provisions of this Article shall not apply to employment in the public service. Article 46 (ex Article 40 TEC) The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, issue directives or make regulations setting out the measures required to bring about freedom of movement for workers, as defined in Article 45, in particular: (a) by ensuring close cooperation between national employment services; (b) by abolishing those administrative procedures and practices and those qualifying periods in respect of eligibility for available employment, whether resulting from national legislation or from agreements previously concluded between Member States, the maintenance of which would form an obstacle to liberalisation of the movement of workers; (c) by abolishing all such qualifying periods and other restrictions provided for either under national legislation or under agreements previously concluded between Member States as imposed on workers of other Member States conditions regarding the free choice of employment other than those imposed on workers of the State concerned; (d) by setting up appropriate machinery to bring offers of employment into touch with applications for employment and to facilitate the achievement of a balance between supply and demand in the employment market in such a way as to avoid serious threats to the standard of living and level of employment in the various regions and industries. Article 47 (ex Article 41 TEC) Member States shall, within the framework of a joint programme, encourage the exchange of young workers.

Treaty on the Functioning of the European Union 21 Article 48 (ex Article 42 TEC) The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers; to this end, they shall make arrangements to secure for employed and self-employed migrant workers and their dependants: (a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries; (b) payment of benefits to persons resident in the territories of Member States. Where a member of the Council declares that a draft legislative act referred to in the first subparagraph would affect important aspects of its social security system, including its scope, cost or financial structure, or would affect the financial balance of that system, it may request that the matter be referred to the European Council. In that case, the ordinary legislative procedure shall be suspended. After discussion, the European Council shall, within four months of this suspension, either: (a) refer the draft back to the Council, which shall terminate the suspension of the ordinary legislative procedure; or (b) take no action or request the Commission to submit a new proposal; in that case, the act originally proposed shall be deemed not to have been adopted. CHAPTER 2 RIGHT OF ESTABLISHMENT Article 49 (ex Article 43 TEC) Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital. Article 50 (ex Article 44 TEC) 1. In order to attain freedom of establishment as regards a particular activity, the European Parliament and the Council, acting in accordance with the ordinary

22  Part 1: European Union Legislation legislative procedure and after consulting the Economic and Social Committee, shall act by means of directives. 2. The European Parliament, the Council and the Commission shall carry out the duties devolving upon them under the preceding provisions, in particular: (a) by according, as a general rule, priority treatment to activities where freedom of establishment makes a particularly valuable contribution to the development of production and trade; (b) by ensuring close cooperation between the competent authorities in the Member States in order to ascertain the particular situation within the Union of the various activities concerned; (c) by abolishing those administrative procedures and practices, whether resulting from national legislation or from agreements previously concluded between Member States, the maintenance of which would form an obstacle to freedom of establishment; (d) by ensuring that workers of one Member State employed in the territory of another Member State may remain in that territory for the purpose of taking up activities therein as self-employed persons, where they satisfy the conditions which they would be required to satisfy if they were entering that State at the time when they intended to take up such activities; (e) by enabling a national of one Member State to acquire and use land and buildings situated in the territory of another Member State, in so far as this does not conflict with the principles laid down in Article 39(2); (f) by effecting the progressive abolition of restrictions on freedom of establishment in every branch of activity under consideration, both as regards the conditions for setting up agencies, branches or subsidiaries in the territory of a Member State and as regards the subsidiaries in the territory of a Member State and as regards the conditions governing the entry of personnel belonging to the main establishment into managerial or supervisory posts in such agencies, branches or subsidiaries; (g) by coordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 54 with a view to making such safeguards equivalent throughout the Union; (h) by satisfying themselves that the conditions of establishment are not distorted by aids granted by Member States. Article 51 (ex Article 45 TEC) The provisions of this Chapter shall not apply, so far as any given Member State is concerned, to activities which in that State are connected, even occasionally, with the exercise of official authority. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may rule that the provisions of this Chapter shall not apply to certain activities.

Treaty on the Functioning of the European Union 23 Article 52 (ex Article 46 TEC) 1. The provisions of this Chapter and measures taken in pursuance thereof shall not prejudice the applicability of provisions laid down by law, regulation or administrative action providing for special treatment for foreign nationals on grounds of public policy, public security or public health. 2. The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, issue directives for the coordination of the abovementioned provisions. Article 53 (ex Article 47 TEC) 1. In order to make it easier for persons to take up and pursue activities as self-employed persons, the European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure, issue directives for the mutual recognition of diplomas, certificates and other evidence of formal qualifications and for the coordination of the provisions laid down by law, regulation or administrative action in Member States concerning the takingup and pursuit of activities as self-employed persons. 2. In the case of the medical and allied and pharmaceutical professions, the progressive abolition of restrictions shall be dependent upon coordination of the conditions for their exercise in the various Member States. Article 54 (ex Article 48 TEC) Companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Union shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. “Companies or firms” means companies or firms constituted under civil or commercial law, including cooperative societies, and other legal persons governed by public or private law, save for those which are non-profit-making. Article 55 (ex Article 294 TEC) Member States shall accord nationals of the other Member States the same treatment as their own nationals as regards participation in the capital of companies or firms within the meaning of Article 54, without prejudice to the application of the other provisions of the Treaties.

24  Part 1: European Union Legislation CHAPTER 3 SERVICES Article 56 (ex Article 49 TEC) Within the framework of the provisions set out below, restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of ­Member States who are established in a Member State other than that of the person for whom the services are intended. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may extend the provisions of the Chapter to nationals of a third country who provide services and who are established within the Union. Article 57 (ex Article 50 TEC) Services shall be considered to be “services” within the meaning of the Treaties where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons. “Services” shall in particular include: (a) (b) (c) (d)

activities of an industrial character; activities of a commercial character; activities of craftsmen; activities of the professions.

Without prejudice to the provisions of the Chapter relating to the right of establishment, the person providing a service may, in order to do so, temporarily pursue his activity in the Member State where the service is provided, under the same conditions as are imposed by that State on its own nationals. Article 58 (ex Article 51 TEC) 1. Freedom to provide services in the field of transport shall be governed by the provisions of the Title relating to transport. 2. The liberalisation of banking and insurance services connected with movements of capital shall be effected in step with the liberalisation of movement of capital. Article 59 (ex Article 52 TEC) 1. In order to achieve the liberalisation of a specific service, the European Parliament and the Council, acting in accordance with the ordinary legislative

Treaty on the Functioning of the European Union 25 ­ rocedure and after consulting the Economic and Social Committee, shall p issue directives. 2. As regards the directives referred to in paragraph 1, priority shall as a general rule be given to those services which directly affect production costs or the liberalisation of which helps to promote trade in goods. Article 60 (ex Article 53 TEC) The Member States shall endeavour to undertake the liberalisation of services beyond the extent required by the directives issued pursuant to Article 59(1), if their general economic situation and the situation of the economic sector concerned so permit. To this end, the Commission shall make recommendations to the Member States concerned. Article 61 (ex Article 54 TEC) As long as restrictions on freedom to provide services have not been abolished, each Member State shall apply such restrictions without distinction on grounds of nationality or residence to all persons providing services within the meaning of the first paragraph of Article 56. Article 62 (ex Article 55 TEC) The provisions of Articles 51 to 54 shall apply to the matters covered by this Chapter. CHAPTER 4 CAPITAL AND PAYMENTS Article 63 (ex Article 56 TEC) 1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited. 2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. Article 64 (ex Article 57 TEC) 1. The provisions of Article 63 shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under

26  Part 1: European Union Legislation national or Union law adopted in respect of the movement of capital to or from third countries involving direct investment—including in real estate— establishment, the provision of financial services or the admission of securities to capital markets. In respect of restrictions existing under national law in Bulgaria, Estonia and Hungary, the relevant date shall be 31 December 1999. 2. Whilst endeavouring to achieve the objective of free movement of capital between Member States and third countries to the greatest extent possible and without prejudice to the other Chapters of the Treaties, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt the measures on the movement of capital to or from third countries involving direct investment—including investment in real estate—establishment, the provision of financial services or the admission of securities to capital markets. 3. Notwithstanding paragraph 2, only the Council, acting in accordance with a special legislative procedure, may unanimously, and after consulting the ­European Parliament, adopt measures which constitute a step backwards in Union law as regards the liberalisation of the movement of capital to or from third countries. Article 65 (ex Article 58 TEC) 1. The provisions of Article 63 shall be without prejudice to the right of Member States: (a) to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested; (b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security. 2. The provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with the Treaties. 3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 63. 4. In the absence of measures pursuant to Article 64(3), the Commission or, in the absence of a Commission decision within three months from the request of the Member State concerned, the Council, may adopt a decision stating that restrictive tax measures adopted by a Member State concerning one or more third countries are to be considered compatible with the Treaties in so far as they are justified by one of the objectives of the Union and compatible

Treaty on the Functioning of the European Union 27 with the proper functioning of the internal market. The Council shall act unanimously on application by a Member State. Article 66 (ex Article 59 TEC) Where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to cause, serious difficulties for the operation of economic and monetary union, the Council, on a proposal from the Commission and after consulting the European Central Bank, may take safeguard measures with regard to third countries for a period not exceeding six months if such measures are strictly necessary. … CHAPTER 3 JUDICIAL COOPERATION IN CIVIL MATTERS Article 81 (ex Article 65 TEC) 1. The Union shall develop judicial cooperation in civil matters having crossborder implications, based on the principle of mutual recognition of judgments and of decisions in extrajudicial cases. Such cooperation may include the adoption of measures for the approximation of the laws and regulations of the Member States. 2. For the purposes of paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt measures, particularly when necessary for the proper functioning of the ­internal market, aimed at ensuring: (a) the mutual recognition and enforcement between Member States of judgments and of decisions in extrajudicial cases; (b) the cross-border service of judicial and extrajudicial documents; (c) the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction; (d) cooperation in the taking of evidence; (e) effective access to justice; (f) the elimination of obstacles to the proper functioning of civil proceedings, if necessary by promoting the compatibility of the rules on civil procedure applicable in the Member States; (g) the development of alternative methods of dispute settlement; (h) support for the training of the judiciary and judicial staff. 3. Notwithstanding paragraph 2, measures concerning family law with crossborder implications shall be established by the Council, acting in accordance with a special legislative procedure. The Council shall act unanimously after consulting the European Parliament.

28  Part 1: European Union Legislation The Council, on a proposal from the Commission, may adopt a decision determining those aspects of family law with cross-border implications which may be the subject of acts adopted by the ordinary legislative procedure. The Council shall act unanimously after consulting the European Parliament. The proposal referred to in the second subparagraph shall be notified to the national Parliaments. If a national Parliament makes known its opposition within six months of the date of such notification, the decision shall not be adopted. In the absence of opposition, the Council may adopt the decision. … TITLE VII COMMON RULES ON COMPETITION, TAXATION AND APPROXIMATION OF LAWS CHAPTER 1 RULES ON COMPETITION SECTION 1 RULES APPLYING TO UNDERTAKINGS Article 101 (ex Article 81 TEC) 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: —— any agreement or category of agreements between undertakings, —— any decision or category of decisions by associations of undertakings, —— any concerted practice or category of concerted practices,

Treaty on the Functioning of the European Union 29 which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Article 102 (ex Article 82 TEC) Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. Article 103 (ex Article 83 TEC) 1. The appropriate regulations or directives to give effect to the principles set out in Articles 101 and 102 shall be laid down by the Council, on a proposal from the Commission and after consulting the European Parliament. 2. The regulations or directives referred to in paragraph 1 shall be designed in particular: (a) to ensure compliance with the prohibitions laid down in Article 101(1) and in Article 102 by making provision for fines and periodic penalty payments; (b) to lay down detailed rules for the application of Article 101(3), taking into account the need to ensure effective supervision on the one hand, and to simplify administration to the greatest possible extent on the other; (c) to define, if need be, in the various branches of the economy, the scope of the provisions of Articles 101 and 102; (d) to define the respective functions of the Commission and of the Court of Justice of the European Union in applying the provisions laid down in this paragraph;

30  Part 1: European Union Legislation (e) to determine the relationship between national laws and the provisions contained in this Section or adopted pursuant to this Article. Article 104 (ex Article 84 TEC) Until the entry into force of the provisions adopted in pursuance of Article 103, the authorities in Member States shall rule on the admissibility of agreements, decisions and concerted practices and on abuse of a dominant position in the internal market in accordance with the law of their country and with the provisions of Article 101, in particular paragraph 3, and of Article 102. Article 105 (ex Article 85 TEC) 1. Without prejudice to Article 104, the Commission shall ensure the application of the principles laid down in Articles 101 and 102. On application by a Member State or on its own initiative, and in cooperation with the competent authorities in the Member States, which shall give it their assistance, the Commission shall investigate cases of suspected infringement of these principles. If it finds that there has been an infringement, it shall propose appropriate measures to bring it to an end. 2. If the infringement is not brought to an end, the Commission shall record such infringement of the principles in a reasoned decision. The Commission may publish its decision and authorise Member States to take the measures, the conditions and details of which it shall determine, needed to remedy the situation. 3. The Commission may adopt regulations relating to the categories of agreement in respect of which the Council has adopted a regulation or a directive pursuant to Article 103(2)(b). Article 106 (ex Article 86 TEC) 1. In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109. 2. Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.

Treaty on the Functioning of the European Union 31 3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States. … CHAPTER 3 APPROXIMATION OF LAWS Article 114 (ex Article 95 TEC) 1. Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the objectives set out in Article 26. The E ­ uropean Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market. 2. Paragraph 1 shall not apply to fiscal provisions, to those relating to the free movement of persons nor to those relating to the rights and interests of employed persons. 3. The Commission, in its proposals envisaged in paragraph 1 concerning health, safety, environmental protection and consumer protection, will take as a base a high level of protection, taking account in particular of any new development based on scientific facts. Within their respective powers, the European Parliament and the Council will also seek to achieve this objective. 4. If, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to maintain national provisions on grounds of major needs referred to in Article 36, or relating to the protection of the environment or the working environment, it shall notify the Commission of these provisions as well as the grounds for maintaining them. 5. Moreover, without prejudice to paragraph 4, if, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to introduce national provisions based on new scientific evidence relating to the protection of the environment or the working environment on grounds of a problem specific to that Member State arising after the adoption of the harmonisation measure, it shall notify the Commission of the envisaged provisions as well as the grounds for introducing them. 6. The Commission shall, within six months of the notifications as referred to in paragraphs 4 and 5, approve or reject the national provisions involved after having verified whether or not they are a means of arbitrary discrimination or a disguised restriction on trade between Member States and whether or not they shall constitute an obstacle to the functioning of the internal market.

32  Part 1: European Union Legislation

7.

8.

9.

10.

In the absence of a decision by the Commission within this period the national provisions referred to in paragraphs 4 and 5 shall be deemed to have been approved. When justified by the complexity of the matter and in the absence of danger for human health, the Commission may notify the Member State concerned that the period referred to in this paragraph may be extended for a further period of up to six months. When, pursuant to paragraph 6, a Member State is authorised to maintain or introduce national provisions derogating from a harmonisation measure, the Commission shall immediately examine whether to propose an adaptation to that measure. When a Member State raises a specific problem on public health in a field which has been the subject of prior harmonisation measures, it shall bring it to the attention of the Commission which shall immediately examine whether to propose appropriate measures to the Council. By way of derogation from the procedure laid down in Articles 258 and 259, the Commission and any Member State may bring the matter directly before the Court of Justice of the European Union if it considers that another Member State is making improper use of the powers provided for in this Article. The harmonisation measures referred to above shall, in appropriate cases, include a safeguard clause authorising the Member States to take, for one or more of the non-economic reasons referred to in Article 36, provisional measures subject to a Union control procedure. Article 115 (ex Article 94 TEC)

Without prejudice to Article 114, the Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, issue directives for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market. Article 116 (ex Article 96 TEC) Where the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned. If such consultation does not result in an agreement eliminating the distortion in question, the European, Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted.

Treaty on the Functioning of the European Union 33 Article 117 (ex Article 97 TEC) 1. Where there is a reason to fear that the adoption or amendment of a provision laid down by law, regulation or administrative action may cause distortion within the meaning of Article 116, a Member State desiring to proceed therewith shall consult the Commission. After consulting the Member States, the Commission shall recommend to the States concerned such measures as may be appropriate to avoid the distortion in question. 2. If a State desiring to introduce or amend its own provisions does not comply with the recommendation addressed to it by the Commission, other Member States shall not be required, pursuant to Article 116, to amend their own provisions in order to eliminate such distortion. If the Member State which has ignored the recommendation of the Commission causes distortion detrimental only to itself, the provisions of Article 116 shall not apply. Article 118 In the context of the establishment and functioning of the internal market, the ­European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements. The Council, acting in accordance with a special legislative procedure, shall by means of regulations establish language arrangements for the European intellectual property rights. The Council shall act unanimously after consulting the European Parliament. … TITLE X SOCIAL POLICY Article 151 (ex Article 136 TEC) The Union and the Member States, having in mind fundamental social rights such as those set out in the European Social Charter signed at Turin on 18 October 1961 and in the 1989 Community Charter of the Fundamental Social Rights of Workers, shall have as their objectives the promotion of employment, improved living and working conditions, so as to make possible their harmonisation while the improvement is being maintained, proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion.

34  Part 1: European Union Legislation To this end the Union and the Member States shall implement measures which take account of the diverse forms of national practices, in particular in the field of contractual relations, and the need to maintain the competitiveness of the Union economy. They believe that such a development will ensue not only from the functioning of the internal market, which will favour the harmonisation of social systems, but also from the procedures provided for in the Treaties and from the approximation of provisions laid down by law, regulation or administrative action. Article 152 The Union recognises and promotes the role of the social partners at its level, taking into account the diversity of national systems. It shall facilitate dialogue between the social partners, respecting their autonomy. The Tripartite Social Summit for Growth and Employment shall contribute to social dialogue. Article 153 (ex Article 137 TEC) 1. With a view to achieving the objectives of Article 151, the Union shall support and complement the activities of the Member States in the following fields: (a) improvement in particular of the working environment to protect ­workers’ health and safety; (b) working conditions; (c) social security and social protection of workers; (d) protection of workers where their employment contract is terminated; (e) the information and consultation of workers; (f) representation and collective defence of the interests of workers and employers, including co-determination, subject to paragraph 5; (g) conditions of employment for third-country nationals legally residing in Union territory; (h) the integration of persons excluded from the labour market, without prejudice to Article 166; (i) equality between men and women with regard to labour market opportunities and treatment at work; (j) the combating of social exclusion; (k) the modernisation of social protection systems without prejudice to point (c). 2. To this end, the European Parliament and the Council: (a) may adopt measures designed to encourage cooperation between ­Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States;

Treaty on the Functioning of the European Union 35 (b) may adopt, in the fields referred to in paragraph 1(a) to (i), by means of directives, minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States. Such directives shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings. The European Parliament and the Council shall act in accordance with the ordinary legislative procedure after consulting the Economic and Social Committee and the Committee of the Regions. In the fields referred to in paragraph 1(c), (d), (f) and (g), the Council shall act unanimously, in accordance with a special legislative procedure, after consulting the European Parliament and the said Committees. The Council, acting unanimously on a proposal from the Commission, after consulting the European Parliament, may decide to render the ordinary legislative procedure applicable to paragraph 1(d), (f) and (g). 3. A Member State may entrust management and labour, at their joint request, with the implementation of directives adopted pursuant to paragraph 2, or, where appropriate, with the implementation of a Council decision adopted in accordance with Article 155. In this case, it shall ensure that, no later than the date on which a directive or a decision must be transposed or implemented, management and labour have introduced the necessary measures by agreement, the Member State concerned being required to take any necessary measure enabling it at any time to be in a position to guarantee the results imposed by that directive or that decision. 4. The provisions adopted pursuant to this Article: —— shall not affect the right of Member States to define the fundamental principles of their social security systems and must not significantly affect the financial equilibrium thereof, —— shall not prevent any Member State from maintaining or introducing more stringent protective measures compatible with the Treaties. 5. The provisions of this Article shall not apply to pay, the right of association, the right to strike or the right to impose lock-outs. Article 154 (ex Article 138 TEC) 1. The Commission shall have the task of promoting the consultation of management and labour at Union level and shall take any relevant measure to facilitate their dialogue by ensuring balanced support for the parties. 2. To this end, before submitting proposals in the social policy field, the Commission shall consult management and labour on the possible direction of Union action. 3. If, after such consultation, the Commission considers Union action advisable, it shall consult management and labour on the content of the envisaged ­proposal. Management and labour shall forward to the Commission an ­opinion or, where appropriate, a recommendation.

36  Part 1: European Union Legislation 4. On the occasion of the consultation referred to in paragraphs 2 and 3, management and labour may inform the Commission of their wish to initiate the process provided for in Article 155. The duration of this process shall not exceed nine months, unless the management and labour concerned and the Commission decide jointly to extend it. Article 155 (ex Article 139 TEC) 1. Should management and labour so desire, the dialogue between them at Union level may lead to contractual relations, including agreements. 2. Agreements concluded at Union level shall be implemented either in accordance with the procedures and practices specific to management and labour and the Member States or, in matters covered by Article 153, at the joint request of the signatory parties, by a Council decision on a proposal from the Commission. The European Parliament shall be informed. The Council shall act unanimously where the agreement in question contains one or more provisions relating to one of the areas for which unanimity is required pursuant to Article 153(2). Article 156 (ex Article 140 TEC) With a view to achieving the objectives of Article 151 and without prejudice to the other provisions of the Treaties, the Commission shall encourage cooperation between the Member States and facilitate the coordination of their action in all social policy fields under this Chapter, particularly in matters relating to: —— —— —— —— —— —— ——

employment, labour law and working conditions, basic and advanced vocational training, social security, prevention of occupational accidents and diseases, occupational hygiene, the right of association and collective bargaining between employers and ­workers.

To this end, the Commission shall act in close contact with Member States by making studies, delivering opinions and arranging consultations both on problems arising at national level and on those of concern to international organisations, in particular initiatives aiming at the establishment of guidelines and indicators, the organisation of exchange of best practice, and the preparation of the necessary elements for periodic monitoring and evaluation. The European Parliament shall be kept fully informed. Before delivering the opinions provided for in this Article, the Commission shall consult the Economic and Social Committee.

Treaty on the Functioning of the European Union 37 Article 157 (ex Article 141 TEC) 1. Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied. 2. For the purpose of this Article, “pay” means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer. Equal pay without discrimination based on sex means: (a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement; (b) that pay for work at time rates shall be the same for the same job. 3. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, and after consulting the Economic and Social Committee, shall adopt measures to ensure the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation, including the principle of equal pay for equal work or work of equal value. 4. With a view to ensuring full equality in practice between men and women in working life, the principle of equal treatment shall not prevent any Member State from maintaining or adopting measures providing for specific advantages in order to make it easier for the underrepresented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers. Article 158 (ex Article 142 TEC) Member States shall endeavour to maintain the existing equivalence between paid holiday schemes. Article 159 (ex Article 143 TEC) The Commission shall draw up a report each year on progress in achieving the objectives of Article 151, including the demographic situation in the Union. It shall forward the report to the European Parliament, the Council and the Economic and Social Committee. Article 160 (ex Article 144 TEC) The Council, acting by a simple majority after consulting the European P ­ arliament, shall establish a Social Protection Committee with advisory status to promote

38  Part 1: European Union Legislation c­ooperation on social protection policies between Member States and with the ­Commission. The tasks of the Committee shall be: —— to monitor the social situation and the development of social protection policies in the Member States and the Union, —— to promote exchanges of information, experience and good practice between Member States and with the Commission, —— without prejudice to Article 240, to prepare reports, formulate opinions or ­undertake other work within its fields of competence, at the request of either the Council or the Commission or on its own initiative. In fulfilling its mandate, the Committee shall establish appropriate contacts with management and labour. Each Member State and the Commission shall appoint two members of the Committee. Article 161 (ex Article 145 TEC) The Commission shall include a separate chapter on social developments within the Union in its annual report to the European Parliament. The European Parliament may invite the Commission to draw up reports on any particular problems concerning social conditions. … TITLE XIV PUBLIC HEALTH Article 168 (ex Article 152 TEC) 1. A high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities. Union action, which shall complement national policies, shall be directed towards improving public health, preventing physical and mental illness and diseases, and obviating sources of danger to physical and mental health. Such action shall cover the fight against the major health scourges, by promoting research into their causes, their transmission and their prevention, as well as health information and education, and monitoring, early warning of and combating serious cross-border threats to health. The Union shall complement the Member States’ action in reducing drugsrelated health damage, including information and prevention. 2. The Union shall encourage cooperation between the Member States in the areas referred to in this Article and, if necessary, lend support to their action. It shall in particular encourage cooperation between the Member States to improve the complementarity of their health services in cross-border areas.

Treaty on the Functioning of the European Union 39

3. 4.

5.

6. 7.

Member States shall, in liaison with the Commission, coordinate among themselves their policies and programmes in the areas referred to in paragraph 1. The Commission may, in close contact with the Member States, take any useful initiative to promote such coordination, in particular initiatives aiming at the establishment of guidelines and indicators, the organisation of exchange of best practice, and the preparation of the necessary elements for periodic monitoring and evaluation. The European Parliament shall be kept fully informed. The Union and the Member States shall foster cooperation with third countries and the competent international organisations in the sphere of public health. By way of derogation from Article 2(5) and Article 6(a) and in accordance with Article 4(2)(k) the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions, shall contribute to the achievement of the objectives referred to in this Article through adopting in order to meet common safety concerns: (a) measures setting high standards of quality and safety of organs and substances of human origin, blood and blood derivatives; these measures shall not prevent any Member State from maintaining or introducing more stringent protective measures; (b) measures in the veterinary and phytosanitary fields that have as their direct objective the protection of public health; (c) measures setting high standards of quality and safety for medicinal products and devices for medical use. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions, may also adopt incentive measures designed to protect and improve human health and in particular to combat the major cross-border health scourges, measures concerning monitoring, early warning of and combating serious cross-border threats to health, and measures which have as their direct objective the protection of public health regarding tobacco and the abuse of alcohol, excluding any harmonisation of the laws and regulations of the Member States. The Council, on a proposal from the Commission, may also adopt recommendations for the purposes set out in this Article. Union action shall respect the responsibilities of the Member States for the definition of their health policy and for the organisation and delivery of health services and medical care. The responsibilities of the Member States shall include the management of health services and medical care and the allocation of the resources assigned to them. The measures referred to in paragraph 4(a) shall not affect national provisions on the donation or medical use of organs and blood.

40  Part 1: European Union Legislation TITLE XV CONSUMER PROTECTION Article 169 (ex Article 153 TEC) 1. In order to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests. 2. The Union shall contribute to the attainment of the objectives referred to in paragraph 1 through: (a) measures adopted pursuant to Article 114 in the context of the completion of the internal market; (b) measures which support, supplement and monitor the policy pursued by the Member States. 3. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, shall adopt the measures referred to in paragraph 2(b). 4. Measures adopted pursuant to paragraph 3 shall not prevent any Member State from maintaining or introducing more stringent protective measures. Such measures must be compatible with the Treaties. The Commission shall be notified of them. … TITLE XVII INDUSTRY Article 173 (ex Article 157 TEC) 1. The Union and the Member States shall ensure that the conditions necessary for the competitiveness of the Union’s industry exist. For that purpose, in accordance with a system of open and competitive markets, their action shall be aimed at: —— speeding up the adjustment of industry to structural changes, —— encouraging an environment favourable to initiative and to the development of undertakings throughout the Union, particularly small and medium-sized undertakings, —— encouraging an environment favourable to cooperation between undertakings, —— fostering better exploitation of the industrial potential of policies of innovation, research and technological development.

Treaty on the Functioning of the European Union 41 2. The Member States shall consult each other in liaison with the Commission and, where necessary, shall coordinate their action. The Commission may take any useful initiative to promote such coordination, in particular initiatives aiming at the establishment of guidelines and indicators, the organisation of exchange of best practice, and the preparation of the necessary elements for periodic monitoring and evaluation. The European Parliament shall be kept fully informed. 3. The Union shall contribute to the achievement of the objectives set out in paragraph 1 through the policies and activities it pursues under other provisions of the Treaties. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, may decide on specific measures in support of action taken in the Member States to achieve the objectives set out in paragraph 1, excluding any harmonisation of the laws and regulations of the Member States. This Title shall not provide a basis for the introduction by the Union of any measure which could lead to a distortion of competition or contains tax provisions or provisions relating to the rights and interests of employed persons. … TITLE XX ENVIRONMENT Article 191 (ex Article 174 TEC) 1. Union policy on the environment shall contribute to pursuit of the following objectives: —— preserving, protecting and improving the quality of the environment, —— protecting human health, —— prudent and rational utilisation of natural resources, —— promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change. 2. Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay. In this context, harmonisation measures answering environmental protection requirements shall include, where appropriate, a safeguard clause allowing Member States to take provisional measures, for non-economic environmental reasons, subject to a procedure of inspection by the Union.

42  Part 1: European Union Legislation 3. In preparing its policy on the environment, the Union shall take account of: —— available scientific and technical data, —— environmental conditions in the various regions of the Union, —— the potential benefits and costs of action or lack of action, —— the economic and social development of the Union as a whole and the balanced development of its regions. 4. Within their respective spheres of competence, the Union and the Member States shall cooperate with third countries and with the competent international organisations. The arrangements for Union cooperation may be the subject of agreements between the Union and the third parties concerned. The previous subparagraph shall be without prejudice to Member States’ competence to negotiate in international bodies and to conclude international agreements. Article 192 (ex Article 175 TEC) 1. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions, shall decide what action is to be taken by the Union in order to achieve the objectives referred to in Article 191. 2. By way of derogation from the decision-making procedure provided for in paragraph 1 and without prejudice to Article 114, the Council acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament, the Economic and Social Committee and the Committee of the Regions, shall adopt: (a) provisions primarily of a fiscal nature; (b) measures affecting; — town and country planning, — quantitative management of water resources or affecting, directly or indirectly, the availability of those resources, — land use, with the exception of waste management; (c) measures significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply. The Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament, the Economic and Social Committee and the Committee of the Regions, may make the ordinary legislative procedure applicable to the matters referred to in the first subparagraph. 3. General action programmes setting out priority objectives to be attained shall be adopted by the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee and the Committee of the Regions. The measures necessary for the implementation of these programmes shall be adopted under the terms of paragraph 1 or 2, as the case may be.

Treaty on the Functioning of the European Union 43 4. Without prejudice to certain measures adopted by the Union, the Member States shall finance and implement the environment policy. 5. Without prejudice to the principle that the polluter should pay, if a measure based on the provisions of paragraph 1 involves costs deemed disproportionate for the public authorities of a Member State, such measure shall lay down appropriate provisions in the form of: —— temporary derogations, and/or —— financial support from the Cohesion Fund set up pursuant to Article 177. Article 193 (ex Article 176 TEC) The protective measures adopted pursuant to Article 192 shall not prevent any Member State from maintaining or introducing more stringent protective measures. Such measures must be compatible with the Treaties. They shall be notified to the Commission. … TITLE XXII TOURISM Article 195 1. The Union shall complement the action of the Member States in the tourism sector, in particular by promoting the competitiveness of Union undertakings in that sector. To that end, Union action shall be aimed at: (a) encouraging the creation of a favourable environment for the development of undertakings in this sector; (b) promoting cooperation between the Member States, particularly by the exchange of good practice. 2. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish specific measures to complement actions within the Member States to achieve the objectives referred to in this Article, excluding any harmonisation of the laws and regulations of the Member States.

Charter of Fundamental Rights PREAMBLE The peoples of Europe, in creating an ever closer union among them, are resolved to share a peaceful future based on common values. Conscious of its spiritual and moral heritage, the Union is founded on the indivisible, universal values of human dignity, freedom, equality and solidarity; it is based on the principles of democracy and the rule of law. It places the individual at the heart of its activities, by establishing the citizenship of the Union and by creating an area of freedom, security and justice. The Union contributes to the preservation and to the development of these common values while respecting the diversity of the cultures and traditions of the peoples of Europe as well as the national identities of the Member States and the organisation of their public authorities at national, regional and local levels; it seeks to promote balanced and sustainable development and ensures free movement of persons, goods, services and capital, and the freedom of establishment. To this end, it is necessary to strengthen the protection of fundamental rights in the light of changes in society, social progress and scientific and technological developments by making those rights more visible in a Charter. This Charter reaffirms, with due regard for the powers and tasks of the ­Community and the Union and the principle of subsidiarity, the rights as they result, in particular, from the constitutional traditions and international obligations common to the Member States, the Treaty on European Union, the Community Treaties, the ­European Convention for the Protection of Human Rights and Fundamental ­Freedoms, the Social Charters adopted by the Community and by the Council of Europe and the case-law of the Court of Justice of the European Communities and of the European Court of Human Rights. Enjoyment of these rights entails responsibilities and duties with regard to other persons, to the human community and to future generations. The Union therefore recognises the rights, freedoms and principles set out hereafter.

Charter of Fundamental Rights 45 CHAPTER I DIGNITY Article 1 Human dignity Human dignity is inviolable. It must be respected and protected. Article 2 Right to life 1. Everyone has the right to life. 2. No one shall be condemned to the death penalty, or executed. Article 3 Right to the integrity of the person 1. Everyone has the right to respect for his or her physical and mental integrity. 2. In the fields of medicine and biology, the following must be respected in particular: —— the free and informed consent of the person concerned, according to the procedures laid down by law, —— the prohibition of eugenic practices, in particular those aiming at the selection of persons, —— the prohibition on making the human body and its parts as such a source of financial gain, —— the prohibition of the reproductive cloning of human beings. Article 4 Prohibition of torture and inhuman or degrading treatment or punishment No one shall be subjected to torture or to inhuman or degrading treatment or punishment. Article 5 Prohibition of slavery and forced labour 1. No one shall be held in slavery or servitude. 2. No one shall be required to perform forced or compulsory labour. 3. Trafficking in human beings is prohibited.

46  Part I: European Union Legislation CHAPTER II FREEDOMS Article 6 Right to liberty and security Everyone has the right to liberty and security of person. Article 7 Respect for private and family life Everyone has the right to respect for his or her private and family life, home and communications. Article 8 Protection of personal data 1. Everyone has the right to the protection of personal data concerning him or her. 2. Such data must be processed fairly for specified purposes and on the basis of the consent of the person concerned or some other legitimate basis laid down by law. Everyone has the right of access to data which has been collected concerning him or her, and the right to have it rectified. 3. Compliance with these rules shall be subject to control by an independent authority. Article 9 Right to marry and right to found a family The right to marry and the right to found a family shall be guaranteed in accordance with the national laws governing the exercise of these rights. Article 10 Freedom of thought, conscience and religion 1. Everyone has the right to freedom of thought, conscience and religion. This right includes freedom to change religion or belief and freedom, either alone or in community with others and in public or in private, to manifest religion or belief, in worship, teaching, practice and observance. 2. The right to conscientious objection is recognised, in accordance with the national laws governing the exercise of this right.

Charter of Fundamental Rights 47 Article 11 Freedom of expression and information 1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. 2. The freedom and pluralism of the media shall be respected. Article 12 Freedom of assembly and of association 1. Everyone has the right to freedom of peaceful assembly and to freedom of association at all levels, particular in political, trade union and civic matters, which implies the right of everyone to form and join trade unions for the protection of his or her interests. 2. Political parties at Union level contribute to expressing the political will of the citizens of the Union. Article 13 Freedom of the arts and sciences The arts and scientific research shall be free of constraint. Academic freedom shall be respected. Article 14 Right to education 1. Everyone has the right to education and to have access to vocational and continuing training. 2. This right includes the possibility to receive free compulsory education. 3. The freedom to found educational establishments with due respect for democratic principles and the right of parents to ensure the education and teaching of their children in conformity with their religious, philosophical and pedagogical convictions shall be respected, in accordance with the national laws governing the exercise of such freedom and right. Article 15 Freedom to choose an occupation and right to engage in work 1. Everyone has the right to engage in work and to pursue a freely chosen or accepted occupation. 2. Every citizen of the Union has the freedom to seek employment, to work, to exercise the right of establishment and to provide services in any Member State. 3. Nationals of third countries who are authorised to work in the territories of the Member States are entitled to working conditions equivalent to those of citizens of the Union.

48  Part I: European Union Legislation Article 16 Freedom to conduct a business The freedom to conduct a business in accordance with Community law and national laws and practices is recognised. Article 17 Right to property 1. Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest. 2. Intellectual property shall be protected. Article 18 Right to asylum The right to asylum shall be guaranteed with due respect for the rules of the Geneva Convention of 28 July 1951 and the Protocol of 31 January 1967 relating to the status of refugees and in accordance with the Treaty establishing the European Community. Article 19 Protection in the event of removal, expulsion or extradition 1. Collective expulsions are prohibited. 2. No one may be removed, expelled or extradited to a State where there is a serious risk that he or she would be subjected to the death penalty, torture or other inhuman or degrading treatment or punishment. CHAPTER III EQUALITY Article 20 Equality before the law Everyone is equal before the law. Article 21 Non-discrimination 1. Any discrimination based on any ground such as sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation shall be prohibited.

Charter of Fundamental Rights 49 2. Within the scope of application of the Treaty establishing the European Community and of the Treaty on European Union, and without prejudice to the special provisions of those Treaties, any discrimination on grounds of nationality shall be prohibited. Article 22 Cultural, religious and linguistic diversity The Union shall respect cultural, religious and linguistic diversity. Article 23 Equality between men and women Equality between men and women must be ensured in all areas, including employment, work and pay. The principle of equality shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex. Article 24 The rights of the child 1. Children shall have the right to such protection and care as is necessary for their well-being. They may express their views freely. Such views shall be taken into consideration on matters which concern them in accordance with their age and maturity. 2. In all actions relating to children, whether taken by public authorities or private institutions, the child’s best interests must be a primary consideration. 3. Every child shall have the right to maintain on a regular basis a personal relationship and direct contact with both his or her parents, unless that is contrary to his or her interests. Article 25 The rights of the elderly The Union recognises and respects the rights of the elderly to lead a life of dignity and independence and to participate in social and cultural life. Article 26 Integration of persons with disabilities The Union recognises and respects the right of persons with disabilities to benefit from measures designed to ensure their independence, social and occupational integration and participation in the life of the community.

50  Part I: European Union Legislation CHAPTER IV SOLIDARITY Article 27 Workers’ right to information and consultation within the undertaking Workers or their representatives must, at the appropriate levels, be guaranteed information and consultation in good time in the cases and under the conditions provided for by Community law and national laws and practices. Article 28 Right of collective bargaining and action Workers and employers, or their respective organisations, have, in accordance with Community law and national laws and practices, the right to negotiate and conclude collective agreements at the appropriate levels and, in cases of conflicts of interest, to take collective action to defend their interests, including strike action. Article 29 Right of access to placement services Everyone has the right of access to a free placement service. Article 30 Protection in the event of unjustified dismissal Every worker has the right to protection against unjustified dismissal, in accordance with Community law and national laws and practices. Article 31 Fair and just working conditions 1. Every worker has the right to working conditions which respect his or her health, safety and dignity. 2. Every worker has the right to limitation of maximum working hours, to daily and weekly rest periods and to an annual period of paid leave. Article 32 Prohibition of child labour and protection of young people at work The employment of children is prohibited. The minimum age of admission to employment may not be lower than the minimum school-leaving age, without prejudice to such rules as may be more favourable to young people and except for limited derogations.

Charter of Fundamental Rights 51 Young people admitted to work must have working conditions appropriate to their age and be protected against economic exploitation and any work likely to harm their safety, health or physical, mental, moral or social development or to interfere with their education. Article 33 Family and professional life 1. The family shall enjoy legal, economic and social protection. 2. To reconcile family and professional life, everyone shall have the right to protection from dismissal for a reason connected with maternity and the right to paid maternity leave and to parental leave following the birth or adoption of a child. Article 34 Social security and social assistance 1. The Union recognises and respects the entitlement to social security benefits and social services providing protection in cases such as maternity, illness, industrial accidents, dependency or old age, and in the case of loss of employment, in accordance with the rules laid down by Community law and national laws and practices. 2. Everyone residing and moving legally within the European Union is entitled to social security benefits and social advantages in accordance with Community law and national laws and practices. 3. In order to combat social exclusion and poverty, the Union recognises and respects the right to social and housing assistance so as to ensure a decent existence for all those who lack sufficient resources, in accordance with the rules laid down by Community law and national laws and practices. Article 35 Health care Everyone has the right of access to preventive health care and the right to benefit from medical treatment under the conditions established by national laws and practices. A high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities. Article 36 Access to services of general economic interest The Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaty establishing the European Community, in order to promote the social and territorial cohesion of the Union.

52  Part I: European Union Legislation Article 37 Environmental protection A high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development. Article 38 Consumer protection Union policies shall ensure a high level of consumer protection. CHAPTER V CITIZENS’ RIGHTS Article 39 Right to vote and to stand as a candidate at elections to the European Parliament 1. Every citizen of the Union has the right to vote and to stand as a candidate at elections to the European Parliament in the Member State in which he or she resides, under the same conditions as nationals of that State. 2. Members of the European Parliament shall be elected by direct universal suffrage in a free and secret ballot. Article 40 Right to vote and to stand as a candidate at municipal elections Every citizen of the Union has the right to vote and to stand as a candidate at municipal elections in the Member State in which he or she resides under the same conditions as nationals of that State. Article 41 Right to good administration 1. Every person has the right to have his or her affairs handled impartially, fairly and within a reasonable time by the institutions and bodies of the Union. 2. This right includes: —— the right of every person to be heard, before any individual measure which would affect him or her adversely is taken; —— the right of every person to have access to his or her file, while respecting the legitimate interests of confidentiality and of professional and business secrecy; —— the obligation of the administration to give reasons for its decisions.

Charter of Fundamental Rights 53 3. Every person has the right to have the Community make good any damage caused by its institutions or by its servants in the performance of their duties, in accordance with the general principles common to the laws of the Member States. 4. Every person may write to the institutions of the Union in one of the languages of the Treaties and must have an answer in the same language. Article 42 Right of access to documents Any citizen of the Union, and any natural or legal person residing or having its registered office in a Member State, has a right of access to European Parliament, Council and Commission documents. Article 43 Ombudsman Any citizen of the Union and any natural or legal person residing or having its registered office in a Member State has the right to refer to the Ombudsman of the Union cases of maladministration in the activities of the Community institutions or bodies, with the exception of the Court of Justice and the Court of First Instance acting in their judicial role. Article 44 Right to petition Any citizen of the Union and any natural or legal person residing or having its registered office in a Member State has the right to petition the European Parliament. Article 45 Freedom of movement and of residence 1. Every citizen of the Union has the right to move and reside freely within the territory of the Member States. 2. Freedom of movement and residence may be granted, in accordance with the Treaty establishing the European Community, to nationals of third countries legally resident in the territory of a Member State. Article 46 Diplomatic and consular protection Every citizen of the Union shall, in the territory of a third country in which the ­Member State of which he or she is a national is not represented, be entitled to protection by the diplomatic or consular authorities of any Member State, on the same conditions as the nationals of that Member State.

54  Part I: European Union Legislation CHAPTER VI JUSTICE Article 47 Right to an effective remedy and to a fair trial Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article. Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law. Everyone shall have the possibility of being advised, defended and represented. Legal aid shall be made available to those who lack sufficient resources in so far as such aid is necessary to ensure effective access to justice. Article 48 Presumption of innocence and right of defence 1. Everyone who has been charged shall be presumed innocent until proved guilty according to law. 2. Respect for the rights of the defence of anyone who has been charged shall be guaranteed. Article 49 Principles of legality and proportionality of criminal offences and penalties 1. No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national law or international law at the time when it was committed. Nor shall a heavier penalty be imposed than that which was applicable at the time the criminal offence was committed. If, subsequent to the commission of a criminal offence, the law provides for a lighter penalty, that penalty shall be applicable. 2. This Article shall not prejudice the trial and punishment of any person for any act or omission which, at the time when it was committed, was criminal according to the general principles recognised by the community of nations. 3. The severity of penalties must not be disproportionate to the criminal offence. Article 50 Right not to be tried or punished twice in criminal proceedings for the same criminal offence No one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law.

Charter of Fundamental Rights 55 CHAPTER VII GENERAL PROVISIONS Article 51 Scope 1. The provisions of this Charter are addressed to the institutions and bodies of the Union with due regard for the principle of subsidiarity and to the Member States only when they are implementing Union law. They shall therefore respect the rights, observe the principles and promote the application thereof in accordance with their respective powers. 2. This Charter does not establish any new power or task for the Community or the Union, or modify powers and tasks defined by the Treaties. Article 52 Scope of guaranteed rights 1. Any limitation on the exercise of the rights and freedoms recognised by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others. 2. Rights recognised by this Charter which are based on the Community Treaties or the Treaty on European Union shall be exercised under the conditions and within the limits defined by those Treaties. 3. In so far as this Charter contains rights which correspond to rights guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms, the meaning and scope of those rights shall be the same as those laid down by the said Convention. This provision shall not prevent Union law providing more extensive protection. Article 53 Level of protection Nothing in this Charter shall be interpreted as restricting or adversely affecting human rights and fundamental freedoms as recognised, in their respective fields of application, by Union law and inter- national law and by international agreements to which the Union, the Community or all the Member States are party, including the European Convention for the Protection of Human Rights and Fundamental Freedoms, and by the Member States’ constitutions.

56  Part I: European Union Legislation Article 54 Prohibition of abuse of rights Nothing in this Charter shall be interpreted as implying any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms recognised in this Charter or at their limitation to a greater extent than is provided for herein.

Regulations

58

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (OJ 2008 L177 p.6) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 61(c) and the second indent of Article 67(5) thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) The Community has set itself the objective of maintaining and developing an area of freedom, security and justice. For the progressive establishment of such an area, the Community is to adopt measures relating to judicial cooperation in civil matters with a cross-border impact to the extent necessary for the proper functioning of the internal market. (2) According to Article 65, point (b) of the Treaty, these measures are to include those promoting the compatibility of the rules applicable in the Member States concerning the conflict of laws and of jurisdiction. (3) The European Council meeting in Tampere on 15 and 16 October 1999 endorsed the principle of mutual recognition of judgments and other decisions of judicial authorities as the cornerstone of judicial cooperation in civil matters and invited the Council and the Commission to adopt a programme of measures to implement that principle. (4) On 30 November 2000 the Council adopted a joint Commission and Council programme of measures for implementation of the principle of mutual recognition of decisions in civil and commercial matters (3). The programme identifies measures relating to the harmonisation of conflict-of-law rules as those facilitating the mutual recognition of judgments. (5) The Hague Programme (4), adopted by the European Council on 5 November­ 2004, called for work to be pursued actively on the conflict-of-law rules regarding contractual obligations (Rome I).

60  Part I: European Union Legislation (6) The proper functioning of the internal market creates a need, in order to improve the predictability of the outcome of litigation, certainty as to the law applicable and the free movement of judgments, for the conflict-of-law rules in the Member States to designate the same national law irrespective of the country of the court in which an action is brought. (7) The substantive scope and the provisions of this Regulation should be consistent with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (5) (Brussels I) and Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (6). (8) Family relationships should cover parentage, marriage, affinity and collateral relatives. The reference in Article 1(2) to relationships having comparable effects to marriage and other family relationships should be interpreted in accordance with the law of the Member State in which the court is seised. (9) Obligations under bills of exchange, cheques and promissory notes and other negotiable instruments should also cover bills of lading to the extent that the obligations under the bill of lading arise out of its negotiable character. (10) Obligations arising out of dealings prior to the conclusion of the contract are covered by Article 12 of Regulation (EC) No 864/2007. Such obligations should therefore be excluded from the scope of this Regulation. (11) The parties’ freedom to choose the applicable law should be one of the cornerstones of the system of conflict-of-law rules in matters of contractual obligations. (12) An agreement between the parties to confer on one or more courts or tribunals of a Member State exclusive jurisdiction to determine disputes under the contract should be one of the factors to be taken into account in determining whether a choice of law has been clearly demonstrated. (13) This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention. (14) Should the Community adopt, in an appropriate legal instrument, rules of substantive contract law, including standard terms and conditions, such instrument may provide that the parties may choose to apply those rules. (15) Where a choice of law is made and all other elements relevant to the situation are located in a country other than the country whose law has been chosen, the choice of law should not prejudice the application of provisions of the law of that country which cannot be derogated from by agreement. This rule should apply whether or not the choice of law was accompanied by a choice of court or tribunal. Whereas no substantial change is intended as compared with Article 3(3) of the 1980 Convention on the Law Applicable to Contractual Obligations (7) (the Rome Convention), the wording of this Regulation is aligned as far as possible with Article 14 of Regulation (EC) No 864/2007. (16) To contribute to the general objective of this Regulation, legal certainty in the European judicial area, the conflict-of-law rules should be highly

Regulation (EC) No 593/2008 61

(17)

(18)

(19)

(20)

(21)

(22)

foreseeable. The courts should, however, retain a degree of discretion to determine the law that is most closely connected to the situation. As far as the applicable law in the absence of choice is concerned, the concept of ‘provision of services’ and ‘sale of goods’ should be interpreted in the same way as when applying Article 5 of Regulation (EC) No 44/2001 in so far as sale of goods and provision of services are covered by that Regulation. Although franchise and distribution contracts are contracts for services, they are the subject of specific rules. As far as the applicable law in the absence of choice is concerned, multilateral systems should be those in which trading is conducted, such as regulated markets and multilateral trading facilities as referred to in Article 4 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (8), regardless of whether or not they rely on a central counterparty. Where there has been no choice of law, the applicable law should be determined in accordance with the rule specified for the particular type of contract. Where the contract cannot be categorised as being one of the specified types or where its elements fall within more than one of the specified types, it should be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence. In the case of a contract consisting of a bundle of rights and obligations capable of being categorised as falling within more than one of the specified types of contract, the characteristic performance of the contract should be determined having regard to its centre of gravity. Where the contract is manifestly more closely connected with a country other than that indicated in Article 4(1) or (2), an escape clause should provide that the law of that other country is to apply. In order to determine that country, account should be taken, inter alia, of whether the contract in question has a very close relationship with another contract or contracts. In the absence of choice, where the applicable law cannot be determined either on the basis of the fact that the contract can be categorised as one of the specified types or as being the law of the country of habitual residence of the party required to effect the characteristic performance of the contract, the contract should be governed by the law of the country with which it is most closely connected. In order to determine that country, account should be taken, inter alia, of whether the contract in question has a very close relationship with another contract or contracts. As regards the interpretation of contracts for the carriage of goods, no change in substance is intended with respect to Article 4(4), third sentence, of the Rome Convention. Consequently, single-voyage charter parties and other contracts the main purpose of which is the carriage of goods should be treated as contracts for the carriage of goods. For the purposes of this Regulation, the term ‘consignor’ should refer to any person who enters into a contract of carriage with the carrier and the term ‘the carrier’ should refer to the party to the contract who undertakes to carry the goods, whether or not he performs the carriage himself.

62  Part I: European Union Legislation (23) As regards contracts concluded with parties regarded as being weaker, those parties should be protected by conflict-of-law rules that are more favourable to their interests than the general rules. (24) With more specific reference to consumer contracts, the conflict-of-law rule should make it possible to cut the cost of settling disputes concerning what are commonly relatively small claims and to take account of the development of distance-selling techniques. Consistency with Regulation (EC) No 44/2001 requires both that there be a reference to the concept of directed activity as a condition for applying the consumer protection rule and that the concept be interpreted harmoniously in Regulation (EC) No 44/2001 and this Regulation, bearing in mind that a joint declaration by the Council and the Commission on Article 15 of Regulation (EC) No 44/2001 states that ‘for Article 15(1)(c) to be applicable it is not sufficient for an undertaking to target its activities at the Member State of the consumer’s residence, or at a number of Member States including that Member State; a contract must also be concluded within the framework of its activities’. The declaration also states that ‘the mere fact that an Internet site is accessible is not sufficient for Article 15 to be applicable, although a factor will be that this Internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. In this respect, the language or currency which a website uses does not constitute a relevant factor.’. (25) Consumers should be protected by such rules of the country of their habitual residence that cannot be derogated from by agreement, provided that the consumer contract has been concluded as a result of the professional pursuing his commercial or professional activities in that particular country. The same protection should be guaranteed if the professional, while not pursuing his commercial or professional activities in the country where the consumer has his habitual residence, directs his activities by any means to that country or to several countries, including that country, and the contract is concluded as a result of such activities. (26) For the purposes of this Regulation, financial services such as investment services and activities and ancillary services provided by a professional to a consumer, as referred to in sections A and B of Annex I to Directive 2004/39/EC, and contracts for the sale of units in collective investment undertakings, whether or not covered by Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (9), should be subject to Article 6 of this Regulation. Consequently, when a reference is made to terms and conditions governing the issuance or offer to the public of transferable securities or to the subscription and redemption of units in collective investment undertakings, that reference should include all aspects binding the issuer or the offeror to the consumer, but should not include those aspects involving the provision of financial services.

Regulation (EC) No 593/2008 63 (27) Various exceptions should be made to the general conflict-of-law rule for consumer contracts. Under one such exception the general rule should not apply to contracts relating to rights in rem in immovable property or tenancies of such property unless the contract relates to the right to use immovable property on a timeshare basis within the meaning of Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis (10). (28) It is important to ensure that rights and obligations which constitute a financial instrument are not covered by the general rule applicable to consumer contracts, as that could lead to different laws being applicable to each of the instruments issued, therefore changing their nature and preventing their fungible trading and offering. Likewise, whenever such instruments are issued or offered, the contractual relationship established between the issuer or the offeror and the consumer should not necessarily be subject to the mandatory application of the law of the country of habitual residence of the consumer, as there is a need to ensure uniformity in the terms and conditions of an issuance or an offer. The same rationale should apply with regard to the multilateral systems covered by Article 4(1)(h), in respect of which it should be ensured that the law of the country of habitual residence of the consumer will not interfere with the rules applicable to contracts concluded within those systems or with the operator of such systems. (29) For the purposes of this Regulation, references to rights and obligations constituting the terms and conditions governing the issuance, offers to the public or public take-over bids of transferable securities and references to the subscription and redemption of units in collective investment undertakings should include the terms governing, inter alia, the allocation of securities or units, rights in the event of over-subscription, withdrawal rights and similar matters in the context of the offer as well as those matters referred to in Articles 10, 11, 12 and 13, thus ensuring that all relevant contractual aspects of an offer binding the issuer or the offeror to the consumer are governed by a single law. (30) For the purposes of this Regulation, financial instruments and transferable securities are those instruments referred to in Article 4 of Directive 2004/39/EC. (31) Nothing in this Regulation should prejudice the operation of a formal arrangement designated as a system under Article 2(a) of Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (11). (32) Owing to the particular nature of contracts of carriage and insurance contracts, specific provisions should ensure an adequate level of protection of passengers and policy holders. Therefore, Article 6 should not apply in the context of those particular contracts. (33) Where an insurance contract not covering a large risk covers more than one risk, at least one of which is situated in a Member State and at least one of

64  Part I: European Union Legislation

(34)

(35) (36)

(37)

(38)

(39)

(40)

which is situated in a third country, the special rules on insurance contracts in this Regulation should apply only to the risk or risks situated in the relevant Member State or Member States. The rule on individual employment contracts should not prejudice the application of the overriding mandatory provisions of the country to which a worker is posted in accordance with Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services (12). Employees should not be deprived of the protection afforded to them by provisions which cannot be derogated from by agreement or which can only be derogated from to their benefit. As regards individual employment contracts, work carried out in another country should be regarded as temporary if the employee is expected to resume working in the country of origin after carrying out his tasks abroad. The conclusion of a new contract of employment with the original employer or an employer belonging to the same group of companies as the original employer should not preclude the employee from being regarded as carrying out his work in another country temporarily. Considerations of public interest justify giving the courts of the Member States the possibility, in exceptional circumstances, of applying exceptions based on public policy and overriding mandatory provisions. The concept of ‘overriding mandatory provisions’ should be distinguished from the expression ‘provisions which cannot be derogated from by agreement’ and should be construed more restrictively. In the context of voluntary assignment, the term ‘relationship’ should make it clear that Article 14(1) also applies to the property aspects of an assignment, as between assignor and assignee, in legal orders where such aspects are treated separately from the aspects under the law of obligations. However, the term ‘relationship’ should not be understood as relating to any relationship that may exist between assignor and assignee. In particular, it should not cover preliminary questions as regards a voluntary assignment or a contractual subrogation. The term should be strictly limited to the aspects which are directly relevant to the voluntary assignment or contractual subrogation in question. For the sake of legal certainty there should be a clear definition of habitual residence, in particular for companies and other bodies, corporate or unincorporated. Unlike Article 60(1) of Regulation (EC) No 44/2001, which establishes three criteria, the conflict-of-law rule should proceed on the basis of a single criterion; otherwise, the parties would be unable to foresee the law applicable to their situation. A situation where conflict-of-law rules are dispersed among several instruments and where there are differences between those rules should be avoided. This Regulation, however, should not exclude the possibility of inclusion of conflict-of-law rules relating to contractual obligations in provisions of Community law with regard to particular matters.

Regulation (EC) No 593/2008 65

(41)

(42)

(43)

(44)

(45)

(46)

This Regulation should not prejudice the application of other instruments laying down provisions designed to contribute to the proper functioning of the internal market in so far as they cannot be applied in conjunction with the law designated by the rules of this Regulation. The application of provisions of the applicable law designated by the rules of this Regulation should not restrict the free movement of goods and services as regulated by Community instruments, such as Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce) (13). Respect for international commitments entered into by the Member States means that this Regulation should not affect international conventions to which one or more Member States are parties at the time when this Regulation is adopted. To make the rules more accessible, the Commission should publish the list of the relevant conventions in the Official Journal of the European Union on the basis of information supplied by the Member States. The Commission will make a proposal to the European Parliament and to the Council concerning the procedures and conditions according to which Member States would be entitled to negotiate and conclude, on their own behalf, agreements with third countries in individual and exceptional cases, concerning sectoral matters and containing provisions on the law applicable to contractual obligations. Since the objective of this Regulation cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and effects of this Regulation, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary to attain its objective. In accordance with Article 3 of the Protocol on the position of the United Kingdom and Ireland, annexed to the Treaty on European Union and to the Treaty establishing the European Community, Ireland has notified its wish to take part in the adoption and application of the present Regulation. In accordance with Articles 1 and 2 of the Protocol on the position of the United Kingdom and Ireland, annexed to the Treaty on European Union and to the Treaty establishing the European Community, and without prejudice to Article 4 of the said Protocol, the United Kingdom is not taking part in the adoption of this Regulation and is not bound by it or subject to its application. In accordance with Articles 1 and 2 of the Protocol on the position of Denmark, annexed to the Treaty on European Union and to the Treaty establishing the European Community, Denmark is not taking part in the adoption of this Regulation and is not bound by it or subject to its application,

66  Part I: European Union Legislation HAVE ADOPTED THIS REGULATION: CHAPTER I SCOPE Article 1 Material scope 1. This Regulation shall apply, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters. It shall not apply, in particular, to revenue, customs or administrative matters. 2. The following shall be excluded from the scope of this Regulation: (a) questions involving the status or legal capacity of natural persons, without prejudice to Article 13; (b) obligations arising out of family relationships and relationships deemed by the law applicable to such relationships to have comparable effects, including maintenance obligations; (c) obligations arising out of matrimonial property regimes, property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage, and wills and succession; (d) obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character; (e) arbitration agreements and agreements on the choice of court; (f) questions governed by the law of companies and other bodies, corporate or unincorporated, such as the creation, by registration or otherwise, legal capacity, internal organisation or winding-up of companies and other bodies, corporate or unincorporated, and the personal liability of officers and members as such for the obligations of the company or body; (g) the question whether an agent is able to bind a principal, or an organ to bind a company or other body corporate or unincorporated, in relation to a third party; (h) the constitution of trusts and the relationship between settlors, trustees and beneficiaries; (i) obligations arising out of dealings prior to the conclusion of a contract; (j) insurance contracts arising out of operations carried out by organisations other than undertakings referred to in Article 2 of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance (14) the object of which is to provide benefits for employed or self-employed persons belonging to an undertaking or group of undertakings, or to a trade or group of trades, in the event of death or survival or of discontinuance or curtailment of activity, or of sickness related to work or accidents at work.

Regulation (EC) No 593/2008 67 3. This Regulation shall not apply to evidence and procedure, without prejudice to Article 18. 4. In this Regulation, the term ‘Member State’ shall mean Member States to which this Regulation applies. However, in Article 3(4) and Article 7 the term shall mean all the Member States. Article 2 Universal application Any law specified by this Regulation shall be applied whether or not it is the law of a Member State. CHAPTER II UNIFORM RULES Article 3 Freedom of choice 1. A contract shall be governed by the law chosen by the parties. The choice shall be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or to part only of the contract. 2. The parties may at any time agree to subject the contract to a law other than that which previously governed it, whether as a result of an earlier choice made under this Article or of other provisions of this Regulation. Any change in the law to be applied that is made after the conclusion of the contract shall not prejudice its formal validity under Article 11 or adversely affect the rights of third parties. 3. Where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. 4. Where all other elements relevant to the situation at the time of the choice are located in one or more Member States, the parties’ choice of applicable law other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement. 5. The existence and validity of the consent of the parties as to the choice of the applicable law shall be determined in accordance with the provisions of ­Articles 10, 11 and 13.

68  Part I: European Union Legislation Article 4 Applicable law in the absence of choice 1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3 and without prejudice to Articles 5 to 8, the law governing the contract shall be determined as follows: (a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence; (b) a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence; (c) a contract relating to a right in rem in immovable property or to a tenancy of immovable property shall be governed by the law of the country where the property is situated; (d) notwithstanding point (c), a tenancy of immovable property concluded for temporary private use for a period of no more than six consecutive months shall be governed by the law of the country where the landlord has his habitual residence, provided that the tenant is a natural person and has his habitual residence in the same country; (e) a franchise contract shall be governed by the law of the country where the franchisee has his habitual residence; (f) a distribution contract shall be governed by the law of the country where the distributor has his habitual residence; (g) a contract for the sale of goods by auction shall be governed by the law of the country where the auction takes place, if such a place can be determined; (h) a contract concluded within a multilateral system which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments, as defined by Article 4(1), point (17) of Directive 2004/39/EC, in accordance with non-discretionary rules and governed by a single law, shall be governed by that law. 2. Where the contract is not covered by paragraph 1 or where the elements of the contract would be covered by more than one of points (a) to (h) of ­paragraph 1, the contract shall be governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence. 3. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. 4. Where the law applicable cannot be determined pursuant to paragraphs 1 or 2, the contract shall be governed by the law of the country with which it is most closely connected. Article 5 Contracts of carriage 1. To the extent that the law applicable to a contract for the carriage of goods has not been chosen in accordance with Article 3, the law applicable shall

Regulation (EC) No 593/2008 69 be the law of the country of habitual residence of the carrier, provided that the place of receipt or the place of delivery or the habitual residence of the consignor is also situated in that country. If those requirements are not met, the law of the country where the place of delivery as agreed by the parties is situated shall apply. 2. To the extent that the law applicable to a contract for the carriage of passengers has not been chosen by the parties in accordance with the second subparagraph, the law applicable shall be the law of the country where the passenger has his habitual residence, provided that either the place of departure or the place of destination is situated in that country. If these requirements are not met, the law of the country where the carrier has his habitual residence shall apply. The parties may choose as the law applicable to a contract for the carriage of passengers in accordance with Article 3 only the law of the country where: (a) the passenger has his habitual residence; or (b) the carrier has his habitual residence; or (c) the carrier has his place of central administration; or (d) the place of departure is situated; or (e) the place of destination is situated. 3. Where it is clear from all the circumstances of the case that the contract, in the absence of a choice of law, is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. Article 6 Consumer contracts 1. Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional) shall be governed by the law of the country where the consumer has his habitual residence, provided that the professional: (a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or (b) by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities. 2. Notwithstanding paragraph 1, the parties may choose the law applicable to a contract which fulfils the requirements of paragraph 1, in accordance with Article 3. Such a choice may not, however, have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable on the basis of paragraph 1. 3. If the requirements in points (a) or (b) of paragraph 1 are not fulfilled, the law applicable to a contract between a consumer and a professional shall be determined pursuant to Articles 3 and 4.

70  Part I: European Union Legislation 4. Paragraphs 1 and 2 shall not apply to: (a) a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence; (b) a contract of carriage other than a contract relating to package travel within the meaning of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (15); (c) a contract relating to a right in rem in immovable property or a tenancy of immovable property other than a contract relating to the right to use immovable properties on a timeshare basis within the meaning of Directive 94/47/EC; (d) rights and obligations which constitute a financial instrument and rights and obligations constituting the terms and conditions governing the issuance or offer to the public and public take-over bids of transferable securities, and the subscription and redemption of units in collective investment undertakings in so far as these activities do not constitute provision of a financial service; (e) a contract concluded within the type of system falling within the scope of Article 4(1)(h). Article 7 Insurance contracts 1. This Article shall apply to contracts referred to in paragraph 2, whether or not the risk covered is situated in a Member State, and to all other insurance contracts covering risks situated inside the territory of the Member States. It shall not apply to reinsurance contracts. 2. An insurance contract covering a large risk as defined in Article 5(d) of the First Council Directive 73/239/EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance (16) shall be governed by the law chosen by the parties in accordance with Article 3 of this Regulation. To the extent that the applicable law has not been chosen by the parties, the insurance contract shall be governed by the law of the country where the insurer has his habitual residence. Where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country, the law of that other country shall apply. 3. In the case of an insurance contract other than a contract falling within ­paragraph 2, only the following laws may be chosen by the parties in accordance with Article 3: (a) the law of any Member State where the risk is situated at the time of conclusion of the contract; (b) the law of the country where the policy holder has his habitual residence; (c) in the case of life assurance, the law of the Member State of which the policy holder is a national;

Regulation (EC) No 593/2008 71 (d) for insurance contracts covering risks limited to events occurring in one Member State other than the Member State where the risk is situated, the law of that Member State; (e) where the policy holder of a contract falling under this paragraph pursues a commercial or industrial activity or a liberal profession and the insurance contract covers two or more risks which relate to those activities and are situated in different Member States, the law of any of the Member States concerned or the law of the country of habitual residence of the policy holder. Where, in the cases set out in points (a), (b) or (e), the Member States referred to grant greater freedom of choice of the law applicable to the insurance contract, the parties may take advantage of that freedom. To the extent that the law applicable has not been chosen by the parties in accordance with this paragraph, such a contract shall be governed by the law of the Member State in which the risk is situated at the time of conclusion of the contract. 4. The following additional rules shall apply to insurance contracts covering risks for which a Member State imposes an obligation to take out insurance: (a) the insurance contract shall not satisfy the obligation to take out insurance unless it complies with the specific provisions relating to that insurance laid down by the Member State that imposes the obligation. Where the law of the Member State in which the risk is situated and the law of the Member State imposing the obligation to take out insurance contradict each other, the latter shall prevail; (b) by way of derogation from paragraphs 2 and 3, a Member State may lay down that the insurance contract shall be governed by the law of the Member State that imposes the obligation to take out insurance. 5. For the purposes of paragraph 3, third subparagraph, and paragraph 4, where the contract covers risks situated in more than one Member State, the contract shall be considered as constituting several contracts each relating to only one Member State. 6. For the purposes of this Article, the country in which the risk is situated shall be determined in accordance with Article 2(d) of the Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services (17) and, in the case of life assurance, the country in which the risk is situated shall be the country of the commitment within the meaning of Article 1(1)(g) of Directive 2002/83/EC. Article 8 Individual employment contracts 1. An individual employment contract shall be governed by the law chosen by the parties in accordance with Article 3. Such a choice of law may not, however, have the result of depriving the employee of the protection afforded to

72  Part I: European Union Legislation him by provisions that cannot be derogated from by agreement under the law that, in the absence of choice, would have been applicable pursuant to ­paragraphs 2, 3 and 4 of this Article. 2. To the extent that the law applicable to the individual employment contract has not been chosen by the parties, the contract shall be governed by the law of the country in which or, failing that, from which the employee habitually carries out his work in performance of the contract. The country where the work is habitually carried out shall not be deemed to have changed if he is temporarily employed in another country. 3. Where the law applicable cannot be determined pursuant to paragraph 2, the contract shall be governed by the law of the country where the place of business through which the employee was engaged is situated. 4. Where it appears from the circumstances as a whole that the contract is more closely connected with a country other than that indicated in p ­ aragraphs 2 or 3, the law of that other country shall apply. Article 9 Overriding mandatory provisions 1. Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation. 2. Nothing in this Regulation shall restrict the application of the overriding mandatory provisions of the law of the forum. 3. Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful. In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application. Article 10 Consent and material validity 1. The existence and validity of a contract, or of any term of a contract, shall be determined by the law which would govern it under this Regulation if the contract or term were valid. 2. Nevertheless, a party, in order to establish that he did not consent, may rely upon the law of the country in which he has his habitual residence if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1.

Regulation (EC) No 593/2008 73 Article 11 Formal validity 1. A contract concluded between persons who, or whose agents, are in the same country at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it in substance under this Regulation or of the law of the country where it is concluded. 2. A contract concluded between persons who, or whose agents, are in different countries at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it in substance under this Regulation, or of the law of either of the countries where either of the parties or their agent is present at the time of conclusion, or of the law of the country where either of the parties had his habitual residence at that time. 3. A unilateral act intended to have legal effect relating to an existing or contemplated contract is formally valid if it satisfies the formal requirements of the law which governs or would govern the contract in substance under this Regulation, or of the law of the country where the act was done, or of the law of the country where the person by whom it was done had his habitual residence at that time. 4. Paragraphs 1, 2 and 3 of this Article shall not apply to contracts that fall within the scope of Article 6. The form of such contracts shall be governed by the law of the country where the consumer has his habitual residence. 5. Notwithstanding paragraphs 1 to 4, a contract the subject matter of which is a right in rem in immovable property or a tenancy of immovable property shall be subject to the requirements of form of the law of the country where the property is situated if by that law: (a) those requirements are imposed irrespective of the country where the ­ contract is concluded and irrespective of the law governing the contract; and (b) those requirements cannot be derogated from by agreement. Article 12 Scope of the law applicable 1. The law applicable to a contract by virtue of this Regulation shall govern in particular: (a) interpretation; (b) performance; (c) within the limits of the powers conferred on the court by its procedural law, the consequences of a total or partial breach of obligations, including the assessment of damages in so far as it is governed by rules of law; (d) the various ways of extinguishing obligations, and prescription and limitation of actions; (e) the consequences of nullity of the contract. 2. In relation to the manner of performance and the steps to be taken in the event of defective performance, regard shall be had to the law of the country in which performance takes place.

74  Part I: European Union Legislation Article 13 Incapacity In a contract concluded between persons who are in the same country, a natural person who would have capacity under the law of that country may invoke his incapacity resulting from the law of another country, only if the other party to the contract was aware of that incapacity at the time of the conclusion of the contract or was not aware thereof as a result of negligence. Article 14 Voluntary assignment and contractual subrogation 1. The relationship between assignor and assignee under a voluntary assignment or contractual subrogation of a claim against another person (the debtor) shall be governed by the law that applies to the contract between the assignor and assignee under this Regulation. 2. The law governing the assigned or subrogated claim shall determine its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment or subrogation can be invoked against the debtor and whether the debtor’s obligations have been discharged. 3. The concept of assignment in this Article includes outright transfers of claims, transfers of claims by way of security and pledges or other security rights over claims. Article 15 Legal subrogation Where a person (the creditor) has a contractual claim against another (the debtor) and a third person has a duty to satisfy the creditor, or has in fact satisfied the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether and to what extent the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship. Article 16 Multiple liability If a creditor has a claim against several debtors who are liable for the same claim, and one of the debtors has already satisfied the claim in whole or in part, the law governing the debtor’s obligation towards the creditor also governs the debtor’s right to claim recourse from the other debtors. The other debtors may rely on the defences they had against the creditor to the extent allowed by the law governing their obligations towards the creditor.

Regulation (EC) No 593/2008 75 Article 17 Set-off Where the right to set-off is not agreed by the parties, set-off shall be governed by the law applicable to the claim against which the right to set-off is asserted. Article 18 Burden of proof 1. The law governing a contractual obligation under this Regulation shall apply to the extent that, in matters of contractual obligations, it contains rules which raise presumptions of law or determine the burden of proof. 2. A contract or an act intended to have legal effect may be proved by any mode of proof recognised by the law of the forum or by any of the laws referred to in Article 11 under which that contract or act is formally valid, provided that such mode of proof can be administered by the forum. CHAPTER III OTHER PROVISIONS Article 19 Habitual residence 1. For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration. The habitual residence of a natural person acting in the course of his business activity shall be his principal place of business. 2. Where the contract is concluded in the course of the operations of a branch, agency or any other establishment, or if, under the contract, performance is the responsibility of such a branch, agency or establishment, the place where the branch, agency or any other establishment is located shall be treated as the place of habitual residence. 3. For the purposes of determining the habitual residence, the relevant point in time shall be the time of the conclusion of the contract. Article 20 Exclusion of renvoi The application of the law of any country specified by this Regulation means the application of the rules of law in force in that country other than its rules of private international law, unless provided otherwise in this Regulation.

76  Part I: European Union Legislation Article 21 Public policy of the forum The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum. Article 22 States with more than one legal system 1. Where a State comprises several territorial units, each of which has its own rules of law in respect of contractual obligations, each territorial unit shall be considered as a country for the purposes of identifying the law applicable under this Regulation. 2. A Member State where different territorial units have their own rules of law in respect of contractual obligations shall not be required to apply this Regulation to conflicts solely between the laws of such units. Article 23 Relationship with other provisions of Community law With the exception of Article 7, this Regulation shall not prejudice the application of provisions of Community law which, in relation to particular matters, lay down conflict-of-law rules relating to contractual obligations. Article 24 Relationship with the Rome Convention 1. This Regulation shall replace the Rome Convention in the Member States, except as regards the territories of the Member States which fall within the territorial scope of that Convention and to which this Regulation does not apply pursuant to Article 299 of the Treaty. 2. In so far as this Regulation replaces the provisions of the Rome Convention, any reference to that Convention shall be understood as a reference to this Regulation. Article 25 Relationship with existing international conventions 1. This Regulation shall not prejudice the application of international conventions to which one or more Member States are parties at the time when this Regulation is adopted and which lay down conflict-of-law rules relating to contractual obligations. 2. However, this Regulation shall, as between Member States, take precedence over conventions concluded exclusively between two or more of them in so far as such conventions concern matters governed by this Regulation.

Regulation (EC) No 593/2008 77 Article 26 List of Conventions 1. By 17 June 2009, Member States shall notify the Commission of the conventions referred to in Article 25(1). After that date, Member States shall notify the Commission of all denunciations of such conventions. 2. Within six months of receipt of the notifications referred to in paragraph 1, the Commission shall publish in the Official Journal of the European Union: (a) a list of the conventions referred to in paragraph 1; (b) the denunciations referred to in paragraph 1. Article 27 Review clause 1. By 17 June 2013, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation. If appropriate, the report shall be accompanied by proposals to amend this Regulation. The report shall include: (a) a study on the law applicable to insurance contracts and an assessment of the impact of the provisions to be introduced, if any; and (b) an evaluation on the application of Article 6, in particular as regards the coherence of Community law in the field of consumer protection. 2. By 17 June 2010, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a report on the question of the effectiveness of an assignment or subrogation of a claim against third parties and the priority of the assigned or subrogated claim over a right of another person. The report shall be accompanied, if appropriate, by a proposal to amend this Regulation and an assessment of the impact of the provisions to be introduced. Article 28 Application in time This Regulation shall apply to contracts concluded after 17 December 2009. CHAPTER IV FINAL PROVISIONS Article 29 Entry into force and application This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union. It shall apply from 17 December 2009 except for Article 26 which shall apply from 17 June 2009.

78  Part I: European Union Legislation This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaty establishing the European Community. (1)

OJ C318, 23.12.2006, p. 56. of the European Parliament of 29 November 2007 (not yet published in the Official Journal) and Council Decision of 5 June 2008. (3) OJ C12, 15.1.2001, p. 1. (4) OJ C53, 3.3.2005, p. 1. (5)  OJ L12, 16.1.2001, p. 1. Regulation as last amended by Regulation (EC) No 1791/2006 (OJ L363, 20.12.2006, p. 1). (6) OJ L199, 31.7.2007, p. 40. (7) OJ C334, 30.12.2005, p. 1. (8) OJ L145, 30.4.2004, p. 1. Directive as last amended by Directive 2008/10/EC (OJ L76, 19.3.2008, p.33). (9) OJ L375, 31.12.1985, p. 3. Directive as last amended by Directive 2008/18/EC of the European Parliament and of the Council (OJ L76, 19.3.2008, p.42). (10) OJ L280, 29.10.1994, p. 83. (11) OJ L166, 11.6.1998, p. 45. (12) OJ L18, 21.1.1997, p. 1. (13) OJ L178, 17.7.2000, p. 1. (14) OJ L345, 19.12.2002, p. 1. Directive as last amended by Directive 2008/19/EC (OJ L76, 19.3.2008, p.44). (15) OJ L158, 23.6.1990, p. 59. (16) OJ L228, 16.8.1973, p. 3. Directive as last amended by Directive 2005/68/EC of the European Parliament and of the Council (OJ L323, 9.12.2005, p.1). (17) OJ L172, 4.7.1988, p. 1. Directive as last amended by Directive 2005/14/EC of the European Parliament and of the Council (OJ L149, 11.6.2005, p.14). (2) Opinion

Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (OJ 2007 L199 p. 40) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Articles 61(c) and 67 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty in the light of the joint text approved by the Conciliation Committee on 25 June 2007 (2),

Whereas: (1) The Community has set itself the objective of maintaining and developing an area of freedom, security and justice. For the progressive establishment of such an area, the Community is to adopt measures relating to judicial cooperation in civil matters with a cross-border impact to the extent necessary for the proper functioning of the internal market. (2) According to Article 65(b) of the Treaty, these measures are to include those promoting the compatibility of the rules applicable in the Member States concerning the conflict of laws and of jurisdiction. (3) The European Council meeting in Tampere on 15 and 16 October 1999 endorsed the principle of mutual recognition of judgments and other decisions of judicial authorities as the cornerstone of judicial cooperation in civil matters and invited the Council and the Commission to adopt a programme of measures to implement the principle of mutual recognition. (4) On 30 November 2000, the Council adopted a joint Commission and Council programme of measures for implementation of the principle of mutual recognition of decisions in civil and commercial matters (3). The programme identifies measures relating to the harmonisation of conflict-of-law rules as those facilitating the mutual recognition of judgments.

80  Part I: European Union Legislation (5) The Hague Programme (4), adopted by the European Council on 5 November­2004, called for work to be pursued actively on the rules of conflict of laws regarding non-contractual obligations (Rome II). (6) The proper functioning of the internal market creates a need, in order to improve the predictability of the outcome of litigation, certainty as to the law applicable and the free movement of judgments, for the conflict-of-law rules in the Member States to designate the same national law irrespective of the country of the court in which an action is brought. (7) The substantive scope and the provisions of this Regulation should be consistent with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (5) (Brussels I) and the instruments dealing with the law applicable to contractual obligations. (8) This Regulation should apply irrespective of the nature of the court or tribunal seised. (9) Claims arising out of acta iure imperii should include claims against officials who act on behalf of the State and liability for acts of public authorities, including liability of publicly appointed office-holders. Therefore, these matters should be excluded from the scope of this Regulation. (10) Family relationships should cover parentage, marriage, affinity and collateral relatives. The reference in Article 1(2) to relationships having comparable effects to marriage and other family relationships should be interpreted in accordance with the law of the Member State in which the court is seised. (11) The concept of a non-contractual obligation varies from one Member State to another. Therefore for the purposes of this Regulation non-contractual obligation should be understood as an autonomous concept. The conflictof-law rules set out in this Regulation should also cover non-contractual obligations arising out of strict liability. (12) The law applicable should also govern the question of the capacity to incur liability in tort/delict. (13) Uniform rules applied irrespective of the law they designate may avert the risk of distortions of competition between Community litigants. (14) The requirement of legal certainty and the need to do justice in individual cases are essential elements of an area of justice. This Regulation provides for the connecting factors which are the most appropriate to achieve these objectives. Therefore, this Regulation provides for a general rule but also for specific rules and, in certain provisions, for an ‘escape clause’ which allows a departure from these rules where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country. This set of rules thus creates a flexible framework of conflict-of-law rules. Equally, it enables the court seised to treat individual cases in an appropriate manner. (15) The principle of the lex loci delicti commissi is the basic solution for noncontractual obligations in virtually all the Member States, but the practical application of the principle where the component factors of the case are

Regulation (EC) No 864/2007 81

(16)

(17)

(18)

(19) (20)

(21)

(22)

spread over several countries varies. This situation engenders uncertainty as to the law applicable. Uniform rules should enhance the foreseeability of court decisions and ensure a reasonable balance between the interests of the person claimed to be liable and the person who has sustained damage. A connection with the country where the direct damage occurred (lex loci damni) strikes a fair balance between the interests of the person claimed to be liable and the person sustaining the damage, and also reflects the modern approach to civil liability and the development of systems of strict liability. The law applicable should be determined on the basis of where the damage occurs, regardless of the country or countries in which the indirect consequences could occur. Accordingly, in cases of personal injury or damage to property, the country in which the damage occurs should be the country where the injury was sustained or the property was damaged respectively. The general rule in this Regulation should be the lex loci damni provided for in Article 4(1). Article 4(2) should be seen as an exception to this general principle, creating a special connection where the parties have their habitual residence in the same country. Article 4(3) should be understood as an ‘escape clause’ from Article 4(1) and (2), where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with another country. Specific rules should be laid down for special torts/delicts where the general rule does not allow a reasonable balance to be struck between the interests at stake. The conflict-of-law rule in matters of product liability should meet the objectives of fairly spreading the risks inherent in a modern high-technology­ society, protecting consumers’ health, stimulating innovation, securing undistorted competition and facilitating trade. Creation of a cascade system of connecting factors, together with a foreseeability clause, is a balanced solution in regard to these objectives. The first element to be taken into account is the law of the country in which the person sustaining the damage had his or her habitual residence when the damage occurred, if the product was marketed in that country. The other elements of the cascade are triggered if the product was not marketed in that country, without prejudice to Article 4(2) and to the possibility of a manifestly closer connection to another country. The special rule in Article 6 is not an exception to the general rule in ­Article 4(1) but rather a clarification of it. In matters of unfair competition, the conflict-of-law rule should protect competitors, consumers and the general public and ensure that the market economy functions properly. The connection to the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected generally satisfies these objectives. The non-contractual obligations arising out of restrictions of competition in Article 6(3) should cover infringements of both national and ­Community

82  Part I: European Union Legislation

(23)

(24)

(25)

(26)

(27)

(28)

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competition law. The law applicable to such non-contractual obligations should be the law of the country where the market is, or is likely to be, affected. In cases where the market is, or is likely to be, affected in more than one country, the claimant should be able in certain circumstances to choose to base his or her claim on the law of the court seised. For the purposes of this Regulation, the concept of restriction of competition should cover prohibitions on agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition within a Member State or within the internal market, as well as prohibitions on the abuse of a dominant position within a Member State or within the internal market, where such agreements, decisions, concerted practices or abuses are prohibited by Articles 81 and 82 of the Treaty or by the law of a Member State. ‘Environmental damage’ should be understood as meaning adverse change in a natural resource, such as water, land or air, impairment of a function performed by that resource for the benefit of another natural resource or the public, or impairment of the variability among living organisms. Regarding environmental damage, Article 174 of the Treaty, which provides that there should be a high level of protection based on the precautionary principle and the principle that preventive action should be taken, the principle of priority for corrective action at source and the principle that the polluter pays, fully justifies the use of the principle of discriminating in favour of the person sustaining the damage. The question of when the person seeking compensation can make the choice of the law applicable should be determined in accordance with the law of the Member State in which the court is seised. Regarding infringements of intellectual property rights, the universally acknowledged principle of the lex loci protectionis should be preserved. For the purposes of this Regulation, the term ‘intellectual property rights’ should be interpreted as meaning, for instance, copyright, related rights, the sui generis right for the protection of databases and industrial property rights. The exact concept of industrial action, such as strike action or lock-out, varies from one Member State to another and is governed by each ­Member State’s internal rules. Therefore, this Regulation assumes as a general principle that the law of the country where the industrial action was taken should apply, with the aim of protecting the rights and obligations of workers and employers. The special rule on industrial action in Article 9 is without prejudice to the conditions relating to the exercise of such action in accordance with national law and without prejudice to the legal status of trade unions or of the representative organisations of workers as provided for in the law of the Member States. Provision should be made for special rules where damage is caused by an act other than a tort/delict, such as unjust enrichment, negotiorum gestio and culpa in contrahendo.

Regulation (EC) No 864/2007 83 (30) Culpa in contrahendo for the purposes of this Regulation is an autonomous concept and should not necessarily be interpreted within the meaning of national law. It should include the violation of the duty of disclosure and the breakdown of contractual negotiations. Article 12 covers only noncontractual obligations presenting a direct link with the dealings prior to the conclusion of a contract. This means that if, while a contract is being negotiated, a person suffers personal injury, Article 4 or other relevant provisions of this Regulation should apply. (31) To respect the principle of party autonomy and to enhance legal certainty, the parties should be allowed to make a choice as to the law applicable to a non-contractual obligation. This choice should be expressed or demonstrated with reasonable certainty by the circumstances of the case. Where establishing the existence of the agreement, the court has to respect the intentions of the parties. Protection should be given to weaker parties by imposing certain conditions on the choice. (32) Considerations of public interest justify giving the courts of the Member States the possibility, in exceptional circumstances, of applying exceptions based on public policy and overriding mandatory provisions. In particular, the application of a provision of the law designated by this Regulation which would have the effect of causing non-compensatory exemplary or punitive damages of an excessive nature to be awarded may, depending on the circumstances of the case and the legal order of the Member State of the court seised, be regarded as being contrary to the public policy (ordre public) of the forum. (33) According to the current national rules on compensation awarded to victims of road traffic accidents, when quantifying damages for personal injury in cases in which the accident takes place in a State other than that of the habitual residence of the victim, the court seised should take into account all the relevant actual circumstances of the specific victim, including in particular the actual losses and costs of after-care and medical attention. (34) In order to strike a reasonable balance between the parties, account must be taken, in so far as appropriate, of the rules of safety and conduct in operation in the country in which the harmful act was committed, even where the non-contractual obligation is governed by the law of another country. The term ‘rules of safety and conduct’ should be interpreted as referring to all regulations having any relation to safety and conduct, including, for example, road safety rules in the case of an accident. (35) A situation where conflict-of-law rules are dispersed among several instruments and where there are differences between those rules should be avoided. This Regulation, however, does not exclude the possibility of inclusion of conflict-of-law rules relating to non-contractual obligations in provisions of Community law with regard to particular matters. This Regulation should not prejudice the application of other instruments laying down provisions designed to contribute to the proper functioning of the internal market in so far as they cannot be applied in conjunction with the law designated by the rules of this Regulation. The application of provisions of the applicable law designated by the rules of this Regulation

84  Part I: European Union Legislation

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should not restrict the free movement of goods and services as regulated by Community instruments, such as Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce) (6). Respect for international commitments entered into by the Member States means that this Regulation should not affect international conventions to which one or more Member States are parties at the time this Regulation is adopted. To make the rules more accessible, the Commission should publish the list of the relevant conventions in the Official Journal of the European Union on the basis of information supplied by the Member States. The Commission will make a proposal to the European Parliament and the Council concerning the procedures and conditions according to which Member States would be entitled to negotiate and conclude on their own behalf agreements with third countries in individual and exceptional cases, concerning sectoral matters, containing provisions on the law applicable to non-contractual obligations. Since the objective of this Regulation cannot be sufficiently achieved by the Member States, and can therefore, by reason of the scale and effects of this Regulation, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity set out in Article 5 of the Treaty. In accordance with the principle of proportionality set out in that Article, this Regulation does not go beyond what is necessary to attain that objective. In accordance with Article 3 of the Protocol on the position of the United Kingdom and Ireland annexed to the Treaty on European Union and to the Treaty establishing the European Community, the United Kingdom and Ireland are taking part in the adoption and application of this Regulation. In accordance with Articles 1 and 2 of the Protocol on the position of ­Denmark, annexed to the Treaty on European Union and to the Treaty establishing the European Community, Denmark does not take part in the adoption of this Regulation, and is not bound by it or subject to its application,

HAVE ADOPTED THIS REGULATION: CHAPTER I SCOPE Article 1 Scope 1. This Regulation shall apply, in situations involving a conflict of laws, to noncontractual obligations in civil and commercial matters. It shall not apply, in particular, to revenue, customs or administrative matters or to the liability of

Regulation (EC) No 864/2007 85 the State for acts and omissions in the exercise of State authority (acta iure imperii). 2. The following shall be excluded from the scope of this Regulation: (a) non-contractual obligations arising out of family relationships and relationships deemed by the law applicable to such relationships to have comparable effects including maintenance obligations; (b) non-contractual obligations arising out of matrimonial property regimes, property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage, and wills and succession; (c) non-contractual obligations arising under bills of exchange, cheques and promissory notes and other negotiable instruments to the extent that the obligations under such other negotiable instruments arise out of their negotiable character; (d) non-contractual obligations arising out of the law of companies and other bodies corporate or unincorporated regarding matters such as the creation, by registration or otherwise, legal capacity, internal organisation or winding-up of companies and other bodies corporate or unincorporated, the personal liability of officers and members as such for the obligations of the company or body and the personal liability of auditors to a company or to its members in the statutory audits of accounting documents; (e) non-contractual obligations arising out of the relations between the settlors, trustees and beneficiaries of a trust created voluntarily; (f) non-contractual obligations arising out of nuclear damage; (g) non-contractual obligations arising out of violations of privacy and rights relating to personality, including defamation. 3. This Regulation shall not apply to evidence and procedure, without prejudice to Articles 21 and 22. 4. For the purposes of this Regulation, ‘Member State’ shall mean any Member State other than Denmark. Article 2 Non-contractual obligations 1. For the purposes of this Regulation, damage shall cover any consequence arising out of tort/delict, unjust enrichment, negotiorum gestio or culpa in contrahendo. 2. This Regulation shall apply also to non-contractual obligations that are likely to arise. 3. Any reference in this Regulation to: (a) an event giving rise to damage shall include events giving rise to damage that are likely to occur; and (b) damage shall include damage that is likely to occur.

86  Part I: European Union Legislation Article 3 Universal application Any law specified by this Regulation shall be applied whether or not it is the law of a Member State. CHAPTER II TORTS/DELICTS Article 4 General rule 1. Unless otherwise provided for in this Regulation, the law applicable to a noncontractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur. 2. However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply. 3. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a preexisting relationship between the parties, such as a contract, that is closely connected with the tort/delict in question. Article 5 Product liability 1. Without prejudice to Article 4(2), the law applicable to a non-contractual obligation arising out of damage caused by a product shall be: (a) the law of the country in which the person sustaining the damage had his or her habitual residence when the damage occurred, if the product was marketed in that country; or, failing that, (b) the law of the country in which the product was acquired, if the product was marketed in that country; or, failing that, (c) the law of the country in which the damage occurred, if the product was marketed in that country. However, the law applicable shall be the law of the country in which the person claimed to be liable is habitually resident if he or she could not reasonably foresee the marketing of the product, or a product of the same type, in the country the law of which is applicable under (a), (b) or (c). 2. Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraph 1, the law of that other country shall apply. A manifestly closer

Regulation (EC) No 864/2007 87 c­ onnection with another country might be based in particular on a pre-existing­ relationship between the parties, such as a contract, that is closely connected with the tort/delict in question. Article 6 Unfair competition and acts restricting free competition 1. The law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected. 2. Where an act of unfair competition affects exclusively the interests of a specific competitor, Article 4 shall apply. 3. (a)  The law applicable to a non-contractual obligation arising out of a restriction of competition shall be the law of the country where the market is, or is likely to be, affected. (b) When the market is, or is likely to be, affected in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant, may instead choose to base his or her claim on the law of the court seised, provided that the market in that Member State is amongst those directly and substantially affected by the restriction of competition out of which the non-contractual obligation on which the claim is based arises; where the claimant sues, in accordance with the applicable rules on jurisdiction, more than one defendant in that court, he or she can only choose to base his or her claim on the law of that court if the restriction of competition on which the claim against each of these defendants relies directly and substantially affects also the market in the Member State of that court. 4. The law applicable under this Article may not be derogated from by an agreement pursuant to Article 14. Article 7 Environmental damage The law applicable to a non-contractual obligation arising out of environmental damage or damage sustained by persons or property as a result of such damage shall be the law determined pursuant to Article 4(1), unless the person seeking compensation for damage chooses to base his or her claim on the law of the country in which the event giving rise to the damage occurred. Article 8 Infringement of intellectual property rights 1. The law applicable to a non-contractual obligation arising from an infringement of an intellectual property right shall be the law of the country for which protection is claimed.

88  Part I: European Union Legislation 2. In the case of a non-contractual obligation arising from an infringement of a unitary Community intellectual property right, the law applicable shall, for any question that is not governed by the relevant Community instrument, be the law of the country in which the act of infringement was committed. 3. The law applicable under this Article may not be derogated from by an agreement pursuant to Article 14. Article 9 Industrial action Without prejudice to Article 4(2), the law applicable to a non-contractual obligation in respect of the liability of a person in the capacity of a worker or an employer or the organisations representing their professional interests for damages caused by an industrial action, pending or carried out, shall be the law of the country where the action is to be, or has been, taken. CHAPTER III UNJUST ENRICHMENT, NEGOTIORUM GESTIO AND CULPA IN CONTRAHENDO Article 10 Unjust enrichment 1. If a non-contractual obligation arising out of unjust enrichment, including payment of amounts wrongly received, concerns a relationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that unjust enrichment, it shall be governed by the law that governs that relationship. 2. Where the law applicable cannot be determined on the basis of paragraph 1 and the parties have their habitual residence in the same country when the event giving rise to unjust enrichment occurs, the law of that country shall apply. 3. Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the unjust enrichment took place. 4. Where it is clear from all the circumstances of the case that the non-contractual­ obligation arising out of unjust enrichment is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply. Article 11 Negotiorum gestio 1. If a non-contractual obligation arising out of an act performed without due authority in connection with the affairs of another person concerns a

Regulation (EC) No 864/2007 89 r­ elationship existing between the parties, such as one arising out of a contract or a tort/delict, that is closely connected with that non-contractual obligation, it shall be governed by the law that governs that relationship. 2. Where the law applicable cannot be determined on the basis of paragraph 1, and the parties have their habitual residence in the same country when the event giving rise to the damage occurs, the law of that country shall apply. 3. Where the law applicable cannot be determined on the basis of paragraphs 1 or 2, it shall be the law of the country in which the act was performed. 4. Where it is clear from all the circumstances of the case that the non-contractual­ obligation arising out of an act performed without due authority in connection with the affairs of another person is manifestly more closely connected with a country other than that indicated in paragraphs 1, 2 and 3, the law of that other country shall apply. Article 12 Culpa in contrahendo 1. The law applicable to a non-contractual obligation arising out of dealings prior to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into. 2. Where the law applicable cannot be determined on the basis of paragraph 1, it shall be: (a) the law of the country in which the damage occurs, irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occurred; or (b) where the parties have their habitual residence in the same country at the time when the event giving rise to the damage occurs, the law of that country; or (c) where it is clear from all the circumstances of the case that the noncontractual obligation arising out of dealings prior to the conclusion of a contract is manifestly more closely connected with a country other than that indicated in points (a) and (b), the law of that other country. Article 13 Applicability of Article 8 For the purposes of this Chapter, Article 8 shall apply to non-contractual obligations arising from an infringement of an intellectual property right.

90  Part I: European Union Legislation CHAPTER IV FREEDOM OF CHOICE Article 14 Freedom of choice 1. The parties may agree to submit non-contractual obligations to the law of their choice: (a) by an agreement entered into after the event giving rise to the damage occurred; or (b) where all the parties are pursuing a commercial activity, also by an agreement freely negotiated before the event giving rise to the damage occurred. The choice shall be expressed or demonstrated with reasonable certainty by the circumstances of the case and shall not prejudice the rights of third parties. 2. Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. 3. Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in one or more of the Member States, the parties’ choice of the law applicable other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement. CHAPTER V COMMON RULES Article 15 Scope of the law applicable The law applicable to non-contractual obligations under this Regulation shall govern in particular: (a) the basis and extent of liability, including the determination of persons who may be held liable for acts performed by them; (b) the grounds for exemption from liability, any limitation of liability and any division of liability; (c) the existence, the nature and the assessment of damage or the remedy claimed; (d) within the limits of powers conferred on the court by its procedural law, the measures which a court may take to prevent or terminate injury or damage or to ensure the provision of compensation; (e) the question whether a right to claim damages or a remedy may be transferred, including by inheritance;

Regulation (EC) No 864/2007 91 (f) persons entitled to compensation for damage sustained personally; (g) liability for the acts of another person; (h) the manner in which an obligation may be extinguished and rules of prescription and limitation, including rules relating to the commencement, interruption and suspension of a period of prescription or limitation. Article 16 Overriding mandatory provisions Nothing in this Regulation shall restrict the application of the provisions of the law of the forum in a situation where they are mandatory irrespective of the law otherwise applicable to the non-contractual obligation. Article 17 Rules of safety and conduct In assessing the conduct of the person claimed to be liable, account shall be taken, as a matter of fact and in so far as is appropriate, of the rules of safety and conduct which were in force at the place and time of the event giving rise to the liability. Article 18 Direct action against the insurer of the person liable The person having suffered damage may bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the noncontractual obligation or the law applicable to the insurance contract so provides. Article 19 Subrogation Where a person (the creditor) has a non-contractual claim upon another (the debtor), and a third person has a duty to satisfy the creditor, or has in fact satisfied the creditor in discharge of that duty, the law which governs the third person’s duty to satisfy the creditor shall determine whether, and the extent to which, the third person is entitled to exercise against the debtor the rights which the creditor had against the debtor under the law governing their relationship. Article 20 Multiple liability If a creditor has a claim against several debtors who are liable for the same claim, and one of the debtors has already satisfied the claim in whole or in part, the question of that debtor’s right to demand compensation from the other debtors shall be governed by the law applicable to that debtor’s non-contractual obligation towards the creditor.

92  Part I: European Union Legislation Article 21 Formal validity A unilateral act intended to have legal effect and relating to a non-contractual obligation shall be formally valid if it satisfies the formal requirements of the law governing the non-contractual obligation in question or the law of the country in which the act is performed. Article 22 Burden of proof 1. The law governing a non-contractual obligation under this Regulation shall apply to the extent that, in matters of non-contractual obligations, it contains rules which raise presumptions of law or determine the burden of proof. 2. Acts intended to have legal effect may be proved by any mode of proof recognised by the law of the forum or by any of the laws referred to in Article 21 under which that act is formally valid, provided that such mode of proof can be administered by the forum. CHAPTER VI OTHER PROVISIONS Article 23 Habitual residence 1. For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration. Where the event giving rise to the damage occurs, or the damage arises, in the course of operation of a branch, agency or any other establishment, the place where the branch, agency or any other establishment is located shall be treated as the place of habitual residence. 2. For the purposes of this Regulation, the habitual residence of a natural person acting in the course of his or her business activity shall be his or her principal place of business. Article 24 Exclusion of renvoi The application of the law of any country specified by this Regulation means the application of the rules of law in force in that country other than its rules of private international law.

Regulation (EC) No 864/2007 93 Article 25 States with more than one legal system 1. Where a State comprises several territorial units, each of which has its own rules of law in respect of non-contractual obligations, each territorial unit shall be considered as a country for the purposes of identifying the law applicable under this Regulation. 2. A Member State within which different territorial units have their own rules of law in respect of non-contractual obligations shall not be required to apply this Regulation to conflicts solely between the laws of such units. Article 26 Public policy of the forum The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum. Article 27 Relationship with other provisions of Community law This Regulation shall not prejudice the application of provisions of Community law which, in relation to particular matters, lay down conflict-of-law rules relating to non-contractual obligations. Article 28 Relationship with existing international conventions 1. This Regulation shall not prejudice the application of international conventions to which one or more Member States are parties at the time when this Regulation is adopted and which lay down conflict-of-law rules relating to non-contractual obligations. 2. However, this Regulation shall, as between Member States, take precedence over conventions concluded exclusively between two or more of them in so far as such conventions concern matters governed by this Regulation. CHAPTER VII FINAL PROVISIONS Article 29 List of conventions 1. By 11 July 2008, Member States shall notify the Commission of the conventions referred to in Article28(1). After that date, Member States shall notify the Commission of all denunciations of such conventions.

94  Part I: European Union Legislation 2. The Commission shall publish in the Official Journal of the European Union within six months of receipt: (i) a list of the conventions referred to in paragraph 1; (ii) the denunciations referred to in paragraph 1. Article 30 Review clause 1. Not later than 20 August 2011, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation. If necessary, the report shall be accompanied by proposals to adapt this Regulation. The report shall include: (i) a study on the effects of the way in which foreign law is treated in the different jurisdictions and on the extent to which courts in the Member States apply foreign law in practice pursuant to this Regulation; (ii) a study on the effects of Article 28 of this Regulation with respect to the Hague Convention of 4 May 1971 on the law applicable to traffic accidents. 2. Not later than 31 December 2008, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a study on the situation in the field of the law applicable to noncontractual obligations arising out of violations of privacy and rights relating to personality, taking into account rules relating to freedom of the press and freedom of expression in the media, and conflict-of-law issues related to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (7). Article 31 Application in time This Regulation shall apply to events giving rise to damage which occur after its entry into force. Article 32 Date of application This Regulation shall apply from 11 January 2009, except for Article29, which shall apply from 11 July 2008. This Regulation shall be binding in its entirety and directly applicable in the ­Member States in accordance with the Treaty establishing the European Community. Done at Strasbourg, 11 July 2007.

Regulation (EC) No 864/2007 95 (1)

OJ C 241, 28.9.2004, p. 1. of the European Parliament of 6 July 2005 (OJ C 157 E, 6.7.2006, p. 371), Council Common Position of 25 September 2006 (OJ C 289 E, 28.11.2006, p. 68) and Position of the European Parliament of 18 January 2007 (not yet published in the Official Journal). European Parliament Legislative Resolution of 10 July 2007 and Council Decision of 28 June 2007. (3) OJ C 12, 15.1.2001, p. 1. (4) OJ C 53, 3.3.2005, p. 1. (5)  OJ L 12, 16.1.2001, p. 1. Regulation as last amended by Regulation (EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1). (6) OJ L 178, 17.7.2000, p. 1. (7) OJ L 281, 23.11.1995, p. 31. (2)  Opinion

Council Regulation (EU) No 1259/2010 of 20 December 2010 implementing enhanced cooperation in the area of the law applicable to divorce and legal separation (OJ 2010 L343 p.10) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 81(3) thereof, Having regard to Council Decision 2010/405/EU of 12 July 2010 authorising enhanced cooperation in the area of the law applicable to divorce and legal separation (1), Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Parliament, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with a special legislative procedure,

Whereas: (1) The Union has set itself the objective of maintaining and developing an area of freedom, security and justice, in which the free movement of persons is assured. For the gradual establishment of such an area, the Union must adopt measures relating to judicial cooperation in civil matters having cross-border implications, particularly when necessary for the proper functioning of the internal market. (2) Pursuant to Article 81 of the Treaty on the Functioning of the European Union, those measures are to include measures aimed at ensuring the compatibility of the rules applicable in the Member States concerning conflict of laws. (3) On 14 March 2005 the Commission adopted a Green Paper on applicable law and jurisdiction in divorce matters. The Green Paper launched a wideranging public consultation on possible solutions to the problems that may arise under the current situation. (4) On 17 July 2006 the Commission proposed a Regulation amending Council Regulation (EC) No 2201/2003 (2) as regards jurisdiction and introducing rules concerning applicable law in matrimonial matters.

Council Regulation (EU) No 1259/2010 97 (5) At its meeting in Luxembourg on 5 and 6 June 2008, the Council concluded that there was a lack of unanimity on the proposal and that there were insurmountable difficulties that made unanimity impossible both then and in the near future. It established that the proposal’s objectives could not be attained within a reasonable period by applying the relevant provisions of the Treaties. (6) Belgium, Bulgaria, Germany, Greece, Spain, France, Italy, Latvia, ­Luxembourg, Hungary, Malta, Austria, Portugal, Romania and Slovenia subsequently addressed a request to the Commission indicating that they intended to establish enhanced cooperation between themselves in the area of applicable law in matrimonial matters. On 3 March 2010, Greece withdrew its request. (7) On 12 July 2010 the Council adopted Decision 2010/405/EU authorising enhanced cooperation in the area of the law applicable to divorce and legal separation. (8) According to Article 328(1) of the Treaty on the Functioning of the ­European Union, when enhanced cooperation is being established, it is to be open to all Member States, subject to compliance with any conditions of participation laid down by the authorising decision. It is also to be open to them at any other time, subject to compliance with the acts already adopted within that framework, in addition to those conditions. The Commission and the Member States participating in enhanced cooperation shall ensure that they promote participation by as many Member States as possible. This Regulation should be binding in its entirety and directly applicable only in the participating Member States in accordance with the Treaties. (9) This Regulation should create a clear, comprehensive legal framework in the area of the law applicable to divorce and legal separation in the participating Member States, provide citizens with appropriate outcomes in terms of legal certainty, predictability and flexibility, and prevent a situation from arising where one of the spouses applies for divorce before the other one does in order to ensure that the proceeding is governed by a given law which he or she considers more favourable to his or her own interests. (10) The substantive scope and enacting terms of this Regu lation should be consistent with Regulation (EC) No 2201/2003. However, it should not apply to marriage annulment. This Regulation should apply only to the dissolution or loosening of marriage ties. The law determined by the conflict-of-laws rules of this Regulation should apply to the grounds for divorce and legal separation. Preliminary questions such as legal capacity and the validity of the marriage, and matters such as the effects of divorce or legal separation on property, name, parental responsibility, maintenance obligations or any other ancillary measures should be determined by the conflict-of-laws rules applicable in the participating Member State concerned. (11) In order to clearly delimit the territorial scope of this Regulation, the Member States participating in the enhanced cooperation should be specified.

98  Part I: European Union Legislation (12) This Regulation should be universal, i.e. it should be possible for its uniform conflict-of-laws rules to designate the law of a participating Member State, the law of a non-participating Member State or the law of a State which is not a member of the European Union. (13) This Regulation should apply irrespective of the nature of the court or tribunal seized. Where applicable, a court should be deemed to be seized in accordance with Regulation (EC) No 2201/2003. (14) In order to allow the spouses to choose an applicable law with which they have a close connection or, in the absence of such choice, in order that that law might apply to their divorce or legal separation, the law in question should apply even if it is not that of a participating Member State. Where the law of another Member State is designated, the network created by Council Decision 2001/470/EC of 28 May 2001 establishing a European Judicial Network in civil and commercial matters (3), could play a part in assisting the courts with regard to the content of foreign law. (15) Increasing the mobility of citizens calls for more flexibility and greater legal certainty. In order to achieve that objective, this Regulation should enhance the parties’ autonomy in the areas of divorce and legal separation by giving them a limited possibility to choose the law applicable to their divorce or legal separation. (16) Spouses should be able to choose the law of a country with which they have a special connection or the law of the forum as the law applicable to divorce and legal separation. The law chosen by the spouses must be consonant with the fundamental rights recognised by the Treaties and the Charter of Fundamental Rights of the European Union. (17) Before designating the applicable law, it is important for spouses to have access to up-to-date information concerning the essential aspects of national and Union law and of the procedures governing divorce and legal separation. To guarantee such access to appropriate, good-quality information, the Commission regularly updates it in the Internet-based public information system set up by Council Decision 2001/470/EC. (18) The informed choice of both spouses is a basic principle of this Regulation. Each spouse should know exactly what are the legal and social implications of the choice of applicable law. The possibility of choosing the applicable law by common agreement should be without prejudice to the rights of, and equal opportunities for, the two spouses. Hence judges in the participating Member States should be aware of the importance of an informed choice on the part of the two spouses concerning the legal implications of the choiceof-law agreement concluded. (19) Rules on material and formal validity should be defined so that the informed choice of the spouses is facilitated and that their consent is respected with a view to ensuring legal certainty as well as better access to justice. As far as formal validity is concerned, certain safeguards should be introduced to ensure that spouses are aware of the implications of their choice. The agreement on the choice of applicable law should at least be expressed in writing,

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dated and signed by both parties. However, if the law of the participating Member State in which the two spouses have their habitual residence at the time the agreement is concluded lays down additional formal rules, those rules should be complied with. For example, such additional formal rules may exist in a participating Member State where the agreement is inserted in a marriage contract. If, at the time the agreement is concluded, the spouses are habitually resident in different participating Member States which lay down different formal rules, compliance with the formal rules of one of these States would suffice. If, at the time the agreement is concluded, only one of the spouses is habitually resident in a participating Member State which lays down additional formal rules, these rules should be complied with. An agreement designating the applicable law should be able to be concluded and modified at the latest at the time the court is seized, and even during the course of the proceeding if the law of the forum so provides. In that event, it should be sufficient for such designation to be recorded in court in accordance with the law of the forum. Where no applicable law is chosen, and with a view to guaranteeing legal certainty and predictability and preventing a situation from arising in which one of the spouses applies for divorce before the other one does in order to ensure that the proceeding is governed by a given law which he considers more favourable to his own interests, this Regulation should introduce harmonised conflict-of-laws rules on the basis of a scale of successive connecting factors based on the existence of a close connection between the spouses and the law concerned. Such connecting factors should be chosen so as to ensure that proceedings relating to divorce or legal separation are governed by a law with which the spouses have a close connection. Where this Regulation refers to nationality as a connecting factor for the application of the law of a State, the question of how to deal with cases of multiple nationality should be left to national law, in full observance of the general principles of the European Union. If the court is seized in order to convert a legal separation into divorce, and where the parties have not made any choice as to the law applicable, the law which applied to the legal separation should also apply to the divorce. Such continuity would promote predictability for the parties and increase legal certainty. If the law applied to the legal separation does not provide for the conversion of legal separation into divorce, the divorce should be governed by the conflict-of-laws rules which apply in the absence of a choice by the parties. This should not prevent the spouses from seeking divorce on the basis of other rules in this Regulation. In certain situations, such as where the applicable law makes no provision for divorce or where it does not grant one of the spouses equal access to divorce or legal separation on grounds of their sex, the law of the court seized should nevertheless apply. This, however, should be without prejudice to the public policy clause.

100  Part I: European Union Legislation (25) Considerations of public interest should allow courts in the Member States the opportunity in exceptional circumstances to disregard the application of a provision of foreign law in a given case where it would be manifestly contrary to the public policy of the forum. However, the courts should not be able to apply the public policy exception in order to disregard a provision of the law of another State when to do so would be contrary to the Charter of Fundamental Rights of the European Union, and in particular Article 21 thereof, which prohibits all forms of discrimination. (26) Where this Regulation refers to the fact that the law of the participating Member State whose court is seized does not provide for divorce, this should be interpreted to mean that the law of this Member State does not have the institute of divorce. In such a case, the court should not be obliged to pronounce a divorce by virtue of this Regulation. Where this Regulation refers to the fact that the law of the participating Member State whose court is seized does not deem the marriage in question valid for the purposes of divorce proceedings, this should be interpreted to mean, inter alia, that such a marriage does not exist in the law of that Member State. In such a case, the court should not be obliged to pronounce a divorce or a legal separation by virtue of this Regulation. (27) Since there are States and participating Member States in which two or more systems of law or sets of rules concerning matters governed by this Regulation coexist, there should be a provision governing the extent to which this Regulation applies in the different territorial units of those States and participating Member States or to different categories of persons of those States and participating Member States. (28) In the absence of rules designating the applicable law, parties choosing the law of the State of the nationality of one of them should at the same time indicate which territorial unit’s law they have agreed upon in case the State whose law is chosen comprises several territorial units each of which has its own system of law or a set of rules in respect of divorce. (29) Since the objectives of this Regulation, namely the enhancement of legal certainty, predictability and flexibility in international matrimonial proceedings and hence the facilitation of the free movement of persons within the Union, cannot be sufficiently achieved by the Member States and can therefore, by reasons of the scale and effects of this Regulation be better achieved at Union level, the Union may adopt measures, by means of enhanced cooperation where appropriate, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives. (30) This Regulation respects fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union, and in particular by Article 21 thereof, which states that any discrimination based on any ground such as sex, race, colour, ethnic or social origin,

Council Regulation (EU) No 1259/2010 101 genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation shall be prohibited. This Regulation should be applied by the courts of the participating Member States in observance of those rights and principles, HAS ADOPTED THIS REGULATION: CHAPTER I SCOPE, RELATION WITH REGULATION (EC) No 2201/2003, DEFINITIONS AND UNIVERSAL APPLICATION Article 1 Scope 1. This Regulation shall apply, in situations involving a conflict of laws, to divorce and legal separation. 2. This Regulation shall not apply to the following matters, even if they arise merely as a preliminary question within the context of divorce or legal separation proceedings: (a) the legal capacity of natural persons; (b) the existence, validity or recognition of a marriage; (c) the annulment of a marriage; (d) the name of the spouses; (e) the property consequences of the marriage; (f) parental responsibility; (g) maintenance obligations; (h) trusts or successions. Article 2 Relation with Regulation (EC) No 2201/2003 This Regulation shall not affect the application of Regulation (EC) No 2201/2003. Article 3 Definitions For the purposes of this Regulation: 1. ‘participating Member State’ means a Member State which participates in enhanced cooperation on the law applicable to divorce and legal separation by virtue of Decision 2010/405/EU, or by virtue of a decision adopted in accordance with the second or third subparagraph of Article 331(1) of the Treaty on the Functioning of the European Union; 2. the term ‘court’ shall cover all the authorities in the participating Member States with jurisdiction in the matters falling within the scope of this Regulation.

102  Part I: European Union Legislation Article 4 Universal application The law designated by this Regulation shall apply whether or not it is the law of a participating Member State. CHAPTER II UNIFORM RULES ON THE LAW APPLICABLE TO DIVORCE AND LEGAL SEPARATION Article 5 Choice of applicable law by the parties 1. The spouses may agree to designate the law applicable to divorce and legal separation provided that it is one of the following laws: (a) the law of the State where the spouses are habitually resident at the time the agreement is concluded; or (b) the law of the State where the spouses were last habitually resident, in so far as one of them still resides there at the time the agreement is concluded; or (c) the law of the State of nationality of either spouse at the time the agreement is concluded; or (d) the law of the forum. 2. Without prejudice to paragraph 3, an agreement designating the applicable law may be concluded and modified at any time, but at the latest at the time the court is seized. 3. If the law of the forum so provides, the spouses may also designate the law applicable before the court during the course of the proceeding. In that event, such designation shall be recorded in court in accordance with the law of the forum. Article 6 Consent and material validity 1. The existence and validity of an agreement on choice of law or of any term thereof, shall be determined by the law which would govern it under this Regulation if the agreement or term were valid. 2. Nevertheless, a spouse, in order to establish that he did not consent, may rely upon the law of the country in which he has his habitual residence at the time the court is seized if it appears from the circumstances that it would not be reasonable to determine the effect of his conduct in accordance with the law specified in paragraph 1.

Council Regulation (EU) No 1259/2010 103 Article 7 Formal validity 1. The agreement referred to in Article5 (1) and (2), shall be expressed in writing, dated and signed by both spouses. Any communication by electronic means which provides a durable record of the agreement shall be deemed equivalent to writing. 2. However, if the law of the participating Member State in which the two spouses have their habitual residence at the time the agreement is concluded lays down additional formal requirements for this type of agreement, those requirements shall apply. 3. If the spouses are habitually resident in different participating Member States at the time the agreement is concluded and the laws of those States provide for different formal requirements, the agreement shall be formally valid if it satisfies the requirements of either of those laws. 4. If only one of the spouses is habitually resident in a participating Member State at the time the agreement is concluded and that State lays down additional formal requirements for this type of agreement, those requirements shall apply. Article 8 Applicable law in the absence of a choice by the parties In the absence of a choice pursuant to Article 5, divorce and legal separation shall be subject to the law of the State: (a) where the spouses are habitually resident at the time the court is seized; or, failing that (b) where the spouses were last habitually resident, provided that the period of residence did not end more than 1 year before the court was seized, in so far as one of the spouses still resides in that State at the time the court is seized; or, failing that (c) of which both spouses are nationals at the time the court is seized; or, failing that (d) where the court is seized. Article 9 Conversion of legal separation into divorce 1. Where legal separation is converted into divorce, the law applicable to divorce shall be the law applied to the legal separation, unless the parties have agreed otherwise in accordance with Article 5. 2. However, if the law applied to the legal separation does not provide for the conversion of legal separation into divorce, Article 8 shall apply, unless the parties have agreed otherwise in accordance with Article 5.

104  Part I: European Union Legislation Article 10 Application of the law of the forum Where the law applicable pursuant to Article 5 or Article 8 makes no provision for divorce or does not grant one of the spouses equal access to divorce or legal separation on grounds of their sex, the law of the forum shall apply. Article 11 Exclusion of renvoi Where this Regulation provides for the application of the law of a State, it refers to the rules of law in force in that State other than its rules of private international law. Article 12 Public policy Application of a provision of the law designated by virtue of this Regulation may be refused only if such application is manifestly incompatible with the public policy of the forum. Article 13 Differences in national law Nothing in this Regulation shall oblige the courts of a participating Member State whose law does not provide for divorce or does not deem the marriage in question valid for the purposes of divorce proceedings to pronounce a divorce by virtue of the application of this Regulation. Article 14 States with two or more legal systems—territorial conflicts of laws Where a State comprises several territorial units each of which has its own system of law or a set of rules concerning matters governed by this Regulation: (a) any reference to the law of such State shall be construed, for the purposes of determining the law applicable under this Regulation, as referring to the law in force in the relevant territorial unit; (b) any reference to habitual residence in that State shall be construed as referring to habitual residence in a territorial unit; (c) any reference to nationality shall refer to the territorial unit designated by the law of that State, or, in the absence of relevant rules, to the territorial unit chosen by the parties or, in absence of choice, to the territorial unit with which the spouse or spouses has or have the closest connection.

Council Regulation (EU) No 1259/2010 105 Article 15 States with two or more legal systems—inter-personal conflicts of laws In relation to a State which has two or more systems of law or sets of rules applicable to different categories of persons concerning matters governed by this Regulation, any reference to the law of such a State shall be construed as referring to the legal system determined by the rules in force in that State. In the absence of such rules, the system of law or the set of rules with which the spouse or spouses has or have the closest connection applies. Article 16 Non-application of this Regulation to internal conflicts of laws A participating Member State in which different systems of law or sets of rules apply to matters governed by this Regulation shall not be required to apply this Regulation to conflicts of laws arising solely between such different systems of law or sets of rules. CHAPTER III OTHER PROVISIONS Article 17 Information to be provided by participating Member States 1. By 21 September 2011 the participating Member States shall communicate to the Commission their national provisions, if any, concerning: (a) the formal requirements applicable to agreements on the choice of applicable law pursuant to Article 7(2) to (4); and (b) the possibility of designating the applicable law in accordance with ­Article 5(3). The participating Member States shall inform the Commission of any subsequent changes to these provisions. 2. The Commission shall make all information communicated in accordance with paragraph 1 publicly available through appropriate means, in particular through the website of the European Judicial Network in civil and commercial matters. Article 18 Transitional provisions 1. This Regulation shall apply only to legal proceedings instituted and to agreements of the kind referred to in Article 5 concluded as from 21 June 2012. However, effect shall also be given to an agreement on the choice of the applicable law concluded before 21 June 2012, provided that it complies with Articles 6 and 7.

106  Part I: European Union Legislation 2. This Regulation shall be without prejudice to agreements on the choice of applicable law concluded in accordance with the law of a participating Member State whose court is seized before 21 June 2012. Article 19 Relationship with existing international conventions 1. Without prejudice to the obligations of the participating Member States pursuant to Article 351 of the Treaty on the Functioning of the European Union, this Regulation shall not affect the application of international conventions to which one or more participating Member States are party at the time when this Regulation is adopted or when the decision pursuant to the second or third subparagraph of Article 331(1) of the Treaty on the Functioning of the European Union is adopted and which lay down conflict-of-laws rules relating to divorce or separation. 2. However, this Regulation shall, as between participating Member States, take precedence over conventions concluded exclusively between two or more of them in so far as such conventions concern matters governed by this Regulation. Article 20 Review clause 1. By 31 December 2015, and every 5 years there after, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation. The report shall be accompanied, where appropriate, by proposals to adapt this Regulation. 2. To that end, the participating Member States shall communicate to the Commission the relevant information on the application of this Regulation by their courts. CHAPTER IV FINAL PROVISIONS Article 21 Entry into force and date of application This Regulation shall enter into force on the day following its publication in the Official Journal of the European Union. It shall apply from 21 June 2012, with the exception of Article 17, which shall apply from 21 June 2011. For those participating Member States which participate in enhanced cooperation by virtue of a decision adopted in accordance with the second or third s­ ubparagraph

Council Regulation (EU) No 1259/2010 107 of Article 331(1) of the Treaty on the Functioning of the European Union, this ­Regulation shall apply as from the date indicated in the decision concerned. This Regulation shall be binding in its entirety and directly applicable in the ­participating Member States in accordance with the Treaties. (1)

OJ L 189, 22.7.2010, p. 12. Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning ­jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility (OJ L 338, 23.12.2003, p. 1). (3) OJ L 174, 27.6.2001, p. 25. (2)

Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (Official Journal L 201, 27/07/2012 p. 107) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 81(2) thereof, Having regard to the proposal from the European Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) The Union has set itself the objective of maintaining and developing an area of freedom, security and justice in which the free movement of persons is ensured. For the gradual establishment of such an area, the Union is to adopt measures relating to judicial cooperation in civil matters having cross-border implications, particularly when necessary for the proper functioning of the internal market. (2) In accordance with point (c) of Article 81(2) of the Treaty on the Functioning of the European Union, such measures may include measures aimed at ensuring the compatibility of the rules applicable in the Member States concerning conflict of laws and of jurisdiction. (3) The European Council meeting in Tampere on 15 and 16 October 1999 endorsed the principle of mutual recognition of judgments and other decisions of judicial authorities as the cornerstone of judicial cooperation in civil matters and invited the Council and the Commission to adopt a programme of measures to implement that principle.

Regulation (EU) No 650/2012 109 (4) A programme of measures for implementation of the principle of mutual recognition of decisions in civil and commercial matters (3), common to the Commission and to the Council, was adopted on 30 November 2000. That programme identifies measures relating to the harmonisation of ­conflict-of-laws rules as measures facilitating the mutual recognition of decisions, and provides for the drawing-up of an instrument relating to wills and succession. (5) The European Council meeting in Brussels on 4 and 5 November 2004 adopted a new programme called ‘The Hague Programme: strengthening freedom, security and justice in the European Union’ (4). That programme underlines the need to adopt an instrument in matters of succession dealing, in particular, with the questions of conflict of laws, jurisdiction, mutual recognition and enforcement of decisions in the area of succession and a European Certificate of Succession. (6) At its meeting in Brussels on 10 and 11 December 2009 the European Council adopted a new multiannual programme called ‘The Stockholm Programme—An open and secure Europe serving and protecting citizens’  (5). In that programme the European Council considered that mutual recognition should be extended to fields that are not yet covered but are essential to everyday life, for example succession and wills, while taking into consideration Member States’ legal systems, including public policy (ordre public), and national traditions in this area. (7) The proper functioning of the internal market should be facilitated by removing the obstacles to the free movement of persons who currently face difficulties in asserting their rights in the context of a succession having cross- border implications. In the European area of justice, citizens must be able to organise their succession in advance. The rights of heirs and legatees, of other persons close to the deceased and of creditors of the succession must be effectively guaranteed. (8) In order to achieve those objectives, this Regulation should bring together provisions on jurisdiction, on applicable law, on recognition or, as the case may be, acceptance, enforceability and enforcement of decisions, ­authentic instruments and court settlements and on the creation of a European ­Certificate of Succession. (9) The scope of this Regulation should include all civil-law aspects of succession to the estate of a deceased person, namely all forms of transfer of assets, rights and obligations by reason of death, whether by way of a voluntary transfer under a disposition of property upon death or a transfer through intestate succession. (10) This Regulation should not apply to revenue matters or to administrative matters of a public-law nature. It should therefore be for national law to determine, for instance, how taxes and other liabilities of a publiclaw nature are calculated and paid, whether these be taxes payable by the deceased at the time of death or any type of succession-related tax to be paid by the estate or the beneficiaries. It should also be for national law to

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determine whether the release of succession property to beneficiaries under this Regulation or the recording of succession property in a register may be made subject to the payment of taxes. This Regulation should not apply to areas of civil law other than succession. For reasons of clarity, a number of questions which could be seen as having a link with matters of succession should be explicitly excluded from the scope of this Regulation. Accordingly, this Regulation should not apply to questions relating to matrimonial property regimes, including marriage settlements as known in some legal systems to the extent that such settlements do not deal with succession matters, and property regimes of relationships deemed to have comparable effects to marriage. The authorities dealing with a given succession under this Regulation should nevertheless, depending on the situation, take into account the winding-up of the matrimonial property regime or similar property regime of the deceased when determining the estate of the deceased and the respective shares of the beneficiaries. Questions relating to the creation, administration and dissolution of trusts should also be excluded from the scope of this Regulation. This should not be understood as a general exclusion of trusts. Where a trust is created under a will or under statute in connection with intestate succession the law applicable to the succession under this Regulation should apply with respect to the devolution of the assets and the determination of the beneficiaries. Property rights, interests and assets created or transferred otherwise than by succession, for instance by way of gifts, should also be excluded from the scope of this Regulation. However, it should be the law specified by this Regulation as the law applicable to the succession which determines whether gifts or other forms of dispositions inter vivos giving rise to a right in rem prior to death should be restored or accounted for for the purposes of determining the shares of the beneficiaries in accordance with the law applicable to the succession. This Regulation should allow for the creation or the transfer by succession of a right in immovable or movable property as provided for in the law applicable to the succession. It should, however, not affect the limited number (‘numerus clausus’) of rights in rem known in the national law of some Member States. A Member State should not be required to recognise a right in rem relating to property located in that Member State if the right in rem in question is not known in its law. However, in order to allow the beneficiaries to enjoy in another Member State the rights which have been created or transferred to them by succession, this Regulation should provide for the adaptation of an unknown right in rem to the closest equivalent right in rem under the law of that other Member State. In the context of such an adaptation, account should be taken of the aims and the interests pursued by the specific right in rem and the effects attached to it. For the purposes of determining the closest equivalent national right in rem, the authorities or competent persons of

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the State whose law applied to the succession may be contacted for further information on the nature and the effects of the right. To that end, the existing networks in the area of judicial cooperation in civil and commercial matters could be used, as well as any other available means facilitating the understanding of foreign law. The adaptation of unknown rights in rem as explicitly provided for by this Regulation should not preclude other forms of adaptation in the context of the application of this Regulation. The requirements for the recording in a register of a right in immovable or movable property should be excluded from the scope of this Regulation. It should therefore be the law of the Member State in which the register is kept (for immovable property, the lex rei sitae) which determines under what legal conditions and how the recording must be carried out and which authorities, such as land registers or notaries, are in charge of checking that all requirements are met and that the documentation presented or established is sufficient or contains the necessary information. In particular, the authorities may check that the right of the deceased to the succession property mentioned in the document presented for registration is a right which is recorded as such in the register or which is otherwise demonstrated in accordance with the law of the Member State in which the register is kept. In order to avoid duplication of documents, the registration authorities should accept such documents drawn up in another Member State by the competent authorities whose circulation is provided for by this Regulation. In particular, the European Certificate of Succession issued under this Regulation should constitute a valid document for the recording of succession property in a register of a Member State. This should not preclude the authorities involved in the registration from asking the person applying for registration to provide such additional information, or to present such additional documents, as are required under the law of the Member State in which the register is kept, for instance information or documents relating to the payment of revenue. The competent authority may indicate to the person applying for registration how the missing information or documents can be provided. The effects of the recording of a right in a register should also be excluded from the scope of this Regulation. It should therefore be the law of the Member State in which the register is kept which determines whether the recording is, for instance, declaratory or constitutive in effect. Thus, where, for example, the acquisition of a right in immovable property requires a recording in a register under the law of the Member State in which the register is kept in order to ensure the erga omnes effect of registers or to protect legal transactions, the moment of such acquisition should be governed by the law of that Member State. This Regulation should respect the different systems for dealing with matters of succession applied in the Member States. For the purposes of this Regulation, the term ‘court’ should therefore be given a broad meaning so as to cover not only courts in the true sense of the word, exercising judicial

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functions, but also the notaries or registry offices in some Member States who or which, in certain matters of succession, exercise judicial functions like courts, and the notaries and legal professionals who, in some Member States, exercise judicial functions in a given succession by delegation of power by a court. All courts as defined in this Regulation should be bound by the rules of jurisdiction set out in this Regulation. Conversely, the term ‘court’ should not cover non-judicial authorities of a Member State empowered under national law to deal with matters of succession, such as the notaries in most Member States where, as is usually the case, they are not exercising judicial functions. This Regulation should allow all notaries who have competence in matters of succession in the Member States to exercise such competence. Whether or not the notaries in a given Member State are bound by the rules of jurisdiction set out in this Regulation should depend on whether or not they are covered by the term ‘court’ for the purposes of this Regulation. Acts issued by notaries in matters of succession in the Member States should circulate under this Regulation. When notaries exercise judicial functions they are bound by the rules of jurisdiction, and the decisions they give should circulate in accordance with the provisions on recognition, enforceability and enforcement of decisions. When notaries do not exercise judicial functions they are not bound by the rules of jurisdiction, and the authentic instruments they issue should circulate in accordance with the provisions on authentic instruments. In view of the increasing mobility of citizens and in order to ensure the proper administration of justice within the Union and to ensure that a genuine connecting factor exists between the succession and the Member State in which jurisdiction is exercised, this Regulation should provide that the general connecting factor for the purposes of determining both jurisdiction and the applicable law should be the habitual residence of the deceased at the time of death. In order to determine the habitual residence, the authority dealing with the succession should make an overall assessment of the circumstances of the life of the deceased during the years preceding his death and at the time of his death, taking account of all relevant factual elements, in particular the duration and regularity of the deceased’s presence in the State concerned and the conditions and reasons for that presence. The habitual residence thus determined should reveal a close and stable connection with the State concerned taking into account the specific aims of this Regulation. In certain cases, determining the deceased’s habitual residence may prove complex. Such a case may arise, in particular, where the deceased for professional or economic reasons had gone to live abroad to work there, sometimes for a long time, but had maintained a close and stable connection with his State of origin. In such a case, the deceased could, depending on the circumstances of the case, be considered still to have his habitual residence in his State of origin in which the centre of interests of his family and his social life was located. Other complex cases may arise where the deceased

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lived in several States alternately or travelled from one State to another without settling permanently in any of them. If the deceased was a national of one of those States or had all his main assets in one of those States, his nationality or the location of those assets could be a special factor in the overall assessment of all the factual circumstances. With regard to the determination of the law applicable to the succession the authority dealing with the succession may in exceptional cases—where, for instance, the deceased had moved to the State of his habitual residence fairly recently before his death and all the circumstances of the case indicate that he was manifestly more closely connected with another State— arrive at the conclusion that the law applicable to the succession should not be the law of the State of the habitual residence of the deceased but rather the law of the State with which the deceased was manifestly more closely connected. That manifestly closest connection should, however, not be resorted to as a subsidiary connecting factor whenever the determination of the habitual residence of the deceased at the time of death proves complex. Nothing in this Regulation should prevent a court from applying mechanisms designed to tackle the evasion of the law, such as fraude à la loi in the context of private international law. The rules of this Regulation are devised so as to ensure that the authority dealing with the succession will, in most situations, be applying its own law. This Regulation therefore provides for a series of mechanisms which would come into play where the deceased had chosen as the law to govern his succession the law of a Member State of which he was a national. One such mechanism should be to allow the parties concerned to conclude a choice-of-court agreement in favour of the courts of the Member State of the chosen law. It would have to be determined on a case-by-case basis, depending in particular on the issue covered by the choice-of-court agreement, whether the agreement would have to be concluded between all parties concerned by the succession or whether some of them could agree to bring a specific issue before the chosen court in a situation where the decision by that court on that issue would not affect the rights of the other parties to the succession. If succession proceedings are opened by a court of its own motion, as is the case in certain Member States, that court should close the proceedings if the parties agree to settle the succession amicably out of court in the Member State of the chosen law. Where succession proceedings are not opened by a court of its own motion, this Regulation should not prevent the parties from settling the succession amicably out of court, for instance before a notary, in a Member State of their choice where this is possible under the law of that Member State. This should be the case even if the law applicable to the succession is not the law of that Member State. In order to ensure that the courts of all Member States may, on the same grounds, exercise jurisdiction in relation to the succession of persons not habitually resident in a Member State at the time of death, this Regulation

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should list exhaustively, in a hierarchical order, the grounds on which such subsidiary jurisdiction may be exercised. In order to remedy, in particular, situations of denial of justice, this Regulation should provide a forum necessitatis allowing a court of a Member State, on an exceptional basis, to rule on a succession which is closely connected with a third State. Such an exceptional basis may be deemed to exist when proceedings prove impossible in the third State in question, for example because of civil war, or when a beneficiary cannot reasonably be expected to initiate or conduct proceedings in that State. Jurisdiction based on forum necessitatis should, however, be exercised only if the case has a sufficient connection with the Member State of the court seised. In order to simplify the lives of heirs and legatees habitually resident in a Member State other than that in which the succession is being or will be dealt with, this Regulation should allow any person entitled under the law applicable to the succession to make declarations concerning the acceptance or waiver of the succession, of a legacy or of a reserved share, or concerning the limitation of his liability for the debts under the succession, to make such declarations in the form provided for by the law of the Member State of his habitual residence before the courts of that Member State. This should not preclude such declarations being made before other authorities in that Member State which are competent to receive declarations under national law. Persons choosing to avail themselves of the possibility to make declarations in the Member State of their habitual residence should themselves inform the court or authority which is or will be dealing with the succession of the existence of such declarations within any time limit set by the law applicable to the succession. It should not be possible for a person who wishes to limit his liability for the debts under the succession to do so by a mere declaration to that effect before the courts or other competent authorities of the Member State of his habitual residence where the law applicable to the succession requires him to initiate specific legal proceedings, for instance inventory proceedings, before the competent court. A declaration made in such circumstances by a person in the Member State of his habitual residence in the form provided for by the law of that Member State should therefore not be formally valid for the purposes of this Regulation. Nor should the documents instituting the legal proceedings be regarded as declarations for the purposes of this Regulation. In the interests of the harmonious functioning of justice, the giving of irreconcilable decisions in different Member States should be avoided. To that end, this Regulation should provide for general procedural rules similar to those of other Union instruments in the area of judicial cooperation in civil matters. One such procedural rule is a lis pendens rule which will come into play if the same succession case is brought before different courts in different Member States. That rule will then determine which court should proceed to deal with the succession case.

Regulation (EU) No 650/2012 115 (36) Given that succession matters in some Member States may be dealt with by non-judicial authorities, such as notaries, who are not bound by the rules of jurisdiction under this Regulation, it cannot be excluded that an amicable out- of-court settlement and court proceedings relating to the same succession, or two amicable out-of-court settlements relating to the same succession, may be initiated in parallel in different Member States. In such a situation, it should be for the parties involved, once they become aware of the parallel proceedings, to agree among themselves how to proceed. If they cannot agree, the succession would have to be dealt with and decided upon by the courts having jurisdiction under this Regulation. (37) In order to allow citizens to avail themselves, with all legal certainty, of the benefits offered by the internal market, this Regulation should enable them to know in advance which law will apply to their succession. Harmonised conflict-of-laws rules should be introduced in order to avoid contradictory results. The main rule should ensure that the succession is governed by a predictable law with which it is closely connected. For reasons of legal certainty and in order to avoid the fragmentation of the succession, that law should govern the succession as a whole, that is to say, all of the property forming part of the estate, irrespective of the nature of the assets and regardless of whether the assets are located in another Member State or in a third State. (38) This Regulation should enable citizens to organise their succession in advance by choosing the law applicable to their succession. That choice should be limited to the law of a State of their nationality in order to ensure a connection between the deceased and the law chosen and to avoid a law being chosen with the intention of frustrating the legitimate expectations of persons entitled to a reserved share. (39) A choice of law should be made expressly in a declaration in the form of a disposition of property upon death or be demonstrated by the terms of such a disposition. A choice of law could be regarded as demonstrated by a disposition of property upon death where, for instance, the deceased had referred in his disposition to specific provisions of the law of the State of his nationality or where he had otherwise mentioned that law. (40) A choice of law under this Regulation should be valid even if the chosen law does not provide for a choice of law in matters of succession. It should however be for the chosen law to determine the substantive validity of the act of making the choice, that is to say, whether the person making the choice may be considered to have understood and consented to what he was doing. The same should apply to the act of modifying or revoking a choice of law. (41) For the purposes of the application of this Regulation, the determination of the nationality or the multiple nationalities of a person should be resolved as a preliminary question. The issue of considering a person as a national of a State falls outside the scope of this Regulation and is subject to national law, including, where applicable, international Conventions, in full observance of the general principles of the European Union.

116  Part I: European Union Legislation (42) The law determined as the law applicable to the succession should govern the succession from the opening of the succession to the transfer of ownership of the assets forming part of the estate to the beneficiaries as determined by that law. It should include questions relating to the administration of the estate and to liability for the debts under the succession. The payment of the debts under the succession may, depending, in particular, on the law applicable to the succession, include the taking into account of a specific ranking of the creditors. (43) The rules of jurisdiction laid down by this Regulation may, in certain cases, lead to a situation where the court having jurisdiction to rule on the succession will not be applying its own law. When that situation occurs in a Member State whose law provides for the mandatory appointment of an administrator of the estate, this Regulation should allow the courts of that Member State, when seised, to appoint one or more such administrators under their own law. This should be without prejudice to any choice made by the parties to settle the succession amicably out of court in another Member State where this is possible under the law of that Member State. In order to ensure a smooth coordination between the law applicable to the succession and the law of the Member State of the appointing court, the court should appoint the person(s) who would be entitled to administer the estate under the law applicable to the succession, such as for instance the executor of the will of the deceased or the heirs themselves or, if the law applicable to the succession so requires, a third-party administrator. The courts may, however, in specific cases where their law so requires, appoint a third party as administrator even if this is not provided for in the law applicable to the succession. If the deceased had appointed an executor of the will, that person may not be deprived of his powers unless the law applicable to the succession allows for the termination of his mandate. (44) The powers exercised by the administrators appointed in the Member State of the court seised should be the powers of administration which they may exercise under the law applicable to the succession. Thus, if, for instance, the heir is appointed as administrator he should have the powers to administer the estate which an heir would have under that law. Where the powers of administration which may be exercised under the law applicable to the succession are not sufficient to preserve the assets of the estate or to protect the rights of the creditors or of other persons having guaranteed the debts of the deceased, the administrator(s) appointed in the Member State of the court seised may, on a residual basis, exercise powers of administration to that end provided for by the law of that Member State. Such residual ­powers could include, for instance, establishing a list of the assets of the estate and the debts under the succession, informing creditors of the opening of the succession and inviting them to make their claims known, and taking any provisional, including protective, measures intended to preserve the assets of the estate. The acts performed by an administrator in exercise of the residual powers should respect the law applicable to the succession

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(45)

(46)

(47)

(48)

(49)

(50)

as regards the transfer of ownership of succession property, including any transaction entered into by the beneficiaries prior to the appointment of the administrator, liability for the debts under the succession and the rights of the beneficiaries, including, where applicable, the right to accept or to waive the succession. Such acts could, for instance, only entail the alienation of assets or the payment of debts where this would be allowed under the law applicable to the succession. Where under the law applicable to the succession the appointment of a third-party administrator changes the liability of the heirs, such a change of liability should be respected. This Regulation should not preclude creditors, for instance through a representative, from taking such further steps as may be available under national law, where applicable, in accordance with the relevant Union instruments, in order to safeguard their rights. This Regulation should allow for potential creditors in other Member States where assets are located to be informed of the opening of the succession. In the context of the application of this Regulation, consideration should therefore be given to the possibility of establishing a mechanism, if appropriate by way of the e-Justice portal, to enable potential creditors in other Member States to access the relevant information so that they can make their claims known. The law applicable to the succession should determine who the beneficiaries are in any given succession. Under most laws, the term ‘beneficiaries’ would cover heirs and legatees and persons entitled to a reserved share although, for instance, the legal position of legatees is not the same under all laws. Under some laws, the legatee may receive a direct share in the estate whereas under other laws the legatee may acquire only a claim against the heirs. In order to ensure legal certainty for persons wishing to plan their succession in advance, this Regulation should lay down a specific conflict-of-laws rule concerning the admissibility and substantive validity of dispositions of property upon death. To ensure the uniform application of that rule, this Regulation should list which elements should be considered as elements pertaining to substantive validity. The examination of the substantive validity of a disposition of property upon death may lead to the conclusion that that disposition is without legal existence. An agreement as to succession is a type of disposition of property upon death the admissibility and acceptance of which vary among the Member States. In order to make it easier for succession rights acquired as a result of an agreement as to succession to be accepted in the Member States, this Regulation should determine which law is to govern the admissibility of such agreements, their substantive validity and their binding effects between the parties, including the conditions for their dissolution. The law which, under this Regulation, will govern the admissibility and substantive validity of a disposition of property upon death and, as regards agreements as to succession, the binding effects of such an agreement as between the parties, should be without prejudice to the rights of any person who, under the law applicable to the succession, has a right to a reserved

118  Part I: European Union Legislation

(51)

(52)

(53)

(54)

(55)

share or another right of which he cannot be deprived by the person whose estate is involved. Where reference is made in this Regulation to the law which would have been applicable to the succession of the person making a disposition of property upon death if he had died on the day on which the disposition was, as the case may be, made, modified or revoked, such reference should be understood as a reference to either the law of the State of the habitual residence of the person concerned on that day or, if he had made a choice of law under this Regulation, the law of the State of his nationality on that day. This Regulation should regulate the validity as to form of all dispositions of property upon death made in writing by way of rules which are consistent with those of the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions. When determining whether a given disposition of property upon death is formally valid under this Regulation, the competent authority should disregard the fraudulent creation of an international element to circumvent the rules on formal validity. For the purposes of this Regulation, any provision of law limiting the permitted forms of dispositions of property upon death by reference to certain personal qualifications of the person making the disposition, such as, for instance, his age, should be deemed to pertain to matters of form. This should not be interpreted as meaning that the law applicable to the formal validity of a disposition of property upon death under this Regulation should determine whether or not a minor has the capacity to make a disposition of property upon death. That law should only determine whether a personal qualification such as, for instance, minority should bar a person from making a disposition of property upon death in a certain form. For economic, family or social considerations, certain immovable property, certain enterprises and other special categories of assets are subject to special rules in the Member State in which they are located imposing restrictions concerning or affecting the succession in respect of those assets. This Regulation should ensure the application of such special rules. However, this exception to the application of the law applicable to the succession requires a strict interpretation in order to remain compatible with the general objective of this Regulation. Therefore, neither conflict-of-laws rules subjecting immovable property to a law different from that applicable to movable property nor provisions providing for a reserved share of the estate greater than that provided for in the law applicable to the succession under this Regulation may be regarded as constituting special rules imposing restrictions concerning or affecting the succession in respect of certain assets. To ensure uniform handling of a situation in which it is uncertain in what order two or more persons whose succession would be governed by different laws died, this Regulation should lay down a rule providing that none of the deceased persons is to have any rights in the succession of the other or others.

Regulation (EU) No 650/2012 119 (56) In some situations an estate may be left without a claimant. Different laws provide differently for such situations. Under some laws, the State will be able to claim the vacant estate as an heir irrespective of where the assets are located. Under some other laws, the State will be able to appropriate only the assets located on its territory. This Regulation should therefore lay down a rule providing that the application of the law applicable to the succession should not preclude a Member State from appropriating under its own law the assets located on its territory. However, to ensure that this rule is not detrimental to the creditors of the estate, a proviso should be added enabling the creditors to seek satisfaction of their claims out of all the assets of the estate, irrespective of their location. (57) The conflict-of-laws rules laid down in this Regulation may lead to the application of the law of a third State. In such cases regard should be had to the private international law rules of that State. If those rules provide for renvoi either to the law of a Member State or to the law of a third State which would apply its own law to the succession, such renvoi should be accepted in order to ensure international consistency. Renvoi should, however, be excluded in situations where the deceased had made a choice of law in favour of the law of a third State. (58) Considerations of public interest should allow courts and other competent authorities dealing with matters of succession in the Member States to disregard, in exceptional circumstances, certain provisions of a foreign law where, in a given case, applying such provisions would be manifestly incompatible with the public policy (ordre public) of the Member State concerned. However, the courts or other competent authorities should not be able to apply the public-policy exception in order to set aside the law of another State or to refuse to recognise or, as the case may be, accept or enforce a decision, an authentic instrument or a court settlement from another Member State when doing so would be contrary to the Charter of Fundamental Rights of the European Union, and in particular Article 21 thereof, which prohibits all forms of discrimination. (59) In the light of its general objective, which is the mutual recognition of decisions given in the Member States in matters of succession, irrespective of whether such decisions were given in contentious or non-contentious proceedings, this Regulation should lay down rules relating to the recognition, enforceability and enforcement of decisions similar to those of other Union instruments in the area of judicial cooperation in civil matters. (60) In order to take into account the different systems for dealing with matters of succession in the Member States, this Regulation should guarantee the acceptance and enforceability in all Member States of authentic instruments in matters of succession. (61) Authentic instruments should have the same evidentiary effects in another Member State as they have in the Member State of origin, or the most comparable effects. When determining the evidentiary effects of a given authentic instrument in another Member State or the most comparable effects,

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(64)

(65)

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reference should be made to the nature and the scope of the evidentiary effects of the authentic instrument in the Member State of origin. The evidentiary effects which a given authentic instrument should have in another Member State will therefore depend on the law of the Member State of origin. The ‘authenticity’ of an authentic instrument should be an autonomous concept covering elements such as the genuineness of the instrument, the formal prerequisites of the instrument, the powers of the authority drawing up the instrument and the procedure under which the instrument is drawn up. It should also cover the factual elements recorded in the authentic instrument by the authority concerned, such as the fact that the parties indicated appeared before that authority on the date indicated and that they made the declarations indicated. A party wishing to challenge the authenticity of an authentic instrument should do so before the competent court in the Member State of origin of the authentic instrument under the law of that Member State. The term ‘the legal acts or legal relationships recorded in an authentic instrument’ should be interpreted as referring to the contents as to substance recorded in the authentic instrument. The legal acts recorded in an authentic instrument could be, for instance, the agreement between the parties on the sharing-out or the distribution of the estate, or a will or an agreement as to succession, or another declaration of intent. The legal relationships could be, for instance, the determination of the heirs and other beneficiaries as established under the law applicable to the succession, their respective shares and the existence of a reserved share, or any other element established under the law applicable to the succession. A party wishing to challenge the legal acts or legal relationships recorded in an authentic instrument should do so before the courts having jurisdiction under this Regulation, which should decide on the challenge in accordance with the law applicable to the succession. If a question relating to the legal acts or legal relationships recorded in an authentic instrument is raised as an incidental question in proceedings before a court of a Member State, that court should have jurisdiction over that question. An authentic instrument which is being challenged should not produce any evidentiary effects in a Member State other than the Member State of origin as long as the challenge is pending. If the challenge concerns only a specific matter relating to the legal acts or legal relationships recorded in the authentic instrument, the authentic instrument in question should not produce any evidentiary effects in a Member State other than the Member State of origin with regard to the matter being challenged as long as the challenge is pending. An authentic instrument which has been declared invalid as a result of a challenge should cease to produce any evidentiary effects. Should an authority, in the application of this Regulation, be presented with two incompatible authentic instruments, it should assess the question as to which authentic instrument, if any, should be given priority, taking into

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account the circumstances of the particular case. Where it is not clear from those circumstances which authentic instrument, if any, should be given priority, the question should be determined by the courts having jurisdiction under this Regulation, or, where the question is raised as an incidental question in the course of proceedings, by the court seised of those proceedings. In the event of incompatibility between an authentic instrument and a decision, regard should be had to the grounds of non-recognition of decisions under this Regulation. In order for a succession with cross-border implications within the Union to be settled speedily, smoothly and efficiently, the heirs, legatees, executors of the will or administrators of the estate should be able to demonstrate easily their status and/or rights and powers in another Member State, for instance in a Member State in which succession property is located. To enable them to do so, this Regulation should provide for the creation of a uniform certificate, the European Certificate of Succession (hereinafter referred to as ‘the Certificate’), to be issued for use in another Member State. In order to respect the principle of subsidiarity, the Certificate should not take the place of internal documents which may exist for similar purposes in the Member States. The authority which issues the Certificate should have regard to the formalities required for the registration of immovable property in the Member State in which the register is kept. For that purpose, this Regulation should provide for an exchange of information on such formalities between the Member States. The use of the Certificate should not be mandatory. This means that persons entitled to apply for a Certificate should be under no obligation to do so but should be free to use the other instruments available under this Regulation (decisions, authentic instruments and court settlements). However, no authority or person presented with a Certificate issued in another Member State should be entitled to request that a decision, authentic instrument or court settlement be presented instead of the Certificate. The Certificate should be issued in the Member State whose courts have jurisdiction under this Regulation. It should be for each Member State to determine in its internal legislation which authorities are to have competence to issue the Certificate, whether they be courts as defined for the purposes of this Regulation or other authorities with competence in matters of succession, such as, for instance, notaries. It should also be for each Member State to determine in its internal legislation whether the issuing authority may involve other competent bodies in the issuing process, for instance bodies competent to receive statutory declarations in lieu of an oath. The Member States should communicate to the Commission the relevant information concerning their issuing authorities in order for that information to be made publicly available. The Certificate should produce the same effects in all Member States. It should not be an enforceable title in its own right but should have an evidentiary effect and should be presumed to demonstrate accurately elements

122  Part I: European Union Legislation which have been established under the law applicable to the succession or under any other law applicable to specific elements, such as the substantive validity of dispositions of property upon death. The evidentiary effect of the Certificate should not extend to elements which are not governed by this Regulation, such as questions of affiliation or the question whether or not a particular asset belonged to the deceased. Any person who makes payments or passes on succession property to a person indicated in the Certificate as being entitled to accept such payment or property as an heir or legatee should be afforded appropriate protection if he acted in good faith relying on the accuracy of the information certified in the Certificate. The same protection should be afforded to any person who, relying on the accuracy of the information certified in the Certificate, buys or receives succession property from a person indicated in the Certificate as being entitled to dispose of such property. The protection should be ensured if certified copies which are still valid are presented. Whether or not such an acquisition of property by a third person is effective should not be determined by this Regulation. (72) The competent authority should issue the Certificate upon request. The original of the Certificate should remain with the issuing authority, which should issue one or more certified copies of the Certificate to the applicant and to any other person demonstrating a legitimate interest. This should not preclude a Member State, in accordance with its national rules on public access to documents, from allowing copies of the Certificate to be disclosed to members of the public. This Regulation should provide for redress against decisions of the issuing authority, including decisions to refuse the issue of a Certificate. Where the Certificate is rectified, modified or withdrawn, the issuing authority should inform the persons to whom certified copies have been issued so as to avoid wrongful use of such copies. (73) Respect for international commitments entered into by the Member States means that this Regulation should not affect the application of international conventions to which one or more Member States are party at the time when this Regulation is adopted. In particular, the Member States which are Contracting Parties to the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions should be able to continue to apply the provisions of that Convention instead of the provisions of this Regulation with regard to the formal validity of wills and joint wills. Consistency with the general objectives of this Regulation requires, however, that this Regulation take precedence, as between Member States, over conventions concluded exclusively between two or more Member States in so far as such conventions concern matters governed by this Regulation. (74) This Regulation should not preclude Member States which are parties to the Convention of 19 November 1934 between Denmark, Finland, Iceland, Norway and Sweden comprising private international law provisions on succession, wills and estate administration from continuing to apply certain provisions of that Convention, as revised by the intergovernmental agreement between the States parties thereto.

Regulation (EU) No 650/2012 123 (75) In order to facilitate the application of this Regulation, provision should be made for an obligation requiring the Member States to communicate certain information regarding their legislation and procedures relating to succession within the framework of the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC (6). In order to allow for the timely publication in the Official Journal of the European Union of all information of relevance for the practical application of this Regulation, the Member States should also communicate such information to the Commission before this Regulation starts to apply. (76) Equally, to facilitate the application of this Regulation and to allow for the use of modern communication technologies, standard forms should be prescribed for the attestations to be provided in connection with the application for a declaration of enforceability of a decision, authentic instrument or court settlement and for the application for a European Certificate of Succession, as well as for the Certificate itself. (77) In calculating the periods and time limits provided for in this Regulation, Regulation (EEC, Euratom) No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (7) should apply. (78) In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission with regard to the establishment and subsequent amendment of the attestations and forms pertaining to the declaration of enforceability of decisions, court settlements and authentic instruments and to the European Certificate of Succession. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (8). (79) The advisory procedure should be used for the adoption of implementing acts establishing and subsequently amending the attestations and forms provided for in this Regulation in accordance with the procedure laid down in Article 4 of Regulation (EU) No 182/2011. (80) Since the objectives of this Regulation, namely the free movement of persons, the organisation in advance by citizens of their succession in a Union context and the protection of the rights of heirs and legatees and of persons close to the deceased, as well as of the creditors of the succession, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and effects of this Regulation, be better achieved at Union level, the Union may adopt measures in accordance with the principle of ­subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives. (81) This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union.

124  Part I: European Union Legislation This Regulation must be applied by the courts and other competent authorities of the Member States in observance of those rights and principles. (82) In accordance with Articles 1 and 2 of Protocol No 21 on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union, those Member States are not taking part in the adoption of this Regulation and are not bound by it or subject to its application. This is, however, without prejudice to the possibility for the United Kingdom and Ireland of notifying their intention of accepting this Regulation after its adoption in accordance with Article 4 of the said Protocol. (83) In accordance with Articles 1 and 2 of Protocol No 22 on the position of Denmark, annexed to the Treaty on European Union and to the Treaty on the Functioning of the European Union, Denmark is not taking part in the adoption of this Regulation and is not bound by it or subject to its application, HAVE ADOPTED THIS REGULATION: Chapter I SCOPE AND DEFINITIONS Article 1 Scope 1. This Regulation shall apply to succession to the estates of deceased persons. It shall not apply to revenue, customs or administrative matters. 2. The following shall be excluded from the scope of this Regulation: (a) the status of natural persons, as well as family relationships and relationships deemed by the law applicable to such relationships to have comparable effects; (b) the legal capacity of natural persons, without prejudice to point (c) of Article 23(2) and to Article 26; (c) questions relating to the disappearance, absence or presumed death of a natural person; (d) questions relating to matrimonial property regimes and property regimes of relationships deemed by the law applicable to such relationships to have comparable effects to marriage; (e) maintenance obligations other than those arising by reason of death; (f) the formal validity of dispositions of property upon death made orally; (g) property rights, interests and assets created or transferred otherwise than by succession, for instance by way of gifts, joint ownership with a right of survivorship, pension plans, insurance contracts and arrangements of a similar nature, without prejudice to point (i) of Article 23(2); (h) questions governed by the law of companies and other bodies, corporate or unincorporated, such as clauses in the memoranda of association and

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(i) (j) (k) (l)

articles of association of companies and other bodies, corporate or unincorporated, which determine what will happen to the shares upon the death of the members; the dissolution, extinction and merger of companies and other bodies, corporate or unincorporated; the creation, administration and dissolution of trusts; the nature of rights in rem; and any recording in a register of rights in immovable or movable property, including the legal requirements for such recording, and the effects of recording or failing to record such rights in a register. Article 2 Competence in matters of succession within the Member States

This Regulation shall not affect the competence of the authorities of the Member States to deal with matters of succession. Article 3 Definitions 1. For the purposes of this Regulation: (a) ‘succession’ means succession to the estate of a deceased person and covers all forms of transfer of assets, rights and obligations by reason of death, whether by way of a voluntary transfer under a disposition of property upon death or a transfer through intestate succession; (b) ‘agreement as to succession’ means an agreement, including an agreement resulting from mutual wills, which, with or without consideration, creates, modifies or terminates rights to the future estate or estates of one or more persons party to the agreement; (c) ‘joint will’ means a will drawn up in one instrument by two or more persons; (d) ‘disposition of property upon death’ means a will, a joint will or an agreement as to succession; (e) ‘Member State of origin’ means the Member State in which the decision has been given, the court settlement approved or concluded, the authentic instrument established or the European Certificate of Succession issued; (f) ‘Member State of enforcement’ means the Member State in which the declaration of enforceability or the enforcement of the decision, court settlement or authentic instrument is sought; (g) ‘decision’ means any decision in a matter of succession given by a court of a Member State, whatever the decision may be called, including a decision on the determination of costs or expenses by an officer of the court;

126  Part I: European Union Legislation (h) ‘court settlement’ means a settlement in a matter of succession which has been approved by a court or concluded before a court in the course of proceedings; (i) ‘authentic instrument’ means a document in a matter of succession which has been formally drawn up or registered as an authentic instrument in a Member State and the authenticity of which: (i) relates to the signature and the content of the authentic instrument; and (ii) has been established by a public authority or other authority empowered for that purpose by the Member State of origin. 2. For the purposes of this Regulation, the term ‘court’ means any judicial authority and all other authorities and legal professionals with competence in matters of succession which exercise judicial functions or act pursuant to a delegation of power by a judicial authority or act under the control of a judicial authority, provided that such other authorities and legal professionals offer guarantees with regard to impartiality and the right of all parties to be heard and provided that their decisions under the law of the Member State in which they operate: (a) may be made the subject of an appeal to or review by a judicial authority; and (b) have a similar force and effect as a decision of a judicial authority on the same matter. The Member States shall notify the Commission of the other authorities and legal professionals referred to in the first subparagraph in accordance with Article 79. Chapter II JURISDICTION Article 4 General jurisdiction The courts of the Member State in which the deceased had his habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole. Article 5 Choice-of-court agreement 1. Where the law chosen by the deceased to govern his succession pursuant to Article 22 is the law of a Member State, the parties concerned may agree that a court or the courts of that Member State are to have exclusive jurisdiction to rule on any succession matter. 2. Such a choice-of-court agreement shall be expressed in writing, dated and signed by the parties concerned. Any communication by electronic means which provides a durable record of the agreement shall be deemed equivalent to writing.

Regulation (EU) No 650/2012 127 Article 6 Declining of jurisdiction in the event of a choice of law Where the law chosen by the deceased to govern his succession pursuant to Article 22 is the law of a Member State, the court seised pursuant to Article 4 or Article 10: (a) may, at the request of one of the parties to the proceedings, decline jurisdiction if it considers that the courts of the Member State of the chosen law are better placed to rule on the succession, taking into account the practical circumstances of the succession, such as the habitual residence of the parties and the location of the assets; or (b) shall decline jurisdiction if the parties to the proceedings have agreed, in accordance with Article 5, to confer jurisdiction on a court or the courts of the Member State of the chosen law. Article 7 Jurisdiction in the event of a choice of law The courts of a Member State whose law had been chosen by the deceased pursuant to Article 22 shall have jurisdiction to rule on the succession if: (a) a court previously seised has declined jurisdiction in the same case pursuant to Article 6; (b) the parties to the proceedings have agreed, in accordance with Article 5, to confer jurisdiction on a court or the courts of that Member State; or (c) the parties to the proceedings have expressly accepted the jurisdiction of the court seised. Article 8 Closing of own-motion proceedings in the event of a choice of law A court which has opened succession proceedings of its own motion under Article 4 or Article 10 shall close the proceedings if the parties to the proceedings have agreed to settle the succession amicably out of court in the Member State whose law had been chosen by the deceased pursuant to Article 22. Article 9 Jurisdiction based on appearance 1. Where, in the course of proceedings before a court of a Member State exercising jurisdiction pursuant to Article 7, it appears that not all the parties to those proceedings were party to the choice-of-court agreement, the court shall continue to exercise jurisdiction if the parties to the proceedings who were not party to the agreement enter an appearance without contesting the jurisdiction of the court.

128  Part I: European Union Legislation 2. If the jurisdiction of the court referred to in paragraph 1 is contested by parties to the proceedings who were not party to the agreement, the court shall decline jurisdiction. In that event, jurisdiction to rule on the succession shall lie with the courts having jurisdiction pursuant to Article 4 or Article 10. Article 10 Subsidiary jurisdiction 1. Where the habitual residence of the deceased at the time of death is not located in a Member State, the courts of a Member State in which assets of the estate are located shall nevertheless have jurisdiction to rule on the succession as a whole in so far as: (a) the deceased had the nationality of that Member State at the time of death; or, failing that, (b) the deceased had his previous habitual residence in that Member State, provided that, at the time the court is seised, a period of not more than five years has elapsed since that habitual residence changed. 2. Where no court in a Member State has jurisdiction pursuant to paragraph 1, the courts of the Member State in which assets of the estate are located shall nevertheless have jurisdiction to rule on those assets. Article 11 Forum necessitatis Where no court of a Member State has jurisdiction pursuant to other provisions of this Regulation, the courts of a Member State may, on an exceptional basis, rule on the succession if proceedings cannot reasonably be brought or conducted or would be impossible in a third State with which the case is closely connected. The case must have a sufficient connection with the Member State of the court seised. Article 12 Limitation of proceedings 1. Where the estate of the deceased comprises assets located in a third State, the court seised to rule on the succession may, at the request of one of the parties, decide not to rule on one or more of such assets if it may be expected that its decision in respect of those assets will not be recognised and, where applicable, declared enforceable in that third State. 2. Paragraph 1 shall not affect the right of the parties to limit the scope of the proceedings under the law of the Member State of the court seised.

Regulation (EU) No 650/2012 129 Article 13 Acceptance or waiver of the succession, of a legacy or of a reserved share In addition to the court having jurisdiction to rule on the succession pursuant to this Regulation, the courts of the Member State of the habitual residence of any person who, under the law applicable to the succession, may make, before a court, a declaration concerning the acceptance or waiver of the succession, of a legacy or of a reserved share, or a declaration designed to limit the liability of the person concerned in respect of the liabilities under the succession, shall have jurisdiction to receive such declarations where, under the law of that Member State, such declarations may be made before a court. Article 14 Seising of a court For the purposes of this Chapter, a court shall be deemed to be seised: (a) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the applicant has not subsequently failed to take the steps he was required to take to have service effected on the defendant; (b) if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the applicant has not subsequently failed to take the steps he was required to take to have the document lodged with the court; or (c) if the proceedings are opened of the court’s own motion, at the time when the decision to open the proceedings is taken by the court, or, where such a decision is not required, at the time when the case is registered by the court. Article 15 Examination as to jurisdiction Where a court of a Member State is seised of a succession matter over which it has no jurisdiction under this Regulation, it shall declare of its own motion that it has no jurisdiction. Article 16 Examination as to admissibility 1. Where a defendant habitually resident in a State other than the Member State where the action was brought does not enter an appearance, the court having jurisdiction shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in time to arrange for his defence, or that all necessary steps have been taken to that end.

130  Part I: European Union Legislation 2. Article 19 of Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents) (9) shall apply instead of paragraph 1 of this Article if the document instituting the proceedings or an equivalent document had to be transmitted from one Member State to another pursuant to that Regulation. OJ 2012 L201/1202012 · Official Journal of the European Union · L201/120 3. Where Regulation (EC) No 1393/2007 is not applicable, Article 15 of the Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters shall apply if the document instituting the proceedings or an equivalent document had to be transmitted abroad pursuant to that Convention. Article 17 Lis pendens 1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court. Article 18 Related actions 1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. 2. Where those actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. 3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable decisions resulting from separate proceedings. Article 19 Provisional, including protective, measures Application may be made to the courts of a Member State for such provisional, including protective, measures as may be available under the law of that State, even if, under this Regulation, the courts of another Member State have jurisdiction as to the substance of the matter.

Regulation (EU) No 650/2012 131 Chapter III APPLICABLE LAW Article 20 Universal application Any law specified by this Regulation shall be applied whether or not it is the law of a Member State. Article 21 General rule 1. Unless otherwise provided for in this Regulation, the law applicable to the succession as a whole shall be the law of the State in which the deceased had his habitual residence at the time of death. 2. Where, by way of exception, it is clear from all the circumstances of the case that, at the time of death, the deceased was manifestly more closely connected with a State other than the State whose law would be applicable under paragraph 1, the law applicable to the succession shall be the law of that other State. Article 22 Choice of law 1. A person may choose as the law to govern his succession as a whole the law of the State whose nationality he possesses at the time of making the choice or at the time of death. A person possessing multiple nationalities may choose the law of any of the States whose nationality he possesses at the time of making the choice or at the time of death. 2. The choice shall be made expressly in a declaration in the form of a disposition of property upon death or shall be demonstrated by the terms of such a disposition. 3. The substantive validity of the act whereby the choice of law was made shall be governed by the chosen law. 4. Any modification or revocation of the choice of law shall meet the requirements as to form for the modification or revocation of a disposition of property upon death. Article 23 The scope of the applicable law 1. The law determined pursuant to Article 21 or Article 22 shall govern the succession as a whole. 2. That law shall govern in particular: (a) the causes, time and place of the opening of the succession;

132  Part I: European Union Legislation (b) the determination of the beneficiaries, of their respective shares and of the obligations which may be imposed on them by the deceased, and the determination of other succession rights, including the succession rights of the surviving spouse or partner; (c) the capacity to inherit; (d) disinheritance and disqualification by conduct; (e) the transfer to the heirs and, as the case may be, to the legatees of the assets, rights and obligations forming part of the estate, including the conditions and effects of the acceptance or waiver of the succession or of a legacy; (f) the powers of the heirs, the executors of the wills and other administrators of the estate, in particular as regards the sale of property and the payment of creditors, without prejudice to the powers referred to in Article 29(2) and (3); (g) liability for the debts under the succession; (h) the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death as well as claims which persons close to the deceased may have against the estate or the heirs; (i) any obligation to restore or account for gifts, advancements or legacies when determining the shares of the different beneficiaries; and (j) the sharing-out of the estate. Article 24 Dispositions of property upon death other than agreements as to succession 1. A disposition of property upon death other than an agreement as to succession shall be governed, as regards its admissibility and substantive validity, by the law which, under this Regulation, would have been applicable to the succession of the person who made the disposition if he had died on the day on which the disposition was made. 2. Notwithstanding paragraph 1, a person may choose as the law to govern his disposition of property upon death, as regards its admissibility and substantive validity, the law which that person could have chosen in accordance with Article 22 on the conditions set out therein. 3. Paragraph 1 shall apply, as appropriate, to the modification or revocation of a disposition of property upon death other than an agreement as to succession. In the event of a choice of law in accordance with paragraph 2, the modification or revocation shall be governed by the chosen law. Article 25 Agreements as to succession 1. An agreement as to succession regarding the succession of one person shall be governed, as regards its admissibility, its substantive validity and its binding effects between the parties, including the conditions for its dissolution, by the law which, under this Regulation, would have been applicable to the succes-

Regulation (EU) No 650/2012 133 sion of that person if he had died on the day on which the agreement was concluded. 2. An agreement as to succession regarding the succession of several persons shall be admissible only if it is admissible under all the laws which, under this Regulation, would have governed the succession of all the persons involved if they had died on the day on which the agreement was concluded. An agreement as to succession which is admissible pursuant to the first subparagraph shall be governed, as regards its substantive validity and its binding effects between the parties, including the conditions for its dissolution, by the law, from among those referred to in the first subparagraph, with which it has the closest connection. 3. Notwithstanding paragraphs 1 and 2, the parties may choose as the law to govern their agreement as to succession, as regards its admissibility, its substantive validity and its binding effects between the parties, including the conditions for its dissolution, the law which the person or one of the persons whose estate is involved could have chosen in accordance with Article 22 on the conditions set out therein. Article 26 Substantive validity of dispositions of property upon death 1. For the purposes of Articles 24 and 25 the following elements shall pertain to substantive validity: (a) the capacity of the person making the disposition of property upon death to make such a disposition; (b) the particular causes which bar the person making the disposition from disposing in favour of certain persons or which bar a person from receiving succession property from the person making the disposition; (c) the admissibility of representation for the purposes of making a disposition of property upon death; (d) the interpretation of the disposition; (e) fraud, duress, mistake and any other questions relating to the consent or intention of the person making the disposition. 2. Where a person has the capacity to make a disposition of property upon death under the law applicable pursuant to Article 24 or Article 25, a subsequent change of the law applicable shall not affect his capacity to modify or revoke such a disposition. Article 27 Formal validity of dispositions of property upon death made in writing 1. A disposition of property upon death made in writing shall be valid as regards form if its form complies with the law: (a) of the State in which the disposition was made or the agreement as to succession concluded;

134  Part I: European Union Legislation (b) of a State whose nationality the testator or at least one of the persons whose succession is concerned by an agreement as to succession possessed, either at the time when the disposition was made or the agreement concluded, or at the time of death; (c) of a State in which the testator or at least one of the persons whose succession is concerned by an agreement as to succession had his domicile, either at the time when the disposition was made or the agreement concluded, or at the time of death; (d) of the State in which the testator or at least one of the persons whose succession is concerned by an agreement as to succession had his habitual residence, either at the time when the disposition was made or the agreement concluded, or at the time of death; or (e) in so far as immovable property is concerned, of the State in which that property is located. The determination of the question whether or not the testator or any person whose succession is concerned by the agreement as to succession had his domicile in a particular State shall be governed by the law of that State. 2. Paragraph 1 shall also apply to dispositions of property upon death modifying or revoking an earlier disposition. The modification or revocation shall also be valid as regards form if it complies with any one of the laws according to the terms of which, under paragraph 1, the disposition of property upon death which has been modified or revoked was valid. 3. For the purposes of this Article, any provision of law which limits the permitted forms of dispositions of property upon death by reference to the age, nationality or other personal conditions of the testator or of the persons whose succession is concerned by an agreement as to succession shall be deemed to pertain to matters of form. The same rule shall apply to the qualifications to be possessed by any witnesses required for the validity of a disposition of property upon death. Article 28 Validity as to form of a declaration concerning acceptance or waiver A declaration concerning the acceptance or waiver of the succession, of a legacy or of a reserved share, or a declaration designed to limit the liability of the person making the declaration, shall be valid as to form where it meets the requirements of: (a) the law applicable to the succession pursuant to Article 21 or Article 22; or (b) the law of the State in which the person making the declaration has his habitual residence. Article 29 Special rules on the appointment and powers of an administrator of the estate in certain situations 1. Where the appointment of an administrator is mandatory or mandatory upon request under the law of the Member State whose courts have jurisdiction to

Regulation (EU) No 650/2012 135 rule on the succession pursuant to this Regulation and the law applicable to the succession is a foreign law, the courts of that Member State may, when seised, appoint one or more administrators of the estate under their own law, subject to the conditions laid down in this Article. The administrator(s) appointed pursuant to this paragraph shall be the person(s) entitled to execute the will of the deceased and/or to administer the estate under the law applicable to the succession. Where that law does not provide for the administration of the estate by a person who is not a beneficiary, the courts of the Member State in which the administrator is to be appointed may appoint a third-party administrator under their own law if that law so requires and there is a serious conflict of interests between the beneficiaries or between the beneficiaries and the creditors or other persons having guaranteed the debts of the deceased, a disagreement amongst the beneficiaries on the administration of the estate or a complex estate to administer due to the nature of the assets. The administrator(s) appointed pursuant to this paragraph shall be the only person(s) entitled to exercise the powers referred to in paragraph 2 or 3. 2. The person(s) appointed as administrator(s) pursuant to paragraph 1 shall exercise the powers to administer the estate which he or they may exercise under the law applicable to the succession. The appointing court may, in its decision, lay down specific conditions for the exercise of such powers in accordance with the law applicable to the succession. Where the law applicable to the succession does not provide for sufficient powers to preserve the assets of the estate or to protect the rights of the creditors or of other persons having guaranteed the debts of the deceased, the appointing court may decide to allow the administrator(s) to exercise, on a residual basis, the powers provided for to that end by its own law and may, in its decision, lay down specific conditions for the exercise of such powers in accordance with that law. When exercising such residual powers, however, the administrator(s) shall respect the law applicable to the succession as regards the transfer of ownership of succession property, liability for the debts under the succession, the rights of the beneficiaries, including, where applicable, the right to accept or to waive the succession, and, where applicable, the powers of the executor of the will of the deceased. 3. Notwithstanding paragraph 2, the court appointing one or more administrators pursuant to paragraph 1 may, by way of exception, where the law applicable to the succession is the law of a third State, decide to vest in those administrators all the powers of administration provided for by the law of the Member State in which they are appointed. When exercising such powers, however, the administrators shall respect, in particular, the determination of the beneficiaries and their succession rights, including their rights to a reserved share or claim against the estate or the heirs under the law applicable to the succession.

136  Part I: European Union Legislation Article 30 Special rules imposing restrictions concerning or affecting the succession in respect of certain assets Where the law of the State in which certain immovable property, certain enterprises or other special categories of assets are located contains special rules which, for economic, family or social considerations, impose restrictions concerning or affecting the succession in respect of those assets, those special rules shall apply to the succession in so far as, under the law of that State, they are applicable irrespective of the law applicable to the succession. Article 31 Adaptation of rights in rem Where a person invokes a right in rem to which he is entitled under the law applicable to the succession and the law of the Member State in which the right is invoked does not know the right in rem in question, that right shall, if necessary and to the extent possible, be adapted to the closest equivalent right in rem under the law of that State, taking into account the aims and the interests pursued by the specific right in rem and the effects attached to it. Article 32 Commorientes Where two or more persons whose successions are governed by different laws die in circumstances in which it is uncertain in what order their deaths occurred, and where those laws provide differently for that situation or make no provision for it at all, none of the deceased persons shall have any rights to the succession of the other or others. Article 33 Estate without a claimant To the extent that, under the law applicable to the succession pursuant to this Regulation, there is no heir or legatee for any assets under a disposition of property upon death and no natural person is an heir by operation of law, the application of the law so determined shall not preclude the right of a Member State or of an entity appointed for that purpose by that Member State to appropriate under its own law the assets of the estate located on its territory, provided that the creditors are entitled to seek satisfaction of their claims out of the assets of the estate as a whole. Article 34 Renvoi 1. The application of the law of any third State specified by this Regulation shall mean the application of the rules of law in force in that State, including its rules of private international law in so far as those rules make a renvoi:

Regulation (EU) No 650/2012 137 (a) to the law of a Member State; or (b) to the law of another third State which would apply its own law. 2. No renvoi shall apply with respect to the laws referred to in Article 21(2), Article 22, Article 27, point (b) of Article 28 and Article 30. Article 35 Public policy (ordre public) The application of a provision of the law of any State specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum. Article 36 States with more than one legal system—territorial conflicts of laws 1. Where the law specified by this Regulation is that of a State which comprises several territorial units each of which has its own rules of law in respect of succession, the internal conflict-of-laws rules of that State shall determine the relevant territorial unit whose rules of law are to apply. 2. In the absence of such internal conflict-of-laws rules: (a) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the habitual residence of the deceased, be construed as referring to the law of the territorial unit in which the deceased had his habitual residence at the time of death; (b) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to provisions referring to the nationality of the deceased, be construed as referring to the law of the territorial unit with which the deceased had the closest connection; (c) any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the law applicable pursuant to any other provisions referring to other elements as connecting factors, be construed as referring to the law of the territorial unit in which the relevant element is located. 3. Notwithstanding paragraph 2, any reference to the law of the State referred to in paragraph 1 shall, for the purposes of determining the relevant law pursuant to Article 27, in the absence of internal conflict-of-laws rules in that State, be construed as referring to the law of the territorial unit with which the testator or the persons whose succession is concerned by the agreement as to succession had the closest connection. Article 37 States with more than one legal system—inter-personal conflicts of laws In relation to a State which has two or more systems of law or sets of rules applicable to different categories of persons in respect of succession, any reference to the

138  Part I: European Union Legislation law of that State shall be construed as referring to the system of law or set of rules determined by the rules in force in that State. In the absence of such rules, the system of law or the set of rules with which the deceased had the closest connection shall apply. Article 38 Non-application of this Regulation to internal conflicts of laws A Member State which comprises several territorial units each of which has its own rules of law in respect of succession shall not be required to apply this Regulation to conflicts of laws arising between such units only. Chapter IV RECOGNITION, ENFORCEABILITY AND ENFORCEMENT OF DECISIONS Article 39 Recognition 1. A decision given in a Member State shall be recognised in the other Member States without any special procedure being required. 2. Any interested party who raises the recognition of a decision as the principal issue in a dispute may, in accordance with the procedure provided for in Articles 45 to 58, apply for that decision to be recognised. 3. If the outcome of the proceedings in a court of a Member State depends on the determination of an incidental question of recognition, that court shall have jurisdiction over that question. Article 40 Grounds of non-recognition A decision shall not be recognised: (a) if such recognition is manifestly contrary to public policy (ordre public) in the Member State in which recognition is sought; (b) where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the decision when it was possible for him to do so; (c) if it is irreconcilable with a decision given in proceedings between the same parties in the Member State in which recognition is sought; (d) if it is irreconcilable with an earlier decision given in another Member State or in a third State in proceedings involving the same cause of action and between the same parties, provided that the earlier decision fulfils the condi-

Regulation (EU) No 650/2012 139 tions necessary for its recognition in the Member State in which recognition is sought. Article 41 No review as to the substance Under no circumstances may a decision given in a Member State be reviewed as to its substance. Article 42 Staying of recognition proceedings A court of a Member State in which recognition is sought of a decision given in another Member State may stay the proceedings if an ordinary appeal against the decision has been lodged in the Member State of origin. Article 43 Enforceability Decisions given in a Member State and enforceable in that State shall be enforceable in another Member State when, on the application of any interested party, they have been declared enforceable there in accordance with the procedure provided for in Articles 45 to 58. Article 44 Determination of domicile To determine whether, for the purposes of the procedure provided for in Articles 45 to 58, a party is domiciled in the Member State of enforcement, the court seised shall apply the internal law of that Member State. Article 45 Jurisdiction of local courts 1. The application for a declaration of enforceability shall be submitted to the court or competent authority of the Member State of enforcement communicated by that Member State to the Commission in accordance with Article 78. 2. The local jurisdiction shall be determined by reference to the place of domicile of the party against whom enforcement is sought, or to the place of enforcement. Article 46 Procedure 1. The application procedure shall be governed by the law of the Member State of enforcement.

140  Part I: European Union Legislation 2. The applicant shall not be required to have a postal address or an authorised representative in the Member State of enforcement. 3. The application shall be accompanied by the following documents: (a) a copy of the decision which satisfies the conditions necessary to establish its authenticity; (b) the attestation issued by the court or competent authority of the Member State of origin using the form established in accordance with the advisory procedure referred to in Article 81(2), without prejudice to Article 47. Article 47 Non-production of the attestation 1. If the attestation referred to in point (b) of Article 46(3) is not produced, the court or competent authority may specify a time for its production or accept an equivalent document or, if it considers that it has sufficient information before it, dispense with its production. 2. If the court or competent authority so requires, a translation of the documents shall be produced. The translation shall be done by a person qualified to do translations in one of the Member States. Article 48 Declaration of enforceability The decision shall be declared enforceable immediately on completion of the formalities in Article 46 without any review under Article 40. The party against whom enforcement is sought shall not at this stage of the proceedings be entitled to make any submissions on the application. Article 49 Notice of the decision on the application for a declaration of enforceability 1. The decision on the application for a declaration of enforceability shall forthwith be brought to the notice of the applicant in accordance with the procedure laid down by the law of the Member State of enforcement. 2. The declaration of enforceability shall be served on the party against whom enforcement is sought, accompanied by the decision, if not already served on that party. Article 50 Appeal against the decision on the application for a declaration of enforceability 1. The decision on the application for a declaration of enforceability may be appealed against by either party.

Regulation (EU) No 650/2012 141 2. The appeal shall be lodged with the court communicated by the Member State concerned to the Commission in accordance with Article 78. 3. The appeal shall be dealt with in accordance with the rules governing procedure in contradictory matters. 4. If the party against whom enforcement is sought fails to appear before the appellate court in proceedings concerning an appeal brought by the applicant, Article 16 shall apply even where the party against whom enforcement is sought is not domiciled in any of the Member States. 5. An appeal against the declaration of enforceability shall be lodged within 30 days of service thereof. If the party against whom enforcement is sought is domiciled in a Member State other than that in which the declaration of enforceability was given, the time for appealing shall be 60 days and shall run from the date of service, either on him in person or at his residence. No extension may be granted on account of distance. Article 51 Procedure to contest the decision given on appeal The decision given on the appeal may be contested only by the procedure communicated by the Member State concerned to the Commission in accordance with Article 78. Article 52 Refusal or revocation of a declaration of enforceability The court with which an appeal is lodged under Article 50 or Article 51 shall refuse or revoke a declaration of enforceability only on one of the grounds specified in Article 40. It shall give its decision without delay. Article 53 Staying of proceedings The court with which an appeal is lodged under Article 50 or Article 51 shall, on the application of the party against whom enforcement is sought, stay the proceedings if the enforceability of the decision is suspended in the Member State of origin by reason of an appeal. Article 54 Provisional, including protective, measures 1. When a decision must be recognised in accordance with this Chapter, nothing shall prevent the applicant from availing himself of provisional, including protective, measures in accordance with the law of the Member State of enforcement without a declaration of enforceability under Article 48 being required. 2. The declaration of enforceability shall carry with it by operation of law the power to proceed to any protective measures.

142  Part I: European Union Legislation 3. During the time specified for an appeal pursuant to Article 50(5) against the declaration of enforceability and until any such appeal has been determined, no measures of enforcement may be taken other than protective measures against the property of the party against whom enforcement is sought. Article 55 Partial enforceability 1. Where a decision has been given in respect of several matters and the declaration of enforceability cannot be given for all of them, the court or competent authority shall give it for one or more of them. 2. An applicant may request a declaration of enforceability limited to parts of a decision. Article 56 Legal aid An applicant who, in the Member State of origin, has benefited from complete or partial legal aid or exemption from costs or expenses shall be entitled, in any proceedings for a declaration of enforceability, to benefit from the most favourable legal aid or the most extensive exemption from costs or expenses provided for by the law of the Member State of enforcement. Article 57 No security, bond or deposit No security, bond or deposit, however described, shall be required of a party who in one Member State applies for recognition, enforceability or enforcement of a decision given in another Member State on the ground that he is a foreign national or that he is not domiciled or resident in the Member State of enforcement. Article 58 No charge, duty or fee In proceedings for the issue of a declaration of enforceability, no charge, duty or fee calculated by reference to the value of the matter at issue may be levied in the Member State of enforcement. Chapter V AUTHENTIC INSTRUMENTS AND COURT SETTLEMENTS Article 59 Acceptance of authentic instruments 1. An authentic instrument established in a Member State shall have the same evidentiary effects in another Member State as it has in the Member State of

Regulation (EU) No 650/2012 143 origin, or the most comparable effects, provided that this is not manifestly contrary to public policy (ordre public) in the Member State concerned. A person wishing to use an authentic instrument in another Member State may ask the authority establishing the authentic instrument in the Member State of origin to fill in the form established in accordance with the advisory procedure referred to in Article 81(2) describing the evidentiary effects which the authentic instrument produces in the Member State of origin. 2. Any challenge relating to the authenticity of an authentic instrument shall be made before the courts of the Member State of origin and shall be decided upon under the law of that State. The authentic instrument challenged shall not produce any evidentiary effect in another Member State as long as the challenge is pending before the competent court. 3. Any challenge relating to the legal acts or legal relationships recorded in an authentic instrument shall be made before the courts having jurisdiction under this Regulation and shall be decided upon under the law applicable pursuant to Chapter III. The authentic instrument challenged shall not produce any evidentiary effect in a Member State other than the Member State of origin as regards the matter being challenged as long as the challenge is pending before the competent court. 4. If the outcome of proceedings in a court of a Member State depends on the determination of an incidental question relating to the legal acts or legal relationships recorded in an authentic instrument in matters of succession, that court shall have jurisdiction over that question. Article 60 Enforceability of authentic instruments 1. An authentic instrument which is enforceable in the Member State of origin shall be declared enforceable in another Member State on the application of any interested party in accordance with the procedure provided for in Articles 45 to 58. 2. For the purposes of point (b) of Article 46(3), the authority which established the authentic instrument shall, on the application of any interested party, issue an attestation using the form established in accordance with the advisory procedure referred to in Article 81(2). 3. The court with which an appeal is lodged under Article 50 or Article 51 shall refuse or revoke a declaration of enforceability only if enforcement of the authentic instrument is manifestly contrary to public policy (ordre public) in the Member State of enforcement. Article 61 Enforceability of court settlements 1. Court settlements which are enforceable in the Member State of origin shall be declared enforceable in another Member State on the application of any

144  Part I: European Union Legislation interested party in accordance with the procedure provided for in Articles 45 to 58. 2. For the purposes of point (b) of Article 46(3), the court which approved the settlement or before which it was concluded shall, on the application of any interested party, issue an attestation using the form established in accordance with the advisory procedure referred to in Article 81(2). 3. The court with which an appeal is lodged under Article 50 or Article 51 shall refuse or revoke a declaration of enforceability only if enforcement of the court settlement is manifestly contrary to public policy (ordre public) in the Member State of enforcement. Chapter VI EUROPEAN CERTIFICATE OF SUCCESSION Article 62 Creation of a European Certificate of Succession 1. This Regulation creates a European Certificate of Succession (hereinafter referred to as ‘the Certificate’) which shall be issued for use in another Member State and shall produce the effects listed in Article 69. 2. The use of the Certificate shall not be mandatory. 3. The Certificate shall not take the place of internal documents used for similar purposes in the Member States. However, once issued for use in another Member State, the Certificate shall also produce the effects listed in Article 69 in the Member State whose authorities issued it in accordance with this Chapter. Article 63 Purpose of the Certificate 1. The Certificate is for use by heirs, legatees having direct rights in the succession and executors of wills or administrators of the estate who, in another Member State, need to invoke their status or to exercise respectively their rights as heirs or legatees and/or their powers as executors of wills or administrators of the estate. 2. The Certificate may be used, in particular, to demonstrate one or more of the following: (a) the status and/or the rights of each heir or, as the case may be, each legatee mentioned in the Certificate and their respective shares of the estate; (b) the attribution of a specific asset or specific assets forming part of the estate to the heir(s) or, as the case may be, the legatee(s) mentioned in the Certificate; (c) the powers of the person mentioned in the Certificate to execute the will or administer the estate.

Regulation (EU) No 650/2012 145 Article 64 Competence to issue the Certificate The Certificate shall be issued in the Member State whose courts have jurisdiction under Article 4, Article 7, Article 10 or Article 11. The issuing authority shall be: (a) a court as defined in Article 3(2); or (b) another authority which, under national law, has competence to deal with matters of succession. Article 65 Application for a Certificate 1. The Certificate shall be issued upon application by any person referred to in Article 63(1) (hereinafter referred to as ‘the applicant’). 2. For the purposes of submitting an application, the applicant may use the form established in accordance with the advisory procedure referred to in Article 81(2). 3. The application shall contain the information listed below, to the extent that such information is within the applicant’s knowledge and is necessary in order to enable the issuing authority to certify the elements which the applicant wants certified, and shall be accompanied by all relevant documents either in the original or by way of copies which satisfy the conditions necessary to establish their authenticity, without prejudice to Article 66(2): (a) details concerning the deceased: surname (if applicable, surname at birth), given name(s), sex, date and place of birth, civil status, nationality, identification number (if applicable), address at the time of death, date and place of death; (b) details concerning the applicant: surname (if applicable, surname at birth), given name(s), sex, date and place of birth, civil status, nationality, identification number (if applicable), address and relationship to the deceased, if any; (c) details concerning the representative of the applicant, if any: surname (if applicable, surname at birth), given name(s), address and representative capacity; (d) details of the spouse or partner of the deceased and, if applicable, exspouse(s) or ex-partner(s): surname (if applicable, surname at birth), given name(s), sex, date and place of birth, civil status, nationality, identification number (if applicable) and address; (e) details of other possible beneficiaries under a disposition of property upon death and/or by operation of law: surname and given name(s) or organisation name, identification number (if applicable) and address; (f) the intended purpose of the Certificate in accordance with Article 63; (g) the contact details of the court or other competent authority which is dealing with or has dealt with the succession as such, if applicable;

146  Part I: European Union Legislation (h) the elements on which the applicant founds, as appropriate, his claimed right to succession property as a beneficiary and/or his right to execute the will of the deceased and/or to administer the estate of the deceased; (i) an indication of whether the deceased had made a disposition of property upon death; if neither the original nor a copy is appended, an indication regarding the location of the original; (j) an indication of whether the deceased had entered into a marriage contract or into a contract regarding a relationship which may have comparable effects to marriage; if neither the original nor a copy of the contract is appended, an indication regarding the location of the original; (k) an indication of whether any of the beneficiaries has made a declaration concerning acceptance or waiver of the succession; (l) a declaration stating that, to the applicant’s best knowledge, no dispute is pending relating to the elements to be certified; (m) any other information which the applicant deems useful for the purposes of the issue of the Certificate. Article 66 Examination of the application 1. Upon receipt of the application the issuing authority shall verify the information and declarations and the documents and other evidence provided by the applicant. It shall carry out the enquiries necessary for that verification of its own motion where this is provided for or authorised by its own law, or shall invite the applicant to provide any further evidence which it deems necessary. 2. Where the applicant has been unable to produce copies of the relevant documents which satisfy the conditions necessary to establish their authenticity, the issuing authority may decide to accept other forms of evidence. 3. Where this is provided for by its own law and subject to the conditions laid down therein, the issuing authority may require that declarations be made on oath or by a statutory declaration in lieu of an oath. 4. The issuing authority shall take all necessary steps to inform the beneficiaries of the application for a Certificate. It shall, if necessary for the establishment of the elements to be certified, hear any person involved and any executor or administrator and make public announcements aimed at giving other possible beneficiaries the opportunity to invoke their rights. 5. For the purposes of this Article, the competent authority of a Member State shall, upon request, provide the issuing authority of another Member State with information held, in particular, in the land registers, the civil status registers and registers recording documents and facts of relevance for the succession or for the matrimonial property regime or an equivalent property regime of the deceased, where that competent authority would be authorised, under national law, to provide another national authority with such information.

Regulation (EU) No 650/2012 147 Article 67 Issue of the Certificate 1. The issuing authority shall issue the Certificate without delay in accordance with the procedure laid down in this Chapter when the elements to be certified have been established under the law applicable to the succession or under any other law applicable to specific elements. It shall use the form established in accordance with the advisory procedure referred to in Article 81(2). The issuing authority shall not issue the Certificate in particular if: (a) the elements to be certified are being challenged; or (b) the Certificate would not be in conformity with a decision covering the same elements. 2. The issuing authority shall take all necessary steps to inform the beneficiaries of the issue of the Certificate. Article 68 Contents of the Certificate The Certificate shall contain the following information, to the extent required for the purpose for which it is issued: (a) the name and address of the issuing authority; (b) the reference number of the file; (c) the elements on the basis of which the issuing authority considers itself competent to issue the Certificate; (d) the date of issue; (e) details concerning the applicant: surname (if applicable, surname at birth), given name(s), sex, date and place of birth, civil status, nationality, identification number (if applicable), address and relationship to the deceased, if any; (f) details concerning the deceased: surname (if applicable, surname at birth), given name(s), sex, date and place of birth, civil status, nationality, identification number (if applicable), address at the time of death, date and place of death; (g) details concerning the beneficiaries: surname (if applicable, surname at birth), given name(s) and identification number (if applicable); (h) information concerning a marriage contract entered into by the deceased or, if applicable, a contract entered into by the deceased in the context of a relationship deemed by the law applicable to such a relationship to have comparable effects to marriage, and information concerning the matrimonial property regime or equivalent property regime; (i) the law applicable to the succession and the elements on the basis of which that law has been determined; (j) information as to whether the succession is testate or intestate, including information concerning the elements giving rise to the rights and/or powers of the heirs, legatees, executors of wills or administrators of the estate;

148  Part I: European Union Legislation (k) if applicable, information in respect of each beneficiary concerning the nature of the acceptance or waiver of the succession; (l) the share for each heir and, if applicable, the list of rights and/or assets for any given heir; (m) the list of rights and/or assets for any given legatee; (n) the restrictions on the rights of the heir(s) and, as appropriate, legatee(s) under the law applicable to the succession and/or under the disposition of property upon death; (o) the powers of the executor of the will and/or the administrator of the estate and the restrictions on those powers under the law applicable to the succession and/or under the disposition of property upon death. Article 69 Effects of the Certificate 1. The Certificate shall produce its effects in all Member States, without any special procedure being required. 2. The Certificate shall be presumed to accurately demonstrate elements which have been established under the law applicable to the succession or under any other law applicable to specific elements. The person mentioned in the Certificate as the heir, legatee, executor of the will or administrator of the estate shall be presumed to have the status mentioned in the Certificate and/or to hold the rights or the powers stated in the Certificate, with no conditions and/ or restrictions being attached to those rights or powers other than those stated in the Certificate. 3. Any person who, acting on the basis of the information certified in a Certificate, makes payments or passes on property to a person mentioned in the Certificate as authorised to accept payment or property shall be considered to have transacted with a person with authority to accept payment or property, unless he knows that the contents of the Certificate are not accurate or is unaware of such inaccuracy due to gross negligence. 4. Where a person mentioned in the Certificate as authorised to dispose of succession property disposes of such property in favour of another person, that other person shall, if acting on the basis of the information certified in the Certificate, be considered to have transacted with a person with authority to dispose of the property concerned, unless he knows that the contents of the Certificate are not accurate or is unaware of such inaccuracy due to gross negligence. 5. The Certificate shall constitute a valid document for the recording of succession property in the relevant register of a Member State, without prejudice to points (k) and (l) of Article 1(2).

Regulation (EU) No 650/2012 149 Article 70 Certified copies of the Certificate 1. The issuing authority shall keep the original of the Certificate and shall issue one or more certified copies to the applicant and to any person demonstrating a legitimate interest. 2. The issuing authority shall, for the purposes of Articles 71(3) and 73(2), keep a list of persons to whom certified copies have been issued pursuant to paragraph 1. 3. The certified copies issued shall be valid for a limited period of six months, to be indicated in the certified copy by way of an expiry date. In exceptional, duly justified cases, the issuing authority may, by way of derogation, decide that the period of validity is to be longer. Once this period has elapsed, any person in possession of a certified copy must, in order to be able to use the Certificate for the purposes indicated in Article 63, apply for an extension of the period of validity of the certified copy or request a new certified copy from the issuing authority. Article 71 Rectification, modification or withdrawal of the Certificate 1. The issuing authority shall, at the request of any person demonstrating a legitimate interest or of its own motion, rectify the Certificate in the event of a clerical error. 2. The issuing authority shall, at the request of any person demonstrating a legitimate interest or, where this is possible under national law, of its own motion, modify or withdraw the Certificate where it has been established that the Certificate or individual elements thereof are not accurate. 3. The issuing authority shall without delay inform all persons to whom certified copies of the Certificate have been issued pursuant to Article 70(1) of any rectification, modification or withdrawal thereof. Article 72 Redress procedures 1. Decisions taken by the issuing authority pursuant to Article 67 may be challenged by any person entitled to apply for a Certificate. Decisions taken by the issuing authority pursuant to Article 71 and point (a) of Article 73(1) may be challenged by any person demonstrating a legitimate interest. The challenge shall be lodged before a judicial authority in the Member State of the issuing authority in accordance with the law of that State. 2. If, as a result of a challenge as referred to in paragraph 1, it is established that the Certificate issued is not accurate, the competent judicial authority shall rectify, modify or withdraw the Certificate or ensure that it is rectified, modified or withdrawn by the issuing authority.

150  Part I: European Union Legislation If, as a result of a challenge as referred to in paragraph 1, it is established that the refusal to issue the Certificate was unjustified, the competent judicial authority shall issue the Certificate or ensure that the issuing authority reassesses the case and makes a fresh decision. Article 73 Suspension of the effects of the Certificate 1. The effects of the Certificate may be suspended by: (a) the issuing authority, at the request of any person demonstrating a legitimate interest, pending a modification or withdrawal of the Certificate pursuant to Article 71; or (b) the judicial authority, at the request of any person entitled to challenge a decision taken by the issuing authority pursuant to Article 72, pending such a challenge. 2. The issuing authority or, as the case may be, the judicial authority shall without delay inform all persons to whom certified copies of the Certificate have been issued pursuant to Article 70(1) of any suspension of the effects of the Certificate. During the suspension of the effects of the Certificate no further certified copies of the Certificate may be issued. Chapter VII GENERAL AND FINAL PROVISIONS Article 74 Legalisation and other similar formalities No legalisation or other similar formality shall be required in respect of documents issued in a Member State in the context of this Regulation. Article 75 Relationship with existing international conventions 1. This Regulation shall not affect the application of international conventions to which one or more Member States are party at the time of adoption of this Regulation and which concern matters covered by this Regulation. In particular, Member States which are Contracting Parties to the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions shall continue to apply the provisions of that Convention instead of Article 27 of this Regulation with regard to the formal validity of wills and joint wills. 2. Notwithstanding paragraph 1, this Regulation shall, as between Member States, take precedence over conventions concluded exclusively between two or more of them in so far as such conventions concern matters governed by this Regulation.

Regulation (EU) No 650/2012 151 3. This Regulation shall not preclude the application of the Convention of 19 November 1934 between Denmark, Finland, Iceland, Norway and Sweden comprising private international law provisions on succession, wills and estate administration, as revised by the intergovernmental agreement between those States of 1 June 2012, by the Member States which are parties thereto, in so far as it provides for: (a) rules on the procedural aspects of estate administration as defined by the Convention and assistance in that regard by the authorities of the States Contracting Parties to the Convention; and (b) simplified and more expeditious procedures for the recognition and enforcement of decisions in matters of succession. Article 76 Relationship with Council Regulation (EC) No 1346/2000 This Regulation shall not affect the application of Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (10). Article 77 Information made available to the public The Member States shall, with a view to making the information available to the public within the framework of the European Judicial Network in civil and commercial matters, provide the Commission with a short summary of their national legislation and procedures relating to succession, including information on the type of authority which has competence in matters of succession and information on the type of authority competent to receive declarations of acceptance or waiver of the succession, of a legacy or of a reserved share. The Member States shall also provide fact sheets listing all the documents and/or information usually required for the purposes of registration of immovable property located on their territory. The Member States shall keep the information permanently updated. Article 78 Information on contact details and procedures 1. By 16 January 2014, the Member States shall communicate to the Commission: (a) the names and contact details of the courts or authorities with competence to deal with applications for a declaration of enforceability in accordance with Article 45(1) and with appeals against decisions on such applications in accordance with Article 50(2); (b) the procedures to contest the decision given on appeal referred to in ­Article 51; (c) the relevant information regarding the authorities competent to issue the Certificate pursuant to Article 64; and (d) the redress procedures referred to in Article 72.

152  Part I: European Union Legislation The Member States shall apprise the Commission of any subsequent changes to that information. 2. The Commission shall publish the information communicated in accordance with paragraph 1 in the Official Journal of the European Union, with the exception of the addresses and other contact details of the courts and authorities referred to in point (a) of paragraph 1. 3. The Commission shall make all information communicated in accordance with paragraph 1 publicly available through any other appropriate means, in particular through the European Judicial Network in civil and commercial matters. Article 79 Establishment and subsequent amendment of the list containing the information referred to in Article 3(2) 1. The Commission shall, on the basis of the notifications by the Member States, establish the list of the other authorities and legal professionals referred to in Article 3(2). 2. The Member States shall notify the Commission of any subsequent changes to the information contained in that list. The Commission shall amend the list accordingly. 3. The Commission shall publish the list and any subsequent amendments in the Official Journal of the European Union. 4. The Commission shall make all information notified in accordance with paragraphs 1 and 2 publicly available through any other appropriate means, in particular through the European Judicial Network in civil and commercial matters. Article 80 Establishment and subsequent amendment of the attestations and forms referred to in Articles 46, 59, 60, 61, 65 and 67 The Commission shall adopt implementing acts establishing and subsequently amending the attestations and forms referred to in Articles 46, 59, 60, 61, 65 and 67. Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 81(2). Article 81 Committee procedure 1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply.

Regulation (EU) No 650/2012 153 Article 82 Review By 18 August 2025 the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a report on the application of this Regulation, including an evaluation of any practical problems encountered in relation to parallel out-of-court settlements of succession cases in different Member States or an out-of-court settlement in one Member State effected in parallel with a settlement before a court in another Member State. The report shall be accompanied, where appropriate, by proposals for amendments. Article 83 Transitional provisions 1. This Regulation shall apply to the succession of persons who die on or after 17 August 2015. 2. Where the deceased had chosen the law applicable to his succession prior to 17 August 2015, that choice shall be valid if it meets the conditions laid down in Chapter III or if it is valid in application of the rules of private international law which were in force, at the time the choice was made, in the State in which the deceased had his habitual residence or in any of the States whose nationality he possessed. 3. A disposition of property upon death made prior to 17 August 2015 shall be admissible and valid in substantive terms and as regards form if it meets the conditions laid down in Chapter III or if it is admissible and valid in substantive terms and as regards form in application of the rules of private international law which were in force, at the time the disposition was made, in the State in which the deceased had his habitual residence or in any of the States whose nationality he possessed or in the Member State of the authority dealing with the succession. 4. If a disposition of property upon death was made prior to 17 August 2015 in accordance with the law which the deceased could have chosen in accordance with this Regulation, that law shall be deemed to have been chosen as the law applicable to the succession. Article 84 Entry into force This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 17 August 2015, except for Articles 77 and 78, which shall apply from 16 January 2014, and Articles 79, 80 and 81, which shall apply from 5 July 2012. This Regulation shall be binding in its entirety and directly applicable in the ­Member States in accordance with the Treaties.

154  Part I: European Union Legislation (1)

OJ C 44, 11.2.2011, p. 148. of the European Parliament of 13 March 2012 (not yet published in the Official Journal) and decision of the Council of 7 June 2012. (3) OJ C 12, 15.1.2001, p. 1. (4) OJ C 53, 3.3.2005, p. 1. (5) OJ C 115, 4.5.2010, p. 1. (6) OJ L 174, 27.6.2001, p. 25. (7) OJ L 124, 8.6.1971, p. 1. (8) OJ L 55, 28.2.2011, p. 13. (9) OJ L 324, 10.12.2007, p. 79. (10) OJ L 160, 30.6.2000, p. 1. (2) Position

Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Official Journal L 351, 20/12/2012 p. 1) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 67(4) and points (a), (c) and (e) of Article 81(2) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) On 21 April 2009, the Commission adopted a report on the application of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (3). The report concluded that, in general, the operation of that Regulation is satisfactory, but that it is desirable to improve the application of certain of its provisions, to further facilitate the free circulation of judgments and to further enhance access to justice. Since a number of amendments are to be made to that Regulation it should, in the interests of clarity, be recast. (2) At its meeting in Brussels on 10 and 11 December 2009, the European Council adopted a new multiannual programme entitled ‘The Stockholm ­Programme—an open and secure Europe serving and protecting citizens’ (4). In the Stockholm Programme the European Council considered that the process of abolishing all intermediate measures (the exequatur) should be continued during the period covered by that Programme. At the same time the abolition of the exequatur should also be accompanied by a series of safeguards.

156  Part I: European Union Legislation (3) The Union has set itself the objective of maintaining and developing an area of freedom, security and justice, inter alia, by facilitating access to justice, in particular through the principle of mutual recognition of judicial and extra-judicial decisions in civil matters. For the gradual establishment of such an area, the Union is to adopt measures relating to judicial cooperation in civil matters having cross-border implications, particularly when necessary for the proper functioning of the internal market. (4) Certain differences between national rules governing jurisdiction and recognition of judgments hamper the sound operation of the internal market. Provisions to unify the rules of conflict of jurisdiction in civil and commercial matters, and to ensure rapid and simple recognition and enforcement of judgments given in a Member State, are essential. (5) Such provisions fall within the area of judicial cooperation in civil matters within the meaning of Article 81 of the Treaty on the Functioning of the European Union (TFEU). (6) In order to attain the objective of free circulation of judgments in civil and commercial matters, it is necessary and appropriate that the rules governing jurisdiction and the recognition and enforcement of judgments be governed by a legal instrument of the Union which is binding and directly applicable. (7) On 27 September 1968, the then Member States of the European Communities, acting under Article 220, fourth indent, of the Treaty establishing the European Economic Community, concluded the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, subsequently amended by conventions on the accession to that Convention of new Member States (5) (‘the 1968 Brussels Convention’). On 16 September 1988, the then Member States of the European Communities and certain EFTA States concluded the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (6) (‘the 1988 Lugano Convention’), which is a parallel convention to the 1968 Brussels Convention. The 1988 Lugano Convention became applicable to Poland on 1 February 2000. (8) On 22 December 2000, the Council adopted Regulation (EC) No 44/2001, which replaces the 1968 Brussels Convention with regard to the territories of the Member States covered by the TFEU, as between the Member States except Denmark. By Council Decision 2006/325/EC (7), the Community concluded an agreement with Denmark ensuring the application of the provisions of Regulation (EC) No 44/2001 in Denmark. The 1988 Lugano Convention was revised by the Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (8), signed at Lugano on 30 October 2007 by the Community, Denmark, ­Iceland, Norway and Switzerland (‘the 2007 Lugano Convention’). (9) The 1968 Brussels Convention continues to apply to the territories of the Member States which fall within the territorial scope of that Convention and which are excluded from this Regulation pursuant to Article 355 of the TFEU.

Regulation (EU) No 1215/2012 157 (10) The scope of this Regulation should cover all the main civil and commercial matters apart from certain well-defined matters, in particular maintenance obligations, which should be excluded from the scope of this Regulation following the adoption of Council Regulation (EC) No 4/2009 of 18 ­December 2008 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations (9). (11) For the purposes of this Regulation, courts or tribunals of the Member States should include courts or tribunals common to several Member States, such as the Benelux Court of Justice when it exercises jurisdiction on matters falling within the scope of this Regulation. Therefore, judgments given by such courts should be recognised and enforced in accordance with this Regulation. (12) This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law. A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court of a Member State, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not preclude that court’s judgment on the substance of the matter from being recognised or, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 (‘the 1958 New York Convention’), which takes precedence over this Regulation. This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award. (13) There must be a connection between proceedings to which this Regulation applies and the territory of the Member States. Accordingly, common rules of jurisdiction should, in principle, apply when the defendant is domiciled in a Member State.

158  Part I: European Union Legislation (14) A defendant not domiciled in a Member State should in general be subject to the national rules of jurisdiction applicable in the territory of the Member State of the court seised. However, in order to ensure the protection of consumers and employees, to safeguard the jurisdiction of the courts of the Member States in situations where they have exclusive jurisdiction and to respect the autonomy of the parties, certain rules of jurisdiction in this Regulation should apply regardless of the defendant’s domicile. (15) The rules of jurisdiction should be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile. Jurisdiction should always be available on this ground save in a few welldefined situations in which the subject-matter of the dispute or the autonomy of the parties warrants a different connecting factor. The domicile of a legal person must be defined autonomously so as to make the common rules more transparent and avoid conflicts of jurisdiction. (16) In addition to the defendant’s domicile, there should be alternative grounds of jurisdiction based on a close connection between the court and the action or in order to facilitate the sound administration of justice. The existence of a close connection should ensure legal certainty and avoid the possibility of the defendant being sued in a court of a Member State which he could not reasonably have foreseen. This is important, particularly in disputes concerning non-contractual obligations arising out of violations of privacy and rights relating to personality, including defamation. (17) The owner of a cultural object as defined in Article 1(1) of Council Directive 93/7/EEC of 15 March 1993 on the return of cultural objects unlawfully removed from the territory of a Member State (10) should be able under this Regulation to initiate proceedings as regards a civil claim for the recovery, based on ownership, of such a cultural object in the courts for the place where the cultural object is situated at the time the court is seised. Such proceedings should be without prejudice to proceedings initiated under ­Directive 93/7/EEC. (18) In relation to insurance, consumer and employment contracts, the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules. (19) The autonomy of the parties to a contract, other than an insurance, consumer or employment contract, where only limited autonomy to determine the courts having jurisdiction is allowed, should be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation. (20) Where a question arises as to whether a choice-of-court agreement in favour of a court or the courts of a Member State is null and void as to its substantive validity, that question should be decided in accordance with the law of the Member State of the court or courts designated in the agreement, including the conflict-of-laws rules of that Member State. (21) In the interests of the harmonious administration of justice it is necessary to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in different Member States.

Regulation (EU) No 1215/2012 159

(22)

(23)

(24)

(25)

There should be a clear and effective mechanism for resolving cases of lis pendens and related actions, and for obviating problems flowing from national differences as to the determination of the time when a case is regarded as pending. For the purposes of this Regulation, that time should be defined autonomously. However, in order to enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics, it is necessary to provide for an exception to the general lis pendens rule in order to deal satisfactorily with a particular situation in which concurrent proceedings may arise. This is the situation where a court not designated in an exclusive choice-ofcourt agreement has been seised of proceedings and the designated court is seised subsequently of proceedings involving the same cause of action and between the same parties. In such a case, the court first seised should be required to stay its proceedings as soon as the designated court has been seised and until such time as the latter court declares that it has no jurisdiction under the exclusive choice-of-court agreement. This is to ensure that, in such a situation, the designated court has priority to decide on the validity of the agreement and on the extent to which the agreement applies to the dispute pending before it. The designated court should be able to proceed irrespective of whether the non-designated court has already decided on the stay of proceedings. This exception should not cover situations where the parties have entered into conflicting exclusive choice-of-court agreements or where a court designated in an exclusive choice-of-court agreement has been seised first. In such cases, the general lis pendens rule of this Regulation should apply. This Regulation should provide for a flexible mechanism allowing the courts of the Member States to take into account proceedings pending before the courts of third States, considering in particular whether a judgment of a third State will be capable of recognition and enforcement in the Member State concerned under the law of that Member State and the proper administration of justice. When taking into account the proper administration of justice, the court of the Member State concerned should assess all the circumstances of the case before it. Such circumstances may include connections between the facts of the case and the parties and the third State concerned, the stage to which the proceedings in the third State have progressed by the time proceedings are initiated in the court of the Member State and whether or not the court of the third State can be expected to give a judgment within a reasonable time. That assessment may also include consideration of the question whether the court of the third State has exclusive jurisdiction in the particular case in circumstances where a court of a Member State would have exclusive jurisdiction. The notion of provisional, including protective, measures should include, for example, protective orders aimed at obtaining information or ­preserving evidence as referred to in Articles 6 and 7 of Directive 2004/48/EC of the

160  Part I: European Union Legislation

(26)

(27) (28)

(29)

(30)

European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (11). It should not include measures which are not of a protective nature, such as measures ordering the hearing of a witness. This should be without prejudice to the application of Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters (12). Mutual trust in the administration of justice in the Union justifies the principle that judgments given in a Member State should be recognised in all Member States without the need for any special procedure. In addition, the aim of making cross-border litigation less time-consuming and costly justifies the abolition of the declaration of enforceability prior to enforcement in the Member State addressed. As a result, a judgment given by the courts of a Member State should be treated as if it had been given in the Member State addressed. For the purposes of the free circulation of judgments, a judgment given in a Member State should be recognised and enforced in another Member State even if it is given against a person not domiciled in a Member State. Where a judgment contains a measure or order which is not known in the law of the Member State addressed, that measure or order, including any right indicated therein, should, to the extent possible, be adapted to one which, under the law of that Member State, has equivalent effects attached to it and pursues similar aims. How, and by whom, the adaptation is to be carried out should be determined by each Member State. The direct enforcement in the Member State addressed of a judgment given in another Member State without a declaration of enforceability should not jeopardise respect for the rights of the defence. Therefore, the person against whom enforcement is sought should be able to apply for refusal of the recognition or enforcement of a judgment if he considers one of the grounds for refusal of recognition to be present. This should include the ground that he had not had the opportunity to arrange for his defence where the judgment was given in default of appearance in a civil action linked to criminal proceedings. It should also include the grounds which could be invoked on the basis of an agreement between the Member State addressed and a third State concluded pursuant to Article 59 of the 1968 Brussels Convention. A party challenging the enforcement of a judgment given in another Member State should, to the extent possible and in accordance with the legal system of the Member State addressed, be able to invoke, in the same procedure, in addition to the grounds for refusal provided for in this Regulation, the grounds for refusal available under national law and within the time-limits laid down in that law. The recognition of a judgment should, however, be refused only if one or more of the grounds for refusal provided for in this Regulation are present.

Regulation (EU) No 1215/2012 161 (31) Pending a challenge to the enforcement of a judgment, it should be possible for the courts in the Member State addressed, during the entire proceedings relating to such a challenge, including any appeal, to allow the enforcement to proceed subject to a limitation of the enforcement or to the provision of security. (32) In order to inform the person against whom enforcement is sought of the enforcement of a judgment given in another Member State, the certificate established under this Regulation, if necessary accompanied by the judgment, should be served on that person in reasonable time before the first enforcement measure. In this context, the first enforcement measure should mean the first enforcement measure after such service. (33) Where provisional, including protective, measures are ordered by a court having jurisdiction as to the substance of the matter, their free circulation should be ensured under this Regulation. However, provisional, including protective, measures which were ordered by such a court without the defendant being summoned to appear should not be recognised and enforced under this Regulation unless the judgment containing the measure is served on the defendant prior to enforcement. This should not preclude the recognition and enforcement of such measures under national law. Where provisional, including protective, measures are ordered by a court of a Member State not having jurisdiction as to the substance of the matter, the effect of such measures should be confined, under this Regulation, to the territory of that Member State. (34) Continuity between the 1968 Brussels Convention, Regulation (EC) No 44/2001 and this Regulation should be ensured, and transitional provisions should be laid down to that end. The same need for continuity applies as regards the interpretation by the Court of Justice of the European Union of the 1968 Brussels Convention and of the Regulations replacing it. (35) Respect for international commitments entered into by the Member States means that this Regulation should not affect conventions relating to specific matters to which the Member States are parties. (36) Without prejudice to the obligations of the Member States under the Treaties, this Regulation should not affect the application of bilateral conventions and agreements between a third State and a Member State concluded before the date of entry into force of Regulation (EC) No 44/2001 which concern matters governed by this Regulation. (37) In order to ensure that the certificates to be used in connection with the recognition or enforcement of judgments, authentic instruments and court settlements under this Regulation are kept up-to-date, the power to adopt acts in accordance with Article 290 of the TFEU should be delegated to the Commission in respect of amendments to Annexes I and II to this Regulation. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

162  Part I: European Union Legislation (38) This Regulation respects fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union, in particular the right to an effective remedy and to a fair trial guaranteed in Article 47 of the Charter. (39) Since the objective of this Regulation cannot be sufficiently achieved by the Member States and can be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU). In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (40) The United Kingdom and Ireland, in accordance with Article 3 of the Protocol on the position of the United Kingdom and Ireland, annexed to the TEU and to the then Treaty establishing the European Community, took part in the adoption and application of Regulation (EC) No 44/2001. In accordance with Article 3 of Protocol No 21 on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, annexed to the TEU and to the TFEU, the United Kingdom and Ireland have notified their wish to take part in the adoption and application of this Regulation. (41) In accordance with Articles 1 and 2 of Protocol No 22 on the position of Denmark annexed to the TEU and to the TFEU, Denmark is not taking part in the adoption of this Regulation and is not bound by it or subject to its application, without prejudice to the possibility for Denmark of applying the amendments to Regulation (EC) No 44/2001 pursuant to Article 3 of the Agreement of 19 October 2005 between the European Community and the Kingdom of Denmark on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (13), HAVE ADOPTED THIS REGULATION: Chapter I SCOPE AND DEFINITIONS Article 1 1. This Regulation shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters or to the liability of the State for acts and omissions in the exercise of State authority (acta iure imperii). 2. This Regulation shall not apply to: (a) the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship or out of a relationship deemed by the law applicable to such relationship to have comparable effects to marriage;

Regulation (EU) No 1215/2012 163 (b) bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings; (c) social security; (d) arbitration; (e) maintenance obligations arising from a family relationship, parentage, marriage or affinity; (f) wills and succession, including maintenance obligations arising by reason of death. Article 2 For the purposes of this Regulation: (a) ‘judgment’ means any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as a decision on the determination of costs or expenses by an officer of the court. For the purposes of Chapter III, ‘judgment’ includes provisional, including protective, measures ordered by a court or tribunal which by virtue of this Regulation has jurisdiction as to the substance of the matter. It does not include a provisional, including protective, measure which is ordered by such a court or tribunal without the defendant being summoned to appear, unless the judgment containing the measure is served on the defendant prior to enforcement; (b) ‘court settlement’ means a settlement which has been approved by a court of a Member State or concluded before a court of a Member State in the course of proceedings; (c) ‘authentic instrument’ means a document which has been formally drawn up or registered as an authentic instrument in the Member State of origin and the authenticity of which: (i) relates to the signature and the content of the instrument; and (ii) has been established by a public authority or other authority empowered for that purpose; (d) ‘Member State of origin’ means the Member State in which, as the case may be, the judgment has been given, the court settlement has been approved or concluded, or the authentic instrument has been formally drawn up or registered; (e) ‘Member State addressed’ means the Member State in which the recognition of the judgment is invoked or in which the enforcement of the judgment, the court settlement or the authentic instrument is sought; (f) ‘court of origin’ means the court which has given the judgment the recognition of which is invoked or the enforcement of which is sought.

164  Part I: European Union Legislation Article 3 For the purposes of this Regulation, ‘court’ includes the following authorities to the extent that they have jurisdiction in matters falling within the scope of this Regulation: (a) in Hungary, in summary proceedings concerning orders to pay (fizetési meghagyásos eljárás), the notary (közjegyzo); (b) in Sweden, in summary proceedings concerning orders to pay (betalningsföreläggande) and assistance (handräckning), the Enforcement Authority (Kronofogdemyndigheten). Chapter II JURISDICTION Section 1 General provisions Article 4 1. Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State. 2. Persons who are not nationals of the Member State in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that Member State. Article 5 1. Persons domiciled in a Member State may be sued in the courts of another Member State only by virtue of the rules set out in Sections 2 to 7 of this Chapter. 2. In particular, the rules of national jurisdiction of which the Member States are to notify the Commission pursuant to point (a) of Article 76(1) shall not be applicable as against the persons referred to in paragraph 1. Article 6 1. If the defendant is not domiciled in a Member State, the jurisdiction of the courts of each Member State shall, subject to Article 18(1), Article 21(2) and Articles 24 and 25, be determined by the law of that Member State. 2. As against such a defendant, any person domiciled in a Member State may, whatever his nationality, avail himself in that Member State of the rules of jurisdiction there in force, and in particular those of which the Member States are to notify the Commission pursuant to point (a) of Article 76(1), in the same way as nationals of that Member State.

Regulation (EU) No 1215/2012 165 Section 2 Special jurisdiction Article 7 A person domiciled in a Member State may be sued in another Member State: (1)  (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: —— in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered, —— in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided; (c) if point (b) does not apply then point (a) applies; (2) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur; (3) as regards a civil claim for damages or restitution which is based on an act giving rise to criminal proceedings, in the court seised of those proceedings, to the extent that that court has jurisdiction under its own law to entertain civil proceedings; (4) as regards a civil claim for the recovery, based on ownership, of a cultural object as defined in point 1 of Article 1 of Directive 93/7/EEC initiated by the person claiming the right to recover such an object, in the courts for the place where the cultural object is situated at the time when the court is seised; (5) as regards a dispute arising out of the operations of a branch, agency or other establishment, in the courts for the place where the branch, agency or other establishment is situated; (6) as regards a dispute brought against a settlor, trustee or beneficiary of a trust created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, in the courts of the Member State in which the trust is domiciled; (7) as regards a dispute concerning the payment of remuneration claimed in respect of the salvage of a cargo or freight, in the court under the authority of which the cargo or freight in question: (a) has been arrested to secure such payment; or (b) could have been so arrested, but bail or other security has been given; provided that this provision shall apply only if it is claimed that the defendant has an interest in the cargo or freight or had such an interest at the time of salvage.

166  Part I: European Union Legislation Article 8 A person domiciled in a Member State may also be sued: (1) where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings; (2) as a third party in an action on a warranty or guarantee or in any other thirdparty proceedings, in the court seised of the original proceedings, unless these were instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case; (3) on a counter-claim arising from the same contract or facts on which the original claim was based, in the court in which the original claim is pending; (4) in matters relating to a contract, if the action may be combined with an action against the same defendant in matters relating to rights in rem in immovable property, in the court of the Member State in which the property is situated. Article 9 Where by virtue of this Regulation a court of a Member State has jurisdiction in actions relating to liability from the use or operation of a ship, that court, or any other court substituted for this purpose by the internal law of that Member State, shall also have jurisdiction over claims for limitation of such liability. Section 3 Jurisdiction in matters relating to insurance Article 10 In matters relating to insurance, jurisdiction shall be determined by this Section, without prejudice to Article 6 and point 5 of Article 7. Article 11 1. An insurer domiciled in a Member State may be sued: (a) in the courts of the Member State in which he is domiciled; (b) in another Member State, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts for the place where the claimant is domiciled; or (c) if he is a co-insurer, in the courts of a Member State in which proceedings are brought against the leading insurer. 2. An insurer who is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that Member State.

Regulation (EU) No 1215/2012 167 Article 12 In respect of liability insurance or insurance of immovable property, the insurer may in addition be sued in the courts for the place where the harmful event occurred. The same applies if movable and immovable property are covered by the same insurance policy and both are adversely affected by the same contingency. Article 13 1. In respect of liability insurance, the insurer may also, if the law of the court permits it, be joined in proceedings which the injured party has brought against the insured. 2. Articles 10, 11 and 12 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted. 3. If the law governing such direct actions provides that the policyholder or the insured may be joined as a party to the action, the same court shall have jurisdiction over them. Article 14 1. Without prejudice to Article 13(3), an insurer may bring proceedings only in the courts of the Member State in which the defendant is domiciled, irrespective of whether he is the policyholder, the insured or a beneficiary. 2. The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending. Article 15 The provisions of this Section may be departed from only by an agreement: (1) which is entered into after the dispute has arisen; (2) which allows the policyholder, the insured or a beneficiary to bring proceedings in courts other than those indicated in this Section; (3) which is concluded between a policyholder and an insurer, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Member State, and which has the effect of conferring jurisdiction on the courts of that Member State even if the harmful event were to occur abroad, provided that such an agreement is not contrary to the law of that Member State; (4) which is concluded with a policyholder who is not domiciled in a Member State, except in so far as the insurance is compulsory or relates to immovable property in a Member State; or (5) which relates to a contract of insurance in so far as it covers one or more of the risks set out in Article 16.

168  Part I: European Union Legislation Article 16 The following are the risks referred to in point 5 of Article 15: (1) any loss of or damage to: (a) seagoing ships, installations situated offshore or on the high seas, or aircraft, arising from perils which relate to their use for commercial purposes; (b) goods in transit other than passengers’ baggage where the transit consists of or includes carriage by such ships or aircraft; (2) any liability, other than for bodily injury to passengers or loss of or damage to their baggage: (a) arising out of the use or operation of ships, installations or aircraft as referred to in point 1(a) in so far as, in respect of the latter, the law of the Member State in which such aircraft are registered does not prohibit agreements on jurisdiction regarding insurance of such risks; (b) for loss or damage caused by goods in transit as described in point 1(b); (3) any financial loss connected with the use or operation of ships, installations or aircraft as referred to in point 1(a), in particular loss of freight or charter-hire; (4) any risk or interest connected with any of those referred to in points 1 to 3; (5) notwithstanding points 1 to 4, all ‘large risks’ as defined in Directive 2009/138/ EC of the European Parliament and of the Council of 25 ­November 2009 on the taking- up and pursuit of the business of Insurance and Reinsurance (Solvency II) (14). Section 4 Jurisdiction over consumer contracts Article 17 1. In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 6 and point 5 of Article 7, if: (a) it is a contract for the sale of goods on instalment credit terms; (b) it is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or (c) in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities. 2. Where a consumer enters into a contract with a party who is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operations

Regulation (EU) No 1215/2012 169 of the branch, agency or establishment, be deemed to be domiciled in that Member State. 3. This Section shall not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation. Article 18 1. A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or, regardless of the domicile of the other party, in the courts for the place where the consumer is domiciled. 2. Proceedings may be brought against a consumer by the other party to the contract only in the courts of the Member State in which the consumer is domiciled. 3. This Article shall not affect the right to bring a counter-claim in the court in which, in accordance with this Section, the original claim is pending. Article 19 The provisions of this Section may be departed from only by an agreement: (1) which is entered into after the dispute has arisen; (2) which allows the consumer to bring proceedings in courts other than those indicated in this Section; or (3) which is entered into by the consumer and the other party to the contract, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that Member State, provided that such an agreement is not contrary to the law of that Member State. Section 5 Jurisdiction over individual contracts of employment Article 20 1. In matters relating to individual contracts of employment, jurisdiction shall be determined by this Section, without prejudice to Article 6, point 5 of Article 7 and, in the case of proceedings brought against an employer, point 1 of Article 8. 2. Where an employee enters into an individual contract of employment with an employer who is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States, the employer shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that Member State.

170  Part I: European Union Legislation Article 21 1. An employer domiciled in a Member State may be sued: (a) in the courts of the Member State in which he is domiciled; or (b) in another Member State: (i) in the courts for the place where or from where the employee habitually carries out his work or in the courts for the last place where he did so; or (ii) if the employee does not or did not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is or was situated. 2. An employer not domiciled in a Member State may be sued in a court of a Member State in accordance with point (b) of paragraph 1. Article 22 1. An employer may bring proceedings only in the courts of the Member State in which the employee is domiciled. 2. The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending. Article 23 The provisions of this Section may be departed from only by an agreement: (1) which is entered into after the dispute has arisen; or (2) which allows the employee to bring proceedings in courts other than those indicated in this Section. Section 6 Exclusive jurisdiction Article 24 The following courts of a Member State shall have exclusive jurisdiction, regardless of the domicile of the parties: (1) in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Member State in which the property is situated. However, in proceedings which have as their object tenancies of immovable property concluded for temporary private use for a maximum period of six consecutive months, the courts of the Member State in which the defendant is domiciled shall also have jurisdiction, provided that the tenant is a natural person and that the landlord and the tenant are domiciled in the same Member State;

Regulation (EU) No 1215/2012 171 (2) in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law; (3) in proceedings which have as their object the validity of entries in public registers, the courts of the Member State in which the register is kept; (4) in proceedings concerned with the registration or validity of patents, trade marks, designs, or other similar rights required to be deposited or registered, irrespective of whether the issue is raised by way of an action or as a defence, the courts of the Member State in which the deposit or registration has been applied for, has taken place or is under the terms of an instrument of the Union or an international convention deemed to have taken place. Without prejudice to the jurisdiction of the European Patent Office under the Convention on the Grant of European Patents, signed at Munich on 5 October 1973, the courts of each Member State shall have exclusive jurisdiction in proceedings concerned with the registration or validity of any European patent granted for that Member State; (5) in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced. Section 7 Prorogation of jurisdiction Article 25 1. If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing; (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned. 2. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’.

172  Part I: European Union Legislation 3. The court or courts of a Member State on which a trust instrument has conferred jurisdiction shall have exclusive jurisdiction in any proceedings brought against a settlor, trustee or beneficiary, if relations between those persons or their rights or obligations under the trust are involved. 4. Agreements or provisions of a trust instrument conferring jurisdiction shall have no legal force if they are contrary to Articles 15, 19 or 23, or if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 24. 5. An agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. The validity of the agreement conferring jurisdiction cannot be contested solely on the ground that the contract is not valid. Article 26 1. Apart from jurisdiction derived from other provisions of this Regulation, a court of a Member State before which a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of Article 24. 2. In matters referred to in Sections 3, 4 or 5 where the policyholder, the insured, a beneficiary of the insurance contract, the injured party, the consumer or the employee is the defendant, the court shall, before assuming jurisdiction under paragraph 1, ensure that the defendant is informed of his right to contest the jurisdiction of the court and of the consequences of entering or not entering an appearance. Section 8 Examination as to jurisdiction and admissibility Article 27 Where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 24, it shall declare of its own motion that it has no jurisdiction. Article 28 1. Where a defendant domiciled in one Member State is sued in a court of another Member State and does not enter an appearance, the court shall declare of its own motion that it has no jurisdiction unless its jurisdiction is derived from the provisions of this Regulation. 2. The court shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in sufficient time to enable him to arrange for his defence, or that all necessary steps have been taken to this end.

Regulation (EU) No 1215/2012 173 3. Article 19 of Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents) (15) shall apply instead of paragraph 2 of this Article if the document instituting the proceedings or an equivalent document had to be transmitted from one Member State to another pursuant to that Regulation. 4. Where Regulation (EC) No 1393/2007 is not applicable, Article 15 of the Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters shall apply if the document instituting the proceedings or an equivalent document had to be transmitted abroad pursuant to that Convention. Section 9 Lis pendens—related actions Article 29 1. Without prejudice to Article 31(2), where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. In cases referred to in paragraph 1, upon request by a court seised of the dispute, any other court seised shall without delay inform the former court of the date when it was seised in accordance with Article 32. 3. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court. Article 30 1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. 2. Where the action in the court first seised is pending at first instance, any other court may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. 3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. Article 31 1. Where actions come within the exclusive jurisdiction of several courts, any court other than the court first seised shall decline jurisdiction in favour of that court.

174  Part I: European Union Legislation 2. Without prejudice to Article 26, where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement. 3. Where the court designated in the agreement has established jurisdiction in accordance with the agreement, any court of another Member State shall decline jurisdiction in favour of that court. 4. Paragraphs 2 and 3 shall not apply to matters referred to in Sections 3, 4 or 5 where the policyholder, the insured, a beneficiary of the insurance contract, the injured party, the consumer or the employee is the claimant and the agreement is not valid under a provision contained within those Sections. Article 32 1. For the purposes of this Section, a court shall be deemed to be seised: (a) at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the claimant has not subsequently failed to take the steps he was required to take to have service effected on the defendant; or (b) if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the claimant has not subsequently failed to take the steps he was required to take to have the document lodged with the court. The authority responsible for service referred to in point (b) shall be the first authority receiving the documents to be served. 2. The court, or the authority responsible for service, referred to in paragraph 1, shall note, respectively, the date of the lodging of the document instituting the proceedings or the equivalent document, or the date of receipt of the documents to be served. Article 33 1. Where jurisdiction is based on Article 4 or on Articles 7, 8 or 9 and proceedings are pending before a court of a third State at the time when a court in a Member State is seised of an action involving the same cause of action and between the same parties as the proceedings in the court of the third State, the court of the Member State may stay the proceedings if: (a) it is expected that the court of the third State will give a judgment capable of recognition and, where applicable, of enforcement in that Member State; and (b) the court of the Member State is satisfied that a stay is necessary for the proper administration of justice. 2. The court of the Member State may continue the proceedings at any time if:

Regulation (EU) No 1215/2012 175 (a) the proceedings in the court of the third State are themselves stayed or discontinued; (b) it appears to the court of the Member State that the proceedings in the court of the third State are unlikely to be concluded within a reasonable time; or (c) the continuation of the proceedings is required for the proper administration of justice. 3. The court of the Member State shall dismiss the proceedings if the proceedings in the court of the third State are concluded and have resulted in a judgment capable of recognition and, where applicable, of enforcement in that Member State. 4. The court of the Member State shall apply this Article on the application of one of the parties or, where possible under national law, of its own motion. Article 34 1. Where jurisdiction is based on Article 4 or on Articles 7, 8 or 9 and an action is pending before a court of a third State at the time when a court in a Member State is seised of an action which is related to the action in the court of the third State, the court of the Member State may stay the proceedings if: (a) it is expedient to hear and determine the related actions together to avoid the risk of irreconcilable judgments resulting from separate proceedings; (b) it is expected that the court of the third State will give a judgment capable of recognition and, where applicable, of enforcement in that Member State; and (c) the court of the Member State is satisfied that a stay is necessary for the proper administration of justice. 2. The court of the Member State may continue the proceedings at any time if: (a) it appears to the court of the Member State that there is no longer a risk of irreconcilable judgments; (b) the proceedings in the court of the third State are themselves stayed or discontinued; (c) it appears to the court of the Member State that the proceedings in the court of the third State are unlikely to be concluded within a reasonable time; or (d) the continuation of the proceedings is required for the proper administration of justice. 3. The court of the Member State may dismiss the proceedings if the proceedings in the court of the third State are concluded and have resulted in a judgment capable of recognition and, where applicable, of enforcement in that Member State. 4. The court of the Member State shall apply this Article on the application of one of the parties or, where possible under national law, of its own motion.

176  Part I: European Union Legislation Section 10 Provisional, including protective, measures Article 35 Application may be made to the courts of a Member State for such provisional, including protective, measures as may be available under the law of that Member State, even if the courts of another Member State have jurisdiction as to the substance of the matter. Chapter III RECOGNITION AND ENFORCEMENT Section 1 Recognition Article 36 1. A judgment given in a Member State shall be recognised in the other Member States without any special procedure being required. 2. Any interested party may, in accordance with the procedure provided for in Subsection 2 of Section 3, apply for a decision that there are no grounds for refusal of recognition as referred to in Article 45. 3. If the outcome of proceedings in a court of a Member State depends on the determination of an incidental question of refusal of recognition, that court shall have jurisdiction over that question. Article 37 1. A party who wishes to invoke in a Member State a judgment given in another Member State shall produce: (a) a copy of the judgment which satisfies the conditions necessary to establish its authenticity; and (b) the certificate issued pursuant to Article 53. 2. The court or authority before which a judgment given in another Member State is invoked may, where necessary, require the party invoking it to provide, in accordance with Article 57, a translation or a transliteration of the contents of the certificate referred to in point (b) of paragraph 1. The court or authority may require the party to provide a translation of the judgment instead of a translation of the contents of the certificate if it is unable to proceed without such a translation. Article 38 The court or authority before which a judgment given in another Member State is invoked may suspend the proceedings, in whole or in part, if: (a) the judgment is challenged in the Member State of origin; or

Regulation (EU) No 1215/2012 177 (b) an application has been submitted for a decision that there are no grounds for refusal of recognition as referred to in Article 45 or for a decision that the recognition is to be refused on the basis of one of those grounds. Section 2 Enforcement Article 39 A judgment given in a Member State which is enforceable in that Member State shall be enforceable in the other Member States without any declaration of enforceability being required. Article 40 An enforceable judgment shall carry with it by operation of law the power to proceed to any protective measures which exist under the law of the Member State addressed. Article 41 1. Subject to the provisions of this Section, the procedure for the enforcement of judgments given in another Member State shall be governed by the law of the Member State addressed. A judgment given in a Member State which is enforceable in the Member State addressed shall be enforced there under the same conditions as a judgment given in the Member State addressed. 2. Notwithstanding paragraph 1, the grounds for refusal or of suspension of enforcement under the law of the Member State addressed shall apply in so far as they are not incompatible with the grounds referred to in Article 45. 3. The party seeking the enforcement of a judgment given in another Member State shall not be required to have a postal address in the Member State addressed. Nor shall that party be required to have an authorised representative in the Member State addressed unless such a representative is mandatory irrespective of the nationality or the domicile of the parties. Article 42 1. For the purposes of enforcement in a Member State of a judgment given in another Member State, the applicant shall provide the competent enforcement authority with: (a) a copy of the judgment which satisfies the conditions necessary to establish its authenticity; and (b) the certificate issued pursuant to Article 53, certifying that the judgment is enforceable and containing an extract of the judgment as well as, where appropriate, relevant information on the recoverable costs of the proceedings and the calculation of interest.

178  Part I: European Union Legislation 2. For the purposes of enforcement in a Member State of a judgment given in another Member State ordering a provisional, including a protective, measure, the applicant shall provide the competent enforcement authority with: (a) a copy of the judgment which satisfies the conditions necessary to establish its authenticity; (b) the certificate issued pursuant to Article 53, containing a description of the measure and certifying that: (i) the court has jurisdiction as to the substance of the matter; (ii) the judgment is enforceable in the Member State of origin; and (c) where the measure was ordered without the defendant being summoned to appear, proof of service of the judgment. 3. The competent enforcement authority may, where necessary, require the applicant to provide, in accordance with Article 57, a translation or a transliteration of the contents of the certificate. 4. The competent enforcement authority may require the applicant to provide a translation of the judgment only if it is unable to proceed without such a translation. Article 43 1. Where enforcement is sought of a judgment given in another Member State, the certificate issued pursuant to Article 53 shall be served on the person against whom the enforcement is sought prior to the first enforcement measure. The certificate shall be accompanied by the judgment, if not already served on that person. 2. Where the person against whom enforcement is sought is domiciled in a Member State other than the Member State of origin, he may request a translation of the judgment in order to contest the enforcement if the judgment is not written in or accompanied by a translation into either of the following languages: (a) a language which he understands; or (b) the official language of the Member State in which he is domiciled or, where there are several official languages in that Member State, the official language or one of the official languages of the place where he is domiciled. Where a translation of the judgment is requested under the first subparagraph, no measures of enforcement may be taken other than protective measures until that translation has been provided to the person against whom enforcement is sought. This paragraph shall not apply if the judgment has already been served on the person against whom enforcement is sought in one of the languages referred to in the first subparagraph or is accompanied by a translation into one of those languages. 3. This Article shall not apply to the enforcement of a protective measure in a judgment or where the person seeking enforcement proceeds to protective measures in accordance with Article 40.

Regulation (EU) No 1215/2012 179 Article 44 1. In the event of an application for refusal of enforcement of a judgment pursuant to Subsection 2 of Section 3, the court in the Member State addressed may, on the application of the person against whom enforcement is sought: (a) limit the enforcement proceedings to protective measures; (b) make enforcement conditional on the provision of such security as it shall determine; or (c) suspend, either wholly or in part, the enforcement proceedings. 2. The competent authority in the Member State addressed shall, on the application of the person against whom enforcement is sought, suspend the enforcement proceedings where the enforceability of the judgment is suspended in the Member State of origin. Section 3 Refusal of recognition and enforcement Subsection 1 Refusal of recognition Article 45 1. On the application of any interested party, the recognition of a judgment shall be refused: (a) if such recognition is manifestly contrary to public policy (ordre public) in the Member State addressed; (b) where the judgment was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so; (c) if the judgment is irreconcilable with a judgment given between the same parties in the Member State addressed; (d) if the judgment is irreconcilable with an earlier judgment given in another Member State or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the Member State addressed; or (e) if the judgment conflicts with: (i) Sections 3, 4 or 5 of Chapter II where the policyholder, the insured, a beneficiary of the insurance contract, the injured party, the consumer or the employee was the defendant; or (ii) Section 6 of Chapter II.

180  Part I: European Union Legislation 2. In its examination of the grounds of jurisdiction referred to in point (e) of paragraph 1, the court to which the application was submitted shall be bound by the findings of fact on which the court of origin based its jurisdiction. 3. Without prejudice to point (e) of paragraph 1, the jurisdiction of the court of origin may not be reviewed. The test of public policy referred to in point (a) of paragraph 1 may not be applied to the rules relating to jurisdiction. 4. The application for refusal of recognition shall be made in accordance with the procedures provided for in Subsection 2 and, where appropriate, Section 4. Subsection 2 Refusal of enforcement Article 46 On the application of the person against whom enforcement is sought, the enforcement of a judgment shall be refused where one of the grounds referred to in Article 45 is found to exist. Article 47 1. The application for refusal of enforcement shall be submitted to the court which the Member State concerned has communicated to the Commission pursuant to point (a) of Article 75 as the court to which the application is to be submitted. 2. The procedure for refusal of enforcement shall, in so far as it is not covered by this Regulation, be governed by the law of the Member State addressed. 3. The applicant shall provide the court with a copy of the judgment and, where necessary, a translation or transliteration of it. The court may dispense with the production of the documents referred to in the first subparagraph if it already possesses them or if it considers it unreasonable to require the applicant to provide them. In the latter case, the court may require the other party to provide those documents. 4. The party seeking the refusal of enforcement of a judgment given in another Member State shall not be required to have a postal address in the Member State addressed. Nor shall that party be required to have an authorised representative in the Member State addressed unless such a representative is mandatory irrespective of the nationality or the domicile of the parties. Article 48 The court shall decide on the application for refusal of enforcement without delay. Article 49 1. The decision on the application for refusal of enforcement may be appealed against by either party.

Regulation (EU) No 1215/2012 181 2. The appeal is to be lodged with the court which the Member State concerned has communicated to the Commission pursuant to point (b) of Article 75 as the court with which such an appeal is to be lodged. Article 50 The decision given on the appeal may only be contested by an appeal where the courts with which any further appeal is to be lodged have been communicated by the Member State concerned to the Commission pursuant to point (c) of Article 75. Article 51 1. The court to which an application for refusal of enforcement is submitted or the court which hears an appeal lodged under Article 49 or Article 50 may stay the proceedings if an ordinary appeal has been lodged against the judgment in the Member State of origin or if the time for such an appeal has not yet expired. In the latter case, the court may specify the time within which such an appeal is to be lodged. 2. Where the judgment was given in Ireland, Cyprus or the United Kingdom, any form of appeal available in the Member State of origin shall be treated as an ordinary appeal for the purposes of paragraph 1. Section 4 Common provisions Article 52 Under no circumstances may a judgment given in a Member State be reviewed as to its substance in the Member State addressed. Article 53 The court of origin shall, at the request of any interested party, issue the certificate using the form set out in Annex I. Article 54 1. If a judgment contains a measure or an order which is not known in the law of the Member State addressed, that measure or order shall, to the extent possible, be adapted to a measure or an order known in the law of that Member State which has equivalent effects attached to it and which pursues similar aims and interests. Such adaptation shall not result in effects going beyond those provided for in the law of the Member State of origin. 2. Any party may challenge the adaptation of the measure or order before a court. 3. If necessary, the party invoking the judgment or seeking its enforcement may be required to provide a translation or a transliteration of the judgment.

182  Part I: European Union Legislation Article 55 A judgment given in a Member State which orders a payment by way of a penalty shall be enforceable in the Member State addressed only if the amount of the payment has been finally determined by the court of origin. Article 56 No security, bond or deposit, however described, shall be required of a party who in one Member State applies for the enforcement of a judgment given in another Member State on the ground that he is a foreign national or that he is not domiciled or resident in the Member State addressed. Article 57 1. When a translation or a transliteration is required under this Regulation, such translation or transliteration shall be into the official language of the Member State concerned or, where there are several official languages in that Member State, into the official language or one of the official languages of court proceedings of the place where a judgment given in another Member State is invoked or an application is made, in accordance with the law of that Member State. 2. For the purposes of the forms referred to in Articles 53 and 60, translations or transliterations may also be into any other official language or languages of the institutions of the Union that the Member State concerned has indicated it can accept. 3. Any translation made under this Regulation shall be done by a person qualified to do translations in one of the Member States. Chapter IV AUTHENTIC INSTRUMENTS AND COURT SETTLEMENTS Article 58 1. An authentic instrument which is enforceable in the Member State of origin shall be enforceable in the other Member States without any declaration of enforceability being required. Enforcement of the authentic instrument may be refused only if such enforcement is manifestly contrary to public policy (ordre public) in the Member State addressed. The provisions of Section 2, Subsection 2 of Section 3, and Section 4 of Chapter III shall apply as appropriate to authentic instruments. 2. The authentic instrument produced must satisfy the conditions necessary to establish its authenticity in the Member State of origin. Article 59 A court settlement which is enforceable in the Member State of origin shall be enforced in the other Member States under the same conditions as authentic instruments.

Regulation (EU) No 1215/2012 183 Article 60 The competent authority or court of the Member State of origin shall, at the request of any interested party, issue the certificate using the form set out in Annex II containing a summary of the enforceable obligation recorded in the authentic instrument or of the agreement between the parties recorded in the court settlement. Chapter V GENERAL PROVISIONS Article 61 No legalisation or other similar formality shall be required for documents issued in a Member State in the context of this Regulation. Article 62 1. In order to determine whether a party is domiciled in the Member State whose courts are seised of a matter, the court shall apply its internal law. 2. If a party is not domiciled in the Member State whose courts are seised of the matter, then, in order to determine whether the party is domiciled in another Member State, the court shall apply the law of that Member State. Article 63 1. For the purposes of this Regulation, a company or other legal person or association of natural or legal persons is domiciled at the place where it has its: (a) statutory seat; (b) central administration; or (c) principal place of business. 2. For the purposes of Ireland, Cyprus and the United Kingdom, ‘statutory seat’ means the registered office or, where there is no such office anywhere, the place of incorporation or, where there is no such place anywhere, the place under the law of which the formation took place. 3. In order to determine whether a trust is domiciled in the Member State whose courts are seised of the matter, the court shall apply its rules of private international law. Article 64 Without prejudice to any more favourable provisions of national laws, persons domiciled in a Member State who are being prosecuted in the criminal courts of another Member State of which they are not nationals for an offence which was not intentionally committed may be defended by persons qualified to do so, even if they do not appear in person. However, the court seised of the matter may order appearance in person; in the case of failure to appear, a judgment given in the civil action without the person concerned having had the opportunity to arrange for his defence need not be recognised or enforced in the other Member States.

184  Part I: European Union Legislation Article 65 1. The jurisdiction specified in point 2 of Article 8 and Article 13 in actions on a warranty or guarantee or in any other third-party proceedings may be resorted to in the Member States included in the list established by the Commission pursuant to point (b) of Article 76(1) and Article 76(2) only in so far as permitted under national law. A person domiciled in another Member State may be invited to join the proceedings before the courts of those Member States pursuant to the rules on third-party notice referred to in that list. 2. Judgments given in a Member State by virtue of point 2 of Article 8 or Article 13 shall be recognised and enforced in accordance with Chapter III in any other Member State. Any effects which judgments given in the Member States included in the list referred to in paragraph 1 may have, in accordance with the law of those Member States, on third parties by application of paragraph 1 shall be recognised in all Member States. 3. The Member States included in the list referred to in paragraph 1 shall, within the framework of the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC (16) (‘the European Judicial Network’) provide information on how to determine, in accordance with their national law, the effects of the judgments referred to in the second sentence of paragraph 2. Chapter VI TRANSITIONAL PROVISIONS Article 66 1. This Regulation shall apply only to legal proceedings instituted, to authentic instruments formally drawn up or registered and to court settlements approved or concluded on or after 10 January 2015. 2. Notwithstanding Article 80, Regulation (EC) No 44/2001 shall continue to apply to judgments given in legal proceedings instituted, to authentic instruments formally drawn up or registered and to court settlements approved or concluded before 10 January 2015 which fall within the scope of that Regulation. Chapter VII RELATIONSHIP WITH OTHER INSTRUMENTS Article 67 This Regulation shall not prejudice the application of provisions governing jurisdiction and the recognition and enforcement of judgments in specific matters which are contained in instruments of the Union or in national legislation harmonised pursuant to such instruments.

Regulation (EU) No 1215/2012 185 Article 68 1. This Regulation shall, as between the Member States, supersede the 1968 Brussels Convention, except as regards the territories of the Member States which fall within the territorial scope of that Convention and which are excluded from this Regulation pursuant to Article 355 of the TFEU. 2. In so far as this Regulation replaces the provisions of the 1968 Brussels Convention between the Member States, any reference to that Convention shall be understood as a reference to this Regulation. Article 69 Subject to Articles 70 and 71, this Regulation shall, as between the Member States, supersede the conventions that cover the same matters as those to which this Regulation applies. In particular, the conventions included in the list established by the Commission pursuant to point (c) of Article 76(1) and Article 76(2) shall be superseded. Article 70 1. The conventions referred to in Article 69 shall continue to have effect in relation to matters to which this Regulation does not apply. 2. They shall continue to have effect in respect of judgments given, authentic instruments formally drawn up or registered and court settlements approved or concluded before the date of entry into force of Regulation (EC) No 44/2001. Article 71 1. This Regulation shall not affect any conventions to which the Member States are parties and which, in relation to particular matters, govern jurisdiction or the recognition or enforcement of judgments. 2. With a view to its uniform interpretation, paragraph 1 shall be applied in the following manner: (a) this Regulation shall not prevent a court of a Member State which is party to a convention on a particular matter from assuming jurisdiction in accordance with that convention, even where the defendant is domiciled in another Member State which is not party to that convention. The court hearing the action shall, in any event, apply Article 28 of this Regulation; (b) judgments given in a Member State by a court in the exercise of jurisdiction provided for in a convention on a particular matter shall be recognised and enforced in the other Member States in accordance with this Regulation. Where a convention on a particular matter to which both the Member State of origin and the Member State addressed are parties lays down conditions for the recognition or enforcement of judgments, those conditions shall apply. In any event, the provisions of this Regulation on recognition and enforcement of judgments may be applied.

186  Part I: European Union Legislation Article 72 This Regulation shall not affect agreements by which Member States, prior to the entry into force of Regulation (EC) No 44/2001, undertook pursuant to Article 59 of the 1968 Brussels Convention not to recognise judgments given, in particular in other Contracting States to that Convention, against defendants domiciled or habitually resident in a third State where, in cases provided for in Article 4 of that Convention, the judgment could only be founded on a ground of jurisdiction specified in the second paragraph of Article 3 of that Convention. Article 73 1. This Regulation shall not affect the application of the 2007 Lugano Convention. 2. This Regulation shall not affect the application of the 1958 New York Convention. 3. This Regulation shall not affect the application of bilateral conventions and agreements between a third State and a Member State concluded before the date of entry into force of Regulation (EC) No 44/2001 which concern matters governed by this Regulation. Chapter VIII FINAL PROVISIONS Article 74 The Member States shall provide, within the framework of the European Judicial Network and with a view to making the information available to the public, a description of national rules and procedures concerning enforcement, including authorities competent for enforcement, and information on any limitations on enforcement, in particular debtor protection rules and limitation or prescription periods. The Member States shall keep this information permanently updated. Article 75 By 10 January 2014, the Member States shall communicate to the Commission: (a) the courts to which the application for refusal of enforcement is to be submitted pursuant to Article 47(1); (b) the courts with which an appeal against the decision on the application for refusal of enforcement is to be lodged pursuant to Article 49(2); (c) the courts with which any further appeal is to be lodged pursuant to Article 50; and (d) the languages accepted for translations of the forms as referred to in Article 57(2). The Commission shall make the information publicly available through any appropriate means, in particular through the European Judicial Network.

Regulation (EU) No 1215/2012 187 Article 76 1. The Member States shall notify the Commission of: (a) the rules of jurisdiction referred to in Articles 5(2) and 6(2); (b) the rules on third-party notice referred to in Article 65; and (c) the conventions referred to in Article 69. 2. The Commission shall, on the basis of the notifications by the Member States referred to in paragraph 1, establish the corresponding lists. 3. The Member States shall notify the Commission of any subsequent amendments required to be made to those lists. The Commission shall amend those lists accordingly. 4. The Commission shall publish the lists and any subsequent amendments made to them in the Official Journal of the European Union. 5. The Commission shall make all information notified pursuant to paragraphs 1 and 3 publicly available through any other appropriate means, in particular through the European Judicial Network. Article 77 The Commission shall be empowered to adopt delegated acts in accordance with Article 78 concerning the amendment of Annexes I and II. Article 78 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 77 shall be conferred on the Commission for an indeterminate period of time from 9 January 2013. 3. The delegation of power referred to in Article 77 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Article 77 shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council.

188  Part I: European Union Legislation Article 79 By 11 January 2022 the Commission shall present a report to the European Parliament, to the Council and to the European Economic and Social Committee on the application of this Regulation. That report shall include an evaluation of the possible need for a further extension of the rules on jurisdiction to defendants not domiciled in a Member State, taking into account the operation of this Regulation and possible developments at international level. Where appropriate, the report shall be accompanied by a proposal for amendment of this Regulation. Article 80 This Regulation shall repeal Regulation (EC) No 44/2001. References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table set out in Annex III. Article 81 This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 10 January 2015, with the exception of Articles 75 and 76, which shall apply from 10 January 2014. This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties. … (1)

OJ C 218, 23.7.2011, p. 78. of the European Parliament of 20 November 2012 (not yet published in the Official Journal) and decision of the Council of 6 December 2012. (3) OJ L 12, 16.1.2001, p. 1. (4) OJ C 115, 4.5.2010, p. 1. (5) OJ L 299, 31.12.1972, p. 32, OJ L 304, 30.10.1978, p. 1, OJ L 388, 31.12.1982, p. 1, OJ L 285, 3.10.1989, p. 1, OJ C 15, 15.1.1997, p. 1. For a consolidated text, see OJ C 27, 26.1.1998, p. 1. (6) OJ L 319, 25.11.1988, p. 9. (7) OJ L 120, 5.5.2006, p. 22. (8) OJ L 147, 10.6.2009, p. 5. (9) OJ L 7, 10.1.2009, p. 1. (10) OJ L 74, 27.3.1993, p. 74. (11) OJ L 157, 30.4.2004, p. 45. (12) OJ L 174, 27.6.2001, p. 1. (13) OJ L 299, 16.11.2005, p. 62. (14) OJ L 335, 17.12.2009, p. 1. (15) OJ L 324, 10.12.2007, p. 79. (16) OJ L 174, 27.6.2001, p. 25. (2) Position

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 (Regulation on consumer ODR) (OJ 2013 L165 p.1) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) Article 169(1) and point (a) of Article 169(2) of the Treaty on the Functioning of the European Union (TFEU) provide that the Union is to contribute to the attainment of a high level of consumer protection through measures adopted pursuant to Article 114 TFEU. Article 38 of the Charter of Fundamental Rights of the European Union provides that Union policies are to ensure a high level of consumer protection. (2) In accordance with Article 26(2) TFEU, the internal market is to comprise an area without internal frontiers in which the free movement of goods and services is ensured. In order for consumers to have confidence in and benefit from the digital dimension of the internal market, it is necessary that they have access to simple, efficient, fast and low-cost ways of resolving disputes which arise from the sale of goods or the supply of services online. This is particularly important when consumers shop cross-border.

190  Part 1: European Union Legislation (3) In its Communication of 13 April 2011 entitled ‘Single Market Act—Twelve levers to boost growth and strengthen confidence—“Working together to create new growth”’, the Commission identified legislation on alternative dispute resolution (ADR) which includes an electronic commerce dimension as one of the twelve levers to boost growth and strengthen confidence in the Single Market. (4) Fragmentation of the internal market impedes efforts to boost competitiveness and growth. Furthermore, the uneven availability, quality and awareness of simple, efficient, fast and low-cost means of resolving disputes arising from the sale of goods or provision of services across the Union constitutes a barrier within the internal market which undermines ­consumers’ and traders’ confidence in shopping and selling across borders. (5) In its conclusions of 24–25 March and 23 October 2011, the European Council invited the European Parliament and the Council to adopt, by the end of 2012, a first set of priority measures to bring a new impetus to the Single Market. (6) The internal market is a reality for consumers in their daily lives, when they travel, make purchases and make payments. Consumers are key players in the internal market and should therefore be at its heart. The digital dimension of the internal market is becoming vital for both consumers and traders. Consumers increasingly make purchases online and an increasing number of traders sell online. Consumers and traders should feel confident in carrying out transactions online so it is essential to dismantle existing barriers and to boost consumer confidence. The availability of reliable and efficient online dispute resolution (ODR) could greatly help achieve this goal. (7) Being able to seek easy and low-cost dispute resolution can boost consumers’ and traders’ confidence in the digital Single Market. Consumers and traders, however, still face barriers to finding out-of-court solutions in particular to their disputes arising from cross-border online transactions. Thus, such disputes currently are often left unresolved. (8) ODR offers a simple, efficient, fast and low-cost out-of- court solution to disputes arising from online transactions. However, there is currently a lack of mechanisms which allow consumers and traders to resolve such disputes through electronic means; this leads to consumer detriment, acts as a barrier, in particular, to cross-border online transactions, and creates an ­uneven playing field for traders, and thus hampers the overall development of online commerce. (9) This Regulation should apply to the out-of-court resolution of disputes initiated by consumers resident in the Union against traders established in the Union which are covered by Directive 2013/11/EU of the European ­Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes (Directive on consumer ADR) (3). (10) In order to ensure that the ODR platform can also be used for ADR procedures which allow traders to submit complaints against consumers, this Regulation should also apply to the out-of-court resolution of disputes

Regulation (EU) No 524/2013 191

(11)

(12) (13)

(14)

(15) (16)

(17)

(18)

i­nitiated by traders against consumers where the relevant ADR procedures are offered by ADR entities listed in accordance with Article 20(2) of Directive 2013/11/EU. The application of this Regulation to such disputes should not impose any obligation on Member States to ensure that the ADR entities offer such procedures. Although in particular consumers and traders carrying out cross-border online transactions will benefit from the ODR platform, this Regulation should also apply to domestic online transactions in order to allow for a true level playing field in the area of online commerce. This Regulation should be without prejudice to Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters (4). The definition of ‘consumer’ should cover natural persons who are acting outside their trade, business, craft or profession. However, if the contract is concluded for purposes partly within and partly outside the person’s trade (dual purpose contracts) and the trade purpose is so limited as not to be predominant in the overall context of the supply, that person should also be considered as a consumer. The definition of ‘online sales or service contract’ should cover a sales or service contract where the trader, or the trader’s intermediary, has offered goods or services through a website or by other electronic means and the consumer has ordered those goods or services on that website or by other electronic means. This should also cover cases where the consumer has accessed the website or other information society service through a mobile electronic device such as a mobile telephone. This Regulation should not apply to disputes between consumers and traders that arise from sales or service contracts concluded offline and to disputes between traders. This Regulation should be considered in conjunction with Directive 2013/11/EU which requires Member States to ensure that all disputes between consumers resident and traders established in the Union which arise from the sale of goods or provisions of services can be submitted to an ADR entity. Before submitting their complaint to an ADR entity through the ODR platform, consumers should be encouraged by Member States to contact the trader by any appropriate means, with the aim of resolving the dispute amicably. This Regulation aims to create an ODR platform at Union level. The ODR platform should take the form of an interactive website offering a single point of entry to consumers and traders seeking to resolve disputes outof-court which have arisen from online transactions. The ODR platform should provide general information regarding the out-of-court resolution of contractual disputes between traders and consumers arising from online sales and service contracts. It should allow consumers and traders to submit complaints by filling in an electronic complaint form available in all the official languages of the institutions of the Union and to attach relevant

192  Part 1: European Union Legislation

(19)

(20)

(21)

(22)

(23)

(24)

documents. It should transmit complaints to an ADR entity competent to deal with the dispute concerned. The ODR platform should offer, free of charge, an electronic case management tool which enables ADR entities to conduct the dispute resolution procedure with the parties through the ODR platform. ADR entities should not be obliged to use the case management tool. The Commission should be responsible for the development, operation and maintenance of the ODR platform and provide all technical facilities necessary for the functioning of the platform. The ODR platform should offer an electronic translation function which enables the parties and the ADR entity to have the information which is exchanged through the ODR platform and is necessary for the resolution of the dispute translated, where appropriate. That function should be capable of dealing with all necessary translations and should be supported by human intervention, if necessary. The Commission should also provide, on the ODR platform, information for complainants about the possibility of requesting assistance from the ODR contact points. The ODR platform should enable the secure interchange of data with ADR entities and respect the underlying principles of the European Interoperability Framework adopted pursuant to Decision 2004/387/EC of the European Parliament and of the Council of 21 April 2004 on interoperable delivery of pan-European eGovernment services to public administrations, businesses and citizens (IDABC)(5). The ODR platform should be made accessible, in particular, through the ‘Your Europe portal’ established in accordance with Annex II to Decision 2004/387/EC, which provides access to pan-European, multilingual online information and interactive services to businesses and citizens in the Union. The ODR platform should be given prominence on the ‘Your Europe portal’. An ODR platform at Union level should build on existing ADR entities in the Member States and respect the legal traditions of the Member States. ADR entities to which a complaint has been transmitted through the ODR platform should therefore apply their own procedural rules, including rules on cost. However, this Regulation intends to establish some common rules applicable to those procedures that will safeguard their effectiveness. This should include rules ensuring that such dispute resolution does not require the physical presence of the parties or their representatives before the ADR entity, unless its procedural rules provide for that possibility and the parties agree. Ensuring that all ADR entities listed in accordance with Article 20(2) of Directive 2013/11/EU are registered with the ODR platform should allow for full coverage in online out-of-court resolution for disputes arising from online sales or service contracts. This Regulation should not prevent the functioning of any existing dispute resolution entity operating online or of any ODR mechanism within the Union. It should not prevent dispute resolution entities or mechanisms from dealing with online disputes which have been submitted directly to them.

Regulation (EU) No 524/2013 193 (25) ODR contact points hosting at least two ODR advisors should be designated in each Member State. The ODR contact points should support the parties involved in a dispute submitted through the ODR platform without being obliged to translate documents relating to that dispute. M ­ ember States should have the possibility to confer the responsibility for the ODR contact points on their centres of the European Consumer Centres ­Network. Member States should make use of that possibility in order to allow ODR contact points to fully benefit from the experience of the centres of the European Consumer Centres Network in facilitating the settlement of disputes between consumers and traders. The Commission should establish a network of ODR contact points to facilitate their cooperation and work and provide, in cooperation with Member States, appropriate training for ODR contact points. (26) The right to an effective remedy and the right to a fair trial are fundamental rights laid down in Article 47 of the Charter of Fundamental Rights of the European Union. ODR is not intended to and cannot be designed to replace court procedures, nor should it deprive consumers or traders of their rights to seek redress before the courts. This Regulation should not, therefore, prevent parties from exercising their right of access to the judicial system. (27) The processing of information under this Regulation should be subject to strict guarantees of confidentiality and should comply with the rules on the protection of personal data laid down in Directive 95/46/EC of the ­European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (6) and in Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data  (7). Those rules should apply to the processing of personal data carried out under this Regulation by the various actors of the ODR platform, whether they act alone or jointly with other such actors. (28) Data subjects should be informed about, and give their consent to, the processing of their personal data in the ODR platform, and should be informed about their rights with regard to that processing, by means of a comprehensive privacy notice to be made publicly available by the Commission and explaining, in clear and simple language, the processing operations performed under the responsibility of the various actors of the platform, in accordance with Articles 11 and 12 of Regulation (EC) No 45/2001 and with national legislation adopted pursuant to Articles 10 and 11 of Directive 95/46/EC. (29) This Regulation should be without prejudice to provisions on confidentiality in national legislation relating to ADR. (30) In order to ensure broad consumer awareness of the existence of the ODR platform, traders established within the Union engaging in online sales or service contracts should provide, on their websites, an electronic link to the ODR platform. Traders should also provide their email address so that consumers have a first point of contact. A significant proportion of

194  Part 1: European Union Legislation online sales and service contracts are concluded using online market-places, which bring together or facilitate online transactions between consumers and traders. Online market-places are online platforms which allow traders to make their products and services available to consumers. Such online market-places should therefore have the same obligation to provide an electronic link to the ODR platform. This obligation should be without prejudice to Article 13 of Directive 2013/11/EU concerning the requirement that traders inform consumers about the ADR procedures by which those traders are covered and about whether or not they commit to use ADR procedures to resolve disputes with consumers. Furthermore, that obligation should be without prejudice to point (t) of Article 6(1) and to Article 8 of Directive 2011/83/EU of the European Parliament and of the Council of 25 ­October 2011 on consumer rights (8). Point (t) of Article 6(1) of Directive 2011/83/EU stipulates for consumer contracts concluded at a distance or off premises, that the trader is to inform the consumer about the possibility of having recourse to an out-of-court complaint and redress mechanism to which the trader is subject, and the methods for having access to it, before the consumer is bound by the contract. For the same consumer awareness reasons, Member States should encourage consumer associations and business associations to provide an electronic link to the website of the ODR platform. (31) In order to take into account the criteria by which the ADR entities define their respective scopes of application the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission to adapt the information which a complainant is to provide in the electronic complaint form made available on the ODR platform. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council. (32) In order to ensure uniform conditions for the implementation of this Regulation implementing powers should be conferred on the Commission in respect of the functioning of the ODR platform, the modalities for the submission of a complaint and cooperation within the network of ODR contact points. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (9). The advisory procedure should be used for the adoption of implementing acts relating to the electronic complaint form given its purely technical nature. The examination procedure should be used for the adoption of the rules concerning the modalities of cooperation between the ODR advisors of the network of ODR contact points. (33) In the application of this Regulation, the Commission should consult, where appropriate, the European Data Protection Supervisor.

Regulation (EU) No 524/2013 195 (34) Since the objective of this Regulation, namely to set up a European ODR platform for online disputes governed by common rules, cannot be sufficiently achieved by the Member States and can therefore, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in ­Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (35) This Regulation respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the ­European Union and specifically Articles 7, 8, 38 and 47 thereof. (36) The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EC) No 45/2001 and delivered an opinion on 12 January 2012 (10), HAVE ADOPTED THIS REGULATION: CHAPTER I GENERAL PROVISIONS Article 1 Subject matter The purpose of this Regulation is, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market, and in particular of its digital dimension by providing a European ODR platform (‘ODR platform’) facilitating the independent, impartial, transparent, effective, fast and fair out-of-court resolution of disputes between consumers and traders online. Article 2 Scope 1. This Regulation shall apply to the out-of-court resolution of disputes concerning contractual obligations stemming from online sales or service contracts between a consumer resident in the Union and a trader established in the Union through the intervention of an ADR entity listed in accordance with Article 20(2) of Directive 2013/11/EU and which involves the use of the ODR platform. 2. This Regulation shall apply to the out-of-court resolution of disputes referred to in paragraph 1, which are initiated by a trader against a consumer, in so far as the legislation of the Member State where the consumer is habitually resident allows for such disputes to be resolved through the intervention of an ADR entity. 3. Member States shall inform the Commission about whether or not their legislation allows for disputes referred to in paragraph 1, which are initiated by a

196  Part 1: European Union Legislation trader against a consumer, to be resolved through the intervention of an ADR entity. Competent authorities shall, when they notify the list referred to in Article 20(2) of Directive 2013/11/EU, inform the Commission about which ADR entities deal with such disputes. 4. The application of this Regulation to disputes referred to in paragraph 1, which are initiated by a trader against a consumer, shall not impose any obligation on Member States to ensure that ADR entities offer procedures for the out-of- court resolution of such disputes. Article 3 Relationship with other Union legal acts This Regulation shall be without prejudice to Directive 2008/52/EC. Article 4 Definitions 1. For the purposes of this Regulation: (a) ‘consumer’ means a consumer as defined in point (a) of Article 4(1) of Directive 2013/11/EU; (b) ‘trader’ means a trader as defined in point (b) of Article 4 (1) of Directive 2013/11/EU; (c) ‘sales contract’ means a sales contract as defined in point (c) of A ­ rticle 4(1) of Directive 2013/11/EU; (d) ‘service contract’ means a service contract as defined in point (d) of ­Article 4(1) of Directive 2013/11/EU; (e) ‘online sales or service contract’ means a sales or service contract where the trader, or the trader’s intermediary, has offered goods or services on a website or by other electronic means and the consumer has ordered such goods or services on that website or by other electronic means; (f) ‘online marketplace’ means a service provider, as defined in point (b) of Article 2 of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’) (11), which allows consumers and traders to conclude online sales and service contracts on the online marketplace’s website; (g) ‘electronic means’ means electronic equipment for the processing (including digital compression) and storage of data which is entirely transmitted, conveyed and received by wire, by radio, by optical means or by other electromagnetic means; (h) ‘alternative dispute resolution procedure’ (‘ADR procedure’) means a procedure for the out-of-court resolution of disputes as referred to in Article 2 of this Regulation; (i) ‘alternative dispute resolution entity’ (‘ADR entity’)means an ADR entity as defined in point (h) of Article 4(1) of Directive 2013/11/EU;

Regulation (EU) No 524/2013 197 (j)

‘complainant party’ means the consumer who or the trader that has submitted a complaint through the ODR platform; (k) ‘respondent party’ means the consumer against whom or the trader against whom a complaint has been submitted through the ODR platform; (l) ‘competent authority’ means a public authority as defined in point (i) of Article 4(1) of Directive 2013/11/EU; (m) ‘personal data’ means any information relating to an identified or identifiable natural person (‘data subject’); an identifiable person is one who can be identified, directly or indirectly, in particular by reference to an identification number or to one or more factors specific to that person’s physical, physiological, mental, economic, cultural or social identity. 2. The place of establishment of the trader and of the ADR entity shall be determined in accordance with Article 4(2) and (3) of Directive 2013/11/EU, respectively. CHAPTER II ODR PLATFORM Article 5 Establishment of the ODR platform 1. The Commission shall develop the ODR platform (and be responsible for its operation, including all the translation functions necessary for the purpose of this Regulation, its maintenance, funding and data security. The ODR platform shall be user-friendly. The development, operation and maintenance of the ODR platform shall ensure that the privacy of its users is respected from the design stage (‘privacy by design’) and that the ODR platform is accessible and usable by all, including vulnerable users (‘design for all’), as far as possible. 2. The ODR platform shall be a single point of entry for consumers and traders seeking the out-of-court resolution of disputes covered by this Regulation. It shall be an interactive website which can be accessed electronically and free of charge in all the official languages of the institutions of the Union. 3. The Commission shall make the ODR platform accessible, as appropriate, through its websites which provide information to citizens and businesses in the Union and, in particular, through the ‘Your Europe portal’ established in accordance with Decision 2004/387/EC. 4. The ODR platform shall have the following functions: (a) to provide an electronic complaint form which can be filled in by the complainant party in accordance with Article 8; (b) to inform the respondent party about the complaint; (c) to identify the competent ADR entity or entities and transmit the complaint to the ADR entity, which the parties have agreed to use, in accordance with Article 9;

198  Part 1: European Union Legislation (d) to offer an electronic case management tool free of charge, which enables the parties and the ADR entity to conduct the dispute resolution procedure online through the ODR platform; (e) to provide the parties and ADR entity with the translation of information which is necessary for the resolution of the dispute and is exchanged through the ODR platform; (f) to provide an electronic form by means of which ADR entities shall transmit the information referred to in point (c) of Article 10; (g) to provide a feedback system which allows the parties to express their views on the functioning of the ODR platform and on the ADR entity which has handled their dispute; (h) to make publicly available the following: (i) general information on ADR as a means of out-of-court dispute resolution; (ii) information on ADR entities listed in accordance with Article 20(2) of Directive 2013/11/EU which are competent to deal with disputes covered by this Regulation; (iii) an online guide about how to submit complaints through the ODR platform; (iv) information, including contact details, on ODR contact points designated by the Member States in accordance with Article 7(1) of this Regulation; (v) statistical data on the outcome of the disputes which were transmitted to ADR entities through the ODR platform. 5. The Commission shall ensure that the information referred to in point (h) of paragraph 4 is accurate, up to date and provided in a clear, understandable and easily accessible way. 6. ADR entities listed in accordance with Article 20 (2) of Directive 2013/11/EU which are competent to deal with disputes covered by this Regulation shall be registered electronically with the ODR platform. 7. The Commission shall adopt measures concerning the modalities for the exercise of the functions provided for in paragraph 4 of this Article through implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 16(3) of this Regulation. Article 6 Testing of the ODR platform 1. The Commission shall, by 9 January 2015 test the technical functionality and user-friendliness of the ODR platform and of the complaint form, including with regard to translation. The testing shall be carried out and evaluated in cooperation with experts in ODR from the Member States and consumer and trader representatives. The Commission shall submit a report to the European Parliament and the Council of the result of the testing and take the appropriate measures to address potential problems in order to ensure the effective functioning of the ODR platform.

Regulation (EU) No 524/2013 199 2. In the report referred to in paragraph 1 of this Article, the Commission shall also describe the technical and organisational measures it intends to take to ensure that the ODR platform meets the privacy requirements set out in Regulation (EC) No 45/2001. Article 7 Network of ODR contact points 1. Each Member State shall designate one ODR contact point and communicate its name and contact details to the Commission. The Member States may confer responsibility for the ODR contact points on their centres of the European Consumer Centres Network, on consumer associations or on any other body. Each ODR contact point shall host at least two ODR advisors. 2. The ODR contact points shall provide support to the resolution of disputes relating to complaints submitted through the ODR platform by fulfilling the following functions: (a) if requested, facilitating communication between the parties and the competent ADR entity, which may include, in particular: (i) assisting with the submission of the complaint and, where appropriate, relevant documentation; (ii) providing the parties and ADR entities with general information on consumer rights in relation to sales and service contracts which apply in the Member State of the ODR contact point which hosts the ODR advisor concerned; (iii) providing information on the functioning of the ODR platform; (iv) providing the parties with explanations on the procedural rules applied by the ADR entities identified; (v) informing the complainant party of other means of redress when a dispute cannot be resolved through the ODR platform; (b) submitting, based on the practical experience gained from the performance of their functions, every two years an activity report to the Commission and to the Member States. 3. The ODR contact point shall not be obliged to perform the functions listed in paragraph 2 in the case of disputes where the parties are habitually resident in the same Member State. 4. Not with standing paragraph 3, the Member States may decide, taking into account national circumstances, that the ODR contact point performs one or more functions listed in paragraph 2 in the case of disputes where the parties are habitually resident in the same Member State. 5. The Commission shall establish a network of contact points (‘ODR contact points network’) which shall enable cooperation between contact points and contribute to the performance of the functions listed in paragraph 2. 6. The Commission shall at least twice a year convene a meeting of members of the ODR contact points network in order to permit an exchange of best practice, and a discussion of any recurring problems encountered in the operation of the ODR platform.

200  Part 1: European Union Legislation 7. The Commission shall adopt the rules concerning the modalities of the cooperation between the ODR contact points through implementing acts. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 16(3). Article 8 Submission of a complaint 1. In order to submit a complaint to the ODR platform the complainant party shall fill in the electronic complaint form. The complaint form shall be userfriendly and easily accessible on the ODR platform. 2. The information to be submitted by the complainant party shall be sufficient to determine the competent ADR entity. That information is listed in the Annex to this Regulation. The complainant party may attach documents in support of the complaint. 3. In order to take into account the criteria by which the ADR entities, that are listed in accordance with Article 20(2) of Directive 2013/11/EU and that deal with disputes covered by this Regulation, define their respective scopes of application, the Commission shall be empowered to adopt delegated acts in accordance with Article 17 of this Regulation to adapt the information listed in the Annex to this Regulation. 4. The Commission shall lay down the rules concerning the modalities for the electronic complaint form by means of implementing acts. Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 16(2). 5. Only data which are accurate, relevant and not excessive in relation to the purposes for which they are collected shall be processed through the electronic complaint form and its attachments. Article 9 Processing and transmission of a complaint 1. A complaint submitted to the ODR platform shall be processed if all the necessary sections of the electronic complaint form have been completed. 2. If the complaint form has not been fully completed, the complainant party shall be informed that the complaint cannot be processed further, unless the missing information is provided. 3. Upon receipt of a fully completed complaint form, the ODR platform shall, in an easily understandable way and without delay, transmit to the respondent party, in one of the official languages of the institutions of the Union chosen by that party, the complaint together with the following data: (a) information that the parties have to agree on an ADR entity in order for the complaint to be transmitted to it, and that, if no agreement is reached by the parties or no competent ADR entity is identified, the complaint will not be processed further;

Regulation (EU) No 524/2013 201 (b) information about the ADR entity or entities which are competent to deal with the complaint, if any are referred to in the electronic complaint form or are identified by the ODR platform on the basis of the information provided in that form; (c) in the event that the respondent party is a trader, an invitation to state within 10 calendar days: —— whether the trader commits to, or is obliged to use, a specific ADR entity to resolve disputes with consumers, and —— unless the trader is obliged to use a specific ADR entity, whether the trader is willing to use any ADR entity or entities from those referred to in point (b); (d) in the event that the respondent party is a consumer and the trader is obliged to use a specific ADR entity, an invitation to agree within 10 calendar days on that ADR entity or, in the event that the trader is not obliged to use a specific ADR entity, an invitation to select one or more ADR entities from those referred to in point (b); (e) the name and contact details of the ODR contact point in the Member State where the respondent party is established or resident, as well as a brief description of the functions referred to in point (a) of Article 7(2). 4. Upon receipt from the respondent party of the information referred to in point (c) or point (d) of paragraph 3, the ODR platform shall in an easily understandable way and without delay communicate to the complainant party, in one of the official languages of the institutions of the Union chosen by that party, the following information: (a) the information referred to in point (a) of paragraph 3; (b) in the event that the complainant party is a consumer, the information about the ADR entity or entities stated by the trader in accordance with point (c) of paragraph 3 and an invitation to agree within 10 calendar days on an ADR entity; (c) in the event that the complainant party is a trader and the trader is not obliged to use a specific ADR entity, the information about the ADR entity or entities stated by the consumer in accordance with point (d) of paragraph 3 and an invitation to agree within 10 calendar days on an ADR entity; (d) the name and contact details of the ODR contact point in the Member State where the complainant party is established or resident, as well as a brief description of the functions referred to in point (a) of Article 7(2). 5. The information referred to in point (b) of paragraph 3 and in points (b) and (c) of paragraph 4 shall include a description of the following characteristics of each ADR entity: (a) the name, contact details and website address of the ADR entity; (b) the fees for the ADR procedure, if applicable; (c) the language or languages in which the ADR procedure can be conducted; (d) the average length of the ADR procedure; (e) the binding or non-binding nature of the outcome of the ADR procedure;

202  Part 1: European Union Legislation (f) the grounds on which the ADR entity may refuse to deal with a given dispute in accordance with Article 5(4) of Directive 2013/11/EU. 6. The ODR platform shall automatically and without delay transmit the complaint to the ADR entity that the parties have agreed to use in accordance with paragraphs 3 and 4. 7. The ADR entity to which the complaint has been transmitted shall without delay inform the parties about whether it agrees or refuses to deal with the dispute in accordance with Article 5(4) of Directive 2013/11/EU. The ADR entity which has agreed to deal with the dispute shall also inform the parties of its procedural rules and, if applicable, of the costs of the dispute resolution procedure concerned. 8. Wherethepartiesfailtoagreewithin30calendardays after submission of the complaint form on an ADR entity, or the ADR entity refuses to deal with the dispute, the complaint shall not be processed further. The complainant party shall be informed of the possibility of contacting an ODR advisor for general information on other means of redress. Article 10 Resolution of the dispute An ADR entity which has agreed to deal with a dispute in accordance with Article 9 of this Regulation shall: (a) conclude the ADR procedure within the deadline referred to in point (e) of Article 8 of Directive 2013/11/EU; (b) not require the physical presence of the parties or their representatives, unless its procedural rules provide for that possibility and the parties agree; (c) without delay transmit the following information to the ODR platform: (i) the date of receipt of the complaint file; (ii) the subject-matter of the dispute; (iii) the date of conclusion of the ADR procedure; (iv) the result of the ADR procedure; (d) not be required to conduct the ADR procedure through the ODR platform. Article 11 Database The Commission shall take the necessary measures to establish and maintain an electronic database in which it shall store the information processed in accordance with Article 5(4) and point (c) of Article 10 taking due account of Article 13(2). Article 12 Processing of personal data 1. Access to information, including personal data, related to a dispute and stored in the database referred to in Article 11 shall be granted, for the purposes

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5.

6.

referred to in Article 10, only to the ADR entity to which the dispute was transmitted in accordance with Article 9. Access to the same information shall be granted also to ODR contact points, in so far as it is necessary, for the purposes referred to in Article 7(2) and (4). The Commission shall have access to information processed in accordance with Article 10 for the purposes of monitoring the use and functioning of the ODR platform and drawing up the reports referred to in Article 21. It shall process personal data of the users of the ODR platform in so far as it is necessary for the operation and maintenance of the ODR platform, including for the purposes of monitoring the use of the ODR platform by ADR entities and ODR contact points. Personal data related to a dispute shall be kept in the database referred to in paragraph 1 of this Article only for the time necessary to achieve the purposes for which they were collected and to ensure that data subjects are able to access their personal data in order to exercise their rights, and shall be automatically deleted, at the latest, six months after the date of conclusion of the dispute which has been transmitted to the ODR platform in accordance with point (iii) of point (c) of Article 10. That retention period shall also apply to personal data kept in national files by the ADR entity or the ODR contact point which dealt with the dispute concerned, except if the procedural rules applied by the ADR entity or any specific provisions of national law provide for a longer retention period. Each ODR advisor shall be regarded as a controller with respect to its data processing activities under this Regulation, in accordance with point (d) of Article 2 of Directive 95/46/EC, and shall ensure that those activities comply with national legislation adopted pursuant to Directive 95/46/EC in the Member State of the ODR contact point hosting the ODR advisor. Each ADR entity shall be regarded as a controller with respect to its data processing activities under this Regulation, in accordance with point (d) of ­Article 2 of Directive 95/46/EC, and shall ensure that those activities comply with national legislation adopted pursuant to Directive 95/46/EC in the ­Member State where the ADR entity is established. In relation to its responsibilities under this Regulation and the processing of personal data involved therein, the Commission shall be regarded as a controller in accordance with point (d) of Article 2 of Regulation (EC) No 45/2001. Article 13 Data confidentiality and security

1. ODR contact points shall be subject to rules of professional secrecy or other equivalent duties of confidentiality laid down in the legislation of the Member State concerned. 2. The Commission shall take the appropriate technical and organisational measures to ensure the security of information processed under this Regulation, including appropriate data access control, a security plan and a security

204  Part 1: European Union Legislation incident management, in accordance with Article 22 of Regulation (EC) No 45/2001. Article 14 Consumer information 1. Traders established within the Union engaging in online sales or service contracts, and online marketplaces established within the Union, shall provide on their websites an electronic link to the ODR platform. That link shall be easily accessible for consumers. Traders established within the Union engaging in online sales or service contracts shall also state their e-mail addresses. 2. Traders established within the Union engaging in online sales or service contracts, which are committed or obliged to use one or more ADR entities to resolve disputes with consumers, shall inform consumers about the existence of the ODR platform and the possibility of using the ODR platform for resolving their disputes. They shall provide an electronic link to the ODR platform on their websites and, if the offer is made by e-mail, in that e-mail. The information shall also be provided, where applicable, in the general terms and conditions applicable to online sales and service contracts. 3. Paragraphs 1 and 2 of this Article shall be without prejudice to Article 13 of Directive 2013/11/EU and the provisions on consumer information on outof-court redress procedures contained in other Union legal acts, which shall apply in addition to this Article. 4. The list of ADR entities referred to in Article 20 (4) of Directive 2013/11/EU and its updates shall be published in the ODR platform. 5. Member States shall ensure that ADR entities, the centres of the European Consumer Centres Network, the competent authorities defined in ­Article 18(1) of Directive 2013/11/EU, and, where appropriate, the bodies designated in accordance with Article 14(2) of Directive 2013/11/EU provide an electronic link to the ODR platform. 6. Member States shall encourage consumer associations and business associations to provide an electronic link to the ODR platform. 7. When traders are obliged to provide information in accordance with paragraphs 1 and 2 and with the provisions referred to in paragraph 3, they shall, where possible, provide that information together. Article 15 Role of the competent authorities The competent authority of each Member State shall assess whether the ADR entities established in that Member State comply with the obligations set out in this Regulation.

Regulation (EU) No 524/2013 205 CHAPTER III FINAL PROVISIONS Article 16 Committee procedure 1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. 3. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply. 4. Where the opinion of the committee under paragraphs 2 and 3 is to be obtained by written procedure, that procedure shall be terminated without result when, within the time-limit for delivery of the opinion, the chair of the committee so decides or a simple majority of committee members so request. Article 17 Exercise of the delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2. The power to adopt delegated acts referred to in Article 8(3) shall be conferred for an indeterminate period of time from 8 July 2013. 3. The delegation of power referred to in Article 8 (3)maybe revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Article 8 (3) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 18 Penalties Member States shall lay down the rules on penalties applicable to infringements of this Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive.

206  Part 1: European Union Legislation Article 19 Amendment to Regulation (EC) No 2006/2004 In the Annex to Regulation (EC) No 2006/2004 of the European Parliament and of the Council (12) the following point is added: ‘21. Regulation (EU) No524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes (Regulation on consumer ODR) (OJ L 165, 18.6.2013, p. 1): Article 14.’ Article 20 Amendment to Directive 2009/22/EC Directive 2009/22/EC of the European Parliament and of the Council (13) is amended as follows: (1) in Article 1(1) and (2) and point (b) of Article 6(2), the words ‘Directives listed in Annex I’ are replaced with the words ‘Union acts listed in Annex I’; (2) in the heading of Annex I, the words ‘LIST OF DIRECTIVES’ are replaced by the words ‘LIST OF UNION ACTS’; (3) in Annex I, the following point is added: ‘15. Regulation (EU) No524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes (Regulation on consumer ODR) (OJ L 165, 18.6.2013, p. 1): Article 14.’ Article 21 Reports 1. The Commission shall report to the European Parliament and the Council on the functioning of the ODR platform on a yearly basis and for the first time one year after the ODR platform has become operational. 2. By 9 July 2018 and every three years thereafter the Commission shall submit to the European Parliament and the Council a report on the application of this Regulation, including in particular on the user-friendliness of the complaint form and the possible need for adaptation of the information listed in the Annex to this Regulation. That report shall be accompanied, if necessary, by proposals for adaptations to this Regulation. 3. Where the reports referred to in paragraphs 1 and 2 are to be submitted in the same year, only one joint report shall be submitted.

Regulation (EU) No 524/2013 207 Article 22 Entry into force 1. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. 2. This Regulation shall apply from 9 January 2016, except for the following provisions: —— Article 2(3) and Article 7(1) and (5), which shall apply from 9 July 2015, —— Article 5(1) and (7), Article 6, Article 7(7), Article 8(3) and (4) and Articles 11, 16 and 17, which shall apply from 8 July 2013. This Regulation shall be binding in its entirety and directly applicable in all Member States. (1)

(2) (3) (4) (5) (6) (7) (8) (9)

(10) (11) (12) (13)

OJ C 181, 21.6.2012, p. 99. Position of the European Parliament of 12 March 2013 (not yet published in the Official Journal) and Decision of the Council of 22 April 2013. See page 63 of this Official Journal. OJ L 136, 24.5.2008, p. 3. OJ L 144, 30.4.2004, p. 62. OJ L 281, 23.11.1995, p. 31. OJ L 8, 12.1.2001, p. 1. OJ L 304, 22.11.2011, p. 64. OJ L 55, 28.2.2011, p. 13. OJ C 136, 11.5.2012, p. 1. OJ L 178, 17.7.2000, p. 1. OJ L 364, 9.12.2004, p. 1. OJ L 110, 1.5.2009, p. 30.

Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (Official Journal L 141, 05/06/2015 p. 19) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 81 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) On 12 December 2012, the Commission adopted a report on the application of Council Regulation (EC) No 1346/2000 (3). The report concluded that the Regulation is functioning well in general but that it would be desirable to improve the application of certain of its provisions in order to enhance the effective administration of cross-border insolvency proceedings. Since that Regulation has been amended several times and further amendments are to be made, it should be recast in the interest of clarity. (2) The Union has set the objective of establishing an area of freedom, security and justice. (3) The proper functioning of the internal market requires that cross-border insolvency proceedings should operate efficiently and effectively. This Regulation needs to be adopted in order to achieve that objective, which falls within the scope of judicial cooperation in civil matters within the meaning of Article 81 of the Treaty. (4) The activities of undertakings have more and more cross-border effects and are therefore increasingly being regulated by Union law. The insolvency of such undertakings also affects the proper functioning of the internal market, and there is a need for a Union act requiring coordination of the measures to be taken regarding an insolvent debtor’s assets.

Regulation (EU) 2015/848 209 (5) It is necessary for the proper functioning of the internal market to avoid incentives for parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position to the detriment of the general body of creditors (forum shopping). (6) This Regulation should include provisions governing jurisdiction for opening insolvency proceedings and actions which are directly derived from insolvency proceedings and are closely linked with them. This Regulation should also contain provisions regarding the recognition and enforcement of judgments issued in such proceedings, and provisions regarding the law applicable to insolvency proceedings. In addition, this Regulation should lay down rules on the coordination of insolvency proceedings which relate to the same debtor or to several members of the same group of companies. (7) Bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings and actions related to such proceedings are excluded from the scope of Regulation (EU) No 1215/2012 of the European Parliament and of the Council (4). Those proceedings should be covered by this Regulation. The interpretation of this Regulation should as much as possible avoid regulatory loopholes between the two instruments. However, the mere fact that a national procedure is not listed in Annex A to this Regulation should not imply that it is covered by Regulation (EU) No 1215/2012. (8) In order to achieve the aim of improving the efficiency and effectiveness of insolvency proceedings having cross-border effects, it is necessary, and appropriate, that the provisions on jurisdiction, recognition and applicable law in this area should be contained in a Union measure which is binding and directly applicable in Member States. (9) This Regulation should apply to insolvency proceedings which meet the conditions set out in it, irrespective of whether the debtor is a natural person or a legal person, a trader or an individual. Those insolvency proceedings are listed exhaustively in Annex A. In respect of the national procedures contained in Annex A, this Regulation should apply without any further examination by the courts of another Member State as to whether the conditions set out in this Regulation are met. National insolvency procedures not listed in Annex A should not be covered by this Regulation. (10) The scope of this Regulation should extend to proceedings which promote the rescue of economically viable but distressed businesses and which give a second chance to entrepreneurs. It should, in particular, extend to proceedings which provide for restructuring of a debtor at a stage where there is only a likelihood of insolvency, and to proceedings which leave the debtor fully or partially in control of its assets and affairs. It should also extend to proceedings providing for a debt discharge or a debt adjustment in ­relation to consumers and self-employed persons, for example by reducing the amount to be paid by the debtor or by extending the payment period granted to the debtor. Since such proceedings do not necessarily entail the appointment of an insolvency practitioner, they should be covered by this Regulation if they take place under the control or supervision of a court.

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(11)

(12)

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In this context, the term ‘control’ should include situations where the court only intervenes on appeal by a creditor or other interested parties. This Regulation should also apply to procedures which grant a temporary stay on enforcement actions brought by individual creditors where such actions could adversely affect negotiations and hamper the prospects of a restructuring of the debtor’s business. Such procedures should not be detrimental to the general body of creditors and, if no agreement on a restructuring plan can be reached, should be preliminary to other procedures covered by this Regulation. This Regulation should apply to proceedings the opening of which is subject to publicity in order to allow creditors to become aware of the proceedings and to lodge their claims, thereby ensuring the collective nature of the proceedings, and in order to give creditors the opportunity to challenge the jurisdiction of the court which has opened the proceedings. Accordingly, insolvency proceedings which are confidential should be excluded from the scope of this Regulation. While such proceedings may play an important role in some Member States, their confidential nature makes it impossible for a creditor or a court located in another Member State to know that such proceedings have been opened, thereby making it difficult to provide for the recognition of their effects throughout the Union. The collective proceedings which are covered by this Regulation should include all or a significant part of the creditors to whom a debtor owes all or a substantial proportion of the debtor’s outstanding debts provided that the claims of those creditors who are not involved in such proceedings remain unaffected. Proceedings which involve only the financial creditors of a debtor should also be covered. Proceedings which do not include all the creditors of a debtor should be proceedings aimed at rescuing the debtor. Proceedings that lead to a definitive cessation of the debtor’s activities or the liquidation of the debtor’s assets should include all the debtor’s creditors. Moreover, the fact that some insolvency proceedings for natural persons exclude specific categories of claims, such as maintenance claims, from the possibility of a debt-discharge should not mean that such proceedings are not collective. This Regulation should also apply to proceedings that, under the law of some Member States, are opened and conducted for a certain period of time on an interim or provisional basis before a court issues an order confirming the continuation of the proceedings on a non-interim basis. Although labelled as ‘interim’, such proceedings should meet all other requirements of this Regulation. This Regulation should apply to proceedings which are based on laws relating to insolvency. However, proceedings that are based on general company law not designed exclusively for insolvency situations should not be considered to be based on laws relating to insolvency. Similarly, the purpose of adjustment of debt should not include specific proceedings in which debts of a natural person of very low income and very low asset value are written

Regulation (EU) 2015/848 211

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off, provided that this type of proceedings never makes provision for payment to creditors. This Regulation’s scope should extend to proceedings which are triggered by situations in which the debtor faces non-financial difficulties, provided that such difficulties give rise to a real and serious threat to the debtor’s actual or future ability to pay its debts as they fall due. The time frame relevant for the determination of such threat may extend to a period of several months or even longer in order to account for cases in which the debtor is faced with non-financial difficulties threatening the status of its business as a going concern and, in the medium term, its liquidity. This may be the case, for example, where the debtor has lost a contract which is of key importance to it. This Regulation should be without prejudice to the rules on the recovery of State aid from insolvent companies as interpreted by the case-law of the Court of Justice of the European Union. Insolvency proceedings concerning insurance undertakings, credit institutions, investment firms and other firms, institutions or undertakings covered by Directive 2001/24/EC of the European Parliament and of the Council (5) and collective investment undertakings should be excluded from the scope of this Regulation, as they are all subject to special arrangements and the national supervisory authorities have wide-ranging powers of intervention. Insolvency proceedings do not necessarily involve the intervention of a judicial authority. Therefore, the term ‘court’ in this Regulation should, in certain provisions, be given a broad meaning and include a person or body empowered by national law to open insolvency proceedings. In order for this Regulation to apply, proceedings (comprising acts and formalities set down in law) should not only have to comply with the provisions of this Regulation, but they should also be officially recognised and legally effective in the Member State in which the insolvency proceedings are opened. Insolvency practitioners are defined in this Regulation and listed in Annex B. Insolvency practitioners who are appointed without the involvement of a judicial body should, under national law, be appropriately regulated and authorised to act in insolvency proceedings. The national regulatory framework should provide for proper arrangements to deal with potential conflicts of interest. This Regulation acknowledges the fact that as a result of widely differing substantive laws it is not practical to introduce insolvency proceedings with universal scope throughout the Union. The application without exception of the law of the State of the opening of proceedings would, against this background, frequently lead to difficulties. This applies, for example, to the widely differing national laws on security interests to be found in the ­Member States. Furthermore, the preferential rights enjoyed by some creditors in insolvency proceedings are, in some cases, completely different. At the next review of this Regulation, it will be necessary to identify further measures in order to improve the preferential rights of employees at European level. This Regulation should take account of such differing

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national laws in two different ways. On the one hand, provision should be made for special rules on the applicable law in the case of particularly significant rights and legal relationships (e.g. rights in rem and contracts of employment). On the other hand, national proceedings covering only assets situated in the State of the opening of proceedings should also be allowed alongside main insolvency proceedings with universal scope. This Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of its main interests. Those proceedings have universal scope and are aimed at encompassing all the debtor’s assets. To protect the diversity of interests, this Regulation permits secondary insolvency proceedings to be opened to run in parallel with the main insolvency proceedings. Secondary insolvency proceedings may be opened in the Member State where the debtor has an establishment. The effects of secondary insolvency proceedings are limited to the assets located in that State. Mandatory rules of coordination with the main insolvency proceedings satisfy the need for unity in the Union. Where main insolvency proceedings concerning a legal person or company have been opened in a Member State other than that of its registered office, it should be possible to open secondary insolvency proceedings in the ­Member State of the registered office, provided that the debtor is carrying out an economic activity with human means and assets in that State, in accordance with the case-law of the Court of Justice of the European Union. This Regulation applies only to proceedings in respect of a debtor whose centre of main interests is located in the Union. The rules of jurisdiction set out in this Regulation establish only international jurisdiction, that is to say, they designate the Member State the courts of which may open insolvency proceedings. Territorial jurisdiction within that Member State should be established by the national law of the Member State concerned. Before opening insolvency proceedings, the competent court should examine of its own motion whether the centre of the debtor’s main interests or the debtor’s establishment is actually located within its jurisdiction. When determining whether the centre of the debtor’s main interests is ascertainable by third parties, special consideration should be given to the creditors and to their perception as to where a debtor conducts the administration of its interests. This may require, in the event of a shift of centre of main interests, informing creditors of the new location from which the debtor is carrying out its activities in due course, for example by drawing attention to the change of address in commercial correspondence, or by making the new location public through other appropriate means. This Regulation should contain a number of safeguards aimed at preventing fraudulent or abusive forum shopping. Accordingly, the presumptions that the registered office, the principal place of business and the habitual residence are the centre of main interests should be rebuttable, and the relevant court of a Member State should

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c­ arefully assess whether the centre of the debtor’s main interests is genuinely located in that Member State. In the case of a company, it should be possible to rebut this presumption where the company’s central administration is located in a Member State other than that of its registered office, and where a comprehensive assessment of all the relevant factors establishes, in a manner that is ascertainable by third parties, that the company’s actual centre of management and supervision and of the management of its interests is located in that other Member State. In the case of an individual not exercising an independent business or professional activity, it should be possible to rebut this presumption, for example where the major part of the debtor’s assets is located outside the Member State of the debtor’s habitual residence, or where it can be established that the principal reason for moving was to file for insolvency proceedings in the new jurisdiction and where such filing would materially impair the interests of creditors whose dealings with the debtor took place prior to the relocation. With the same objective of preventing fraudulent or abusive forum shopping, the presumption that the centre of main interests is at the place of the registered office, at the individual’s principal place of business or at the individual’s habitual residence should not apply where, respectively, in the case of a company, legal person or individual exercising an independent business or professional activity, the debtor has relocated its registered office or principal place of business to another Member State within the 3-month period prior to the request for opening insolvency proceedings, or, in the case of an individual not exercising an independent business or professional activity, the debtor has relocated his habitual residence to another Member State within the 6-month period prior to the request for opening insolvency proceedings. In all cases, where the circumstances of the matter give rise to doubts about the court’s jurisdiction, the court should require the debtor to submit additional evidence to support its assertions and, where the law applicable to the insolvency proceedings so allows, give the debtor’s creditors the opportunity to present their views on the question of jurisdiction. In the event that the court seised of the request to open insolvency proceedings finds that the centre of main interests is not located on its territory, it should not open main insolvency proceedings. In addition, any creditor of the debtor should have an effective remedy against the decision to open insolvency proceedings. The consequences of any challenge to the decision to open insolvency proceedings should be governed by national law. The courts of the Member State within the territory of which insolvency proceedings have been opened should also have jurisdiction for actions which derive directly from the insolvency proceedings and are closely linked with them. Such actions should include avoidance actions against defendants in other Member States and actions concerning obligations that arise in the course of the insolvency proceedings, such as advance payment for costs of the proceedings. In contrast, actions for the performance of the

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obligations under a contract concluded by the debtor prior to the opening of proceedings do not derive directly from the proceedings. Where such an action is related to another action based on general civil and commercial law, the insolvency practitioner should be able to bring both actions in the courts of the defendant’s domicile if he considers it more efficient to bring the action in that forum. This could, for example, be the case where the insolvency practitioner wishes to combine an action for director’s liability on the basis of insolvency law with an action based on company law or general tort law. The court having jurisdiction to open the main insolvency proceedings should be able to order provisional and protective measures as from the time of the request to open proceedings. Preservation measures both prior to and after the commencement of the insolvency proceedings are important to guarantee the effectiveness of the insolvency proceedings. In that connection, this Regulation should provide for various possibilities. On the one hand, the court competent for the main insolvency proceedings should also be able to order provisional and protective measures covering assets situated in the territory of other Member States. On the other hand, an insolvency practitioner temporarily appointed prior to the opening of the main insolvency proceedings should be able, in the Member States in which an establishment belonging to the debtor is to be found, to apply for the preservation measures which are possible under the law of those Member States. Prior to the opening of the main insolvency proceedings, the right to request the opening of insolvency proceedings in the Member State where the debtor has an establishment should be limited to local creditors and public authorities, or to cases in which main insolvency proceedings cannot be opened under the law of the Member State where the debtor has the centre of its main interests. The reason for this restriction is that cases in which territorial insolvency proceedings are requested before the main insolvency proceedings are intended to be limited to what is absolutely necessary. Following the opening of the main insolvency proceedings, this Regulation does not restrict the right to request the opening of insolvency proceedings in a Member State where the debtor has an establishment. The insolvency practitioner in the main insolvency proceedings or any other person empowered under the national law of that Member State may request the opening of secondary insolvency proceedings. This Regulation should provide for rules to determine the location of the debtor’s assets, which should apply when determining which assets belong to the main or secondary insolvency proceedings, or to situations involving third parties’ rights in rem. In particular, this Regulation should provide that European patents with unitary effect, a Community trade mark or any other similar rights, such as Community plant variety rights or Community designs, should only be included in the main insolvency proceedings. Secondary insolvency proceedings can serve different purposes, besides the protection of local interests. Cases may arise in which the insolvency estate

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of the debtor is too complex to administer as a unit, or the differences in the legal systems concerned are so great that difficulties may arise from the extension of effects deriving from the law of the State of the opening of proceedings to the other Member States where the assets are located. For that reason, the insolvency practitioner in the main insolvency proceedings may request the opening of secondary insolvency proceedings where the efficient administration of the insolvency estate so requires. Secondary insolvency proceedings may also hamper the efficient administration of the insolvency estate. Therefore, this Regulation sets out two specific situations in which the court seised of a request to open ­secondary insolvency proceedings should be able, at the request of the insolvency practitioner in the main insolvency proceedings, to postpone or refuse the opening of such proceedings. First, this Regulation confers on the insolvency practitioner in main insolvency proceedings the possibility of giving an undertaking to local creditors that they will be treated as if secondary insolvency proceedings had been opened. That undertaking has to meet a number of conditions set out in this Regulation, in particular that it be approved by a qualified majority of local creditors. Where such an undertaking has been given, the court seised of a request to open secondary insolvency proceedings should be able to refuse that request if it is satisfied that the undertaking adequately protects the general interests of local creditors. When assessing those interests, the court should take into account the fact that the undertaking has been approved by a qualified majority of local creditors. For the purposes of giving an undertaking to local creditors, the assets and rights located in the Member State where the debtor has an establishment should form a sub-category of the insolvency estate, and, when distributing them or the proceeds resulting from their realisation, the insolvency practitioner in the main insolvency proceedings should respect the priority rights that creditors would have had if secondary insolvency proceedings had been opened in that Member State. National law should be applicable, as appropriate, in relation to the approval of an undertaking. In particular, where under national law the voting rules for adopting a restructuring plan require the prior approval of creditors’ claims, those claims should be deemed to be approved for the purpose of voting on the undertaking. Where there are different procedures for the adoption of restructuring plans under national law, Member States should designate the specific procedure which should be relevant in this context. Second, this Regulation should provide for the possibility that the court temporarily stays the opening of secondary insolvency proceedings, when a temporary stay of individual enforcement proceedings has been granted in the main insolvency proceedings, in order to preserve the efficiency of the stay granted in the main insolvency proceedings. The court should be able to grant the temporary stay if it is satisfied that suitable measures are in place to protect the general interest of local creditors. In such a case, all

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creditors that could be affected by the outcome of the negotiations on a restructuring plan should be informed of the negotiations and be allowed to participate in them. In order to ensure effective protection of local interests, the insolvency practitioner in the main insolvency proceedings should not be able to realise or re-locate, in an abusive manner, assets situated in the Member State where an establishment is located, in particular, with the purpose of frustrating the possibility that such interests can be effectively satisfied if secondary insolvency proceedings are opened subsequently. This Regulation should not prevent the courts of a Member State in which secondary insolvency proceedings have been opened from sanctioning a debtor’s directors for violation of their duties, provided that those courts have jurisdiction to address such disputes under their national law. Main insolvency proceedings and secondary insolvency proceedings can contribute to the efficient administration of the debtor’s insolvency estate or to the effective realisation of the total assets if there is proper cooperation between the actors involved in all the concurrent proceedings. Proper cooperation implies the various insolvency practitioners and the courts involved cooperating closely, in particular by exchanging a sufficient amount of information. In order to ensure the dominant role of the main insolvency proceedings, the insolvency practitioner in such proceedings should be given several possibilities for intervening in secondary insolvency proceedings which are pending at the same time. In particular, the insolvency practitioner should be able to propose a restructuring plan or composition or apply for a suspension of the realisation of the assets in the secondary insolvency proceedings. When cooperating, insolvency practitioners and courts should take into account best practices for cooperation in cross-border insolvency cases, as set out in principles and guidelines on communication and cooperation adopted by European and international organisations active in the area of insolvency law, and in particular the relevant guidelines prepared by the United Nations Commission on International Trade Law (Uncitral). In light of such cooperation, insolvency practitioners and courts should be able to enter into agreements and protocols for the purpose of facilitating cross-border cooperation of multiple insolvency proceedings in different Member States concerning the same debtor or members of the same group of companies, where this is compatible with the rules applicable to each of the proceedings. Such agreements and protocols may vary in form, in that they may be written or oral, and in scope, in that they may range from generic to specific, and may be entered into by different parties. Simple generic agreements may emphasise the need for close cooperation between the parties, without addressing specific issues, while more detailed, specific agreements may establish a framework of principles to govern multiple insolvency proceedings and may be approved by the courts involved, where the national law so requires. They may reflect an agreement between the parties to take, or to refrain from taking, certain steps or actions.

Regulation (EU) 2015/848 217 (50) Similarly, the courts of different Member States may cooperate by coordinating the appointment of insolvency practitioners. In that context, they may appoint a single insolvency practitioner for several insolvency proceedings concerning the same debtor or for different members of a group of companies, provided that this is compatible with the rules applicable to each of the proceedings, in particular with any requirements concerning the qualification and licensing of the insolvency practitioner. (51) This Regulation should ensure the efficient administration of insolvency proceedings relating to different companies forming part of a group of companies. (52) Where insolvency proceedings have been opened for several companies of the same group, there should be proper cooperation between the actors involved in those proceedings. The various insolvency practitioners and the courts involved should therefore be under a similar obligation to cooperate and communicate with each other as those involved in main and secondary insolvency proceedings relating to the same debtor. Cooperation between the insolvency practitioners should not run counter to the interests of the creditors in each of the proceedings, and such cooperation should be aimed at finding a solution that would leverage synergies across the group. (53) The introduction of rules on the insolvency proceedings of groups of companies should not limit the possibility for a court to open insolvency proceedings for several companies belonging to the same group in a single jurisdiction if the court finds that the centre of main interests of those companies is located in a single Member State. In such cases, the court should also be able to appoint, if appropriate, the same insolvency practitioner in all proceedings concerned, provided that this is not incompatible with the rules applicable to them. (54) With a view to further improving the coordination of the insolvency proceedings of members of a group of companies, and to allow for a coordinated restructuring of the group, this Regulation should introduce procedural rules on the coordination of the insolvency proceedings of members of a group of companies. Such coordination should strive to ensure the efficiency of the coordination, whilst at the same time respecting each group member’s separate legal personality. (55) An insolvency practitioner appointed in insolvency proceedings opened in relation to a member of a group of companies should be able to request the opening of group coordination proceedings. However, where the law applicable to the insolvency so requires, that insolvency practitioner should obtain the necessary authorisation before making such a request. The request should specify the essential elements of the coordination, in particular an outline of the coordination plan, a proposal as to whom should be appointed as coordinator and an outline of the estimated costs of the coordination. (56) In order to ensure the voluntary nature of group coordination proceedings, the insolvency practitioners involved should be able to object to their participation in the proceedings within a specified time period. In order

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to allow the insolvency practitioners involved to take an informed decision on participation in the group coordination proceedings, they should be informed at an early stage of the essential elements of the coordination. However, any insolvency practitioner who initially objects to inclusion in the group coordination proceedings should be able to subsequently request to participate in them. In such a case, the coordinator should take a decision on the admissibility of the request. All insolvency practitioners, including the requesting insolvency practitioner, should be informed of the coordinator’s decision and should have the opportunity of challenging that decision before the court which has opened the group coordination proceedings. Group coordination proceedings should always strive to facilitate the effective administration of the insolvency proceedings of the group members, and to have a generally positive impact for the creditors. This Regulation should therefore ensure that the court with which a request for group coordination proceedings has been filed makes an assessment of those criteria prior to opening group coordination proceedings. The advantages of group coordination proceedings should not be outweighed by the costs of those proceedings. Therefore, it is necessary to ensure that the costs of the coordination, and the share of those costs that each group member will bear, are adequate, proportionate and reasonable, and are determined in accordance with the national law of the Member State in which group coordination proceedings have been opened. The insolvency practitioners involved should also have the possibility of controlling those costs from an early stage of the proceedings. Where the national law so requires, controlling costs from an early stage of proceedings could involve the insolvency practitioner seeking the approval of a court or creditors’ committee. Where the coordinator considers that the fulfilment of his or her tasks requires a significant increase in costs compared to the initially estimated costs and, in any case, where the costs exceed 10 % of the estimated costs, the coordinator should be authorised by the court which has opened the group coordination proceedings to exceed such costs. Before taking its decision, the court which has opened the group coordination proceedings should give the possibility to the participating insolvency practitioners to be heard before it in order to allow them to communicate their observations on the appropriateness of the coordinator’s request. For members of a group of companies which are not participating in group coordination proceedings, this Regulation should also provide for an alternative mechanism to achieve a coordinated restructuring of the group. An insolvency practitioner appointed in proceedings relating to a member of a group of companies should have standing to request a stay of any m ­ easure related to the realisation of the assets in the proceedings opened with respect to other members of the group which are not subject to group coordination proceedings. It should only be possible to request such a stay if a restructuring plan is presented for the members of the group concerned, if the plan is to the benefit of the creditors in the proceedings in respect of which the

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stay is requested, and if the stay is necessary to ensure that the plan can be properly implemented. This Regulation should not prevent Member States from establishing national rules which would supplement the rules on cooperation, communication and coordination with regard to the insolvency of members of groups of companies set out in this Regulation, provided that the scope of application of those national rules is limited to the national jurisdiction and that their application would not impair the efficiency of the rules laid down by this Regulation. The rules on cooperation, communication and coordination in the framework of the insolvency of members of a group of companies provided for in this Regulation should only apply to the extent that proceedings relating to different members of the same group of companies have been opened in more than one Member State. Any creditor which has its habitual residence, domicile or registered office in the Union should have the right to lodge its claims in each of the insolvency proceedings pending in the Union relating to the debtor’s assets. This should also apply to tax authorities and social insurance institutions. This Regulation should not prevent the insolvency practitioner from lodging claims on behalf of certain groups of creditors, for example employees, where the national law so provides. However, in order to ensure the equal treatment of creditors, the distribution of proceeds should be coordinated. Every creditor should be able to keep what it has received in the course of insolvency proceedings, but should be entitled only to participate in the distribution of total assets in other proceedings if creditors with the same standing have obtained the same proportion of their claims. It is essential that creditors which have their habitual residence, domicile or registered office in the Union be informed about the opening of insolvency proceedings relating to their debtor’s assets. In order to ensure a swift transmission of information to creditors, Regulation (EC) No 1393/2007 of the European Parliament and of the Council (6) should not apply where this Regulation refers to the obligation to inform creditors. The use of standard forms available in all official languages of the institutions of the Union should facilitate the task of creditors when lodging claims in proceedings opened in another Member State. The consequences of the incomplete filing of the standard forms should be a matter for national law. This Regulation should provide for the immediate recognition of judgments concerning the opening, conduct and closure of insolvency proceedings which fall within its scope, and of judgments handed down in direct connection with such insolvency proceedings. Automatic recognition should therefore mean that the effects attributed to the proceedings by the law of the Member State in which the proceedings were opened extend to all other Member States. The recognition of judgments delivered by the courts of the Member States should be based on the principle of mutual trust. To that end, grounds for non-recognition should be reduced to the minimum necessary. This is also the basis on which any dispute should be resolved where

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the courts of two Member States both claim competence to open the main insolvency proceedings. The decision of the first court to open proceedings should be recognised in the other Member States without those Member States having the power to scrutinise that court’s decision. This Regulation should set out, for the matters covered by it, uniform rules on conflict of laws which replace, within their scope of application, national rules of private international law. Unless otherwise stated, the law of the Member State of the opening of proceedings should be applicable (lex concursus). This rule on conflict of laws should be valid both for the main insolvency proceedings and for local proceedings. The lex concursus determines all the effects of the insolvency proceedings, both procedural and substantive, on the persons and legal relations concerned. It governs all the conditions for the opening, conduct and closure of the insolvency proceedings. Automatic recognition of insolvency proceedings to which the law of the State of the opening of proceedings normally applies may interfere with the rules under which transactions are carried out in other Member States. To protect legitimate expectations and the certainty of transactions in Member States other than that in which proceedings are opened, provision should be made for a number of exceptions to the general rule. There is a particular need for a special reference diverging from the law of the opening State in the case of rights in rem, since such rights are of considerable importance for the granting of credit. The basis, validity and extent of rights in rem should therefore normally be determined according to the lex situs and not be affected by the opening of insolvency proceedings. The proprietor of a right in rem should therefore be able to continue to assert its right to segregation or separate settlement of the collateral security. Where assets are subject to rights in rem under the lex situs in one Member State but the main insolvency proceedings are being carried out in another ­Member State, the insolvency practitioner in the main insolvency proceedings should be able to request the opening of secondary insolvency proceedings in the jurisdiction where the rights in rem arise if the debtor has an establishment there. If secondary insolvency proceedings are not opened, any surplus on the sale of an asset covered by rights in rem should be paid to the insolvency practitioner in the main insolvency proceedings. This Regulation lays down several provisions for a court to order a stay of opening proceedings or a stay of enforcement proceedings. Any such stay should not affect the rights in rem of creditors or third parties. If a set-off of claims is not permitted under the law of the State of the opening of proceedings, a creditor should nevertheless be entitled to the set-off if it is possible under the law applicable to the claim of the insolvent debtor. In this way, set-off would acquire a kind of guarantee function based on legal provisions on which the creditor concerned can rely at the time when the claim arises. There is also a need for special protection in the case of payment systems and financial markets, for example in relation to the position-closing

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a­ greements and netting agreements to be found in such systems, as well as the sale of securities and the guarantees provided for such transactions as governed in particular by Directive 98/26/EC of the European Parliament and of the Council (7). For such transactions, the only law which is relevant should be that applicable to the system or market concerned. That law is intended to prevent the possibility of mechanisms for the payment and settlement of transactions, and provided for in payment and set-off systems or on the regulated financial markets of the Member States, being altered in the case of insolvency of a business partner. Directive 98/26/EC contains special provisions which should take precedence over the general rules laid down in this Regulation. In order to protect employees and jobs, the effects of insolvency proceedings on the continuation or termination of employment and on the rights and obligations of all parties to such employment should be determined by the law applicable to the relevant employment agreement, in accordance with the general rules on conflict of laws. Moreover, in cases where the termination of employment contracts requires approval by a court or administrative authority, the Member State in which an establishment of the debtor is located should retain jurisdiction to grant such approval even if no insolvency proceedings have been opened in that Member State. Any other questions relating to the law of insolvency, such as whether the employees’ claims are protected by preferential rights and the status such preferential rights may have, should be determined by the law of the Member State in which the insolvency proceedings (main or secondary) have been opened, except in cases where an undertaking to avoid secondary insolvency proceedings has been given in accordance with this Regulation. The law applicable to the effects of insolvency proceedings on any pending lawsuit or pending arbitral proceedings concerning an asset or right which forms part of the debtor’s insolvency estate should be the law of the Member State where the lawsuit is pending or where the arbitration has its seat. However, this rule should not affect national rules on recognition and enforcement of arbitral awards. In order to take account of the specific procedural rules of court systems in certain Member States flexibility should be provided with regard to certain rules of this Regulation. Accordingly, references in this Regulation to notice being given by a judicial body of a Member State should include, where a Member State’s procedural rules so require, an order by that judicial body directing that notice be given. For business considerations, the main content of the decision opening the proceedings should be published, at the request of the insolvency practitioner, in a Member State other than that of the court which delivered that decision. If there is an establishment in the Member State concerned, such publication should be mandatory. In neither case, however, should publication be a prior condition for recognition of the foreign proceedings. In order to improve the provision of information to relevant creditors and courts and to prevent the opening of parallel insolvency proceedings,

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Member States should be required to publish relevant information in crossborder insolvency cases in a publicly accessible electronic register. In order to facilitate access to that information for creditors and courts domiciled or located in other Member States, this Regulation should provide for the interconnection of such insolvency registers via the European e-Justice ­Portal. Member States should be free to publish relevant information in several registers and it should be possible to interconnect more than one register per Member State. This Regulation should determine the minimum amount of information to be published in the insolvency registers. Member States should not be precluded from including additional information. Where the debtor is an individual, the insolvency registers should only have to indicate a registration number if the debtor is exercising an independent business or professional activity. That registration number should be understood to be the unique registration number of the debtor’s independent business or professional activity published in the trade register, if any. Information on certain aspects of insolvency proceedings is essential for creditors, such as time limits for lodging claims or for challenging decisions. This Regulation should, however, not require Member States to calculate those time-limits on a case-by-case basis. Member States should be able to fulfil their obligations by adding hyperlinks to the European e-Justice ­Portal, where self-explanatory information on the criteria for calculating those time-limits is to be provided. In order to grant sufficient protection to information relating to individuals not exercising an independent business or professional activity, Member States should be able to make access to that information subject to supplementary search criteria such as the debtor’s personal identification number, address, date of birth or the district of the competent court, or to make access conditional upon a request to a competent authority or upon the verification of a legitimate interest. Member States should also be able not to include in their insolvency registers information on individuals not exercising an independent business or professional activity. In such cases, Member States should ensure that the relevant information is given to the creditors by individual notice, and that claims of creditors who have not received the information are not affected by the proceedings. It may be the case that some of the persons concerned are not aware that insolvency proceedings have been opened, and act in good faith in a way that conflicts with the new circumstances. In order to protect such persons who, unaware that foreign proceedings have been opened, make a payment to the debtor instead of to the foreign insolvency practitioner, provision should be made for such a payment to have a debt-discharging effect. In order to ensure uniform conditions for the implementation of this ­Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (8).

Regulation (EU) 2015/848 223 (83) This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union. In particular, this Regulation seeks to promote the application of Articles 8, 17 and 47 concerning, respectively, the protection of personal data, the right to property and the right to an effective remedy and to a fair trial. (84) Directive 95/46/EC of the European Parliament and of the Council (9) and Regulation (EC) No 45/2001 of the European Parliament and of the ­Council (10) apply to the processing of personal data within the framework of this Regulation. (85) This Regulation is without prejudice to Regulation (EEC, Euratom) No 1182/71 of the Council (11). (86) Since the objective of this Regulation cannot be sufficiently achieved by the Member States but can rather, by reason of the creation of a legal framework for the proper administration of cross-border insolvency proceedings, be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (87) In accordance with Article 3 and Article 4a(1) of Protocol No 21 on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union, the United Kingdom and Ireland have notified their wish to take part in the adoption and application of this Regulation. (88) In accordance with Articles 1 and 2 of Protocol No 22 on the position of Denmark annexed to the Treaty on European Union and the Treaty on the Functioning of the European Union, Denmark is not taking part in the adoption of this Regulation and is not bound by it or subject to its application. (89) The European Data Protection Supervisor was consulted and delivered an opinion on 27 March 2013 (12), HAVE ADOPTED THIS REGULATION: CHAPTER I GENERAL PROVISIONS Article 1 Scope 1. This Regulation shall apply to public collective proceedings, including interim proceedings, which are based on laws relating to insolvency and in which, for the purpose of rescue, adjustment of debt, reorganisation or liquidation: (a) a debtor is totally or partially divested of its assets and an insolvency practitioner is appointed;

224  Part 1: European Union Legislation (b) the assets and affairs of a debtor are subject to control or supervision by a court; or (c) a temporary stay of individual enforcement proceedings is granted by a court or by operation of law, in order to allow for negotiations between the debtor and its creditors, provided that the proceedings in which the stay is granted provide for suitable measures to protect the general body of creditors, and, where no agreement is reached, are preliminary to one of the proceedings referred to in point (a) or (b). Where the proceedings referred to in this paragraph may be commenced in situations where there is only a likelihood of insolvency, their purpose shall be to avoid the debtor’s insolvency or the cessation of the debtor’s business activities. The proceedings referred to in this paragraph are listed in Annex A. 2. This Regulation shall not apply to proceedings referred to in paragraph 1 that concern: (a) insurance undertakings; (b) credit institutions; (c) investment firms and other firms, institutions and undertakings to the extent that they are covered by Directive 2001/24/EC; or (d) collective investment undertakings. Article 2 Definitions For the purposes of this Regulation: (1) ‘collective proceedings’ means proceedings which include all or a significant part of a debtor’s creditors, provided that, in the latter case, the proceedings do not affect the claims of creditors which are not involved in them; (2) ‘collective investment undertakings’ means undertakings for collective investment in transferable securities (UCITS) as defined in Directive 2009/65/EC of the European Parliament and of the Council (13) and alternative investment funds (AIFs) as defined in Directive 2011/61/EU of the European Parliament and of the Council (14); (3) ‘debtor in possession’ means a debtor in respect of which insolvency proceedings have been opened which do not necessarily involve the appointment of an insolvency practitioner or the complete transfer of the rights and duties to administer the debtor’s assets to an insolvency practitioner and where, therefore, the debtor remains totally or at least partially in control of its assets and affairs; (4) ‘insolvency proceedings’ means the proceedings listed in Annex A; (5) ‘insolvency practitioner’ means any person or body whose function, including on an interim basis, is to: (i) verify and admit claims submitted in insolvency proceedings; (ii) represent the collective interest of the creditors; (iii) administer, either in full or in part, assets of which the debtor has been divested;

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(iv) liquidate the assets referred to in point (iii); or (v) supervise the administration of the debtor’s affairs. The persons and bodies referred to in the first subparagraph are listed in Annex B; ‘court’ means: (i) in points (b) and (c) of Article 1(1), Article 4(2), Articles 5 and 6, ­Article 21(3), point (j) of Article 24(2), Articles 36 and 39, and Articles 61 to 77, the judicial body of a Member State; (ii) in all other articles, the judicial body or any other competent body of a Member State empowered to open insolvency proceedings, to confirm such opening or to take decisions in the course of such proceedings; ‘judgment opening insolvency proceedings’ includes: (i) the decision of any court to open insolvency proceedings or to confirm the opening of such proceedings; and (ii) the decision of a court to appoint an insolvency practitioner; ‘the time of the opening of proceedings’ means the time at which the judgment opening insolvency proceedings becomes effective, regardless of whether the judgment is final or not; ‘the Member State in which assets are situated’ means, in the case of: (i) registered shares in companies other than those referred to in point (ii), the Member State within the territory of which the company having issued the shares has its registered office; (ii) financial instruments, the title to which is evidenced by entries in a register or account maintained by or on behalf of an intermediary (‘book entry securities’), the Member State in which the register or account in which the entries are made is maintained; (iii) cash held in accounts with a credit institution, the Member State indicated in the account’s IBAN, or, for cash held in accounts with a credit institution which does not have an IBAN, the Member State in which the credit institution holding the account has its central administration or, where the account is held with a branch, agency or other establishment, the Member State in which the branch, agency or other establishment is located; (iv) property and rights, ownership of or entitlement to which is entered in a public register other than those referred to in point (i), the ­Member State under the authority of which the register is kept; (v) European patents, the Member State for which the European patent is granted; (vi) copyright and related rights, the Member State within the territory of which the owner of such rights has its habitual residence or registered office; (vii) tangible property, other than that referred to in points (i) to (iv), the Member State within the territory of which the property is situated; (viii) claims against third parties, other than those relating to assets referred to in point (iii), the Member State within the territory of which the third party required to meet the claims has the centre of its main interests, as determined in accordance with Article 3(1);

226  Part 1: European Union Legislation (10) ‘establishment’ means any place of operations where a debtor carries out or has carried out in the 3-month period prior to the request to open main insolvency proceedings a non-transitory economic activity with human means and assets; (11) ‘local creditor’ means a creditor whose claims against a debtor arose from or in connection with the operation of an establishment situated in a ­Member State other than the Member State in which the centre of the debtor’s main interests is located; (12) ‘foreign creditor’ means a creditor which has its habitual residence, domicile or registered office in a Member State other than the State of the opening of proceedings, including the tax authorities and social security authorities of Member States; (13) ‘group of companies’ means a parent undertaking and all its subsidiary undertakings; (14) ‘parent undertaking’ means an undertaking which controls, either directly or indirectly, one or more subsidiary undertakings. An undertaking which prepares consolidated financial statements in accordance with Directive 2013/34/EU of the European Parliament and of the Council (15) shall be deemed to be a parent undertaking. Article 3 International jurisdiction 1. The courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings (‘main insolvency proceedings’). The centre of main interests shall be the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary. That presumption shall only apply if the registered office has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings. In the case of an individual exercising an independent business or professional activity, the centre of main interests shall be presumed to be that individual’s principal place of business in the absence of proof to the contrary. That presumption shall only apply if the individual’s principal place of business has not been moved to another Member State within the 3-month period prior to the request for the opening of insolvency proceedings. In the case of any other individual, the centre of main interests shall be presumed to be the place of the individual’s habitual residence in the absence of proof to the contrary. This presumption shall only apply if the habitual residence has not been moved to another Member State within the 6-month period prior to the request for the opening of insolvency proceedings. 2. Where the centre of the debtor’s main interests is situated within the territory of a Member State, the courts of another Member State shall have j­ urisdiction

Regulation (EU) 2015/848 227 to open insolvency proceedings against that debtor only if it possesses an establishment within the territory of that other Member State. The effects of those proceedings shall be restricted to the assets of the debtor situated in the territory of the latter Member State. 3. Where insolvency proceedings have been opened in accordance with paragraph 1, any proceedings opened subsequently in accordance with ­ ­paragraph 2 shall be secondary insolvency proceedings. 4. The territorial insolvency proceedings referred to in paragraph 2 may only be opened prior to the opening of main insolvency proceedings in accordance with paragraph 1 where (a) insolvency proceedings under paragraph 1 cannot be opened because of the conditions laid down by the law of the Member State within the territory of which the centre of the debtor’s main interests is situated; or (b) the opening of territorial insolvency proceedings is requested by: (i) a creditor whose claim arises from or is in connection with the operation of an establishment situated within the territory of the Member State where the opening of territorial proceedings is requested; or (ii) a public authority which, under the law of the Member State within the territory of which the establishment is situated, has the right to request the opening of insolvency proceedings. When main insolvency proceedings are opened, the territorial insolvency proceedings shall become secondary insolvency proceedings. Article 4 Examination as to jurisdiction 1. A court seised of a request to open insolvency proceedings shall of its own motion examine whether it has jurisdiction pursuant to Article 3. The judgment opening insolvency proceedings shall specify the grounds on which the jurisdiction of the court is based, and, in particular, whether jurisdiction is based on Article 3(1) or (2). 2. Notwithstanding paragraph 1, where insolvency proceedings are opened in accordance with national law without a decision by a court, Member States may entrust the insolvency practitioner appointed in such proceedings to examine whether the Member State in which a request for the opening of proceedings is pending has jurisdiction pursuant to Article 3. Where this is the case, the insolvency practitioner shall specify in the decision opening the proceedings the grounds on which jurisdiction is based and, in particular, whether jurisdiction is based on Article 3(1) or (2). Article 5 Judicial review of the decision to open main insolvency proceedings 1. The debtor or any creditor may challenge before a court the decision opening main insolvency proceedings on grounds of international jurisdiction.

228  Part 1: European Union Legislation 2. The decision opening main insolvency proceedings may be challenged by parties other than those referred to in paragraph 1 or on grounds other than a lack of international jurisdiction where national law so provides. Article 6 Jurisdiction for actions deriving directly from insolvency proceedings and closely linked with them 1. The courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions. 2. Where an action referred to in paragraph 1 is related to an action in civil and commercial matters against the same defendant, the insolvency practitioner may bring both actions before the courts of the Member State within the territory of which the defendant is domiciled, or, where the action is brought against several defendants, before the courts of the Member State within the territory of which any of them is domiciled, provided that those courts have jurisdiction pursuant to Regulation (EU) No 1215/2012. The first subparagraph shall apply to the debtor in possession, provided that national law allows the debtor in possession to bring actions on behalf of the insolvency estate. 3. For the purpose of paragraph 2, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. Article 7 Applicable law 1. Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened (the ‘State of the opening of proceedings’). 2. The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. In particular, it shall determine the following: (a) the debtors against which insolvency proceedings may be brought on account of their capacity; (b) the assets which form part of the insolvency estate and the treatment of assets acquired by or devolving on the debtor after the opening of the insolvency proceedings; (c) the respective powers of the debtor and the insolvency practitioner; (d) the conditions under which set-offs may be invoked; (e) the effects of insolvency proceedings on current contracts to which the debtor is party;

Regulation (EU) 2015/848 229 (f)

the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of pending lawsuits; (g) the claims which are to be lodged against the debtor’s insolvency estate and the treatment of claims arising after the opening of insolvency proceedings; (h) the rules governing the lodging, verification and admission of claims; (i) the rules governing the distribution of proceeds from the realisation of assets, the ranking of claims and the rights of creditors who have obtained partial satisfaction after the opening of insolvency proceedings by virtue of a right in rem or through a set-off; (j) the conditions for, and the effects of closure of, insolvency proceedings, in particular by composition; (k) creditors’ rights after the closure of insolvency proceedings; (l) who is to bear the costs and expenses incurred in the insolvency proceedings; (m) the rules relating to the voidness, voidability or unenforceability of legal acts detrimental to the general body of creditors. Article 8 Third parties’ rights in rem 1. The opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets, both specific assets and collections of indefinite assets as a whole which change from time to time, belonging to the debtor which are situated within the territory of another Member State at the time of the opening of proceedings. 2. The rights referred to in paragraph 1 shall, in particular, mean: (a) the right to dispose of assets or have them disposed of and to obtain satisfaction from the proceeds of or income from those assets, in particular by virtue of a lien or a mortgage; (b) the exclusive right to have a claim met, in particular a right guaranteed by a lien in respect of the claim or by assignment of the claim by way of a guarantee; (c) the right to demand assets from, and/or to require restitution by, anyone having possession or use of them contrary to the wishes of the party so entitled; (d) a right in rem to the beneficial use of assets. 3. The right, recorded in a public register and enforceable against third parties, based on which a right in rem within the meaning of paragraph 1 may be obtained shall be considered to be a right in rem. 4. Paragraph 1 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7(2).

230  Part 1: European Union Legislation Article 9 Set-off 1. The opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of a debtor, where such a set-off is permitted by the law applicable to the insolvent debtor’s claim. 2. Paragraph 1 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7(2). Article 10 Reservation of title 1. The opening of insolvency proceedings against the purchaser of an asset shall not affect sellers’ rights that are based on a reservation of title where at the time of the opening of proceedings the asset is situated within the territory of a Member State other than the State of the opening of proceedings. 2. The opening of insolvency proceedings against the seller of an asset, after delivery of the asset, shall not constitute grounds for rescinding or terminating the sale and shall not prevent the purchaser from acquiring title where at the time of the opening of proceedings the asset sold is situated within the territory of a Member State other than the State of the opening of proceedings. 3. Paragraphs 1 and 2 shall not preclude actions for voidness, voidability or unenforceability as referred to in point (m) of Article 7(2). Article 11 Contracts relating to immoveable property 1. The effects of insolvency proceedings on a contract conferring the right to acquire or make use of immoveable property shall be governed solely by the law of the Member State within the territory of which the immoveable property is situated. 2. The court which opened main insolvency proceedings shall have jurisdiction to approve the termination or modification of the contracts referred to in this Article where: (a) the law of the Member State applicable to those contracts requires that such a contract may only be terminated or modified with the approval of the court opening insolvency proceedings; and (b) no insolvency proceedings have been opened in that Member State. Article 12 Payment systems and financial markets 1. Without prejudice to Article 8, the effects of insolvency proceedings on the rights and obligations of the parties to a payment or settlement system or to a financial market shall be governed solely by the law of the Member State applicable to that system or market.

Regulation (EU) 2015/848 231 2. Paragraph 1 shall not preclude any action for voidness, voidability or unenforceability which may be taken to set aside payments or transactions under the law applicable to the relevant payment system or financial market. Article 13 Contracts of employment 1. The effects of insolvency proceedings on employment contracts and relationships shall be governed solely by the law of the Member State applicable to the contract of employment. 2. The courts of the Member State in which secondary insolvency proceedings may be opened shall retain jurisdiction to approve the termination or modification of the contracts referred to in this Article even if no insolvency proceedings have been opened in that Member State. The first subparagraph shall also apply to an authority competent under national law to approve the termination or modification of the contracts referred to in this Article. Article 14 Effects on rights subject to registration The effects of insolvency proceedings on the rights of a debtor in immoveable property, a ship or an aircraft subject to registration in a public register shall be determined by the law of the Member State under the authority of which the register is kept. Article 15 European patents with unitary effect and Community trade marks For the purposes of this Regulation, a European patent with unitary effect, a Community trade mark or any other similar right established by Union law may be included only in the proceedings referred to in Article 3(1). Article 16 Detrimental acts Point (m) of Article 7(2) shall not apply where the person who benefited from an act detrimental to all the creditors provides proof that: (a) the act is subject to the law of a Member State other than that of the State of the opening of proceedings; and (b) the law of that Member State does not allow any means of challenging that act in the relevant case.

232  Part 1: European Union Legislation Article 17 Protection of third-party purchasers Where, by an act concluded after the opening of insolvency proceedings, a debtor disposes, for consideration, of: (a) an immoveable asset; (b) a ship or an aircraft subject to registration in a public register; or (c) securities the existence of which requires registration in a register laid down by law; the validity of that act shall be governed by the law of the State within the territory of which the immoveable asset is situated or under the authority of which the register is kept. Article 18 Effects of insolvency proceedings on pending lawsuits or arbitral proceedings The effects of insolvency proceedings on a pending lawsuit or pending arbitral proceedings concerning an asset or a right which forms part of a debtor’s insolvency estate shall be governed solely by the law of the Member State in which that lawsuit is pending or in which the arbitral tribunal has its seat. CHAPTER II RECOGNITION OF INSOLVENCY PROCEEDINGS Article 19 Principle 1. Any judgment opening insolvency proceedings handed down by a court of a Member State which has jurisdiction pursuant to Article 3 shall be recognised in all other Member States from the moment that it becomes effective in the State of the opening of proceedings. The rule laid down in the first subparagraph shall also apply where, on account of a debtor’s capacity, insolvency proceedings cannot be brought against that debtor in other Member States. 2. Recognition of the proceedings referred to in Article 3(1) shall not preclude the opening of the proceedings referred to in Article 3(2) by a court in another Member State. The latter proceedings shall be secondary insolvency proceedings within the meaning of Chapter III. Article 20 Effects of recognition 1. The judgment opening insolvency proceedings as referred to in Article 3(1) shall, with no further formalities, produce the same effects in any other ­Member State as under the law of the State of the opening of proceedings,

Regulation (EU) 2015/848 233 unless this Regulation provides otherwise and as long as no proceedings referred to in Article 3(2) are opened in that other Member State. 2. The effects of the proceedings referred to in Article 3(2) may not be challenged in other Member States. Any restriction of creditors’ rights, in particular a stay or discharge, shall produce effects vis-à-vis assets situated within the territory of another Member State only in the case of those creditors who have given their consent. Article 21 Powers of the insolvency practitioner 1. The insolvency practitioner appointed by a court which has jurisdiction pursuant to Article 3(1) may exercise all the powers conferred on it, by the law of the State of the opening of proceedings, in another Member State, as long as no other insolvency proceedings have been opened there and no preservation measure to the contrary has been taken there further to a request for the opening of insolvency proceedings in that State. Subject to Articles 8 and 10, the insolvency practitioner may, in particular, remove the debtor’s assets from the territory of the Member State in which they are situated. 2. The insolvency practitioner appointed by a court which has jurisdiction pursuant to Article 3(2) may in any other Member State claim through the courts or out of court that moveable property was removed from the territory of the State of the opening of proceedings to the territory of that other Member State after the opening of the insolvency proceedings. The insolvency practitioner may also bring any action to set aside which is in the interests of the creditors. 3. In exercising its powers, the insolvency practitioner shall comply with the law of the Member State within the territory of which it intends to take action, in particular with regard to procedures for the realisation of assets. Those powers may not include coercive measures, unless ordered by a court of that Member State, or the right to rule on legal proceedings or disputes. Article 22 Proof of the insolvency practitioner’s appointment The insolvency practitioner’s appointment shall be evidenced by a certified copy of the original decision appointing it or by any other certificate issued by the court which has jurisdiction. A translation into the official language or one of the official languages of the Member State within the territory of which it intends to act may be required. No legalisation or other similar formality shall be required. Article 23 Return and imputation 1. A creditor which, after the opening of the proceedings referred to in ­Article 3(1), obtains by any means, in particular through enforcement, total

234  Part 1: European Union Legislation or partial satisfaction of its claim on the assets belonging to a debtor situated within the territory of another Member State, shall return what it has obtained to the insolvency practitioner, subject to Articles 8 and 10. 2. In order to ensure the equal treatment of creditors, a creditor which has, in the course of insolvency proceedings, obtained a dividend on its claim shall share in distributions made in other proceedings only where creditors of the same ranking or category have, in those other proceedings, obtained an equivalent dividend. Article 24 Establishment of insolvency registers 1. Member States shall establish and maintain in their territory one or several registers in which information concerning insolvency proceedings is published (‘insolvency registers’). That information shall be published as soon as possible after the opening of such proceedings. 2. The information referred to in paragraph 1 shall be made publicly available, subject to the conditions laid down in Article 27, and shall include the following (‘mandatory information’): (a) the date of the opening of insolvency proceedings; (b) the court opening insolvency proceedings and the case reference number, if any; (c) the type of insolvency proceedings referred to in Annex A that were opened and, where applicable, any relevant subtype of such proceedings opened in accordance with national law; (d) whether jurisdiction for opening proceedings is based on Article 3(1), 3(2) or 3(4); (e) if the debtor is a company or a legal person, the debtor’s name, registration number, registered office or, if different, postal address; (f) if the debtor is an individual whether or not exercising an independent business or professional activity, the debtor’s name, registration number, if any, and postal address or, where the address is protected, the debtor’s place and date of birth; (g) the name, postal address or e-mail address of the insolvency practitioner, if any, appointed in the proceedings; (h) the time limit for lodging claims, if any, or a reference to the criteria for calculating that time limit; (i) the date of closing main insolvency proceedings, if any; (j) the court before which and, where applicable, the time limit within which a challenge of the decision opening insolvency proceedings is to be lodged in accordance with Article 5, or a reference to the criteria for calculating that time limit. 3. Paragraph 2 shall not preclude Member States from including documents or additional information in their national insolvency registers, such as directors’ disqualifications related to insolvency. 4. Member States shall not be obliged to include in the insolvency registers the information referred to in paragraph 1 of this Article in relation to i­ ndividuals

Regulation (EU) 2015/848 235 not exercising an independent business or professional activity, or to make such information publicly available through the system of interconnection of those registers, provided that known foreign creditors are informed, pursuant to Article 54, of the elements referred to under point (j) of paragraph 2 of this Article. Where a Member State makes use of the possibility referred to in the first subparagraph, the insolvency proceedings shall not affect the claims of foreign creditors who have not received the information referred to in the first subparagraph. 5. The publication of information in the registers under this Regulation shall not have any legal effects other than those set out in national law and in Article 55(6). Article 25 Interconnection of insolvency registers 1. The Commission shall establish a decentralised system for the interconnection of insolvency registers by means of implementing acts. That system shall be composed of the insolvency registers and the European e-Justice Portal, which shall serve as a central public electronic access point to information in the system. The system shall provide a search service in all the official languages of the institutions of the Union in order to make available the mandatory information and any other documents or information included in the insolvency registers which the Member States choose to make available through the European e-Justice Portal. 2. By means of implementing acts in accordance with the procedure referred to in Article 87, the Commission shall adopt the following by 26 June 2019: (a) the technical specification defining the methods of communication and information exchange by electronic means on the basis of the established interface specification for the system of interconnection of insolvency registers; (b) the technical measures ensuring the minimum information technology security standards for communication and distribution of information within the system of interconnection of insolvency registers; (c) minimum criteria for the search service provided by the European e-Justice­Portal based on the information set out in Article 24; (d) minimum criteria for the presentation of the results of such searches based on the information set out in Article 24; (e) the means and the technical conditions of availability of services provided by the system of interconnection; and (f) a glossary containing a basic explanation of the national insolvency proceedings listed in Annex A.

236  Part 1: European Union Legislation Article 26 Costs of establishing and interconnecting insolvency registers 1. The establishment, maintenance and future development of the system of interconnection of insolvency registers shall be financed from the general budget of the Union. 2. Each Member State shall bear the costs of establishing and adjusting its national insolvency registers to make them interoperable with the European e-Justice Portal, as well as the costs of administering, operating and maintaining those registers. This shall be without prejudice to the possibility to apply for grants to support such activities under the Union’s financial programmes. Article 27 Conditions of access to information via the system of interconnection 1. Member States shall ensure that the mandatory information referred to in points (a) to (j) of Article 24(2) is available free of charge via the system of interconnection of insolvency registers. 2. This Regulation shall not preclude Member States from charging a reasonable fee for access to the documents or additional information referred to in Article 24(3) via the system of interconnection of insolvency registers. 3. Member States may make access to mandatory information concerning individuals who are not exercising an independent business or professional activity, and concerning individuals exercising an independent business or professional activity when the insolvency proceedings are not related to that activity, subject to supplementary search criteria relating to the debtor in addition to the minimum criteria referred to in point (c) of Article 25(2). 4. Member States may require that access to the information referred to in paragraph 3 be made conditional upon a request to the competent authority. Member States may make access conditional upon the verification of the existence of a legitimate interest for accessing such information. The requesting person shall be able to submit the request for information electronically by means of a standard form via the European e-Justice Portal. Where a legitimate interest is required, it shall be permissible for the requesting person to justify his request by electronic copies of relevant documents. The requesting person shall be provided with an answer by the competent authority within 3 working days. The requesting person shall not be obliged to provide translations of the documents justifying his request, or to bear any costs of translation which the competent authority may incur. Article 28 Publication in another Member State 1. The insolvency practitioner or the debtor in possession shall request that notice of the judgment opening insolvency proceedings and, where

Regulation (EU) 2015/848 237 a­ ppropriate, the decision appointing the insolvency practitioner be published in any other Member State where an establishment of the debtor is located in accordance with the publication procedures provided for in that Member State. Such publication shall specify, where appropriate, the insolvency practitioner appointed and whether the jurisdiction rule applied is that pursuant to ­Article 3(1) or (2). 2. The insolvency practitioner or the debtor in possession may request that the information referred to in paragraph 1 be published in any other Member State where the insolvency practitioner or the debtor in possession deems it necessary in accordance with the publication procedures provided for in that Member State. Article 29 Registration in public registers of another Member State 1. Where the law of a Member State in which an establishment of the debtor is located and this establishment has been entered into a public register of that Member State, or the law of a Member State in which immovable property belonging to the debtor is located, requires information on the opening of insolvency proceedings referred to in Article 28 to be published in the land register, company register or any other public register, the insolvency practitioner or the debtor in possession shall take all the necessary measures to ensure such a registration. 2. The insolvency practitioner or the debtor in possession may request such registration in any other Member State, provided that the law of the Member State where the register is kept allows such registration. Article 30 Costs The costs of the publication and registration provided for in Articles 28 and 29 shall be regarded as costs and expenses incurred in the proceedings. Article 31 Honouring of an obligation to a debtor 1. Where an obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency proceedings opened in another Member State, when it should have been honoured for the benefit of the insolvency practitioner in those proceedings, the person honouring the obligation shall be deemed to have discharged it if he was unaware of the opening of the proceedings. 2. Where such an obligation is honoured before the publication provided for in Article 28 has been effected, the person honouring the obligation shall be presumed, in the absence of proof to the contrary, to have been unaware of the opening of insolvency proceedings. Where the obligation is honoured after

238  Part 1: European Union Legislation such publication has been effected, the person honouring the obligation shall be presumed, in the absence of proof to the contrary, to have been aware of the opening of proceedings. Article 32 Recognition and enforceability of other judgments 1. Judgments handed down by a court whose judgment concerning the opening of proceedings is recognised in accordance with Article 19 and which concern the course and closure of insolvency proceedings, and compositions approved by that court, shall also be recognised with no further formalities. Such judgments shall be enforced in accordance with Articles 39 to 44 and 47 to 57 of Regulation (EU) No 1215/2012. The first subparagraph shall also apply to judgments deriving directly from the insolvency proceedings and which are closely linked with them, even if they were handed down by another court. The first subparagraph shall also apply to judgments relating to preservation measures taken after the request for the opening of insolvency proceedings or in connection with it. 2. The recognition and enforcement of judgments other than those referred to in paragraph 1 of this Article shall be governed by Regulation (EU) No 1215/2012 provided that that Regulation is applicable. Article 33 Public policy Any Member State may refuse to recognise insolvency proceedings opened in another Member State or to enforce a judgment handed down in the context of such proceedings where the effects of such recognition or enforcement would be manifestly contrary to that State’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual. CHAPTER III SECONDARY INSOLVENCY PROCEEDINGS Article 34 Opening of proceedings Where main insolvency proceedings have been opened by a court of a Member State and recognised in another Member State, a court of that other Member State which has jurisdiction pursuant to Article 3(2) may open secondary insolvency proceedings in accordance with the provisions set out in this Chapter. Where the main insolvency proceedings required that the debtor be insolvent, the debtor’s insolvency shall not be re-examined in the Member State in which secondary insolvency proceedings may be opened. The effects of secondary insolvency proceedings shall be restricted to the assets of the debtor situated within the territory of the Member State in which those proceedings have been opened.

Regulation (EU) 2015/848 239 Article 35 Applicable law Save as otherwise provided for in this Regulation, the law applicable to secondary insolvency proceedings shall be that of the Member State within the territory of which the secondary insolvency proceedings are opened. Article 36 Right to give an undertaking in order to avoid secondary insolvency proceedings 1. In order to avoid the opening of secondary insolvency proceedings, the insolvency practitioner in the main insolvency proceedings may give a unilateral undertaking (the ‘undertaking’) in respect of the assets located in the Member State in which secondary insolvency proceedings could be opened, that when distributing those assets or the proceeds received as a result of their ­realisation, it will comply with the distribution and priority rights under national law that creditors would have if secondary insolvency proceedings were opened in that Member State. The undertaking shall specify the factual assumptions on which it is based, in particular in respect of the value of the assets located in the Member State concerned and the options available to realise such assets. 2. Where an undertaking has been given in accordance with this Article, the law applicable to the distribution of proceeds from the realisation of assets referred to in paragraph 1, to the ranking of creditors’ claims, and to the rights of creditors in relation to the assets referred to in paragraph 1 shall be the law of the Member State in which secondary insolvency proceedings could have been opened. The relevant point in time for determining the assets referred to in paragraph 1 shall be the moment at which the undertaking is given. 3. The undertaking shall be made in the official language or one of the official languages of the Member State where secondary insolvency proceedings could have been opened, or, where there are several official languages in that ­Member State, the official language or one of the official languages of the place in which secondary insolvency proceedings could have been opened. 4. The undertaking shall be made in writing. It shall be subject to any other requirements relating to form and approval requirements as to distributions, if any, of the State of the opening of the main insolvency proceedings. 5. The undertaking shall be approved by the known local creditors. The rules on qualified majority and voting that apply to the adoption of restructuring plans under the law of the Member State where secondary insolvency proceedings could have been opened shall also apply to the approval of the undertaking. Creditors shall be able to participate in the vote by distance means of communication, where national law so permits. The insolvency practitioner shall inform the known local creditors of the undertaking, of the rules and procedures for its approval, and of the approval or rejection of the undertaking.

240  Part 1: European Union Legislation 6. An undertaking given and approved in accordance with this Article shall be binding on the estate. If secondary insolvency proceedings are opened in accordance with Articles 37 and 38, the insolvency practitioner in the main insolvency proceedings shall transfer any assets which it removed from the territory of that Member State after the undertaking was given or, where those assets have already been realised, their proceeds, to the insolvency practitioner in the secondary insolvency proceedings. 7. Where the insolvency practitioner has given an undertaking, it shall inform local creditors about the intended distributions prior to distributing the assets and proceeds referred to in paragraph 1. If that information does not comply with the terms of the undertaking or the applicable law, any local creditor may challenge such distribution before the courts of the Member State in which main insolvency proceedings have been opened in order to obtain a distribution in accordance with the terms of the undertaking and the applicable law. In such cases, no distribution shall take place until the court has taken a decision on the challenge. 8. Local creditors may apply to the courts of the Member State in which main insolvency proceedings have been opened, in order to require the insolvency practitioner in the main insolvency proceedings to take any suitable measures necessary to ensure compliance with the terms of the undertaking available under the law of the State of the opening of main insolvency proceedings. 9. Local creditors may also apply to the courts of the Member State in which secondary insolvency proceedings could have been opened in order to require the court to take provisional or protective measures to ensure compliance by the insolvency practitioner with the terms of the undertaking. 10. The insolvency practitioner shall be liable for any damage caused to local creditors as a result of its non-compliance with the obligations and requirements set out in this Article. 11. For the purpose of this Article, an authority which is established in the ­Member State where secondary insolvency proceedings could have been opened and which is obliged under Directive 2008/94/EC of the European Parliament and of the Council (16) to guarantee the payment of employees’ outstanding claims resulting from contracts of employment or employment relationships shall be considered to be a local creditor, where the national law so provides. Article 37 Right to request the opening of secondary insolvency proceedings 1. The opening of secondary insolvency proceedings may be requested by: (a) the insolvency practitioner in the main insolvency proceedings; (b) any other person or authority empowered to request the opening of insolvency proceedings under the law of the Member State within the territory of which the opening of secondary insolvency proceedings is requested.

Regulation (EU) 2015/848 241 2. Where an undertaking has become binding in accordance with Article 36, the request for opening secondary insolvency proceedings shall be lodged within 30 days of having received notice of the approval of the undertaking. Article 38 Decision to open secondary insolvency proceedings 1. A court seised of a request to open secondary insolvency proceedings shall immediately give notice to the insolvency practitioner or the debtor in possession in the main insolvency proceedings and give it an opportunity to be heard on the request. 2. Where the insolvency practitioner in the main insolvency proceedings has given an undertaking in accordance with Article 36, the court referred to in paragraph 1 of this Article shall, at the request of the insolvency practitioner, not open secondary insolvency proceedings if it is satisfied that the undertaking adequately protects the general interests of local creditors. 3. Where a temporary stay of individual enforcement proceedings has been granted in order to allow for negotiations between the debtor and its creditors, the court, at the request of the insolvency practitioner or the debtor in possession, may stay the opening of secondary insolvency proceedings for a period not exceeding 3 months, provided that suitable measures are in place to protect the interests of local creditors. The court referred to in paragraph 1 may order protective measures to protect the interests of local creditors by requiring the insolvency practitioner or the debtor in possession not to remove or dispose of any assets which are located in the Member State where its establishment is located unless this is done in the ordinary course of business. The court may also order other measures to protect the interest of local creditors during a stay, unless this is incompatible with the national rules on civil procedure. The stay of the opening of secondary insolvency proceedings shall be lifted by the court of its own motion or at the request of any creditor if, during the stay, an agreement in the negotiations referred to in the first subparagraph has been concluded. The stay may be lifted by the court of its own motion or at the request of any creditor if the continuation of the stay is detrimental to the creditor’s rights, in particular if the negotiations have been disrupted or it has become evident that they are unlikely to be concluded, or if the insolvency practitioner or the debtor in possession has infringed the prohibition on disposal of its assets or on removal of them from the territory of the Member State where the establishment is located. 4. At the request of the insolvency practitioner in the main insolvency proceedings, the court referred to in paragraph 1 may open a type of insolvency proceedings as listed in Annex A other than the type initially requested, provided that the conditions for opening that type of proceedings under national law are fulfilled and that that type of proceedings is the most appropriate as regards the interests of the local creditors and coherence between the main

242  Part 1: European Union Legislation and secondary insolvency proceedings. The second sentence of Article 34 shall apply. Article 39 Judicial review of the decision to open secondary insolvency proceedings The insolvency practitioner in the main insolvency proceedings may challenge the decision to open secondary insolvency proceedings before the courts of the Member State in which secondary insolvency proceedings have been opened on the ground that the court did not comply with the conditions and requirements of Article 38. Article 40 Advance payment of costs and expenses Where the law of the Member State in which the opening of secondary insolvency proceedings is requested requires that the debtor’s assets be sufficient to cover in whole or in part the costs and expenses of the proceedings, the court may, when it receives such a request, require the applicant to make an advance payment of costs or to provide appropriate security. Article 41 Cooperation and communication between insolvency practitioners 1. The insolvency practitioner in the main insolvency proceedings and the insolvency practitioner or practitioners in secondary insolvency proceedings concerning the same debtor shall cooperate with each other to the extent such cooperation is not incompatible with the rules applicable to the respective proceedings. Such cooperation may take any form, including the conclusion of agreements or protocols. 2. In implementing the cooperation set out in paragraph 1, the insolvency practitioners shall: (a) as soon as possible communicate to each other any information which may be relevant to the other proceedings, in particular any progress made in lodging and verifying claims and all measures aimed at rescuing or restructuring the debtor, or at terminating the proceedings, provided appropriate arrangements are made to protect confidential information; (b) explore the possibility of restructuring the debtor and, where such a possibility exists, coordinate the elaboration and implementation of a restructuring plan; (c) coordinate the administration of the realisation or use of the debtor’s assets and affairs; the insolvency practitioner in the secondary insolvency proceedings shall give the insolvency practitioner in the main insolvency proceedings an early opportunity to submit proposals on the realisation or use of the assets in the secondary insolvency proceedings.

Regulation (EU) 2015/848 243 3. Paragraphs 1 and 2 shall apply mutatis mutandis to situations where, in the main or in the secondary insolvency proceedings or in any territorial insolvency proceedings concerning the same debtor and open at the same time, the debtor remains in possession of its assets. Article 42 Cooperation and communication between courts 1. In order to facilitate the coordination of main, territorial and secondary insolvency proceedings concerning the same debtor, a court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, shall cooperate with any other court before which a request to open insolvency proceedings is pending, or which has opened such proceedings, to the extent that such cooperation is not incompatible with the rules applicable to each of the proceedings. For that purpose, the courts may, where appropriate, appoint an independent person or body acting on its instructions, provided that it is not incompatible with the rules applicable to them. 2. In implementing the cooperation set out in paragraph 1, the courts, or any appointed person or body acting on their behalf, as referred to in paragraph 1, may communicate directly with, or request information or assistance directly from, each other provided that such communication respects the procedural rights of the parties to the proceedings and the confidentiality of information. 3. The cooperation referred to in paragraph 1 may be implemented by any means that the court considers appropriate. It may, in particular, concern: (a) coordination in the appointment of the insolvency practitioners; (b) communication of information by any means considered appropriate by the court; (c) coordination of the administration and supervision of the debtor’s assets and affairs; (d) coordination of the conduct of hearings; (e) coordination in the approval of protocols, where necessary. Article 43 Cooperation and communication between insolvency practitioners and courts 1. In order to facilitate the coordination of main, territorial and secondary insolvency proceedings opened in respect of the same debtor: (a) an insolvency practitioner in main insolvency proceedings shall cooperate and communicate with any court before which a request to open secondary insolvency proceedings is pending or which has opened such proceedings; (b) an insolvency practitioner in territorial or secondary insolvency proceedings shall cooperate and communicate with the court before which a request to open main insolvency proceedings is pending or which has opened such proceedings; and

244  Part 1: European Union Legislation (c) an insolvency practitioner in territorial or secondary insolvency proceedings shall cooperate and communicate with the court before which a request to open other territorial or secondary insolvency proceedings is pending or which has opened such proceedings; to the extent that such cooperation and communication are not incompatible with the rules applicable to each of the proceedings and do not entail any conflict of interest. 2. The cooperation referred to in paragraph 1 may be implemented by any appropriate means, such as those set out in Article 42(3). Article 44 Costs of cooperation and communication The requirements laid down in Articles 42 and 43 shall not result in courts charging costs to each other for cooperation and communication. Article 45 Exercise of creditors’ rights 1. Any creditor may lodge its claim in the main insolvency proceedings and in any secondary insolvency proceedings. 2. The insolvency practitioners in the main and any secondary insolvency proceedings shall lodge in other proceedings claims which have already been lodged in the proceedings for which they were appointed, provided that the interests of creditors in the latter proceedings are served by doing so, subject to the right of creditors to oppose such lodgement or to withdraw the lodgement of their claims where the law applicable so provides. 3. The insolvency practitioner in the main or secondary insolvency proceedings shall be entitled to participate in other proceedings on the same basis as a creditor, in particular by attending creditors’ meetings. Article 46 Stay of the process of realisation of assets 1. The court which opened the secondary insolvency proceedings shall stay the process of realisation of assets in whole or in part on receipt of a request from the insolvency practitioner in the main insolvency proceedings. In such a case, it may require the insolvency practitioner in the main insolvency proceedings to take any suitable measure to guarantee the interests of the creditors in the secondary insolvency proceedings and of individual classes of creditors. Such a request from the insolvency practitioner may be rejected only if it is manifestly of no interest to the creditors in the main insolvency proceedings. Such a stay of the process of realisation of assets may be ordered for up to 3 months. It may be continued or renewed for similar periods.

Regulation (EU) 2015/848 245 2. The court referred to in paragraph 1 shall terminate the stay of the process of realisation of assets: (a) at the request of the insolvency practitioner in the main insolvency proceedings; (b) of its own motion, at the request of a creditor or at the request of the insolvency practitioner in the secondary insolvency proceedings if that measure no longer appears justified, in particular, by the interests of creditors in the main insolvency proceedings or in the secondary insolvency proceedings. Article 47 Power of the insolvency practitioner to propose restructuring plans 1. Where the law of the Member State where secondary insolvency proceedings have been opened allows for such proceedings to be closed without liquidation by a restructuring plan, a composition or a comparable measure, the insolvency practitioner in the main insolvency proceedings shall be empowered to propose such a measure in accordance with the procedure of that Member State. 2. Any restriction of creditors’ rights arising from a measure referred to in ­paragraph 1 which is proposed in secondary insolvency proceedings, such as a stay of payment or discharge of debt, shall have no effect in respect of assets of a debtor that are not covered by those proceedings, without the consent of all the creditors having an interest. Article 48 Impact of closure of insolvency proceedings 1. Without prejudice to Article 49, the closure of insolvency proceedings shall not prevent the continuation of other insolvency proceedings concerning the same debtor which are still open at that point in time. 2. Where insolvency proceedings concerning a legal person or a company in the Member State of that person’s or company’s registered office would entail the dissolution of the legal person or of the company, that legal person or company shall not cease to exist until any other insolvency proceedings concerning the same debtor have been closed, or the insolvency practitioner or practitioners in such proceedings have given consent to the dissolution. Article 49 Assets remaining in the secondary insolvency proceedings If, by the liquidation of assets in the secondary insolvency proceedings, it is possible to meet all claims allowed under those proceedings, the insolvency practitioner appointed in those proceedings shall immediately transfer any assets remaining to the insolvency practitioner in the main insolvency proceedings.

246  Part 1: European Union Legislation Article 50 Subsequent opening of the main insolvency proceedings Where the proceedings referred to in Article 3(1) are opened following the opening of the proceedings referred to in Article 3(2) in another Member State, Articles 41, 45, 46, 47 and 49 shall apply to those opened first, in so far as the progress of those proceedings so permits. Article 51 Conversion of secondary insolvency proceedings 1. At the request of the insolvency practitioner in the main insolvency proceedings, the court of the Member State in which secondary insolvency proceedings have been opened may order the conversion of the secondary insolvency proceedings into another type of insolvency proceedings listed in Annex A, provided that the conditions for opening that type of proceedings under national law are fulfilled and that that type of proceedings is the most appropriate as regards the interests of the local creditors and coherence between the main and secondary insolvency proceedings. 2. When considering the request referred to in paragraph 1, the court may seek information from the insolvency practitioners involved in both proceedings. Article 52 Preservation measures Where the court of a Member State which has jurisdiction pursuant to Article 3(1) appoints a temporary administrator in order to ensure the preservation of a debtor’s assets, that temporary administrator shall be empowered to request any measures to secure and preserve any of the debtor’s assets situated in another Member State, provided for under the law of that Member State, for the period between the request for the opening of insolvency proceedings and the judgment opening the proceedings. CHAPTER IV PROVISION OF INFORMATION FOR CREDITORS AND LODGEMENT OF THEIR CLAIMS Article 53 Right to lodge claims Any foreign creditor may lodge claims in insolvency proceedings by any means of communication, which are accepted by the law of the State of the opening of proceedings. Representation by a lawyer or another legal professional shall not be mandatory for the sole purpose of lodging of claims.

Regulation (EU) 2015/848 247 Article 54 Duty to inform creditors 1. As soon as insolvency proceedings are opened in a Member State, the court of that State having jurisdiction or the insolvency practitioner appointed by that court shall immediately inform the known foreign creditors. 2. The information referred to in paragraph 1, provided by an individual notice, shall in particular include time limits, the penalties laid down with regard to those time limits, the body or authority empowered to accept the lodgement of claims and any other measures laid down. Such notice shall also indicate whether creditors whose claims are preferential or secured in rem need to lodge their claims. The notice shall also include a copy of the standard form for lodging of claims referred to in Article 55 or information on where that form is available. 3. The information referred to in paragraphs 1 and 2 of this Article shall be provided using the standard notice form to be established in accordance with Article 88. The form shall be published in the European e-Justice Portal and shall bear the heading ‘Notice of insolvency proceedings’ in all the official languages of the institutions of the Union. It shall be transmitted in the official language of the State of the opening of proceedings or, if there are several official languages in that Member State, in the official language or one of the official languages of the place where insolvency proceedings have been opened, or in another language which that State has indicated it can accept, in accordance with Article 55(5), if it can be assumed that that language is easier to understand for the foreign creditors. 4. In insolvency proceedings relating to an individual not exercising a business or professional activity, the use of the standard form referred to in this Article shall not be obligatory if creditors are not required to lodge their claims in order to have their claims taken into account in the proceedings. Article 55 Procedure for lodging claims 1. Any foreign creditor may lodge its claim using the standard claims form to be established in accordance with Article 88. The form shall bear the heading ‘Lodgement of claims’ in all the official languages of the institutions of the Union. 2. The standard claims form referred to in paragraph 1 shall include the following information: (a) the name, postal address, e-mail address, if any, personal identification number, if any, and bank details of the foreign creditor referred to in paragraph 1; (b) the amount of the claim, specifying the principal and, where applicable, interest and the date on which it arose and the date on which it became due, if different;

248  Part 1: European Union Legislation

3. 4. 5.

6.

7.

(c) if interest is claimed, the interest rate, whether the interest is of a legal or contractual nature, the period of time for which the interest is claimed and the capitalised amount of interest; (d) if costs incurred in asserting the claim prior to the opening of proceedings are claimed, the amount and the details of those costs; (e) the nature of the claim; (f) whether any preferential creditor status is claimed and the basis of such a claim; (g) whether security in rem or a reservation of title is alleged in respect of the claim and if so, what assets are covered by the security interest being invoked, the date on which the security was granted and, where the security has been registered, the registration number; and (h) whether any set-off is claimed and, if so, the amounts of the mutual claims existing on the date when insolvency proceedings were opened, the date on which they arose and the amount net of set-off claimed. The standard claims form shall be accompanied by copies of any supporting documents. The standard claims form shall indicate that the provision of information concerning the bank details and the personal identification number of the creditor referred to in point (a) of paragraph 2 is not compulsory. When a creditor lodges its claim by means other than the standard form referred to in paragraph 1, the claim shall contain the information referred to in paragraph 2. Claims may be lodged in any official language of the institutions of the Union. The court, the insolvency practitioner or the debtor in possession may require the creditor to provide a translation in the official language of the State of the opening of proceedings or, if there are several official languages in that Member State, in the official language or one of the official languages of the place where insolvency proceedings have been opened, or in another language which that Member State has indicated it can accept. Each Member State shall indicate whether it accepts any official language of the institutions of the Union other than its own for the purpose of the lodging of claims. Claims shall be lodged within the period stipulated by the law of the State of the opening of proceedings. In the case of a foreign creditor, that period shall not be less than 30 days following the publication of the opening of insolvency proceedings in the insolvency register of the State of the opening of proceedings. Where a Member State relies on Article 24(4), that period shall not be less than 30 days following a creditor having been informed pursuant to Article 54. Where the court, the insolvency practitioner or the debtor in possession has doubts in relation to a claim lodged in accordance with this Article, it shall give the creditor the opportunity to provide additional evidence on the existence and the amount of the claim.

Regulation (EU) 2015/848 249 CHAPTER V INSOLVENCY PROCEEDINGS OF MEMBERS OF A GROUP OF COMPANIES SECTION 1 Cooperation and communication Article 56 Cooperation and communication between insolvency practitioners 1. Where insolvency proceedings relate to two or more members of a group of companies, an insolvency practitioner appointed in proceedings concerning a member of the group shall cooperate with any insolvency practitioner appointed in proceedings concerning another member of the same group to the extent that such cooperation is appropriate to facilitate the effective administration of those proceedings, is not incompatible with the rules applicable to such proceedings and does not entail any conflict of interest. That cooperation may take any form, including the conclusion of agreements or protocols. 2. In implementing the cooperation set out in paragraph 1, insolvency practitioners shall: (a) as soon as possible communicate to each other any information which may be relevant to the other proceedings, provided appropriate arrangements are made to protect confidential information; (b) consider whether possibilities exist for coordinating the administration and supervision of the affairs of the group members which are subject to insolvency proceedings, and if so, coordinate such administration and supervision; (c) consider whether possibilities exist for restructuring group members which are subject to insolvency proceedings and, if so, coordinate with regard to the proposal and negotiation of a coordinated restructuring plan. For the purposes of points (b) and (c), all or some of the insolvency practitioners referred to in paragraph 1 may agree to grant additional powers to an insolvency practitioner appointed in one of the proceedings where such an agreement is permitted by the rules applicable to each of the proceedings. They may also agree on the allocation of certain tasks amongst them, where such allocation of tasks is permitted by the rules applicable to each of the proceedings. Article 57 Cooperation and communication between courts 1. Where insolvency proceedings relate to two or more members of a group of companies, a court which has opened such proceedings shall cooperate with any other court before which a request to open proceedings concern-

250  Part 1: European Union Legislation ing another member of the same group is pending or which has opened such proceedings to the extent that such cooperation is appropriate to facilitate the effective administration of the proceedings, is not incompatible with the rules applicable to them and does not entail any conflict of interest. For that purpose, the courts may, where appropriate, appoint an independent person or body to act on its instructions, provided that this is not incompatible with the rules applicable to them. 2. In implementing the cooperation set out in paragraph 1, courts, or any appointed person or body acting on their behalf, as referred to in paragraph 1, may communicate directly with each other, or request information or assistance directly from each other, provided that such communication respects the procedural rights of the parties to the proceedings and the confidentiality of information. 3. The cooperation referred to in paragraph 1 may be implemented by any means that the court considers appropriate. It may, in particular, concern: (a) coordination in the appointment of insolvency practitioners; (b) communication of information by any means considered appropriate by the court; (c) coordination of the administration and supervision of the assets and affairs of the members of the group; (d) coordination of the conduct of hearings; (e) coordination in the approval of protocols where necessary. Article 58 Cooperation and communication between insolvency practitioners and courts An insolvency practitioner appointed in insolvency proceedings concerning a ­member of a group of companies: (a) shall cooperate and communicate with any court before which a request for the opening of proceedings in respect of another member of the same group of companies is pending or which has opened such proceedings; and (b) may request information from that court concerning the proceedings regarding the other member of the group or request assistance concerning the proceedings in which he has been appointed; to the extent that such cooperation and communication are appropriate to facilitate the effective administration of the proceedings, do not entail any conflict of interest and are not incompatible with the rules applicable to them. Article 59 Costs of cooperation and communication in proceedings concerning members of a group of companies The costs of the cooperation and communication provided for in Articles 56 to 60 incurred by an insolvency practitioner or a court shall be regarded as costs and expenses incurred in the respective proceedings.

Regulation (EU) 2015/848 251 Article 60 Powers of the insolvency practitioner in proceedings concerning members of a group of companies 1. An insolvency practitioner appointed in insolvency proceedings opened in respect of a member of a group of companies may, to the extent appropriate to facilitate the effective administration of the proceedings: (a) be heard in any of the proceedings opened in respect of any other member of the same group; (b) request a stay of any measure related to the realisation of the assets in the proceedings opened with respect to any other member of the same group, provided that: (i) a restructuring plan for all or some members of the group for which insolvency proceedings have been opened has been proposed under point (c) of Article 56(2) and presents a reasonable chance of success; (ii) such a stay is necessary in order to ensure the proper implementation of the restructuring plan; (iii) the restructuring plan would be to the benefit of the creditors in the proceedings for which the stay is requested; and (iv) neither the insolvency proceedings in which the insolvency practitioner referred to in paragraph 1 of this Article has been appointed nor the proceedings in respect of which the stay is requested are subject to coordination under Section 2 of this Chapter; (c) apply for the opening of group coordination proceedings in accordance with Article 61. 2. The court having opened proceedings referred to in point (b) of paragraph 1 shall stay any measure related to the realisation of the assets in the proceedings in whole or in part if it is satisfied that the conditions referred to in point (b) of paragraph 1 are fulfilled. Before ordering the stay, the court shall hear the insolvency practitioner appointed in the proceedings for which the stay is requested. Such a stay may be ordered for any period, not exceeding 3 months, which the court considers appropriate and which is compatible with the rules applicable to the proceedings. The court ordering the stay may require the insolvency practitioner referred to in paragraph 1 to take any suitable measure available under national law to guarantee the interests of the creditors in the proceedings. The court may extend the duration of the stay by such further period or periods as it considers appropriate and which are compatible with the rules applicable to the proceedings, provided that the conditions referred to in points (b)(ii) to (iv) of paragraph 1 continue to be fulfilled and that the total duration of the stay (the initial period together with any such extensions) does not exceed 6 months.

252  Part 1: European Union Legislation SECTION 2 Coordination Subsection 1 Procedure Article 61 Request to open group coordination proceedings 1. Group coordination proceedings may be requested before any court having jurisdiction over the insolvency proceedings of a member of the group, by an insolvency practitioner appointed in insolvency proceedings opened in relation to a member of the group. 2. The request referred to in paragraph 1 shall be made in accordance with the conditions provided for by the law applicable to the proceedings in which the insolvency practitioner has been appointed. 3. The request referred to in paragraph 1 shall be accompanied by: (a) a proposal as to the person to be nominated as the group coordinator (‘the coordinator’), details of his or her eligibility pursuant to Article 71, details of his or her qualifications and his or her written agreement to act as coordinator; (b) an outline of the proposed group coordination, and in particular the reasons why the conditions set out in Article 63(1) are fulfilled; (c) a list of the insolvency practitioners appointed in relation to the members of the group and, where relevant, the courts and competent authorities involved in the insolvency proceedings of the members of the group; (d) an outline of the estimated costs of the proposed group coordination and the estimation of the share of those costs to be paid by each member of the group. Article 62 Priority rule Without prejudice to Article 66, where the opening of group coordination proceedings is requested before courts of different Member States, any court other than the court first seised shall decline jurisdiction in favour of that court. Article 63 Notice by the court seised 1. The court seised of a request to open group coordination proceedings shall give notice as soon as possible of the request for the opening of group coordination proceedings and of the proposed coordinator to the insolvency practitioners appointed in relation to the members of the group as indicated in the request referred to in point (c) of Article 61(3), if it is satisfied that:

Regulation (EU) 2015/848 253 (a) the opening of such proceedings is appropriate to facilitate the effective administration of the insolvency proceedings relating to the different group members; (b) no creditor of any group member expected to participate in the proceedings is likely to be financially disadvantaged by the inclusion of that member in such proceedings; and (c) the proposed coordinator fulfils the requirements laid down in Article 71. 2. The notice referred to in paragraph 1 of this Article shall list the elements referred to in points (a) to (d) of Article 61(3). 3. The notice referred to in paragraph 1 shall be sent by registered letter, attested by an acknowledgment of receipt. 4. The court seised shall give the insolvency practitioners involved the opportunity to be heard. Article 64 Objections by insolvency practitioners 1. An insolvency practitioner appointed in respect of any group member may object to: (a) the inclusion within group coordination proceedings of the insolvency proceedings in respect of which it has been appointed; or (b) the person proposed as a coordinator. 2. Objections pursuant to paragraph 1 of this Article shall be lodged with the court referred to in Article 63 within 30 days of receipt of notice of the request for the opening of group coordination proceedings by the insolvency practitioner referred to in paragraph 1 of this Article. The objection may be made by means of the standard form established in accordance with Article 88. 3. Prior to taking the decision to participate or not to participate in the coordination in accordance with point (a) of paragraph 1, an insolvency practitioner shall obtain any approval which may be required under the law of the State of the opening of proceedings for which it has been appointed. Article 65 Consequences of objection to the inclusion in group coordination 1. Where an insolvency practitioner has objected to the inclusion of the proceedings in respect of which it has been appointed in group coordination proceedings, those proceedings shall not be included in the group coordination proceedings. 2. The powers of the court referred to in Article 68 or of the coordinator arising from those proceedings shall have no effect as regards that member, and shall entail no costs for that member.

254  Part 1: European Union Legislation Article 66 Choice of court for group coordination proceedings 1. Where at least two-thirds of all insolvency practitioners appointed in insolvency proceedings of the members of the group have agreed that a court of another Member State having jurisdiction is the most appropriate court for the opening of group coordination proceedings, that court shall have exclusive jurisdiction. 2. The choice of court shall be made by joint agreement in writing or evidenced in writing. It may be made until such time as group coordination proceedings have been opened in accordance with Article 68. 3. Any court other than the court seised under paragraph 1 shall decline jurisdiction in favour of that court. 4. The request for the opening of group coordination proceedings shall be submitted to the court agreed in accordance with Article 61. Article 67 Consequences of objections to the proposed coordinator Where objections to the person proposed as coordinator have been received from an insolvency practitioner which does not also object to the inclusion in the group coordination proceedings of the member in respect of which it has been appointed, the court may refrain from appointing that person and invite the objecting insolvency practitioner to submit a new request in accordance with Article 61(3). Article 68 Decision to open group coordination proceedings 1. After the period referred to in Article 64(2) has elapsed, the court may open group coordination proceedings where it is satisfied that the conditions of Article 63(1) are met. In such a case, the court shall: (a) appoint a coordinator; (b) decide on the outline of the coordination; and (c) decide on the estimation of costs and the share to be paid by the group members. 2. The decision opening group coordination proceedings shall be brought to the notice of the participating insolvency practitioners and of the coordinator. Article 69 Subsequent opt-in by insolvency practitioners 1. In accordance with its national law, any insolvency practitioner may request, after the court decision referred to in Article 68, the inclusion of the proceedings in respect of which it has been appointed, where: (a) there has been an objection to the inclusion of the insolvency proceedings within the group coordination proceedings; or

Regulation (EU) 2015/848 255 (b) insolvency proceedings with respect to a member of the group have been opened after the court has opened group coordination proceedings. 2. Without prejudice to paragraph 4, the coordinator may accede to such a request, after consulting the insolvency practitioners involved, where (a) he or she is satisfied that, taking into account the stage that the group coordination proceedings has reached at the time of the request, the criteria set out in points (a) and (b) of Article 63(1) are met; or (b) all insolvency practitioners involved agree, subject to the conditions in their national law. 3. The coordinator shall inform the court and the participating insolvency practitioners of his or her decision pursuant to paragraph 2 and of the reasons on which it is based. 4. Any participating insolvency practitioner or any insolvency practitioner whose request for inclusion in the group coordination proceedings has been rejected may challenge the decision referred to in paragraph 2 in accordance with the procedure set out under the law of the Member State in which the group coordination proceedings have been opened. Article 70 Recommendations and group coordination plan 1. When conducting their insolvency proceedings, insolvency practitioners shall consider the recommendations of the coordinator and the content of the group coordination plan referred to in Article 72(1). 2. An insolvency practitioner shall not be obliged to follow in whole or in part the coordinator’s recommendations or the group coordination plan. If it does not follow the coordinator’s recommendations or the group coordination plan, it shall give reasons for not doing so to the persons or bodies that it is to report to under its national law, and to the coordinator. Subsection 2 General provisions Article 71 The coordinator 1. The coordinator shall be a person eligible under the law of a Member State to act as an insolvency practitioner. 2. The coordinator shall not be one of the insolvency practitioners appointed to act in respect of any of the group members, and shall have no conflict of interest in respect of the group members, their creditors and the insolvency practitioners appointed in respect of any of the group members.

256  Part 1: European Union Legislation Article 72 Tasks and rights of the coordinator 1. The coordinator shall: (a) identify and outline recommendations for the coordinated conduct of the insolvency proceedings; (b) propose a group coordination plan that identifies, describes and recommends a comprehensive set of measures appropriate to an integrated approach to the resolution of the group members’ insolvencies. In particular, the plan may contain proposals for: (i) the measures to be taken in order to re-establish the economic performance and the financial soundness of the group or any part of it; (ii) the settlement of intra-group disputes as regards intra- group transactions and avoidance actions; (iii) agreements between the insolvency practitioners of the insolvent group members. 2. The coordinator may also: (a) be heard and participate, in particular by attending creditors’ meetings, in any of the proceedings opened in respect of any member of the group; (b) mediate any dispute arising between two or more insolvency practitioners of group members; (c) present and explain his or her group coordination plan to the persons or bodies that he or she is to report to under his or her national law; (d) request information from any insolvency practitioner in respect of any member of the group where that information is or might be of use when identifying and outlining strategies and measures in order to coordinate the proceedings; and (e) request a stay for a period of up to 6 months of the proceedings opened in respect of any member of the group, provided that such a stay is necessary in order to ensure the proper implementation of the plan and would be to the benefit of the creditors in the proceedings for which the stay is requested; or request the lifting of any existing stay. Such a request shall be made to the court that opened the proceedings for which a stay is requested. 3. The plan referred to in point (b) of paragraph 1 shall not include recommendations as to any consolidation of proceedings or insolvency estates. 4. The coordinator’s tasks and rights as defined under this Article shall not extend to any member of the group not participating in group coordination proceedings. 5. The coordinator shall perform his or her duties impartially and with due care. 6. Where the coordinator considers that the fulfilment of his or her tasks requires a significant increase in the costs compared to the cost estimate referred to in point (d) of Article 61(3), and in any case, where the costs exceed 10 % of the estimated costs, the coordinator shall: (a) inform without delay the participating insolvency practitioners; and (b) seek the prior approval of the court opening group coordination proceedings.

Regulation (EU) 2015/848 257 Article 73 Languages 1. The coordinator shall communicate with the insolvency practitioner of a participating group member in the language agreed with the insolvency practitioner or, in the absence of an agreement, in the official language or one of the official languages of the institutions of the Union, and of the court which opened the proceedings in respect of that group member. 2. The coordinator shall communicate with a court in the official language applicable to that court. Article 74 Cooperation between insolvency practitioners and the coordinator 1. Insolvency practitioners appointed in relation to members of a group and the coordinator shall cooperate with each other to the extent that such cooperation is not incompatible with the rules applicable to the respective proceedings. 2. In particular, insolvency practitioners shall communicate any information that is relevant for the coordinator to perform his or her tasks. Article 75 Revocation of the appointment of the coordinator The court shall revoke the appointment of the coordinator of its own motion or at the request of the insolvency practitioner of a participating group member where: (a) the coordinator acts to the detriment of the creditors of a participating group member; or (b) the coordinator fails to comply with his or her obligations under this Chapter. Article 76 Debtor in possession The provisions applicable, under this Chapter, to the insolvency practitioner shall also apply, where appropriate, to the debtor in possession. Article 77 Costs and distribution 1. The remuneration for the coordinator shall be adequate, proportionate to the tasks fulfilled and reflect reasonable expenses. 2. On having completed his or her tasks, the coordinator shall establish the final statement of costs and the share to be paid by each member, and submit this statement to each participating insolvency practitioner and to the court opening coordination proceedings. 3. In the absence of objections by the insolvency practitioners within 30 days of receipt of the statement referred to in paragraph 2, the costs and the share to

258  Part 1: European Union Legislation be paid by each member shall be deemed to be agreed. The statement shall be submitted to the court opening coordination proceedings for confirmation. 4. In the event of an objection, the court that opened the group coordination proceedings shall, upon the application of the coordinator or any participating insolvency practitioner, decide on the costs and the share to be paid by each member in accordance with the criteria set out in paragraph 1 of this Article, and taking into account the estimation of costs referred to in ­Article 68(1) and, where applicable, Article 72(6). 5. Any participating insolvency practitioner may challenge the decision referred to in paragraph 4 in accordance with the procedure set out under the law of the Member State where group coordination proceedings have been opened. CHAPTER VI DATA PROTECTION Article 78 Data protection 1. National rules implementing Directive 95/46/EC shall apply to the processing of personal data carried out in the Member States pursuant to this Regulation, provided that processing operations referred to in Article 3(2) of Directive 95/46/EC are not concerned. 2. Regulation (EC) No 45/2001 shall apply to the processing of personal data carried out by the Commission pursuant to this Regulation. Article 79 Responsibilities of Member States regarding the processing of personal data in national insolvency registers 1. Each Member State shall communicate to the Commission the name of the natural or legal person, public authority, agency or any other body designated by national law to exercise the functions of controller in accordance with point (d) of Article 2 of Directive 95/46/EC, with a view to its publication on the European e-Justice Portal. 2. Member States shall ensure that the technical measures for ensuring the security of personal data processed in their national insolvency registers referred to in Article 24 are implemented. 3. Member States shall be responsible for verifying that the controller, designated by national law in accordance with point (d) of Article 2 of Directive 95/46/EC, ensures compliance with the principles of data quality, in particular the accuracy and the updating of data stored in national insolvency registers. 4. Member States shall be responsible, in accordance with Directive 95/46/EC, for the collection and storage of data in national databases and for decisions taken to make such data available in the interconnected register that can be consulted via the European e-Justice Portal.

Regulation (EU) 2015/848 259 5. As part of the information that should be provided to data subjects to enable them to exercise their rights, and in particular the right to the erasure of data, Member States shall inform data subjects of the accessibility period set for personal data stored in insolvency registers. Article 80 Responsibilities of the Commission in connection with the processing of personal data 1. The Commission shall exercise the responsibilities of controller pursuant to Article 2(d) of Regulation (EC) No 45/2001 in accordance with its respective responsibilities defined in this Article. 2. The Commission shall define the necessary policies and apply the necessary technical solutions to fulfil its responsibilities within the scope of the function of controller. 3. The Commission shall implement the technical measures required to ensure the security of personal data while in transit, in particular the confidentiality and integrity of any transmission to and from the European e-Justice Portal. 4. The obligations of the Commission shall not affect the responsibilities of the Member States and other bodies for the content and operation of the interconnected national databases run by them. Article 81 Information obligations Without prejudice to the information to be given to data subjects in accordance with Articles 11 and 12 of Regulation (EC) No 45/2001, the Commission shall inform data subjects, by means of publication through the European e-Justice Portal, about its role in the processing of data and the purposes for which those data will be processed. Article 82 Storage of personal data As regards information from interconnected national databases, no personal data relating to data subjects shall be stored in the European e-Justice Portal. All such data shall be stored in the national databases operated by the Member States or other bodies. Article 83 Access to personal data via the European e-Justice Portal Personal data stored in the national insolvency registers referred to in Article 24 shall be accessible via the European e-Justice Portal for as long as they remain accessible under national law.

260  Part 1: European Union Legislation CHAPTER VII TRANSITIONAL AND FINAL PROVISIONS Article 84 Applicability in time 1. The provisions of this Regulation shall apply only to insolvency proceedings opened after 26 June 2017. Acts committed by a debtor before that date shall continue to be governed by the law which was applicable to them at the time they were committed. 2. Notwithstanding Article 91 of this Regulation, Regulation (EC) No 1346/2000 shall continue to apply to insolvency proceedings which fall within the scope of that Regulation and which have been opened before 26 June 2017. Article 85 Relationship to Conventions 1. This Regulation replaces, in respect of the matters referred to therein, and as regards relations between Member States, the Conventions concluded between two or more Member States, in particular: (a) the Convention between Belgium and France on Jurisdiction and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Paris on 8 July 1899; (b) the Convention between Belgium and Austria on Bankruptcy, Windingup, Arrangements, Compositions and Suspension of Payments (with Additional Protocol of 13 June 1973), signed at Brussels on 16 July 1969; (c) the Convention between Belgium and the Netherlands on Territorial Jurisdiction, Bankruptcy and the Validity and Enforcement of J­ udgments, Arbitration Awards and Authentic Instruments, signed at Brussels on 28 March 1925; (d) the Treaty between Germany and Austria on Bankruptcy, Winding-up, Arrangements and Compositions, signed at Vienna on 25 May 1979; (e) the Convention between France and Austria on Jurisdiction, Recognition and Enforcement of Judgments on Bankruptcy, signed at Vienna on 27 February 1979; (f) the Convention between France and Italy on the Enforcement of Judgments in Civil and Commercial Matters, signed at Rome on 3 June 1930; (g) the Convention between Italy and Austria on Bankruptcy, Winding-up, Arrangements and Compositions, signed at Rome on 12 July 1977; (h) the Convention between the Kingdom of the Netherlands and the F ­ ederal Republic of Germany on the Mutual Recognition and Enforcement of Judgments and other Enforceable Instruments in Civil and Commercial Matters, signed at The Hague on 30 August 1962;

Regulation (EU) 2015/848 261 (i)

(j) (k) (l) (m)

(n) (o) (p) (q)

(r)

(s)

(t)

(u) (v)

the Convention between the United Kingdom and the Kingdom of Belgium providing for the Reciprocal Enforcement of Judgments in ­ Civil and Commercial Matters, with Protocol, signed at Brussels on 2 May 1934; the Convention between Denmark, Finland, Norway, Sweden and ­Iceland on Bankruptcy, signed at Copenhagen on 7 November 1933; the European Convention on Certain International Aspects of ­Bankruptcy, signed at Istanbul on 5 June 1990; the Convention between the Federative People’s Republic of Yugoslavia and the Kingdom of Greece on the Mutual Recognition and Enforcement of Judgments, signed at Athens on 18 June 1959; the Agreement between the Federative People’s Republic of Yugoslavia and the Republic of Austria on the Mutual Recognition and Enforcement of Arbitral Awards and Arbitral Settlements in Commercial ­Matters, signed at Belgrade on 18 March 1960; the Convention between the Federative People’s Republic of Yugoslavia and the Italian Republic on Mutual Judicial Cooperation in Civil and Administrative Matters, signed at Rome on 3 December 1960; the Agreement between the Socialist Federative Republic of Yugoslavia and the Kingdom of Belgium on Judicial Cooperation in Civil and Commercial Matters, signed at Belgrade on 24 September 1971; the Convention between the Governments of Yugoslavia and France on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed at Paris on 18 May 1971; the Agreement between the Czechoslovak Socialist Republic and the Hellenic Republic on Legal Aid in Civil and Criminal Matters, signed at Athens on 22 October 1980, still in force between the Czech Republic and Greece; the Agreement between the Czechoslovak Socialist Republic and the Republic of Cyprus on Legal Aid in Civil and Criminal Matters, signed at Nicosia on 23 April 1982, still in force between the Czech Republic and Cyprus; the Treaty between the Government of the Czechoslovak Socialist Republic and the Government of the Republic of France on Legal Aid and the Recognition and Enforcement of Judgments in Civil, Family and Commercial Matters, signed at Paris on 10 May 1984, still in force between the Czech Republic and France; the Treaty between the Czechoslovak Socialist Republic and the Italian Republic on Legal Aid in Civil and Criminal Matters, signed at Prague on 6 December 1985, still in force between the Czech Republic and Italy; the Agreement between the Republic of Latvia, the Republic of Estonia and the Republic of Lithuania on Legal Assistance and Legal Relationships, signed at Tallinn on 11 November 1992; the Agreement between Estonia and Poland on Granting Legal Aid and Legal Relations on Civil, Labour and Criminal Matters, signed at ­Tallinn on 27 November 1998;

262  Part 1: European Union Legislation (w) the Agreement between the Republic of Lithuania and the Republic of Poland on Legal Assistance and Legal Relations in Civil, Family, Labour and Criminal Matters, signed at Warsaw on 26 January 1993; (x) the Convention between the Socialist Republic of Romania and the Hellenic Republic on legal assistance in civil and criminal matters and its Protocol, signed at Bucharest on 19 October 1972; (y) the Convention between the Socialist Republic of Romania and the French Republic on legal assistance in civil and commercial matters, signed at Paris on 5 November 1974; (z) the Agreement between the People’s Republic of Bulgaria and the ­Hellenic Republic on Legal Assistance in Civil and Criminal Matters, signed at Athens on 10 April 1976; (aa) the Agreement between the People’s Republic of Bulgaria and the Republic of Cyprus on Legal Assistance in Civil and Criminal Matters, signed at Nicosia on 29 April 1983; (ab) the Agreement between the Government of the People’s Republic of Bulgaria and the Government of the French Republic on Mutual Legal Assistance in Civil Matters, signed at Sofia on 18 January 1989; (ac) the Treaty between Romania and the Czech Republic on judicial assistance in civil matters, signed at Bucharest on 11 July 1994; (ad) the Treaty between Romania and the Republic of Poland on legal assistance and legal relations in civil cases, signed at Bucharest on 15 May 1999. 2. The Conventions referred to in paragraph 1 shall continue to have effect with regard to proceedings opened before the entry into force of Regulation (EC) No 1346/2000. 3. This Regulation shall not apply: (a) in any Member State, to the extent that it is irreconcilable with the obligations arising in relation to bankruptcy from a convention concluded by that Member State with one or more third countries before the entry into force of Regulation (EC) No 1346/2000; (b) in the United Kingdom of Great Britain and Northern Ireland, to the extent that is irreconcilable with the obligations arising in relation to bankruptcy and the winding-up of insolvent companies from any arrangements with the Commonwealth existing at the time Regulation (EC) No 1346/2000 entered into force. Article 86 Information on national and Union insolvency law 1. The Member States shall provide, within the framework of the European Judicial Network in civil and commercial matters established by Council Decision 2001/470/EC (17), and with a view to making the information available to the public, a short description of their national legislation and procedures relating to insolvency, in particular relating to the matters listed in Article 7(2).

Regulation (EU) 2015/848 263 2. The Member States shall update the information referred to in paragraph 1 regularly. 3. The Commission shall make information concerning this Regulation available to the public. Article 87 Establishment of the interconnection of registers The Commission shall adopt implementing acts establishing the interconnection of insolvency registers as referred to in Article 25. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 89(3). Article 88 Establishment and subsequent amendment of standard forms The Commission shall adopt implementing acts establishing and, where necessary, amending the forms referred to in Article 27(4), Articles 54 and 55 and Article 64(2). Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 89(2). Article 89 Committee procedure 1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. 3. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply. Article 90 Review clause 1. No later than 27 June 2027, and every 5 years thereafter, the Commission shall present to the European Parliament, the Council and the European ­Economic and Social Committee a report on the application of this Regulation. The report shall be accompanied where necessary by a proposal for adaptation of this Regulation. 2. No later than 27 June 2022, the Commission shall present to the European Parliament, the Council and the European Economic and Social Committee a report on the application of the group coordination proceedings. The report shall be accompanied where necessary by a proposal for adaptation of this Regulation. 3. No later than 1 January 2016, the Commission shall submit to the E ­ uropean Parliament, the Council and the European Economic and Social C ­ ommittee a study on the cross-border issues in the area of directors’ liability and disqualifications.

264  Part 1: European Union Legislation 4. No later than 27 June 2020, the Commission shall submit to the European Parliament, the Council and the European Economic and Social Committee a study on the issue of abusive forum shopping. Article 91 Repeal Regulation (EC) No 1346/2000 is repealed. References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table set out in Annex D to this Regulation. Article 92 Entry into force This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 26 June 2017, with the exception of: (a) Article 86, which shall apply from 26 June 2016; (b) Article 24(1), which shall apply from 26 June 2018; and (c) Article 25, which shall apply from 26 June 2019. This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties. Done at Strasbourg, 20 May 2015. ANNEX A Insolvency proceedings referred to in point (4) of Article 2 BELGIQUE/BELGIË —— Het faillissement/La faillite, —— De gerechtelijke reorganisatie door een collectief akkoord/La réorganisation judiciaire par accord collectif, —— De gerechtelijke reorganisatie door een minnelijk akkoord/La réorganisation judiciaire par accord amiable, —— De gerechtelijke reorganisatie door overdracht onder gerechtelijk gezag/La réorganisation judiciaire par transfert sous autorité de justice, —— De collectieve schuldenregeling/Le règlement collectif de dettes, —— De vrijwillige vereffening/La liquidation volontaire, —— De gerechtelijke vereffening/La liquidation judiciaire, —— De voorlopige ontneming van beheer, bepaald in artikel 8 van de faillissementswet/ Le dessaisissement provisoire, visé à l’article 8 de la loi sur les faillites,

Regulation (EU) 2015/848 265 БЪЛГАРИЯ —— Производство по несъстоятелност, ČESKÁ REPUBLIKA —— Konkurs, —— Reorganizace, —— Oddlužení, DEUTSCHLAND —— —— —— ——

Das Konkursverfahren, Das gerichtliche Vergleichsverfahren, Das Gesamtvollstreckungsverfahren, Das Insolvenzverfahren, EESTI

—— Pankrotimenetlus, —— Võlgade ümberkujundamise menetlus, ÉIRE/IRELAND —— —— —— —— —— —— —— —— —— ——

Compulsory winding-up by the court, Bankruptcy, The administration in bankruptcy of the estate of persons dying insolvent, Winding-up in bankruptcy of partnerships, Creditors’ voluntary winding-up (with confirmation of a court), Arrangements under the control of the court which involve the vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution, Examinership, Debt Relief Notice, Debt Settlement Arrangement, Personal Insolvency Arrangement, ΕΛΛΑΔΑ

—— —— —— —— ——

Η πτώχευση, Η ειδική εκκαθάριση εν λειτουργία, Σχέδιο αναδιοργάνωσης, Απλοποιημένη διαδικασία επί πτωχεύσεων μικρού αντικειμένου, Διαδικασία Εξυγίανσης, ESPAÑA

—— Concurso, —— Procedimiento de homologación de acuerdos de refinanciación,

266  Part 1: European Union Legislation —— Procedimiento de acuerdos extrajudiciales de pago, —— Procedimiento de negociación pública para la consecución de acuerdos de refinanciación colectivos, acuerdos de refinanciación homologados y propuestas anticipadas de convenio, FRANCE —— —— —— —— ——

Sauvegarde, Sauvegarde accélérée, Sauvegarde financière accélérée, Redressement judiciaire, Liquidation judiciaire, HRVATSKA

—— Stečajni postupak, ITALIA —— —— —— —— —— ——

Fallimento, Concordato preventivo, Liquidazione coatta amministrativa, Amministrazione straordinaria, Accordi di ristrutturazione, Procedure di composizione della crisi da sovraindebitamento del consumatore (accordo o piano), —— Liquidazione dei beni, ΚϒΠΡΟΣ —— —— —— —— —— ——

ϒποχρεωτική εκκαθάριση από το Δικαστήριο, Εκούσια εκκαθάριση από μέλη, Εκούσια εκκαθάριση από πιστωτές, Εκκαθάριση με την εποπτεία του Δικαστηρίου, Διάταγμα αραλαβής και πτώχευσης κατόπιν Δικαστικού Διατάγματος, Διαχείριση της περιουσίας προσώπων που απεβίωσαν αφερέγγυα, LATVIJA

—— Tiesiskās aizsardzības process, —— Juridiskās personas maksātnespējas process, —— Fiziskās personas maksātnespējas process, LIETUVA —— —— —— ——

Įmonės restruktūrizavimo byla, Įmonės bankroto byla, Įmonės bankroto procesas ne teismo tvarka, Fizinio asmens bankroto procesas,

Regulation (EU) 2015/848 267 LUXEMBOURG —— —— —— —— ——

Faillite, Gestion contrôlée, Concordat préventif de faillite (par abandon d‘actif), Régime spécial de liquidation du notariat, Procédure de règlement collectif des dettes dans le cadre du surendettement, MAGYARORSZÁG

—— Csődeljárás, —— Felszámolási eljárás, MALTA —— —— —— —— —— ——

Xoljiment, Amministrazzjoni, Stralċ volontarju mill-membri jew mill-kredituri, Stralċ mill-Qorti, Falliment f’każ ta’ kummerċjant, Proċedura biex kumpanija tirkupra, NEDERLAND

—— Het faillissement, —— De surséance van betaling, —— De schuldsaneringsregeling natuurlijke personen, ÖSTERREICH —— —— —— —— —— ——

Das Konkursverfahren (Insolvenzverfahren), Das Sanierungsverfahren ohne Eigenverwaltung (Insolvenzverfahren), Das Sanierungsverfahren mit Eigenverwaltung (Insolvenzverfahren), Das Schuldenregulierungsverfahren, Das Abschöpfungsverfahren, Das Ausgleichsverfahren, POLSKA

—— Postępowanie naprawcze, —— Upadłość obejmująca likwidację, —— Upadłość z możliwością zawarcia układu, PORTUGAL —— Processo de insolvência, —— Processo especial de revitalização,

268  Part 1: European Union Legislation ROMÂNIA —— —— —— ——

Procedura insolvenței, Reorganizarea judiciară, Procedura falimentului, Concordatul preventiv, SLOVENIJA

—— —— —— ——

Postopek preventivnega prestrukturiranja, Postopek prisilne poravnave, Postopek poenostavljene prisilne poravnave, Stečajni postopek: stečajni postopek nad pravno osebo, postopek osebnega stečaja and postopek stečaja zapuščine, SLOVENSKO

—— Konkurzné konanie, —— Reštrukturalizačné konanie, —— Oddlženie, SUOMI/FINLAND —— Konkurssi/konkurs, —— Yrityssaneeraus/företagssanering, —— Yksityishenkilön velkajärjestely/skuldsanering för privatpersoner, SVERIGE —— Konkurs, —— Företagsrekonstruktion, —— Skuldsanering, UNITED KINGDOM —— Winding-up by or subject to the supervision of the court, —— Creditors’ voluntary winding-up (with confirmation by the court), —— Administration, including appointments made by filing prescribed documents with the court, —— Voluntary arrangements under insolvency legislation, —— Bankruptcy or sequestration. ANNEX B Insolvency practitioners referred to in point (5) of Article 2 BELGIQUE/BELGIË —— De curator/Le curateur, —— De gedelegeerd rechter/Le juge-délégué,

Regulation (EU) 2015/848 269 —— —— —— ——

De gerechtsmandataris/Le mandataire de justice, De schuldbemiddelaar/Le médiateur de dettes, De vereffenaar/Le liquidateur, De voorlopige bewindvoerder/L‘administrateur provisoire, БЪЛГАРИЯ

—— —— —— ——

Назначен предварително временен синдик, Временен синдик, (Постоянен) синдик, Служебен синдик, ČESKÁ REPUBLIKA

—— —— —— —— ——

Insolvenční správce, Předběžný insolvenční správce, Oddělený insolvenční správce, Zvláštní insolvenční správce, Zástupce insolvenčního správce, DEUTSCHLAND

—— —— —— —— —— —— —— —— ——

Konkursverwalter, Vergleichsverwalter, Sachwalter (nach der Vergleichsordnung), Verwalter, Insolvenzverwalter, Sachwalter (nach der Insolvenzordnung), Treuhänder, Vorläufiger Insolvenzverwalter, Vorläufiger Sachwalter, EESTI

—— Pankrotihaldur, —— Ajutine pankrotihaldur, —— Usaldusisik, ÉIRE/IRELAND —— —— —— —— —— —— ——

Liquidator, Official Assignee, Trustee in bankruptcy, Provisional Liquidator, Examiner, Personal Insolvency Practitioner, Insolvency Service,

270  Part 1: European Union Legislation ΕΛΛΑΔΑ —— —— —— ——

Ο σύνδικος, Ο εισηγητής, Η επιτροπή των πιστωτών, Ο ειδικός εκκαθαριστής, ESPAÑA

—— Administrador concursal, —— Mediador concursal, FRANCE —— —— —— ——

Mandataire judiciaire, Liquidateur, Administrateur judiciaire, Commissaire à l‘exécution du plan, HRVATSKA

—— —— —— ——

Stečajni upravitelj, Privremeni stečajni upravitelj, Stečajni povjerenik, Povjerenik, ITALIA

—— —— —— —— —— —— ——

Curatore, Commissario giudiziale, Commissario straordinario, Commissario liquidatore, Liquidatore giudiziale, Professionista nominato dal Tribunale, Organismo di composizione della crisi nella procedura di composizione della crisi da sovraindebitamento del consumatore, —— Liquidatore, ΚϒΠΡΟΣ —— Εκκαθαριστής και ροσωρινός Εκκαθαριστής, —— Επίσημος αραλήπτης, —— Διαχειριστής της τώχευσης, LATVIJA —— Maksātnespējas procesa administrators,

Regulation (EU) 2015/848 271 LIETUVA —— Bankroto administratorius, —— Restruktūrizavimo administratorius, LUXEMBOURG —— —— —— —— ——

Le curateur, Le commissaire, Le liquidateur, Le conseil de gérance de la section d‘assainissement du notariat, Le liquidateur dans le cadre du surendettement, MAGYARORSZÁG

—— Vagyonfelügyelő, —— Felszámoló, MALTA —— —— —— —— —— ——

Amministratur Proviżorju, Riċevitur Uffiċjali, Stralċjarju, Manager Speċjali, Kuraturi f‘każ ta’ proċeduri ta’ falliment, Kontrolur Speċjali, NEDERLAND

—— De curator in het faillissement, —— De bewindvoerder in de surséance van betaling, —— De bewindvoerder in de schuldsaneringsregeling natuurlijke personen, ÖSTERREICH —— —— —— —— —— —— —— —— ——

Masseverwalter, Sanierungsverwalter, Ausgleichsverwalter, Besonderer Verwalter, Einstweiliger Verwalter, Sachwalter, Treuhänder, Insolvenzgericht, Konkursgericht, POLSKA

—— Syndyk, —— Nadzorca sądowy, —— Zarządca,

272  Part 1: European Union Legislation PORTUGAL —— Administrador da insolvência, —— Administrador judicial provisório, ROMÂNIA —— —— —— ——

Practician în insolvență, Administrator concordatar, Administrator judiciar, Lichidator judiciar, SLOVENIJA

—— Upravitelj, SLOVENSKO —— Predbežný správca, —— Správca, SUOMI/FINLAND —— Pesänhoitaja/boförvaltare, —— Selvittäjä/utredare, SVERIGE —— Förvaltare, —— Rekonstruktör, UNITED KINGDOM —— —— —— —— —— —— —— ——

Liquidator, Supervisor of a voluntary arrangement, Administrator, Official Receiver, Trustee, Provisional Liquidator, Interim Receiver, Judicial factor. ANNEX C Repealed Regulation with list of the successive amendments thereto

Council Regulation (EC) No 1346/2000 (OJ L 160, 30.6.2000, p. 1) Council Regulation (EC) No 603/2005 (OJ L 100, 20.4.2005, p. 1) Council Regulation (EC) No 694/2006 (OJ L 121, 6.5.2006, p. 1) Council Regulation (EC) No 1791/2006 (OJ L 363, 20.12.2006, p. 1) Council Regulation (EC) No 681/2007 (OJ L 159, 20.6.2007, p. 1)

Regulation (EU) 2015/848 273 Council Regulation (EC) No 788/2008 (OJ L 213, 8.8.2008, p. 1) Implementing Regulation of the Council (EU) No 210/2010 (OJ L 65, 13.3.2010, p. 1) Council Implementing Regulation (EU) No 583/2011 (OJ L 160, 18.6.2011, p. 52) Council Regulation (EU) No 517/2013 (OJ L 158, 10.6.2013, p. 1) Council Implementing Regulation (EU) No 663/2014 (OJ L 179, 19.6.2014, p. 4) Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which the European Union is founded (OJ L 236, 23.9.2003, p. 33) ANNEX D Correlation table [Table not reproduced] (1)

OJ C 271, 19.9.2013, p. 55. of the European Parliament of 5 February 2014 (not yet published in the Official Journal) and position of the Council at first reading of 12 March 2015 (not yet published in the Official Journal). Position of the European ­Parliament of 20 May 2015 (not yet published in the Official Journal). (3) Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (OJ L 160, 30.6.2000, p. 1). (4) Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ L 351, 20.12.2012, p. 1). (5) Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding-up of credit institutions (OJ L 125, 5.5.2001, p. 15). (6) Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and ­extra-judicial documents in civil and commercial matters (service of documents), and repealing Council Regulation (EC) No 1348/2000 (OJ L 324, 10.12.2007, p. 79). (7) Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45). (8) Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission2019s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (9) Directive 95/46/EC of the European Parliament and of the Council of 24 ­October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (OJ L 281, 23.11.1995, p. 31). (2) Position

274  Part 1: European Union Legislation (10) Regulation

(EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). (11)  Regulation (EEC, Euratom) No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (OJ L 124, 8.6.1971, p. 1). (12) OJ C 358, 7.12.2013, p. 15. (13) Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). (14) Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending ­ Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1). (15)  Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertaking, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19). (16)  Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer (OJ L 283, 28.10.2008, p. 36). (17) Council Decision 2001/470/EC of 28 May 2001 establishing a European Judicial Network in civil and commercial matters (OJ L 174, 27.6.2001, p. 25).

Directives

276

Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products* (Official Journal L210/1985, p 29) Amendments Article 2, 15

Nature of Amendment Amended

Effected by Directive 1999/34/EC

Date

Source

10 May 1999

THE COUNCIL OF THE EUROPEAN COMMUNITIES— Having regard to the Treaty establishing the European Economic Community, and in particular Article 100 thereof, Having regard to the proposal from the Commission,(1) Having regard to the opinion of the European Parliament,(2) Having regard to the opinion of the Economic and Social Committee,(3) Whereas approximation of the laws of the Member States concerning the liability of the producer for damage caused by the defectiveness of his products is necessary because the existing divergences may distort competition and affect the movement of goods within the common market and entail a differing degree of protection of the consumer against damage caused by a defective product to his health or property; Whereas liability without fault on the part of the producer is the sole means of adequately solving the problem, peculiar to our age of increasing technicality, of a fair apportionment of the risks inherent in modern technological production; Whereas liability without fault should apply only to movables which have been industrially produced; whereas, as a result, it is appropriate to exclude liability for agricultural products and game, except where they have undergone a processing of an industrial nature which could cause a defect in these products; whereas the liability provided for in this Directive should also apply to movables which are used in the construction of immovables or are installed in immovables; Whereas protection of the consumer requires that all producers involved in the production process should be made liable, in so far as their finished product, component part or *  This Directive was implemented in the United Kingdom by Part 1 of the Consumer Protection Act 1987, which came into force on 1 March 1988.

278  Part 1: European Union Legislation any raw material supplied by them was defective; whereas, for the same reason, liability should extend to importers of products into the Community and to persons who present themselves as producers by affixing their name, trade mark or other distinguishing feature or who supply a product the producer of which cannot be identified; Whereas, in situations where several persons are liable for the same damage, the protection of the consumer requires that the injured person should be able to claim full compensation for the damage from any one of them; Whereas, to protect the physical well-being and property of the consumer, the defectiveness of the product should be determined by reference not to its fitness for use but to the lack of the safety which the public at large is entitled to expect; whereas the safety is assessed by excluding any misuse of the product not reasonable under the circumstances; Whereas a fair apportionment of risk between the injured person and the producer implies that the producer should be able to free himself from liability if he furnishes proof as to the existence of certain exonerating circumstances; Whereas the protection of the consumer requires that the liability of the producer remains unaffected by acts or omissions of other persons having contributed to cause the damage; whereas, however, the contributory negligence of the injured person may be taken into account to reduce or disallow such liability; Whereas the protection of the consumer requires compensation for death and personal injury as well as compensation for damage to property; whereas the latter should nevertheless be limited to goods for private use or consumption and be subject to a deduction of a lower threshold of a fixed amount in order to avoid litigation in an excessive number of cases; whereas this Directive should not prejudice compensation for pain and suffering and other non-material damages payable, where appropriate, under the law applicable to the case; Whereas a uniform period of limitation for the bringing of action for compensation is in the interests both of the injured person and of the producer; Whereas products age in the course of time, higher safety standards are developed and the state of science and technology progresses; whereas, therefore, it would not be reasonable to make the producer liable for an unlimited period for the defectiveness of his product; whereas, therefore, liability should expire after a reasonable length of time, without prejudice to claims pending at law; Whereas, to achieve effective protection of consumers, no contractual derogation should be permitted as regards the liability of the producer in relation to the injured person; Whereas under the legal systems of the Member States an injured party may have a claim for damages based on grounds of contractual liability or on grounds of non-contractual liability other than that provided for in this Directive; in so far as these provisions also serve to attain the objective of effective protection of consumers, they should remain unaffected by this Directive; whereas, in so far as effective protection of consumers in the sector of pharmaceutical products is already also attained in a Member State under a special liability system, claims based on this system should similarly remain possible; Whereas, to the extent that liability for nuclear injury or damage is already covered in all Member States by adequate special rules, it has been possible to exclude damage of this type from the scope of this Directive; Whereas, since the exclusion of primary agricultural products and game from the scope of this Directive may be felt, in certain Member States, in view of what is expected for the protection of consumers, to restrict unduly such protection, it should be possible for a Member State to extend liability to such products; Whereas, for similar reasons, the possibility offered to a producer to free himself from liability if he proves that the state of scientific and technical knowledge at the time when

Directive 85/374/EEC 279 he put the product into circulation was not such as to enable the existence of a defect to be discovered may be felt in certain Member States to restrict unduly the protection of the consumer; whereas it should therefore be possible for a Member State to maintain in its legislation or to provide by new legislation that this exonerating circumstance is not admitted; whereas, in the case of new legislation, making use of this derogation should, however, be subject to a Community stand-still procedure, in order to raise, if possible, the level of protection in a uniform manner throughout the Community; Whereas, taking into account the legal traditions in most of the Member States, it is inappropriate to set any financial ceiling on the producer’s liability without fault; whereas, in so far as there are, however, differing traditions, it seems possible to admit that a Member State may derogate from the principle of unlimited liability by providing a limit for the total liability of the producer for damage resulting from a death or personal injury and caused by identical items with the same defect, provided that this limit is established at a level sufficiently high to guarantee adequate protection of the consumer and the correct functioning of the common market; Whereas the harmonization resulting from this cannot be total at the present stage, but opens the way towards greater harmonization; whereas it is therefore necessary that the Council receive at regular intervals, reports from the Commission on the application of this Directive, accompanied, as the case may be, by appropriate proposals; Whereas it is particularly important in this respect that a re-examination be carried out of those parts of the Directive relating to the derogations open to the Member States, at the expiry of a period of sufficient length to gather practical experience on the effects of these derogations on the protection of consumers and on the functioning of the common market, —  Considerations underpinning Regulation 1999/34/EC: THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in ­particular ­Article 95 thereof, Having regard to the proposal from the Commission,(4) Having regard to the opinion of the Economic and Social Committee,(5) Acting in accordance with the procedure laid down in Article 251 of the Treaty,(6) (1) Whereas product safety and compensation for damage caused by defective products are social imperatives which must be met within the internal market; whereas the Community has responded to those requirements by means of Directive 85/374/EEC(7) and Council Directive 92/59/EEC of 29 June 1992 on general product safety;(8) (2) Whereas Directive 85/374/EEC established a fair apportionment of the risks inherent in a modern society in which there is a high degree of technicality; whereas that ­Directive therefore struck a reasonable balance between the interests involved, in particular the protection of consumer health, encouraging innovation and scientific and technological development, guaranteeing undistorted competition and facilitating trade under a harmonised system of civil liability; whereas that Directive has thus helped to raise awareness among traders of the issue of product safety and the importance accorded to it; (3) Whereas the degree of harmonisation of Member States’ laws achieved by Directive 85/374/EEC is not complete in view of the derogations provided for, in particular with regard to its scope, from which unprocessed agricultural products are excluded; (4) Whereas the Commission monitors the implementation and effects of Directive 85/374/EEC and in particular its aspects relating to consumer protection and the functioning of the internal market, which have already been the subject of a first report;

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(5)

(6) (7) (8)

(9)

whereas, in this context, the Commission is required by Article 21 of that Directive to submit a second report on its application; Whereas including primary agricultural products within the scope of Directive 85/374/ EEC would help restore consumer confidence in the safety of agricultural products; whereas such a measure would meet the requirements of a high level of consumer protection; Whereas circumstances call for Directive 85/374/EEC to be amended in order to facilitate, for the benefit of consumers, legitimate compensation for damage to health caused by defective agricultural products; Whereas this Directive has an impact on the functioning of the internal ­market in so far as trade in agricultural products will no longer be affected by differences between rules on producer liability; Whereas the principle of liability without fault laid down in Directive 85/374/EEC must be extended to all types of product, including agricultural ­products as defined by the second sentence of Article 32 of the Treaty and those listed in Annex II to the said Treaty; Whereas, in accordance with the principle of proportionality, it is necessary and appropriate in order to achieve the fundamental objectives of increased protection for all consumers and the proper functioning of the internal market to include agricultural products within the scope of Directive 85/374/EEC; whereas this Directive is limited to what is necessary to achieve the objectives pursued in accordance with the third paragraph of Article 5 of the Treaty —

HAS ADOPTED THIS DIRECTIVE: Article 1 The producer shall be liable for damage caused by a defect in his product. Article 2 For the purpose of this Directive ‘product’ means all movables, with the exception of primary agricultural products and game, even though incorporated into another movable or into an immovable. ‘Primary agricultural products’ means the products of the soil, of stock-farming and of fisheries, excluding products which have undergone initial processing. ‘Product’ includes electricity. Article 3 (1) ‘Producer’ means the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer. (2) Without prejudice to the liability of the producer, any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of his business shall be deemed to be a producer within the meaning of this Directive and shall be responsible as a producer. (3) Where the producer of the product cannot be identified, each supplier of the product shall be treated as its producer unless he informs the injured

Directive 85/374/EEC 281 person, within a reasonable time, of the identity of the producer or of the person who supplied him with the product. The same shall apply, in the case of an imported product, if this product does not indicate the identity of the importer referred to in paragraph 2, even if the name of the producer is indicated. Article 4 The injured person shall be required to prove the damage, the defect and the causal relationship between defect and damage. Article 5 Where, as a result of the provisions of this Directive, two or more persons are liable for the same damage, they shall be liable jointly and severally, without prejudice to the provisions of national law concerning the rights of contribution or recourse. Article 6 (1) A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including: a) the presentation of the product; b) the use to which it could reasonably be expected that the product would be put; c) the time when the product was put into circulation. (2) A product shall not be considered defective for the sole reason that a better product is subsequently put into circulation. Article 7 The producer shall not be liable as a result of this Directive if he proves: a) that he did not put the product into circulation; or b) that, having regard to the circumstances, it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards; or c) that the product was neither manufactured by him for sale or any form of distribution for economic purpose nor manufactured or distributed by him in the course of his business; or d) that the defect is due to compliance of the product with mandatory regulations issued by the public authorities; or e) that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered; or f) in the case of a manufacturer of a component, that the defect is attributable to the design of the product in which the component has been fitted or to the instructions given by the manufacturer of the product.

282  Part 1: European Union Legislation Article 8 (1) Without prejudice to the provisions of national law concerning the right of contribution or recourse, the liability of the producer shall not be reduced when the damage is caused both by a defect in product and by the act or omission of a third party. (2) The liability of the producer may be reduced or disallowed when, having regard to all the circumstances, the damage is caused both by a defect in the product and by the fault of the injured person or any person for whom the injured person is responsible. Article 9 For the purpose of Article 1, ‘damage’ means: a) damage caused by death or by personal injuries; b) damage to, or destruction of, any item of property other than the defective product itself, with a lower threshold of 500 ECU, provided that the item of property: i) is of a type ordinarily intended for private use or consumption, and ii) was used by the injured person mainly for his own private use or consumption. This Article shall be without prejudice to national provisions relating to nonmaterial­ damage. Article 10 (1) Member States shall provide in their legislation that a limitation period of three years shall apply to proceedings for the recovery of damages as provided for in this Directive. The limitation period shall begin to run from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the defect and the identity of the producer. (2) The laws of Member States regulating suspension or interruption of the ­limitation period shall not be affected by this Directive. Article 11 Member States shall provide in their legislation that the rights conferred upon the injured person pursuant to this Directive shall be extinguished upon the expiry of a period of 10 years from the date on which the producer put into circulation the actual product which caused the damage, unless the injured person has in the ­meantime instituted proceedings against the producer. Article 12 The liability of the producer arising from this Directive may not, in relation to the injured person, be limited or excluded by a provision limiting his liability or exempting him from liability.

Directive 85/374/EEC 283 Article 13 This Directive shall not affect any rights which an injured person may have according to the rules of the law of contractual or non-contractual liability or a special liability system existing at the moment when this Directive is notified. Article 14 This Directive shall not apply to injury or damage arising from nuclear accidents and covered by international conventions ratified by the Member States. Article 15 (1) Each Member State may: a) by way of derogation from Article 2, provide in its legislation that within the meaning of Article 1 of this Directive ‘product’ also means primary agricultural products and game; b) by way of derogation from Article 7 (e), maintain or, subject to the procedure set out in paragraph 2 of this Article, provide in this legislation that the producer shall be liable even if he proves that the state of ­scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered. (2) A Member State wishing to introduce the measure specified in paragraph 1 (b) shall communicate the text of the proposed measure to the Commission. The Commission shall inform the other Member States thereof. The Member State concerned shall hold the proposed measure in abeyance for nine months after the Commission is informed and provided that in the meantime the Commission has not submitted to the Council a proposal amending this Directive on the relevant matter. However, if within three months of receiving the said information, the Commission does not advise the Member State concerned that it intends submitting such a proposal to the Council, the Member State may take the proposed measure immediately. If the Commission does submit to the Council such a proposal amending this Directive within the aforementioned nine months, the Member State concerned shall hold the proposed measure in abeyance for a further period of 18 months from the date on which the proposal is submitted. (3) Ten years after the date of notification of this Directive, the Commission shall submit to the Council a report on the effect that rulings by the courts as to the application of Article 7 (e) and of paragraph 1 (b) of this Article have on consumer protection and the functioning of the common market. In the light of this report the Council, acting on a proposal from the Commission and pursuant to the terms of Article 100 of the Treaty, shall decide whether to repeal Article 7 (e). Article 16 (1) Any Member State may provide that a producer’s total liability for damage resulting from a death or personal injury and caused by identical items with

284  Part 1: European Union Legislation the same defect shall be limited to an amount which may not be less than 70 million ECU. (2) Ten years after the date of notification of this Directive, the Commission shall submit to the Council a report on the effect on consumer protection and the functioning of the common market of the implementation of the financial limit on liability by those Member States which have used the option ­provided for in paragraph 1. In the light of this report the Council, acting on a proposal from the Commission and pursuant to the terms of Article 100 of the Treaty, shall decide whether to repeal paragraph 1. Article 17 This Directive shall not apply to products put into circulation before the date on which the provisions referred to in Article 19 enter into force. Article 18 (1) For the purposes of this Directive, the ECU shall be that defined by ­Regulation (EEC) No 3180/78,(9) as amended by Regulation (EEC) No 2626/84.(10) The equivalent in national currency shall initially be calculated at the rate ­obtaining on the date of adoption of this Directive. (2) Every five years the Council, acting on a proposal from the Commission, shall examine and, if need be, revise the amounts in this Directive, in the light of economic and monetary trends in the Community. Article 19 (1) Member States shall bring into force, not later than three years from the date of notification of this Directive, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith inform the Commission thereof.(11) (2) The procedure set out in Article 15(2) shall apply from the date of notification of this Directive. Article 20 Member States shall communicate to the Commission the texts of the main provisions of national law which they subsequently adopt in the field governed by this Directive. Article 21 Every five years the Commission shall present a report to the Council on the application of this Directive and, if necessary, shall submit appropriate proposals to it. Article 22 This Directive is addressed to the Member States.

Directive 85/374/EEC 285 (1) (2) (3) (1) (2) (1) This Directive was notified to the Member States on 30 July 1985.

(1)

OJ C241/76, p 9 and OJ C271/79, p 3. OJ C127/79, p 61. (3) OJ C114/79, p 15. (4) OJ C337/97, p 54. (5) OJ C95/98, p 69. (6) Opinion of the European Parliament of 5 November 1998 (OJ C359/98, p 25); Common Position of the Council of 17 December 1998 (OJ C49/99, p 1) and Decision of the European Parliament of 23 March 1999 (not yet published in the Official Journal); Decision of the Council of 29 April 1999. (7) OJ L210/85, p 29. (8) OJ L228/92, p 24. (9) OJ L379/78, p 1. (10) OJ L247/84, p 1. (11) This Directive was notified to Member States on 30 July 1985. (2)

Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents* (Official Journal, L382/86, p 17) THE COUNCIL OF THE EUROPEAN COMMUNITIES— Having regard to the Treaty establishing the European Economic Community, and in ­particular Articles 57(2) and 100 thereof, Having regard to the proposal from the Commission,(1) Having regard to the opinion of the European Parliament,(2) Having regard to the opinion of the Economic and Social Committee,(3) Whereas the restrictions on the freedom of establishment and the freedom to provide services in respect of activities of intermediaries in commerce, industry and small craft industries were abolished by Directive 64/224/EEC;(4) Whereas the differences in national laws concerning commercial representation substantially affect the conditions of competition and the carrying-on of that activity within the Community and are detrimental both to the protection available to commercial agents vis-à-vis their principals and to the security of commercial transactions; whereas moreover those differences are such as to inhibit substantially the conclusion and operation of commercial representation contracts where principal and commercial agents are established in different Member States; Whereas trade in goods between Member States should be carried on under conditions which are similar to those of a single market, and this necessitates approximation of the legal systems of the Member States to the extent required for the proper functioning of the common market; whereas in this regard the rules concerning conflict of laws do not, in the matter of commercial representation, remove the inconsistencies referred to above, nor would they even if they were made uniform, and accordingly the proposed harmonization is necessary notwithstanding the existence of those rules; Whereas in this regard the legal relationship between commercial agent and principal must be given priority; Whereas it is appropriate to be guided by the principles of Article 117 of the Treaty and to maintain improvements already made, when harmonizing the laws of the Member States relating to commercial agents;

* This Directive was implemented in the United Kingdom by the Commercial Agents (Council ­Directive) Regulations 1993 (SI 1993/3053), which came into force on 1 January 1994.

Directive 86/653/EEC 287 Whereas additional transitional periods should be allowed for certain Member States which have to make a particular effort to adapt their regulations, especially those concerning indemnity for termination of contract between the principal and the commercial agent, to the requirements of this Directive,

HAS ADOPTED THIS DIRECTIVE: CHAPTER I Scope Article 1 (1) The harmonization measures prescribed by this Directive shall apply to the laws, regulations and administrative provisions of the Member States governing the relations between commercial agents and their principals. (2) For the purposes of this Directive, ‘commercial agent’ shall mean a selfemployed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ‘principal’, or to negotiate and conclude such transactions on behalf of and in the name of that principal. (3) A commercial agent shall be understood within the meaning of this Directive as not including in particular: —— a person who, in his capacity as an officer, is empowered to enter into commitments binding on a company or association, —— a partner who is lawfully authorized to enter into commitments binding on his partners, —— a receiver, a receiver and manager, a liquidator or a trustee in bankruptcy. Article 2 (1) This Directive shall not apply to: —— commercial agents whose activities are unpaid, —— commercial agents when they operate on commodity exchanges or in the commodity market, or —— the body known as the Crown Agents for Overseas Governments and Administrations, as set up under the Crown Agents Act 1979 in the United Kingdom, or its subsidiaries. (2) Each of the Member States shall have the right to provide that the Directive shall not apply to those persons whose activities as commercial agents are considered secondary by the law of that Member State. CHAPTER II Rights and obligations Article 3 (1) In performing his activities a commercial agent must look after his principal’s interests and act dutifully and in good faith.

288  Part 1: European Union Legislation (2) In particular, a commercial agent must: a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of; b) communicate to his principal all the necessary information available to him; c) comply with reasonable instructions given by his principal. Article 4 (1) In his relations with his commercial agent a principal must act dutifully and in good faith. (2) A principal must in particular: a) provide his commercial agent with the necessary documentation relating to the goods concerned; b) obtain for his commercial agent the information necessary for the performance of the agency contract, and in particular notify the commercial agent within a reasonable period once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected. (3) A principal must, in addition, inform the commercial agent within a reasonable period of his acceptance, refusal, and of any non-execution of a commercial transaction which the commercial agent has procured for the principal. Article 5 The parties may not derogate from the provisions of Articles 3 and 4. CHAPTER III Remuneration Article 6 (1) In the absence of any agreement on this matter between the parties, and without prejudice to the application of the compulsory provisions of the Member States concerning the level of remuneration, a commercial agent shall be entitled to the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carries on his activities. If there is no such customary practice a commercial agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction. (2) Any part of the remuneration which varies with the number or value of business transactions shall be deemed to be commission within the meaning of this Directive. (3) Articles 7 to 12 shall not apply if the commercial agent is not remunerated wholly or in part by commission.

Directive 86/653/EEC 289 Article 7 (1) A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract: a) where the transaction has been concluded as a result of his action; or b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind. (2) A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract: —— either where he is entrusted with a specific geographical area or group of customers, —— or where he has an exclusive right to a specific geographical area or group of customers, and where the transaction has been entered into with a customer belonging to that area or group. Member State shall include in their legislation one of the possibilities referred to in the above two indents. Article 8 A commercial agent shall be entitled to commission on commercial transactions concluded after the agency contract has terminated: a) if the transaction is mainly attributable to the commercial agent’s efforts during the period covered by the agency contract and if the transaction was entered into within a reasonable period after that contract terminated; or b) if, in accordance with the conditions mentioned in Article 7, the order of the third party reached the principal or the commercial agent before the agency contract terminated. Article 9 A commercial agent shall not be entitled to the commission referred to in Article 7, if that commission is payable, pursuant to Article 8, to the previous commercial agent, unless it is equitable because of the circumstances for the commission to be shared between the commercial agents. Article 10 (1) The commission shall become due as soon as and to the extent that one of the following circumstances obtains: a) the principal has executed the transaction; or b) the principal should, according to his agreement with the third party, have executed the transaction; or c) the third party has executed the transaction. (2) The commission shall become due at the latest when the third party has executed his part of the transaction or should have done so if the principal had executed his part of the transaction, as he should have.

290  Part 1: European Union Legislation (3) The commission shall be paid not later than on the last day of the month following the quarter in which it became due. (4) Agreements to derogate from paragraphs 2 and 3 to the detriment of the commercial agent shall not be permitted. Article 11 (1) The right to commission can be extinguished only if and to the extent that: —— it is established that the contract between the third party and the ­principal will not be executed, and —— that fact is due to a reason for which the principal is not to blame. (2) Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished. (3) Agreements to derogate from paragraph 1 to the detriment of the commercial agent shall not be permitted. Article 12 (1) The principal shall supply his commercial agent with a statement of the commission due, not later than the last day of the month following the quarter in which the commission has become due. This statement shall set out the main components used in calculating the amount of commission. (2) A commercial agent shall be entitled to demand that he be provided with all the information, and in particular an extract from the books, which is available to his principal and which he needs in order to check the amount of the commission due to him. (3) Agreements to derogate from paragraphs 1 and 2 to the detriment of the commercial agent shall not be permitted. (4) This Directive shall not conflict with the internal provisions of Member States which recognize the right of a commercial agent to inspect a principal’s books. CHAPTER IV Conclusion and termination of the agency contract Article 13 (1) Each party shall be entitled to receive from the other on request a signed written document setting out the terms of the agency contract including any terms subsequently agreed. Waiver of this right shall not be permitted. (2) Notwithstanding paragraph 1 a Member State may provide that an agency contract shall not be valid unless evidenced in writing. Article 14 An agency contract for a fixed period which continues to be performed by both parties after that period has expired shall be deemed to be converted into an agency contract for an indefinite period.

Directive 86/653/EEC 291 Article 15 (1) Where an agency contract is concluded for an indefinite period either party may terminate it by notice. (2) The period of notice shall be one month for the first year of the contract, two months for the second year commenced, and three months for the third year commenced and subsequent years. The parties may not agree on shorter periods of notice. (3) Member States may fix the period of notice at four months for the fourth year of the contract, five months for the fifth year and six months for the sixth and subsequent years. They may decide that the parties may not agree to shorter periods. (4) If the parties agree on longer periods than those laid down in paragraphs 2 and 3, the period of notice to be observed by the principal must not be shorter than that to be observed by the commercial agent. (5) Unless otherwise agreed by the parties, the end of the period of notice must coincide with the end of a calendar month. (6) The provision of this Article shall apply to an agency contract for a fixed period where it is converted under Article 14 into an agency contract for an indefinite period, subject to the proviso that the earlier fixed period must be taken into account in the calculation of the period of notice. Article 16 Nothing in this Directive shall affect the application of the law of the Member States where the latter provides for the immediate termination of the agency contract: a) b)

because of the failure of one party to carry out all or part of his obligations; where exceptional circumstances arise. Article 17

(1) Member States shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2 or compensated for damage in accordance with paragraph 3. (2) a) The commercial agent shall be entitled to an indemnity if and to the extent that: —— he has brought the principal new customers or has significantly increased the volume of business with existing customers and the ­principal ­continues to derive substantial benefits from the business with such ­customers, and —— the payment of this indemnity is equitable having regard to all the circumstances and, in particular, the commission lost by the ­commercial agent on the business transacted with such customers. Member States may provide for such circumstances also to include the application or otherwise of a restraint of trade clause, within the meaning of Article 20; b) The amount of the indemnity may not exceed a figure equivalent to an indemnity for one year calculated from the commercial agent’s average

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(3)

(4) (5)

(6)

annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question; c) The grant of such an indemnity shall not prevent the commercial agent from seeking damages. The commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with the principal. Such damage shall be deemed to occur particularly when the termination takes place in circumstances: —— depriving the commercial agent of the commission which proper performance of the agency contract would have procured him whilst providing the principal with substantial benefits linked to the commercial agent’s activities, —— and/or which have not enabled the commercial agent to amortize the costs and expenses that he had incurred for the performance of the agency contract on the principal’s advice. Entitlement to the indemnity as provided for in paragraph 2 or to compensation for damage as provided for under paragraph 3, shall also arise where the agency contract is terminated as a result of the commercial agent’s death. The commercial agent shall lose his entitlement to the indemnity in the instances provided for in paragraph 2 or to compensation for damage in the instances provided for in paragraph 3, if within one year following termination of the contract he has not notified the principal that he intends pursuing his entitlement. The Commission shall submit to the Council, within eight years following the date of notification of this Directive, a report on the implementation of this Article, and shall if necessary submit to it proposals for amendments. Article 18

The indemnity or compensation referred to in Article 17 shall not be payable: a) where the principal has terminated the agency contract because of default attributable to the commercial agent which would justify immediate termination of the agency contract under national law; b) where the commercial agent has terminated the agency contract, unless such termination is justified by circumstances attributable to the principal or on grounds of age, infirmity or illness of the commercial agent in consequence of which he cannot reasonably be required to continue his activities; c) where, with the agreement of the principal, the commercial agent assigns his rights and duties under the agency contract to another person. Article 19 The parties may not derogate from Articles 17 and 18 to the detriment of the commercial agent before the agency contract expires.

Directive 86/653/EEC 293 Article 20 (1) For the purposes of this Directive an agreement restricting the business activities of a commercial agent following termination of the agency contract is hereinafter referred to as a restraint of trade clause. (2) A restraint of trade clause shall be valid only if and to the extent that: a) it is concluded in writing; and b) it relates to the geographical area or the group of customers and the geographical area entrusted to the commercial agent and to the kind of goods covered by his agency under the contract. (3) A restraint of trade clause shall be valid for not more than two years after termination of the agency contract. (4) This Article shall not affect provisions of national law which impose other restrictions on the validity or enforceability of restraint of trade clauses or which enable the courts to reduce the obligations on the parties resulting from such an agreement. CHAPTER V General and final provisions Article 21 Nothing in this Directive shall require a Member State to provide for the disclosure of information where such disclosure would be contrary to public policy. Article 22 (1) Member States shall bring into force the provisions necessary to comply with this Directive before 1 January 1990. They shall forthwith inform the ­Commission thereof. Such provisions shall apply at least to contracts concluded after their entry into force. They shall apply to contracts in operation by 1 January 1994 at the latest. (2) As from the notification of this Directive, Member States shall communicate to the Commission the main laws, regulations and administrative provisions which they adopt in the field governed by this Directive. (3) However, with regard to Ireland and the United Kingdom, 1 January 1990 referred to in paragraph 1 shall be replaced by 1 January 1994. With regard to Italy, 1 January 1990 shall be replaced by 1 January 1993 in the case of the obligations deriving from Article 17. Article 23 This Directive is addressed to the Member States. (1)

OJ C13/77, p.2; OJ C56/79, p.5. OJ C239/78, p.17. (3) OJ C59/78, p.31. (4) OJ 56/64, p.869/64. (2)

Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours* (Official Journal, L158/90, p 59) THE COUNCIL OF THE EUROPEAN COMMUNITIES— Having regard to the Treaty establishing the European Economic Community, and in particular Article 100a thereof, Having regard to the proposal from the Commission,(1) In cooperation with the European Parliament,(2) Having regard to the opinion of the Economic and Social Committee,(3) Whereas one of the main objectives of the Community is to complete the internal market, of which the tourist sector is an essential part; Whereas the national laws of Member States concerning package travel, package holidays and package tours, hereinafter referred to as ‘packages’, show many disparities and national practices in this field are markedly different, 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; Whereas the establishment of common rules on packages will contribute to the elimination of these obstacles and thereby to the achievement of a common market in services, thus enabling operators established in one Member State to offer their services in other Member States and Community consumers to benefit from comparable conditions when buying a package in any Member State; Whereas paragraph 36(b) of the Annex to the Council resolution of 19 May 1981 on a second programme of the European Economic Community for a consumer protection and information policy(4) invites the Commission to study, inter alia, tourism and, if appropriate, to put forward suitable proposals, with due regard for their significance for consumer protection and the effects of differences in Member States’ legislation on the proper functioning of the common market; Whereas in the resolution on a Community policy on tourism on 10 April 1984(5) the Council welcomed the Commission’s initiative in drawing attention to the importance of tourism and took note of the Commission’s initial guidelines for a Community policy on tourism;

*  This Directive was implemented in the United Kingdom by the Package Travel Package Holidays & Package Tours Regulations 1992 (SI 1992/3288), which came into force on 22 December 1992; they were amended by S.I. No. 1992/328.

Directive 90/314/EEC 295 Whereas the Commission communication to the Council entitled ‘A New ­Impetus for Consumer Protection Policy’, which was approved by resolution of the Council on 6 May 1986,(6) lists in paragraph 37, among the measures proposed by the Commission, the harmonization of legislation on packages; Whereas tourism plays an increasingly important role in the economies of the Member States; whereas the package system is a fundamental part of tourism; whereas the package travel industry in Member States would be stimulated to greater growth and productivity if at least a minimum of common rules were adopted in order to give it a Community dimension; whereas this would not only produce benefits for Community citizens buying packages organized on the basis of those rules, but would attract tourists from outside the Community seeking the advantages of guaranteed standards in packages; Whereas disparities in the rules protecting consumers in different Member States are a disincentive to consumers in one Member State from buying packages in another Member State; Whereas this disincentive is particularly effective in deterring consumers from buying packages outside their own Member State, and more effective than it would be in relation to the acquisition of other services, having regard to the special nature of the services supplied in a package which generally involve the expenditure of substantial amounts of money in advance and the supply of the services in a State other than that in which the consumer is resident; Whereas the consumer should have the benefit of the protection introduced by this Directive irrespective of whether he is a direct contracting party, a transferee or a member of a group on whose behalf another person has concluded a contract in respect of a package; Whereas the organizer of the package and/or the retailer of it should be under obligation to ensure that in descriptive matter relating to packages which they respectively organize and sell, the information which is given is not misleading and brochures made available to consumers contain information which is comprehensible and accurate; Whereas the consumer needs to have a record of the terms of contract applicable to the package; whereas this can conveniently be achieved by requiring that all the terms of the contract be stated in writing or such other documentary form as shall be comprehensible and accessible to him, and that he be given a copy thereof; Whereas the consumer should be at liberty in certain circumstances to transfer to a willing third person a booking made by him for a package; Whereas the price established under the contract should not in principle be subject to revision except where the possibility of upward or downward revision is expressly provided for in the contract; whereas that possibility should nonetheless be subject to certain conditions; Whereas the consumer should in certain circumstances be free to withdraw before departure from a package travel contract; Whereas there should be a clear definition of the rights available to the consumer in circumstances where the organizer of the package cancels it before the agreed date of departure; Whereas if, after the consumer has departed, there occurs a significant failure of performance of the services for which he has contracted or the organizer perceives that he will be unable to procure a significant part of the services to be provided; the organizer should have certain obligations towards the consumer; Whereas the organizer and/or retailer party to the contract should be liable to the consumer for the proper performance of the obligations arising from the contract; whereas, moreover, the organizer and/or retailer should be liable for the damage resulting for the consumer from failure to perform or improper performance of the contract unless the

296  Part 1: European Union Legislation defects in the performance of the contract are attributable neither to any fault of theirs nor to that of another supplier of services; Whereas in cases where the organizer and/or retailer is liable for failure to p ­ erform or improper performance of the services involved in the package, such liability should be limited in accordance with the international conventions g­ overning such services, in particular the Warsaw Convention of 1929 in International Carriage by Air, the Berne Convention of 1961 on Carriage by Rail, the Athens Convention of 1974 on Carriage by Sea and the Paris Convention of 1962 on the Liability of Hotel-keepers; whereas, moreover, with regard to damage other than personal injury, it should be possible for liability also to be limited under the package contract provided, however, that such limits are not unreasonable; Whereas certain arrangements should be made for the information of consumers and the handling of complaints; Whereas both the consumer and the package travel industry would benefit if organizers and/or retailers were placed under an obligation to provide sufficient evidence of security in the event of insolvency; Whereas Member States should be at liberty to adopt, or retain, more stringent provisions relating to package travel for the purpose of protecting the consumer,

HAS ADOPTED THIS DIRECTIVE: Article 1 The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to packages sold or offered for sale in the territory of the Community. Article 2 For the purposes of this Directive: 1. ‘package’ means the pre-arranged combination of not fewer than two of the following when sold or offered for sale at an inclusive price and when the service covers a period of more than twenty-four hours or includes overnight accommodation: a) transport; b) accommodation; c) other tourist services not ancillary to transport or accommodation and accounting for a significant proportion of the package. The separate billing of various components of the same package shall not absolve the organizer or retailer from the obligations under this Directive; 2. ‘organizer’ means the person who, other than occasionally, organizes packages and sells or offers them for sale, whether directly or through a retailer; 3. ‘retailer’ means the person who sells or offers for sale the package put together by the organizer; 4. ‘consumer’ means the person who takes or agrees to take the package (‘the principal contractor’), or any person on whose behalf the principal contractor agrees to purchase the package (‘the other beneficiaries’) or any person to whom the principal contractor or any of the other beneficiaries transfers the package (‘the transferee’);

Directive 90/314/EEC 297 5. ‘contract’ means the agreement linking the consumer to the organizer and/or the retailer. Article 3 (1) Any descriptive matter concerning a package and supplied by the organizer or the retailer to the consumer, the price of the package and any other conditions applying to the contract must not contain any misleading information. (2) When a brochure is made available to the consumer, it shall indicate in a legible, comprehensible and accurate manner both the price and adequate information concerning: a) the destination and the means, characteristics and categories of transport used; b) the type of accommodation, its location, category or degree of comfort and its main features, its approval and tourist classification under the rules of the host Member State concerned; c) the meal plan; d) the itinerary; e) general information on passport and visa requirements for nationals of the Member State or States concerned and health formalities required for the journey and the stay; f) either the monetary amount or the percentage of the price which is to be paid on account, and the timetable for payment of the balance; g) whether a minimum number of persons is required for the package to take place and, if so, the deadline for informing the consumer in the event of cancellation. The particulars contained in the brochure are binding on the organizer or retailer, unless: —— changes in such particulars have been clearly communicated to the consumer before conclusion of the contract, in which case the brochure shall expressly state so, —— changes are made later following an agreement between the parties to the contract. Article 4 (1)  a) The organizer and/or the retailer shall provide the consumer, in writing or any other appropriate form, before the contract is concluded, with general information on passport and visa requirements applicable to nationals of the Member State or States concerned and in particular on the periods for obtaining them, as well as with information on the health formalities required for the journey and the stay; b) The organizer and/or retailer shall also provide the consumer, in writing or any other appropriate form, with the following information in good time before the start of the journey: i) the times and places of intermediate stops and transport connections as well as details of the place to be occupied by the traveller, e.g. cabin or berth on ship, sleeper compartment on train;

298  Part 1: European Union Legislation ii)

(2)

(3)

(4)

(5)

the name, address and telephone number of the organizer’s and/or retailer’s local representative or, failing that, of local agencies on whose assistance a consumer in difficulty could call. Where no such representatives or agencies exist, the consumer must in any case be provided with an emergency telephone ­number or any other information that will enable him to contract the organizer and/or the retailer; iii) in the case of journeys or stays abroad by minors, information enabling direct contact to be established with the child or the person responsible at the child’s place of stay; iv) information on the optional conclusion of an insurance policy to cover the cost of cancellation by the consumer or the cost of assistance, including repatriation, in the event of accident or illness. Member States shall ensure that in relation to the contract the following principles apply: a) depending on the particular package, the contract shall contain at least the elements listed in the Annex; b) all the terms of the contract are set out in writing or such other form as is comprehensible and accessible to the consumer and must be communicated to him before the conclusion of the contract; the consumer is given a copy of these terms; c) the provision under (b) shall not preclude the belated conclusion of lastminute reservations or contracts. Where the consumer is prevented from proceeding with the package, he may transfer his booking, having first given the organizer or the retailer reasonable notice of his intention before departure, to a person who satisfies all the conditions applicable to the package. The transferor of the package and the transferee shall be jointly and severally liable to the organizer or retailer party to the contract for payment of the balance due and for any additional costs arising from such transfer. a) The prices laid down in the contract shall not be subject to revision unless the contract expressly provides for the possibility of upward or downward revision and states precisely how the revised price is to be calculated, and solely to allow for variations in: —— transportation costs, including the cost of fuel, —— dues, taxes or fees chargeable for certain services, such as landing taxes or embarkation or disembarkation fees at ports and airports, —— the exchange rates applied to the particular package. b) During the twenty days prior to the departure date stipulated, the price stated in the contract shall not be increased. If the organizer finds that before the departure he is constrained to alter significantly any of the essential terms, such as the price, he shall notify the consumer as quickly as possible in order to enable him to take appropriate decisions and in particular: —— either to withdraw from the contract without penalty,

Directive 90/314/EEC 299 —— or to accept a rider to the contract specifying the alterations made and their impact on the price. The consumer shall inform the organizer or the retailer of his decision as soon as possible. (6) If the consumer withdraws from the contract pursuant to paragraph 5, or if, for whatever cause, other than the fault of the consumer, the organizer cancels the package before the agreed date of departure, the consumer shall be entitled: a) either to take a substitute package of equivalent or higher quality where the organizer and/or retailer is able to offer him such a substitute. If the replacement package offered is of lower quality, the organizer shall refund the difference in price to the consumer; b) or to be repaid as soon as possible all sums paid by him under the contract. In such a case, he shall be entitled, if appropriate, to be compensated by either the organizer or the retailer, whichever the relevant Member State’s law requires, for non-performance of the contract, except where: i) cancellation is on the grounds that the number of persons enrolled for the package is less than the minimum number required and the consumer is informed of the cancellation, in writing, within the period indicated in the package description; or ii) cancellation, excluding overbooking, is for reasons of force majeure, i.e. unusual and unforeseeable circumstances beyond the control of the party by whom it is pleaded, the consequences of which could not have been avoided even if all due care had been exercised. (7) Where, after departure, a significant proportion of the services contracted for is not provided or the organizer perceives that he will be unable to procure a significant proportion of the services to be provided, the organizer shall make suitable alternative arrangements, at no extra cost to the consumer, for the continuation of the package, and where appropriate compensate the consumer for the difference between the services offered and those supplied. If it is impossible to make such arrangements or these are not accepted by the consumer for good reasons, the organizer shall, where appropriate, provide the consumer, at no extra cost, with equivalent transport back to the place of departure, or to another return-point to which the consumer has agreed and shall, where appropriate, compensate the consumer. Article 5 (1) Member States shall take the necessary steps to ensure that the organizer and/or retailer party to the contract is liable to the consumer for the proper performance of the obligations arising from the contract, irrespective of whether such obligations are to be performed by that organizer and/or retailer or by other suppliers of services without prejudice to the right of the organizer and/or retailer to pursue those other suppliers of services.

300  Part 1: European Union Legislation (2) With regard to the damage resulting for the consumer from the failure to perform or the improper performance of the contract, Member States shall take the necessary steps to ensure that the organizer and/or retailer is/are liable unless such failure to perform or improper performance is attributable neither to any fault of theirs nor to that of another supplier of services, because: —— the failures which occur in the performance of the contract are attributable to the consumer, —— such failures are attributable to a third party unconnected with the provision of the services contracted for, and are unforeseeable or unavoidable, —— such failures are due to a case of force majeure such as that defined in Article 4 (6), second subparagraph (ii), or to an event which the organizer and/or retailer or the supplier of services, even with all due care, could not foresee or forestall. In the cases referred to in the second and third indents, the organizer and/or retailer party to the contract shall be required to give prompt assistance to a consumer in difficulty. In the matter of damages arising from the non-performance or improper performance of the services involved in the package, the Member States may allow compensation to be limited in accordance with the international conventions governing such services. In the matter of damage other than personal injury resulting from the nonperformance or improper performance of the services involved in the package, the Member States may allow compensation to be limited under the contract. Such limitation shall not be unreasonable. (3) Without prejudice to the fourth subparagraph of paragraph 2, there may be no exclusion by means of a contractual clause from the provisions of paragraphs 1 and 2. (4) The consumer must communicate any failure in the performance of a contract which he perceives on the spot to the supplier of the services concerned and to the organizer and/or retailer in writing or any other appropriate form at the earliest opportunity. This obligation must be stated clearly and explicitly in the contract. Article 6 In cases of complaint, the organizer and/or retailer or his local representative, if there is one, must make prompt efforts to find appropriate solutions. Article 7 The organizer and/or retailer party to the contract shall provide sufficient evidence of security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency. Article 8 Member States may adopt or return more stringent provisions in the field covered by this Directive to protect the consumer.

Directive 90/314/EEC 301 Article 9 (1) Member States shall bring into force the measures necessary to comply with this Directive before 31 December 1992. They shall forthwith inform the Commission thereof. (2) Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field governed by this Directive. The Commission shall inform the other Member States thereof. Article 10 This Directive is addressed to the Member States. ANNEX Elements to be included in the contract if relevant to the particular package: a) the travel destination(s) and, where periods of stay are involved, the relevant periods, with dates; b) the means, characteristics and categories of transport to be used, the dates, times and points of departure and return; c) where the package includes accommodation, its location, its tourist category or degree of comfort, its main features, its compliance with the rules of the host Member State concerned and the meal plan; d) whether a minimum number of persons is required for the package to take place and, if so, the deadline for informing the consumer in the event of cancellation; e) the itinerary; f) visits, excursions or other services which are included in the total price agreed for the package; g) the name and address of the organizer, the retailer and, where appropriate, the insurer; h) the price of the package, an indication of the possibility of price revisions under Article 4(4) and an indication of any dues, taxes or fees chargeable for certain services (landing, embarkation or disembarkation fees at ports and airports, tourist taxes) where such costs are not included in the package; i) the payment schedule and method of payment; j) special requirements which the consumer has communicated to the organizer or retailer when making the booking, and which both have accepted; k) periods within which the consumer must make any complaint concerning ­failure to perform or improper performance of the contract. (1) (2) (3) (4) (5) (6)

OJ C96/88, p 5. OJ C69/89, p 120, and OJ C149/90. OJ C102/89, p 27. OJ C165/81, p 24. OJ C115/84, p 1. OJ C118/86, p 28.

Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts* (Official Journal, L95/93, p 29) THE COUNCIL OF THE EUROPEAN COMMUNITIES— Having regard to the Treaty establishing the European Economic Community, and in particular Article 100a thereof, Having regard to the proposal from the Commission,(1) In cooperation with the European Parliament,(2) Having regard to the opinion of the Economic and Social Committee,(3) Whereas it is necessary to adopt measures with the aim of progressively e­ stablishing the internal market before 31 December 1992; whereas the internal market ­comprises an area without internal frontiers in which goods, persons, s­ ervices and capital move freely; Whereas the laws of Member States relating to the terms of contract between the seller of goods or supplier of services, on the one hand, and the consumer of them, on the other hand, show many disparities, with the result that the national markets for the sale of goods and services to consumers differ from each other and that distortions of competition may arise amongst the sellers and suppliers, notably when they sell and supply in other Member States; Whereas, in particular, the laws of Member States relating to unfair terms in c­ onsumer contracts show marked divergences; Whereas it is the responsibility of the Member States to ensure that contracts ­concluded with consumers do not contain unfair terms; Whereas, generally speaking, consumers do not know the rules of law which, in Member States other than their own, govern contracts for the sale of goods or ­services; whereas this lack of awareness may deter them from direct transactions for the purchase of goods or services in another Member State; Whereas, in order to facilitate the establishment of the internal market and to safeguard the citizen in his role as consumer when acquiring goods and services under contracts which are governed by the laws of Member States other than his own, it is essential to remove unfair terms from those contracts; * This Directive was first implemented in the United Kingdom by the Unfair Terms in Consumer ­ ontracts Regulations 1994 (SI 1994/3159), which came into force on 1 July 1995; these were replaced C by the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083); the 1999 Regulations have in turn been replaced, for contracts made after 1 October 2015, by the Consumer Rights Act 2015, Part 2 and Sch.3 (enforcement by regulators).

Directive 93/13/EEC 303 Whereas sellers of goods and suppliers of services will thereby be helped in their task of selling goods and supplying services, both at home and throughout the internal market; whereas competition will thus be stimulated, so contributing to increased choice for Community citizens as consumers; Whereas the two Community programmes for a consumer protection and information policy(4) underlined the importance of safeguarding consumers in the m ­ atter of unfair terms of contract; whereas this protection ought to be provided by laws and regulations which are either harmonized at Community level or adopted directly at that level; Whereas in accordance with the principle laid down under the heading ‘Protection of the economic interests of the consumers’, as stated in those programmes: ‘acquirers of goods and services should be protected against the abuse of power by the seller or supplier, in particular against one-sided standard contracts and the unfair exclusion of essential rights in contracts’; Whereas more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms; whereas those rules should apply to all contracts concluded between sellers or suppliers and consumers; whereas as a result inter alia contracts relating to employment, contracts relating to succession rights, contracts relating to rights under family law and contracts relating to the incorporation and organization of companies or partnership a­ greements must be excluded from this Directive; Whereas the consumer must receive equal protection under contracts concluded by word of mouth and written contracts regardless, in the latter case, of whether the terms of the contract are contained in one or more documents; Whereas, however, as they now stand, national laws allow only partial harmonization to be envisaged; whereas, in particular, only contractual terms which have not been individually negotiated are covered by this Directive; whereas Member States should have the option, with due regard for the Treaty, to afford consumers a higher level of protection through national provisions that are more stringent than those of this Directive; Whereas the statutory or regulatory provisions of the Member States which directly or indirectly determine the terms of consumer contracts are presumed not to contain unfair terms; whereas, therefore, it does not appear to be necessary to subject the terms which reflect mandatory statutory or regulatory provisions and the principles or provisions of international conventions to which the Member States or the Community are party; whereas in that respect the wording ‘mandatory statutory or regulatory provisions’ in Article 1(2) also covers rules which, according to the law, shall apply between the contracting parties provided that no other arrangements have been established; Whereas Member States must however ensure that unfair terms are not included, particularly because this Directive also applies to trades, business or professions of a public nature; Whereas it is necessary to fix in a general way the criteria for assessing the unfair character of contract terms; Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved; whereas this constitutes the requirement of good faith; whereas, in making an assessment of good faith, particular regard shall be had to the strength of the bargaining positions of the parties, whether the consumer had an inducement to agree to the term and whether the goods or services were sold or supplied to the special order of the consumer; whereas the requirement of good faith may be satisfied by the seller or supplier where he deals fairly and equitably with the other party whose legitimate interests he has to take into account;

304  Part 1: European Union Legislation Whereas, for the purposes of this Directive, the annexed list of terms can be of indicative value only and, because of the cause of the minimal character of the Directive, the scope of these terms may be the subject of amplification or more restrictive editing by the Member States in their national laws; Whereas the nature of goods or services should have an influence on assessing the unfairness of contractual terms; Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer; Whereas contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms and, if in doubt, the interpretation most favourable to the consumer should prevail; Whereas Member States should ensure that unfair terms are not used in contracts concluded with consumers by a seller or supplier and that if, nevertheless, such terms are so used, they will not bind the consumer, and the contract will continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair provisions; Whereas there is a risk that, in certain cases, the consumer may be deprived of protection under this Directive by designating the law of a non-Member country as the law applicable to the contract; whereas provisions should therefore be included in this Directive designed to avert this risk; Whereas persons or organizations, if regarded under the law of a Member State as having a legitimate interest in the matter, must have facilities for initiating proceedings concerning terms of contract drawn up for general use in contracts concluded with consumers, and in particular unfair terms, either before a court or before an administrative authority competent to decide upon complaints or to initiate appropriate legal proceedings; whereas this possibility does not, however, entail prior verification of the general conditions obtaining in individual economic sectors; Whereas the courts or administrative authorities of the Member States must have at their disposal adequate and effective means of preventing the continued application of unfair terms in consumer contracts,

HAS ADOPTED THIS DIRECTIVE: Article 1 (1) The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in contracts concluded between a seller or supplier and a consumer. (2) The contractual terms which reflect mandatory statutory or regulatory provisions and the provisions or principles of international conventions to which the Member States or the Community are party, particularly in the transport area, shall not be subject to the provisions of this Directive.

Directive 93/13/EEC 305 Article 2 For the purposes of this Directive: (a) ‘unfair terms’ means the contractual terms defined in Article 3; (b) ‘consumer’ means any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business or profession; (c) ‘seller or supplier’ means any natural or legal person who, in contracts ­covered by this Directive, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned. Article 3 (1) 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. (2) A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-­ formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. (3) The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair. Article 4 (1) Without prejudice to Article 7, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. (2) Assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other, in so far as these terms are in plain ­intelligible language.

306  Part 1: European Union Legislation Article 5 In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain, intelligible language. Where there is doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail. This rule on interpretation shall not apply in the context of the procedures laid down in Article 7 (2). Article 6 (1) Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms. (2) Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-Member country as the law applicable to the contract if the latter has a close connection with the territory of the Member States. Article 7 (1) Member States shall ensure that, in the interests of consumers and of competitors, adequate and effective means exist to prevent the continued use of unfair terms in contracts concluded with consumers by sellers or suppliers. (2) The means referred to in paragraph 1 shall include provisions whereby persons or organizations, having a legitimate interest under national law in protecting consumers, may take action according to the national law concerned before the courts or before competent administrative bodies for a decision as to whether contractual terms drawn up for general use are unfair, so that they can apply appropriate and effective means to prevent the continued use of such terms. (3) With due regard for national laws, the legal remedies referred to in paragraph 2 may be directed separately or jointly against a number of sellers or suppliers from the same economic sector or their associations which use or recommend the use of the same general contractual terms or similar terms. Article 8 Member States may adopt or retain the most stringent provisions compatible with the Treaty in the area covered by this Directive, to ensure a maximum degree of protection for the consumer. Article 9 The Commission shall present a report to the European Parliament and to the ­Council concerning the application of this Directive five years at the latest after the date in Article 10(1).

Directive 93/13/EEC 307 Article 10 (1) Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive no later than 31 ­December 1994. They shall forthwith inform the Commission thereof. These provisions shall be applicable to all contracts concluded after 31 December 1994. (2) When Member States adopt these measures, they shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. The methods of making such a reference shall be laid down by the Member States. (3) Member States shall communicate the main provisions of national law which they adopt in the field covered by this Directive to the Commission. Article 11 This Directive is addressed to the Member States. ANNEX TERMS REFERRED TO IN ARTICLE 3(3) 1. Terms which have the object or effect of: a) excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier; b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or ­ ­supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him; c) making an agreement binding on the consumer whereas provision of ­services by the seller or supplier is subject to a condition whose realization depends on his own will alone; d) permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; f) authorizing the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;

308  Part 1: European Union Legislation g) enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so; h) automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express this desire not to extend the contract is unreasonably early; i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract; j) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; k) enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided; l) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded; m) giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract; n) limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality; o) obliging the consumer to fulfil all his obligations where the seller or ­supplier does not perform his; p) giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the ­guarantees for the consumer, without the latter’s agreement; q) excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract. 2. Scope of subparagraphs (g), (j) and (l) a) Subparagraph (g) is without hindrance to terms by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately. b) Subparagraph (j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party

Directive 93/13/EEC 309 or p ­ arties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately. Subparagraph (j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract. c) Subparagraphs (g), (j) and (l) do not apply to: —— transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; —— contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency; d) Subparagraph (l) is without hindrance to price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described. (1)

OJ C73/92, p 7. OJ C326/91, p 108, and OJ C21/93. (3) OJ C159/91, p 34. (4) OJ C92/75, p 1, and OJ C133/81, p 1. (2)

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* (Official Journal L171/99, p 12) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION— Having regard to the Treaty establishing the European Community, and in p ­ articular ­Article 95 thereof, Having regard to the proposal from the Commission,(1) Having regard to the opinion of the Economic and Social Committee,(2) Acting in accordance with the procedure laid down in Article 251 of the Treaty in the light of the joint text approved by the Conciliation Committee on 18 May 1999,(3) (1) Whereas Article 153(1) and (3) of the Treaty provides that the Community should contribute to the achievement of a high level of consumer protection by the measures it adopts pursuant to Article 95 thereof; (2) Whereas the internal market comprises an area without internal frontiers in which the free movement of goods, persons, services and capital is guaranteed; whereas free movement of goods concerns not only transactions by persons acting in the course of a business but also transactions by private individuals; whereas it implies that consumers resident in one Member State should be free to purchase goods in the territory of another Member State on the basis of a uniform minimum set of fair rules governing the sale of consumer goods; (3) Whereas the laws of the Member States concerning the sale of consumer goods are somewhat disparate, with the result that national consumer goods markets differ from one another and that competition between sellers may be distorted;

*  First implemented in the United Kingdom. by the Sale and Supply of Goods to Consumers Regulations 2002, S.I. No. 3045/2002 (in particular adding s 14(2D-(2F) and ss 48A-48F to the Sale of Goods Act 1979); now implemented (for contracts made on or after 1 October 2015) by Consumer Rights Act 2015, Part 1.

Directive 1999/44/EC 311 (4) Whereas consumers who are keen to benefit from the large market by purchasing goods in Member States other than their State of residence play a fundamental role in the completion of the internal market; whereas the artificial reconstruction of frontiers and the compartmentalisation of markets should be prevented; whereas the opportunities available to consumers have been greatly broadened by new communication technologies which allow ready access to distribution systems in other Member States or in third countries; whereas, in the absence of minimum harmonisation of the rules governing the sale of consumer goods, the development of the sale of goods through the medium of new distance communication technologies risks being impeded; (5) Whereas the creation of a common set of minimum rules of consumer law, valid no matter where goods are purchased within the Community, will strengthen consumer confidence and enable consumers to make the most of the internal market; (6) Whereas the main difficulties encountered by consumers and the main source of disputes with sellers concern the non-conformity of goods with the contract; whereas it is therefore appropriate to approximate national legislation governing the sale of consumer goods in this respect, without however impinging on provisions and principles of national law relating to contractual and non-contractual liability; (7) Whereas the goods must, above all, conform with the contractual specifications; whereas the principle of conformity with the contract may be considered as common to the different national legal traditions; whereas in certain national legal traditions it may not be possible to rely solely on this principle to ensure a minimum level of protection for the consumer; whereas under such legal traditions, in particular, additional national provisions may be useful to ensure that the consumer is protected in cases where the parties have agreed no specific contractual terms or where the parties have concluded contractual terms or agreements which directly or indirectly waive or restrict the rights of the consumer and which, to the extent that these rights result from this Directive, are not binding on the consumer; (8) Whereas, in order to facilitate the application of the principle of conformity with the contract, it is useful to introduce a rebuttable presumption of conformity with the contract covering the most common situations; whereas that presumption does not restrict the principle of freedom of contract; whereas, furthermore, in the absence of specific contractual terms, as well as where the minimum protection clause is applied, the elements mentioned in this presumption may be used to determine the lack of conformity of the goods with the contract; whereas the quality and performance which consumers can reasonably expect will depend inter alia on whether the goods are new or second-hand; whereas the elements mentioned in the presumption are cumulative; whereas, if the circumstances of the case render any particular element manifestly inappropriate, the remaining elements of the presumption nevertheless still apply; (9) Whereas the seller should be directly liable to the consumer for the conformity of the goods with the contract; whereas this is the traditional solution enshrined in the legal orders of the Member States; whereas nevertheless the seller should be free, as provided for by national law, to pursue remedies against the producer, a previous seller in the same chain of contracts or any other intermediary, unless he has renounced that entitlement; whereas this Directive does not affect the principle of freedom of contract between the seller, the producer, a previous seller or any other intermediary; whereas the rules governing against whom and how the seller may pursue such remedies are to be determined by national law; (10) Whereas, in the case of non-conformity of the goods with the contract, consumers should be entitled to have the goods restored to conformity with the contract free

312  Part 1: European Union Legislation

(11)

(12) (13)

(14) (15)

(16)

(17)

(18)

(19)

(20)

of charge, choosing either repair or replacement, or, failing this, to have the price reduced or the contract rescinded; Whereas the consumer in the first place may require the seller to repair the goods or to replace them unless those remedies are impossible or disproportionate; whereas whether a remedy is disproportionate should be determined objectively; whereas a remedy would be disproportionate if it imposed, in comparison with the other remedy, unreasonable costs; whereas, in order to determine whether the costs are unreasonable, the costs of one remedy should be significantly higher than the costs of the other remedy; Whereas in cases of a lack of conformity, the seller may always offer the consumer, by way of settlement, any available remedy; whereas it is for the consumer to decide whether to accept or reject this proposal; Whereas, in order to enable consumers to take advantage of the internal market and to buy consumer goods in another Member State, it should be recommended that, in the interests of consumers, the producers of consumer goods that are marketed in several Member States attach to the product a list with at least one contact address in every Member State where the product is marketed; Whereas the references to the time of delivery do not imply that Member States have to change their rules on the passing of the risk; Whereas Member States may provide that any reimbursement to the consumer may be reduced to take account of the use the consumer has had of the goods since they were delivered to him; whereas the detailed arrangements whereby rescission of the contract is effected may be laid down in national law; Whereas the specific nature of second-hand goods makes it generally impossible to replace them; whereas therefore the consumer’s right of replacement is generally not available for these goods; whereas for such goods, Member States may enable the parties to agree a shortened period of liability; Whereas it is appropriate to limit in time the period during which the seller is liable for any lack of conformity which exists at the time of delivery of the goods; whereas Member States may also provide for a limitation on the period during which consumers can exercise their rights, provided such a period does not expire within two years from the time of delivery; whereas where, under national legislation, the time when a limitation period starts is not the time of delivery of the goods, the total duration of the limitation period provided for by national law may not be shorter than two years from the time of delivery; Whereas Member States may provide for suspension or interruption of the period during which any lack of conformity must become apparent and of the limitation period, where applicable and in accordance with their national law, in the event of repair, replacement or negotiations between seller and consumer with a view to an amicable settlement; Whereas Member States should be allowed to set a period within which the consumer must inform the seller of any lack of conformity; whereas Member States may ensure a higher level of protection for the consumer by not introducing such an obligation; whereas in any case consumers throughout the Community should have at least two months in which to inform the seller that a lack of conformity exists; Whereas Member States should guard against such a period placing at a disadvantage consumers shopping across borders; whereas all Member States should inform the Commission of their use of this provision; whereas the Commission should monitor the effect of the varied application of this provision on consumers and on the internal market; whereas information on the use made of this provision by a

Directive 1999/44/EC 313

(21)

(22)

(23)

(24) (25)

(26)

Member State should be available to the other Member States and to consumers and consumer organisations throughout the Community; whereas a summary of the situation in all Member States should therefore be published in the Official Journal of the European Communities; Whereas, for certain categories of goods, it is current practice for sellers and producers to offer guarantees on goods against any defect which becomes apparent within a certain period; whereas this practice can stimulate competition; whereas, while such guarantees are legitimate marketing tools, they should not mislead the consumer; whereas, to ensure that consumers are not misled, guarantees should contain certain information, including a statement that the guarantee does not affect the consumer’s legal rights; Whereas the parties may not, by common consent, restrict or waive the rights granted to consumers, since otherwise the legal protection afforded would be thwarted; whereas this principle should apply also to clauses which imply that the consumer was aware of any lack of conformity of the consumer goods existing at the time the contract was concluded; whereas the protection granted to consumers under this Directive should not be reduced on the grounds that the law of a nonmember State has been c­ hosen as being applicable to the contract; Whereas legislation and case-law in this area in the various Member States show that there is growing concern to ensure a high level of consumer protection; whereas, in the light of this trend and the experience acquired in implementing this Directive, it may be necessary to envisage more far-­reaching harmonisation, notably by providing for the producer’s direct liability for defects for which he is responsible; Whereas Member States should be allowed to adopt or maintain in force more stringent provisions in the field covered by this Directive to ensure an even higher level of consumer protection; Whereas, according to the Commission recommendation of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes,(4) Member States can create bodies that ensure impartial and efficient handling of complaints in a national and cross-­border context and which consumers can use as mediators; Whereas it is appropriate, in order to protect the collective interests of consumers, to add this Directive to the list of Directives contained in the Annex to Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests,(5)

HAVE ADOPTED THIS DIRECTIVE: Article 1 Scope and definitions (1) The purpose of this Directive is the approximation of the laws, regulations and administrative provisions of the Member States on certain aspects of the sale of consumer goods and associated guarantees in order to ensure a uniform minimum level of consumer protection in the context of the internal market. (2) For the purposes of this Directive: a) consumer: shall mean any natural person who, in the contracts covered by this Directive, is acting for purposes which are not related to his trade, business or profession;

314  Part 1: European Union Legislation b) consumer goods: shall mean any tangible movable item, with the ­exception of: —— goods sold by way of execution or otherwise by authority of law, —— water and gas where they are not put up for sale in a limited ­volume or set quantity, —— electricity; c) seller: shall mean any natural or legal person who, under a contract, sells consumer goods in the course of his trade, business or profession; d) producer: shall mean the manufacturer of consumer goods, the importer of consumer goods into the territory of the Community or any person purporting to be a producer by placing his name, trade mark or other distinctive sign on the consumer goods; e) guarantee: shall mean any undertaking by a seller or producer to the consumer, given without extra charge, to reimburse the price paid or to replace, repair or handle consumer goods in any way if they do not meet the specifications set out in the guarantee statement or in the relevant advertising; f) repair: shall mean, in the event of lack of conformity, bringing consumer goods into conformity with the contract of sale. (3) Member States may provide that the expression ‘consumer goods’ does not cover second-hand goods sold at public auction where consumers have the opportunity of attending the sale in person. (4) Contracts for the supply of consumer goods to be manufactured or produced shall also be deemed contracts of sale for the purpose of this Directive. Article 2 Conformity with the contract (1) The seller must deliver goods to the consumer which are in conformity with the contract of sale. (2) Consumer goods are presumed to be in conformity with the contract if they: a) comply with the description given by the seller and possess the qualities of the goods which the seller has held out to the consumer as a sample or model; b) are fit for any particular purpose for which the consumer requires them and which he made known to the seller at the time of conclusion of the contract and which the seller has accepted; c) are fit for the purposes for which goods of the same type are normally used; d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labelling. (3) There shall be deemed not to be a lack of conformity for the purposes of this Article if, at the time the contract was concluded, the consumer was aware, or could not reasonably be unaware of, the lack of conformity, or if the lack of conformity has its origin in materials supplied by the consumer.

Directive 1999/44/EC 315 (4) The seller shall not be bound by public statements, as referred to in paragraph 2(d) if he: —— shows that he was not, and could not reasonably have been, aware of the statement in question, —— shows that by the time of conclusion of the contract the statement had been corrected, or —— shows that the decision to buy the consumer goods could not have been influenced by the statement. (5) Any lack of conformity resulting from incorrect installation of the consumer goods shall be deemed to be equivalent to lack of conformity of the goods if installation forms part of the contract of sale of the goods and the goods were installed by the seller or under his responsibility. This shall apply equally if the product, intended to be installed by the consumer, is installed by the consumer and the incorrect installation is due to a shortcoming in the ­installation instructions. Article 3 Rights of the consumer (1) The seller shall be liable to the consumer for any lack of conformity which exists at the time the goods were delivered. (2) In the case of a lack of conformity, the consumer shall be entitled to have the goods brought into conformity free of charge by repair or replacement, in accordance with paragraph 3, or to have an appropriate reduction made in the price or the contract rescinded with regard to those goods, in accordance with paragraphs 5 and 6. (3) In the first place, the consumer may require the seller to repair the goods or he may require the seller to replace them, in either case free of charge, unless this is impossible or disproportionate. A remedy shall be deemed to be disproportionate if it imposes costs on the seller which, in comparison with the alternative remedy, are unreasonable, taking into account: —— the value the goods would have if there were no lack of conformity, —— the significance of the lack of conformity, and —— whether the alternative remedy could be completed without significant inconvenience to the consumer. Any repair or replacement shall be completed within a reasonable time and without any significant inconvenience to the consumer, taking account of the nature of the goods and the purpose for which the consumer required the goods. (4) The terms ‘free of charge’ in paragraphs 2 and 3 refer to the necessary costs incurred to bring the goods into conformity, particularly the cost of postage, labour and materials. (5) The consumer may require an appropriate reduction of the price or have the contract rescinded: —— if the consumer is entitled to neither repair nor replacement, or —— if the seller has not completed the remedy within a reasonable time, or

316  Part 1: European Union Legislation —— if the seller has not completed the remedy without significant inconvenience to the consumer. (6) The consumer is not entitled to have the contract rescinded if the lack of conformity is minor. Article 4 Right of redress Where the final seller is liable to the consumer because of a lack of conformity resulting from an act or omission by the producer, a previous seller in the same chain of contracts or any other intermediary, the final seller shall be entitled to pursue remedies against the person or persons liable in the contractual chain. The person or persons liable against whom the final seller may pursue remedies, together with the relevant actions and conditions of exercise, shall be determined by national law. Article 5 Time limits (1) The seller shall be held liable under Article 3 where the lack of ­conformity becomes apparent within two years as from delivery of the goods. If, under national legislation, the rights laid down in Article 3(2) are subject to a ­limitation period, that period shall not expire within a period of two years from the time of delivery. (2) Member States may provide that, in order to benefit from his rights, the consumer must inform the seller of the lack of conformity within a period of two months from the date on which he detected such lack of conformity. Member States shall inform the Commission of their use of this paragraph. The Commission shall monitor the effect of the existence of this option for the Member States on consumers and on the internal market. Not later than 7 January 2003, the Commission shall prepare a report on the use made by Member States of this paragraph. This report shall be ­published in the Official Journal of the European Communities. (3) Unless proved otherwise, any lack of conformity which becomes apparent within six months of delivery of the goods shall be presumed to have existed at the time of delivery unless this presumption is incompatible with the nature of the goods or the nature of the lack of conformity. Article 6 Guarantees (1) A guarantee shall be legally binding on the offerer under the conditions laid down in the guarantee statement and the associated advertising. (2) The guarantee shall: —— state that the consumer has legal rights under applicable national legislation governing the sale of consumer goods and make clear that those rights are not affected by the guarantee,

Directive 1999/44/EC 317 —— set out in plain intelligible language the contents of the guarantee and the essential particulars necessary for making claims under the g­ uarantee, notably the duration and territorial scope of the guarantee as well as the name and address of the guarantor. (3) On request by the consumer, the guarantee shall be made available in writing or feature in another durable medium available and accessible to him. (4) Within its own territory, the Member State in which the consumer goods are marketed may, in accordance with the rules of the Treaty, provide that the guarantee be drafted in one or more languages which it shall determine from among the official languages of the Community. (5) Should a guarantee infringe the requirements of paragraphs 2, 3 or 4, the validity of this guarantee shall in no way be affected, and the consumer can still rely on the guarantee and require that it be honoured. Article 7 Binding nature (1) Any contractual terms or agreements concluded with the seller before the lack of conformity is brought to the seller’s attention which directly or indirectly waive or restrict the rights resulting from this Directive shall, as provided for by national law, not be binding on the consumer. Member States may provide that, in the case of second-hand goods, the seller and consumer may agree contractual terms or agreements which have a shorter time period for the liability of the seller than that set down in Article 5(1). Such period may not be less than one year. (2) Member States shall take the necessary measures to ensure that c­ onsumers are not deprived of the protection afforded by this Directive as a result of opting for the law of a non-member State as the law applicable to the contract where the contract has a close connection with the territory of the Member States. Article 8 National law and minimum protection (1) The rights resulting from this Directive shall be exercised without prejudice to other rights which the consumer may invoke under the national rules governing contractual or non-contractual liability. (2) Member States may adopt or maintain in force more stringent provisions, compatible with the Treaty in the field covered by this Directive, to ensure a higher level of consumer protection. Article 9 Member States shall take appropriate measures to inform the consumer of the national law transposing this Directive and shall encourage, where appropriate, ­professional organisations to inform consumers of their rights.

318  Part 1: European Union Legislation Article 10 The Annex to Directive 98/27/EC shall be completed as follows: ‘10.  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 (OJ L 171, 7.7.1999, p. 12).’. Article 11 Transposition (1) Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive not later than 1 January 2002. They shall forthwith inform the Commission thereof. When Member States adopt these measures, they shall contain a reference to this Directive, or shall be accompanied by such reference at the time of their official publication. The procedure for such reference shall be adopted by Member States. (2) Member States shall communicate to the Commission the provisions of national law which they adopt in the field covered by this Directive. Article 12 Review The Commission shall, not later than 7 July 2006, review the application of this Directive and submit to the European Parliament and the Council a report. The report shall examine, inter alia, the case for introducing the producer’s direct liability and, if appropriate, shall be accompanied by proposals. Article 13 Entry into force This Directive shall enter into force on the day of its publication in the Official Journal of the European Communities. Article 14 This Directive is addressed to the Member States. (1)

OJ C307/96, p 8 and OJ C148/98, p 12. OJ C66/97, p 5. (3)  Opinion of the European Parliament of 10 March 1998 (OJ C104/98, p 30); Council Common Position of 24 September 1998 (OJ C333/98, p 46) and the Decision of the European Parliament of 17 December 1998 (OJ C98/99, p 226); Decision of the European Parliament of 5 May 1999; Council Decision of 17 May 1999. (4) OJ L115/98, p 31. (5) OJ L166/98, p 51. (2)

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market* (Official Journal, L178/00, p 1) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION— Having regard to the Treaty establishing the European Community, and in particular ­Articles 47(2), 55 and 95 thereof, Having regard to the proposal from the Commission,(1) Having regard to the opinion of the Economic and Social Committee,(2) Acting in accordance with the procedure laid down in Article 251 of the Treaty,(3)

Whereas: (1) The European Union is seeking to forge ever closer links between the States and peoples of Europe, to ensure economic and social progress; in accordance with Article 14(2) of the Treaty, the internal market comprises an area without internal frontiers in which the free movements of goods, services and the freedom of establishment are ensured; the development of information society services within the area without internal frontiers is vital to ­eliminating the barriers which divide the European peoples. (2) The development of electronic commerce within the information society offers significant employment opportunities in the Community, particularly in small and medium-sized enterprises, and will stimulate economic growth and investment in innovation by European companies, and can also enhance the competitiveness of European industry, provided that everyone has access to the Internet. (3) Community law and the characteristics of the Community legal order are a vital asset to enable European citizens and operators to take full advantage, without consideration of borders, of the opportunities afforded by electronic *  Implemented in the United Kingdom by the Electronic Commerce (EC Directive) Regulations 2002, S.I. No. 2013 of 21/08/2002

320  Part 1: European Union Legislation commerce; this Directive therefore has the purpose of ensuring a high level of Community legal integration in order to establish a real area without internal borders for information society services. (4) It is important to ensure that electronic commerce could fully benefit from the internal market and therefore that, as with Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities,(4) a high level of Community integration is achieved. (5) The development of information society services within the Community is hampered by a number of legal obstacles to the proper functioning of the internal market which make less attractive the exercise of the freedom of establishment and the freedom to provide services; these obstacles arise from divergences in legislation and from the legal uncertainty as to which national rules apply to such services; in the absence of coordination and adjustment of legislation in the relevant areas, obstacles might be justified in the light of the case-law of the Court of Justice of the European Communities; legal uncertainty exists with regard to the extent to which Member States may control services originating from another Member State. (6) In the light of Community objectives, of Articles 43 and 49 of the Treaty and of secondary Community law, these obstacles should be eliminated by coordinating certain national laws and by clarifying certain legal concepts at Community level to the extent necessary for the proper functioning of the internal market; by dealing only with certain specific matters which give rise to problems for the internal market, this Directive is fully consistent with the need to respect the principle of subsidiarity as set out in Article 5 of the Treaty. (7) In order to ensure legal certainty and consumer confidence, this Directive must lay down a clear and general framework to cover certain legal aspects of electronic commerce in the internal market. (8) The objective of this Directive is to create a legal framework to ensure the free movement of information society services between Member States and not to harmonise the field of criminal law as such. (9) The free movement of information society services can in many cases be a specific reflection in Community law of a more general principle, namely freedom of expression as enshrined in Article 10(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms, which has been ratified by all the Member States; for this reason, directives covering the supply of information society services must ensure that this activity may be engaged in freely in the light of that Article, subject only to the restrictions laid down in paragraph 2 of that Article and in Article 46(1) of the Treaty; this Directive is not intended to affect national fundamental rules and principles relating to freedom of expression.

2000/31/EC 321 (10) In accordance with the principle of proportionality, the measures provided for in this Directive are strictly limited to the minimum needed to achieve the objective of the proper functioning of the internal market; where action at Community level is necessary, and in order to guarantee an area which is truly without internal frontiers as far as electronic commerce is concerned, the Directive must ensure a high level of protection of objectives of general interest, in particular the protection of minors and human dignity, consumer protection and the protection of public health; according to Article 152 of the Treaty, the protection of public health is an essential component of other Community policies. (11) This Directive is without prejudice to the level of protection for, in particular, public health and consumer interests, as established by Community acts; amongst others, Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts(5) and Directive 97/7/EC of the ­European P ­ arliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts(6) form a vital element for ­protecting consumers in contractual matters; those Directives also apply in their entirety to information society services; that same Community acquis, which is fully applicable to information society services, also embraces in particular Council Directive 84/450/EEC of 10 ­September 1984 concerning misleading and comparative advertising,(7) Council ­Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit,(8) Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field,(9) Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours,(10) Directive 98/6/EC of the European Parliament and of the Council of 16 ­February 1998 on consumer p ­roduction in the indication of prices of products offered to ­consumers,(11) Council Directive 92/59/EEC of 29 June 1992 on general product safety,(12) Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects on contracts relating to the purchase of the right to use immovable properties on a timeshare basis,(13) Directive 98/27/ EC of the European P ­ arliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests,(14) Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions concerning liability for defective products,(15) 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,(16) the future Directive of the European Parliament and of the Council concerning the distance marketing of consumer financial services and Council Directive 92/28/EEC of 31 March 1992 on the advertising of medicinal products,(17) this Directive should be without prejudice to Directive 98/43/EC of the European Parliament and of the Council of 6 July 1998 on the approximation of the laws, regulations and administrative provisions of the Member States relating to the advertising and

322  Part 1: European Union Legislation

(12)

(13) (14)

(15)

(16)

(17)

sponsorship of tobacco products(18) adopted within the framework of the internal market, or to directives on the protection of public health; this Directive complements information requirements established by the abovementioned Directives and in particular Directive 97/7/EC. It is necessary to exclude certain activities from the scope of this Directive, on the grounds that the freedom to provide services in these fields cannot, at this stage, be guaranteed under the Treaty or existing secondary legislation; excluding these activities does not preclude any instruments which might prove necessary for the proper functioning of the internal market; taxation, particularly value added tax imposed on a large number of the services covered by this Directive, must be excluded form the scope of this Directive. This Directive does not aim to establish rules on fiscal obligations nor does it pre-empt the drawing up of Community instruments concerning fiscal aspects of electronic commerce. The protection of individuals with regard to the processing of personal data is solely governed by Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data(19) and Directive 97/66/EC of the European Parliament and of the Council of 15 December 1997 concerning the processing of personal data and the protection of privacy in the telecommunications sector(20) which are fully applicable to information society services; these Directives already establish a Community legal framework in the field of personal data and therefore it is not necessary to cover this issue in this Directive in order to ensure the smooth functioning of the internal market, in particular the free movement of personal data between Member States; the implementation and application of this Directive should be made in full compliance with the principles relating to the protection of personal data, in particular as regards unsolicited commercial communication and the liability of intermediaries; this Directive cannot prevent the anonymous use of open networks such as the Internet. The confidentiality of communications is guaranteed by Article 5 Directive 97/66/EC; in accordance with that Directive, Member States must prohibit any kind of interception or surveillance of such communications by others than the senders and receivers, except when legally authorised. The exclusion of gambling activities from the scope of application of this Directive covers only games of chance, lotteries and betting transactions, which involve wagering a stake with monetary value; this does not cover promotional competitions or games where the purpose is to encourage the sale of goods or services and where payments, if they arise, serve only to acquire the promoted goods or services. The definition of information society services already exists in Community law in Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on information society services(21) and in Directive 98/84/EC of the European ­Parliament

2000/31/EC 323 and of the Council of 20 November 1998 on the legal protection of services based on, or consisting of, conditional access;(22) this definition covers any service normally provided for remuneration, at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, and at the individual request of a recipient of a service; those services referred to in the indicative list in Annex V to Directive 98/34/EC which do not imply data processing and storage are not covered by this definition. (18) Information society services span a wide range of economic activities which take place on-line; these activities can, in particular, consist of selling goods on-line; activities such as the delivery of goods as such or the provision of services off-line are not covered; information society services are not solely restricted to services giving rise to on-line contracting but also, in so far as they represent an economic activity, extend to services which are not remunerated by those who receive them, such as those offering on-line information or commercial communications, or those providing tools allowing for search, access and retrieval of data; information society services also include services consisting of the transmission of information via a communication network, in providing access to a communication network or in hosting information provided by a recipient of the service; television broadcasting within the meaning of Directive EEC/89/552 and radio broadcasting are not information society services because they are not provided at individual request; by contrast, services which are transmitted point to point, such as video-on-demand or the provision of commercial communications by electronic mail are information society services; the use of electronic mail or equivalent individual communications for instance by natural persons acting outside their trade, business or profession including their use for the conclusion of contracts between such persons is not an information society service; the contractual relationship between an employee and his employer is not an information society service; activities which by their very nature cannot be carried out at a distance and by electronic means, such as the statutory auditing of company accounts or medical advice requiring the physical examination of a patient are not information society services. (19) The place at which a service provider is established should be determined in conformity with the case-law of the Court of Justice according to which the concept of establishment involves the actual pursuit of an economic activity through a fixed establishment for an indefinite period; this requirement is also fulfilled where a company is constituted for a given period; the place of establishment of a company providing services via an Internet website is not the place at which the technology supporting its website is located or the place at which its website is accessible but the place where it pursues its economic activity; in cases where a provider has several places of establishment it is important to determine from which place of establishment the service concerned is provided; in cases where it is difficult to determine from which of several places of establishment a given service is provided, this is the place where the provider has the centre of his activities relating to this particular service.

324  Part 1: European Union Legislation (20) The definition of ‘recipient of a service’ covers all types of usage of information society services, both by persons who provide information on open networks such as the Internet and by persons who seek information on the Internet for private or professional reasons. (21) The scope of the coordinated field is without prejudice to future Community harmonisation relating to information society services and to future legislation adopted at national level in accordance with Community law; the coordinated field covers only requirements relating to on-line activities such as on-line information, on-line advertising, on-line shopping, on-line contracting and does not concern Member States’ legal ­requirements relating to goods such as safety standards, labelling obligations, or liability for goods, or Member States’ requirements relating to the delivery or the transport of goods, including the distribution of medicinal products; the coordinated field does not cover the exercise of rights of pre-emption by public authorities concerning certain goods such as works of art. (22) Information society services should be supervised at the source of the ­activity, in order to ensure an effective protection of public interest objectives; to that end, it is necessary to ensure that the competent authority provides such protection not only for the citizens of its own country but for all Community citizens; in order to improve mutual trust between Member States, it is essential to state clearly this responsibility on the part of the Member State where the services originate; moreover, in order to effectively guarantee freedom to provide services and legal certainty for suppliers and recipients of services, such information society services should in principle be subject to the law of the Member State in which the service provider is established. (23) This Directive neither aims to establish additional rules on private international law relating to conflicts of law nor does it deal with the jurisdiction of Courts; provisions of the applicable law designated by rules of private international law must not restrict the freedom to provide information ­society services as established in this Directive. (24) In the context of this Directive, notwithstanding the rule on the control at source of information society services, it is legitimate under the conditions established in this Directive for Member States to take measures to restrict the free movement of information society services. (25) National courts, including civil courts, dealing with private law disputes can take measures to derogate from the freedom to provide information society services in conformity with conditions established in this Directive. (26) Member States, in conformity with conditions established in this Directive, may apply their national rules on criminal law and criminal proceedings with a view to taking all investigative and other measures necessary for the detection and prosecution of criminal offences, without there being a need to notify such measures to the Commission. (27) This Directive, together with the future Directive of the European Parliament and of the Council concerning the distance marketing of consumer financial services, contributes to the creating of a legal framework for the

2000/31/EC 325

(28)

(29)

(30)

(31)

(32)

on-line provision of financial services; this Directive does not pre-empt future initiatives in the area of financial services in particular with regard to the harmonisation of rules of conduct in this field; the possibility for Member States, established in this Directive, under certain circumstances of restricting the freedom to provide information society services in order to protect consumers also covers measures in the area of financial services in particular measures aiming at protecting investors. The Member States’ obligation not to subject access to the activity of an information society service provider to prior authorisation does not concern postal services covered by Directive 97/67/EC of the European ­Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service(23) consisting of the physical delivery of a printed electronic mail message and does not affect voluntary accreditation s­ ystems, in particular for providers of electronic signature certification service. Commercial communications are essential for the financing of information society services and for developing a wide variety of new, charge-free services; in the interests of consumer protection and fair trading, commercial communications, including discounts, promotional offers and promotional competitions or games, must meet a number of transparency requirements; these requirements are without prejudice to Directive 97/7/EC; this ­Directive should not affect existing Directives on commercial communications, in particular Directive 98/43/EC. The sending of unsolicited commercial communications by electronic mail may be undesirable for consumers and information society service providers and may disrupt the smooth functioning of interactive networks; the question of consent by recipient of certain forms of unsolicited commercial communications is not addressed by this Directive, but has already been addressed, in particular, by Directive 97/7/EC and by Directive 97/66/EC; in Member States which authorise unsolicited commercial communications by electronic mail, the setting up of appropriate industry filtering initiatives should be encouraged and facilitated; in addition it is necessary that in any event unsolicited commercial communities are clearly identifiable as such in order to improve transparency and to facilitate the functioning of such industry initiatives; unsolicited commercial communications by electronic mail should not result in additional communication costs for the recipient. Member States which allow the sending of unsolicited commercial communications by electronic mail without prior consent of the recipient by service providers established in their territory have to ensure that the service providers consult regularly and respect the opt-out registers in which ­natural persons not wishing to receive such commercial communications can register themselves. In order to remove barriers to the development of cross-border services within the Community which members of the regulated professions might offer on the Internet, it is necessary that compliance be guaranteed at Community level with professional rules aiming, in particular, to protect

326  Part 1: European Union Legislation

(33) (34)

(35)

(36)

(37)

(38) (39)

(40)

c­ onsumers or public health; codes of conduct at Community level would be the best means of determining the rules on professional ethics applicable to commercial communication; the drawing-up or, where appropriate, the adaptation of such rules should be encouraged without prejudice to the autonomy of professional bodies and associations. This Directive complements Community law and national law relating to regulated professions maintaining a coherent set of applicable rules in this field. Each Member State is to amend its legislation containing requirements, and in particular requirements as to form, which are likely to curb the use of contracts by electronic means; the examination of the legislation requiring such adjustment should be systematic and should cover all the necessary stages and acts of the contractual process, including the filing of the contract; the result of this amendment should be to make contracts concluded electronically workable; the legal effect of electronic signatures is dealt with by Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures;(24) the acknowledgement of receipt by a service provider may take the form of the on-line provision of the service paid for. This Directive does not affect Member States’ possibility of maintaining or establishing general or specific legal requirements for contracts which can be fulfilled by electronic means, in particular requirements concerning secure electronic signatures. Member States may maintain restrictions for the use of electronic contracts with regard to contracts requiring by law the involvement of courts, public authorities, or professions exercising public authority; this possibility also covers contracts which require the involvement of courts, public authorities, or professions exercising public authority in order to have an effect with regard to third parties as well as contracts requiring by law certification or attestation by a notary. Member States’ obligation to remove obstacles to the use of electronic contracts concerns only obstacles resulting from legal requirements and not practical obstacles resulting from the impossibility of using electronic means in certain cases. Member States’ obligation to remove obstacles to the use of electronic contracts is to be implemented in conformity with legal requirements for contracts enshrined in Community law. The exceptions to the provisions concerning the contracts concluded exclusively by electronic mail or by equivalent individual communications provided for by this Directive, in relation to information to be provided and the placing of orders, should not enable, as a result, the by-passing of those provisions by providers of information society services. Both existing and emerging disparities in Member States’ legislation and case-law concerning liability of service providers acting as intermediaries prevent the smooth functioning of the internal market, in particular by impairing the development of cross-border services and producing

2000/31/EC 327

(41) (42)

(43)

(44)

(45)

(46)

­ istortions of competition; service providers have a duty to act, under ­certain d circumstances, with a view to preventing or stopping illegal a­ ctivities; this Directive should constitute the appropriate basis for the development of rapid and reliable procedures for removing and disabling access to illegal information; such mechanisms could be developed on the basis of voluntary agreements between all parties concerned and should be encouraged by Member States; it is in the interest of all parties involved in the provision of information society services to adopt and implement such procedures; the provisions of this Directive relating to liability should not preclude the development and effective operation, by the different interested parties, of technical systems of protection and identification and of technical surveillance instruments made possible by digital technology within the limits laid down by Directives 95/46/EC and 97/66/EC. This Directive strikes a balance between the different interests at stake and establishes principles upon which industry agreements and standards can be based. The exemptions from liability established in this Directive cover only cases where the activity of the information society service provider is limited to the technical process of operating and giving access to a communication network over which information made available by third parties is transmitted or temporarily stored, for the sole purpose of making the transmission more efficient; this activity is of a mere technical, automatic and passive nature, which implies that the information society service provider has neither knowledge of nor control over the information which is transmitted or stored. A service provider can benefit from the exemptions for ‘mere conduit’ and for ‘caching’ when he is in no way involved with the information transmitted; this requires among other things that he does not modify the information that he transmits; this requirement does not cover manipulations of a technical nature which take place in the course of the transmission as they do not alter the integrity of the information contained in the transmission. A service provider who deliberately collaborates with one of the recipients of his service in order to undertake illegal acts goes beyond the activities of ‘mere conduit’ or ‘caching’ and as a result cannot benefit from the liability exemptions established for these activities. The limitations of the liability of intermediary service providers established in this Directive do not affect the possibility of injunctions of different kinds; such injunctions can in particular consist of orders by courts or administrative authorities requiring the termination or prevention of any infringement, including the removal of illegal information or the disabling of access to it. In order to benefit from a limitation of liability, the provider of an information society service, consisting of the storage of information, upon obtaining actual knowledge or awareness of illegal activities has to act expeditiously to remove or to disable access to the information concerned; the removal or disabling of access has to be undertaken in the observance of the principle

328  Part 1: European Union Legislation

(47)

(48)

(49)

(50)

(51)

(52)

(53)

(54)

of freedom of expression and of procedures established for this purpose at national level; this Directive does not affect Member States’ possibility of establishing specific requirements which must be fulfilled expeditiously prior to the removal or disabling of information. Member States are prevented from imposing a monitoring obligation on service providers only with respect to obligations of a general nature; this does not concern monitoring obligations in a specific case and, in particular, does not affect orders by national authorities in accordance with national legislation. This Directive does not affect the possibility for Member States of ­requiring service providers, who host information provided by recipients of their ­service, to apply duties of care, which can reasonably be expected from them and which are specified by national law, in order to detect and prevent certain types of illegal activities. Member States and the Commission are to encourage the drawing-up of codes of conduct; this is not to impair the voluntary nature of such codes and the possibility for interested parties of deciding freely whether to adhere to such codes. It is important that the proposed directive on the harmonisation of certain aspects of copyright and related rights in the information society and this Directive come into force within a similar time scale with a view to establishing a clear framework of rules relevant to the issue of liability of intermediaries for copyright and relating rights infringements at Community level. Each Member State should be required, where necessary, to amend any legislation which is liable to hamper the use of schemes for the out-of-court settlement of disputes through electronic channels; the result of this amendment must be to make the functioning of such schemes genuinely and effectively possible in law and in practice, even across borders. The effective exercise of the freedoms of the internal market makes it necessary to guarantee victims effective access to means of settling disputes; damage which may arise in connection with information society services is characterised both by its rapidity and by its geographical extent; in view of this specific character and the need to ensure that national authorities do not endanger the mutual confidence which they should have in one another, this Directive requests Member States to ensure that appropriate court actions are available; Member States should examine the need to provide access to judicial procedures by appropriate electronic means. Directive 98/27/EC, which is applicable to information society services, provides a mechanism relating to actions for an injunction aimed at the protection of the collective interests of consumers; this mechanism will contribute to the free movement of information society services by ensuring a high level of consumer protection. The sanctions provided for under this Directive are without prejudice to any other sanction or remedy provided under national law; Member States

2000/31/EC 329

(55)

(56)

(57)

(58)

(59)

(60)

(61) (62) (63)

are not obliged to provide criminal sanctions for infringement of national provisions adopted pursuant to this Directive. This Directive does not affect the law applicable to contractual obligations relating to consumer contracts; accordingly, this Directive cannot have the result of depriving the consumer of the protection afforded to him by the mandatory rules relating to contractual obligations of the law of the ­Member State in which he has his habitual residence. As regards the derogation contained in this Directive regarding contractual obligations concerning contracts concluded by consumers, those obligations should be interpreted as including information on the essential elements of the content of the contract, including consumer rights, which have a determining influence on the decision to contract. The Court of Justice has consistently held that a Member State retains the right to take measures against a service provider that is established in another Member State but directs all or most of his activity to the territory of the first Member State if the choice of establishment was made with a view to evading the legislation that would have applied to the provider had he been established on the territory of the first Member State. This Directive should not apply to services supplied by service providers established in a third country; in view of the global dimension of electronic commerce, it is, however, appropriate to ensure that the Community rules are consistent with international rules; this Directive is without prejudice to the results of discussions within international organisations (amongst ­others WTO, OECD, Uncitral) on legal issues. Despite the global nature of electronic communications, coordination of national regulatory measures at European Union level is necessary in order to avoid fragmentation of the internal market, and for the establishment of an appropriate European regulatory framework; such coordination should also contribute to the establishment of a common and strong negotiating position in international forums. In order to allow the unhampered development of electronic commerce, the legal framework must be clear and simple, predictable and consistent with the rules applicable at international level so that it does not adversely affect the competitiveness of European industry or impede innovation in that sector. If the market is actually to operate by electronic means in the context of globalisation, the European Union and the major non-European areas need to consult each other with a view to making laws and procedures compatible. Cooperation with third countries should be strengthened in the area of electronic commerce, in particular with applicant countries, the developing countries and the European Union’s other trading partners. The adoption of this Directive will not prevent the Member States from ­taking into account the various social, societal and cultural implications which are inherent in the advent of the information society; in particular it should not hinder measures which Member States might adopt in conformity with Community law to achieve social, cultural and democratic

330  Part 1: European Union Legislation goals taking into account their linguistic diversity, national and regional specificities as well as their cultural heritage, and to ensure and maintain public access to the widest possible range of information society services; in any case, the development of the information society is to ensure that ­Community citizens can have access to the cultural European heritage provided in the digital environment. (64) Electronic communication offers the Member States an excellent means of providing public services in the cultural, educational and linguistic fields. (65) The Council, in its resolution of 19 January 1999 on the consumer dimension of the information society,(25) stressed that the protection of consumers deserved special attention in this field; the Commission will examine the degree to which existing consumer protection rules provide insufficient protection in the context of the information society and will identify, where necessary, the deficiencies of this legislation and those issues which could require additional measures; if need be, the Commission should make specific additional proposals to resolve such deficiencies that will thereby have been identified, HAVE ADOPTED THIS DIRECTIVE: CHAPTER I General Provisions Article 1 Objective and scope (1) This Directive seeks to contribute to the proper functioning of the ­internal market by ensuring the free movement of information society services between the Member States. (2) This Directive approximates, to the extent necessary for the achievement of the objective set out in paragraph 1, certain national provisions on information society services relating to the internal market, the establishment of service providers, commercial communications, electronic contracts, the liability of intermediaries, codes of conduct, out-of-court dispute settlements, court actions and cooperation between Member States. (3) This Directive complements Community law applicable to information ­society services without prejudice to the level of protection for, in particular, public health and consumer interests, as established by Community acts and national legislation implementing them in so far as this does not restrict the freedom to provide information society services. (4) This Directive does not establish additional rules on private international law nor does it deal with the jurisdiction of Courts. (5) This Directive shall not apply to: a) the field of taxation;

2000/31/EC 331 b) questions relating to information society services covered by Directives 95/46/EC and 97/66/EC; c) questions relating to agreements or practices governed by cartel law; d) the following activities of information society services: —— the activities of notaries or equivalent professions to the extent that they involve a direct and specific connection with the exercise of public authority, —— the representation of a client and defence of his interests before the courts, —— gambling activities which involve wagering a stake with monetary value in games of chance, including lotteries and betting transactions. (6) This Directive does not affect measures taken at Community or national level, in the respect of Community law, in order to promote cultural and linguistic diversity and to ensure the defence of pluralism. Article 2 Definitions For the purpose of this Directive, the following terms shall bear the following meanings: a) ‘information society services’: services within the meaning of Article 1(2) of Directive 98/34/EC as amended by Directive 98/48/EC; b) ‘service provider’: any natural or legal person providing an information society service; c) ‘established service provider’: a service provider who effectively pursues an economic activity using a fixed establishment for an indefinite period. The presence and use of the technical means and technologies required to provide the service do not, in themselves, constitute an establishment of the provider; d) ‘recipient of the service’: any natural or legal person who, for professional ends or otherwise, uses an information society service, in particular for the purposes of seeking information or making it accessible; e) ‘consumer’: any natural person who is acting for purposes which are outside his or her trade, business or profession; f) ‘commercial communication’: any form of communication designed to promote, directly or indirectly, the goods, services or image of a company, organisation or person pursuing a commercial, industrial or craft activity or exercising a regulated profession. The following do not in themselves constitute commercial communications: —— information allowing direct access to the activity of the company, organisation or person, in particular a domain name or an electronic-mail address, —— communications relating to the goods, services or image of the company, organisation or person compiled in an independent manner, particularly when this is without financial consideration;

332  Part 1: European Union Legislation g) ‘regulated profession’: any profession within the meaning of either Article 1(d) of Council Directive 89/48/EEC of 21 December 1988 on a general system for the recognition of higher-education diplomas awarded on completion of professional education and training of at least three-years’ duration(26) or of Article 1(f) of Council Directive 92/51/EEC of 18 June 1992 on a second general system for the recognition of professional education and training to supplement Directive 89/48/EEC;(27) h) ‘coordinated field’: requirements laid down in Member States’ legal systems applicable to information society service providers or information society services, regardless of whether they are of a general nature or specifically designed for them. i) The coordinated field concerns requirements with which the service provider has to comply in respect of: —— the taking up of the activity of an information society service, such as requirements concerning qualifications, authorisation or notification, —— the pursuit of the activity of an information society service, such as requirements concerning the behaviour of the service provider, requirements regarding the quality or content of the service ­including those applicable to advertising and contracts, or requirements concerning the liability of the service provider; ii) The coordinated field does not cover requirements such as: —— requirements applicable to goods as such,—— requirements applicable to the delivery of goods, —— requirements applicable to services not provided by electronic means. Article 3 Internal market (1) Each Member State shall ensure that the information society services provided by a service provider established on its territory comply with the national provisions applicable in the Member State in question which fall within the coordinated field. (2) Member States may not, for reasons falling within the coordinated field, restrict the freedom to provide information society services from another Member State. (3) Paragraphs 1 and 2 shall not apply to the fields referred to in the Annex. (4) Member States may take measures to derogate from paragraph 2 in respect of a given information society service if the following conditions are fulfilled: a) the measures shall be: i) necessary for one of the following reasons: —— public policy, in particular the prevention, investigation, detection and prosecution of criminal offences, including the protection of minors and the fight against any incitement to

2000/31/EC 333 hatred on grounds of race, sex, religion or nationality, and violations of human dignity concerning individual persons, —— the protection of public health, —— public security, including the safeguarding of national security and defence, —— the protection of consumers, including investors; ii) taken against a given information society service which prejudices the objectives referred to in point (i) or which presents a serious and grave risk of prejudice to those objectives; iii) proportionate to those objectives; b) before taking the measures in question and without prejudice to court proceedings, including preliminary proceedings and acts carried out in the framework of a criminal investigation, the Member State has: —— asked the Member State referred to in paragraph 1 to take measures and the latter did not take such measures, or they were inadequate, —— notified the Commission and the Member State referred to in ­paragraph 1 of its intention to take such measures. (5) Member States may, in the case of urgency, derogate from the conditions stipulated in paragraph 4(b). Where this is the case, the measures shall be notified in the shortest possible time to the Commission and to the ­Member State referred to in paragraph 1, indicating the reasons for which the ­Member State considers that there is urgency. (6) Without prejudice to the Member State’s possibility of proceeding with the measures in question, the Commission shall examine the compatibility of the notified measures with Community law in the shortest possible time; where it comes to the conclusion that the measure is incompatible with Community law, the Commission shall ask the Member State in question to refrain from taking any proposed measures or urgently to put an end to the measures in question. CHAPTER II Principles Section 1: Establishment and information requirements Article 4 Principle excluding prior authorisation (1) Member States shall ensure that the taking up and pursuit of the activity of an information society service provider may not be made subject to prior authorisation or any other requirement having equivalent effect. (2) Paragraph 1 shall be without prejudice to authorisation schemes which are not specifically and exclusively targeted at information society services, or which are covered by Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a common framework for general authorisations and individual licences in the field of telecommunications services.(28)

334  Part 1: European Union Legislation Article 5 General information to be provided (1) In addition to other information requirements established by Community law, Member States shall ensure that the service provider shall render easily, directly and permanently accessible to the recipients of the service and competent authorities, at least the following information: a) the name of the service provider; b) the geographic address at which the service provider is established; c) the details of the service provider, including his electronic mail address, which allow him to be contacted rapidly and communicated with in a direct and effective manner; d) where the service provider is registered in a trade or similar public register, the trade register in which the service provider is entered and his registration number, or equivalent means of identification in that register; e) where the activity is subject to an authorisation scheme, the particulars of the relevant supervisory authority; f) as concerns the regulated professions: —— any professional body or similar institution with which the service provider is registered, —— the professional title and the Member State where it has been granted, —— a reference to the applicable professional rules in the Member State of establishment and the means to access them; g) where the service provider undertakes an activity that is subject to VAT, the identification number referred to in Article 22(1) of the sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes—Common system of value added tax: uniform basis of assessment.(29) (2) In addition to other information requirements established by Community law, Member States shall at least ensure that, where information society services refer to prices, these are to be indicated clearly and unambiguously and, in particular, must indicate whether they are inclusive of tax and delivery costs. Section 2: Commercial communications Article 6 Information to be provided In addition to other information requirements established by Community law, M ­ ember States shall ensure that commercial communications which are part of, or constitute, an information society service comply at least with the following conditions: a) the commercial communication shall be clearly identifiable as such; b) the natural or legal person on whose behalf the commercial communication is made shall be clearly identifiable; c) promotional offers, such as discounts, premiums and gifts, where permitted in the Member State where the service provider is established, shall be clearly

2000/31/EC 335 identifiable as such, and the conditions which are to be met to qualify for them shall be easily accessible and be presented clearly and unambiguously; d) promotional competitions or games, where permitted in the Member State where the service provider is established, shall be clearly identifiable as such, and the conditions for participation shall be easily accessible and be presented clearly and unambiguously. Article 7 Unsolicited commercial communication (1) In addition to other requirements established by Community law, Member States which permit unsolicited commercial communication by electronic mail shall ensure that such commercial communication by a service provider established in their territory shall be identifiable clearly and unambiguously as such as soon as it is received by the recipient. (2) Without prejudice to Directive 97/7/EC and Directive 97/66/EC, Member States shall take measures to ensure that service providers undertaking unsolicited commercial communications by electronic mail consult regularly and respect the opt-out registers in which natural persons not wishing to receive such commercial communications can register themselves. Article 8 Regulated professions (1) Member States shall ensure that the use of commercial communications which are part of, or constitute, an information society service provided by a member of a regulated profession is permitted subject to compliance with the professional rules regarding, in particular, the independence, dignity and honour of the profession, professional secrecy and fairness towards clients and other members of the profession. (2) Without prejudice to the autonomy of professional bodies and associations, Member States and the Commission shall encourage professional associations and bodies to establish codes of conduct at Community level in order to determine the types of information that can be given for the purposes of commercial communication in conformity with the rules referred to in paragraph 1. (3) When drawing up proposals for Community initiatives which may become necessary to ensure the proper functioning of the Internal Market with regard to the information referred to in paragraph 2, the Commission shall take due account of codes of conduct applicable at Community level and shall act in close cooperation with the relevant professional associations and bodies. (4) This Directive shall apply in addition to Community Directives concerning access to, and the exercise of, activities of the regulated professions.

336  Part 1: European Union Legislation Section 3: Contracts concluded by electronic means Article 9 Treatment of contracts (1) Member States shall ensure that their legal system allows contracts to be concluded by electronic means. Member States shall in particular ensure that the legal requirements applicable to the contractual process neither create obstacles for the use of electronic contracts nor result in such contracts being deprived of legal effectiveness and validity on account of their having been made by electronic means. (2) Member States may lay down that paragraph 1 shall not apply to all or ­certain contracts falling into one of the following categories: a) contracts that create or transfer rights in real estate, except for rental rights; b) contracts requiring by law the involvement of courts, public authorities or professions exercising public authority; c) contracts of suretyship granted and on collateral securities furnished by persons acting for purposes outside their trade, business or profession; d) contracts governed by family law or by the law of succession. (3) Member States shall indicate to the Commission the categories referred to in paragraph 2 to which they do not apply paragraph 1. Member States shall submit to the Commission every five years a report on the application of paragraph 2 explaining the reasons why they consider it necessary to maintain the category referred to in paragraph 2(b) to which they do not apply paragraph 1. Article 10 Information to be provided (1) In addition to other information requirements established by Community law, Member States shall ensure, except when otherwise agreed by parties who are not consumers, that at least the following information is given by the service provider clearly, comprehensibly and unambiguously and prior to the order being placed by the recipient of the service: a) the different technical steps to follow to conclude the contract; b) whether or not the concluded contract will be filed by the service ­provider and whether it will be accessible; c) the technical means for identifying and correcting input errors prior to the placing of the order; d) the languages offered for the conclusion of the contract. (2) Member States shall ensure that, except when otherwise agreed by parties who are not consumers, the service provider indicates any relevant codes of conduct to which he subscribes and information on how those codes can be consulted electronically. (3) Contract terms and general conditions provided to the recipient must be made available in a way that allows him to store and reproduce them. (4) Paragraphs 1 and 2 shall not apply to contracts concluded exclusively by exchange of electronic mail or by equivalent individual communications.

2000/31/EC 337 Article 11 Placing of the order (1) Member States shall ensure, except when otherwise agreed by parties who are not consumers, that in cases where the recipient of the service places his order through technological means, the following principles apply: —— the service provider has to acknowledge the receipt of the recipient’s order without undue delay and by electronic means, —— the order and the acknowledgement of receipt are deemed to be received when the parties to whom they are addressed are able to access them. (2) Member States shall ensure that, except when otherwise agreed by parties who are not consumers, the service provider makes available to the recipient of the service appropriate, effective and accessible technical means allowing him to identify and correct input errors, prior to the placing of the order. (3) Paragraph 1, first indent, and paragraph 2 shall not apply to contracts concluded exclusively by exchange of electronic mail or by equivalent individual communications. Section 4: Liability of intermediary service providers Article 12 ‘Mere conduit’ (1) Where an information society service is provided that consists of the transmission in a communication network of information provided by a recipient of the service, or the provision of access to a communication network, ­Member States shall ensure that the service provider is not liable for the information transmitted, on condition that the provider: a) does not initiate the transmission; b) does not select the receiver of the transmission; and c) does not select or modify the information contained in the transmission. (2) The acts of transmission and of provision of access referred to in paragraph 1 include the automatic, intermediate and transient storage of the information transmitted in so far as this takes place for the sole purpose of carrying out the transmission in the communication network, and provided that the information is not stored for any period longer than is reasonably necessary for the transmission. (3) This Article shall not affect the possibility for a court or administrative authority, in accordance with Member States’ legal systems, of requiring the service provider to terminate or prevent an infringement. Article 13 ‘Caching’ (1) Where an information society service is provided that consists of the transmission in a communication network of information provided by a recipient

338  Part 1: European Union Legislation of the service, Member States shall ensure that the service provider is not liable for the automatic, intermediate and temporary storage of that information, performed for the sole purpose of making more efficient the information’s onward transmission to other recipients of the service upon their request, on condition that: a) the provider does not modify the information; b) the provider complies with conditions on access to the information; c) the provider complies with rules regarding the updating of the information, specified in a manner widely recognised and used by industry; d) the provider does not interfere with the lawful use of technology, widely recognised and used by industry, to obtain data on the use of the information; and e) the provider acts expeditiously to remove or to disable access to the information it has stored upon obtaining actual knowledge of the fact that the information at the initial source of the transmission has been removed from the network, or access to it has been disabled, or that a court or an administrative authority has ordered such removal or disablement. (2) This Article shall not affect the possibility for a court or administrative authority, in accordance with Member States’ legal systems, of requiring the service provider to terminate or prevent an infringement. Article 14 Hosting (1) Where an information society service is provided that consists of the storage of information provided by a recipient of the service, Member States shall ensure that the service provider is not liable for the information stored at the request of a recipient of the service, on condition that: a) the provider does not have actual knowledge of illegal activity or information and, as regards claims for damages, is not aware of facts or circumstances from which the illegal activity or information is apparent; or b) the provider, upon obtaining such knowledge or awareness, acts expeditiously to remove or to disable access to the information. (2) Paragraph 1 shall not apply when the recipient of the service is acting under the authority or the control of the provider. (3) This Article shall not affect the possibility for a court or administrative authority, in accordance with Member States’ legal systems, of requiring the service provider to terminate or prevent an infringement, nor does it affect the possibility for Member States of establishing procedures governing the removal or disabling of access to information. Article 15 No general obligation to monitor (1) Member States shall not impose a general obligation on providers, when providing the services covered by Articles 12, 13 and 14, to monitor the

2000/31/EC 339 information which they transmit or store, nor a general obligation actively to seek facts or circumstances indicating illegal activity. (2) Member States may establish obligations for information society service providers promptly to inform the competent public authorities of alleged illegal activities undertaken or information provided by recipients of their service or obligations to communicate to the competent authorities, at their request, information enabling the identification of recipients of their service with whom they have storage agreements. CHAPTER III Implementation Article 16 Codes of conduct (1) Member States and the Commission shall encourage: a) the drawing up of codes of conduct at Community level, by trade, ­professional and consumer associations or organisations, designed to contribute to the proper implementation of Articles 5 to 15; b) the voluntary transmission of draft codes of conduct at national or ­Community level to the Commission; c) the accessibility of these codes of conduct in the Community languages by electronic means; d) the communication to the Member States and the Commission, by trade, professional and consumer associations or organisations, of their assessment of the application of their codes of conduct and their impact upon practices, habits or customs relating to electronic commerce; e) the drawing up of codes of conduct regarding the protection of minors and human dignity. (2) Member States and the Commission shall encourage the involvement of associations or organisations representing consumers in the drafting and implementation of codes of conduct affecting their interests and drawn up in accordance with paragraph 1(a). Where appropriate, to take account of their specific needs, associations representing the visually impaired and disabled should be consulted. Article 17 Out-of-court dispute settlement (1) Member States shall ensure that, in the event of disagreement between an information society service provider and the recipient of the service, their legislation does not hamper the use of out-of-court schemes, available under national law, for dispute settlement, including appropriate electronic means. (2) Member States shall encourage bodies responsible for the out-of-court ­settlement of, in particular, consumer disputes to operate in a way which provides adequate procedural guarantees for the parties concerned.

340  Part 1: European Union Legislation (3) Member States shall encourage bodies responsible for out-of-court dispute settlement to inform the Commission of the significant decisions they take regarding information society services and to transmit any other information on the practices, usages or customs relating to electronic commerce. Article 18 Court actions (1) Member States shall ensure that court actions available under national law concerning information society services’ activities allow for the rapid adoption of measures, including interim measures, designed to terminate any alleged infringement and to prevent any further impairment of the interests involved. (2) The Annex to Directive 98/27/EC shall be supplemented as follows: ‘11. Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects on information society services, in particular electronic commerce, in the internal market (Directive on electronic commerce) (OJ L 178, 17.7.2000, p. 1).’ Article 19 Cooperation (1) Member States shall have adequate means of supervision and investigation necessary to implement this Directive effectively and shall ensure that service providers supply them with the requisite information. (2) Member States shall cooperate with other Member States; they shall, to that end, appoint one or several contact points, whose details they shall communicate to the other Member States and to the Commission. (3) Member States shall, as quickly as possible, and in conformity with national law, provide the assistance and information requested by other Member States or by the Commission, including by appropriate electronic means. (4) Member States shall establish contact points which shall be accessible at least by electronic means and from which recipients and service providers may: a) obtain general information on contractual rights and obligations as well as on the complaint and redress mechanisms available in the event of disputes, including practical aspects involved in the use of such mechanisms; b) obtain the details of authorities, associations or organisations from which they may obtain further information or practical assistance. (5) Member States shall encourage the communication to the Commission of any significant administrative or judicial decisions taken in their territory regarding disputes relating to information society services and practices, usages and customs relating to electronic commerce. The Commission shall communicate these decisions to the other Member States.

2000/31/EC 341 Article 20 Sanctions Member States shall determine the sanctions applicable to infringements of national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are enforced. The sanctions they provide for shall be effective, proportionate and dissuasive. CHAPTER IV Final Provisions Article 21 Re-examination (1) Before 17 July 2003, and thereafter every two years, the Commission shall submit to the European Parliament, the Council and the Economic and Social Committee a report on the application of this Directive, accompanied, where necessary, by proposals for adapting it to legal, technical and economic developments in the field of information society services, in particular with respect to crime prevention, the protection of minors, consumer protection and to the proper functioning of the internal market. (2) In examining the need for an adaptation of this Directive, the report shall in particular analyse the need for proposals concerning the liability of providers of hyperlinks and location tool services, ‘notice and take down’ procedures and the attribution of liability following the taking down of content. The report shall also analyse the need for additional conditions for the exemption from liability, provided for in Articles 12 and 13, in the light of technical developments, and the possibility of applying the internal market principles to unsolicited commercial communications by electronic mail. Article 22 Transposition (1) Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive before 17 January 2002. They shall forthwith inform the Commission thereof. (2) When Member States adopt the measures referred to in paragraph 1, these shall contain a reference to this Directive or shall be accompanied by such reference at the time of their official publication. The methods of making such reference shall be laid down by Member States. Article 23 Entry into force This Directive shall enter into force on the day of its publication in the Official ­Journal of the European Communities.

342  Part 1: European Union Legislation Article 24 Addressees This Directive is addressed to the Member States. ANNEX Derogations from Article 3 As provided for in Article 3(3), Article 3(1) and (2) do not apply to: —— copyright, neighbouring rights, rights referred to in Directive 87/54/EEC(30) and Directive 96/9/EC(31) as well as industrial property rights, —— the emission of electronic money by institutions in respect of which M ­ ember States have applied one of the derogations provided for in Article 8(1) of ­Directive 2000/46/EC,(32) —— Article 44(2) of Directive 85/611/EEC,(33) —— Article 30 and Title IV of Directive 92/49/EEC,(34) Title IV of Directive 92/96/EEC,(35) Articles 7 and 8 of Directive 88/357/EEC(36) and Article 4 of Directive 90/619/EEC,(37) —— the freedom of the parties to choose the law applicable to their contract, —— contractual obligations concerning consumer contacts, —— formal validity of contracts creating or transferring rights in real estate where such contracts are subject to mandatory formal requirements of the law of the Member State where the real estate is situated, —— the permissibility of unsolicited commercial communications by electronic mail. (1)

OJ C 30, 5.2.1999, p. 4. OJ C 169, 16.6.1999, p. 36. (3)  Opinion of the European Parliament of 6 May 1999 (OJ C 279, 1.10.1999, p. 389), Council ­common position of 28 February 2000 (OJ C 128, 8.5.2000, p. 32) and Decision of the European Parliament of 4 May 2000 (not yet ­published in the Official Journal). (4) OJ L 298, 17.10.1989, p. 23. Directive as amended by Directive 97/36/EC of the European Parliament and of the Council (OJ L 202, 30.7.1997, p. 60). (5) OJ L 95, 21.4.1993, p. 29. (6) OJ L 144, 4.6.1999, p. 19. (7) OJ L 250, 19.9.1984, p. 17. Directive as amended by Directive 97/55/EC of the European Parliament and of the Council (OJ L 290, 23.10.1997, p. 18). (8) OJ L 42, 12.2.1987, p. 48. Directive as last amended by Directive 98/7/EC of the European Parliament and of the Council (OJ L 101, 1.4.1998, p. 17). (9) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive 97/9/EC of the European Parliament and of the Council (OJ L 84, 26.3.1997, p. 22). (10) OJ L 158, 23.6.1990, p. 59. (11) OJ L 80, 18.3.1998, p. 27. (2)

2000/31/EC 343 (12)

OJ L 228, 11.8.1992, p. 24. OJ L 280, 29.10.1994, p. 83. (14)  OJ L 166, 11.6.1998, p. 51. Directive as amended by Directive 1999/44/EC (OJ L 171, 7.7.1999, p. 12). (15)  OJ L 210, 7.8.1985, p. 29. Directive as amended by Directive 1999/34/EC (OJ L 141, 4.6.1999, p. 20). (16) OJ L 171, 7.7.1999, p. 12. (17) OJ L 113, 30.4.1992, p. 13. (18) OJ L 213, 30.7.1998, p. 9. (19) OJ L 281, 23.11.1995, p. 31. (20) OJ L 24, 30.1.1998, p. 1. (21)  OJ L 204, 21.7.1998, p. 37. Directive as amended by Directive 98/48/EC (OJ L 217, 5.8.1998, p. 18). (22) OJ L 320, 28.11.1998, p. 54. (23) OJ L 15, 21.1.1998, p. 14. (24) OJ L 13, 19.1.2000, p. 12. (25) OJ C 23, 28.1.1999, p. 1. (26) OJ L 19, 24.1.1989, p. 16. (27)  OJ L 209, 24.7.1992, p. 25. Directive as last amended by Commission Directive 97/38/EC (OJ L 184, 12.7.1997, p. 31). (28) OJ L 117, 7.5.1997, p. 15. (29) OJ L 145, 13.6.1977, p. 1. Directive as last amended by Directive 1999/85/EC (OJ L 277, 28.10.1999, p. 34). (30) OJ L 24, 27.1.1987, p. 36. (31) OJ L 77, 27.3.1996, p. 20. (32) Not yet published in the Official Journal. (33) OJ L 375, 31.12.1985, p. 3. Directive as last amended by Directive 95/26/EC (OJ L 168, 18.7.1995, p. 7). (34) OJ L 228, 11.8.1992, p. 1. Directive as last amended by Directive 95/26/EC. (35) OJ L 360, 9.12.1992, p. 2. Directive as last amended by Directive 95/26/EC. (36) OJ L 172, 4.7.1988, p. 1. Directive as last amended by Directive 92/49/EC. (37) OJ L 330, 29.11.1990, p. 50. Directive as last amended by Directive 92/96/EC. (13)

Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin* (OJ 2000 L180 p. 22) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community and in particular ­Article 13 thereof, Having regard to the proposal from the Commission (1), Having regard to the opinion of the European Parliament (2), Having regard to the opinion of the Economic and Social Committee (3), Having regard to the opinion of the Committee of the Regions (4),

Whereas: (1) The Treaty on European Union marks a new stage in the process of creating an ever closer union among the peoples of Europe. (2) In accordance with Article 6 of the Treaty on European Union, the European Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to the Member States, and should respect fundamental rights as guaranteed by the European Convention for the protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, as general principles of Community Law. (3) The right to equality before the law and protection against discrimination for all persons constitutes a universal right recognised by the Universal Declaration of Human Rights, the United Nations Convention on the Elimination of all forms of Discrimination Against Women, the International Convention on the Elimination of all forms of Racial Discrimination and the United Nations Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights and by the European Convention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.

*  Implemented in the United Kingdom by Race Relations Order (Amendment) Regulations (Northern Ireland) 2003, S.I. no. 341/2003; the Race Relations Act 1976 (Amendment) Regulations 2003, S.I. No. 1626/2003

Directive 2000/43/EC 345 (4) It is important to respect such fundamental rights and freedoms, including the right to freedom of association. It is also important, in the context of the access to and provision of goods and services, to respect the protection of private and family life and transactions carried out in this context. (5) The European Parliament has adopted a number of Resolutions on the fight against racism in the European Union. (6) The European Union rejects theories which attempt to determine the existence of separate human races. The use of the term “racial origin” in this Directive does not imply an acceptance of such theories. (7) The European Council in Tampere, on 15 and 16 October 1999, invited the Commission to come forward as soon as possible with proposals implementing Article 13 of the EC Treaty as regards the fight against racism and xenophobia. (8) The Employment Guidelines 2000 agreed by the European Council in ­Helsinki, on 10 and 11 December 1999, stress the need to foster conditions for a socially inclusive labour market by formulating a coherent set of policies aimed at combating discrimination against groups such as ethnic minorities. (9) Discrimination based on racial or ethnic origin may undermine the achievement of the objectives of the EC Treaty, in particular the attainment of a high level of employment and of social protection, the raising of the standard of living and quality of life, economic and social cohesion and solidarity. It may also undermine the objective of developing the European Union as an area of freedom, security and justice. (10) The Commission presented a communication on racism, xenophobia and anti-Semitism in December 1995. (11) The Council adopted on 15 July 1996 Joint Action (96/443/JHA) concerning action to combat racism and xenophobia (5) under which the Member States undertake to ensure effective judicial cooperation in respect of offences based on racist or xenophobic behaviour. (12) To ensure the development of democratic and tolerant societies which allow the participation of all persons irrespective of racial or ethnic origin, specific action in the field of discrimination based on racial or ethnic origin should go beyond access to employed and self-employed activities and cover areas such as education, social protection including social security and healthcare, social advantages and access to and supply of goods and services. (13) To this end, any direct or indirect discrimination based on racial or ethnic origin as regards the areas covered by this Directive should be prohibited throughout the Community. This prohibition of discrimination should also apply to nationals of third countries, but does not cover differences of treatment based on nationality and is without prejudice to provisions ­governing the entry and residence of third-country nationals and their access to employment and to occupation. (14) In implementing the principle of equal treatment irrespective of racial or ethnic origin, the Community should, in accordance with Article 3(2) of the EC Treaty, aim to eliminate inequalities, and to promote equality between

346  Part 1: European Union Legislation

(15)

(16)

(17)

(18)

(19)

(20) (21)

(22)

(23) (24)

men and women, especially since women are often the victims of multiple discrimination. The appreciation of the facts from which it may be inferred that there has been direct or indirect discrimination is a matter for national judicial or other competent bodies, in accordance with rules of national law or ­practice. Such rules may provide in particular for indirect discrimination to be established by any means including on the basis of statistical evidence. It is important to protect all natural persons against discrimination on grounds of racial or ethnic origin. Member States should also provide, where appropriate and in accordance with their national traditions and practice, protection for legal persons where they suffer discrimination on grounds of the racial or ethnic origin of their members. The prohibition of discrimination should be without prejudice to the maintenance or adoption of measures intended to prevent or compensate for disadvantages suffered by a group of persons of a particular racial or ethnic origin, and such measures may permit organisations of persons of a particular racial or ethnic origin where their main object is the promotion of the special needs of those persons. In very limited circumstances, a difference of treatment may be justified where a characteristic related to racial or ethnic origin constitutes a genuine and determining occupational requirement, when the objective is legitimate and the requirement is proportionate. Such circumstances should be included in the information provided by the Member States to the Commission. Persons who have been subject to discrimination based on racial and ethnic origin should have adequate means of legal protection. To provide a more effective level of protection, associations or legal entities should also be empowered to engage, as the Member States so determine, either on behalf or in support of any victim, in proceedings, without prejudice to national rules of procedure concerning representation and defence before the courts. The effective implementation of the principle of equality requires adequate judicial protection against victimisation. The rules on the burden of proof must be adapted when there is a prima facie case of discrimination and, for the principle of equal treatment to be applied effectively, the burden of proof must shift back to the respondent when evidence of such discrimination is brought. Member States need not apply the rules on the burden of proof to proceedings in which it is for the court or other competent body to investigate the facts of the case. The procedures thus referred to are those in which the plaintiff is not required to prove the facts, which it is for the court or competent body to investigate. Member States should promote dialogue between the social partners and with non-governmental organisations to address different forms of discrimination and to combat them. Protection against discrimination based on racial or ethnic origin would itself be strengthened by the existence of a body or bodies in each Member State, with competence to analyse the problems involved, to study possible solutions and to provide concrete assistance for the victims.

Directive 2000/43/EC 347 (25) This Directive lays down minimum requirements, thus giving the M ­ ember States the option of introducing or maintaining more favourable provisions. The implementation of this Directive should not serve to justify any regression in relation to the situation which already prevails in each M ­ ember State. (26) Member States should provide for effective, proportionate and dissuasive sanctions in case of breaches of the obligations under this Directive. (27) The Member States may entrust management and labour, at their joint request, with the implementation of this Directive as regards provisions falling within the scope of collective agreements, provided that the ­Member States take all the necessary steps to ensure that they can at all times ­guarantee the results imposed by this Directive. (28) In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the EC Treaty, the objective of this Directive, namely ensuring a common high level of protection against discrimination in all the Member States, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and impact of the proposed action, be better achieved by the Community. This Directive does not go beyond what is necessary in order to achieve those objectives, HAS ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Purpose The purpose of this Directive is to lay down a framework for combating discrimination on the grounds of racial or ethnic origin, with a view to putting into effect in the Member States the principle of equal treatment. Article 2 Concept of discrimination 1. For the purposes of this Directive, the principle of equal treatment shall mean that there shall be no direct or indirect discrimination based on racial or e­ thnic origin. 2. For the purposes of paragraph 1: (a) direct discrimination shall be taken to occur where one person is treated less favourably than another is, has been or would be treated in a comparable situation on grounds of racial or ethnic origin; (b) indirect discrimination shall be taken to occur where an apparently neutral provision, criterion or practice would put persons of a racial or ­ethnic origin at a particular disadvantage compared with other persons, unless that provision, criterion or practice is objectively justified by a

348  Part 1: European Union Legislation legitimate aim and the means of achieving that aim are appropriate and necessary. 3. Harassment shall be deemed to be discrimination within the meaning of ­paragraph 1, when an unwanted conduct related to racial or ethnic origin takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment. In this context, the concept of harassment may be defined in accordance with the national laws and practice of the Member States. 4. An instruction to discriminate against persons on grounds of racial or ethnic origin shall be deemed to be discrimination within the meaning of paragraph 1. Article 3 Scope 1. Within the limits of the powers conferred upon the Community, this Directive shall apply to all persons, as regards both the public and private sectors, including public bodies, in relation to: (a) conditions for access to employment, to self-employment and to occupation, including selection criteria and recruitment conditions, whatever the branch of activity and at all levels of the professional hierarchy, including promotion; (b) access to all types and to all levels of vocational guidance, vocational training, advanced vocational training and retraining, including ­practical work experience; (c) employment and working conditions, including dismissals and pay; (d) membership of and involvement in an organisation of workers or employers, or any organisation whose members carry on a particular profession, including the benefits provided for by such organisations; (e) social protection, including social security and healthcare; (f) social advantages; (g) education; (h) access to and supply of goods and services which are available to the public, including housing. 2. This Directive does not cover difference of treatment based on nationality and is without prejudice to provisions and conditions relating to the entry into and residence of third-country nationals and stateless persons on the territory of Member States, and to any treatment which arises from the legal status of the third-country nationals and stateless persons concerned. Article 4 Genuine and determining occupational requirements Notwithstanding Article 2(1) and (2), Member States may provide that a difference of treatment which is based on a characteristic related to racial or ethnic origin shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such

Directive 2000/43/EC 349 a characteristic constitutes a genuine and determining occupational requirement, provided that the objective is legitimate and the requirement is proportionate. Article 5 Positive action With a view to ensuring full equality in practice, the principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures to prevent or compensate for disadvantages linked to racial or ethnic origin. Article 6 Minimum requirements 1. Member States may introduce or maintain provisions which are more favourable to the protection of the principle of equal treatment than those laid down in this Directive. 2. The implementation of this Directive shall under no circumstances constitute grounds for a reduction in the level of protection against discrimination already afforded by Member States in the fields covered by this Directive. CHAPTER II REMEDIES AND ENFORCEMENT Article 7 Defence of rights 1. Member States shall ensure that judicial and/or administrative procedures, including where they deem it appropriate conciliation procedures, for the enforcement of obligations under this Directive are available to all persons who consider themselves wronged by failure to apply the principle of equal treatment to them, even after the relationship in which the discrimination is alleged to have occurred has ended. 2. Member States shall ensure that associations, organisations or other legal entities, which have, in accordance with the criteria laid down by their national law, a legitimate interest in ensuring that the provisions of this Directive are complied with, may engage, either on behalf or in support of the complainant, with his or her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under this Directive. 3. Paragraphs 1 and 2 are without prejudice to national rules relating to time limits for bringing actions as regards the principle of equality of treatment. Article 8 Burden of proof 1. Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider

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2. 3. 4. 5.

themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. Paragraph 1 shall not prevent Member States from introducing rules of ­evidence which are more favourable to plaintiffs. Paragraph 1 shall not apply to criminal procedures. Paragraphs 1, 2 and 3 shall also apply to any proceedings brought in accordance with Article 7(2). Member States need not apply paragraph 1 to proceedings in which it is for the court or competent body to investigate the facts of the case. Article 9 Victimisation

Member States shall introduce into their national legal systems such measures as are necessary to protect individuals from any adverse treatment or adverse consequence as a reaction to a complaint or to proceedings aimed at enforcing compliance with the principle of equal treatment. Article 10 Dissemination of information Member States shall take care that the provisions adopted pursuant to this Directive, together with the relevant provisions already in force, are brought to the attention of the persons concerned by all appropriate means throughout their territory. Article 11 Social dialogue 1. Member States shall, in accordance with national traditions and practice, take adequate measures to promote the social dialogue between the two sides of industry with a view to fostering equal treatment, including through the monitoring of workplace practices, collective agreements, codes of conduct, research or exchange of experiences and good practices. 2. Where consistent with national traditions and practice, Member States shall encourage the two sides of the industry without prejudice to their autonomy to conclude, at the appropriate level, agreements laying down antidiscrimination­rules in the fields referred to in Article 3 which fall within the scope of ­collective bargaining. These agreements shall respect the minimum requirements laid down by this Directive and the relevant national implementing measures.

Directive 2000/43/EC 351 Article 12 Dialogue with non-governmental organisations Member States shall encourage dialogue with appropriate non-governmental organisations which have, in accordance with their national law and practice, a legitimate interest in contributing to the fight against discrimination on grounds of racial and ethnic origin with a view to promoting the principle of equal treatment. CHAPTER III BODIES FOR THE PROMOTION OF EQUAL TREATMENT Article 13 1. Member States shall designate a body or bodies for the promotion of equal treatment of all persons without discrimination on the grounds of racial or ethnic origin. These bodies may form part of agencies charged at national level with the defence of human rights or the safeguard of individuals’ rights. 2. Member States shall ensure that the competences of these bodies include: —— without prejudice to the right of victims and of associations, organisations or other legal entities referred to in Article 7(2), providing ­independent assistance to victims of discrimination in pursuing their complaints about discrimination, —— conducting independent surveys concerning discrimination, —— publishing independent reports and making recommendations on any issue relating to such discrimination. CHAPTER IV FINAL PROVISIONS Article 14 Compliance Member States shall take the necessary measures to ensure that: (a) any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished; (b) any provisions contrary to the principle of equal treatment which are included in individual or collective contracts or agreements, internal rules of undertakings, rules governing profit-making or non-profit-making associations, and rules governing the independent professions and workers’ and e­mployers’ organisations, are or may be declared, null and void or are amended. Article 15 Sanctions Member States shall lay down the rules on sanctions applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all ­measures

352  Part 1: European Union Legislation necessary to ensure that they are applied. The sanctions, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive. The Member States shall notify those provisions to the Commission by 19 July 2003 at the latest and shall notify it without delay of any subsequent amendment affecting them. Article 16 Implementation Member States shall adopt the laws, regulations and administrative provisions necessary to comply with this Directive by 19 July 2003 or may entrust management and labour, at their joint request, with the implementation of this Directive as regards provisions falling within the scope of collective agreements. In such cases, Member States shall ensure that by 19 July 2003, management and labour introduce the necessary measures by agreement, Member States being required to take any necessary measures to enable them at any time to be in a position to guarantee the results imposed by this Directive. They shall forthwith inform the Commission thereof. When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such a reference shall be laid down by the Member States. Article 17 Report 1. Member States shall communicate to the Commission by 19 July 2005, and every five years thereafter, all the information necessary for the Commission to draw up a report to the European Parliament and the Council on the application of this Directive. 2. The Commission’s report shall take into account, as appropriate, the views of the European Monitoring Centre on Racism and Xenophobia, as well as the viewpoints of the social partners and relevant non-governmental organisations. In accordance with the principle of gender mainstreaming, this report shall, inter alia, provide an assessment of the impact of the measures taken on women and men. In the light of the information received, this report shall include, if necessary, proposals to revise and update this Directive. Article 18 Entry into force This Directive shall enter into force on the day of its publication in the Official ­Journal of the European Communities.

Directive 2000/43/EC 353 Article 19 Addressees This Directive is addressed to the Member States. (1)

Not yet published in the Official Journal. Opinion delivered on 18.5.2000 (not yet published in the Official Journal). (3) Opinion delivered on 12.4.2000 (not yet published in the Official Journal). (4) Opinion delivered on 31.5.2000 (not yet published in the Official Journal). (5) OJ L 185, 24.7.1996, p. 5. (2)

Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation* (OJ 2000 L303 p.16) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 13 thereof, Having regard to the proposal from the Commission (1), Having regard to the Opinion of the European Parliament (2), Having regard to the Opinion of the Economic and Social Committee (3), Having regard to the Opinion of the Committee of the Regions (4),

Whereas: (1) In accordance with Article 6 of the Treaty on European Union, the European Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law, principles which are common to all Member States and it respects fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States, as general principles of Community law. * Implemented in the United Kingdom by Race Relations Order (Amendment) Regulations (­Northern Ireland) 2003, S.I. no. 341/2003; the Race Relations Act 1976 (Amendment) Regulations 2003, S.I. No. 1626/2003; Industrial Tribunals (Interest on Awards in Sexual Orientation Discrimination Cases) Regulations (Northern Ireland) 2003, S.I. No. 498/2003; the Industrial Tribunals (­Interest on Awards in Discrimination Cases) Regulations 1996, S.I. No. 2803/1996; the Fair Employment and Treatment (Northern Ireland) Order 1998, S.I. No. 3162 (N.I. 21)/1998; the Employment Equality (Religion or Belief) Regulations 2003, S.I. No. 1660/2003; the Disability Discrimination Act 1995 (Amendment) Regulations 2003, S.I. No 1673/2003; the Independent Schools (Employment of Teachers in Schools with a Religious Character) Regulations 2003, S.I. No. 2037/2003; the Disability Discrimination Act 1995 (­Pensions) Regulations 2003, S.I. No. 2770/2003; the Employment Equality (Sexual Orientation) (­Amendment) Regulations 2003, S.I. No. 2827/2003; the Employment Equality (Religion or Belief) (Amendment) Regulations 2003, S.I No. 2828/2003; Fair Employment and Treatment Order (­Amendment) Regulations (N. Ireland) 2003, S.I. no. 520/2003; School Standards and Framework Act 1998; Disability Discrimination Act 1995; Disability Rights Commission Act 1999; Special Educational Needs and Disability Act 2001; Education (Scotland) Act 1980; the Judicial Pensions and Retirement Act 1993 (Scottish Land Court) Order 2013, S.S.I. 2013 No.2.

2000/78/EC 355 (2) The principle of equal treatment between women and men is well established by an important body of Community law, in particular in Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (5). (3) In implementing the principle of equal treatment, the Community should, in accordance with Article 3(2) of the EC Treaty, aim to eliminate inequalities, and to promote equality between men and women, especially since women are often the victims of multiple discrimination. (4) The right of all persons to equality before the law and protection against discrimination constitutes a universal right recognised by the Universal Declaration of Human Rights, the United Nations Convention on the ­Elimination of All Forms of Discrimination against Women, United Nations Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights and by the European Convention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories. Convention No 111 of the International Labour Organisation (ILO) prohibits discrimination in the field of employment and occupation. (5) It is important to respect such fundamental rights and freedoms. This Directive does not prejudice freedom of association, including the right to establish unions with others and to join unions to defend one’s interests. (6) The Community Charter of the Fundamental Social Rights of Workers recognises the importance of combating every form of discrimination, including the need to take appropriate action for the social and economic integration of elderly and disabled people. (7) The EC Treaty includes among its objectives the promotion of coordination between employment policies of the Member States. To this end, a new employment chapter was incorporated in the EC Treaty as a means of developing a coordinated European strategy for employment to promote a skilled, trained and adaptable workforce. (8) The Employment Guidelines for 2000 agreed by the European Council at Helsinki on 10 and 11 December 1999 stress the need to foster a labour market favourable to social integration by formulating a coherent set of policies aimed at combating discrimination against groups such as persons with disability. They also emphasise the need to pay particular attention to supporting older workers, in order to increase their participation in the labour force. (9) Employment and occupation are key elements in guaranteeing equal opportunities for all and contribute strongly to the full participation of citizens in economic, cultural and social life and to realising their potential. (10) On 29 June 2000 the Council adopted Directive 2000/43/EC (6) implementing the principle of equal treatment between persons irrespective of racial or ethnic origin. That Directive already provides protection against such discrimination in the field of employment and occupation. (11) Discrimination based on religion or belief, disability, age or sexual orientation may undermine the achievement of the objectives of the EC Treaty, in

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(12)

(13)

(14) (15)

(16) (17)

(18)

(19)

(20)

(21)

particular the attainment of a high level of employment and social protection, raising the standard of living and the quality of life, economic and social cohesion and solidarity, and the free movement of persons. To this end, any direct or indirect discrimination based on religion or belief, disability, age or sexual orientation as regards the areas covered by this Directive should be prohibited throughout the Community. This prohibition of discrimination should also apply to nationals of third countries but does not cover differences of treatment based on nationality and is without prejudice to provisions governing the entry and residence of third-country nationals and their access to employment and occupation. This Directive does not apply to social security and social protection schemes whose benefits are not treated as income within the meaning given to that term for the purpose of applying Article 141 of the EC Treaty, nor to any kind of payment by the State aimed at providing access to employment or maintaining employment. This Directive shall be without prejudice to national provisions laying down retirement ages. The appreciation of the facts from which it may be inferred that there has been direct or indirect discrimination is a matter for national judicial or other competent bodies, in accordance with rules of national law or practice. Such rules may provide, in particular, for indirect discrimination to be established by any means including on the basis of statistical evidence. The provision of measures to accommodate the needs of disabled people at the workplace plays an important role in combating discrimination on grounds of disability. This Directive does not require the recruitment, promotion, maintenance in employment or training of an individual who is not competent, capable and available to perform the essential functions of the post concerned or to undergo the relevant training, without prejudice to the obligation to provide reasonable accommodation for people with disabilities. This Directive does not require, in particular, the armed forces and the police, prison or emergency services to recruit or maintain in employment persons who do not have the required capacity to carry out the range of functions that they may be called upon to perform with regard to the legitimate objective of preserving the operational capacity of those services. Moreover, in order that the Member States may continue to safeguard the combat effectiveness of their armed forces, they may choose not to apply the provisions of this Directive concerning disability and age to all or part of their armed forces. The Member States which make that choice must define the scope of that derogation. Appropriate measures should be provided, i.e. effective and practical measures to adapt the workplace to the disability, for example adapting premises and equipment, patterns of working time, the distribution of tasks or the provision of training or integration resources. To determine whether the measures in question give rise to a disproportionate burden, account should be taken in particular of the financial and

2000/78/EC 357

(22) (23)

(24)

(25)

(26)

(27)

(28)

other costs entailed, the scale and financial resources of the organisation or undertaking and the possibility of obtaining public funding or any other assistance. This Directive is without prejudice to national laws on marital status and the benefits dependent thereon. In very limited circumstances, a difference of treatment may be justified where a characteristic related to religion or belief, disability, age or sexual orientation constitutes a genuine and determining occupational requirement, when the objective is legitimate and the requirement is proportionate. Such circumstances should be included in the information provided by the Member States to the Commission. The European Union in its Declaration No 11 on the status of churches and non-confessional organisations, annexed to the Final Act of the Amsterdam Treaty, has explicitly recognised that it respects and does not prejudice the status under national law of churches and religious associations or communities in the Member States and that it equally respects the status of philosophical and non-confessional organisations. With this in view, Member States may maintain or lay down specific provisions on genuine, legitimate and justified occupational requirements which might be required for carrying out an occupational activity. The prohibition of age discrimination is an essential part of meeting the aims set out in the Employment Guidelines and encouraging diversity in the workforce. However, differences in treatment in connection with age may be justified under certain circumstances and therefore require specific provisions which may vary in accordance with the situation in Member States. It is therefore essential to distinguish between differences in treatment which are justified, in particular by legitimate employment policy, labour ­market and vocational training objectives, and discrimination which must be prohibited. The prohibition of discrimination should be without prejudice to the maintenance or adoption of measures intended to prevent or compensate for disadvantages suffered by a group of persons of a particular religion or belief, disability, age or sexual orientation, and such measures may permit organisations of persons of a particular religion or belief, disability, age or sexual orientation where their main object is the promotion of the special needs of those persons. In its Recommendation 86/379/EEC of 24 July 1986 on the employment of disabled people in the Community (7), the Council established a guideline framework setting out examples of positive action to promote the employment and training of disabled people, and in its Resolution of 17 June 1999 on equal employment opportunities for people with disabilities (8), affirmed the importance of giving specific attention inter alia to recruitment, retention, training and lifelong learning with regard to disabled persons. This Directive lays down minimum requirements, thus giving the M ­ ember States the option of introducing or maintaining more favourable provisions. The implementation of this Directive should not serve to justify

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(29)

(30) (31)

(32)

(33)

(34) (35) (36)

(37)

any r­egression in relation to the situation which already prevails in each ­Member State. Persons who have been subject to discrimination based on religion or belief, disability, age or sexual orientation should have adequate means of legal protection. To provide a more effective level of protection, associations or legal entities should also be empowered to engage in proceedings, as the Member States so determine, either on behalf or in support of any victim, without prejudice to national rules of procedure concerning representation and defence before the courts. The effective implementation of the principle of equality requires adequate judicial protection against victimisation. The rules on the burden of proof must be adapted when there is a prima facie case of discrimination and, for the principle of equal treatment to be applied effectively, the burden of proof must shift back to the respondent when evidence of such discrimination is brought. However, it is not for the respondent to prove that the plaintiff adheres to a particular religion or belief, has a particular disability, is of a particular age or has a particular sexual orientation. Member States need not apply the rules on the burden of proof to proceedings in which it is for the court or other competent body to investigate the facts of the case. The procedures thus referred to are those in which the plaintiff is not required to prove the facts, which it is for the court or competent body to investigate. Member States should promote dialogue between the social partners and, within the framework of national practice, with non-governmental organisations to address different forms of discrimination at the workplace and to combat them. The need to promote peace and reconciliation between the major communities in Northern Ireland necessitates the incorporation of particular provisions into this Directive. Member States should provide for effective, proportionate and dissuasive sanctions in case of breaches of the obligations under this Directive. Member States may entrust the social partners, at their joint request, with the implementation of this Directive, as regards the provisions concerning collective agreements, provided they take any necessary steps to ensure that they are at all times able to guarantee the results required by this Directive. In accordance with the principle of subsidiarity set out in Article 5 of the EC Treaty, the objective of this Directive, namely the creation within the Community of a level playing-field as regards equality in employment and occupation, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and impact of the action, be better achieved at Community level. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective,

2000/78/EC 359 HAS ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Purpose The purpose of this Directive is to lay down a general framework for combating discrimination on the grounds of religion or belief, disability, age or sexual orientation as regards employment and occupation, with a view to putting into effect in the Member States the principle of equal treatment. Article 2 Concept of discrimination 1. For the purposes of this Directive, the “principle of equal treatment” shall mean that there shall be no direct or indirect discrimination whatsoever on any of the grounds referred to in Article 1. 2. For the purposes of paragraph 1: (a) direct discrimination shall be taken to occur where one person is treated less favourably than another is, has been or would be treated in a comparable situation, on any of the grounds referred to in Article 1; (b) indirect discrimination shall be taken to occur where an apparently neutral provision, criterion or practice would put persons having a particular religion or belief, a particular disability, a particular age, or a particular sexual orientation at a particular disadvantage compared with other persons unless: (i) that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary, or (ii) as regards persons with a particular disability, the employer or any person or organisation to whom this Directive applies, is obliged, under national legislation, to take appropriate measures in line with the principles contained in Article 5 in order to eliminate disadvantages entailed by such provision, criterion or practice. 3. Harassment shall be deemed to be a form of discrimination within the meaning of paragraph 1, when unwanted conduct related to any of the grounds referred to in Article 1 takes place with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment. In this context, the concept of harassment may be defined in accordance with the national laws and practice of the Member States. 4. An instruction to discriminate against persons on any of the grounds referred to in Article 1 shall be deemed to be discrimination within the meaning of paragraph 1.

360  Part 1: European Union Legislation 5. This Directive shall be without prejudice to measures laid down by national law which, in a democratic society, are necessary for public security, for the maintenance of public order and the prevention of criminal offences, for the protection of health and for the protection of the rights and freedoms of others. Article 3 Scope 1. Within the limits of the areas of competence conferred on the Community, this Directive shall apply to all persons, as regards both the public and private sectors, including public bodies, in relation to: (a) conditions for access to employment, to self-employment or to occupation, including selection criteria and recruitment conditions, whatever the branch of activity and at all levels of the professional hierarchy, including promotion; (b) access to all types and to all levels of vocational guidance, vocational training, advanced vocational training and retraining, including practical work experience; (c) employment and working conditions, including dismissals and pay; (d) membership of, and involvement in, an organisation of workers or employers, or any organisation whose members carry on a particular profession, including the benefits provided for by such organisations. 2. This Directive does not cover differences of treatment based on nationality and is without prejudice to provisions and conditions relating to the entry into and residence of third-country nationals and stateless persons in the territory of Member States, and to any treatment which arises from the legal status of the third-country nationals and stateless persons concerned. 3. This Directive does not apply to payments of any kind made by state schemes or similar, including state social security or social protection schemes. 4. Member States may provide that this Directive, in so far as it relates to discrimination on the grounds of disability and age, shall not apply to the armed forces. Article 4 Occupational requirements 1. Notwithstanding Article 2(1) and (2), Member States may provide that a difference of treatment which is based on a characteristic related to any of the grounds referred to in Article 1 shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement, provided that the objective is legitimate and the requirement is proportionate. 2. Member States may maintain national legislation in force at the date of adoption of this Directive or provide for future legislation incorporating national

2000/78/EC 361 practices existing at the date of adoption of this Directive pursuant to which, in the case of occupational activities within churches and other public or private organisations the ethos of which is based on religion or belief, a difference of treatment based on a person’s religion or belief shall not constitute discrimination where, by reason of the nature of these activities or of the context in which they are carried out, a person’s religion or belief constitute a genuine, legitimate and justified occupational requirement, having regard to the organisation’s ethos. This difference of treatment shall be implemented taking account of Member States’ constitutional provisions and principles, as well as the general principles of Community law, and should not justify discrimination on another ground. Provided that its provisions are otherwise complied with, this Directive shall thus not prejudice the right of churches and other public or private organisations, the ethos of which is based on religion or belief, acting in conformity with national constitutions and laws, to require individuals working for them to act in good faith and with loyalty to the organisation’s ethos. Article 5 Reasonable accommodation for disabled persons In order to guarantee compliance with the principle of equal treatment in relation to persons with disabilities, reasonable accommodation shall be provided. This means that employers shall take appropriate measures, where needed in a particular case, to enable a person with a disability to have access to, participate in, or advance in employment, or to undergo training, unless such measures would impose a disproportionate burden on the employer. This burden shall not be disproportionate when it is sufficiently remedied by measures existing within the framework of the disability policy of the Member State concerned. Article 6 Justification of differences of treatment on grounds of age 1. Notwithstanding Article 2(2), Member States may provide that differences of treatment on grounds of age shall not constitute discrimination, if, within the context of national law, they are objectively and reasonably justified by a legitimate aim, including legitimate employment policy, labour market and vocational training objectives, and if the means of achieving that aim are appropriate and necessary. Such differences of treatment may include, among others: (a) the setting of special conditions on access to employment and vocational training, employment and occupation, including dismissal and remuneration conditions, for young people, older workers and persons with caring responsibilities in order to promote their vocational integration or ensure their protection;

362  Part 1: European Union Legislation (b) the fixing of minimum conditions of age, professional experience or seniority in service for access to employment or to certain advantages linked to employment; (c) the fixing of a maximum age for recruitment which is based on the training requirements of the post in question or the need for a reasonable period of employment before retirement. 2. Notwithstanding Article 2(2), Member States may provide that the fixing for occupational social security schemes of ages for admission or entitlement to retirement or invalidity benefits, including the fixing under those schemes of different ages for employees or groups or categories of employees, and the use, in the context of such schemes, of age criteria in actuarial calculations, does not constitute discrimination on the grounds of age, provided this does not result in discrimination on the grounds of sex. Article 7 Positive action 1. With a view to ensuring full equality in practice, the principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures to prevent or compensate for disadvantages linked to any of the grounds referred to in Article 1. 2. With regard to disabled persons, the principle of equal treatment shall be without prejudice to the right of Member States to maintain or adopt provisions on the protection of health and safety at work or to measures aimed at creating or maintaining provisions or facilities for safeguarding or promoting their integration into the working environment. Article 8 Minimum requirements 1. Member States may introduce or maintain provisions which are more favourable to the protection of the principle of equal treatment than those laid down in this Directive. 2. The implementation of this Directive shall under no circumstances constitute grounds for a reduction in the level of protection against discrimination already afforded by Member States in the fields covered by this Directive. CHAPTER II REMEDIES AND ENFORCEMENT Article 9 Defence of rights 1. Member States shall ensure that judicial and/or administrative procedures, including where they deem it appropriate conciliation procedures, for the

2000/78/EC 363 enforcement of obligations under this Directive are available to all persons who consider themselves wronged by failure to apply the principle of equal treatment to them, even after the relationship in which the discrimination is alleged to have occurred has ended. 2. Member States shall ensure that associations, organisations or other legal entities which have, in accordance with the criteria laid down by their national law, a legitimate interest in ensuring that the provisions of this Directive are complied with, may engage, either on behalf or in support of the complainant, with his or her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under this Directive. 3. Paragraphs 1 and 2 are without prejudice to national rules relating to time limits for bringing actions as regards the principle of equality of treatment. Article 10 Burden of proof 1. Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. 2. Paragraph 1 shall not prevent Member States from introducing rules of evidence which are more favourable to plaintiffs. 3. Paragraph 1 shall not apply to criminal procedures. 4. Paragraphs 1, 2 and 3 shall also apply to any legal proceedings commenced in accordance with Article 9(2). 5. Member States need not apply paragraph 1 to proceedings in which it is for the court or competent body to investigate the facts of the case. Article 11 Victimisation Member States shall introduce into their national legal systems such measures as are necessary to protect employees against dismissal or other adverse treatment by the employer as a reaction to a complaint within the undertaking or to any legal proceedings aimed at enforcing compliance with the principle of equal treatment. Article 12 Dissemination of information Member States shall take care that the provisions adopted pursuant to this Directive, together with the relevant provisions already in force in this field, are brought

364  Part 1: European Union Legislation to the attention of the persons concerned by all appropriate means, for example at the workplace, throughout their territory. Article 13 Social dialogue 1. Member States shall, in accordance with their national traditions and practice, take adequate measures to promote dialogue between the social partners with a view to fostering equal treatment, including through the monitoring of workplace practices, collective agreements, codes of conduct and through research or exchange of experiences and good practices. 2. Where consistent with their national traditions and practice, Member States shall encourage the social partners, without prejudice to their autonomy, to conclude at the appropriate level agreements laying down anti-discrimination­ rules in the fields referred to in Article 3 which fall within the scope of collective bargaining. These agreements shall respect the minimum requirements laid down by this Directive and by the relevant national implementing measures. Article 14 Dialogue with non-governmental organisations Member States shall encourage dialogue with appropriate non-governmental organisations which have, in accordance with their national law and practice, a legitimate interest in contributing to the fight against discrimination on any of the grounds referred to in Article 1 with a view to promoting the principle of equal treatment. CHAPTER III PARTICULAR PROVISIONS Article 15 Northern Ireland 1. In order to tackle the under-representation of one of the major religious communities in the police service of Northern Ireland, differences in treatment regarding recruitment into that service, including its support staff, shall not constitute discrimination insofar as those differences in treatment are expressly authorised by national legislation. 2. In order to maintain a balance of opportunity in employment for teachers in Northern Ireland while furthering the reconciliation of historical divisions between the major religious communities there, the provisions on religion or belief in this Directive shall not apply to the recruitment of teachers in schools in Northern Ireland in so far as this is expressly authorised by national legislation.

2000/78/EC 365 CHAPTER IV FINAL PROVISIONS Article 16 Compliance Member States shall take the necessary measures to ensure that: (a) any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished; (b) any provisions contrary to the principle of equal treatment which are included in contracts or collective agreements, internal rules of undertakings or rules governing the independent occupations and professions and workers’ and employers’ organisations are, or may be, declared null and void or are amended. Article 17 Sanctions Member States shall lay down the rules on sanctions applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are applied. The sanctions, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive. Member States shall notify those provisions to the Commission by 2 December 2003 at the latest and shall notify it without delay of any subsequent amendment affecting them. Article 18 Implementation Member States shall adopt the laws, regulations and administrative provisions necessary to comply with this Directive by 2 December 2003 at the latest or may entrust the social partners, at their joint request, with the implementation of this Directive as regards provisions concerning collective agreements. In such cases, Member States shall ensure that, no later than 2 December 2003, the social partners introduce the necessary measures by agreement, the Member States concerned being required to take any necessary measures to enable them at any time to be in a position to guarantee the results imposed by this Directive. They shall forthwith inform the Commission thereof. In order to take account of particular conditions, Member States may, if necessary, have an additional period of 3 years from 2 December 2003, that is to say a total of 6 years, to implement the provisions of this Directive on age and disability discrimination. In that event they shall inform the Commission forthwith. Any Member State which chooses to use this additional period shall report annually to the Commission on the steps it is taking to tackle age and disability discrimination

366  Part 1: European Union Legislation and on the progress it is making towards implementation. The Commission shall report annually to the Council. When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States. Article 19 Report 1. Member States shall communicate to the Commission, by 2 December 2005 at the latest and every five years thereafter, all the information necessary for the Commission to draw up a report to the European Parliament and the Council on the application of this Directive. 2. The Commission’s report shall take into account, as appropriate, the viewpoints of the social partners and relevant non-governmental organisations. In accordance with the principle of gender mainstreaming, this report shall, inter alia, provide an assessment of the impact of the measures taken on women and men. In the light of the information received, this report shall include, if necessary, proposals to revise and update this Directive. Article 20 Entry into force This Directive shall enter into force on the day of its publication in the Official Journal of the European Communities. Article 21 Addressees This Directive is addressed to the Member States. (1)

OJ C 177 E, 27.6.2000, p. 42. delivered on 12 October 2000 (not yet published in the Official Journal). OJ C 204, 18.7.2000, p. 82. OJ C 226, 8.8.2000, p. 1. OJ L 39, 14.2.1976, p. 40. OJ L 180, 19.7.2000, p. 22. OJ L 225, 12.8.1986, p. 43. OJ C 186, 2.7.1999, p. 3.

(2)  Opinion (3) (4) (5) (6) (7) (8)

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements* (Official Journal L 168, 27/06/2002 p. 43) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in p ­ articular ­Article 95 thereof, Having regard to the proposal from the Commission (1), Having regard to the opinion of the European Central Bank (2), Having regard to the opinion of the Economic and Social Committee (3), Acting in accordance with the procedure laid down in Article 251 of the Treaty (4),

Whereas: (1) Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (5) constituted a milestone in establishing a sound legal framework for payment and securities settlement systems. Implementation of that Directive has demonstrated the importance of limiting systemic risk inherent in such systems stemming from the different influence of several jurisdictions, and the benefits of common rules in relation to collateral constituted to such systems. (2) In its communication of 11 May 1999 to the European Parliament and to the Council on financial services: implementing the framework for financial markets: action plan, the Commission undertook, after consultation with market experts and national authorities, to work on further proposals for legislative action on collateral urging further progress in the field of ­collateral, beyond Directive 98/26/EC. (3) A Community regime should be created for the provision of securities and cash as collateral under both security interest and title transfer structures *  Implemented in the United Kingdom by the Financial Collateral Arrangements (No.2) Regulations 2003/3226, as am by SI 2009/2462 and SI 2010/2993.

368  Part 1: European Union Legislation

(4)

(5)

(6)

(7)

(8)

including repurchase agreements (repos). This will contribute to the integration and cost-efficiency of the financial market as well as to the stability of the financial system in the Community, thereby supporting the freedom to provide services and the free movement of capital in the single market in financial services. This Directive focuses on bilateral financial collateral arrangements. This Directive is adopted in a European legal context which consists in particular of the said Directive 98/26/EC as well as Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions (6), Directive 2001/17/EC of the European Parliament and of the Council of 19 March 2001 on the reorganisation and winding-up of insurance undertakings (7) and Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings (8). This Directive is in line with the general pattern of these previous legal acts and is not opposed to it. Indeed, this Directive complements these existing legal acts by dealing with further issues and going beyond them in connection with particular matters already dealt with by these legal acts. In order to improve the legal certainty of financial collateral arrangements, Member States should ensure that certain provisions of insolvency law do not apply to such arrangements, in particular, those that would inhibit the effective realisation of financial collateral or cast doubt on the validity of current techniques such as bilateral close-out netting, the provision of additional collateral in the form of top-up collateral and substitution of collateral. This Directive does not address rights which any person may have in respect of assets provided as financial collateral, and which arise otherwise than under the terms of the financial collateral arrangement and otherwise than on the basis of any legal provision or rule of law arising by reason of the commencement or continuation of winding-up proceedings or reorganisation measures, such as restitution arising from mistake, error or lack of capacity. The principle in Directive 98/26/EC, whereby the law applicable to book entry securities provided as collateral is the law of the jurisdiction where the relevant register, account or centralised deposit system is located, should be extended in order to create legal certainty regarding the use of such securities held in a cross-border context and used as financial collateral under the scope of this Directive. The lex rei sitae rule, according to which the applicable law for determining whether a financial collateral arrangement is properly perfected and therefore good against third parties is the law of the country where the financial collateral is located, is currently recognised by all Member States. Without affecting the application of this Directive to directly-held securities, the location of book entry securities provided as financial collateral and held through one or more intermediaries should be determined. If the collateral taker has a valid and effective collateral arrangement according to the governing law of the country in which the relevant account is maintained, then the validity against any competing title or interest and the enforceability of the collateral should be governed solely by the law of that country, thus preventing legal uncertainty as a result of other unforeseen legislation.

Directive 2002/47/EC 369 (9) In order to limit the administrative burdens for parties using financial ­collateral under the scope of this Directive, the only perfection requirement regarding parties which national law may impose in respect of financial collateral should be that the financial collateral is under the control of the ­collateral taker or of a person acting on the collateral taker’s behalf while not excluding collateral techniques where the collateral provider is allowed to substitute collateral or to withdraw excess collateral. This Directive should not prohibit Member States from requiring that a credit claim be delivered by means of inclusion in a list of claims.1 (10) For the same reasons, the creation, validity, perfection, enforceability or admissibility in evidence of a financial collateral arrangement, or the provision of financial collateral under a financial collateral arrangement, should not be made dependent on the performance of any formal act such as the execution of any document in a specific form or in a particular manner, the making of any filing with an official or public body or registration in a public register, advertisement in a newspaper or journal, in an official register or publication or in any other matter, notification to a public officer or the provision of evidence in a particular form as to the date of execution of a document or instrument, the amount of the relevant financial obligations or any other matter. This Directive must however provide a balance between market efficiency and the safety of the parties to the arrangement and third parties, thereby avoiding inter alia the risk of fraud. This balance should be achieved through the scope of this Directive covering only those financial collateral arrangements which provide for some form of dispossession, i.e. the provision of the financial collateral, and where the provision of the financial collateral can be evidenced in writing or in a durable medium, ensuring thereby the traceability of that collateral. For the purpose of this Directive, acts required under the law of a Member State as conditions for transferring or creating a security interest on financial instruments, other than book entry securities, such as endorsement in the case of instruments to order, or recording on the issuer’s register in the case of registered instruments, should not be considered as formal acts. (11) Moreover, this Directive should protect only financial collateral arrangements which can be evidenced. Such evidence can be given in writing or in any other legally enforceable manner provided by the law which is ­applicable to the financial collateral arrangement. (12) The simplification of the use of financial collateral through the limitation of administrative burdens promotes the efficiency of the cross-border operations of the European Central Bank and the national central banks of Member States participating in the economic and monetary union, necessary for the implementation of the common monetary policy. Furthermore, the

1 As am by Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims

370  Part 1: European Union Legislation

(13)

(14)

(15)

(16)

provision of limited protection of financial collateral arrangements from some rules of insolvency law in addition supports the wider aspect of the common monetary policy, where the participants in the money market balance the overall amount of liquidity in the market among themselves, by cross-border transactions backed by collateral. This Directive seeks to protect the validity of financial collateral arrangements which are based upon the transfer of the full ownership of the financial collateral, such as by eliminating the so-called re-characterisation of such financial collateral arrangements (including repurchase agreements) as security interests. The enforceability of bilateral close-out netting should be protected, not only as an enforcement mechanism for title transfer financial collateral arrangements including repurchase agreements but more widely, where close-out netting forms part of a financial collateral arrangement. Sound risk management practices commonly used in the financial market should be protected by enabling participants to manage and reduce their credit exposures arising from all kinds of financial transactions on a net basis, where the credit exposure is calculated by combining the estimated current exposures under all outstanding transactions with a counterparty, setting off reciprocal items to produce a single aggregated amount that is compared with the current value of the collateral. This Directive should be without prejudice to any restrictions or requirements under national law on bringing into account claims, on obligations to set-off, or on netting, for example relating to their reciprocity or the fact that they have been concluded prior to when the collateral taker knew or ought to have known of the commencement (or of any mandatory legal act leading to the commencement) of winding-up proceedings or reorganisation measures in respect of the collateral provider. The sound market practice favoured by regulators whereby participants in the financial market use top-up financial collateral arrangements to manage and limit their credit risk to each other by mark-to-market calculations of the current market value of the credit exposure and the value of the financial collateral and accordingly ask for top-up financial collateral or return the surplus of financial collateral should be protected against certain automatic avoidance rules. The same applies to the possibility of substituting for assets provided as financial collateral other assets of the same value. The intention is merely that the provision of top-up or substitution financial collateral cannot be questioned on the sole basis that the relevant financial obligations existed before that financial collateral was provided, or that the financial collateral was provided during a prescribed period. However, this does not prejudice the possibility of questioning under national law the financial collateral arrangement and the provision of financial collateral as part of the initial provision, top-up or substitution of financial collateral, for example where this has been intentionally done to the detriment of the other creditors (this covers inter alia actions based on fraud or similar avoidance rules which may apply in a prescribed period).

Directive 2002/47/EC 371 (17) This Directive provides for rapid and non-formalistic enforcement procedures in order to safeguard financial stability and limit contagion effects in case of a default of a party to a financial collateral arrangement. However, this Directive balances the latter objectives with the protection of the collateral provider and third parties by explicitly confirming the possibility for Member States to keep or introduce in their national legislation an a posteriori control which the Courts can exercise in relation to the realisation or valuation of financial collateral and the calculation of the relevant financial obligations. Such control should allow for the judicial authorities to verify that the realisation or valuation has been conducted in a commercially reasonable manner. (18) It should be possible to provide cash as collateral under both title transfer and secured structures respectively protected by the recognition of netting or by the pledge of cash collateral. Cash refers only to money which is represented by a credit to an account, or similar claims on repayment of money (such as money market deposits), thus explicitly excluding banknotes. (19) This Directive provides for a right of use in case of security financial collateral arrangements, which increases liquidity in the financial market stemming from such reuse of “pledged” securities. This reuse however should be without prejudice to national legislation about separation of assets and unfair treatment of creditors. (20) This Directive does not prejudice the operation or effect of the contractual terms of financial instruments or credit claims provided as financial collateral, such as rights, obligations or other conditions contained in the terms of issue of such instruments, or any other rights, obligations or other conditions which apply between the issuers and holders of such instruments or between the debtor and the creditor of such credit claims.2 (21) This Act complies with the fundamental rights and follows the principles laid down in particular in the Charter of Fundamental Rights of the European Union. (22) Since the objective of the proposed action, namely to create a minimum regime relating to the use of financial collateral, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale and effects of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective, (23) This Directive does not affect the rights of Member States to impose rules to ensure the effectiveness of financial collateral arrangements in relation to third parties as regards credit claims.3

2  3 

As am by Directive 2009/44/EC. Added by Directive 2009/44/EC.

372  Part 1: European Union Legislation HAVE ADOPTED THIS DIRECTIVE: Article 1 Subject matter and scope 1. This Directive lays down a Community regime applicable to financial collateral arrangements which satisfy the requirements set out in paragraphs 2 and 5 and to financial collateral in accordance with the conditions set out in paragraphs 4 and 5. 2. The collateral taker and the collateral provider must each belong to one of the following categories: (a) a public authority (excluding publicly guaranteed undertakings unless they fall under points (b) to (e)) including: (i) public sector bodies of Member States charged with or intervening in the management of public debt, and (ii) public sector bodies of Member States authorised to hold accounts for customers; (b) a central bank, the European Central Bank, the Bank for International Settlements, a multilateral development bank as referred to in Annex VI, Part 1, Section 4 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (*), the International Monetary Fund and the European Investment Bank;4 (c) a financial institution subject to prudential supervision including: (i) a credit institution as defined in Article 4(1) of Directive 2006/48/ EC, including the institutions listed in Article 2 of that Directive; (ii) an investment firm as defined in Article 4(1)(1) of Directive 2004/39/EC of the European Parliament and of the Council of 1 April 2004 on markets in financial instruments (*); (iii) a financial institution as defined in Article 4(5) of Directive 2006/48/EC; (iv) an insurance undertaking as defined in Article 1(a) of Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance (third non-life insurance ­Directive) and an assurance undertaking as defined in Article 1(1)(a) of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance;5 (v) an undertaking for collective investment in transferable securities (UCITS) as defined in Article 1(2) of Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws,

4  5 

As am by Directive 2009/44/EC. As am by Directive 2009/44/EC.

Directive 2002/47/EC 373 r­ egulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (13); (vi) a management company as defined in Article 1a(2) of Directive 85/611/EEC; (d) a central counterparty, settlement agent or clearing house, as defined respectively in Article 2(c), (d) and (e) of Directive 98/26/EC, including similar institutions regulated under national law acting in the futures, options and derivatives markets to the extent not covered by that ­Directive, and a person, other than a natural person, who acts in a trust or representative capacity on behalf of any one or more persons that includes any bondholders or holders of other forms of securitised debt or any institution as defined in points (a) to (d); (e) a person other than a natural person, including unincorporated firms and partnerships, provided that the other party is an institution as defined in points (a) to (d). 3. Member States may exclude from the scope of this Directive financial collateral arrangements where one of the parties is a person mentioned in paragraph 2(e). If they make use of this option Member States shall inform the Commission which shall inform the other Member States thereof. 4. (a) The financial collateral to be provided shall consist of cash, financial instruments or credit claims;6 (b) Member States may exclude from the scope of this Directive financial collateral consisting of the collateral provider’s own shares, shares in affiliated undertakings within the meaning of seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts (14), and shares in undertakings whose exclusive purpose is to own means of production that are essential for the collateral provider’s business or to own real property. (c) Member States may exclude from the scope of this Directive credit claims where the debtor is a consumer as defined in Article 3(a) of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (*) or a micro or small enterprise as defined in Article 1 and Article 2(2) and (3) of the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (**), save where the collateral taker or the collateral provider of such credit claims is one of the institutions referred under Article 1(2)(b) of this Directive.7 5. This Directive applies to financial collateral once it has been provided and if that provision can be evidenced in writing.

6  7 

As am by Directive 2002/47. Added by Directive 2009/44/EC.

374  Part 1: European Union Legislation The evidencing of the provision of financial collateral must allow for the identification of the financial collateral to which it applies. For this purpose, it is sufficient to prove that the book entry securities collateral has been credited to, or forms a credit in, the relevant account and that the cash collateral has been credited to, or forms a credit in, a designated account. For credit claims, the inclusion in a list of claims submitted in writing, or in a legally equivalent manner, to the collateral taker is sufficient to identify the credit claim and to evidence the provision of the claim provided as financial collateral between the parties.8 This Directive applies to financial collateral arrangements if that arrangement can be evidenced in writing or in a legally equivalent manner. Without prejudice to the second subparagraph, Member States may provide that the inclusion in a list of claims submitted in writing, or in a legally equivalent manner, to the collateral taker is also sufficient to identify the credit claim and to e­ vidence the provision of the claim provided as financial collateral against the debtor or third parties.9 6. Articles 4 to 7 of this Directive shall not apply to any restriction on the enforcement of financial collateral arrangements or any restriction on the effect of a security financial collateral arrangement, any close out netting or set-off provision that is imposed by virtue of Title IV, Chapter V or VI of Directive 2014/59/EU of the European Parliament and of the Council (*), or to any such restriction that is imposed by virtue of similar powers in the law of a Member State to facilitate the orderly resolution of any entity referred to in points (c)(iv) and (d) of paragraph 2 which is subject to s­ afeguards at least equivalent to those set out in Title IV, Chapter VII of Directive 2014/59/EU.10 Article 2 Definitions 1. For the purpose of this Directive: (a) “financial collateral arrangement” means a title transfer financial collateral arrangement or a security financial collateral arrangement whether or not these are covered by a master agreement or general terms and conditions; (b) »title transfer financial collateral arrangement« means an arrangement, including repurchase agreements, under which a collateral provider transfers full ownership of, or full entitlement to, financial collateral to a collateral taker for the purpose of securing or otherwise covering the performance of relevant financial obligations; (c) »security financial collateral arrangement« means an arrangement under which a collateral provider provides financial collateral by way of security to or in favour of a collateral taker, and where the full or qualified 8 

As am by Directive 2009/44/EC Added by Directive 2009/44/EC 10  Added by Directive 2014/59/EU 9 

Directive 2002/47/EC 375

(d) (e)

(f)

(g)

(h)

(i)

11 

ownership of, or full entitlement to, the financial collateral remains with the collateral provider when the security right is established;11 “cash” means money credited to an account in any currency, or similar claims for the repayment of money, such as money market deposits; “financial instruments” means shares in companies and other securities equivalent to shares in companies and bonds and other forms of debt instruments if these are negotiable on the capital market, and any other securities which are normally dealt in and which give the right to acquire any such shares, bonds or other securities by subscription, purchase or exchange or which give rise to a cash settlement (excluding instruments of payment), including units in collective investment undertakings, money market instruments and claims relating to or rights in or in respect of any of the foregoing; “relevant financial obligations” means the obligations which are secured by a financial collateral arrangement and which give a right to cash settlement and/or delivery of financial instruments. Relevant financial obligations may consist of or include: (i) present or future, actual or contingent or prospective obligations (including such obligations arising under a master agreement or similar arrangement); (ii) obligations owed to the collateral taker by a person other than the collateral provider; or (iii) obligations of a specified class or kind arising from time to time; “book entry securities collateral” means financial collateral provided under a financial collateral arrangement which consists of financial instruments, title to which is evidenced by entries in a register or account maintained by or on behalf of an intermediary; “relevant account” means in relation to book entry securities collateral which is subject to a financial collateral arrangement, the register or account—which may be maintained by the collateral taker—in which the entries are made by which that book entry securities collateral is provided to the collateral taker; “equivalent collateral”: (i) in relation to cash, means a payment of the same amount and in the same currency; (ii) in relation to financial instruments, means financial instruments of the same issuer or debtor, forming part of the same issue or class and of the same nominal amount, currency and description or, where a financial collateral arrangement provides for the transfer of other assets following the occurrence of any event relating to or affecting any financial instruments provided as financial collateral, those other assets;

As am by Directive 2009/44/EC

376  Part 1: European Union Legislation (j) “winding-up proceedings” means collective proceedings involving realisation of the assets and distribution of the proceeds among the creditors, shareholders or members as appropriate, which involve any intervention by administrative or judicial authorities, including where the collective proceedings are terminated by a composition or other analogous measure, whether or not they are founded on insolvency or are voluntary or compulsory; (k) “reorganisation measures” means measures which involve any intervention by administrative or judicial authorities which are intended to preserve or restore the financial situation and which affect pre-existing rights of third parties, including but not limited to measures involving a suspension of payments, suspension of enforcement measures or reduction of claims; (l) “enforcement event” means an event of default or any similar event as agreed between the parties on the occurrence of which, under the terms of a financial collateral arrangement or by operation of law, the collateral taker is entitled to realise or appropriate financial collateral or a close-out netting provision comes into effect; (m) “right of use” means the right of the collateral taker to use and dispose of financial collateral provided under a security financial collateral arrangement as the owner of it in accordance with the terms of the security financial collateral arrangement; (n) “close-out netting provision” means a provision of a financial collateral arrangement, or of an arrangement of which a financial collateral arrangement forms part, or, in the absence of any such provision, any statutory rule by which, on the occurrence of an enforcement event, whether through the operation of netting or set-off or otherwise: (i) the obligations of the parties are accelerated so as to be immediately due and expressed as an obligation to pay an amount representing their estimated current value, or are terminated and replaced by an obligation to pay such an amount; and/or (ii) an account is taken of what is due from each party to the other in respect of such obligations, and a net sum equal to the balance of the account is payable by the party from whom the larger amount is due to the other party. (o) »credit claims« means pecuniary claims arising out of an agreement whereby a credit institution, as defined in Article 4(1) of Directive 2006/48/EC, including the institutions listed in Article 2 of that Directive, grants credit in the form of a loan.12 2. References in this Directive to financial collateral being “provided”, or to the “provision” of financial collateral, are to the financial collateral being delivered, transferred, held, registered or otherwise designated so as to be in the

12 

Added by Directive 2009/44/EC

Directive 2002/47/EC 377 possession or under the control of the collateral taker or of a person acting on the collateral taker’s behalf. Any right of substitution, right to withdraw excess financial collateral in favour of the collateral provider or, in the case of credit claims, right to collect the proceeds thereof until further notice, shall not prejudice the financial collateral having been provided to the collateral taker as mentioned in this Directive.13 3. References in this Directive to “writing” include recording by electronic means and any other durable medium. Article 3 Formal requirements 1. Member States shall not require that the creation, validity, perfection, enforceability or admissibility in evidence of a financial collateral arrangement or the provision of financial collateral under a financial collateral arrangement be dependent on the performance of any formal act. Without prejudice to Article 1(5), when credit claims are provided as financial collateral, Member States shall not require that the creation, validity, perfection, priority, enforceability or admissibility in evidence of such financial collateral be dependent on the performance of any formal act such as the registration or the notification of the debtor of the credit claim provided as collateral. However, Member States may require the performance of a formal act, such as registration or notification, for purposes of perfection, priority, enforceability or admissibility in evidence against the debtor or third parties. By 30 June 2014, the Commission shall report to the European Parliament and to the Council on whether this paragraph continues to be appropriate.14 2. Paragraph 1 is without prejudice to the application of this Directive to financial collateral only once it has been provided and if that provision can be evidenced in writing and where the financial collateral arrangement can be evidenced in writing or in a legally equivalent manner. 3. Without prejudice to Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (*) and national provisions concerning unfair contract terms, Member States shall ensure that debtors of the credit claims may validly waive, in writing or in a legally equivalent manner: (i) their rights of set-off vis-à-vis the creditors of the credit claim and vis-à-vis persons to whom the creditor assigned, pledged or otherwise ­mobilised the credit claim as collateral; and (ii) their rights arising from banking secrecy rules that would otherwise ­prevent or restrict the ability of the creditor of the credit claim to provide information on the credit claim or the debtor for the purposes of using the credit claim as collateral.15

13 

Second sentence am by Directive 2009/44/EC Added by Directive 2009/44/EC 15  Added by Directive 2009/44/EC 14 

378  Part 1: European Union Legislation Article 4 Enforcement of financial collateral arrangements 1. Member States shall ensure that on the occurrence of an enforcement event, the collateral taker shall be able to realise in the following manners, any financial collateral provided under, and subject to the terms agreed in, a security financial collateral arrangement: (a) financial instruments by sale or appropriation and by setting off their value against, or applying their value in discharge of, the relevant financial obligations; (b) cash by setting off the amount against or applying it in discharge of the relevant financial obligations; (c) credit claims, by sale or appropriation and by setting off their value against, or applying their value in discharge of, the relevant financial obligations.16 2. Appropriation is possible only if: (a) this has been agreed by the parties in the security financial collateral arrangement; and (b) the parties have agreed in the security financial collateral arrangement on the valuation of the financial instruments and the credit claims.17 3. deleted 4. The manners of realising the financial collateral referred to in paragraph 1 shall, subject to the terms agreed in the security financial collateral arrangement, be without any requirement to the effect that: (a) prior notice of the intention to realise must have been given; (b) the terms of the realisation be approved by any court, public officer or other person; (c) the realisation be conducted by public auction or in any other prescribed manner; or (d) any additional time period must have elapsed. 5. Member States shall ensure that a financial collateral arrangement can take effect in accordance with its terms notwithstanding the commencement or continuation of winding-up proceedings or reorganisation measures in respect of the collateral provider or collateral taker. 6. This Article and Articles 5, 6 and 7 shall be without prejudice to any requirements under national law to the effect that the realisation or valuation of financial collateral and the calculation of the relevant financial obligations must be conducted in a commercially reasonable manner.

16  17 

Added by Directive 2009/44/EC As am by Directive 2009/44/EC

Directive 2002/47/EC 379 Article 5 Right of use of financial collateral under security financial collateral arrangements 1. If and to the extent that the terms of a security financial collateral arrangement so provide, Member States shall ensure that the collateral taker is entitled to exercise a right of use in relation to financial collateral provided under the security financial collateral arrangement. 2. Where a collateral taker exercises a right of use, he thereby incurs an obligation to transfer equivalent collateral to replace the original financial collateral at the latest on the due date for the performance of the relevant financial obligations covered by the security financial collateral arrangement. Alternatively, the collateral taker shall, on the due date for the performance of the relevant financial obligations, either transfer equivalent collateral, or, if and to the extent that the terms of a security financial collateral arrangement so provide, set off the value of the equivalent collateral against or apply it in discharge of the relevant financial obligations. 3. The equivalent collateral transferred in discharge of an obligation as described in paragraph 2, first subparagraph, shall be subject to the same security financial collateral agreement to which the original financial collateral was subject and shall be treated as having been provided under the security financial collateral arrangement at the same time as the original financial collateral was first provided. 4. Member States shall ensure that the use of financial collateral by the collateral taker according to this Article does not render invalid or unenforceable the rights of the collateral taker under the security financial collateral arrangement in relation to the financial collateral transferred by the collateral taker in discharge of an obligation as described in paragraph 2, first subparagraph. 5. If an enforcement event occurs while an obligation as described in paragraph 2 first subparagraph remains outstanding, the obligation may be the subject of a close-out netting provision. 6. This Article shall not apply to credit claims.18 Article 6 Recognition of title transfer financial collateral arrangements 1. Member States shall ensure that a title transfer financial collateral arrangement can take effect in accordance with its terms. 2. If an enforcement event occurs while any obligation of the collateral taker to transfer equivalent collateral under a title transfer financial collateral arrangement remains outstanding, the obligation may be the subject of a close-out netting provision.

18 

Added by Directive 2009/44/EC

380  Part 1: European Union Legislation Article 7 Recognition of close-out netting provisions 1. Member States shall ensure that a close-out netting provision can take effect in accordance with its terms: (a) notwithstanding the commencement or continuation of winding-up proceedings or reorganisation measures in respect of the collateral provider and/or the collateral taker; and/or (b) notwithstanding any purported assignment, judicial or other attachment or other disposition of or in respect of such rights. 2. Member States shall ensure that the operation of a close-out netting provision may not be subject to any of the requirements that are mentioned in Article 4(4), unless otherwise agreed by the parties. Article 8 Certain insolvency provisions disapplied 1. Member States shall ensure that a financial collateral arrangement, as well as the provision of financial collateral under such arrangement, may not be declared invalid or void or be reversed on the sole basis that the financial collateral arrangement has come into existence, or the financial collateral has been provided: (a) on the day of the commencement of winding-up proceedings or ­reorganisation measures, but prior to the order or decree making that commencement; or (b) in a prescribed period prior to, and defined by reference to, the commencement of such proceedings or measures or by reference to the making of any order or decree or the taking of any other action or occurrence of any other event in the course of such proceedings or measures. 2. Member States shall ensure that where a financial collateral arrangement or a relevant financial obligation has come into existence, or financial col lateral has been provided on the day of, but after the moment of the commencement of, winding-up proceedings or reorganisation measures, it shall be legally enforceable and binding on third parties if the collateral taker can prove that he was not aware, nor should have been aware, of the commencement of such proceedings or measures. 3. Where a financial collateral arrangement contains: (a) an obligation to provide financial collateral or additional financial collateral in order to take account of changes in the value of the financial collateral or in the amount of the relevant financial obligations, or (b) a right to withdraw financial collateral on providing, by way of substitution or exchange, financial collateral of substantially the same value, Member States shall ensure that the provision of financial collateral, additional financial collateral or substitute or replacement financial collateral under such an obligation or right shall not be treated as invalid or reversed or declared void on the sole basis that:

Directive 2002/47/EC 381 (i)

such provision was made on the day of the commencement of winding-up proceedings or reorganisation measures, but prior to the order or decree making that commencement or in a prescribed period prior to, and defined by reference to, the commencement of winding-up proceedings or reorganisation measures or by reference to the making of any order or decree or the taking of any other action or occurrence of any other event in the course of such proceedings or measures; and/or (ii) the relevant financial obligations were incurred prior to the date of the provision of the financial collateral, additional financial ­collateral or substitute or replacement financial collateral. 4. Without prejudice to paragraphs 1, 2 and 3, this Directive leaves unaffected the general rules of national insolvency law in relation to the voidance of transactions entered into during the prescribed period referred to in paragraph 1(b) and in paragraph 3(i). Article 9 Conflict of laws 1. Any question with respect to any of the matters specified in paragraph 2 arising in relation to book entry securities collateral shall be governed by the law of the country in which the relevant account is maintained. The reference to the law of a country is a reference to its domestic law, disregarding any rule under which, in deciding the relevant question, reference should be made to the law of another country. 2. The matters referred to in paragraph 1 are: (a) the legal nature and proprietary effects of book entry securities collateral; (b) the requirements for perfecting a financial collateral arrangement relating to book entry securities collateral and the provision of book entry securities collateral under such an arrangement, and more generally the completion of the steps necessary to render such an arrangement and provision effective against third parties; (c) whether a person’s title to or interest in such book entry securities ­collateral is overridden by or subordinated to a competing title or interest, or a good faith acquisition has occurred; (d) the steps required for the realisation of book entry securities collateral following the occurrence of an enforcement event. Article 9a19 Directives 2008/48/EC and 2014/59/EU This Directive shall be without prejudice to Directives 2008/48/EC and 014/59/EU.

19 

As am by Directive 2014/59/EU

382  Part 1: European Union Legislation Article 10 Report by the Commission Not later than 27 December 2006, the Commission shall present a report to the European Parliament and the Council on the application of this Directive, in particular on the application of Article 1(3), Article 4(3) and Article 5, accompanied where appropriate by proposals for its revision. Article 11 Implementation Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 27 December 2003 at the latest. They shall forthwith inform the Commission thereof. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official ­publication. Member States shall determine how such reference is to be made. Article 12 Entry into force This Directive shall enter into force on the day of its publication in the Official Journal of the European Communities. Article 13 Addressees This Directive is addressed to the Member States. (1)

OJ C 180 E, 26/06/2001, p. 0312. OJ C 196, 12/07/2001, p. 0010. (3) OJ C 48, 21/02/2002, p. 0001. (4) Opinion of the European Parliament of 13 December 2001 (not yet published in the Official Journal), Council Common Position of 5 March 2002 (not yet published in the Official Journal) and Decision of the European Parliament of 15 May 2002. (5) OJ L 166, 11/06/1998, p. 0045. (6) OJ L 125, 05/05/2001, p. 0015. (7) OJ L 110, 20/04/2001, p. 0028. (8) OJ L 160, 30/06/2000, p. 0001. (9) OJ L 126, 26/05/2000, p. 0001. Directive as amended by Directive 2000/28/EC (OJ L 275, 27.10.2000, p. 0037). (10) OJ L 141, 11/06/1993, p. 0027. Directive as last amended by Directive 2000/64/ EC of the European Parliament and of the Council (OJ L 290, 17/11/2000, p. 0027). (2)

Directive 2002/47/EC 383 (11) OJ L 228, 11/08/1992, p. 0001. Directive as last amended by Directive 2000/64/

EC of the European Parliament and of the Council.

(12) OJ L 360, 09/12/1992, p. 0001. Directive as last amended by Directive 2000/64/

EC of the European Parliament and of the Council. L 375, 31/12/1985, p. 0003. Directive as last amended by Directive 2001/108/EC of the European Parliament and of the Council. (OJ L 41, 13/02/2002, p. 0035). (14) OJ L 193, 18/07/1983, p. 0001. Directive as last amended by Directive 2001/65/ EC of the European Parliament and of the Council (OJ L 283, 27.10.2001, p. 0028). (13)  OJ

Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications)* (OJ 2002 L201 p.37) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 95 thereof, Having regard to the proposal from the Commission (1), Having regard to the opinion of the Economic and Social Committee (2), Having consulted the Committee of the Regions, Acting in accordance with the procedure laid down in Article 251 of the Treaty (3),

Whereas: (1) Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (4) requires ­Member States to ensure the rights and freedoms of natural persons with regard to the processing of personal data, and in particular their right to privacy, in order to ensure the free flow of personal data in the Community. (2) This Directive seeks to respect the fundamental rights and observes the principles recognised in particular by the Charter of fundamental rights of the European Union. In particular, this Directive seeks to ensure full respect for the rights set out in Articles 7 and 8 of that Charter. (3) Confidentiality of communications is guaranteed in accordance with the international instruments relating to human rights, in particular the ­European

*  Implemented in the UK by Regulations 2000, S.I. 2000 No. 2699; the Regulation of Investigatory Powers (Money Penalty Notices and Consents for Interceptions) Regulations 2011, S.I. 2011 No. 1340; the Privacy and Electronic Communications (EC Directive) Regulations 2003, S.I. 2003 No. 2426.

Directive 2002/58/EC 385

(4)

(5)

(6)

(7)

(8)

(9)

Convention for the Protection of Human Rights and Fundamental Freedoms, and the constitutions of the Member States. Directive 97/66/EC of the European Parliament and of the Council of 15 December 1997 concerning the processing of personal data and the protection of privacy in the telecommunications sector (5) translated the principles set out in Directive 95/46/EC into specific rules for the telecommunications sector. Directive 97/66/EC has to be adapted to developments in the markets and technologies for electronic communications services in order to provide an equal level of protection of personal data and privacy for users of publicly available electronic communications services, regardless of the technologies used. That Directive should therefore be repealed and replaced by this Directive. New advanced digital technologies are currently being introduced in public communications networks in the Community, which give rise to specific requirements concerning the protection of personal data and privacy of the user. The development of the information society is characterised by the introduction of new electronic communications services. Access to digital mobile networks has become available and affordable for a large public. These digital networks have large capacities and possibilities for processing personal data. The successful cross-border development of these services is partly dependent on the confidence of users that their privacy will not be at risk. The Internet is overturning traditional market structures by providing a common, global infrastructure for the delivery of a wide range of electronic communications services. Publicly available electronic communications services over the Internet open new possibilities for users but also new risks for their personal data and privacy. In the case of public communications networks, specific legal, regulatory and technical provisions should be made in order to protect fundamental rights and freedoms of natural persons and legitimate interests of legal persons, in particular with regard to the increasing capacity for automated storage and processing of data relating to subscribers and users. Legal, regulatory and technical provisions adopted by the Member States concerning the protection of personal data, privacy and the legitimate interest of legal persons, in the electronic communication sector, should be harmonised in order to avoid obstacles to the internal market for electronic communication in accordance with Article 14 of the Treaty. Harmonisation should be limited to requirements necessary to guarantee that the promotion and development of new electronic communications services and networks between Member States are not hindered. The Member States, providers and users concerned, together with the competent Community bodies, should cooperate in introducing and developing the relevant technologies where this is necessary to apply the guarantees provided for by this Directive and taking particular account of the objectives of minimising the processing of personal data and of using anonymous or pseudonymous data where possible.

386  Part 1: European Union Legislation (10) In the electronic communications sector, Directive 95/46/EC applies in particular to all matters concerning protection of fundamental rights and freedoms, which are not specifically covered by the provisions of this Directive, including the obligations on the controller and the rights of individuals. Directive 95/46/EC applies to non-public communications services. (11) Like Directive 95/46/EC, this Directive does not address issues of protection of fundamental rights and freedoms related to activities which are not governed by Community law. Therefore it does not alter the existing balance between the individual’s right to privacy and the possibility for Member States to take the measures referred to in Article 15(1) of this Directive, necessary for the protection of public security, defence, State security (including the economic well-being of the State when the activities relate to State security matters) and the enforcement of criminal law. Consequently, this Directive does not affect the ability of Member States to carry out lawful interception of electronic communications, or take other measures, if necessary for any of these purposes and in accordance with the European Convention for the Protection of Human Rights and Fundamental Freedoms, as interpreted by the rulings of the European Court of Human Rights. Such measures must be appropriate, strictly proportionate to the intended purpose and necessary within a democratic society and should be subject to adequate safeguards in accordance with the European Convention for the Protection of Human Rights and Fundamental Freedoms. (12) Subscribers to a publicly available electronic communications service may be natural or legal persons. By supplementing Directive 95/46/EC, this Directive is aimed at protecting the fundamental rights of natural persons and particularly their right to privacy, as well as the legitimate interests of legal persons. This Directive does not entail an obligation for Member States to extend the application of Directive 95/46/EC to the protection of the legitimate interests of legal persons, which is ensured within the framework of the applicable Community and national legislation. (13) The contractual relation between a subscriber and a service provider may entail a periodic or a one-off payment for the service provided or to be provided. Prepaid cards are also considered as a contract. (14) Location data may refer to the latitude, longitude and altitude of the user’s terminal equipment, to the direction of travel, to the level of accuracy of the location information, to the identification of the network cell in which the terminal equipment is located at a certain point in time and to the time the location information was recorded. (15) A communication may include any naming, numbering or addressing information provided by the sender of a communication or the user of a connection to carry out the communication. Traffic data may include any translation of this information by the network over which the communication is transmitted for the purpose of carrying out the transmission. Traffic data may, inter alia, consist of data referring to the routing, duration, time or volume of a communication, to the protocol used, to the location of the terminal equipment of the sender or recipient, to the network on which the

Directive 2002/58/EC 387

(16)

(17)

(18) (19)

(20)

communication originates or terminates, to the beginning, end or duration of a connection. They may also consist of the format in which the communication is conveyed by the network. Information that is part of a broadcasting service provided over a public communications network is intended for a potentially unlimited audience and does not constitute a communication in the sense of this Directive. However, in cases where the individual subscriber or user receiving such information can be identified, for example with video-on-demand services, the information conveyed is covered within the meaning of a communication for the purposes of this Directive. For the purposes of this Directive, consent of a user or subscriber, regardless of whether the latter is a natural or a legal person, should have the same meaning as the data subject’s consent as defined and further specified in Directive 95/46/EC. Consent may be given by any appropriate method enabling a freely given specific and informed indication of the user’s wishes, including by ticking a box when visiting an Internet website. Value added services may, for example, consist of advice on least expensive tariff packages, route guidance, traffic information, weather forecasts and tourist information. The application of certain requirements relating to presentation and restriction of calling and connected line identification and to automatic call ­forwarding to subscriber lines connected to analogue exchanges should not be made mandatory in specific cases where such application would prove to be technically impossible or would require a disproportionate economic effort. It is important for interested parties to be informed of such cases and the Member States should therefore notify them to the Commission. Service providers should take appropriate measures to safeguard the security of their services, if necessary in conjunction with the provider of the network, and inform subscribers of any special risks of a breach of the security of the network. Such risks may especially occur for electronic communications services over an open network such as the Internet or analogue mobile telephony. It is particularly important for subscribers and users of such services to be fully informed by their service provider of the existing security risks which lie outside the scope of possible remedies by the service provider. Service providers who offer publicly available electronic communications services over the Internet should inform users and subscribers of measures they can take to protect the security of their communications for instance by using specific types of software or encryption technologies. The requirement to inform subscribers of particular security risks does not discharge a service provider from the obligation to take, at its own costs, appropriate and immediate measures to remedy any new, unforeseen security risks and restore the normal security level of the service. The provision of information about security risks to the subscriber should be free of charge except for any nominal costs which the subscriber may incur while receiving or collecting the information, for instance by downloading an

388  Part 1: European Union Legislation

(21)

(22)

(23)

(24)

(25)

electronic mail message. Security is appraised in the light of Article 17 of Directive 95/46/EC. Measures should be taken to prevent unauthorised access to communications in order to protect the confidentiality of communications, including both the contents and any data related to such communications, by means of public communications networks and publicly available electronic communications services. National legislation in some Member States only prohibits intentional unauthorised access to communications. The prohibition of storage of communications and the related traffic data by persons other than the users or without their consent is not intended to prohibit any automatic, intermediate and transient storage of this information in so far as this takes place for the sole purpose of carrying out the transmission in the electronic communications network and provided that the information is not stored for any period longer than is necessary for the transmission and for traffic management purposes, and that during the period of storage the confidentiality remains guaranteed. Where this is necessary for making more efficient the onward transmission of any publicly accessible information to other recipients of the service upon their request, this Directive should not prevent such information from being further stored, provided that this information would in any case be accessible to the public without restriction and that any data referring to the individual subscribers or users requesting such information are erased. Confidentiality of communications should also be ensured in the course of lawful business practice. Where necessary and legally authorised, communications can be recorded for the purpose of providing evidence of a commercial transaction. Directive 95/46/EC applies to such processing. Parties to the communications should be informed prior to the recording about the recording, its purpose and the duration of its storage. The recorded communication should be erased as soon as possible and in any case at the latest by the end of the period during which the transaction can be lawfully challenged. Terminal equipment of users of electronic communications networks and any information stored on such equipment are part of the private sphere of the users requiring protection under the European Convention for the ­Protection of Human Rights and Fundamental Freedoms. So-called ­spyware, web bugs, hidden identifiers and other similar devices can enter the user’s terminal without their knowledge in order to gain access to information, to store hidden information or to trace the activities of the user and may seriously intrude upon the privacy of these users. The use of such devices should be allowed only for legitimate purposes, with the knowledge of the users concerned. However, such devices, for instance so-called “cookies”, can be a legitimate and useful tool, for example, in analysing the effectiveness of website design and advertising, and in verifying the identity of users engaged in on-line transactions. Where such devices, for instance cookies, are intended for a legitimate purpose, such as to facilitate the provision of information society

Directive 2002/58/EC 389 services, their use should be allowed on condition that users are provided with clear and precise information in accordance with Directive 95/46/EC about the purposes of cookies or similar devices so as to ensure that users are made aware of information being placed on the terminal equipment they are using. Users should have the opportunity to refuse to have a cookie or similar device stored on their terminal equipment. This is particularly important where users other than the original user have access to the terminal equipment and thereby to any data containing privacy-sensitive information stored on such equipment. Information and the right to refuse may be offered once for the use of various devices to be installed on the user’s terminal equipment during the same connection and also covering any further use that may be made of those devices during subsequent connections. The methods for giving information, offering a right to refuse or requesting consent should be made as user-friendly as possible. Access to specific website content may still be made conditional on the well-informed acceptance of a cookie or similar device, if it is used for a legitimate purpose. (26) The data relating to subscribers processed within electronic communications networks to establish connections and to transmit information contain information on the private life of natural persons and concern the right to respect for their correspondence or concern the legitimate interests of legal persons. Such data may only be stored to the extent that is necessary for the provision of the service for the purpose of billing and for interconnection payments, and for a limited time. Any further processing of such data which the provider of the publicly available electronic communications services may want to perform, for the marketing of electronic communications services or for the provision of value added services, may only be allowed if the subscriber has agreed to this on the basis of accurate and full information given by the provider of the publicly available electronic communications services about the types of further processing it intends to perform and about the subscriber’s right not to give or to withdraw his/her consent to such processing. Traffic data used for marketing communications services or for the provision of value added services should also be erased or made anonymous after the provision of the service. Service providers should always keep subscribers informed of the types of data they are processing and the purposes and duration for which this is done. (27) The exact moment of the completion of the transmission of a communication, after which traffic data should be erased except for billing purposes, may depend on the type of electronic communications service that is provided. For instance for a voice telephony call the transmission will be completed as soon as either of the users terminates the connection. For electronic mail the transmission is completed as soon as the addressee collects the message, typically from the server of his service provider. (28) The obligation to erase traffic data or to make such data anonymous when it is no longer needed for the purpose of the transmission of a communication does not conflict with such procedures on the Internet as the caching in the domain name system of IP addresses or the caching of IP addresses

390  Part 1: European Union Legislation

(29)

(30)

(31)

(32)

(33)

(34)

to physical address bindings or the use of log-in information to control the right of access to networks or services. The service provider may process traffic data relating to subscribers and users where necessary in individual cases in order to detect technical failure or errors in the transmission of communications. Traffic data necessary for billing purposes may also be processed by the provider in order to detect and stop fraud consisting of unpaid use of the electronic communications service. Systems for the provision of electronic communications networks and services should be designed to limit the amount of personal data necessary to a strict minimum. Any activities related to the provision of the electronic communications service that go beyond the transmission of a communication and the billing thereof should be based on aggregated, traffic data that cannot be related to subscribers or users. Where such activities cannot be based on aggregated data, they should be considered as value added services for which the consent of the subscriber is required. Whether the consent to be obtained for the processing of personal data with a view to providing a particular value added service should be that of the user or of the subscriber, will depend on the data to be processed and on the type of service to be provided and on whether it is technically, procedurally and contractually possible to distinguish the individual using an electronic communications service from the legal or natural person having subscribed to it. Where the provider of an electronic communications service or of a value added service subcontracts the processing of personal data necessary for the provision of these services to another entity, such subcontracting and subsequent data processing should be in full compliance with the requirements regarding controllers and processors of personal data as set out in Directive 95/46/EC. Where the provision of a value added service requires that traffic or location data are forwarded from an electronic communications service provider to a provider of value added services, the subscribers or users to whom the data are related should also be fully informed of this forwarding before giving their consent for the processing of the data. The introduction of itemised bills has improved the possibilities for the subscriber to check the accuracy of the fees charged by the service provider but, at the same time, it may jeopardise the privacy of the users of publicly available electronic communications services. Therefore, in order to preserve the privacy of the user, Member States should encourage the development of electronic communication service options such as alternative payment facilities which allow anonymous or strictly private access to publicly available electronic communications services, for example calling cards and facilities for payment by credit card. To the same end, Member States may ask the operators to offer their subscribers a different type of detailed bill in which a certain number of digits of the called number have been deleted. It is necessary, as regards calling line identification, to protect the right of the calling party to withhold the presentation of the identification of the

Directive 2002/58/EC 391

(35)

(36)

(37)

(38)

line from which the call is being made and the right of the called party to reject calls from unidentified lines. There is justification for overriding the elimination of calling line identification presentation in specific cases. Certain subscribers, in particular help lines and similar organisations, have an interest in guaranteeing the anonymity of their callers. It is necessary, as regards connected line identification, to protect the right and the legitimate interest of the called party to withhold the presentation of the identification of the line to which the calling party is actually connected, in particular in the case of forwarded calls. The providers of publicly available electronic communications services should inform their subscribers of the existence of calling and connected line identification in the network and of all services which are offered on the basis of calling and connected line identification as well as the privacy options which are available. This will allow the subscribers to make an informed choice about the privacy facilities they may want to use. The privacy options which are offered on a per-line basis do not necessarily have to be available as an automatic network service but may be obtainable through a simple request to the provider of the publicly available electronic communications service. In digital mobile networks, location data giving the geographic position of the terminal equipment of the mobile user are processed to enable the transmission of communications. Such data are traffic data covered by Article 6 of this Directive. However, in addition, digital mobile networks may have the capacity to process location data which are more precise than is necessary for the transmission of communications and which are used for the provision of value added services such as services providing individualised traffic information and guidance to drivers. The processing of such data for value added services should only be allowed where subscribers have given their consent. Even in cases where subscribers have given their consent, they should have a simple means to temporarily deny the processing of location data, free of charge. Member States may restrict the users’ and subscribers’ rights to privacy with regard to calling line identification where this is necessary to trace nuisance calls and with regard to calling line identification and location data where this is necessary to allow emergency services to carry out their tasks as effectively as possible. For these purposes, Member States may adopt specific provisions to entitle providers of electronic communications services to provide access to calling line identification and location data without the prior consent of the users or subscribers concerned. Safeguards should be provided for subscribers against the nuisance which may be caused by automatic call forwarding by others. Moreover, in such cases, it must be possible for subscribers to stop the forwarded calls being passed on to their terminals by simple request to the provider of the publicly available electronic communications service. Directories of subscribers to electronic communications services are widely distributed and public. The right to privacy of natural persons and the legitimate interest of legal persons require that subscribers are able to determine

392  Part 1: European Union Legislation

(39)

(40)

(41)

(42)

whether their personal data are published in a directory and if so, which. Providers of public directories should inform the subscribers to be included in such directories of the purposes of the directory and of any particular usage which may be made of electronic versions of public directories especially through search functions embedded in the software, such as reverse search functions enabling users of the directory to discover the name and address of the subscriber on the basis of a telephone number only. The obligation to inform subscribers of the purpose(s) of public directories in which their personal data are to be included should be imposed on the party collecting the data for such inclusion. Where the data may be transmitted to one or more third parties, the subscriber should be informed of this possibility and of the recipient or the categories of possible recipients. Any transmission should be subject to the condition that the data may not be used for other purposes than those for which they were collected. If the party collecting the data from the subscriber or any third party to whom the data have been transmitted wishes to use the data for an additional purpose, the renewed consent of the subscriber is to be obtained either by the initial party collecting the data or by the third party to whom the data have been transmitted. Safeguards should be provided for subscribers against intrusion of their privacy by unsolicited communications for direct marketing purposes in particular by means of automated calling machines, telefaxes, and e-mails, including SMS messages. These forms of unsolicited commercial communications may on the one hand be relatively easy and cheap to send and on the other may impose a burden and/or cost on the recipient. Moreover, in some cases their volume may also cause difficulties for electronic communications networks and terminal equipment. For such forms of unsolicited communications for direct marketing, it is justified to require that prior explicit consent of the recipients is obtained before such communications are addressed to them. The single market requires a harmonised approach to ensure simple, Community-wide rules for businesses and users. Within the context of an existing customer relationship, it is reasonable to allow the use of electronic contact details for the offering of similar products or services, but only by the same company that has obtained the electronic contact details in accordance with Directive 95/46/EC. When electronic contact details are obtained, the customer should be informed about their further use for direct marketing in a clear and distinct manner, and be given the opportunity to refuse such usage. This opportunity should continue to be offered with each subsequent direct marketing message, free of charge, except for any costs for the transmission of this refusal. Other forms of direct marketing that are more costly for the sender and impose no financial costs on subscribers and users, such as person-to-person­ voice telephony calls, may justify the maintenance of a system giving subscribers or users the possibility to indicate that they do not want to receive such calls. Nevertheless, in order not to decrease existing levels of privacy protection, Member States should be entitled to uphold national systems,

Directive 2002/58/EC 393

(43)

(44)

(45)

(46)

only allowing such calls to subscribers and users who have given their prior consent. To facilitate effective enforcement of Community rules on unsolicited messages for direct marketing, it is necessary to prohibit the use of false identities or false return addresses or numbers while sending unsolicited messages for direct marketing purposes. Certain electronic mail systems allow subscribers to view the sender and subject line of an electronic mail, and also to delete the message, without having to download the rest of the electronic mail’s content or any attachments, thereby reducing costs which could arise from downloading ­unsolicited electronic mails or attachments. These arrangements may continue to be useful in certain cases as an additional tool to the general obligations established in this Directive. This Directive is without prejudice to the arrangements which Member States make to protect the legitimate interests of legal persons with regard to unsolicited communications for direct marketing purposes. Where ­Member States establish an opt-out register for such communications to legal persons, mostly business users, the provisions of Article 7 of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the internal market (Directive on electronic ­commerce)  (6) are fully applicable. The functionalities for the provision of electronic communications services may be integrated in the network or in any part of the terminal equipment of the user, including the software. The protection of the personal data and the privacy of the user of publicly available electronic communications services should be independent of the configuration of the various components necessary to provide the service and of the distribution of the necessary functionalities between these components. Directive 95/46/EC covers any form of processing of personal data regardless of the technology used. The existence of specific rules for electronic communications services alongside general rules for other components necessary for the provision of such services may not facilitate the protection of personal data and privacy in a technologically neutral way. It may therefore be necessary to adopt measures requiring manufacturers of certain types of equipment used for electronic communications services to construct their product in such a way as to incorporate safeguards to ensure that the personal data and privacy of the user and subscriber are protected. The adoption of such measures in accordance with Directive 1999/5/EC of the European Parliament and of the Council of 9 March 1999 on radio equipment and telecommunications terminal equipment and the mutual recognition of their conformity (7) will ensure that the introduction of technical features of electronic communication equipment including software for data protection purposes is harmonised in order to be compatible with the implementation of the internal market.

394  Part 1: European Union Legislation (47) Where the rights of the users and subscribers are not respected, national legislation should provide for judicial remedies. Penalties should be imposed on any person, whether governed by private or public law, who fails to comply with the national measures taken under this Directive. (48) It is useful, in the field of application of this Directive, to draw on the experience of the Working Party on the Protection of Individuals with regard to the Processing of Personal Data composed of representatives of the supervisory authorities of the Member States, set up by Article 29 of Directive 95/46/EC. (49) To facilitate compliance with the provisions of this Directive, certain specific arrangements are needed for processing of data already under way on the date that national implementing legislation pursuant to this Directive enters into force, HAVE ADOPTED THIS DIRECTIVE: Article 1 Scope and aim 1. This Directive harmonises the provisions of the Member States required to ensure an equivalent level of protection of fundamental rights and freedoms, and in particular the right to privacy, with respect to the processing of personal data in the electronic communication sector and to ensure the free movement of such data and of electronic communication equipment and services in the Community. 2. The provisions of this Directive particularise and complement Directive 95/46/ EC for the purposes mentioned in paragraph 1. Moreover, they provide for protection of the legitimate interests of subscribers who are legal persons. 3. This Directive shall not apply to activities which fall outside the scope of the Treaty establishing the European Community, such as those covered by Titles V and VI of the Treaty on European Union, and in any case to activities concerning public security, defence, State security (including the economic well-being of the State when the activities relate to State security matters) and the activities of the State in areas of criminal law. Article 2 Definitions Save as otherwise provided, the definitions in Directive 95/46/EC and in Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) (8) shall apply. The following definitions shall also apply: (a) “user” means any natural person using a publicly available electronic communications service, for private or business purposes, without necessarily having subscribed to this service;

Directive 2002/58/EC 395 (b) “traffic data” means any data processed for the purpose of the conveyance of a communication on an electronic communications network or for the billing thereof; (c) “location data” means any data processed in an electronic communications network, indicating the geographic position of the terminal equipment of a user of a publicly available electronic communications service; (d) “communication” means any information exchanged or conveyed between a finite number of parties by means of a publicly available electronic communications service. This does not include any information conveyed as part of a broadcasting service to the public over an electronic communications network except to the extent that the information can be related to the identifiable subscriber or user receiving the information; (e) “call” means a connection established by means of a publicly available ­telephone service allowing two-way communication in real time; (f) “consent” by a user or subscriber corresponds to the data subject’s consent in Directive 95/46/EC; (g) “value added service” means any service which requires the processing of traffic data or location data other than traffic data beyond what is necessary for the transmission of a communication or the billing thereof; (h) “electronic mail” means any text, voice, sound or image message sent over a public communications network which can be stored in the network or in the recipient’s terminal equipment until it is collected by the recipient. Article 3 Services concerned 1. This Directive shall apply to the processing of personal data in connection with the provision of publicly available electronic communications services in public communications networks in the Community. 2. Articles 8, 10 and 11 shall apply to subscriber lines connected to digital exchanges and, where technically possible and if it does not require a disproportionate economic effort, to subscriber lines connected to analogue exchanges. 3. Cases where it would be technically impossible or require a disproportionate economic effort to fulfil the requirements of Articles 8, 10 and 11 shall be notified to the Commission by the Member States. Article 4 Security 1. The provider of a publicly available electronic communications service must take appropriate technical and organisational measures to safeguard security of its services, if necessary in conjunction with the provider of the public communications network with respect to network security. Having regard to the state of the art and the cost of their implementation, these measures shall ensure a level of security appropriate to the risk presented.

396  Part 1: European Union Legislation 2. In case of a particular risk of a breach of the security of the network, the provider of a publicly available electronic communications service must inform the subscribers concerning such risk and, where the risk lies outside the scope of the measures to be taken by the service provider, of any possible remedies, including an indication of the likely costs involved. Article 5 Confidentiality of the communications 1. Member States shall ensure the confidentiality of communications and the related traffic data by means of a public communications network and publicly available electronic communications services, through national legislation. In particular, they shall prohibit listening, tapping, storage or other kinds of interception or surveillance of communications and the related traffic data by persons other than users, without the consent of the users concerned, except when legally authorised to do so in accordance with Article 15(1). This paragraph shall not prevent technical storage which is necessary for the conveyance of a communication without prejudice to the principle of confidentiality. 2. Paragraph 1 shall not affect any legally authorised recording of communications and the related traffic data when carried out in the course of lawful business practice for the purpose of providing evidence of a commercial transaction or of any other business communication. 3. Member States shall ensure that the use of electronic communications networks to store information or to gain access to information stored in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned is provided with clear and comprehensive information in accordance with Directive 95/46/EC, inter alia about the purposes of the processing, and is offered the right to refuse such processing by the data controller. This shall not prevent any technical storage or access for the sole purpose of carrying out or facilitating the transmission of a communication over an electronic communications network, or as strictly necessary in order to provide an information society service explicitly requested by the subscriber or user. Article 6 Traffic data 1. Traffic data relating to subscribers and users processed and stored by the provider of a public communications network or publicly available electronic communications service must be erased or made anonymous when it is no longer needed for the purpose of the transmission of a communication without prejudice to paragraphs 2, 3 and 5 of this Article and Article 15(1). 2. Traffic data necessary for the purposes of subscriber billing and interconnection payments may be processed. Such processing is permissible only up to the

Directive 2002/58/EC 397

3.

4.

5.

6.

end of the period during which the bill may lawfully be challenged or payment pursued. For the purpose of marketing electronic communications services or for the provision of value added services, the provider of a publicly available electronic communications service may process the data referred to in paragraph 1 to the extent and for the duration necessary for such services or marketing, if the subscriber or user to whom the data relate has given his/her consent. Users or subscribers shall be given the possibility to withdraw their consent for the processing of traffic data at any time. The service provider must inform the subscriber or user of the types of traffic data which are processed and of the duration of such processing for the purposes mentioned in paragraph 2 and, prior to obtaining consent, for the purposes mentioned in paragraph 3. Processing of traffic data, in accordance with paragraphs 1, 2, 3 and 4, must be restricted to persons acting under the authority of providers of the public communications networks and publicly available electronic communications services handling billing or traffic management, customer enquiries, fraud detection, marketing electronic communications services or providing a value added service, and must be restricted to what is necessary for the purposes of such activities. Paragraphs 1, 2, 3 and 5 shall apply without prejudice to the possibility for competent bodies to be informed of traffic data in conformity with applicable legislation with a view to settling disputes, in particular interconnection or billing disputes. Article 7 Itemised billing

1. Subscribers shall have the right to receive non-itemised bills. 2. Member States shall apply national provisions in order to reconcile the rights of subscribers receiving itemised bills with the right to privacy of calling users and called subscribers, for example by ensuring that sufficient alternative privacy enhancing methods of communications or payments are available to such users and subscribers. Article 8 Presentation and restriction of calling and connected line identification 1. Where presentation of calling line identification is offered, the service provider must offer the calling user the possibility, using a simple means and free of charge, of preventing the presentation of the calling line identification on a per-call basis. The calling subscriber must have this possibility on a per-line basis. 2. Where presentation of calling line identification is offered, the service provider must offer the called subscriber the possibility, using a simple means and

398  Part 1: European Union Legislation

3.

4.

5. 6.

free of charge for reasonable use of this function, of preventing the presentation of the calling line identification of incoming calls. Where presentation of calling line identification is offered and where the calling line identification is presented prior to the call being established, the service provider must offer the called subscriber the possibility, using a simple means, of rejecting incoming calls where the presentation of the calling line identification has been prevented by the calling user or subscriber. Where presentation of connected line identification is offered, the service provider must offer the called subscriber the possibility, using a simple means and free of charge, of preventing the presentation of the connected line identification to the calling user. Paragraph 1 shall also apply with regard to calls to third countries originating in the Community. Paragraphs 2, 3 and 4 shall also apply to incoming calls originating in third countries. Member States shall ensure that where presentation of calling and/or connected line identification is offered, the providers of publicly available electronic communications services inform the public thereof and of the possibilities set out in paragraphs 1, 2, 3 and 4. Article 9 Location data other than traffic data

1. Where location data other than traffic data, relating to users or subscribers of public communications networks or publicly available electronic communications services, can be processed, such data may only be processed when they are made anonymous, or with the consent of the users or subscribers to the extent and for the duration necessary for the provision of a value added service. The service provider must inform the users or subscribers, prior to obtaining their consent, of the type of location data other than traffic data which will be processed, of the purposes and duration of the processing and whether the data will be transmitted to a third party for the purpose of providing the value added service. Users or subscribers shall be given the possibility to withdraw their consent for the processing of location data other than traffic data at any time. 2. Where consent of the users or subscribers has been obtained for the processing of location data other than traffic data, the user or subscriber must continue to have the possibility, using a simple means and free of charge, of temporarily refusing the processing of such data for each connection to the network or for each transmission of a communication. 3. Processing of location data other than traffic data in accordance with paragraphs 1 and 2 must be restricted to persons acting under the authority of the provider of the public communications network or publicly available communications service or of the third party providing the value added service, and must be restricted to what is necessary for the purposes of providing the value added service.

Directive 2002/58/EC 399 Article 10 Exceptions Member States shall ensure that there are transparent procedures governing the way in which a provider of a public communications network and/or a publicly available electronic communications service may override: (a) the elimination of the presentation of calling line identification, on a temporary basis, upon application of a subscriber requesting the tracing of malicious or nuisance calls. In this case, in accordance with national law, the data containing the identification of the calling subscriber will be stored and be made available by the provider of a public communications network and/or publicly available electronic communications service; (b) the elimination of the presentation of calling line identification and the temporary denial or absence of consent of a subscriber or user for the processing of location data, on a per-line basis for organisations dealing with emergency calls and recognised as such by a Member State, including law enforcement agencies, ambulance services and fire brigades, for the purpose of responding to such calls. Article 11 Automatic call forwarding Member States shall ensure that any subscriber has the possibility, using a simple means and free of charge, of stopping automatic call forwarding by a third party to the subscriber’s terminal. Article 12 Directories of subscribers 1. Member States shall ensure that subscribers are informed, free of charge and before they are included in the directory, about the purpose(s) of a printed or electronic directory of subscribers available to the public or obtainable through directory enquiry services, in which their personal data can be included and of any further usage possibilities based on search functions embedded in electronic versions of the directory. 2. Member States shall ensure that subscribers are given the opportunity to determine whether their personal data are included in a public directory, and if so, which, to the extent that such data are relevant for the purpose of the directory as determined by the provider of the directory, and to verify, correct or withdraw such data. Not being included in a public subscriber directory, verifying, correcting or withdrawing personal data from it shall be free of charge. 3. Member States may require that for any purpose of a public directory other than the search of contact details of persons on the basis of their name and, where necessary, a minimum of other identifiers, additional consent be asked of the subscribers.

400  Part 1: European Union Legislation 4. Paragraphs 1 and 2 shall apply to subscribers who are natural persons. ­Member States shall also ensure, in the framework of Community law and applicable national legislation, that the legitimate interests of subscribers other than natural persons with regard to their entry in public directories are sufficiently protected. Article 13 Unsolicited communications 1. The use of automated calling systems without human intervention (automatic calling machines), facsimile machines (fax) or electronic mail for the purposes of direct marketing may only be allowed in respect of subscribers who have given their prior consent. 2. Notwithstanding paragraph 1, where a natural or legal person obtains from its customers their electronic contact details for electronic mail, in the context of the sale of a product or a service, in accordance with Directive 95/46/EC, the same natural or legal person may use these electronic contact details for direct marketing of its own similar products or services provided that customers clearly and distinctly are given the opportunity to object, free of charge and in an easy manner, to such use of electronic contact details when they are collected and on the occasion of each message in case the customer has not initially refused such use. 3. Member States shall take appropriate measures to ensure that, free of charge, unsolicited communications for purposes of direct marketing, in cases other than those referred to in paragraphs 1 and 2, are not allowed either without the consent of the subscribers concerned or in respect of subscribers who do not wish to receive these communications, the choice between these options to be determined by national legislation. 4. In any event, the practice of sending electronic mail for purposes of direct marketing disguising or concealing the identity of the sender on whose behalf the communication is made, or without a valid address to which the recipient may send a request that such communications cease, shall be prohibited. 5. Paragraphs 1 and 3 shall apply to subscribers who are natural persons. ­Member States shall also ensure, in the framework of Community law and applicable national legislation, that the legitimate interests of subscribers other than natural persons with regard to unsolicited communications are sufficiently protected. Article 14 Technical features and standardization 1. In implementing the provisions of this Directive, Member States shall ensure, subject to paragraphs 2 and 3, that no mandatory requirements for specific technical features are imposed on terminal or other electronic communication equipment which could impede the placing of equipment on the market and the free circulation of such equipment in and between Member States.

Directive 2002/58/EC 401 2. Where provisions of this Directive can be implemented only by requiring specific technical features in electronic communications networks, Member States shall inform the Commission in accordance with the procedure provided for by Directive 98/34/EC of the European Parliament and of the ­Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on information society services (9). 3. Where required, measures may be adopted to ensure that terminal equipment is constructed in a way that is compatible with the right of users to protect and control the use of their personal data, in accordance with Directive 1999/5/EC and Council Decision 87/95/EEC of 22 December 1986 on standardisation in the field of information technology and communications (10). Article 15 Application of certain provisions of Directive 95/46/EC 1. Member States may adopt legislative measures to restrict the scope of the rights and obligations provided for in Article 5, Article 6, Article 8(1), (2), (3) and (4), and Article 9 of this Directive when such restriction constitutes a necessary, appropriate and proportionate measure within a democratic society to safeguard national security (i.e. State security), defence, public security, and the prevention, investigation, detection and prosecution of criminal offences or of unauthorised use of the electronic communication system, as referred to in Article 13(1) of Directive 95/46/EC. To this end, Member States may, inter alia, adopt legislative measures providing for the retention of data for a limited period justified on the grounds laid down in this paragraph. All the measures referred to in this paragraph shall be in accordance with the general principles of Community law, including those referred to in Article 6(1) and (2) of the Treaty on European Union. 2. The provisions of Chapter III on judicial remedies, liability and sanctions of Directive 95/46/EC shall apply with regard to national provisions adopted pursuant to this Directive and with regard to the individual rights derived from this Directive. 3. The Working Party on the Protection of Individuals with regard to the Processing of Personal Data instituted by Article 29 of Directive 95/46/EC shall also carry out the tasks laid down in Article 30 of that Directive with regard to matters covered by this Directive, namely the protection of fundamental rights and freedoms and of legitimate interests in the electronic communications sector. Article 16 Transitional arrangements 1. Article 12 shall not apply to editions of directories already produced or placed on the market in printed or off-line electronic form before the national provisions adopted pursuant to this Directive enter into force.

402  Part 1: European Union Legislation 2. Where the personal data of subscribers to fixed or mobile public voice ­telephony services have been included in a public subscriber directory in conformity with the provisions of Directive 95/46/EC and of Article 11 of Directive 97/66/EC before the national provisions adopted in pursuance of this Directive enter into force, the personal data of such subscribers may remain included in this public directory in its printed or electronic versions, including versions with reverse search functions, unless subscribers indicate otherwise, after having received complete information about purposes and options in accordance with Article 12 of this Directive. Article 17 Transposition 1. Before 31 October 2003 Member States shall bring into force the provisions necessary to comply with this Directive. They shall forthwith inform the Commission thereof. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by the Member States. 2. Member States shall communicate to the Commission the text of the provisions of national law which they adopt in the field governed by this Directive and of any subsequent amendments to those provisions. Article 18 Review The Commission shall submit to the European Parliament and the Council, not later than three years after the date referred to in Article 17(1), a report on the application of this Directive and its impact on economic operators and consumers, in particular as regards the provisions on unsolicited communications, taking into account the international environment. For this purpose, the Commission may request information from the Member States, which shall be supplied without undue delay. Where appropriate, the Commission shall submit proposals to amend this Directive, taking account of the results of that report, any changes in the sector and any other proposal it may deem necessary in order to improve the effectiveness of this Directive. Article 19 Repeal Directive 97/66/EC is hereby repealed with effect from the date referred to in Article 17(1). References made to the repealed Directive shall be construed as being made to this Directive.

Directive 2002/58/EC 403 Article 20 Entry into force This Directive shall enter into force on the day of its publication in the Official ­Journal of the European Communities. Article 21 Addressees This Directive is addressed to the Member States. (1)

OJ C 365 E, 19.12.2000, p. 223. OJ C 123, 25.4.2001, p. 53. (3)  Opinion of the European Parliament of 13 November 2001 (not yet published in the Official Journal), Council Common Position of 28 January 2002 (OJ C 113 E, 14.5.2002, p. 39) and Decision of the European Parliament of 30 May 2002 (not yet published in the Official Journal). Council Decision of 25 June 2002. (4) OJ L 281, 23.11.1995, p. 31. (5) OJ L 24, 30.1.1998, p. 1. (6) OJ L 178, 17.7.2000, p. 1. (7) OJ L 91, 7.4.1999, p. 10. (8) OJ L 108, 24.4.2002, p. 33. (9)  OJ L 204, 21.7.1998, p. 37. Directive as amended by Directive 98/48/EC (OJ L 217, 5.8.1998, p. 18). (10) OJ L 36, 7.2.1987, p. 31. Decision as last amended by the 1994 Act of Accession. (2)

Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC* (OJ 2002 L271 p.16) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in p ­ articular Article 47(2), Article 55 and Article 95 thereof, Having regard to the proposal from the Commission (1), Having regard to the opinion of the Economic and Social Committee (2), Acting in accordance with the procedure laid down in Article 251 of the Treaty (3),

Whereas: (1)

(2) (3)

It is important, in the context of achieving the aims of the single market, to adopt measures designed to consolidate progressively this market and those measures must contribute to attaining a high level of consumer protection, in accordance with Articles 95 and 153 of the Treaty. Both for consumers and suppliers of financial services, the distance marketing of financial services will constitute one of the main tangible results of the completion of the internal market. Within the framework of the internal market, it is in the interest of consumers to have access without discrimination to the widest possible range of financial services available in the Community so that they can choose those that are best suited to their needs. In order to safeguard freedom of choice, which is an essential consumer right, a high degree of consumer protection is required in order to enhance consumer confidence in distance selling.

*  Implemented in the UK by the Financial Services (Distance Marketing) Regulations 2004, S.I. No. 2004/2095; Sale and Rentback Instrument 2010, number: FSA 2010/1.

2002/65/EC 405 (4) It is essential to the smooth operation of the internal market for consumers to be able to negotiate and conclude contracts with a supplier established in other Member States, regardless of whether the supplier is also established in the Member State in which the consumer resides. (5) Because of their intangible nature, financial services are particularly suited to distance selling and the establishment of a legal framework governing the distance marketing of financial services should increase consumer ­confidence in the use of new techniques for the distance marketing of financial services, such as electronic commerce. (6) This Directive should be applied in conformity with the Treaty and with secondary law, including Directive 2000/31/EC (4) on electronic commerce, the latter being applicable solely to the transactions which it covers. (7) This Directive aims to achieve the objectives set forth above without prejudice to Community or national law governing freedom to provide services or, where applicable, host Member State control and/or authorisation or supervision systems in the Member States where this is compatible with Community legislation. (8) Moreover, this Directive, and in particular its provisions relating to information about any contractual clause on law applicable to the contract and/or on the competent court does not affect the applicability to the distance marketing of consumer financial services of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (5) or of the 1980 Rome Convention on the law applicable to contractual obligations. (9) The achievement of the objectives of the Financial Services Action Plan requires a higher level of consumer protection in certain areas. This implies a greater convergence, in particular, in non harmonised collective investment funds, rules of conduct applicable to investment services and consumer credits. Pending the achievement of the above convergence, a high level of consumer protection should be maintained. (10) Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (6), lays down the main rules applicable to distance contracts for goods or services concluded between a supplier and a consumer. However, that Directive does not cover financial services. (11) In the context of the analysis conducted by the Commission with a view to ascertaining the need for specific measures in the field of financial services, the Commission invited all the interested parties to transmit their comments, notably in connection with the preparation of its Green Paper entitled “Financial Services—Meeting Consumers’ Expectations”. The consultations in this context showed that there is a need to strengthen consumer protection in this area. The Commission therefore decided to present a specific proposal concerning the distance marketing of financial services. (12) The adoption by the Member States of conflicting or different consumer protection rules governing the distance marketing of consumer financial services could impede the functioning of the internal market and c­ ompetition

406  Part 1: European Union Legislation

(13)

(14)

(15)

(16)

(17)

(18)

(19)

between firms in the market. It is therefore necessary to enact common rules at Community level in this area, consistent with no reduction in overall consumer protection in the Member States. A high level of consumer protection should be guaranteed by this Directive, with a view to ensuring the free movement of financial services. Member States should not be able to adopt provisions other than those laid down in this Directive in the fields it harmonises, unless otherwise specifically indicated in it. This Directive covers all financial services liable to be provided at a distance. However, certain financial services are governed by specific provisions of Community legislation which continue to apply to those financial services. However, principles governing the distance marketing of such ­services should be laid down. Contracts negotiated at a distance involve the use of means of distance communication which are used as part of a distance sales or service-provision­ scheme not involving the simultaneous presence of the supplier and the consumer. The constant development of those means of communication requires principles to be defined that are valid even for those means which are not yet in widespread use. Therefore, distance contracts are those the offer, negotiation and conclusion of which are carried out at a distance. A single contract involving successive operations or separate operations of the same nature performed over time may be subject to different legal treatment in the different Member States, but it is important that this Directive be applied in the same way in all the Member States. To that end, it is appropriate that this Directive should be considered to apply to the first of a series of successive operations or separate operations of the same nature performed over time which may be considered as forming a whole, irrespective of whether that operation or series of operations is the subject of a single contract or several successive contracts. An “initial service agreement” may be considered to be for example the opening of a bank account, acquiring a credit card, concluding a portfolio management contract, and “operations” may be considered to be for example the deposit or withdrawal of funds to or from the bank account, payment by credit card, transactions made within the framework of a portfolio management contract. Adding new elements to an initial service agreement, such as a possibility to use an electronic payment instrument together with one’s existing bank account, does not constitute an “operation” but an additional contract to which this Directive applies. The subscription to new units of the same collective investment fund is considered to be one of “successive operations of the same nature”. By covering a service-provision scheme organised by the financial services provider, this Directive aims to exclude from its scope services provided on a strictly occasional basis and outside a commercial structure dedicated to the conclusion of distance contracts. The supplier is the person providing services at a distance. This Directive should however also apply when one of the marketing stages involves an

2002/65/EC 407

(20)

(21)

(22)

(23)

(24) (25)

(26)

(27)

intermediary. Having regard to the nature and degree of that involvement, the pertinent provisions of this Directive should apply to such an intermediary, irrespective of his or her legal status. Durable mediums include in particular floppy discs, CD-ROMs, DVDs and the hard drive of the consumer’s computer on which the electronic mail is stored, but they do not include Internet websites unless they fulfil the criteria contained in the definition of a durable medium. The use of means of distance communications should not lead to an unwarranted restriction on the information provided to the client. In the interests of transparency this Directive lays down the requirements needed to ensure that an appropriate level of information is provided to the consumer both before and after conclusion of the contract. The consumer should receive, before conclusion of the contract, the prior information needed so as to properly appraise the financial service offered to him and hence make a well-informed choice. The supplier should specify how long his offer applies as it stands. Information items listed in this Directive cover information of a general nature applicable to all kinds of financial services. Other information requirements concerning a given financial service, such as the coverage of an insurance policy, are not solely specified in this Directive. This kind of information should be provided in accordance, where applicable, with relevant Community legislation or national legislation in conformity with Community law. With a view to optimum protection of the consumer, it is important that the consumer is adequately informed of the provisions of this Directive and of any codes of conduct existing in this area and that he has a right of withdrawal. When the right of withdrawal does not apply because the consumer has expressly requested the performance of a contract, the supplier should inform the consumer of this fact. Consumers should be protected against unsolicited services. Consumers should be exempt from any obligation in the case of unsolicited services, the absence of a reply not being construed as signifying consent on their part. However, this rule should be without prejudice to the tacit renewal of contracts validly concluded between the parties whenever the law of the Member States permits such tacit renewal. Member States should take appropriate measures to protect effectively consumers who do not wish to be contacted through certain means of communication or at certain times. This Directive should be without prejudice to the particular safeguards available to consumers under Community legislation concerning the protection of personal data and privacy. With a view to protecting consumers, there is a need for suitable and effective complaint and redress procedures in the Member States with a view

408  Part 1: European Union Legislation

(28)

(29)

(30) (31) (32)

(33)

(34)

to settling potential disputes between suppliers and consumers, by using, where appropriate, existing procedures. Member States should encourage public or private bodies established with a view to settling disputes out of court to cooperate in resolving cross-border­ disputes. Such cooperation could in particular entail allowing consumers to submit to extra-judicial bodies in the Member State of their residence complaints concerning suppliers established in other Member States. The establishment of FIN-NET offers increased assistance to consumers when using cross-border services. This Directive is without prejudice to extension by Member States, in accordance with Community law, of the protection provided by this ­Directive to non-profit organisations and persons making use of financial services in order to become entrepreneurs. This Directive should also cover cases where the national legislation includes the concept of a consumer making a binding contractual statement. The provisions in this Directive on the supplier’s choice of language should be without prejudice to provisions of national legislation, adopted in conformity with Community law governing the choice of language. The Community and the Member States have entered into commitments in the context of the General Agreement on Trade in Services (GATS) concerning the possibility for consumers to purchase banking and investment services abroad. The GATS entitles Member States to adopt measures for prudential reasons, including measures to protect investors, depositors, policy-holders and persons to whom a financial service is owed by the supplier of the financial service. Such measures should not impose restrictions going beyond what is required to ensure the protection of consumers. In view of the adoption of this Directive, the scope of Directive 97/7/EC and Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (7) and the scope of the cancellation period in Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services (8) should be adapted. Since the objectives of this Directive, namely the establishment of common rules on the distance marketing of consumer financial services cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principles of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary to achieve that objective,

2002/65/EC 409 HAVE ADOPTED THIS DIRECTIVE: Article 1 Object and scope 1. The object of this Directive is to approximate the laws, regulations and administrative provisions of the Member States concerning the distance marketing of consumer financial services. 2. In the case of contracts for financial services comprising an initial service agreement followed by successive operations or a series of separate operations of the same nature performed over time, the provisions of this Directive shall apply only to the initial agreement. In case there is no initial service agreement but the successive operations or the separate operations of the same nature performed over time are performed between the same contractual parties, Articles 3 and 4 apply only when the first operation is performed. Where, however, no operation of the same nature is performed for more than one year, the next operation will be deemed to be the first in a new series of operations and, accordingly, Articles 3 and 4 shall apply. Article 2 Definitions For the purposes of this Directive: (a) “distance contract” means any contract concerning financial services concluded between a supplier and a consumer under an organised distance sales or service-provision scheme run by the supplier, who, for the purpose of that contract, makes exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded; (b) “financial service” means any service of a banking, credit, insurance, personal pension, investment or payment nature; (c) “supplier” means any natural or legal person, public or private, who, acting in his commercial or professional capacity, is the contractual provider of services subject to distance contracts; (d) “consumer” means any natural person who, in distance contracts covered by this Directive, is acting for purposes which are outside his trade, business or profession; (e) “means of distance communication” refers to any means which, without the simultaneous physical presence of the supplier and the consumer, may be used for the distance marketing of a service between those parties; (f) “durable medium” means any instrument which enables the consumer to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (g) “operator or supplier of a means of distance communication” means any public or private, natural or legal person whose trade, business or profession involves making one or more means of distance communication available to suppliers.

410  Part 1: European Union Legislation Article 3 Information to the consumer prior to the conclusion of the distance contract 1. In good time before the consumer is bound by any distance contract or offer, he shall be provided with the following information concerning: (1) the supplier (a) the identity and the main business of the supplier, the geographical address at which the supplier is established and any other geographical address relevant for the customer’s relations with the supplier; (b) the identity of the representative of the supplier established in the consumer’s Member State of residence and the geographical address relevant for the customer’s relations with the representative, if such a representative exists; (c) when the consumer’s dealings are with any professional other than the supplier, the identity of this professional, the capacity in which he is acting vis-à-vis the consumer, and the geographical address relevant for the customer’s relations with this professional; (d) where the supplier is registered in a trade or similar public register, the trade register in which the supplier is entered and his registration number or an equivalent means of identification in that register; (e) where the supplier’s activity is subject to an authorisation scheme, the particulars of the relevant supervisory authority; (2) the financial service (a) a description of the main characteristics of the financial service; (b) the total price to be paid by the consumer to the supplier for the financial service, including all related fees, charges and expenses, and all taxes paid via the supplier or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it; (c) where relevant notice indicating that the financial service is related to instruments involving special risks related to their specific features or the operations to be executed or whose price depends on fluctuations in the financial markets outside the supplier’s control and that historical performances are no indicators for future performances; (d) notice of the possibility that other taxes and/or costs may exist that are not paid via the supplier or imposed by him; (e) any limitations of the period for which the information provided is valid; (f) the arrangements for payment and for performance; (g) any specific additional cost for the consumer of using the means of ­distance communication, if such additional cost is charged;

2002/65/EC 411 (3) the distance contract (a) the existence or absence of a right of withdrawal in accordance with Article 6 and, where the right of withdrawal exists, its duration and the conditions for exercising it, including information on the amount which the consumer may be required to pay on the basis of Article 7(1), as well as the consequences of non-exercise of that right; (b) the minimum duration of the distance contract in the case of financial services to be performed permanently or recurrently; (c) information on any rights the parties may have to terminate the contract early or unilaterally by virtue of the terms of the distance contract, including any penalties imposed by the contract in such cases; (d) practical instructions for exercising the right of withdrawal indicating, inter alia, the address to which the notification of a withdrawal should be sent; (e) the Member State or States whose laws are taken by the supplier as a basis for the establishment of relations with the consumer prior to the conclusion of the distance contract; (f) any contractual clause on law applicable to the distance contract and/or on competent court; (g) in which language, or languages, the contractual terms and conditions, and the prior information referred to in this Article are supplied, and furthermore in which language, or languages, the supplier, with the agreement of the consumer, undertakes to communicate during the duration of this distance contract; (4) redress (a) whether or not there is an out-of-court complaint and redress mechanism for the consumer that is party to the distance contract and, if so, the methods for having access to it; (b) the existence of guarantee funds or other compensation arrangements, not covered by Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit guarantee schemes (9) and Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor compensation schemes (10). 2. The information referred to in paragraph 1, the commercial purpose of which must be made clear, shall be provided in a clear and comprehensible manner in any way appropriate to the means of distance communication used, with due regard, in particular, to the principles of good faith in commercial transactions, and the principles governing the protection of those who are unable, pursuant to the legislation of the Member States, to give their consent, such as minors. 3. In the case of voice telephony communications (a) the identity of the supplier and the commercial purpose of the call initiated by the supplier shall be made explicitly clear at the beginning of any conversation with the consumer;

412  Part 1: European Union Legislation (b) subject to the explicit consent of the consumer only the following information needs to be given: —— the identity of the person in contact with the consumer and his link with the supplier, —— a description of the main characteristics of the financial service, —— the total price to be paid by the consumer to the supplier for the financial service including all taxes paid via the supplier or, when an exact price cannot be indicated, the basis for the calculation of the price enabling the consumer to verify it, —— notice of the possibility that other taxes and/or costs may exist that are not paid via the supplier or imposed by him, —— the existence or absence of a right of withdrawal in accordance with Article 6 and, where the right of withdrawal exists, its duration and the conditions for exercising it, including information on the amount which the consumer may be required to pay on the basis of Article 7(1). The supplier shall inform the consumer that other information is available on request and of what nature this information is. In any case the supplier shall provide the full information when he fulfils his obligations under Article 5. 4. Information on contractual obligations, to be communicated to the consumer during the pre-contractual phase, shall be in conformity with the contractual obligations which would result from the law presumed to be applicable to the distance contract if the latter were concluded. Article 4 Additional information requirements 1. Where there are provisions in the Community legislation governing financial services which contain prior information requirements additional to those listed in Article 3(1), these requirements shall continue to apply. 2. Pending further harmonisation, Member States may maintain or introduce more stringent provisions on prior information requirements when the provisions are in conformity with Community law. 3. Member States shall communicate to the Commission national provisions on prior information requirements under paragraphs 1 and 2 of this Article when these requirements are additional to those listed in Article 3(1). The Commission shall take account of the communicated national provisions when drawing up the report referred to in Article 20(2). 4. The Commission shall, with a view to creating a high level of transparency by all appropriate means, ensure that information, on the national provisions communicated to it, is made available to consumers and suppliers.

2002/65/EC 413 Article 5 Communication of the contractual terms and conditions and of the prior information 1. The supplier shall communicate to the consumer all the contractual terms and conditions and the information referred to in Article 3(1) and Article 4 on paper or on another durable medium available and accessible to the consumer in good time before the consumer is bound by any distance contract or offer. 2. The supplier shall fulfil his obligation under paragraph 1 immediately after the conclusion of the contract, if the contract has been concluded at the consumer’s request using a means of distance communication which does not enable providing the contractual terms and conditions and the information in conformity with paragraph 1. 3. At any time during the contractual relationship the consumer is entitled, at his request, to receive the contractual terms and conditions on paper. In addition, the consumer is entitled to change the means of distance communication used, unless this is incompatible with the contract concluded or the nature of the financial service provided. Article 6 Right of withdrawal 1. The Member States shall ensure that the consumer shall have a period of 14 calendar days to withdraw from the contract without penalty and without giving any reason. However, this period shall be extended to 30 calendar days in distance contracts relating to life insurance covered by Directive 90/619/EEC and personal pension operations. The period for withdrawal shall begin: — either from the day of the conclusion of the distance contract, except in respect of the said life assurance, where the time limit will begin from the time when the consumer is informed that the distance contract has been concluded, or — from the day on which the consumer receives the contractual terms and conditions and the information in accordance with Article 5(1) or (2), if that is later than the date referred to in the first indent. Member States, in addition to the right of withdrawal, may provide that the enforceability of contracts relating to investment services is suspended for the same period provided for in this paragraph. 2. The right of withdrawal shall not apply to: (a) financial services whose price depends on fluctuations in the financial market outside the suppliers control, which may occur during the withdrawal period, such as services related to: —— foreign exchange, —— money market instruments, —— transferable securities, —— units in collective investment undertakings,

414  Part 1: European Union Legislation

3.

4. 5. 6.

7.

—— financial-futures contracts, including equivalent cash-settled instruments, —— forward interest-rate agreements (FRAs), —— interest-rate, currency and equity swaps, —— options to acquire or dispose of any instruments referred to in this point including equivalent cash-settled instruments. This category includes in particular options on currency and on interest rates; (b) travel and baggage insurance policies or similar short-term insurance policies of less than one month’s duration; (c) contracts whose performance has been fully completed by both parties at the consumer’s express request before the consumer exercises his right of withdrawal. Member States may provide that the right of withdrawal shall not apply to: (a) any credit intended primarily for the purpose of acquiring or retaining property rights in land or in an existing or projected building, or for the purpose of renovating or improving a building, or (b) any credit secured either by mortgage on immovable property or by a right related to immovable property, or (c) declarations by consumers using the services of an official, provided that the official confirms that the consumer is guaranteed the rights under Article 5(1). This paragraph shall be without prejudice to the right to a reflection time to the benefit of the consumers that are resident in those Member States where it exists, at the time of the adoption of this Directive. Member States making use of the possibility set out in paragraph 3 shall communicate it to the Commission. The Commission shall make available the information communicated by Member States to the European Parliament and the Council and shall ensure that it is also available to consumers and suppliers who request it. If the consumer exercises his right of withdrawal he shall, before the expiry of the relevant deadline, notify this following the practical instructions given to him in accordance with Article 3(1)(3)(d) by means which can be proved in accordance with national law. The deadline shall be deemed to have been observed if the notification, if it is on paper or on another durable medium available and accessible to the recipient, is dispatched before the deadline expires. This Article does not apply to credit agreements cancelled under the conditions of Article 6(4) of Directive 97/7/EC or Article 7 of Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis (11). If to a distance contract of a given financial service another distance contract has been attached concerning services provided by the supplier or by a third party on the basis of an agreement between the third party and the supplier, this additional distance contract shall be cancelled, without any penalty, if the consumer exercises his right of withdrawal as provided for in Article 6(1).

2002/65/EC 415 8. The provisions of this Article are without prejudice to the Member States’ laws and regulations governing the cancellation or termination or nonenforceability of a distance contract or the right of a consumer to fulfil his contractual obligations before the time fixed in the distance contract. This applies irrespective of the conditions for and the legal effects of the windingup of the contract. Article 7 Payment of the service provided before withdrawal 1. When the consumer exercises his right of withdrawal under Article 6(1) he may only be required to pay, without any undue delay, for the service actually provided by the supplier in accordance with the contract. The performance of the contract may only begin after the consumer has given his approval. The amount payable shall not: —— exceed an amount which is in proportion to the extent of the service already provided in comparison with the full coverage of the contract, —— in any case be such that it could be construed as a penalty. 2. Member States may provide that the consumer cannot be required to pay any amount when withdrawing from an insurance contract. 3. The supplier may not require the consumer to pay any amount on the basis of paragraph 1 unless he can prove that the consumer was duly informed about the amount payable, in conformity with Article 3(1)(3)(a). However, in no case may he require such payment if he has commenced the performance of the contract before the expiry of the withdrawal period provided for in Article 6(1) without the consumer’s prior request. 4. The supplier shall, without any undue delay and no later than within 30 calendar days, return to the consumer any sums he has received from him in accordance with the distance contract, except for the amount referred to in paragraph 1. This period shall begin from the day on which the supplier receives the notification of withdrawal. 5. The consumer shall return to the supplier any sums and/or property he has received from the supplier without any undue delay and no later than within 30 calendar days. This period shall begin from the day on which the consumer dispatches the notification of withdrawal. Article 8 Payment by card Member States shall ensure that appropriate measures exist to allow a consumer: —— to request cancellation of a payment where fraudulent use has been made of his payment card in connection with distance contracts, —— in the event of such fraudulent use, to be re-credited with the sum paid or have them returned.

416  Part 1: European Union Legislation Article 9 Unsolicited services Without prejudice to Member States provisions on the tacit renewal of distance contracts, when such rules permit tacit renewal, Member States shall take the necessary measures to: —— prohibit the supply of financial services to a consumer without a prior request on his part, when this supply includes a request for immediate or deferred payment, —— exempt the consumer from any obligation in the event of unsolicited ­supplies, the absence of a reply not constituting consent. Article 10 Unsolicited communications 1. The use by a supplier of the following distance communication techniques shall require the consumer’s prior consent: (a) automated calling systems without human intervention (automatic ­calling machines); (b) fax machines. 2. Member States shall ensure that means of distance communication other than those referred to in paragraph 1, when they allow individual communications: (a) shall not be authorised unless the consent of the consumers concerned has been obtained, or (b) may only be used if the consumer has not expressed his manifest objection. 3. The measures referred to in paragraphs 1 and 2 shall not entail costs for consumers. Article 11 Sanctions Member States shall provide for appropriate sanctions in the event of the supplier’s failure to comply with national provisions adopted pursuant to this Directive. They may provide for this purpose in particular that the consumer may cancel the contract at any time, free of charge and without penalty. These sanctions must be effective, proportional and dissuasive. Article 12 Imperative nature of this Directive’s provisions 1. Consumers may not waive the rights conferred on them by this Directive. 2. Member States shall take the measures needed to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-member country as the law applicable to the contract, if this contract has a close link with the territory of one or more Member States.

2002/65/EC 417 Article 13 Judicial and administrative redress 1. Member States shall ensure that adequate and effective means exist to ensure compliance with this Directive in the interests of consumers. 2. The means referred to in paragraph 1 shall include provisions whereby one or more of the following bodies, as determined by national law, may take action in accordance with national law before the courts or competent administrative bodies to ensure that the national provisions for the implementation of this Directive are applied; (a) public bodies or their representatives; (b) consumer organisations having a legitimate interest in protecting consumers; (c) professional organisations having a legitimate interest in acting. 3. Member States shall take the measures necessary to ensure that operators and suppliers of means of distance communication put an end to practices that have been declared to be contrary to this Directive, on the basis of a judicial decision, an administrative decision or a decision issued by a supervisory authority notified to them, where those operators or suppliers are in a ­position to do so. Article 14 Out-of-court redress 1. Member States shall promote the setting up or development of adequate and effective out-of-court complaints and redress procedures for the settlement of consumer disputes concerning financial services provided at distance. 2. Member States shall, in particular, encourage the bodies responsible for outof-court settlement of disputes to cooperate in the resolution of cross-border disputes concerning financial services provided at distance. Article 15 Burden of proof Without prejudice to Article 7(3), Member States may stipulate that the burden of proof in respect of the supplier’s obligations to inform the consumer and the consumer’s consent to conclusion of the contract and, where appropriate, its performance, can be placed on the supplier. Any contractual term or condition providing that the burden of proof of the respect by the supplier of all or part of the obligations incumbent on him pursuant to this Directive should lie with the consumer shall be an unfair term within the meaning of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (12).

418  Part 1: European Union Legislation Article 16 Transitional measures Member States may impose national rules which are in conformity with this Directive on suppliers established in a Member State which has not yet transposed this Directive and whose law has no obligations corresponding to those provided for in this Directive. Article 17 Directive 90/619/EC In Article 15(1) of Directive 90/619/EEC the first subparagraph shall be replaced by the following: “1. Each Member State shall prescribe that a policyholder who concludes an individual life-assurance contract shall have a period of 30 calendar days, from the time when he was informed that the contract had been concluded, within which to cancel the contract.” Article 18 Directive 97/7/EC Directive 97/7/EC is hereby amended as follows: 1. the first indent of Article 3(1) shall be replaced by the following: “relating to any financial service to which Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance ­marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC (13) applies,”; 2. Annex II shall be deleted. Article 19 Directive 98/27/EC The following point shall be added to the Annex of Directive 98/27/EC: “11. Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and a­ mending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC (14).” Article 20 Review 1. Following the implementation of this Directive, the Commission shall examine the functioning of the internal market in financial services in respect of the marketing of those services. It should seek to analyse and detail the difficulties that are, or might be faced by both consumers and suppliers, in particular arising from differences between national provisions regarding information and right of withdrawal.

2002/65/EC 419 2. Not later than 9 April 2006 the Commission shall report to the European Parliament and the Council on the problems facing both consumers and suppliers seeking to buy and sell financial services, and shall submit, where appropriate, proposals to amend and/or further harmonise the information and right of withdrawal provisions in Community legislation concerning financial services and/or those covered in Article 3. Article 21 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive not later than 9 October 2004. They shall forthwith inform the Commission thereof. When Member States adopt these measures, they shall contain a reference to this Directive or shall be accompanied by such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field governed by this Directive together with a table showing how the provisions of this Directive correspond to the national provisions adopted. Article 22 Entry into force This Directive shall enter into force on the day of its publication in the Official Journal of the European Communities. Article 23 Addressees This Directive is addressed to the Member States. (1)

OJ C 385, 11.12.1998, p. 10 and OJ C 177 E, 27.6.2000, p. 21. OJ C 169, 16.6.1999, p. 43. (3)  Opinion of the European Parliament of 5 May 1999 (OJ C 279, 1.10.1999, p. 207), Council Common Position of 19 December 2001 (OJ C 58 E, 5.3.2002, p. 32) and Decision of the European Parliament of 14 May 2002 (not yet published in the Official Journal). Council Decision of 26 June 2002 (not yet published in the Official Journal). (4) OJ L 178, 17.7.2000, p. 1. (5) OJ L 12, 16.1.2001, p. 1. (6) OJ L 144, 4.6.1997, p. 19. (2)

420  Part 1: European Union Legislation (7) OJ

L 166, 11.6.1998, p. 51. Directive as last amended by Directive 2000/31/EC (OJ L 178, 17.7.2001, p. 1). (8) OJ L 330, 29.11.1990, p. 50. Directive as last amended by Directive 92/96/EEC (OJ L 360, 9.12.1992, p. 1). (9) OJ L 135, 31.5.1994, p. 5. (10) OJ L 84, 26.3.1997, p. 22. (11) OJ L 280, 29.10.1994, p. 83. (12) OJ L 95, 21.4.1993, p. 29. (13) OJ L 271, 9.10.2002, p. 16. (14) OJ L 271, 9.10.2002, p. 16.

Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage* (OJ 2004 L143 p.56) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 175(1) thereof, Having regard to the proposal from the Commission (1), Having regard to the Opinion of the European Economic and Social Committee (2), After consulting the Committee of the Regions, Acting in accordance with the procedure laid down in Article 251 of the Treaty (3), in the light of the joint text approved by the Conciliation Committee on 10 March 2004,

Whereas: (1)

There are currently many contaminated sites in the Community, posing significant health risks, and the loss of biodiversity has dramatically accelerated over the last decades. Failure to act could result in increased site ­contamination and greater loss of biodiversity in the future. Preventing and remedying, insofar as is possible, environmental damage contributes to implementing the objectives and principles of the Community’s environment policy as set out in the Treaty. Local conditions should be taken into account when deciding how to remedy damage.

*  Implemented in the United Kingdom by 1. The Environmental Damage (Prevention and Remediation) Regulations 2009 (England), S.I. 2009 No. 153; the Environmental Damage (Prevention and Remediation) (Wales) Regulations 2009, W.S.I No. 2009 no. 995; the Environmental Liability (Prevention and Remediation)Regulations (Northern Ireland) 2009, SR 2009 No. 252; Environmental Liability (Scotland) Regulations 2009, SSI 2009 No. 266.

422  Part 1: European Union Legislation (2) The prevention and remedying of environmental damage should be implemented through the furtherance of the “polluter pays” principle, as indicated in the Treaty and in line with the principle of sustainable development. The fundamental principle of this Directive should therefore be that an operator whose activity has caused the environmental damage or the imminent threat of such damage is to be held financially liable, in order to induce operators to adopt measures and develop practices to minimise the risks of environmental damage so that their exposure to financial liabilities is reduced. (3) Since the objective of this Directive, namely to establish a common framework for the prevention and remedying of environmental damage at a reasonable cost to society, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level by reason of the scale of this Directive and its implications in respect of other Community legislation, namely Council Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds (4), Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (5), and Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy (6), the Community may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (4) Environmental damage also includes damage caused by airborne elements as far as they cause damage to water, land or protected species or natural habitats. (5) Concepts instrumental for the correct interpretation and application of the scheme provided for by this Directive should be defined especially as regards the definition of environmental damage. When the concept in question derives from other relevant Community legislation, the same definition should be used so that common criteria can be used and uniform application promoted. (6) Protected species and natural habitats might also be defined by reference to species and habitats protected in pursuance of national legislation on nature conservation. Account should nevertheless be taken of specific situations where Community, or equivalent national, legislation allows for certain derogations from the level of protection afforded to the environment. (7) For the purposes of assessing damage to land as defined in this Directive the use of risk assessment procedures to determine to what extent human health is likely to be adversely affected is desirable. (8) This Directive should apply, as far as environmental damage is concerned, to occupational activities which present a risk for human health or the environment. Those activities should be identified, in principle, by reference to the relevant Community legislation which provides for regulatory

2004/35/CE 423

(9)

(10)

(11) (12)

(13)

(14) (15)

(16)

r­ equirements in relation to certain activities or practices considered as posing a potential or actual risk for human health or the environment. This Directive should also apply, as regards damage to protected species and natural habitats, to any occupational activities other than those already directly or indirectly identified by reference to Community legislation as posing an actual or potential risk for human health or the environment. In such cases the operator should only be liable under this Directive whenever he is at fault or negligent. Express account should be taken of the Euratom Treaty and relevant international conventions and of Community legislation regulating more comprehensively and more stringently the operation of any of the activities falling under the scope of this Directive. This Directive, which does not provide for additional rules of conflict of laws when it specifies the powers of the competent authorities, is without prejudice to the rules on international jurisdiction of courts as provided, inter alia, in Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (7). This Directive should not apply to activities the main purpose of which is to serve national defence or international security. This Directive aims at preventing and remedying environmental damage, and does not affect rights of compensation for traditional damage granted under any relevant international agreement regulating civil liability. Many Member States are party to international agreements dealing with civil liability in relation to specific fields. These Member States should be able to remain so after the entry into force of this Directive, whereas other Member States should not lose their freedom to become parties to these agreements. Not all forms of environmental damage can be remedied by means of the liability mechanism. For the latter to be effective, there need to be one or more identifiable polluters, the damage should be concrete and quantifiable, and a causal link should be established between the damage and the identified polluter(s). Liability is therefore not a suitable instrument for dealing with pollution of a widespread, diffuse character, where it is impossible to link the negative environmental effects with acts or failure to act of certain individual actors. This Directive does not apply to cases of personal injury, to damage to ­private property or to any economic loss and does not affect any right regarding these types of damages. Since the prevention and remedying of environmental damage is a task directly contributing to the pursuit of the Community’s environment policy, public authorities should ensure the proper implementation and ­enforcement of the scheme provided for by this Directive. Restoration of the environment should take place in an effective manner ensuring that the relevant restoration objectives are achieved. A common framework should be defined to that end, the proper application of which should be supervised by the competent authority.

424  Part 1: European Union Legislation (17) Appropriate provision should be made for those situations where several instances of environmental damage have occurred in such a manner that the competent authority cannot ensure that all the necessary remedial measures are taken at the same time. In such a case, the competent authority should be entitled to decide which instance of environmental damage is to be ­remedied first. (18) According to the “polluter-pays” principle, an operator causing environmental damage or creating an imminent threat of such damage should, in principle, bear the cost of the necessary preventive or remedial measures. In cases where a competent authority acts, itself or through a third party, in the place of an operator, that authority should ensure that the cost incurred by it is recovered from the operator. It is also appropriate that the operators should ultimately bear the cost of assessing environmental damage and, as the case may be, assessing an imminent threat of such damage occurring. (19) Member States may provide for flat-rate calculation of administrative, legal, enforcement and other general costs to be recovered. (20) An operator should not be required to bear the costs of preventive or remedial actions taken pursuant to this Directive in situations where the damage in question or imminent threat thereof is the result of certain events beyond the operator’s control. Member States may allow that operators who are not at fault or negligent shall not bear the cost of remedial measures, in situations where the damage in question is the result of emissions or events explicitly authorised or where the potential for damage could not have been known when the event or emission took place. (21) Operators should bear the costs relating to preventive measures when those measures should have been taken as a matter of course in order to comply with the legislative, regulatory and administrative provisions regulating their activities or the terms of any permit or authorisation. (22) Member States may establish national rules covering cost allocation in cases of multiple party causation. Member States may take into account, in particular, the specific situation of users of products who might not be held responsible for environmental damage in the same conditions as those producing such products. In this case, apportionment of liability should be determined in accordance with national law. (23) Competent authorities should be entitled to recover the cost of preventive or remedial measures from an operator within a reasonable period of time from the date on which those measures were completed. (24) It is necessary to ensure that effective means of implementation and enforcement are available, while ensuring that the legitimate interests of the ­relevant operators and other interested parties are adequately safeguarded. Competent authorities should be in charge of specific tasks entailing a­ ppropriate administrative discretion, namely the duty to assess the significance of the damage and to determine which remedial measures should be taken.

2004/35/CE 425 (25) Persons adversely affected or likely to be adversely affected by environmental damage should be entitled to ask the competent authority to take action. Environmental protection is, however, a diffuse interest on behalf of which individuals will not always act or will not be in a position to act. Non-governmental organisations promoting environmental protection should therefore also be given the opportunity to properly contribute to the effective implementation of this Directive. (26) The relevant natural or legal persons concerned should have access to procedures for the review of the competent authority’s decisions, acts or failure to act. (27) Member States should take measures to encourage the use by operators of any appropriate insurance or other forms of financial security and the development of financial security instruments and markets in order to provide effective cover for financial obligations under this Directive. (28) Where environmental damage affects or is likely to affect several Member States, those Member States should cooperate with a view to ensuring proper and effective preventive or remedial action in respect of any environmental damage. Member States may seek to recover the costs for preventive or remedial actions. (29) This Directive should not prevent Member States from maintaining or enacting more stringent provisions in relation to the prevention and remedying of environmental damage; nor should it prevent the adoption by Member States of appropriate measures in relation to situations where double recovery of costs could occur as a result of concurrent action by a competent authority under this Directive and by a person whose property is affected by the environmental damage. (30) Damage caused before the expiry of the deadline for implementation of this Directive should not be covered by its provisions. (31) Member States should report to the Commission on the experience gained in the application of this Directive so as to enable the Commission to consider, taking into account the impact on sustainable development and future risks to the environment, whether any review of this Directive is appropriate, HAVE ADOPTED THIS DIRECTIVE: Article 1 Subject matter The purpose of this Directive is to establish a framework of environmental liability based on the “polluter-pays” principle, to prevent and remedy environmental damage.

426  Part 1: European Union Legislation Article 2 Definitions For the purpose of this Directive the following definitions shall apply: 1. “environmental damage” means: (a) damage to protected species and natural habitats, which is any damage that has significant adverse effects on reaching or maintaining the favourable conservation status of such habitats or species. The significance of such effects is to be assessed with reference to the baseline condition, taking account of the criteria set out in Annex I; Damage to protected species and natural habitats does not include previously identified adverse effects which result from an act by an operator which was expressly authorised by the relevant authorities in accordance with provisions implementing Article 6(3) and (4) or ­Article 16 of Directive 92/43/EEC or Article 9 of Directive 79/409/EEC or, in the case of habitats and species not covered by Community law, in accordance with equivalent provisions of national law on nature conservation. (b) water damage, which is any damage that significantly adversely affects the ecological, chemical and/or quantitative status and/or ecological potential, as defined in Directive 2000/60/EC, of the waters concerned, with the exception of adverse effects where Article 4(7) of that Directive applies; (c) land damage, which is any land contamination that creates a significant risk of human health being adversely affected as a result of the direct or indirect introduction, in, on or under land, of substances, preparations, organisms or micro-organisms; 2. “damage” means a measurable adverse change in a natural resource or ­measurable impairment of a natural resource service which may occur directly or indirectly; 3. “protected species and natural habitats” means: (a) the species mentioned in Article 4(2) of Directive 79/409/EEC or listed in Annex I thereto or listed in Annexes II and IV to Directive 92/43/EEC; (b) the habitats of species mentioned in Article 4(2) of Directive 79/409/ EEC or listed in Annex I thereto or listed in Annex II to Directive 92/43/ EEC, and the natural habitats listed in Annex I to Directive 92/43/EEC and the breeding sites or resting places of the species listed in Annex IV to Directive 92/43/EEC; and (c) where a Member State so determines, any habitat or species, not listed in those Annexes which the Member State designates for equivalent purposes as those laid down in these two Directives;

2004/35/CE 427 4. “conservation status” means: (a) in respect of a natural habitat, the sum of the influences acting on a natural habitat and its typical species that may affect its long-term natural distribution, structure and functions as well as the long-term survival of its typical species within, as the case may be, the European territory of the Member States to which the Treaty applies or the territory of a Member State or the natural range of that habitat; The conservation status of a natural habitat will be taken as “favourable” when: —— its natural range and areas it covers within that range are stable or increasing, —— the specific structure and functions which are necessary for its long-term maintenance exist and are likely to continue to exist for the foreseeable future, and —— the conservation status of its typical species is favourable, as defined in (b); (b) in respect of a species, the sum of the influences acting on the species concerned that may affect the long-term distribution and abundance of its populations within, as the case may be, the European territory of the Member States to which the Treaty applies or the territory of a Member State or the natural range of that species; The conservation status of a species will be taken as “favourable” when: —— population dynamics data on the species concerned indicate that it is maintaining itself on a long-term basis as a viable component of its natural habitats, —— the natural range of the species is neither being reduced nor is likely to be reduced for the foreseeable future, and —— there is, and will probably continue to be, a sufficiently large ­habitat to maintain its populations on a long-term basis; 5. “waters” mean all waters covered by Directive 2000/60/EC; 6. “operator” means any natural or legal, private or public person who operates or controls the occupational activity or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of such an activity has been delegated, including the holder of a permit or authorisation for such an activity or the person registering or notifying such an activity; 7. “occupational activity” means any activity carried out in the course of an economic activity, a business or an undertaking, irrespectively of its private or public, profit or non-profit character; 8. “emission” means the release in the environment, as a result of human activities, of substances, preparations, organisms or micro-organisms; 9. “imminent threat of damage” means a sufficient likelihood that environmental damage will occur in the near future; 10. “preventive measures” means any measures taken in response to an event, act or omission that has created an imminent threat of environmental damage, with a view to preventing or minimising that damage;

428  Part 1: European Union Legislation 11. “remedial measures” means any action, or combination of actions, i­ ncluding mitigating or interim measures to restore, rehabilitate or replace damaged natural resources and/or impaired services, or to provide an equivalent alternative to those resources or services as foreseen in Annex II; 12. “natural resource” means protected species and natural habitats, water and land; 13. “services” and “natural resources services” mean the functions performed by a natural resource for the benefit of another natural resource or the public; 14. “baseline condition” means the condition at the time of the damage of the natural resources and services that would have existed had the environmental damage not occurred, estimated on the basis of the best information available; 15. “recovery”, including “natural recovery”, means, in the case of water, protected species and natural habitats the return of damaged natural resources and/or impaired services to baseline condition and in the case of land ­damage, the elimination of any significant risk of adversely affecting human health; 16. “costs” means costs which are justified by the need to ensure the proper and effective implementation of this Directive including the costs of assessing environmental damage, an imminent threat of such damage, alternatives for action as well as the administrative, legal, and enforcement costs, the costs of data collection and other general costs, monitoring and supervision costs. Article 3 Scope 1. This Directive shall apply to: (a) environmental damage caused by any of the occupational activities listed in Annex III, and to any imminent threat of such damage occurring by reason of any of those activities; (b) damage to protected species and natural habitats caused by any occupational activities other than those listed in Annex III, and to any imminent threat of such damage occurring by reason of any of those activities, whenever the operator has been at fault or negligent. 2. This Directive shall apply without prejudice to more stringent Community legislation regulating the operation of any of the activities falling within the scope of this Directive and without prejudice to Community legislation ­containing rules on conflicts of jurisdiction. 3. Without prejudice to relevant national legislation, this Directive shall not give private parties a right of compensation as a consequence of environmental damage or of an imminent threat of such damage.

2004/35/CE 429 Article 4 Exceptions 1. This Directive shall not cover environmental damage or an imminent threat of such damage caused by: (a) an act of armed conflict, hostilities, civil war or insurrection; (b) a natural phenomenon of exceptional, inevitable and irresistible character. 2. This Directive shall not apply to environmental damage or to any imminent threat of such damage arising from an incident in respect of which liability or compensation falls within the scope of any of the International Conventions listed in Annex IV, including any future amendments thereof, which is in force in the Member State concerned. 3. This Directive shall be without prejudice to the right of the operator to limit his liability in accordance with national legislation implementing the Convention on Limitation of Liability for Maritime Claims (LLMC), 1976, including any future amendment to the Convention, or the Strasbourg Convention on Limitation of Liability in Inland Navigation (CLNI), 1988, including any future amendment to the Convention. 4. This Directive shall not apply to such nuclear risks or environmental damage or imminent threat of such damage as may be caused by the activities covered by the Treaty establishing the European Atomic Energy Community or caused by an incident or activity in respect of which liability or compensation falls within the scope of any of the international instruments listed in Annex V, including any future amendments thereof. 5. This Directive shall only apply to environmental damage or to an imminent threat of such damage caused by pollution of a diffuse character, where it is possible to establish a causal link between the damage and the activities of individual operators. 6. This Directive shall not apply to activities the main purpose of which is to serve national defence or international security nor to activities the sole ­purpose of which is to protect from natural disasters. Article 5 Preventive action 1. Where environmental damage has not yet occurred but there is an imminent threat of such damage occurring, the operator shall, without delay, take the necessary preventive measures. 2. Member States shall provide that, where appropriate, and in any case whenever an imminent threat of environmental damage is not dispelled despite the preventive measures taken by the operator, operators are to inform the competent authority of all relevant aspects of the situation, as soon as possible.

430  Part 1: European Union Legislation 3. The competent authority may, at any time: (a) require the operator to provide information on any imminent threat of environmental damage or in suspected cases of such an imminent threat; (b) require the operator to take the necessary preventive measures; (c) give instructions to the operator to be followed on the necessary preventive measures to be taken; or (d) itself take the necessary preventive measures. 4. The competent authority shall require that the preventive measures are taken by the operator. If the operator fails to comply with the obligations laid down in paragraph 1 or 3(b) or (c), cannot be identified or is not required to bear the costs under this Directive, the competent authority may take these measures itself. Article 6 Remedial action 1. Where environmental damage has occurred the operator shall, without delay, inform the competent authority of all relevant aspects of the situation and take: (a) all practicable steps to immediately control, contain, remove or otherwise manage the relevant contaminants and/or any other damage factors in order to limit or to prevent further environmental damage and adverse effects on human health or further impairment of services and (b) the necessary remedial measures, in accordance with Article 7. 2. The competent authority may, at any time: (a) require the operator to provide supplementary information on any damage that has occurred; (b) take, require the operator to take or give instructions to the operator concerning, all practicable steps to immediately control, contain, remove or otherwise manage the relevant contaminants and/or any other damage factors in order to limit or to prevent further environmental damage and adverse effect on human health, or further impairment of services; (c) require the operator to take the necessary remedial measures; (d) give instructions to the operator to be followed on the necessary remedial measures to be taken; or (e) itself take the necessary remedial measures. 3. The competent authority shall require that the remedial measures are taken by the operator. If the operator fails to comply with the obligations laid down in paragraph 1 or 2(b), (c) or (d), cannot be identified or is not required to bear the costs under this Directive, the competent authority may take these measures itself, as a means of last resort.

2004/35/CE 431 Article 7 Determination of remedial measures 1. Operators shall identify, in accordance with Annex II, potential remedial measures and submit them to the competent authority for its approval, unless the competent authority has taken action under Article 6(2)(e) and (3). 2. The competent authority shall decide which remedial measures shall be implemented in accordance with Annex II, and with the cooperation of the relevant operator, as required. 3. Where several instances of environmental damage have occurred in such a manner that the competent authority cannot ensure that the necessary remedial measures are taken at the same time, the competent authority shall be entitled to decide which instance of environmental damage must be remedied first. In making that decision, the competent authority shall have regard, inter alia, to the nature, extent and gravity of the various instances of environmental damage concerned, and to the possibility of natural recovery. Risks to human health shall also be taken into account. 4. The competent authority shall invite the persons referred to in Article 12(1) and in any case the persons on whose land remedial measures would be carried out to submit their observations and shall take them into account. Article 8 Prevention and remediation costs 1. The operator shall bear the costs for the preventive and remedial actions taken pursuant to this Directive. 2. Subject to paragraphs 3 and 4, the competent authority shall recover, inter alia, via security over property or other appropriate guarantees from the operator who has caused the damage or the imminent threat of damage, the costs it has incurred in relation to the preventive or remedial actions taken under this Directive. However, the competent authority may decide not to recover the full costs where the expenditure required to do so would be greater than the recoverable sum or where the operator cannot be identified. 3. An operator shall not be required to bear the cost of preventive or remedial actions taken pursuant to this Directive when he can prove that the environmental damage or imminent threat of such damage: (a) was caused by a third party and occurred despite the fact that appropriate safety measures were in place; or (b) resulted from compliance with a compulsory order or instruction emanating from a public authority other than an order or instruction consequent upon an emission or incident caused by the operator’s own activities. In such cases Member States shall take the appropriate measures to enable the operator to recover the costs incurred.

432  Part 1: European Union Legislation 4. The Member States may allow the operator not to bear the cost of remedial actions taken pursuant to this Directive where he demonstrates that he was not at fault or negligent and that the environmental damage was caused by: (a) an emission or event expressly authorised by, and fully in accordance with the conditions of, an authorisation conferred by or given under applicable national laws and regulations which implement those legislative measures adopted by the Community specified in Annex III, as applied at the date of the emission or event; (b) an emission or activity or any manner of using a product in the course of an activity which the operator demonstrates was not considered likely to cause environmental damage according to the state of scientific and technical knowledge at the time when the emission was released or the activity took place. 5. Measures taken by the competent authority in pursuance of Article 5(3) and (4) and Article 6(2) and (3) shall be without prejudice to the liability of the relevant operator under this Directive and without prejudice to Articles 87 and 88 of the Treaty. Article 9 Cost allocation in cases of multiple party causation This Directive is without prejudice to any provisions of national regulations ­concerning cost allocation in cases of multiple party causation especially concerning the apportionment of liability between the producer and the user of a product. Article 10 Limitation period for recovery of costs The competent authority shall be entitled to initiate cost recovery proceedings against the operator, or if appropriate, a third party who has caused the damage or the imminent threat of damage in relation to any measures taken in pursuance of this Directive within five years from the date on which those measures have been completed or the liable operator, or third party, has been identified, whichever is the later. Article 11 Competent authority 1. Member States shall designate the competent authority(ies) responsible for fulfilling the duties provided for in this Directive. 2. The duty to establish which operator has caused the damage or the imminent threat of damage, to assess the significance of the damage and to determine which remedial measures should be taken with reference to Annex II shall rest with the competent authority. To that effect, the competent authority shall be entitled to require the relevant operator to carry out his own assessment and to supply any information and data necessary.

2004/35/CE 433 3. Member States shall ensure that the competent authority may empower or require third parties to carry out the necessary preventive or remedial measures. 4. Any decision taken pursuant to this Directive which imposes preventive or remedial measures shall state the exact grounds on which it is based. Such decision shall be notified forthwith to the operator concerned, who shall at the same time be informed of the legal remedies available to him under the laws in force in the Member State concerned and of the time-limits to which such remedies are subject. Article 12 Request for action 1. Natural or legal persons: (a) affected or likely to be affected by environmental damage or (b) having a sufficient interest in environmental decision making relating to the damage or, alternatively, (c) alleging the impairment of a right, where administrative procedural law of a Member State requires this as a precondition, shall be entitled to submit to the competent authority any observations relating to instances of environmental damage or an imminent threat of such damage of which they are aware and shall be entitled to request the competent authority to take action under this Directive. What constitutes a “sufficient interest” and “impairment of a right” shall be determined by the Member States. To this end, the interest of any non-governmental organisation p ­ romoting environmental protection and meeting any requirements under national law shall be deemed sufficient for the purpose of subparagraph (b). Such organisations shall also be deemed to have rights capable of being impaired for the purpose of subparagraph (c). 2. The request for action shall be accompanied by the relevant information and data supporting the observations submitted in relation to the environmental damage in question. 3. Where the request for action and the accompanying observations show in a plausible manner that environmental damage exists, the competent authority shall consider any such observations and requests for action. In such circumstances the competent authority shall give the relevant operator an opportunity to make his views known with respect to the request for action and the accompanying observations. 4. The competent authority shall, as soon as possible and in any case in accordance with the relevant provisions of national law, inform the persons referred to in paragraph 1, which submitted observations to the authority, of its decision to accede to or refuse the request for action and shall provide the reasons for it. 5. Member States may decide not to apply paragraphs 1 and 4 to cases of ­imminent threat of damage.

434  Part 1: European Union Legislation Article 13 Review procedures 1. The persons referred to in Article 12(1) shall have access to a court or other independent and impartial public body competent to review the procedural and substantive legality of the decisions, acts or failure to act of the competent authority under this Directive. 2. This Directive shall be without prejudice to any provisions of national law which regulate access to justice and those which require that administrative review procedures be exhausted prior to recourse to judicial proceedings. Article 14 Financial security 1. Member States shall take measures to encourage the development of financial security instruments and markets by the appropriate economic and financial operators, including financial mechanisms in case of insolvency, with the aim of enabling operators to use financial guarantees to cover their responsibilities under this Directive. 2. The Commission, before 30 April 2010 shall present a report on the effectiveness of the Directive in terms of actual remediation of environmental damages, on the availability at reasonable costs and on conditions of insurance and other types of financial security for the activities covered by Annex III. The report shall also consider in relation to financial security the following aspects: a gradual approach, a ceiling for the financial guarantee and the exclusion of low-risk activities. In the light of that report, and of an extended impact assessment, including a cost-benefit analysis, the Commission shall, if appropriate, submit proposals for a system of harmonised mandatory ­financial security. Article 15 Cooperation between Member States 1. Where environmental damage affects or is likely to affect several Member States, those Member States shall cooperate, including through the appropriate exchange of information, with a view to ensuring that preventive action and, where necessary, remedial action is taken in respect of any such environmental damage. 2. Where environmental damage has occurred, the Member State in whose ­territory the damage originates shall provide sufficient information to the potentially affected Member States. 3. Where a Member State identifies damage within its borders which has not been caused within them it may report the issue to the Commission and any other Member State concerned; it may make recommendations for the adoption of preventive or remedial measures and it may seek, in accordance with this Directive, to recover the costs it has incurred in relation to the adoption of preventive or remedial measures.

2004/35/CE 435 Article 16 Relationship with national law 1. This Directive shall not prevent Member States from maintaining or adopting more stringent provisions in relation to the prevention and remedying of environmental damage, including the identification of additional activities to be subject to the prevention and remediation requirements of this Directive and the identification of additional responsible parties. 2. This Directive shall not prevent Member States from adopting appropriate measures, such as the prohibition of double recovery of costs, in relation to situations where double recovery could occur as a result of concurrent action by a competent authority under this Directive and by a person whose property is affected by environmental damage. Article 17 Temporal application This Directive shall not apply to: —— damage caused by an emission, event or incident that took place before the date referred to in Article 19(1), —— damage caused by an emission, event or incident which takes place subsequent to the date referred to in Article 19(1) when it derives from a specific activity that took place and finished before the said date, —— damage, if more than 30 years have passed since the emission, event or incident, resulting in the damage, occurred. Article 18 Reports and review 1. Member States shall report to the Commission on the experience gained in the application of this Directive by 30 April 2013 at the latest. The reports shall include the information and data set out in Annex VI. 2. On that basis, the Commission shall submit a report to the European Parliament and to the Council before 30 April 2014, which shall include any appropriate proposals for amendment. 3. The report, referred to in paragraph 2, shall include a review of: (a) the application of: —— Article 4(2) and (4) in relation to the exclusion of pollution covered by the international instruments listed in Annexes IV and V from the scope of this Directive, and —— Article 4(3) in relation to the right of an operator to limit his ­liability in accordance with the international conventions referred to in ­Article 4(3). The Commission shall take into account experience gained within the relevant international fora, such as the IMO and Euratom and the relevant international agreements, as well as the extent to which these instruments have

436  Part 1: European Union Legislation entered into force and/or have been implemented by Member States and/or have been modified, taking account of all relevant instances of environmental damage resulting from such activities and the remedial action taken and the differences between the liability levels in Member States, and considering the relationship between ­shipowners’ liability and oil receivers’ contributions, having due regard to any relevant study undertaken by the International Oil Pollution Compensation Funds. (b) the application of this Directive to environmental damage caused by genetically modified organisms (GMOs), particularly in the light of experience gained within relevant international fora and Conventions, such as the Convention on Biological Diversity and the Cartagena Protocol on Biosafety, as well as the results of any incidents of environmental damage caused by GMOs; (c) the application of this Directive in relation to protected species and ­natural habitats; (d) the instruments that may be eligible for incorporation into Annexes III, IV and V. Article 19 Implementation 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 30 April 2007. They shall forthwith inform the Commission thereof. When Member States adopt those measures, they shall contain a reference to this Directive or shall be accompanied by such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this ­Directive together with a table showing how the provisions of this Directive correspond to the national provisions adopted. Article 20 Entry into force This Directive shall enter into force on the day of its publication in the Official ­Journal of the European Union.

2004/35/CE 437 Article 21 Addressees This Directive is addressed to the Member States. (1)

OJ C 151 E, 25.6.2002, p. 132. OJ C 241, 7.10.2002, p. 162. (3)  Opinion of the European Parliament of 14 May 2003 (not yet published in the Official Journal), Council Common Position of 18 September 2003 (OJ C 277 E, 18.11.2003, p.10) and Position of the European Parliament of 17 December 2003 (not yet published in the Official Journal). Legislative resolution of the European Parliament of 31 March 2004 and Council Decision of 30 March 2004. (4)  OJ L 103, 25.4.1979, p. 1. Directive as last amended by Regulation (EC) No 807/2003 (OJ L 122, 16.5.2003, p. 36). (5)  OJ L 206, 22.7.1992, p. 7. Directive as last amended by Regulation (EC) No 1882/2003 of the European Parliament and of the Council (OJ L 284, 31.10.2003, p. 1). (6) OJ L 327, 22.12.2000, p. 1. Directive as amended by Decision No 2455/2001/ EC (OJ L 331, 15.12.2001, p. 1). (7)  OJ L 12, 16.1.2001, p. 1. Regulation as amended by Commission Regulation (EC) No 1496/2002 (OJ L 225, 22.8.2002, p. 13). (2)

Council Directive 2004/113/EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services* Official Journal L 373, 21/12/2004 p. 37 THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community and in particular Article 13(1) thereof, Having regard to the proposal from the Commission, Having regard to the Opinion of the European Parliament (1), Having regard to the Opinion of the European Economic and Social Committee (2), Having regard to the opinion of the Committee of the Regions (3),

Whereas: (1) In accordance with Article 6 of the Treaty on European Union, the Union is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law, principles which are ­common to the Member States, and respects fundamental rights as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as they result from the constitutional traditions common to the Member States as general principles of Community law. (2) The right to equality before the law and protection against discrimination for all persons constitutes a universal right recognised by the U ­ niversal Declaration of Human Rights, the United Nations Convention on the Elimination of all forms of Discrimination Against Women, the International Convention on the Elimination of all forms of Racial Discrimination and the United Nations Covenants on Civil and Political Rights and on ­Economic, Social and Cultural Rights and by the European Convention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.

* Implemented in the United Kingdom by the Sex Discrimination (Amendment of Legislation) ­Regulations 2008, S.I. No. 2008/963.

Directive 2004/113/EC 439 (3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

While prohibiting discrimination, it is important to respect other fundamental rights and freedoms, including the protection of private and family life and transactions carried out in that context and the freedom of religion. Equality between men and women is a fundamental principle of the European Union. Articles 21 and 23 of the Charter of Fundamental Rights of the European Union prohibit any discrimination on grounds of sex and require equality between men and women to be ensured in all areas. Article 2 of the Treaty establishing the European Community provides that promoting such equality is one of the Community’s essential tasks. Similarly, Article 3(2) of the Treaty requires the Community to aim to eliminate inequalities and to promote equality between men and women in all its activities. The Commission announced its intention of proposing a directive on sex discrimination outside of the labour market in its Communication on the Social Policy Agenda. Such a proposal is fully consistent with Council Decision 2001/51/EC of 20 December 2000 establishing a Programme relating to the Community framework strategy on gender equality (2001–2005) (4) covering all Community policies and aimed at promoting equality for men and women by adjusting these policies and implementing practical measures to improve the situation of men and women in society. At its meeting in Nice of 7 and 9 December 2000, the European Council called on the Commission to reinforce equality-related rights by adopting a proposal for a directive on promoting gender equality in areas other than employment and professional life. The Community has adopted a range of legal instruments to prevent and combat sex discrimination in the labour market. These instruments have demonstrated the value of legislation in the fight against discrimination. Discrimination based on sex, including harassment and sexual harassment, also takes place in areas outside of the labour market. Such discrimination can be equally damaging, acting as a barrier to the full and successful integration of men and women into economic and social life. Problems are particularly apparent in the area of the access to and supply of goods and services. Discrimination based on sex, should therefore be prevented and eliminated in this area. As in the case of Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial and ethnic origin (5), this objective can be better achieved by means of Community legislation. Such legislation should prohibit discrimination based on sex in the access to and supply of goods and services. Goods should be taken to be those within the meaning of the provisions of the Treaty establishing the European Community relating to the free movement of goods. Services should be taken to be those within the meaning of Article 50 of that Treaty. To prevent discrimination based on sex, this Directive should apply to both direct discrimination and indirect discrimination. Direct discrimination occurs only when one person is treated less favourably, on grounds of sex, than another person in a comparable situation. Accordingly, for example,

440  Part 1: European Union Legislation

(13)

(14)

(15)

(16)

(17)

(18)

differences between men and women in the provision of healthcare services, which result from the physical differences between men and women, do not relate to comparable situations and therefore, do not constitute discrimination. The prohibition of discrimination should apply to persons providing goods and services, which are available to the public and which are offered outside the area of private and family life and the transactions carried out in this context. It should not apply to the content of media or advertising nor to public or private education. All individuals enjoy the freedom to contract, including the freedom to choose a contractual partner for a transaction. An individual who provides goods or services may have a number of subjective reasons for his or her choice of contractual partner. As long as the choice of partner is not based on that person’s sex, this Directive should not prejudice the individual’s freedom to choose a contractual partner. There are already a number of existing legal instruments for the implementation of the principle of equal treatment between men and women in matters of employment and occupation. Therefore, this Directive should not apply in this field. The same reasoning applies to matters of self-­ employment insofar as they are covered by existing legal instruments. The Directive should apply only to insurance and pensions which are private, voluntary and separate from the employment relationship. Differences in treatment may be accepted only if they are justified by a legitimate aim. A legitimate aim may, for example, be the protection of victims of sex-related violence (in cases such as the establishment of singlesex shelters), reasons of privacy and decency (in cases such as the provision of accommodation by a person in a part of that person’s home), the promotion of gender equality or of the interests of men or women (for example singlesex voluntary bodies), the freedom of association (in cases of membership of single-sex private clubs), and the organisation of sporting activities (for example single-sex sports events). Any limitation should nevertheless be appropriate and necessary in accordance with the criteria derived from case law of the Court of Justice of the European Communities. The principle of equal treatment in the access to goods and services does not require that facilities should always be provided to men and women on a shared basis, as long as they are not provided more favourably to members of one sex. The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services. In order to ensure equal ­treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits. To avoid a sudden readjustment of the market, the implementation of this rule should apply only to new contracts concluded after the date of transposition of this Directive.

Directive 2004/113/EC 441 (19) Certain categories of risks may vary between the sexes. In some cases, sex is one but not necessarily the only determining factor in the assessment of risks insured. For contracts insuring those types of risks, Member States may decide to permit exemptions from the rule of unisex premiums and benefits, as long as they can ensure that underlying actuarial and statistical data on which the calculations are based, are reliable, regularly up-dated and available to the public. Exemptions are allowed only where national legislation has not already applied the unisex rule. Five years after transposition of this Directive, Member States should re-examine the justification for these exemptions, taking into account the most recent actuarial and statistical data and a report by the Commission three years after the date of transposition of this Directive. (20) Less favourable treatment of women for reasons of pregnancy and maternity should be considered a form of direct discrimination based on sex and therefore prohibited in insurance and related financial services. Costs related to risks of pregnancy and maternity should therefore not be attribu­ ted to the members of one sex only. (21) Persons who have been subject to discrimination based on sex should have adequate means of legal protection. To provide a more effective level of protection, associations, organisations and other legal entities should also be empowered to engage in proceedings, as the Member States so determine, either on behalf or in support of any victim, without prejudice to national rules of procedure concerning representation and defence before the courts. (22) The rules on the burden of proof should be adapted when there is a prima facie case of discrimination and for the principle of equal treatment to be applied effectively, the burden of proof should shift back to the defendant when evidence of such discrimination is brought. (23) The effective implementation of the principle of equal treatment requires adequate judicial protection against victimisation. (24) With a view to promoting the principle of equal treatment, Member States should encourage dialogue with relevant stakeholders, which have, in accordance with national law and practice, a legitimate interest in ­contributing to the fight against discrimination on grounds of sex in the area of access to and supply of goods and services. (25) Protection against discrimination based on sex should itself be strengthened by the existence of a body or bodies in each Member State, with competence to analyse the problems involved, to study possible solutions and to provide concrete assistance for the victims. The body or bodies may be the same as those with responsibility at national level for the defence of human rights or the safeguarding of individuals’ rights, or the implementation of the principle of equal treatment. (26) This Directive lays down minimum requirements, thus giving the M ­ ember States the option of introducing or maintaining more favourable provisions. The implementation of this Directive should not serve to justify any

442  Part 1: European Union Legislation regression in relation to the situation, which already prevails in each ­Member State. (27) Member States should provide for effective, proportionate and dissuasive penalties in cases of breaches of the obligations under this Directive. (28) Since the objectives of this Directive, namely to ensure a common high level of protection against discrimination in all the Member States, cannot be sufficiently achieved by the Member States and can, therefore, by reason of the scale and effects of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives. (29) In accordance with paragraph 34 of the interinstitutional agreement on better law-making (6), Member States are encouraged to draw up, for themselves and in the interest of the Community, their own tables, which will, as far as possible, illustrate the correlation between the Directive and the transposition measures and to make them public, HAS ADOPTED THIS DIRECTIVE: Chapter I GENERAL PROVISIONS Article 1 Purpose The purpose of this Directive is to lay down a framework for combating discrimination based on sex in access to and supply of goods and services, with a view to putting into effect in the Member States the principle of equal treatment between men and women. Article 2 Definitions For the purposes of this Directive, the following definitions shall apply: (a) direct discrimination: where one person is treated less favourably, on grounds of sex, than another is, has been or would be treated in a comparable situation; (b) indirect discrimination: where an apparently neutral provision, criterion or practice would put persons of one sex at a particular disadvantage compared with persons of the other sex, unless that provision, criterion or practice is objectively justified by a legitimate aim and the means of achieving that aim are appropriate and necessary;

Directive 2004/113/EC 443 (c) harassment: where an unwanted conduct related to the sex of a person occurs with the purpose or effect of violating the dignity of a person and of creating an intimidating, hostile, degrading, humiliating or offensive environment; (d) sexual harassment: where any form of unwanted physical, verbal, non-verbal or physical conduct of a sexual nature occurs, with the purpose or effect of violating the dignity of a person, in particular when creating an intimidating, hostile, degrading, humiliating or offensive environment. Article 3 Scope 1. Within the limits of the powers conferred upon the Community, this Directive shall apply to all persons who provide goods and services, which are available to the public irrespective of the person concerned as regards both the public and private sectors, including public bodies, and which are offered outside the area of private and family life and the transactions carried out in this context. 2. This Directive does not prejudice the individual’s freedom to choose a contractual partner as long as an individual’s choice of contractual partner is not based on that person’s sex. 3. This Directive shall not apply to the content of media and advertising nor to education. 4. This Directive shall not apply to matters of employment and occupation. This Directive shall not apply to matters of self-employment, insofar as these matters are covered by other Community legislative acts. Article 4 Principle of equal treatment 1. For the purposes of this Directive, the principle of equal treatment between men and women shall mean that (a) there shall be no direct discrimination based on sex, including less favourable treatment of women for reasons of pregnancy and maternity; (b) there shall be no indirect discrimination based on sex. 2. This Directive shall be without prejudice to more favourable provisions concerning the protection of women as regards pregnancy and maternity. 3. Harassment and sexual harassment within the meaning of this Directive shall be deemed to be discrimination on the grounds of sex and therefore prohibited. A person’s rejection of, or submission to, such conduct may not be used as a basis for a decision affecting that person. 4. Instruction to direct or indirect discrimination on the grounds of sex shall be deemed to be discrimination within the meaning of this Directive. 5. This Directive shall not preclude differences in treatment, if the provision of the goods and services exclusively or primarily to members of one sex is justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.

444  Part 1: European Union Legislation Article 5 Actuarial factors 1. Member States shall ensure that in all new contracts concluded after 21 December 2007 at the latest, the use of sex as a factor in the calculation of premiums and benefits for the purposes of insurance and related financial services shall not result in differences in individuals’ premiums and benefits. 2. Notwithstanding paragraph 1, Member States may decide before 21 December 2007 to permit proportionate differences in individuals’ premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data. The Member States concerned shall inform the Commission and ensure that accurate data relevant to the use of sex as a determining actuarial factor are compiled, published and regularly updated. These Member States shall review their decision five years after 21 December 2007, taking into account the Commission report referred to in Article 16, and shall forward the results of this review to the Commission. 3. In any event, costs related to pregnancy and maternity shall not result in differences in individuals’ premiums and benefits. Member States may defer implementation of the measures necessary to comply with this paragraph until two years after 21 December 2007 at the latest. In that case the Member States concerned shall immediately inform the Commission. Article 6 Positive action With a view to ensuring full equality in practice between men and women, the ­principle of equal treatment shall not prevent any Member State from maintaining or adopting specific measures to prevent or compensate for disadvantages linked to sex. Article 7 Minimum requirements 1. Member States may introduce or maintain provisions which are more favourable to the protection of the principle of equal treatment between men and women than those laid down in this Directive. 2. The implementation of this Directive shall in no circumstances constitute grounds for a reduction in the level of protection against discrimination already afforded by Member States in the fields covered by this Directive.

Directive 2004/113/EC 445 Chapter II REMEDIES AND ENFORCEMENT Article 8 Defence of rights 1. Member States shall ensure that judicial and/or administrative procedures, including where they deem it appropriate conciliation procedures, for the enforcement of the obligations under this Directive are available to all persons who consider themselves wronged by failure to apply the principle of equal treatment to them, even after the relationship in which the discrimination is alleged to have occurred has ended. 2. Member States shall introduce into their national legal systems such measures as are necessary to ensure real and effective compensation or reparation, as the Member States so determine, for the loss and damage sustained by a person injured as a result of discrimination within the meaning of this Directive, in a way which is dissuasive and proportionate to the damage suffered. The fixing of a prior upper limit shall not restrict such compensation or reparation. 3. Member States shall ensure that associations, organisations or other legal ­entities, which have, in accordance with the criteria laid down by their national law, a legitimate interest in ensuring that the provisions of this Directive are complied with, may engage, on behalf or in support of the complainant, with his or her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under this Directive. 4. Paragraphs 1 and 3 shall be without prejudice to national rules on time limits for bringing actions relating to the principle of equal treatment. Article 9 Burden of proof 1. Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect ­discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. 2. Paragraph 1 shall not prevent Member States from introducing rules of ­evidence, which are more favourable to plaintiffs. 3. Paragraph 1 shall not apply to criminal procedures. 4. Paragraphs 1, 2 and 3 shall also apply to any proceedings brought in accordance with Article 8(3). 5. Member States need not apply paragraph 1 to proceedings in which it is for the court or other competent authority to investigate the facts of the case.

446  Part 1: European Union Legislation Article 10 Victimisation Member States shall introduce into their national legal systems such measures as are necessary to protect persons from any adverse treatment or adverse consequence as a reaction to a complaint or to legal proceedings aimed at enforcing compliance with the principle of equal treatment. Article 11 Dialogue with relevant stakeholders With a view to promoting the principle of equal treatment, Member States shall encourage dialogue with relevant stakeholders which have, in accordance with national law and practice, a legitimate interest in contributing to the fight against discrimination on grounds of sex in the area of access to and supply of goods and services. Chapter III BODIES FOR THE PROMOTION OF EQUAL TREATMENT Article 12 1. Member States shall designate and make the necessary arrangements for a body or bodies for the promotion, analysis, monitoring and support of equal treatment of all persons without discrimination on the grounds of sex. These bodies may form part of agencies charged at national level with the defence of human rights or the safeguard of individuals’ rights, or the implementation of the principle of equal treatment. 2. Member States shall ensure that the competencies of the bodies referred to in paragraph 1 include: (a) without prejudice to the rights of victims and of associations, organisations or other legal entities referred to in Article 8(3), providing independent assistance to victims of discrimination in pursuing their complaints about discrimination; (b) conducting independent surveys concerning discrimination; (c) publishing independent reports and making recommendations on any issue relating to such discrimination.

Directive 2004/113/EC 447 Chapter IV FINAL PROVISIONS Article 13 Compliance Member States shall take the necessary measures to ensure that the principle of equal treatment is respected in relation to the access to and supply of goods and services within the scope of this Directive, and in particular that: (a) any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished; (b) any contractual provisions, internal rules of undertakings, and rules governing profit-making or non-profit-making associations contrary to the principle of equal treatment are, or may be, declared null and void or are amended. Article 14 Penalties Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are applied. The penalties, which may comprise the payment of compensation to the victim, shall be effective, proportionate and dissuasive. Member States shall notify those provisions to the Commission by 21 December 2007 at the latest and shall notify it without delay of any subsequent amendment affecting them. Article 15 Dissemination of information Member States shall take care that the provisions adopted pursuant to this Directive, together with the relevant provisions already in force, are brought to the attention of the persons concerned by all appropriate means throughout their territory. Article 16 Reports 1. Member States shall communicate all available information concerning the application of this Directive to the Commission, by 21 December 2009, and every five years thereafter. The Commission shall draw up a summary report, which shall include a review of the current practices of Member States in relation to Article 5 with regard to the use of sex as a factor in the calculation of premiums and benefits. It shall submit this report to the European Parliament and to the Council no later 21 December 2010. Where appropriate, the Commission shall accompany its report with proposals to modify the Directive. 2. The Commission’s report shall take into account the viewpoints of relevant stakeholders.

448  Part 1: European Union Legislation Article 17 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 21 December 2007 at the latest. They shall forthwith communicate to the Commission the text of those provisions. When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such publication of reference shall be laid down by the Member States. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 18 Entry into force This Directive shall enter into force on the day of its publication in the Official ­Journal of the European Union. Article 19 Addressees This Directive is addressed to the Member States. (1) Opinion (2) (3) (4) (5) (6)

delivered on 30 March 2004 (not yet published in the Official Journal). OJ C 241, 28.9.2004, p. 44. OJ C 121, 30.4.2004, p. 27. OJ L 17, 19.1.2001, p. 22. OJ L 180, 19.7.2000, p. 22. OJ C 321, 31.12.2003, p. 1.

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’1) (OJ 2005 L149 p.22) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) Article 153(1) and (3)(a) of the Treaty provides that the Community is to contribute to the attainment of a high level of consumer protection by the measures it adopts pursuant to Article 95 thereof. (2) In accordance with Article 14(2) of the Treaty, the internal market comprises an area without internal frontiers in which the free movement of goods and services and freedom of establishment are ensured. The development of fair commercial practices within the area without internal frontiers is vital for the promotion of the development of cross-border activities.

1  Implemented in the United Kingdom by the Business Protection from Misleading Marketing Regulations 2008 (SI 2008/1276) and the Consumer Protection from Unfair Trading Regulations 2008 (SI 2008/ 1277) NB: the amendments to SI 2008/1277 introduced by the Consumer Protection (Amendment) Regulations 2014 (SI 2014/870), giving remedies to individual victims of some unfair commercial practices, go beyond the scope of the Directive).

450  Part 1: European Union Legislation (3) The laws of the Member States relating to unfair commercial practices show marked differences which can generate appreciable distortions of competition and obstacles to the smooth functioning of the internal market. In the field of advertising, Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising (3) establishes minimum criteria for harmonising legislation on misleading advertising, but does not prevent the Member States from retaining or adopting measures which provide more extensive protection for consumers. As a result, Member States’ provisions on misleading advertising diverge significantly. (4) These disparities cause uncertainty as to which national rules apply to unfair commercial practices harming consumers’ economic interests and create many barriers affecting business and consumers. These barriers increase the cost to business of exercising internal market freedoms, in particular when businesses wish to engage in cross border marketing, advertising campaigns and sales promotions. Such barriers also make consumers uncertain of their rights and undermine their confidence in the internal market. (5) In the absence of uniform rules at Community level, obstacles to the free movement of services and goods across borders or the freedom of establishment could be justified in the light of the case-law of the Court of Justice of the European Communities as long as they seek to protect recognised public interest objectives and are proportionate to those objectives. In view of the Community’s objectives, as set out in the provisions of the Treaty and in secondary Community law relating to freedom of movement, and in accordance with the Commission’s policy on commercial communications as indicated in the Communication from the Commission entitled ‘The follow-up to the Green Paper on Commercial Communications in the Internal Market’, such obstacles should be eliminated. These obstacles can only be eliminated by establishing uniform rules at Community level which establish a high level of consumer protection and by clarifying certain legal concepts at Community level to the extent necessary for the proper functioning of the internal market and to meet the requirement of legal certainty. (6) This Directive therefore approximates the laws of the Member States on unfair commercial practices, including unfair advertising, which directly harm consumers’ economic interests and thereby indirectly harm the economic interests of legitimate competitors. In line with the principle of proportionality, this Directive protects consumers from the consequences of such unfair commercial practices where they are material but recognises that in some cases the impact on consumers may be negligible. It neither covers nor affects the national laws on unfair commercial practices which harm only competitors’ economic interests or which relate to a transaction between traders; taking full account of the principle of subsidiarity, Member States will continue to be able to regulate such practices, in conformity with Community law, if they choose to do so. Nor does this Directive cover or affect the provisions of Directive 84/450/EEC on advertising which misleads business but which is not misleading for consumers and on comparative advertising. Further, this Directive does not affect accepted advertising and marketing

Directive 2005/29/EC 451 practices, such as legitimate product placement, brand differentiation or the offering of incentives which may legitimately affect consumers’ perceptions of products and influence their behaviour without impairing the consumer’s ability to make an informed decision. (7) This Directive addresses commercial practices directly related to influencing consumers’ transactional decisions in relation to products. It does not address commercial practices carried out primarily for other purposes, including for example commercial communication aimed at investors, such as annual reports and corporate promotional literature. It does not address legal requirements related to taste and decency which vary widely among the Member States. Commercial practices such as, for example, commercial solicitation in the streets, may be undesirable in Member States for cultural reasons. Member States should accordingly be able to continue to ban commercial practices in their territory, in conformity with Community law, for reasons of taste and decency even where such practices do not limit consumers’ freedom of choice. Full account should be taken of the context of the individual case concerned in applying this Directive, in particular the general clauses thereof. (8) This Directive directly protects consumer economic interests from unfair business-to-consumer commercial practices. Thereby, it also indirectly protects legitimate businesses from their competitors who do not play by the rules in this Directive and thus guarantees fair competition in fields coordinated by it. It is understood that there are other commercial practices which, although not harming consumers, may hurt competitors and business customers. The Commission should carefully examine the need for Community action in the field of unfair competition beyond the remit of this Directive and, if necessary, make a legislative proposal to cover these other aspects of unfair competition. (9) This Directive is without prejudice to individual actions brought by those who have been harmed by an unfair commercial practice. It is also without prejudice to Community and national rules on contract law, on intellectual property rights, on the health and safety aspects of products, on conditions of establishment and authorisation regimes, including those rules which, in conformity with Community law, relate to gambling activities, and to Community competition rules and the national provisions implementing them. The Member States will thus be able to retain or introduce restrictions and prohibitions of commercial practices on grounds of the protection of the health and safety of consumers in their territory wherever the trader is based, for example in relation to alcohol, tobacco or pharmaceuticals. Financial services and immovable property, by reason of their complexity and inherent serious risks, necessitate detailed requirements, including positive obligations on traders. For this reason, in the field of financial services and immovable property, this Directive is without prejudice to the right of Member States to go beyond its provisions to protect the economic interests of consumers. It is not appropriate to regulate here the certification and indication of the standard of fineness of articles of precious metal.

452  Part 1: European Union Legislation (10) It is necessary to ensure that the relationship between this Directive and existing Community law is coherent, particularly where detailed provisions on unfair commercial practices apply to specific sectors. This Directive therefore amends Directive 84/450/EEC, Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (4), Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (5) and Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (6). This Directive accordingly applies only in so far as there are no specific Community law provisions regulating specific aspects of unfair commercial practices, such as information requirements and rules on the way the information is presented to the consumer. It provides protection for consumers where there is no specific sectoral legislation at Community level and prohibits traders from creating a false impression of the nature of products. This is particularly important for complex products with high levels of risk to consumers, such as certain financial services products. This Directive consequently complements the Community acquis, which is applicable to commercial practices harming consumers’ economic interests. (11) The high level of convergence achieved by the approximation of national provisions through this Directive creates a high common level of consumer protection. This Directive establishes a single general prohibition of those unfair commercial practices distorting consumers’ economic behaviour. It also sets rules on aggressive commercial practices, which are currently not regulated at Community level. (12) Harmonisation will considerably increase legal certainty for both consumers and business. Both consumers and business will be able to rely on a single regulatory framework based on clearly defined legal concepts regulating all aspects of unfair commercial practices across the EU. The effect will be to eliminate the barriers stemming from the fragmentation of the rules on unfair commercial practices harming consumer economic interests and to enable the internal market to be achieved in this area. (13) In order to achieve the Community’s objectives through the removal of internal market barriers, it is necessary to replace Member States’ existing, divergent general clauses and legal principles. The single, common general prohibition established by this Directive therefore covers unfair commercial practices distorting consumers’ economic behaviour. In order to support consumer confidence the general prohibition should apply equally to unfair commercial practices which occur outside any contractual relationship between a trader and a consumer or following the conclusion of a contract and during its execution. The general prohibition is elaborated by rules on the two types of commercial practices which are by far the most common, namely misleading commercial practices and aggressive commercial practices.

Directive 2005/29/EC 453 (14) It is desirable that misleading commercial practices cover those practices, including misleading advertising, which by deceiving the consumer prevent him from making an informed and thus efficient choice. In conformity with the laws and practices of Member States on misleading advertising, this Directive classifies misleading practices into misleading actions and misleading omissions. In respect of omissions, this Directive sets out a limited number of key items of information which the consumer needs to make an informed transactional decision. Such information will not have to be disclosed in all advertisements, but only where the trader makes an invitation to purchase, which is a concept clearly defined in this Directive. The full harmonisation approach adopted in this Directive does not preclude the Member States from specifying in national law the main characteristics of particular products such as, for example, collectors’ items or electrical goods, the omission of which would be material when an invitation to purchase is made. It is not the intention of this Directive to reduce consumer choice by prohibiting the promotion of products which look similar to other products unless this similarity confuses consumers as to the commercial origin of the product and is therefore misleading. This Directive should be without prejudice to existing Community law which expressly affords Member States the choice between several regulatory options for the protection of consumers in the field of commercial practices. In particular, this Directive should be without prejudice to Article 13(3) of Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (7). (15) Where Community law sets out information requirements in relation to commercial communication, advertising and marketing that information is considered as material under this Directive. Member States will be able to retain or add information requirements relating to contract law and having contract law consequences where this is allowed by the minimum clauses in the existing Community law instruments. A non-exhaustive list of such information requirements in the acquis is contained in Annex II. Given the full harmonisation introduced by this Directive only the information required in Community law is considered as material for the purpose of Article 7(5) thereof. Where Member States have introduced information requirements over and above what is specified in Community law, on the basis of minimum clauses, the omission of that extra information will not constitute a misleading omission under this Directive. By contrast Member States will be able, when allowed by the minimum clauses in Community law, to maintain or introduce more stringent provisions in conformity with Community law so as to ensure a higher level of protection of consumers’ individual contractual rights. (16) The provisions on aggressive commercial practices should cover those practices which significantly impair the consumer’s freedom of choice. Those are practices using harassment, coercion, including the use of physical force, and undue influence.

454  Part 1: European Union Legislation (17) It is desirable that those commercial practices which are in all circumstances unfair be identified to provide greater legal certainty. Annex I therefore contains the full list of all such practices. These are the only commercial practices which can be deemed to be unfair without a case-by-case assessment against the provisions of Articles 5 to 9. The list may only be modified by revision of the Directive. (18) It is appropriate to protect all consumers from unfair commercial practices; however the Court of Justice has found it necessary in adjudicating on advertising cases since the enactment of Directive 84/450/EEC to examine the effect on a notional, typical consumer. In line with the principle of proportionality, and to permit the effective application of the protections contained in it, this Directive takes as a benchmark the average consumer, who is reasonably well-informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors, as interpreted by the Court of Justice, but also contains provisions aimed at preventing the exploitation of consumers whose characteristics make them particularly vulnerable to unfair commercial practices. Where a commercial practice is specifically aimed at a particular group of consumers, such as children, it is desirable that the impact of the commercial practice be assessed from the perspective of the average member of that group. It is therefore appropriate to include in the list of practices which are in all circumstances unfair a provision which, without imposing an outright ban on advertising directed at children, protects them from direct exhortations to purchase. The average consumer test is not a statistical test. National courts and authorities will have to exercise their own faculty of judgement, having regard to the caselaw of the Court of Justice, to determine the typical reaction of the average consumer in a given case. (19) Where certain characteristics such as age, physical or mental infirmity or credulity make consumers particularly susceptible to a commercial practice or to the underlying product and the economic behaviour only of such consumers is likely to be distorted by the practice in a way that the trader can reasonably foresee, it is appropriate to ensure that they are adequately protected by assessing the practice from the perspective of the average member of that group. (20) It is appropriate to provide a role for codes of conduct, which enable traders to apply the principles of this Directive effectively in specific economic fields. In sectors where there are specific mandatory requirements regulating the behaviour of traders, it is appropriate that these will also provide evidence as to the requirements of professional diligence in that sector. The control exercised by code owners at national or Community level to eliminate unfair commercial practices may avoid the need for recourse to administrative or judicial action and should therefore be encouraged. With the aim of pursuing a high level of consumer protection, consumers’ organisations could be informed and involved in the drafting of codes of conduct. (21) Persons or organisations regarded under national law as having a legitimate interest in the matter must have legal remedies for initiating

Directive 2005/29/EC 455

(22) (23)

(24)

(25)

proceedings against unfair commercial practices, either before a court or before an administrative authority which is competent to decide upon complaints or to initiate appropriate legal proceedings. While it is for national law to determine the burden of proof, it is appropriate to enable courts and administrative authorities to require traders to produce evidence as to the accuracy of factual claims they have made. It is necessary that Member States lay down penalties for infringements of the provisions of this Directive and they must ensure that these are enforced. The penalties must be effective, proportionate and dissuasive. Since the objectives of this Directive, namely to eliminate the barriers to the functioning of the internal market represented by national laws on unfair commercial practices and to provide a high common level of consumer protection, by approximating the laws, regulations and administrative provisions of the Member States on unfair commercial practices, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to eliminate the internal market barriers and achieve a high common level of consumer protection. It is appropriate to review this Directive to ensure that barriers to the internal market have been addressed and a high level of consumer protection achieved. The review could lead to a Commission proposal to amend this Directive, which may include a limited extension to the derogation in Article 3(5), and/or amendments to other consumer protection legislation reflecting the Commission’s Consumer Policy Strategy commitment to review the existing acquis in order to achieve a high, common level of ­consumer protection. This Directive respects the fundamental rights and observes the p ­ rinciples recognised in particular by the Charter of Fundamental Rights of the ­European Union,

HAVE ADOPTED THIS DIRECTIVE: CHAPTER 1 GENERAL PROVISIONS Article 1 Purpose The purpose of this Directive is to contribute to the proper functioning of the internal market and achieve a high level of consumer protection by approximating the laws, regulations and administrative provisions of the Member States on unfair ­commercial practices harming consumers’ economic interests.

456  Part 1: European Union Legislation Article 2 Definitions For the purposes of this Directive: (a) ‘consumer’ means any natural person who, in commercial practices covered by this Directive, is acting for purposes which are outside his trade, business, craft or profession; (b) ‘trader’ means any natural or legal person who, in commercial practices covered by this Directive, is acting for purposes relating to his trade, business, craft or profession and anyone acting in the name of or on behalf of a trader; (c) ‘product’ means any goods or service including immovable property, rights and obligations; (d) ‘business-to-consumer commercial practices’ (hereinafter also referred to as commercial practices) means any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers; (e) ‘to materially distort the economic behaviour of consumers’ means using a commercial practice to appreciably impair the consumer’s ability to make an informed decision, thereby causing the consumer to take a transactional decision that he would not have taken otherwise; (f) ‘code of conduct’ means an agreement or set of rules not imposed by law, regulation or administrative provision of a Member State which defines the behaviour of traders who undertake to be bound by the code in relation to one or more particular commercial practices or business sectors; (g) ‘code owner’ means any entity, including a trader or group of traders, which is responsible for the formulation and revision of a code of conduct and/or for monitoring compliance with the code by those who have undertaken to be bound by it; (h) ‘professional diligence’ means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader’s field of activity; (i) ‘invitation to purchase’ means a commercial communication which indicates characteristics of the product and the price in a way appropriate to the means of the commercial communication used and thereby enables the consumer to make a purchase; (j) ‘undue influence’ means exploiting a position of power in relation to the consumer so as to apply pressure, even without using or threatening to use physical force, in a way which significantly limits the consumer’s ability to make an informed decision; (k) ‘transactional decision’ means any decision taken by a consumer concerning whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product or to exercise a contractual right in relation to the product, whether the consumer decides to act or to refrain from acting;

Directive 2005/29/EC 457 (l) ‘regulated profession’ means a professional activity or a group of professional activities, access to which or the pursuit of which, or one of the modes of pursuing which, is conditional, directly or indirectly, upon possession of specific professional qualifications, pursuant to laws, regulations or administrative provisions. Article 3 Scope 1. This Directive shall apply to unfair business-to-consumer commercial practices, as laid down in Article 5, before, during and after a commercial transaction in relation to a product. 2. This Directive is without prejudice to contract law and, in particular, to the rules on the validity, formation or effect of a contract. 3. This Directive is without prejudice to Community or national rules relating to the health and safety aspects of products. 4. In the case of conflict between the provisions of this Directive and other Community rules regulating specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects. 5. For a period of six years from 12 June 2007, Member States shall be able to continue to apply national provisions within the field approximated by this Directive which are more restrictive or prescriptive than this Directive and which implement directives containing minimum harmonisation clauses. These measures must be essential to ensure that consumers are adequately protected against unfair commercial practices and must be proportionate to the attainment of this objective. The review referred to in Article 18 may, if considered appropriate, include a proposal to prolong this derogation for a further limited period. 6. Member States shall notify the Commission without delay of any national provisions applied on the basis of paragraph 5. 7. This Directive is without prejudice to the rules determining the jurisdiction of the courts. 8. This Directive is without prejudice to any conditions of establishment or of authorisation regimes, or to the deontological codes of conduct or other specific rules governing regulated professions in order to uphold high standards of integrity on the part of the professional, which Member States may, in conformity with Community law, impose on professionals. 9. In relation to ‘financial services’, as defined in Directive 2002/65/EC, and immovable property, Member States may impose requirements which are more restrictive or prescriptive than this Directive in the field which it approximates. 10. This Directive shall not apply to the application of the laws, regulations and administrative provisions of Member States relating to the certification and indication of the standard of fineness of articles of precious metal.

458  Part 1: European Union Legislation Article 4 Internal market Member States shall neither restrict the freedom to provide services nor restrict the free movement of goods for reasons falling within the field approximated by this Directive. CHAPTER 2 UNFAIR COMMERCIAL PRACTICES Article 5 Prohibition of unfair commercial practices 1. Unfair commercial practices shall be prohibited. 2. A commercial practice shall be unfair if: (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers. 3. Commercial practices which are likely to materially distort the economic behaviour only of a clearly identifiable group of consumers who are particularly vulnerable to the practice or the underlying product because of their mental or physical infirmity, age or credulity in a way which the trader could reasonably be expected to foresee, shall be assessed from the perspective of the average member of that group. This is without prejudice to the common and legitimate advertising practice of making exaggerated statements or ­statements which are not meant to be taken literally. 4. In particular, commercial practices shall be unfair which: (a) are misleading as set out in Articles 6 and 7, or (b) are aggressive as set out in Articles 8 and 9. 5. Annex I contains the list of those commercial practices which shall in all ­circumstances be regarded as unfair. The same single list shall apply in all Member States and may only be modified by revision of this Directive. Section 1 Misleading commercial practices Article 6 Misleading actions 1. A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall ­presentation, deceives or is likely to deceive the average consumer, even if the

Directive 2005/29/EC 459 information is factually correct, in relation to one or more of the following elements, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise: (a) the existence or nature of the product; (b) the main characteristics of the product, such as its availability, benefits, risks, execution, composition, accessories, after-sale customer assistance and complaint handling, method and date of manufacture or provision, delivery, fitness for purpose, usage, quantity, specification, geographical or commercial origin or the results to be expected from its use, or the results and material features of tests or checks carried out on the product; (c) the extent of the trader’s commitments, the motives for the commercial practice and the nature of the sales process, any statement or symbol in relation to direct or indirect sponsorship or approval of the trader or the product; (d) the price or the manner in which the price is calculated, or the existence of a specific price advantage; (e) the need for a service, part, replacement or repair; (f) the nature, attributes and rights of the trader or his agent, such as his identity and assets, his qualifications, status, approval, affiliation or connection and ownership of industrial, commercial or intellectual property rights or his awards and distinctions; (g) the consumer’s rights, including the right to replacement or reimbursement under 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 (8), or the risks he may face. 2. A commercial practice shall also be regarded as misleading if, in its factual context, taking account of all its features and circumstances, it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise, and it involves: (a) any marketing of a product, including comparative advertising, which creates confusion with any products, trade marks, trade names or other distinguishing marks of a competitor; (b) non-compliance by the trader with commitments contained in codes of conduct by which the trader has undertaken to be bound, where: (i) the commitment is not aspirational but is firm and is capable of being verified, and (ii) the trader indicates in a commercial practice that he is bound by the code. Article 7 Misleading omissions 1. A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations

460  Part 1: European Union Legislation

2.

3.

4.

5.

of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise. It shall also be regarded as a misleading omission when, taking account of the matters described in paragraph 1, a trader hides or provides in an unclear, unintelligible, ambiguous or untimely manner such material information as referred to in that paragraph or fails to identify the commercial intent of the commercial practice if not already apparent from the context, and where, in either case, this causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise. Where the medium used to communicate the commercial practice imposes limitations of space or time, these limitations and any measures taken by the trader to make the information available to consumers by other means shall be taken into account in deciding whether information has been omitted. In the case of an invitation to purchase, the following information shall be regarded as material, if not already apparent from the context: (a) the main characteristics of the product, to an extent appropriate to the medium and the product; (b) the geographical address and the identity of the trader, such as his trading name and, where applicable, the geographical address and the identity of the trader on whose behalf he is acting; (c) the price inclusive of taxes, or where the nature of the product means that the price cannot reasonably be calculated in advance, the manner in which the price is calculated, as well as, where appropriate, all additional freight, delivery or postal charges or, where these charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable; (d) the arrangements for payment, delivery, performance and the complaint handling policy, if they depart from the requirements of professional diligence; (e) for products and transactions involving a right of withdrawal or cancellation, the existence of such a right. Information requirements established by Community law in relation to commercial communication including advertising or marketing, a non-exhaustive list of which is contained in Annex II, shall be regarded as material. Section 2 Aggressive commercial practices Article 8 Aggressive commercial practices

A commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circumstances, by harassment, coercion, ­

Directive 2005/29/EC 461 i­ncluding the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise. Article 9 Use of harassment, coercion and undue influence In determining whether a commercial practice uses harassment, coercion, including the use of physical force, or undue influence, account shall be taken of: (a) its timing, location, nature or persistence; (b) the use of threatening or abusive language or behaviour; (c) the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer’s judgement, of which the trader is aware, to influence the consumer’s decision with regard to the product; (d) any onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate a contract or to switch to another product or another trader; (e) any threat to take any action that cannot legally be taken. CHAPTER 3 CODES OF CONDUCT Article 10 Codes of conduct This Directive does not exclude the control, which Member States may encourage, of unfair commercial practices by code owners and recourse to such bodies by the persons or organisations referred to in Article 11 if proceedings before such bodies are in addition to the court or administrative proceedings referred to in that Article. Recourse to such control bodies shall never be deemed the equivalent of foregoing a means of judicial or administrative recourse as provided for in Article 11. CHAPTER 4 FINAL PROVISIONS Article 11 Enforcement 1. Member States shall ensure that adequate and effective means exist to combat unfair commercial practices in order to enforce compliance with the ­provisions of this Directive in the interest of consumers.

462  Part 1: European Union Legislation Such means shall include legal provisions under which persons or ­ rganisations regarded under national law as having a legitimate interest in o combating unfair commercial practices, including competitors, may: (a) take legal action against such unfair commercial practices; and/or (b) bring such unfair commercial practices before an administrative authority competent either to decide on complaints or to initiate appropriate legal proceedings. It shall be for each Member State to decide which of these facilities shall be available and whether to enable the courts or administrative authorities to require prior recourse to other established means of dealing with complaints, including those referred to in Article 10. These facilities shall be available regardless of whether the consumers affected are in the territory of the Member State where the trader is located or in another Member State. It shall be for each Member State to decide: (a) whether these legal facilities may be directed separately or jointly against a number of traders from the same economic sector; and (b) whether these legal facilities may be directed against a code owner where the relevant code promotes non-compliance with legal requirements. 2. Under the legal provisions referred to in paragraph 1, Member States shall confer upon the courts or administrative authorities powers enabling them, in cases where they deem such measures to be necessary taking into account all the interests involved and in particular the public interest: (a) to order the cessation of, or to institute appropriate legal proceedings for an order for the cessation of, unfair commercial practices; or (b) if the unfair commercial practice has not yet been carried out but is imminent, to order the prohibition of the practice, or to institute appropriate legal proceedings for an order for the prohibition of the practice, even without proof of actual loss or damage or of intention or negligence on the part of the trader. Member States shall also make provision for the measures referred to in the first subparagraph to be taken under an accelerated procedure: —— either with interim effect, or —— with definitive effect, on the understanding that it is for each Member State to decide which of the two options to select. Furthermore, Member States may confer upon the courts or administrative authorities powers enabling them, with a view to eliminating the continuing effects of unfair commercial practices the cessation of which has been ordered by a final decision: (a) to require publication of that decision in full or in part and in such form as they deem adequate; (b) to require in addition the publication of a corrective statement.

Directive 2005/29/EC 463 3. The administrative authorities referred to in paragraph 1 must: (a) be composed so as not to cast doubt on their impartiality; (b) have adequate powers, where they decide on complaints, to monitor and enforce the observance of their decisions effectively; (c) normally give reasons for their decisions. Where the powers referred to in paragraph 2 are exercised exclusively by an administrative authority, reasons for its decisions shall always be given. Furthermore, in this case, provision must be made for procedures whereby improper or unreasonable exercise of its powers by the administrative authority or improper or unreasonable failure to exercise the said powers can be the subject of judicial review. Article 12 Courts and administrative authorities: substantiation of claims Member States shall confer upon the courts or administrative authorities powers enabling them in the civil or administrative proceedings provided for in Article 11: (a) to require the trader to furnish evidence as to the accuracy of factual claims in relation to a commercial practice if, taking into account the legitimate interest of the trader and any other party to the proceedings, such a requirement appears appropriate on the basis of the circumstances of the particular case; and (b) to consider factual claims as inaccurate if the evidence demanded in accordance with (a) is not furnished or is deemed insufficient by the court or administrative authority. Article 13 Penalties Member States shall lay down penalties for infringements of national provisions adopted in application of this Directive and shall take all necessary measures to ensure that these are enforced. These penalties must be effective, proportionate and dissuasive. Article 14 Amendments to Directive 84/450/EEC Directive 84/450/EEC is hereby amended as follows: 1. Article 1 shall be replaced by the following: ‘Article 1 The purpose of this Directive is to protect traders against misleading advertising and the unfair consequences thereof and to lay down the conditions under which ­comparative advertising is permitted.’;

464  Part 1: European Union Legislation 2. in Article 2: —— point 3 shall be replaced by the following: ‘3. “trader” means any natural or legal person who is acting for purposes relating to his trade, craft, business or profession and any one acting in the name of or on behalf of a trader.’, —— the following point shall be added: ‘4. “code owner” means any entity, including a trader or group of t­ raders, which is responsible for the formulation and revision of a code of conduct and/or for monitoring compliance with the code by those who have undertaken to be bound by it.’; 3. Article 3a shall be replaced by the following: ‘Article 3a 1. Comparative advertising shall, as far as the comparison is concerned, be permitted when the following conditions are met: (a) it is not misleading within the meaning of Articles 2(2), 3 and 7(1) of this Directive or Articles 6 and 7 of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (9); (b) it compares goods or services meeting the same needs or intended for the same purpose; (c) it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price; (d) it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, or circumstances of a competitor; (e) for products with designation of origin, it relates in each case to products with the same designation; (f) it does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products; (g) it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name; (h) it does not create confusion among traders, between the advertiser and a competitor or between the advertiser’s trade marks, trade names, other distinguishing marks, goods or services and those of a competitor. 4. Article 4(1) shall be replaced by the following: ‘1. Member States shall ensure that adequate and effective means exist to combat misleading advertising in order to enforce compliance with the provisions on comparative advertising in the interest of traders and competitors. Such means shall include legal provisions under which persons or organisations regarded under national law

Directive 2005/29/EC 465 as having a legitimate interest in combating misleading advertising or regulating comparative advertising may: (a) take legal action against such advertising; or (b) bring such advertising before an administrative authority competent either to decide on complaints or to initiate appropriate legal proceedings. It shall be for each Member State to decide which of these facilities shall be available and whether to enable the courts or administrative authorities to require prior recourse to other established means of dealing with complaints, including those referred to in Article 5. It shall be for each Member State to decide: (a) whether these legal facilities may be directed separately or jointly against a number of traders from the same economic sector; and (b) whether these legal facilities may be directed against a code owner where the relevant code promotes non-compliance with legal requirements.’; 5. Article 7(1) shall be replaced by the following: ‘1. This Directive shall not preclude Member States from retaining or adopting provisions with a view to ensuring more extensive protection, with regard to misleading advertising, for traders and competitors.’ Article 15 Amendments to Directives 97/7/EC and 2002/65/EC 1.  Article 9 of Directive 97/7/EC shall be replaced by the following: ‘Article 9 Inertia selling Given the prohibition of inertia selling practices laid down in Directive 2005/29/EC of 11 May 2005 of the European Parliament and of the ­Council concerning unfair business-to-consumer commercial practices in the internal market (10), Member States shall take the measures necessary to exempt the consumer from the provision of any consideration in cases of unsolicited ­supply, the absence of a response not constituting consent. 2. Article 9 of Directive 2002/65/EC shall be replaced by the following: ‘Article 9 Given the prohibition of inertia selling practices laid down in Directive 2005/29/EC of 11 May 2005 of the European Parliament and of the Council concerning unfair business-to-consumer commercial practices in the internal market (11) and without prejudice to the provisions of Member States’ legislation on the tacit renewal of distance contracts, when such rules permit tacit renewal, Member States shall take measures to exempt the consumer from any obligation in the event of unsolicited supplies, the absence of a reply not constituting consent.

466  Part 1: European Union Legislation Article 16 Amendments to Directive 98/27/EC and Regulation (EC) No 2006/2004 1. In the Annex to Directive 98/27/EC, point 1 shall be replaced by the following: ‘1. 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 (OJ L 149, 11.6.2005, p. 22).’ 2. In the Annex to Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of the consumer protection law (the Regulation on consumer protection cooperation) (12) the following point shall be added: ‘16. Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial p ­ ractices in the internal market (OJ L 149, 11.6.2005, p. 22).’ Article 17 Information Member States shall take appropriate measures to inform consumers of the national law transposing this Directive and shall, where appropriate, encourage traders and code owners to inform consumers of their codes of conduct. Article 18 Review 1. By 12 June 2011 the Commission shall submit to the European Parliament and the Council a comprehensive report on the application of this Directive, in particular of Articles 3(9) and 4 and Annex I, on the scope for further harmonisation and simplification of Community law relating to consumer protection, and, having regard to Article 3(5), on any measures that need to be taken at Community level to ensure that appropriate levels of consumer protection are maintained. The report shall be accompanied, if necessary, by a proposal to revise this Directive or other relevant parts of Community law. 2. The European Parliament and the Council shall endeavour to act, in accordance with the Treaty, within two years of the presentation by the Commission of any proposal submitted under paragraph 1. Article 19 Transposition Member States shall adopt and publish the laws, regulations and administrative ­provisions necessary to comply with this Directive by 12 June 2007. They shall

Directive 2005/29/EC 467 f­orthwith inform the Commission thereof and inform the Commission of any ­subsequent amendments without delay. They shall apply those measures by 12 December 2007. When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. Article 20 Entry into force This Directive shall enter into force on the day following its publication in the ­Official Journal of the European Union. Article 21 Addressees This Directive is addressed to the Member States. ANNEX I COMMERCIAL PRACTICES WHICH ARE IN ALL CIRCUMSTANCES CONSIDERED UNFAIR Misleading commercial practices 1. Claiming to be a signatory to a code of conduct when the trader is not. 2. Displaying a trust mark, quality mark or equivalent without having obtained the necessary authorisation. 3. Claiming that a code of conduct has an endorsement from a public or other body which it does not have. 4. Claiming that a trader (including his commercial practices) or a product has been approved, endorsed or authorised by a public or private body when he/ it has not or making such a claim without complying with the terms of the approval, endorsement or authorisation. 5. Making an invitation to purchase products at a specified price without disclosing the existence of any reasonable grounds the trader may have for believing that he will not be able to offer for supply or to procure another trader to supply, those products or equivalent products at that price for a period that is, and in quantities that are, reasonable having regard to the product, the scale of advertising of the product and the price offered (bait advertising). 6. Making an invitation to purchase products at a specified price and then: (a) refusing to show the advertised item to consumers; or (b) refusing to take orders for it or deliver it within a reasonable time; or (c) demonstrating a defective sample of it, with the intention of promoting a different product (bait and switch)

468  Part 1: European Union Legislation 7. Falsely stating that a product will only be available for a very limited time, or that it will only be available on particular terms for a very limited time, in order to elicit an immediate decision and deprive consumers of sufficient opportunity or time to make an informed choice. 8. Undertaking to provide after-sales service to consumers with whom the trader has communicated prior to a transaction in a language which is not an official language of the Member State where the trader is located and then making such service available only in another language without clearly disclosing this to the consumer before the consumer is committed to the transaction. 9. Stating or otherwise creating the impression that a product can legally be sold when it cannot. OJ 2005 L149/362005 · Official Journal of the European Union · L149/36 10. Presenting rights given to consumers in law as a distinctive feature of the trader’s offer. 11. Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial). This is without prejudice to Council Directive 89/552/EEC 1. 12. Making a materially inaccurate claim concerning the nature and extent of the risk to the personal security of the consumer or his family if the consumer does not purchase the product. 13. Promoting a product similar to a product made by a particular manufacturer in such a manner as deliberately to mislead the consumer into believing that the product is made by that same manufacturer when it is not. 14. Establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products. 15. Claiming that the trader is about to cease trading or move premises when he is not. 16. Claiming that products are able to facilitate winning in games of chance. 17. Falsely claiming that a product is able to cure illnesses, dysfunction or malformations. 18. Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire the product at conditions less favourable than normal market conditions. 19. Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent. 20. Describing a product as ‘gratis’, ‘free’, ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item. 21. Including in marketing material an invoice or similar document seeking payment which gives the consumer the impression that he has already ordered the marketed product when he has not. 22. Falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer.

Directive 2005/29/EC 469 23. Creating the false impression that after-sales service in relation to a product is available in a Member State other than the one in which the product is sold. OJ 2005 L149/372005 · Official Journal of the European Union · L149/37 Aggressive commercial practices 24. Creating the impression that the consumer cannot leave the premises until a contract is formed. 25. Conducting personal visits to the consumer’s home ignoring the consumer’s request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation. 26. Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media except in circumstances and to the extent justified under national law to enforce a contractual obligation. This is without prejudice to Article 10 of Directive 97/7/EC and Directives 95/46/EC 2 and 2002/58/EC. 27. Requiring a consumer who wishes to claim on an insurance policy to produce documents which could not reasonably be considered relevant as to whether the claim was valid, or failing systematically to respond to pertinent correspondence, in order to dissuade a consumer from exercising his contractual rights. 28. Including in an advertisement a direct exhortation to children to buy advertised products or persuade their parents or other adults to buy advertised products for them. This provision is without prejudice to Article 16 of Directive 89/552/EEC on television broadcasting. 29. Demanding immediate or deferred payment for or the return or safekeeping of products supplied by the trader, but not solicited by the consumer except where the product is a substitute supplied in conformity with Article 7(3) of Directive 97/7/EC (inertia selling). 30. Explicitly informing a consumer that if he does not buy the product or service, the trader’s job or livelihood will be in jeopardy. 31. Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either: —— there is no prize or other equivalent benefit, or —— taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost. ANNEX II COMMUNITY LAW PROVISIONS SETTING OUT RULES FOR ADVERTISING AND COMMERCIAL COMMUNICATION Articles 4 and 5 of Directive 97/7/EC Article 3 of Council Directive 90/314/EEC of 13 June 1990 on package travel, ­package holidays and package tours 1

470  Part 1: European Union Legislation Article 3(3) of Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of a right to use immovable properties on a timeshare basis 2 Article 3(4) of 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 3 Articles 86 to 100 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use 4 Articles 5 and 6 of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce) 5 Article 1(d) of Directive 98/7/EC of the European Parliament and of the Council of 16 February 1998 amending Council Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit 6 Articles 3 and 4 of Directive 2002/65/EC Article 1(9) of Directive 2001/107/EC of the European Parliament and of the Council of 21 January 2002 amending Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) with a view to regulating management companies and simplified prospectuses 7 Articles 12 and 13 of Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation 8 Article 36 of Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance 9 OJ 2005 L149/392005 · Official Journal of the European Union · L149/39 Article 19 of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments 10 Articles 31 and 43 of Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance 11 (third non-life insurance Directive) Articles 5, 7 and 8 of Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading 12

Directive 2005/29/EC 471 (1)

OJ C 108, 30.4.2004, p. 81. of the European Parliament of 20 April 2004 (OJ C 104 E, 30.4.2004, p. 260), Council Common Position of 15 November 2004 (OJ C 38 E, 15.2.2005, p. 1), Position of the European P ­ arliament of 24 February 2005 (not yet published in the Official Journal) and Council Decision of 12 April 2005. (3) OJ L 250, 19.9.1984, p. 17. Directive as amended by Directive 97/55/EC of the European ­Parliament and of the Council (OJ L 290, 23.10.1997, p. 18). (4)  OJ L 144, 4.6.1997, p. 19. Directive as amended by Directive 2002/65/EC (OJ L 271, 9.10.2002, p. 16). (5) OJ L 166, 11.6.1998, p. 51. Directive as last amended by Directive 2002/65/ EC. (6) OJ L 271, 9.10.2002, p. 16. (7) OJ L 201, 31.7.2002, p. 37. (8) OJ L 171, 7.7.1999, p. 12. (9) OJ L 149, 11.6.2005, p. 22. (10) OJ L 149, 11.6.2005, p. 22. (11) OJ L 149, 11.6.2005, p. 22. (12) OJ L 364, 9.12.2004, p. 1. (2) Opinion

Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast)* (OJ 2006 L204 p.23) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 141(3) thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions (3) and Council Directive 86/378/EEC of 24 July 1986 on the implementation of the principle of equal treatment for men and women in occupational social security schemes (4) have been significantly amended (5). Council Directive 75/117/EEC of 10 February 1975 on the approximation of the laws of the Member States relating to the application of the principle of equal pay for men and women (6) and Council Directive 97/80/EC of 15 December 1997 on the burden of proof in cases of discrimination based on sex (7) also contain provisions which have as their purpose the implementation of the principle of equal treatment between men and women. Now that new amendments are being made to the said Directives, it is desirable, for reasons of clarity, that the provisions in question should be recast by bringing together in a single text the main provisions existing in this field as well as certain ­developments

* 

Implemented in the United Kingdom by [tbc]

Directive 2006/54/EC 473

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

arising out of the case-law of the Court of Justice of the European Communities (hereinafter referred to as the Court of Justice). Equality between men and women is a fundamental principle of Community law under Article 2 and Article 3(2) of the Treaty and the case-law of the Court of Justice. Those Treaty provisions proclaim equality between men and women as a ‘task’ and an ‘aim’ of the Community and impose a positive obligation to promote it in all its activities. The Court of Justice has held that the scope of the principle of equal treatment for men and women cannot be confined to the prohibition of discrimination based on the fact that a person is of one or other sex. In view of its purpose and the nature of the rights which it seeks to safeguard, it also applies to discrimination arising from the gender reassignment of a person. Article 141(3) of the Treaty now provides a specific legal basis for the adoption of Community measures to ensure the application of the principle of equal opportunities and equal treatment in matters of employment and occupation, including the principle of equal pay for equal work or work of equal value. Articles 21 and 23 of the Charter of Fundamental Rights of the European Union also prohibit any discrimination on grounds of sex and enshrine the right to equal treatment between men and women in all areas, including employment, work and pay. Harassment and sexual harassment are contrary to the principle of equal treatment between men and women and constitute discrimination on grounds of sex for the purposes of this Directive. These forms of discrimination occur not only in the workplace, but also in the context of access to employment, vocational training and promotion. They should therefore be prohibited and should be subject to effective, proportionate and dissuasive penalties. In this context, employers and those responsible for vocational training should be encouraged to take measures to combat all forms of discrimination on grounds of sex and, in particular, to take preventive measures against harassment and sexual harassment in the workplace and in access to employment, vocational training and promotion, in accordance with national law and practice. The principle of equal pay for equal work or work of equal value as laid down by Article 141 of the Treaty and consistently upheld in the case-law of the Court of Justice constitutes an important aspect of the principle of equal treatment between men and women and an essential and indispensable part of the acquis communautaire, including the case-law of the Court concerning sex discrimination. It is therefore appropriate to make further provision for its implementation. In accordance with settled case-law of the Court of Justice, in order to assess whether workers are performing the same work or work of equal value, it should be determined whether, having regard to a range of factors including the nature of the work and training and working conditions, those workers may be considered to be in a comparable situation.

474  Part 1: European Union Legislation (10) The Court of Justice has established that, in certain circumstances, the principle of equal pay is not limited to situations in which men and women work for the same employer. (11) The Member States, in collaboration with the social partners, should continue to address the problem of the continuing gender-based wage differentials and marked gender segregation on the labour market by means such as flexible working time arrangements which enable both men and women to combine family and work commitments more successfully. This could also include appropriate parental leave arrangements which could be taken up by either parent as well as the provision of accessible and affordable childcare facilities and care for dependent persons. (12) Specific measures should be adopted to ensure the implementation of the principle of equal treatment in occupational social security schemes and to define its scope more clearly. (13) In its judgment of 17 May 1990 in Case C-262/88 (8), the Court of Justice determined that all forms of occupational pension constitute an element of pay within the meaning of Article 141 of the Treaty. (14) Although the concept of pay within the meaning of Article 141 of the Treaty does not encompass social security benefits, it is now clearly established that a pension scheme for public servants falls within the scope of the principle of equal pay if the benefits payable under the scheme are paid to the worker by reason of his/her employment relationship with the public employer, notwithstanding the fact that such scheme forms part of a general statutory scheme. According to the judgments of the Court of Justice in Cases C-7/93 (9) and C-351/00 (10), that condition will be satisfied if the pension scheme concerns a particular category of workers and its benefits are directly related to the period of service and calculated by reference to the public servant’s final salary. For reasons of clarity, it is therefore appropriate to make specific provision to that effect. (15) The Court of Justice has confirmed that whilst the contributions of male and female workers to a defined-benefit pension scheme are covered by Article 141 of the Treaty, any inequality in employers’ contributions paid under funded defined-benefit schemes which is due to the use of actuarial factors differing according to sex is not to be assessed in the light of that same provision. (16) By way of example, in the case of funded defined-benefit schemes, certain elements, such as conversion into a capital sum of part of a periodic pension, transfer of pension rights, a reversionary pension payable to a dependant in return for the surrender of part of a pension or a reduced pension where the worker opts to take earlier retirement, may be unequal where the inequality of the amounts results from the effects of the use of actuarial factors differing according to sex at the time when the scheme’s funding is implemented. (17) It is well established that benefits payable under occupational social security schemes are not to be considered as remuneration insofar as they are attributable to periods of employment prior to 17 May 1990, except in the case of workers or those claiming under them who initiated legal ­proceedings or

Directive 2006/54/EC 475

(18)

(19)

(20)

(21)

(22)

(23)

brought an equivalent claim under the applicable national law before that date. It is therefore necessary to limit the implementation of the principle of equal treatment accordingly. The Court of Justice has consistently held that the Barber Protocol (11) does not affect the right to join an occupational pension scheme and that the limitation of the effects in time of the judgment in Case C-262/88 does not apply to the right to join an occupational pension scheme. The Court of Justice also ruled that the national rules relating to time limits for bringing actions under national law may be relied on against workers who assert their right to join an occupational pension scheme, provided that they are not less favourable for that type of action than for similar actions of a domestic nature and that they do not render the exercise of rights conferred by Community law impossible in practice. The Court of Justice has also pointed out that the fact that a worker can claim retroactively to join an occupational pension scheme does not allow the worker to avoid paying the contributions relating to the period of membership concerned. Ensuring equal access to employment and the vocational training leading thereto is fundamental to the application of the principle of equal treatment of men and women in matters of employment and occupation. Any exception to this principle should therefore be limited to those occupational activities which necessitate the employment of a person of a particular sex by reason of their nature or the context in which they are carried out, provided that the objective sought is legitimate and complies with the principle of proportionality. This Directive does not prejudice freedom of association, including the right to establish unions with others and to join unions to defend one’s interests. Measures within the meaning of Article 141(4) of the Treaty may include membership or the continuation of the activity of organisations or unions whose main objective is the promotion, in practice, of the principle of equal treatment between men and women. The prohibition of discrimination should be without prejudice to the maintenance or adoption of measures intended to prevent or compensate for disadvantages suffered by a group of persons of one sex. Such measures permit organisations of persons of one sex where their main object is the promotion of the special needs of those persons and the promotion of equality between men and women. In accordance with Article 141(4) of the Treaty, with a view to ensuring full equality in practice between men and women in working life, the principle of equal treatment does not prevent Member States from maintaining or adopting measures providing for specific advantages in order to make it easier for the under-represented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers. Given the current situation and bearing in mind Declaration No 28 to the Amsterdam Treaty, Member States should, in the first instance, aim at improving the situation of women in working life. It is clear from the case-law of the Court of Justice that unfavourable treatment of a woman related to pregnancy or maternity constitutes direct

476  Part 1: European Union Legislation

(24)

(25)

(26)

(27)

(28) (29) (30)

­iscrimination on grounds of sex. Such treatment should therefore be d expressly covered by this Directive. The Court of Justice has consistently recognised the legitimacy, as regards the principle of equal treatment, of protecting a woman’s biological condition during pregnancy and maternity and of introducing maternity protection measures as a means to achieve substantive equality. This Directive should therefore be without prejudice to Council Directive 92/85/EEC of 19 October 1992 on the introduction of measures to encourage improvements in the safety and health at work of pregnant workers and workers who have recently given birth or are breastfeeding (12). This Directive should further be without prejudice to Council Directive 96/34/EC of 3 June 1996 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC (13). For reasons of clarity, it is also appropriate to make express provision for the protection of the employment rights of women on maternity leave and in particular their right to return to the same or an equivalent post, to suffer no detriment in their terms and conditions as a result of taking such leave and to benefit from any improvement in working conditions to which they would have been entitled during their absence. In the Resolution of the Council and of the Ministers for Employment and Social Policy, meeting within the Council, of 29 June 2000 on the balanced participation of women and men in family and working life (14), Member States were encouraged to consider examining the scope for their respective legal systems to grant working men an individual and non-transferable right to paternity leave, while maintaining their rights relating to employment. Similar considerations apply to the granting by Member States to men and women of an individual and non-transferable right to leave subsequent to the adoption of a child. It is for the Member States to determine whether or not to grant such a right to paternity and/or adoption leave and also to determine any conditions, other than dismissal and return to work, which are outside the scope of this Directive. The effective implementation of the principle of equal treatment requires appropriate procedures to be put in place by the Member States. The provision of adequate judicial or administrative procedures for the enforcement of the obligations imposed by this Directive is essential to the effective implementation of the principle of equal treatment. The adoption of rules on the burden of proof plays a significant role in ensuring that the principle of equal treatment can be effectively enforced. As the Court of Justice has held, provision should therefore be made to ensure that the burden of proof shifts to the respondent when there is a prima facie case of discrimination, except in relation to proceedings in which it is for the court or other competent national body to investigate the facts. It is however necessary to clarify that the appreciation of the facts from which it may be presumed that there has been direct or indirect ­discrimination remains a matter for the relevant national body in accordance with national law or practice. Further, it is for the Member States to

Directive 2006/54/EC 477

(31)

(32)

(33)

(34)

(35) (36)

(37)

(38)

(39)

introduce, at any appropriate stage of the proceedings, rules of evidence which are more favourable to plaintiffs. With a view to further improving the level of protection offered by this Directive, associations, organisations and other legal entities should also be empowered to engage in proceedings, as the Member States so determine, either on behalf or in support of a complainant, without prejudice to national rules of procedure concerning representation and defence. Having regard to the fundamental nature of the right to effective legal protection, it is appropriate to ensure that workers continue to enjoy such protection even after the relationship giving rise to an alleged breach of the principle of equal treatment has ended. An employee defending or giving evidence on behalf of a person protected under this Directive should be entitled to the same protection. It has been clearly established by the Court of Justice that in order to be effective, the principle of equal treatment implies that the compensation awarded for any breach must be adequate in relation to the damage sustained. It is therefore appropriate to exclude the fixing of any prior upper limit for such compensation, except where the employer can prove that the only damage suffered by an applicant as a result of discrimination within the meaning of this Directive was the refusal to take his/her job application into consideration. In order to enhance the effective implementation of the principle of equal treatment, Member States should promote dialogue between the social partners and, within the framework of national practice, with non­ governmental­ organisations. Member States should provide for effective, proportionate and dissuasive penalties for breaches of the obligations under this Directive. Since the objectives of this Directive cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives. For the sake of a better understanding of the different treatment of men and women in matters of employment and occupation, comparable statistics disaggregated by sex should continue to be developed, analysed and made available at the appropriate levels. Equal treatment of men and women in matters of employment and occupation cannot be restricted to legislative measures. Instead, the European Union and the Member States should continue to promote the raising of public awareness of wage discrimination and the changing of public attitudes, involving all parties concerned at public and private level to the greatest possible extent. The dialogue between the social partners could play an important role in this process. The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive change as compared

478  Part 1: European Union Legislation with the earlier Directives. The obligation to transpose the provisions which are substantially unchanged arises under the earlier Directives. (40) This Directive should be without prejudice to the obligations of the M ­ ember States relating to the time limits for transposition into national law and application of the Directives set out in Annex I, Part B. (41) In accordance with paragraph 34 of the Interinstitutional agreement on better law-making (15), Member States are encouraged to draw up, for themselves and in the interest of the Community, their own tables, which will, as far as possible, illustrate the correlation between this Directive and the transposition measures and to make them public, HAVE ADOPTED THIS DIRECTIVE: TITLE I GENERAL PROVISIONS Article 1 Purpose The purpose of this Directive is to ensure the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation. To that end, it contains provisions to implement the principle of equal treatment in relation to: (a) access to employment, including promotion, and to vocational training; (b) working conditions, including pay; (c) occupational social security schemes. It also contains provisions to ensure that such implementation is made more effective by the establishment of appropriate procedures. Article 2 Definitions 1. For the purposes of this Directive, the following definitions shall apply: (a) ‘direct discrimination’: where one person is treated less favourably on grounds of sex than another is, has been or would be treated in a comparable situation; (b) ‘indirect discrimination’: where an apparently neutral provision, criterion or practice would put persons of one sex at a particular disadvantage compared with persons of the other sex, unless that provision, criterion or practice is objectively justified by a legitimate aim, and the means of achieving that aim are appropriate and necessary; (c) ‘harassment’: where unwanted conduct related to the sex of a person occurs with the purpose or effect of violating the dignity of a person, and of creating an intimidating, hostile, degrading, humiliating or offensive environment;

Directive 2006/54/EC 479 (d) ‘sexual harassment’: where any form of unwanted verbal, non-verbal or physical conduct of a sexual nature occurs, with the purpose or effect of violating the dignity of a person, in particular when creating an intimidating, hostile, degrading, humiliating or offensive environment; (e) ‘pay’: the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his/her employment from his/her employer; (f) ‘occupational social security schemes’: schemes not governed by Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security (16) whose purpose is to provide workers, whether employees or self-employed, in an undertaking or group of undertakings, area of economic activity, occupational sector or group of sectors with benefits intended to supplement the benefits provided by statutory social security schemes or to replace them, whether membership of such schemes is compulsory or optional. 2. For the purposes of this Directive, discrimination includes: (a) harassment and sexual harassment, as well as any less favourable treatment based on a person’s rejection of or submission to such conduct; (b) instruction to discriminate against persons on grounds of sex; (c) any less favourable treatment of a woman related to pregnancy or maternity leave within the meaning of Directive 92/85/EEC. Article 3 Positive action Member States may maintain or adopt measures within the meaning of A ­ rticle 141(4) of the Treaty with a view to ensuring full equality in practice between men and women in working life. TITLE II SPECIFIC PROVISIONS CHAPTER 1 Equal pay Article 4 Prohibition of discrimination For the same work or for work to which equal value is attributed, direct and indirect discrimination on grounds of sex with regard to all aspects and conditions of remuneration shall be eliminated. In particular, where a job classification system is used for determining pay, it shall be based on the same criteria for both men and women and so drawn up as to exclude any discrimination on grounds of sex.

480  Part 1: European Union Legislation CHAPTER 2 Equal treatment in occupational social security schemes Article 5 Prohibition of discrimination Without prejudice to Article 4, there shall be no direct or indirect discrimination on grounds of sex in occupational social security schemes, in particular as regards: (a) the scope of such schemes and the conditions of access to them; (b) the obligation to contribute and the calculation of contributions; (c) the calculation of benefits, including supplementary benefits due in respect of a spouse or dependants, and the conditions governing the duration and retention of entitlement to benefits. Article 6 Personal scope This Chapter shall apply to members of the working population, including selfemployed persons, persons whose activity is interrupted by illness, maternity, accident or involuntary unemployment and persons seeking employment and to retired and disabled workers, and to those claiming under them, in accordance with national law and/or practice. Article 7 Material scope 1. This Chapter applies to: (a) occupational social security schemes which provide protection against the following risks: (i) sickness, (ii) invalidity, (iii) old age, including early retirement, (iv) industrial accidents and occupational diseases, (v) unemployment; (b) occupational social security schemes which provide for other social benefits, in cash or in kind, and in particular survivors’ benefits and family allowances, if such benefits constitute a consideration paid by the employer to the worker by reason of the latter’s employment. 2. This Chapter also applies to pension schemes for a particular category of worker such as that of public servants if the benefits payable under the scheme are paid by reason of the employment relationship with the p ­ ublic employer. The fact that such a scheme forms part of a general statutory scheme shall be without prejudice in that respect.

Directive 2006/54/EC 481 Article 8 Exclusions from the material scope 1. This Chapter does not apply to: (a) individual contracts for self-employed persons; (b) single-member schemes for self-employed persons; (c) insurance contracts to which the employer is not a party, in the case of workers; (d) optional provisions of occupational social security schemes offered to participants individually to guarantee them: (i) either additional benefits, (ii) or a choice of date on which the normal benefits for self-employed persons will start, or a choice between several benefits; (e) occupational social security schemes in so far as benefits are financed by contributions paid by workers on a voluntary basis. 2. This Chapter does not preclude an employer granting to persons who have already reached the retirement age for the purposes of granting a pension by virtue of an occupational social security scheme, but who have not yet reached the retirement age for the purposes of granting a statutory retirement pension, a pension supplement, the aim of which is to make equal or more nearly equal the overall amount of benefit paid to these persons in relation to the amount paid to persons of the other sex in the same situation who have already reached the statutory retirement age, until the persons benefiting from the supplement reach the statutory retirement age. Article 9 Examples of discrimination 1. Provisions contrary to the principle of equal treatment shall include those based on sex, either directly or indirectly, for: (a) determining the persons who may participate in an occupational social security scheme; (b) fixing the compulsory or optional nature of participation in an occupational social security scheme; (c) laying down different rules as regards the age of entry into the scheme or the minimum period of employment or membership of the scheme required to obtain the benefits thereof; (d) laying down different rules, except as provided for in points (h) and (j), for the reimbursement of contributions when a worker leaves a scheme without having fulfilled the conditions guaranteeing a deferred right to long-term benefits; (e) setting different conditions for the granting of benefits or restricting such benefits to workers of one or other of the sexes; (f) fixing different retirement ages; (g) suspending the retention or acquisition of rights during periods of maternity leave or leave for family reasons which are granted by law or agreement and are paid by the employer;

482  Part 1: European Union Legislation (h) setting different levels of benefit, except in so far as may be necessary to take account of actuarial calculation factors which differ according to sex in the case of defined-contribution schemes; in the case of funded definedbenefit schemes, certain elements may be unequal where the inequality of the amounts results from the effects of the use of actuarial factors differing according to sex at the time when the scheme’s funding is implemented; (i) setting different levels for workers’ contributions; (j) setting different levels for employers’ contributions, except: (i) in the case of defined-contribution schemes if the aim is to equalise the amount of the final benefits or to make them more nearly equal for both sexes, (ii) in the case of funded defined-benefit schemes where the employer’s contributions are intended to ensure the adequacy of the funds necessary to cover the cost of the benefits defined; (k) laying down different standards or standards applicable only to workers of a specified sex, except as provided for in points (h) and (j), as regards the guarantee or retention of entitlement to deferred benefits when a worker leaves a scheme. 2. Where the granting of benefits within the scope of this Chapter is left to the discretion of the scheme’s management bodies, the latter shall comply with the principle of equal treatment. Article 10 Implementation as regards self-employed persons 1. Member States shall take the necessary steps to ensure that the provisions of occupational social security schemes for self-employed persons contrary to the principle of equal treatment are revised with effect from 1 January 1993 at the latest or for Member States whose accession took place after that date, at the date that Directive 86/378/EEC became applicable in their territory. 2. This Chapter shall not preclude rights and obligations relating to a period of membership of an occupational social security scheme for self-employed persons prior to revision of that scheme from remaining subject to the provisions of the scheme in force during that period. Article 11 Possibility of deferral as regards self-employed persons As regards occupational social security schemes for self-employed persons, M ­ ember States may defer compulsory application of the principle of equal treatment with regard to: (a) determination of pensionable age for the granting of old-age or retirement pensions, and the possible implications for other benefits: (i) either until the date on which such equality is achieved in statutory schemes, (ii) or, at the latest, until such equality is prescribed by a directive;

Directive 2006/54/EC 483 (b) survivors’ pensions until Community law establishes the principle of equal treatment in statutory social security schemes in that regard; (c) the application of Article 9(1)(i) in relation to the use of actuarial calculation factors, until 1 January 1999 or for Member States whose accession took place after that date until the date that Directive 86/378/EEC became applicable in their territory. Article 12 Retroactive effect 1. Any measure implementing this Chapter, as regards workers, shall cover all benefits under occupational social security schemes derived from periods of employment subsequent to 17 May 1990 and shall apply retroactively to that date, without prejudice to workers or those claiming under them who have, before that date, initiated legal proceedings or raised an equivalent claim under national law. In that event, the implementation measures shall apply retroactively to 8 April 1976 and shall cover all the benefits derived from periods of employment after that date. For Member States which acceded to the Community after 8 April 1976, and before 17 May 1990, that date shall be replaced by the date on which Article 141 of the Treaty became applicable in their territory. 2. The second sentence of paragraph 1 shall not prevent national rules relating to time limits for bringing actions under national law from being relied on against workers or those claiming under them who initiated legal proceedings or raised an equivalent claim under national law before 17 May 1990, provided that they are not less favourable for that type of action than for similar actions of a domestic nature and that they do not render the exercise of rights conferred by Community law impossible in practice. 3. For Member States whose accession took place after 17 May 1990 and which were on 1 January 1994 Contracting Parties to the Agreement on the European Economic Area, the date of 17 May 1990 in the first sentence of paragraph 1 shall be replaced by 1 January 1994. 4. For other Member States whose accession took place after 17 May 1990, the date of 17 May 1990 in paragraphs 1 and 2 shall be replaced by the date on which Article 141 of the Treaty became applicable in their territory. Article 13 Flexible pensionable age Where men and women may claim a flexible pensionable age under the same conditions, this shall not be deemed to be incompatible with this Chapter.

484  Part 1: European Union Legislation CHAPTER 3 Equal treatment as regards access to employment, vocational training and promotion and working conditions Article 14 Prohibition of discrimination 1. There shall be no direct or indirect discrimination on grounds of sex in the public or private sectors, including public bodies, in relation to: (a) conditions for access to employment, to self-employment or to occupation, including selection criteria and recruitment conditions, whatever the branch of activity and at all levels of the professional hierarchy, including promotion; (b) access to all types and to all levels of vocational guidance, vocational training, advanced vocational training and retraining, including practical work experience; (c) employment and working conditions, including dismissals, as well as pay as provided for in Article 141 of the Treaty; (d) membership of, and involvement in, an organisation of workers or employers, or any organisation whose members carry on a particular profession, including the benefits provided for by such organisations. 2. Member States may provide, as regards access to employment including the training leading thereto, that a difference of treatment which is based on a characteristic related to sex shall not constitute discrimination where, by reason of the nature of the particular occupational activities concerned or of the context in which they are carried out, such a characteristic constitutes a genuine and determining occupational requirement, provided that its objective is legitimate and the requirement is proportionate. Article 15 Return from maternity leave A woman on maternity leave shall be entitled, after the end of her period of maternity leave, to return to her job or to an equivalent post on terms and conditions which are no less favourable to her and to benefit from any improvement in working conditions to which she would have been entitled during her absence. Article 16 Paternity and adoption leave This Directive is without prejudice to the right of Member States to recognise distinct rights to paternity and/or adoption leave. Those Member States which recognise such rights shall take the necessary measures to protect working men and women against dismissal due to exercising those rights and ensure that, at the end

Directive 2006/54/EC 485 of such leave, they are entitled to return to their jobs or to equivalent posts on terms and conditions which are no less favourable to them, and to benefit from any improvement in working conditions to which they would have been entitled during their absence. TITLE III HORIZONTAL PROVISIONS CHAPTER 1 Remedies and enforcement Section 1 Remedies Article 17 Defence of rights 1. Member States shall ensure that, after possible recourse to other competent authorities including where they deem it appropriate conciliation procedures, judicial procedures for the enforcement of obligations under this Directive are available to all persons who consider themselves wronged by failure to apply the principle of equal treatment to them, even after the relationship in which the discrimination is alleged to have occurred has ended. 2. Member States shall ensure that associations, organisations or other legal entities which have, in accordance with the criteria laid down by their national law, a legitimate interest in ensuring that the provisions of this Directive are complied with, may engage, either on behalf or in support of the complainant, with his/her approval, in any judicial and/or administrative procedure provided for the enforcement of obligations under this Directive. 3. Paragraphs 1 and 2 are without prejudice to national rules relating to time limits for bringing actions as regards the principle of equal treatment. Article 18 Compensation or reparation Member States shall introduce into their national legal systems such measures as are necessary to ensure real and effective compensation or reparation as the Member States so determine for the loss and damage sustained by a person injured as a result of discrimination on grounds of sex, in a way which is dissuasive and proportionate to the damage suffered. Such compensation or reparation may not be restricted by the fixing of a prior upper limit, except in cases where the employer can prove that the only damage suffered by an applicant as a result of discrimination within the meaning of this Directive is the refusal to take his/her job application into consideration.

486  Part 1: European Union Legislation Section 2 Burden of proof Article 19 Burden of proof 1. Member States shall take such measures as are necessary, in accordance with their national judicial systems, to ensure that, when persons who consider themselves wronged because the principle of equal treatment has not been applied to them establish, before a court or other competent authority, facts from which it may be presumed that there has been direct or indirect discrimination, it shall be for the respondent to prove that there has been no breach of the principle of equal treatment. 2. Paragraph 1 shall not prevent Member States from introducing rules of evidence which are more favourable to plaintiffs. 3. Member States need not apply paragraph 1 to proceedings in which it is for the court or competent body to investigate the facts of the case. 4. Paragraphs 1, 2 and 3 shall also apply to: (a) the situations covered by Article 141 of the Treaty and, insofar as discrimination based on sex is concerned, by Directives 92/85/EEC and 96/34/EC; (b) any civil or administrative procedure concerning the public or private sector which provides for means of redress under national law pursuant to the measures referred to in (a) with the exception of out-of-court procedures of a voluntary nature or provided for in national law. 5. This Article shall not apply to criminal procedures, unless otherwise provided by the Member States. CHAPTER 2 Promotion of equal treatment—dialogue Article 20 Equality bodies 1. Member States shall designate and make the necessary arrangements for a body or bodies for the promotion, analysis, monitoring and support of equal treatment of all persons without discrimination on grounds of sex. These bodies may form part of agencies with responsibility at national level for the defence of human rights or the safeguard of individuals’ rights. 2. Member States shall ensure that the competences of these bodies include: (a) without prejudice to the right of victims and of associations, organisations or other legal entities referred to in Article 17(2), providing independent assistance to victims of discrimination in pursuing their complaints about discrimination; (b) conducting independent surveys concerning discrimination;

Directive 2006/54/EC 487 (c) publishing independent reports and making recommendations on any issue relating to such discrimination; (d) at the appropriate level exchanging available information with corresponding European bodies such as any future European Institute for Gender Equality. Article 21 Social dialogue 1. Member States shall, in accordance with national traditions and practice, take adequate measures to promote social dialogue between the social partners with a view to fostering equal treatment, including, for example, through the monitoring of practices in the workplace, in access to employment, vocational training and promotion, as well as through the monitoring of collective agreements, codes of conduct, research or exchange of experience and good practice. 2. Where consistent with national traditions and practice, Member States shall encourage the social partners, without prejudice to their autonomy, to promote equality between men and women, and flexible working arrangements, with the aim of facilitating the reconciliation of work and private life, and to conclude, at the appropriate level, agreements laying down anti-discrimination­ rules in the fields referred to in Article 1 which fall within the scope of collective bargaining. These agreements shall respect the provisions of this Directive and the relevant national implementing measures. 3. Member States shall, in accordance with national law, collective agreements or practice, encourage employers to promote equal treatment for men and women in a planned and systematic way in the workplace, in access to employment, vocational training and promotion. 4. To this end, employers shall be encouraged to provide at appropriate regular intervals employees and/or their representatives with appropriate information on equal treatment for men and women in the undertaking. Such information may include an overview of the proportions of men and women at different levels of the organisation; their pay and pay differentials; and possible measures to improve the situation in cooperation with employees’ representatives. Article 22 Dialogue with non-governmental organisations Member States shall encourage dialogue with appropriate non-governmental organisations which have, in accordance with their national law and practice, a legitimate interest in contributing to the fight against discrimination on grounds of sex with a view to promoting the principle of equal treatment.

488  Part 1: European Union Legislation CHAPTER 3 General horizontal provisions Article 23 Compliance Member States shall take all necessary measures to ensure that: (a) any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished; (b) provisions contrary to the principle of equal treatment in individual or collective contracts or agreements, internal rules of undertakings or rules governing the independent occupations and professions and workers’ and employers’ organisations or any other arrangements shall be, or may be, declared null and void or are amended; (c) occupational social security schemes containing such provisions may not be approved or extended by administrative measures. Article 24 Victimisation Member States shall introduce into their national legal systems such measures as are necessary to protect employees, including those who are employees’ representatives provided for by national laws and/or practices, against dismissal or other adverse treatment by the employer as a reaction to a complaint within the undertaking or to any legal proceedings aimed at enforcing compliance with the principle of equal treatment. Article 25 Penalties Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive, and shall take all measures necessary to ensure that they are applied. The penalties, which may comprise the payment of compensation to the victim, must be effective, proportionate and dissuasive. The Member States shall notify those provisions to the Commission by 5 October 2005 at the latest and shall notify it without delay of any subsequent amendment affecting them. Article 26 Prevention of discrimination Member States shall encourage, in accordance with national law, collective agreements or practice, employers and those responsible for access to vocational training to take effective measures to prevent all forms of discrimination on grounds of sex, in particular harassment and sexual harassment in the workplace, in access to employment, vocational training and promotion.

Directive 2006/54/EC 489 Article 27 Minimum requirements 1. Member States may introduce or maintain provisions which are more favourable to the protection of the principle of equal treatment than those laid down in this Directive. 2. Implementation of this Directive shall under no circumstances be sufficient grounds for a reduction in the level of protection of workers in the areas to which it applies, without prejudice to the Member States’ right to respond to changes in the situation by introducing laws, regulations and administrative provisions which differ from those in force on the notification of this Directive, provided that the provisions of this Directive are complied with. Article 28 Relationship to Community and national provisions 1. This Directive shall be without prejudice to provisions concerning the protection of women, particularly as regards pregnancy and maternity. 2. This Directive shall be without prejudice to the provisions of Directive 96/34/ EC and Directive 92/85/EEC. Article 29 Gender mainstreaming Member States shall actively take into account the objective of equality between men and women when formulating and implementing laws, regulations, administrative provisions, policies and activities in the areas referred to in this Directive. Article 30 Dissemination of information Member States shall ensure that measures taken pursuant to this Directive, together with the provisions already in force, are brought to the attention of all the persons concerned by all suitable means and, where appropriate, at the workplace. TITLE IV FINAL PROVISIONS Article 31 Reports 1. By 15 February 2011, the Member States shall communicate to the Commission all the information necessary for the Commission to draw up a report to the European Parliament and the Council on the application of this Directive. 2. Without prejudice to paragraph 1, Member States shall communicate to the Commission, every four years, the texts of any measures adopted pursuant

490  Part 1: European Union Legislation to Article 141(4) of the Treaty, as well as reports on these measures and their implementation. On the basis of that information, the Commission will adopt and publish every four years a report establishing a comparative assessment of any measures in the light of Declaration No 28 annexed to the Final Act of the Treaty of Amsterdam. 3. Member States shall assess the occupational activities referred to in ­Article 14(2), in order to decide, in the light of social developments, whether there is justification for maintaining the exclusions concerned. They shall notify the Commission of the results of this assessment periodically, but at least every 8 years. Article 32 Review By 15 February 2011 at the latest, the Commission shall review the operation of this Directive and if appropriate, propose any amendments it deems necessary. Article 33 Implementation Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 15 August 2008 at the latest or shall ensure, by that date, that management and labour introduce the requisite provisions by way of agreement. Member States may, if necessary to take account of particular difficulties, have up to one additional year to comply with this Directive. Member States shall take all necessary steps to be able to guarantee the results imposed by this Directive. They shall forthwith communicate to the Commission the texts of those measures. When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations and administrative provisions to the Directives repealed by this Directive shall be construed as references to this Directive. Member States shall determine how such reference is to be made and how that statement is to be formulated. The obligation to transpose this Directive into national law shall be confined to those provisions which represent a substantive change as compared with the earlier Directives. The obligation to transpose the provisions which are substantially unchanged arises under the earlier Directives. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 34 Repeal 1. With effect from 15 August 2009 Directives 75/117/EEC, 76/207/EEC, 86/378/ EEC and 97/80/EC shall be repealed without prejudice to the ­obligations

Directive 2006/54/EC 491 of the Member States relating to the time-limits for transposition into national law and application of the Directives set out in Annex I, Part B. 2. References made to the repealed Directives shall be construed as being made to this Directive and should be read in accordance with the correlation table in Annex II. Article 35 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Article 36 Addressees This Directive is addressed to the Member States. (1)

OJ C 157, 28.6.2005, p. 83. of the European Parliament of 6 July 2005 (not yet published in the Official Journal), Council Common Position of 10 March 2006(OJ C 126 E, 30.5.2006, p. 33) and Position of the European Parliament of 1 June 2006 (not yet published in the Official Journal). (3) OJ L 39, 14.2.1976, p. 40. Directive as amended by Directive 2002/73/EC of the European Parliament and of the Council (OJ L 269, 5.10.2002, p. 15). (4)  OJ L 225, 12.8.1986, p. 40. Directive as amended by Directive 96/97/EC (OJ L 46, 17.2.1997, p. 20). (5) See Annex I Part A. (6) OJ L 45, 19.2.1975, p. 19. (7)  OJ L 14, 20.1.1998, p. 6. Directive as amended by Directive 98/52/EC (OJ L 205, 22.7.1998, p. 66). (8)  C-262/88: Barber v Guardian Royal Exchange Assurance Group (1990 ECR I-1889). (9)  C-7/93: Bestuur van het Algemeen Burgerlijk Pensioenfonds v G. A. Beune (1994 ECR I-4471). (10) C-351/00: Pirkko Niemi (2002 ECR I-7007). (11)  Protocol 17 concerning Article 141 of the Treaty establishing the European Community (1992). (12) OJ L 348, 28.11.1992, p. 1. (13)  OJ L 145, 19.6.1996, p. 4. Directive as amended by Directive 97/75/EC (OJ L 10, 16.1.1998, p. 24). (14) OJ C 218, 31.7.2000, p. 5. (15) OJ C 321, 31.12.2003, p. 1. (16) OJ L 6, 10.1.1979, p. 24. (2) Opinion

Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC* (OJ 2007 L319/1) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular the first and third sentences of Article 47(2) and Article 95 thereof, Having regard to the proposal from the Commission, Having consulted the European Economic and Social Committee, Having regard to the opinion of the European Central Bank (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) It is essential for the establishment of the internal market that all internal frontiers in the Community be dismantled so as to enable the free movement of goods, persons, services and capital. The proper operation of the single market in payment services is therefore vital. At present, however, the lack of harmonisation in this area hinders the operation of that market. (2) Currently, the payment services markets of the Member States are organised separately, along national lines and the legal framework for payment services is fragmented into 27 national legal systems. (3) Several Community acts have already been adopted in this area, namely Directive 97/5/EC of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers (3) and Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-border payments in euro (4), but these have not sufficiently remedied this situation any more than have Commission Recommendation 87/598/EEC of 8 December 1987 on a European Code of Conduct relating to electronic payment (relations between financial institutions, traders and * 

Implemented in the United Kingdom by the Payment Services Regulations 2009, S.I. No. 2009/209

Directive 2007/64/EC 493 service establishments, and consumers) (5), Commission Recommendation 88/590/EEC of 17 November 1988 concerning payment systems, and in particular the relationship between cardholder and card issuer (6), or Commission Recommendation 97/489/EC of 30 July 1997 concerning transactions by electronic payment instruments and in particular the relationship between issuer and holder (7). These measures continue to be insufficient. The coexistence of national provisions and an incomplete Community framework gives rise to confusion and a lack of legal certainty. (4) It is vital, therefore, to establish at Community level a modern and coherent legal framework for payment services, whether or not the services are compatible with the system resulting from the financial sector initiative for a single euro payments area, which is neutral so as to ensure a level playing field for all payment systems, in order to maintain consumer choice, which should mean a considerable step forward in terms of consumer cost, safety and efficiency, as compared with the present national systems. (5) That legal framework should ensure the coordination of national provisions on prudential requirements, the access of new payment service providers to the market, information requirements, and the respective rights and obligations of payment services users and providers. Within that framework, the provisions of Regulation (EC) No 2560/2001, which created a single market for euro payments as far as prices are concerned, should be maintained. The provisions of Directive 97/5/EC and the recommendations made in Recommendations 87/598/EEC, 88/590/EEC and 97/489/EC should be integrated in a single act with binding force. (6) However, it is not appropriate for that legal framework to be fully comprehensive. Its application should be confined to payment service providers whose main activity consists in the provision of payment services to payment service users. Nor is it appropriate for it to apply to services where the transfer of funds from the payer to the payee or their transport is executed solely in bank notes and coins or where the transfer is based on a paper cheque, paper-based bill of exchange, promissory note or other instrument, paper-based vouchers or cards drawn upon a payment service provider or other party with a view to placing funds at the disposal of the payee. Furthermore, a differentiation should be made in the case of means offered by telecommunication, information technology or network operators to facilitate purchasing of digital goods or services, such as ring tones, music or digital newspapers, besides traditional voice services and their distribution to digital devices. The content of these goods or services may be produced either by a third party or by the operator, who may add intrinsic value to them in the form of access, distribution or search facilities. In the latter case, where the goods or services are distributed by one of those operators, or, for technical reasons, by a third party, and where they can be used only through digital devices, such as mobile phones or computers, that legal framework should not apply as the activity of the operator goes beyond a mere payment transaction. However, it is appropriate for that legal framework to apply to cases where the operator acts only as an intermediary who simply arranges for payment to be made to a third-party supplier.

494  Part I: European Union Legislation (7) Money remittance is a simple payment service that is usually based on cash provided by a payer to a payment service provider, which remits the corresponding amount, for example via communication network, to a payee or to another payment service provider acting on behalf of the payee. In some Member States supermarkets, merchants and other retailers provide to the public a corresponding service enabling the payment of utility and other regular household bills. Those bill-paying services should be treated as money remittance as defined in this Directive, unless the competent authorities consider the activity to fall under another payment service listed in the Annex. (8) It is necessary to specify the categories of payment service providers which may legitimately provide payment services throughout the Community, namely, credit institutions which take deposits from users that can be used to fund payment transactions and which should continue to be subject to the prudential requirements under Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (8), electronic money institutions which issue electronic money that can be used to fund payment transactions and which should continue to be subject to the prudential requirements under Directive 2000/46/EC of the European Parliament and of the Council of 18 September 2000 on the taking-up, pursuit and prudential supervision of the business of electronic money institutions (9), and post office giro institutions which are so entitled under national law. (9) This Directive should lay down rules on the execution of payment transactions where the funds are electronic money, as defined in Article 1(3)(b) of Directive 2000/46/EC. This Directive should, however, neither regulate issuance of electronic money nor amend the prudential regulation of electronic money institutions as provided for in Directive 2000/46/EC. Therefore, payment institutions should not be allowed to issue electronic money. (10) However, in order to remove legal barriers to market entry, it is necessary to establish a single licence for all providers of payment services which are not connected to taking deposits or issuing electronic money. It is appropriate, therefore, to introduce a new category of payment service providers, ‘payment institutions’, by providing for the authorisation, subject to a set of strict and comprehensive conditions, of legal persons outside the existing categories to provide payment services throughout the Community. Thus, the same conditions would apply Community-wide to such services. (11) The conditions for granting and maintaining authorisation as payment institutions should include prudential requirements proportionate to the operational and financial risks faced by such bodies in the course of their business. In this connection, there is a need for a sound regime of initial capital combined with ongoing capital which could be elaborated in a more sophisticated way in due course depending on the needs of the market. Due to the range of variety in the payments services area, this Directive should allow various methods combined with a certain range of supervisory discretion to ensure that the same risks are treated the same way for all

Directive 2007/64/EC 495 payment service providers. The requirements for the payment institutions should reflect the fact that payment institutions engage in more specialised and limited activities, thus generating risks that are narrower and easier to monitor and control than those that arise across the broader spectrum of activities of credit institutions. In particular, payment institutions should be prohibited from accepting deposits from users and permitted to use funds received from users only for rendering payment services. Provision should be made for client funds to be kept separate from the payment institution’s funds for other business activities. Payment institutions should also be made subject to effective anti-money laundering and anti-terrorist financing requirements. (12) Payment institutions should draw up their annual and consolidated accounts in accordance with Council Directive 78/660/EEC of 25 July 1978 on the annual accounts of certain types of companies (10) and, where applicable, Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts (11) and Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (12). The annual accounts and consolidated accounts should be audited, unless the payment institution is exempted from this obligation under Directive 78/660/EEC and, where applicable, Directives 83/349/EEC and 86/635/EEC. (13) This Directive should regulate the granting of credit by payment institutions, i.e. the granting of credit lines and the issuance of credit cards, only where it is closely linked to payment services. Only if credit is granted in order to facilitate payment services and such credit is of a short-term nature and is granted for a period not exceeding twelve months, including on a revolving basis, is it appropriate to allow payment institutions to grant such credit with regard to their cross-border activities, on condition that it is refinanced using mainly the payment institution’s own funds, as well as other funds from the capital markets, but not the funds held on behalf of clients for payment services. The above should be without prejudice to Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (13) or other relevant Community or national legislation regarding conditions for granting credit to consumers not harmonised by this Directive. (14) It is necessary for the Member States to designate the authorities responsible for granting authorisations to payment institutions, carrying out controls and deciding on the withdrawal of those authorisations. In order to ensure equality of treatment, Member States should apply to payment institutions no requirements other than those provided for in this Directive. However, all decisions made by the competent authorities should be contestable before the courts. In addition, the tasks of the competent authorities should be without prejudice to the oversight of payment systems, which, in line with the fourth indent of Article 105(2) of the Treaty, is a task to be carried out by the European System of Central Banks.

496  Part I: European Union Legislation (15) Given the desirability of registering the identity and whereabouts of all persons providing remittance services and of according them all a measure of acceptance, irrespective of whether they are able to meet the full range of conditions for authorisation as payment institutions, so that none are forced into the black economy and bring all persons providing remittance service within the ambit of certain minimum legal and regulatory requirements, it is appropriate and in line with the rationale of Special Recommendation VI of the Financial Action Task Force on Money Laundering to provide a mechanism whereby payment service providers unable to meet all those conditions may nevertheless be treated as payment institutions. For those purposes, Member States should enter such persons in the register of payment institutions while not applying all or part of the conditions for authorisation. However, it is essential to make the possibility of waiver subject to strict requirements relating to the volume of payment transactions. Payment institutions benefiting from a waiver should have neither the right of establishment nor the freedom to provide services, nor should they indirectly exercise those rights when being a member of a payment system. (16) It is essential for any payment service provider to be able to access the services of technical infrastructures of payment systems. Such access should, however, be subject to appropriate requirements in order to ensure integrity and stability of those systems. Each payment service provider applying for a participation in a payment system should furnish proof to the participants of the payment system that its internal arrangements are sufficiently robust against all kinds of risk. These payment systems typically include e.g. the four-party card schemes as well as major systems processing credit transfers and direct debits. In order to ensure equality of treatment throughout the Community as between the different categories of authorised payment service providers, according to the terms of their licence, it is necessary to clarify the rules concerning access to the provision of payment services and access to payment systems. Provision should be made for the nondiscriminatory treatment of authorised payment institutions and credit institutions so that any payment service provider competing in the internal market is able to use the services of the technical infrastructures of these payment systems under the same conditions. It is appropriate to provide for different treatment for authorised payment service providers and for those benefiting from a waiver under this Directive as well as from the waiver under the Article 8 of the Directive 2000/46/EC, due to the differences in their prudential framework. In any case differences in price conditions should be allowed only when this is motivated by differences in costs induced by the payment service providers. This should be without prejudice to Member States’ right to limit access to systemically important systems in accordance with Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (14) and without prejudice to the competence of the European Central Bank and the European System of Central Banks (ESCB),

Directive 2007/64/EC 497

(17)

(18) (19)

(20)

(21)

as laid down in Article 105(2) of the Treaty and Article 3(1) and Article 22 of the Statute of the ESCB, concerning access to payment systems. The provisions of the access to payment systems should not apply to systems set up and operated by a single payment service provider. Those payment systems can operate either in direct competition to payment systems, or, more typically, in a market niche not adequately covered by payment systems. They typically cover three-party schemes, such as three party card schemes, payment services offered by telecommunication providers or money remittance services where the scheme operator is the payment service provider to both the payer and payee as well as internal systems of banking groups. In order to stimulate the competition that can be provided by such payment systems to established mainstream payment systems, it should in principle not be appropriate to grant third parties access to these payment systems. Nevertheless, such systems should always be subject to Community and national competition rules which may require that access be granted to the schemes in order to maintain effective competition in payments markets. A set of rules should be established in order to ensure transparency of conditions and information requirements for payment services. This Directive should apply neither to payment transactions made in cash since a single payments market for cash already exists nor to payment transactions based on paper cheques since, by their nature, they cannot be processed as efficiently as other means of payment. Good practice in this area should, however, be based on the principles set out in this Directive. As consumers and enterprises are not in the same position, they do not need the same level of protection. While it is important to guarantee consumers’ rights by provisions which cannot be derogated from by contract, it is reasonable to let enterprises and organisations agree otherwise. However, Member States should have the possibility to provide that micro-enterprises, as defined by Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (15), should be treated in the same way as consumers. In any case, certain core provisions of this Directive should always be applicable irrespective of the status of the user. This Directive should specify the obligations on payment service providers as regards the provision of information to the payment service users who should receive the same high level of clear information about payment services in order to make well-informed choices and be able to shop around within the EU. In the interest of transparency this Directive should lay down the harmonised requirements needed to ensure that necessary and sufficient information is given to the payment service users with regard to the payment service contract and the payment transactions. In order to promote smooth functioning of the single market in payment services, Member States should be able to adopt only those information provisions laid down in this Directive.

498  Part I: European Union Legislation (22) Consumers should be protected against unfair and misleading practices in line with Directive 2005/29/EC of the European Parliament and the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the Internal Market (16) as well as Directive 2000/31/EC of the European Parliament and the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce) (17) and Directive 2002/65/EC of the European Parliament and the Council of 23 September 2002 concerning the distance marketing of consumer financial services (18). The additional provisions in those Directives continue to be applicable. However, the relationship of the pre-contractual information requirements between this Directive and Directive 2002/65/EC should, in particular, be clarified. (23) The information required should be proportionate to the needs of users and communicated in a standard manner. However, the information requirements for a single payment transaction should be different from those of a framework contract which provides for the series of payment transactions. (24) In practice, framework contracts and the payment transactions covered by them are far more common and economically important than single payment transactions. If there is a payment account or a specific payment instrument, a framework contract is required. Therefore, the requirements for prior information on framework contracts should be quite comprehensive and information should always be provided on paper or on another durable medium, such as printouts by account printers, floppy disks, CDROMs, DVDs and hard drives of personal computers on which electronic mail can be stored, and Internet sites, as long as such sites are accessible for future reference for a period of time adequate for the purposes of information and allow the unchanged reproduction of the information stored. However, it should be possible for the payment service provider and the payment service user to agree in the framework contract on the manner in which subsequent information on executed payment transactions is given, for instance, that in Internet banking all information on the payment account is made available online. (25) In single payment transactions only the essential information should always be given on the payment service provider’s own initiative. As the payer is usually present when he gives the payment order, it is not necessary to require that information should in every case be provided on paper or on another durable medium. The payment service provider may give information orally over the counter or make it otherwise easily accessible, for example by keeping the conditions on a notice board on the premises. Information should also be given on where other more detailed information is available (e.g. the address of the website). However, if the consumer so requests, the essential information should be given on paper or on another durable medium.

Directive 2007/64/EC 499 (26) This Directive should provide for the consumer’s right to receive relevant information free of charge before he is bound by any payment service contract. The consumer should also be able to request prior information as well as the framework contract, on paper, free of charge at any time during the contractual relationship, so as to enable him to compare payment service providers’ services and their conditions and in case of any dispute verify his contractual rights and obligations. Those provisions should be compatible with Directive 2002/65/EC. The explicit provisions on free information in this Directive should not have the effect of allowing charges to be imposed for the provision of information to consumers under other applicable Directives. (27) The way in which the required information is to be given by the payment service provider to the payment service user should take into account the needs of the latter as well as practical technical aspects and cost-efficiency depending on the situation with regard to the agreement in the respective payment service contract. Thus, this Directive should distinguish between two ways in which information is to be given by the payment service provider: either the information should be provided, i.e. actively communicated by the payment service provider at the appropriate time as required by this Directive without further prompting by the payment service user, or the information should be made available to the payment service user, taking into account any request he may have for further information. In the latter case, the payment service user should take some active steps in order to obtain the information, such as requesting it explicitly from the payment service provider, logging into bank account mail box or inserting a bank card into printer for account statements. For such purposes the payment service provider should ensure that access to the information is possible and that the information is available to the payment service user. (28) In addition, the consumer should receive basic information on executed payment transactions for no additional charge. In the case of a single payment transaction the payment service provider should not charge separately for this information. Similarly, the subsequent monthly information on payment transactions under a framework contract should be given free of charge. However, taking into account the importance of transparency in pricing and differing customer needs, the parties should be able to agree on charges for more frequent or additional information. In order to take into account different national practices, Member States should be allowed to set rules requiring that monthly paper-based statements of payment accounts are always to be given free of charge. (29) In order to facilitate customer mobility, it should be possible for consumers to terminate a framework contract after the expiry of a year without incurring charges. For consumers, the period of notice agreed should be no longer than a month, and for payment service providers no shorter than two months. This Directive should be without prejudice to the payment service provider’s obligation to terminate the payment service contract in exceptional circumstances under other relevant Community or national

500  Part I: European Union Legislation

(30)

(31)

(32)

(33)

(34)

l­egislation, such as legislation on money laundering and terrorist financing, any action targeting the freezing of funds, or any specific measure linked to the prevention and investigation of crimes. Low value payment instruments should be a cheap and easy-to-use alternative in the case of low-priced goods and services and should not be overburdened by excessive requirements. The relevant information requirements and rules on their execution should therefore be limited to essential information, taking also into account technical capabilities that can justifiably be expected from instruments dedicated to low value payments. Despite the lighter regime payment service users should benefit from adequate protection considering the limited risks posed by those payment instruments, especially with regard to prepaid payment instruments. In order to reduce the risks and consequences of unauthorised or incorrectly executed payment transactions the payment service user should inform the payment service provider as soon as possible about any contestations concerning allegedly unauthorised or incorrectly executed payment transactions provided that the payment service provider has fulfilled his information obligations under this Directive. If the notification deadline is met by the payment service user, he should be able to pursue those claims within the prescription periods pursuant to national law. This Directive should not affect other claims between payment service users and payment service providers. In order to provide an incentive for the payment service user to notify, without undue delay, his provider of any theft or loss of a payment instrument and thus to reduce the risk of unauthorised payment transactions, the user should be liable only for a limited amount, unless the payment service user has acted fraudulently or with gross negligence. Moreover, once a user has notified a payment service provider that his payment instrument may have been compromised, the user should not be required to cover any further losses stemming from unauthorised use of that instrument. This Directive should be without prejudice to the payment service providers’ responsibility for technical security of their own products. In order to assess possible negligence by the payment service user, account should be taken of all the circumstances. The evidence and degree of alleged negligence should be evaluated according to national law. Contractual terms and conditions relating to the provision and use of a payment instrument, the effect of which would be to increase the burden of proof on the consumer or to reduce the burden of proof on the issuer should be considered null and void. However, Member States should be able to establish less stringent rules than mentioned above in order to maintain existing levels of consumer protection and promote trust in the safe usage of electronic payment instruments. The fact that different payment instruments involve different risks should be taken into account accordingly thus promoting the issuance of safer instruments. Member States should be allowed to reduce or completely waive the payer’s liability except where the payer has acted fraudulently.

Directive 2007/64/EC 501 (35) Provisions should be made for the allocation of losses in the case of unauthorised payment transactions. Different provisions may apply to payment service users who are not consumers, since such users are normally in a better position to assess the risk of fraud and take countervailing measures. (36) This Directive should lay down rules for a refund to protect the consumer when the executed payment transaction exceeds the amount which could reasonably have been expected. Payment service providers should be able to provide even more favourable terms to their customers and, for example, refund any disputed payment transactions. In cases where the user makes a claim for the refund of a payment transaction refund rights should affect neither the liability of the payer vis-à-vis the payee from the underlying relationship, e.g. for goods or services ordered, consumed or legitimately charged, nor the users rights with regard to revocation of a payment order. (37) For financial planning and the fulfilment of payment obligations in due time, consumers and enterprises need to have certainty on the length of time that the execution of a payment order takes. Therefore, this Directive should introduce a point in time at which rights and obligations take effect, namely, when the payment service provider receives the payment order, including when he has had the opportunity to receive it through the means of communication agreed in the payment service contract, notwithstanding any prior involvement in the process leading up to the creation and transmission of the payment order, e.g. security and availability of funds checks, information on the use of the personal identity number or issuance of a payment promise. Furthermore, the receipt of a payment order should occur when the payer’s payment service provider receives the payment order to be debited from the payer’s account. The day or moment in time when a payee transmits to his service provider payment orders for the collection e.g. of card payment or of direct debits or when the payee is granted a pre-­financing on the related amounts by his payment service provider (by way of a contingent credit to his account) should have no relevance in this respect. Users should be able to rely on the proper execution of a complete and valid payment order if the payment service provider has no contractual or statutory ground for refusal. If the payment service provider refuses a payment order, the refusal and the reason therefore should be communicated to the payment service user at the earliest opportunity subject to the requirements of Community and national law. (38) In view of the speed with which modern fully automated payment systems process payment transactions, which means that after a certain point in time payment orders cannot be revoked without high manual intervention costs, it is necessary to specify a clear deadline for payment revocations. However, depending on the type of the payment service and the payment order, the point in time may be varied by agreement between the parties. Revocation, in this context, is applicable only to the relationship between a payment service user and payment service provider, thus being without prejudice to the irrevocability and finality of payment transactions in payment systems.

502  Part I: European Union Legislation (39) Such irrevocability should not affect a payment service provider’s right or obligation under the laws of some Member States, based on the payer’s framework contract or national laws, regulations, administrative provisions or guidelines, to reimburse the payer with the amount of the executed payment transaction in the event of a dispute between the payer and the payee. Such reimbursement should be considered to be a new payment order. Except for those cases, legal disputes arising within the relationship underlying the payment order should be settled only between the payer and the payee. (40) It is essential, for the fully integrated straight-through processing of payments and for legal certainty with respect to the fulfilment of any underlying obligation between payment service users, that the full amount transferred by the payer should be credited to the account of the payee. Accordingly, it should not be possible for any of the intermediaries involved in the execution of payment transactions to make deductions from the amount transferred. However, it should be possible for the payee to enter into an agreement with his payment service provider under which the latter may deduct his own charges. Nevertheless, in order to enable the payee to verify that the amount due is correctly paid, subsequent information provided on the payment transaction should indicate not only the full amount of funds transferred but also the amount of any charges. (41) With regard to charges, experience has shown that the sharing of charges between a payer and a payee is the most efficient system since it facilitates the straight-through processing of payments. Provision should therefore be made for charges to be levied, in the normal course, directly on the payer and the payee by their respective payment service providers. However, that should apply only where the payment transaction does not require currency exchange. The amount of any charges levied may also be zero as the provisions of this Directive do not affect the practice whereby the payment service provider does not charge consumers for crediting their accounts. Similarly, depending on the contract terms, a payment service provider may charge only the payee (merchant) for the use of the payment service, which has the effect that no charges are imposed on the payer. The charging of the payment systems may be in the form of a subscription fee. The provisions on the amount transferred or any charges levied have no direct impact on pricing between payment service providers or any intermediaries. (42) In order to promote transparency and competition, the payment service provider should not prevent the payee from requesting a charge from the payer for using a specific payment instrument. While the payee should be free to levy charges for the use of a certain payment instrument, Member States may decide whether they forbid or limit any such practice where, in their view, this may be warranted in view of abusive pricing or pricing which may have a negative impact on the use of a certain payment instrument taking into account the need to encourage competition and the use of efficient payment instruments.

Directive 2007/64/EC 503 (43) In order to improve the efficiency of payments throughout the Community, all payment orders initiated by the payer and denominated in euro or the currency of a Member State outside the euro area, including credit transfers and money remittances, should be subject to a maximum one-day execution time. For all other payments, such as payments initiated by or through a payee, including direct debits and card payments, in the absence of an explicit agreement between the payment service provider and the payer setting a longer execution time, the same one-day execution time should apply. The periods above could be extended by an additional business day, if a payment order is given on paper. This allows the continued provision of payment services for those consumers who are used to paper documents only. When a direct debit scheme is used the payee’s payment service provider should transmit the collection order within the time limits agreed between the payee and his payment service provider, enabling settlement at the agreed due date. In view of the fact that national payment infrastructures are often highly efficient and in order to prevent any deterioration in current service levels, Member States should be allowed to maintain or set rules specifying an execution time shorter than one business day, where appropriate. (44) The provisions on execution for the full amount and execution time should constitute good practice where one of the service providers is not located in the Community. (45) It is essential for payment service users to know the real costs and charges of payment services in order to make their choice. Accordingly, the use of non-transparent pricing methods should not be allowed, since it is commonly accepted that those methods make it extremely difficult for users to establish the real price of the payment service. Specifically, the use of value dating to the disadvantage of the user should not be permitted. (46) The smooth and efficient functioning of the payment system depends on the user being able to rely on the payment service provider executing the payment transaction correctly and within the agreed time. Usually, the provider is in the position to assess the risks involved in the payment transaction. It is the provider that provides the payments system, makes arrangements to recall misplaced or wrongly allocated funds and decides in most cases on the intermediaries involved in the execution of a payment transaction. In view of all those considerations, it is entirely appropriate, except under abnormal and unforeseeable circumstances, to impose liability on the payment service provider in respect of execution of a payment transaction accepted from the user, except for the payee’s payment service provider’s acts and omissions for whose selection solely the payee is responsible. However, in order not to leave the payer unprotected in unlikely constellations where it may remain open (non liquet) whether the payment amount was duly received by the payee’s payment service provider or not, the corresponding burden of proof should lie upon the payer’s payment service provider. As a rule, it can be expected that the intermediary institution, usually a ‘neutral’ body like a central bank or a clearing house, transferring the ­payment amount

504  Part I: European Union Legislation from the sending to the receiving payment service provider will store the account data and be able to furnish the latter whenever this may be necessary. Whenever the payment amount has been credited to the receiving payment service provider’s account, the payee should immediately have a claim against his payment service provider for credit to his account. (47) The payer’s payment service provider should assume liability for correct payment execution, including, in particular the full amount of the payment transaction and execution time, and full responsibility for any failure by other parties in the payment chain up to the account of the payee. As a result of that liability the payment service provider of the payer should, where the full amount is not credited to the payee’s payment service provider, correct the payment transaction or without undue delay refund to the payer the relevant amount of that transaction, without prejudice to any other claims which may be made in accordance with national law. This Directive should concern only contractual obligations and responsibilities between the payment service user and his payment service provider. However, the proper functioning of credit transfers and other payment services requires that payment service providers and their intermediaries, such as processors, have contracts where their mutual rights and obligations are agreed upon. Questions related to liabilities form an essential part of these uniform contracts. To ensure the reliability among payment service providers and intermediaries taking part in a payment transaction, legal certainty is necessary to the effect that a non-responsible payment service provider is compensated for losses incurred or sums paid under the provisions of this Directive relating to liability. Further rights and details of content of recourse and how to handle claims towards the payment service provider or intermediary attributable to a defective payment transaction should be left to be defined by contractual arrangements. (48) It should be possible for the payment service provider to specify unambiguously the information required to execute a payment order correctly. On the other hand, however, in order to avoid fragmentation and jeopardising the setting-up of integrated payment systems in the Community, Member States should not be allowed to require a particular identifier to be used for payment transactions. However, this should not prevent Member States from requiring the payment service provider of the payer to act in due diligence and verify, where technically possible and without requiring manual intervention, the coherence of the unique identifier, and where the unique identifier is found to be incoherent, to refuse the payment order and inform the payer thereof. The liability of the payment service provider should be limited to the correct execution of the payment transaction in accordance with the payment order of the payment service user. (49) In order to facilitate effective fraud prevention and combat payment fraud across the Community, provision should be made for the efficient exchange of data between payment service providers who should be allowed to collect, process and exchange personal data relating to persons involved in payment fraud. All those activities should be conducted in compliance

Directive 2007/64/EC 505

(50)

(51)

(52)

(53) (54)

(55) (56)

with Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (19). It is necessary to ensure the effective enforcement of the provisions of national law adopted pursuant to this Directive. Appropriate procedures should therefore be established by means of which it will be possible to pursue complaints against payment service providers which do not comply with those provisions and to ensure that, where appropriate, effective, proportionate and dissuasive penalties are imposed. Without prejudice to the right of customers to bring action in the courts, Member States should ensure an easily accessible and cost-sensitive out-ofcourt resolution of conflicts between payment service providers and consumers arising from the rights and obligations set out in this Directive. Article 5(2) of the Rome Convention on the law applicable to contractual obligations (20) ensures that the protection afforded to consumers by the mandatory rules of the law of the country in which they have their habitual residence may not be undermined by any contractual terms on law applicable. Member States should determine whether the competent authorities designated for granting authorisation to payment institutions might also be the competent authorities with regard to out-of-court complaint and redress procedures. This Directive should be without prejudice to provisions of national law relating to the consequences as regards liability of inaccuracy in the expression or transmission of a statement. Since it is necessary to review the efficient functioning of this Directive and to monitor progress on the establishment of a single payment market, the Commission should be required to produce a report three years after the end of the transposition period of this Directive. With regard to the global integration of financial services and harmonised consumer protection also beyond the efficient functioning of this Directive focal points of the review should be the possible need to expand the scope of application with regard to non-EU currencies and to payment transactions where only one payment service provider concerned is located in the Community. Since the provisions of this Directive replace those of Directive 97/5/EC, that Directive should be repealed. It is necessary to lay down more detailed rules concerning the fraudulent use of payment cards, an area currently covered by Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (21) and Directive 2002/65/EC. Those Directives should therefore be amended accordingly.

506  Part I: European Union Legislation (57) Since, pursuant to Directive 2006/48/EC, financial institutions are not subject to the rules applicable to credit institutions, they should be made subject to the same requirements as payment institutions so that they are able to provide payment services throughout the Community. Directive 2006/48/ EC should therefore be amended accordingly. (58) Since money remittance is defined in this Directive as a payment service which requires an authorisation for a payment institution or a registration for some natural or legal persons benefiting from a waiver clause under certain circumstances specified in the provisions of this Directive, Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (22) should be amended accordingly. (59) In the interests of legal certainty, it is appropriate to make transitional arrangements in accordance with which persons who have commenced the activities of payment institutions in accordance with the national law in force before the entry into force of this Directive may continue those activities within the Member State concerned for a specified period. (60) Since the objective of this Directive, namely, the establishment of a single market in payment services, cannot be sufficiently achieved by the Member States because it requires the harmonisation of a multitude of different rules currently existing in the legal systems of the various Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (61) The measures necessary for the implementation of this Directive should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (23). (62) In particular, the Commission should be empowered to adopt implementing provisions in order to take account of technological and market developments. Since those measures are of general scope and are designed to amend non-essential elements of this Directive, they must be adopted in accordance with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC. (63) In accordance with point 34 of the Interinstitutional Agreement on better law-making (24), Member States are encouraged to draw up, for themselves and in the interest of the Community, their own tables illustrating, as far as possible, the correlation between this Directive and the transposition measures, and to make them public,

Directive 2007/64/EC 507 HAVE ADOPTED THIS DIRECTIVE: TITLE I SUBJECT MATTER, SCOPE AND DEFINITIONS Article 1 Subject matter 1. This Directive lays down the rules in accordance with which Member States shall distinguish the following six categories of payment service provider: (a) credit institutions within the meaning of Article 4(1)(a) of Directive 2006/48/EC; (b) electronic money institutions within the meaning of Article 1(3)(a) of Directive 2000/46/EC; (c) post office giro institutions which are entitled under national law to provide payment services; (d) payment institutions within the meaning of this Directive; (e) the European Central Bank and national central banks when not acting in their capacity as monetary authority or other public authorities; (f) Member States or their regional or local authorities when not acting in their capacity as public authorities. 2. This Directive also lays down rules concerning transparency of conditions and information requirements for payment services, and the respective rights and obligations of payment service users and payment service providers in relation to the provision of payment services as a regular occupation or business activity. Article 2 Scope 1. This Directive shall apply to payment services provided within the Community. However, with the exception of Article 73, Titles III and IV shall apply only where both the payer’s payment service provider and the payee’s payment service provider are, or the sole payment service provider in the payment transaction is, located in the Community. 2. Titles III and IV shall apply to payment services made in euro or the currency of a Member State outside the euro area. 3. Member States may waive the application of all or part of the provisions of this Directive to the institutions referred to in Article 2 of Directive 2006/48/ EC, with the exception of those referred to in the first and second indent of that article.

508  Part I: European Union Legislation Article 3 Negative scope This Directive shall apply to none of the following: (a) payment transactions made exclusively in cash directly from the payer to the payee, without any intermediary intervention; (b) payment transactions from the payer to the payee through a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee; (c) professional physical transport of banknotes and coins, including their collection, processing and delivery; (d) payment transactions consisting of the non-professional cash collection and delivery within the framework of a non-profit or charitable activity; (e) services where cash is provided by the payee to the payer as part of a payment transaction following an explicit request by the payment service user just before the execution of the payment transaction through a payment for the purchase of goods or services; (f) money exchange business, that is to say, cash-to-cash operations, where the funds are not held on a payment account; (g) payment transactions based on any of the following documents drawn on the payment service provider with a view to placing funds at the disposal of the payee: (i) paper cheques in accordance with the Geneva Convention of 19 March 1931 providing a uniform law for cheques; (ii) paper cheques similar to those referred to in point (i) and governed by the laws of Member States which are not party to the Geneva Convention of 19 March 1931 providing a uniform law for cheques; (iii) paper-based drafts in accordance with the Geneva Convention of 7 June 1930 providing a uniform law for bills of exchange and promissory notes; (iv) paper-based drafts similar to those referred to in point (iii) and governed by the laws of Member States which are not party to the Geneva Convention of 7 June 1930 providing a uniform law for bills of exchange and promissory notes; (v) paper-based vouchers; (vi) paper-based traveller’s cheques; or (vii) paper-based postal money orders as defined by the Universal Postal Union; (h) payment transactions carried out within a payment or securities settlement system between settlement agents, central counterparties, clearing houses and/or central banks and other participants of the system, and payment service providers, without prejudice to Article 28;

Directive 2007/64/EC 509 (i)

(j)

(k)

(l)

(m) (n)

(o)

payment transactions related to securities asset servicing, including dividends, income or other distributions, or redemption or sale, carried out by persons referred to in point (h) or by investment firms, credit institutions, collective investment undertakings or asset management companies providing investment services and any other entities allowed to have the custody of financial instruments; services provided by technical service providers, which support the provision of payment services, without them entering at any time into possession of the funds to be transferred, including processing and storage of data, trust and privacy protection services, data and entity authentication, information technology (IT) and communication network provision, provision and maintenance of terminals and devices used for payment services; services based on instruments that can be used to acquire goods or services only in the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services; payment transactions executed by means of any telecommunication, digital or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided that the telecommunication, digital or IT operator does not act only as an intermediary between the payment service user and the supplier of the goods and services; payment transactions carried out between payment service providers, their agents or branches for their own account; payment transactions between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking, without any intermediary intervention by a payment service provider other than an undertaking belonging to the same group; or services by providers to withdraw cash by means of automated teller machines acting on behalf of one or more card issuers, which are not a party to the framework contract with the customer withdrawing money from a payment account, on condition that these providers do not conduct other payment services as listed in the Annex. Article 4 Definitions

For the purposes of this Directive, the following definitions shall apply: 1. ‘home Member State’ means either of the following: (i) the Member State in which the registered office of the payment service provider is situated; or (ii) if the payment service provider has, under its national law, no registered office, the Member State in which its head office is situated; 2. ‘host Member State’ means the Member State other than the home Member State in which a payment service provider has an agent or a branch or provides payment services;

510  Part I: European Union Legislation 3. ‘payment service’ means any business activity listed in the Annex; 4. ‘payment institution’ means a legal person that has been granted authorisation in accordance with Article 10 to provide and execute payment services throughout the Community; 5. ‘payment transaction’ means an act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee; 6. ‘payment system’ means a funds transfer system with formal and standardised arrangements and common rules for the processing, clearing and/or settlement of payment transactions; 7. ‘payer’ means a natural or legal person who holds a payment account and allows a payment order from that payment account, or, where there is no payment account, a natural or legal person who gives a payment order; 8. ‘payee’ means a natural or legal person who is the intended recipient of funds which have been the subject of a payment transaction; 9. ‘payment service provider’ means bodies referred to in Article 1(1) and legal and natural persons benefiting from the waiver under Article 26; 10. ‘payment service user’ means a natural or legal person making use of a payment service in the capacity of either payer or payee, or both; 11. ‘consumer’ means a natural person who, in payment service contracts covered by this Directive, is acting for purposes other than his trade, business or profession; 12. ‘framework contract’ means a payment service contract which governs the future execution of individual and successive payment transactions and which may contain the obligation and conditions for setting up a payment account; 13. ‘money remittance’ means a payment service where funds are received from a payer, without any payment accounts being created in the name of the payer or the payee, for the sole purpose of transferring a corresponding amount to a payee or to another payment service provider acting on behalf of the payee, and/or where such funds are received on behalf of and made available to the payee; 14. ‘payment account’ means an account held in the name of one or more payment service users which is used for the execution of payment transactions; 15. ‘funds’ means banknotes and coins, scriptural money and electronic money as defined in Article 1(3)(b) of Directive 2000/46/EC; 16. ‘payment order’ means any instruction by a payer or payee to his payment service provider requesting the execution of a payment transaction; 17. ‘value date’ means a reference time used by a payment service provider for the calculation of interest on the funds debited from or credited to a payment account; 18. ‘reference exchange rate’ means the exchange rate which is used as the basis to calculate any currency exchange and which is made available by the payment service provider or comes from a publicly available source; 19. ‘authentication’ means a procedure which allows the payment service provider to verify the use of a specific payment instrument, including its personalised security features;

Directive 2007/64/EC 511 20. ‘reference interest rate’ means the interest rate which is used as the basis for calculating any interest to be applied and which comes from a publicly available source which can be verified by both parties to a payment service contract; 21. ‘unique identifier’ means a combination of letters, numbers or symbols specified to the payment service user by the payment service provider and to be provided by the payment service user to identify unambiguously the other payment service user and/or his payment account for a payment transaction; 22. ‘agent’ means a natural or legal person which acts on behalf of a payment institution in providing payment services; 23. ‘payment instrument’ means any personalised device(s) and/or set of procedures agreed between the payment service user and the payment service provider and used by the payment service user in order to initiate a payment order; 24. ‘means of distance communication’ refers to any means which, without the simultaneous physical presence of the payment service provider and the payment service user, may be used for the conclusion of a payment services contract; 25. ‘durable medium’ means any instrument which enables the payment service user to store information addressed personally to him in a way accessible for future reference for a period of time adequate to the purposes of the information and which allows the unchanged reproduction of the information stored; 26. ‘micro-enterprise’ means an enterprise, which at the time of conclusion of the payment service contract, is an enterprise as defined in Article 1 and Article 2(1) and (3) of the Annex to Recommendation 2003/361/EC; 27. ‘business day’ means a day on which the relevant payment service provider of the payer or the payment service provider of the payee involved in the execution of a payment transaction is open for business as required for the execution of a payment transaction; 28. ‘direct debit’ means a payment service for debiting a payer’s payment account, where a payment transaction is initiated by the payee on the basis of the payer’s consent given to the payee, to the payee’s payment service provider or to the payer’s own payment service provider; 29. ‘branch’ means a place of business other than the head office which is a part of a payment institution, which has no legal personality and which carries out directly some or all of the transactions inherent in the business of a payment institution; all the places of business set up in the same Member State by a payment institution with a head office in another Member State shall be regarded as a single branch; 30. ‘group’ means a group of undertakings, which consists of a parent undertaking, its subsidiaries and the entities in which the parent undertaking or its subsidiaries have a holding as well as undertakings linked to each other by a relationship referred to in Article 12(1) of Directive 83/349/EEC.

512  Part I: European Union Legislation TITLE II PAYMENT SERVICE PROVIDERS CHAPTER 1 Payment institutions Section 1 General rules Article 5 Applications for authorization For authorisation as a payment institution, an application shall be submitted to the competent authorities of the home Member State, together with the following: (a) a programme of operations, setting out in particular the type of payment services envisaged; (b) a business plan including a forecast budget calculation for the first three financial years which demonstrates that the applicant is able to employ the appropriate and proportionate systems, resources and procedures to operate soundly; (c) evidence that the payment institution holds initial capital provided for in Article 6; (d) for the payment institutions referred to in Article 9(1), a description of the measures taken for safeguarding payment service users’ funds in accordance with Article 9; (e) a description of the applicant’s governance arrangements and internal control mechanisms, including administrative, risk management and accounting procedures, which demonstrates that these governance arrangements, control mechanisms and procedures are proportionate, appropriate, sound and adequate; (f) a description of the internal control mechanisms which the applicant has established in order to comply with obligations in relation to money laundering and terrorist financing under Directive 2005/60/EC and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds (25); (g) a description of the applicant’s structural organisation, including, where applicable, a description of the intended use of agents and branches and a description of outsourcing arrangements, and of its participation in a national or international payment system; (h) the identity of persons holding in the applicant, directly or indirectly, qualifying holdings within the meaning of Article 4(11) of Directive 2006/48/ EC, the size of their holdings and evidence of their suitability taking into account the need to ensure the sound and prudent management of a payment institution;

Directive 2007/64/EC 513 (i) the identity of directors and persons responsible for the management of the payment institution and, where relevant, persons responsible for the management of the payment services activities of the payment institution, as well as evidence that they are of good repute and possess appropriate knowledge and experience to perform payment services as determined by the home Member State of the payment institution; (j) where applicable, the identity of statutory auditors and audit firms as defined in Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (26); (k) the applicant’s legal status and articles of association; (l) the address of the applicant’s head office. For the purposes of points (d), (e) and (g), the applicant shall provide a description of its audit arrangements and the organisational arrangements it has set up with a view to taking all reasonable steps to protect the interests of its users and to ensure continuity and reliability in the performance of payment services. Article 6 Initial capital Member States shall require payment institutions to hold, at the time of authorisation, initial capital, comprised of the items defined in Article 57(a) and (b) of Directive 2006/48/EC as follows: (a) where the payment institution provides only the payment service listed in point 6 of the Annex, its capital shall at no time be less than EUR 20 000; (b) where the payment institution provides the payment service listed in point 7 of the Annex, its capital shall at no time be less than EUR 50 000; and (c) where the payment institution provides any of the payment services listed in points 1 to 5 of the Annex, its capital shall at no time be less than EUR 125 000. Article 7 Own funds 1. The payment institution’s own funds, as defined in Articles 57 to 61, 63, 64 and 66 of Directive 2006/48/EC, may not fall below the amount required under Articles 6 or 8 of this Directive, whichever the higher. 2. Member States shall take the necessary measures to prevent the multiple use of elements eligible for own funds where the payment institution belongs to the same group as another payment institution, credit institution, investment firm, asset management company or insurance undertaking. This paragraph shall also apply where a payment institution has a hybrid character and carries out activities other than providing payment services listed in the Annex.

514  Part I: European Union Legislation 3. If the conditions laid down in Article 69 of Directive 2006/48/EC are met, Member States or their competent authorities may choose not to apply Article 8 of this Directive to payment institutions which are included in the consolidated supervision of the parent credit institution pursuant to Directive 2006/48/EC. Article 8 Calculation of own funds 1. Notwithstanding the initial capital requirements set out in Article 6, Member States shall require payment institutions to hold, at all times, own funds calculated in accordance with one of the following three methods, as determined by the competent authorities in accordance with national legislation: Method A The payment institution’s own funds shall amount to at least 10 % of its fixed overheads of the preceding year. The competent authorities may adjust that requirement in the event of a material change in a payment institution’s business since the preceding year. Where a payment institution has not completed a full year’s business at the date of the calculation, the requirement shall be that its own funds amount to at least 10 % of the corresponding fixed overheads as projected in its business plan, unless an adjustment to that plan is required by the competent authorities. Method B The payment institution’s own funds shall amount to at least the sum of the following elements multiplied by the scaling factor k defined in paragraph 2, where payment volume (PV) represents one twelfth of the total amount of payment transactions executed by the payment institution in the preceding year: (a) 4,0 % of the slice of PV up to EUR 5 million, plus (b) 2,5 % of the slice of PV above EUR 5 million up to EUR 10 million, plus (c) 1 % of the slice of PV above EUR 10 million up to EUR 100 million, plus (d) 0,5 % of the slice of PV above EUR 100 million up to EUR 250 million, plus (e) 0,25 % of the slice of PV above EUR 250 million. Method C The payment institution’s own funds shall amount to at least the relevant indicator defined in point (a), multiplied by the multiplication factor defined in point (b) and by the scaling factor k defined in paragraph 2.

Directive 2007/64/EC 515 (a) The relevant indicator is the sum of the following: —— interest income, —— interest expenses, —— commissions and fees received, and —— other operating income. Each element shall be included in the sum with its positive or negative sign. Income from extraordinary or irregular items may not be used in the calculation of the relevant indicator. Expenditure on the outsourcing of services rendered by third parties may reduce the relevant indicator if the expenditure is incurred from an undertaking subject to supervision under this Directive. The relevant indicator is calculated on the basis of the twelve-monthly observation at the end of the previous financial year. The relevant indicator shall be calculated over the previous financial year. Nevertheless own funds calculated according to Method C shall not fall below 80 % of the average of the previous three financial years for the relevant indicator. When audited figures are not available, business estimates may be used. (b) The multiplication factor shall be: (i) 10 % of the slice of the relevant indicator up to EUR 2,5 million; (ii) 8 % of the slice of the relevant indicator from EUR 2,5 million up to EUR 5 million; (iii) 6 % of the slice of the relevant indicator from EUR 5 million up to EUR 25 million; (iv) 3 % of the slice of the relevant indicator from EUR 25 million up to 50 million; (v) 1,5 % above EUR 50 million. 2. The scaling factor k to be used in Methods B and C shall be: (a) 0,5 where the payment institution provides only the payment service listed in point 6 of the Annex; (b) 0,8 where the payment institution provides the payment service listed in point 7 of the Annex; (c) 1 where the payment institution provides any of the payment services listed in points 1 to 5 of the Annex. 3. The competent authorities may, based on an evaluation of the risk-­management processes, risk loss data base and internal control mechanisms of the payment institution, require the payment institution to hold an amount of own funds which is up to 20 % higher than the amount which would result from the application of the method chosen in accordance with paragraph 1, or permit the payment institution to hold an amount of own funds which is up to 20 % lower than the amount which would result from the application of the method chosen in accordance with paragraph 1. Article 9 Safeguarding requirements 1. The Member States or competent authorities shall require a payment institution which provides any of the payment services listed in the Annex

516  Part I: European Union Legislation and, at the same time, is engaged in other business activities referred to in Article 16(1)(c) to safeguard funds which have been received from the payment service users or through another payment service provider for the execution of payment transactions, as follows: either: (a) they shall not be commingled at any time with the funds of any natural or legal person other than payment service users on whose behalf the funds are held and, where they are still held by the payment institution and not yet delivered to the payee or transferred to another payment service provider by the end of the business day following the day when the funds have been received, they shall be deposited in a separate account in a credit institution or invested in secure, liquid low-risk assets as defined by the competent authorities of the home Member State; and (b) they shall be insulated in accordance with national law in the interest of the payment service users against the claims of other creditors of the payment institution, in particular in the event of insolvency; or (c) they shall be covered by an insurance policy or some other comparable guarantee from an insurance company or a credit institution, which does not belong to the same group as the payment institution itself, for an amount equivalent to that which would have been segregated in the absence of the insurance policy or other comparable guarantee, payable in the event that the payment institution is unable to meet its financial obligations. 2. Where a payment institution is required to safeguard funds under paragraph 1 and a portion of those funds is to be used for future payment transactions with the remaining amount to be used for non-payment services, that portion of the funds to be used for future payment transactions shall also be subject to the requirements under paragraph 1. Where that portion is variable or unknown in advance, Member States may allow payment institutions to apply this paragraph on the basis of a representative portion assumed to be used for payment services provided such a representative portion can be reasonably estimated on the basis of historical data to the satisfaction of the competent authorities. 3. The Member States or competent authorities may require that payment institutions which are not engaged in other business activities referred to in Article 16(1)(c) shall also comply with the safeguarding requirements under paragraph 1 of this Article. 4. The Member States or competent authorities may also limit such safeguarding requirements to funds of those payment service users whose funds individually exceed a threshold of EUR 600.

Directive 2007/64/EC 517 Article 10 Granting of authorisation 1. Member States shall require undertakings other than those referred to in Article 1(1)(a) to (c), (e) and (f) and other than legal or natural persons benefiting from a waiver under Article 26, who intend to provide payment services, to obtain authorisation as a payment institution before commencing the provision of payment services. An authorisation shall only be granted to a legal person established in a Member State. 2. An authorisation shall be granted if the information and evidence accompanying the application complies with all the requirements under Article 5 and if the competent authorities’ overall assessment, having scrutinised the application, is favourable. Before an authorisation is granted, the competent authorities may, where relevant, consult the national central bank or other relevant public authorities. 3. A payment institution which under the national law of its home Member State is required to have a registered office, shall have its head office in the same Member State as its registered office. 4. The competent authorities shall grant an authorisation only if, taking into account the need to ensure the sound and prudent management of a payment institution, the payment institution has robust governance arrangements for its payment services business, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective procedures to identify, manage, monitor and report the risks to which it is or might be exposed, and adequate internal control mechanisms, including sound administrative and accounting procedures; those arrangements, procedures and mechanisms shall be comprehensive and proportionate to the nature, scale and complexity of the payment services provided by the payment institution. 5. Where a payment institution provides any of the payment services listed in the Annex and, at the same time, is engaged in other business activities, the competent authorities may require the establishment of a separate entity for the payment services business, where the non-payment services activities of the payment institution impair or are likely to impair either the financial soundness of the payment institution or the ability of the competent authorities to monitor the payment institution’s compliance with all obligations laid down by this Directive. 6. The competent authorities shall refuse to grant an authorisation if, taking into account the need to ensure the sound and prudent management of a payment institution, they are not satisfied as to the suitability of the shareholders or members that have qualifying holdings. 7. Where close links as defined in Article 4(46) of Directive 2006/48/EC exist between the payment institution and other natural or legal persons, the competent authorities shall grant an authorisation only if those links do not prevent the effective exercise of their supervisory functions.

518  Part I: European Union Legislation 8. The competent authorities shall grant an authorisation only if the laws, regulations or administrative provisions of a third country governing one or more natural or legal persons with which the payment institution has close links, or difficulties involved in the enforcement of those laws, regulations or administrative provisions, do not prevent the effective exercise of their supervisory functions. 9. An authorisation shall be valid in all Member States and shall allow the payment institution concerned to provide payment services throughout the Community, either under the freedom to provide services or the freedom of establishment, provided that such services are covered by the authorisation. Article 11 Communication of the decision Within three months of receipt of an application or, should the application be incomplete, of all the information required for the decision, the competent authorities shall inform the applicant whether the authorisation has been granted or refused. Reasons shall be given whenever an authorisation is refused. Article 12 Withdrawal of authorisation 1. The competent authorities may withdraw an authorisation issued to a payment institution only where the institution: (a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased to engage in business for more than six months, if the Member State concerned has made no provision for the authorisation to lapse in such cases; (b) has obtained the authorisation through false statements or any other irregular means; (c) no longer fulfils the conditions for granting the authorisation; (d) would constitute a threat to the stability of the payment system by continuing its payment services business; or (e) falls within one of the other cases where national law provides for withdrawal of an authorisation. 2. Reasons shall be given for any withdrawal of an authorisation and those concerned shall be informed accordingly. 3. The withdrawal of an authorisation shall be made public. Article 13 Registration Member States shall establish a public register of authorised payment institutions, their agents and branches, as well as of natural and legal persons, their agents and branches, benefiting from a waiver under Article 26, and of the institutions referred

Directive 2007/64/EC 519 to in Article 2(3) that are entitled under national law to provide payment services. They shall be entered in the register of the home Member State. This register shall identify the payment services for which the payment institution is authorised or for which the natural or legal person has been registered. Authorised payment institutions shall be listed in the register separately from natural and legal persons that have been registered in accordance with Article 26. The register shall be publicly available for consultation, accessible online, and updated on a regular basis. Article 14 Maintenance of authorisation Where any change affects the accuracy of information and evidence provided in accordance with Article 5, the payment institution shall without undue delay inform the competent authorities of its home Member State accordingly. Article 15 Accounting and statutory audit 1. Directive 78/660/EEC and, where applicable, Directives 83/349/EEC and 86/635/EEC and Regulation (EC) 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (27) shall apply to payment institutions mutatis mutandis. 2. Unless exempted under Directive 78/660/EEC and, where applicable, Directives 83/349/EEC and 86/635/EEC, the annual accounts and consolidated accounts of payment institutions shall be audited by statutory auditors or audit firms within the meaning of Directive 2006/43/EC. 3. For supervisory purposes, Member States shall require that payment institutions provide separate accounting information for payment services listed in the Annex and activities referred to in Article 16(1), which shall be subject to an auditor’s report. That report shall be prepared, where applicable, by the statutory auditors or an audit firm. 4. The obligations established in Article 53 of Directive 2006/48/EC shall apply mutatis mutandis to the statutory auditors or audit firms of payment institutions in respect of payment services activities. Article 16 Activities 1. Apart from the provision of payment services listed in the Annex payment institutions shall be entitled to engage in the following activities: (a) the provision of operational and closely related ancillary services such as ensuring the execution of payment transactions, foreign exchange services, safekeeping activities, and the storage and processing of data; (b) the operation of payment systems, without prejudice to Article 28; (c) business activities other than the provision of payment services, having regard to applicable Community and national law.

520  Part I: European Union Legislation 2. When payment institutions engage in the provision of one or more of the payment services listed in the Annex, they may hold only payment accounts used exclusively for payment transactions. Any funds received by payment institutions from payment service users with a view to the provision of payment services shall not constitute a deposit or other repayable funds within the meaning of Article 5 of Directive 2006/48/EC, or electronic money within the meaning of Article 1(3) of Directive 2000/46/EC. 3. Payment institutions may grant credit related to payment services referred to in points 4, 5 or 7 of the Annex only if the following conditions are met: (a) the credit shall be ancillary and granted exclusively in connection with the execution of a payment transaction; (b) notwithstanding national rules on providing credit by credit cards, the credit granted in connection with a payment and executed in accordance with Article 10(9) and Article 25 shall be repaid within a short period which shall in no case exceed twelve months; (c) such credit shall not be granted from the funds received or held for the purpose of executing a payment transaction; and (d) the own funds of the payment institution shall at all times and to the satisfaction of the supervisory authorities be appropriate in view of the overall amount of credit granted. 4. Payment institutions shall not conduct the business of taking deposits or other repayable funds within the meaning of Article 5 of Directive 2006/48/EC. 5. This Directive shall be without prejudice to national measures implementing Directive 87/102/EEC. This Directive shall also be without prejudice to other relevant Community or national legislation regarding conditions for granting credit to consumers not harmonised by this Directive that are in conformity with Community law. Section 2 Other requirements Article 17 Use of agents, branches or entities to which activities are outsourced 1. When a payment institution intends to provide payment services through an agent it shall communicate the following information to the competent authorities in its home Member State: (a) the name and address of the agent; (b) a description of the internal control mechanisms that will be used by agents in order to comply with the obligations in relation to money laundering and terrorist financing under Directive 2005/60/EC; and (c) the identity of directors and persons responsible for the management of the agent to be used in the provision of payment services and evidence that they are fit and proper persons.

Directive 2007/64/EC 521 2. When the competent authorities receive the information in accordance with paragraph 1 then they may list the agent in the register provided for in Article 13. 3. Before listing the agent in the register, the competent authorities may, if they consider that the information provided to them is incorrect, take further action to verify the information. 4. If, after taking action to verify the information, the competent authorities are not satisfied that the information provided to them pursuant to paragraph 1 is correct, they shall refuse to list the agent in the register provided for in Article 13. 5. If the payment institution wishes to provide payment services in another Member State by engaging an agent it shall follow the procedures set out in Article 25. In that case, before the agent may be registered under this Article, the competent authorities of the home Member State shall inform the competent authorities of the host Member State of their intention to register the agent and take their opinion into account. 6. If the competent authorities of the host Member State have reasonable grounds to suspect that, in connection with the intended engagement of the agent or establishment of the branch, money laundering or terrorist financing within the meaning of Directive 2005/60/EC is taking place, has taken place or been attempted, or that the engagement of such agent or establishment of such branch could increase the risk of money laundering or terrorist financing, they shall so inform the competent authorities of the home Member State, which may refuse to register the agent or branch, or may withdraw the registration, if already made, of the agent or branch. 7. Where a payment institution intends to outsource operational functions of payment services, it shall inform the competent authorities of its home Member State accordingly. Outsourcing of important operational functions may not be undertaken in such way as to impair materially the quality of the payment institution’s internal control and the ability of the competent authorities to monitor the payment institution’s compliance with all obligations laid down in this Directive. For the purposes of the second subparagraph, an operational function shall be regarded as important if a defect or failure in its performance would materially impair the continuing compliance of a payment institution with the requirements of its authorisation requested under this Title or its other obligations under this Directive, or its financial performance, or the soundness or the continuity of its payment services. Member States shall ensure that when payment institutions outsource important operational functions, the payment institutions comply with the following conditions: (a) the outsourcing shall not result in the delegation by senior management of its responsibility; (b) the relationship and obligations of the payment institution towards its payment service users under this Directive shall not be altered;

522  Part I: European Union Legislation (c) the conditions with which the payment institution is to comply in order to be authorised and remain so in accordance with this Title shall not be undermined; and (d) none of the other conditions subject to which the payment institution’s authorisation was granted shall be removed or modified. 8. Payment institutions shall ensure that agents or branches acting on their behalf inform payment service users of this fact. Article 18 Liability 1. Member States shall ensure that, where payment institutions rely on third parties for the performance of operational functions, those payment institutions take reasonable steps to ensure that the requirements of this Directive are complied with. 2. Member States shall require that payment institutions remain fully liable for any acts of their employees, or any agent, branch or entity to which activities are outsourced. Article 19 Record-keeping Member States shall require payment institutions to keep all appropriate records for the purpose of this Title for at least five years, without prejudice to Directive 2005/60/EC or other relevant Community or national legislation. Section 3 Competent authorities and supervision Article 20 Designation of competent authorities 1. Member States shall designate as the competent authorities responsible for the authorisation and prudential supervision of payment institutions which are to carry out the duties provided for under this Title either public authorities, or bodies recognised by national law or by public authorities expressly empowered for that purpose by national law, including national central banks. The competent authorities shall guarantee independence from economic bodies and avoid conflicts of interest. Without prejudice to the first subparagraph, payment institutions, credit institutions, electronic money institutions, or post office giro institutions shall not be designated as competent authorities. The Member States shall inform the Commission accordingly. 2. Member States shall ensure that the competent authorities designated under paragraph 1 possess all the powers necessary for the performance of their duties.

Directive 2007/64/EC 523 3. Where there is more than one competent authority for matters covered by this Title on its territory, Member States shall ensure that those authorities cooperate closely so that they can discharge their respective duties effectively. The same applies in cases where the authorities competent for matters covered by this Title are not the competent authorities responsible for the supervision of credit institutions. 4. The tasks of the competent authorities designated under paragraph 1 shall be the responsibility of the competent authorities of the home Member State. 5. Paragraph 1 shall not imply that the competent authorities are required to supervise business activities of the payment institutions other than the provision of payment services listed in the Annex and the activities listed in Article 16(1)(a). Article 21 Supervision 1. Member States shall ensure that the controls exercised by the competent authorities for checking continued compliance with this Title are proportionate, adequate and responsive to the risks to which payment institutions are exposed. In order to check compliance with this Title, the competent authorities shall be entitled to take the following steps, in particular: (a) to require the payment institution to provide any information needed to monitor compliance; (b) to carry out on-site inspections at the payment institution, at any agent or branch providing payment services under the responsibility of the payment institution, or at any entity to which activities are outsourced; (c) to issue recommendations, guidelines and, if applicable, binding administrative provisions; and (d) to suspend or withdraw authorisation in cases referred to in Article 12. 2. Without prejudice to the procedures for the withdrawal of authorisations and the provisions of criminal law, the Member States shall provide that their respective competent authorities, may, as against payment institutions or those who effectively control the business of payment institutions which breach laws, regulations or administrative provisions concerning the supervision or pursuit of their payment service business, adopt or impose in respect of them penalties or measures aimed specifically at ending observed breaches or the causes of such breaches. 3. Notwithstanding the requirements of Article 6, Article 7(1) and (2) and Article 8, Member States shall ensure that the competent authorities are entitled to take steps described under paragraph 1 of this Article to ensure sufficient capital for payment services, in particular where the non-payment services activities of the payment institution impair or are likely to impair the financial soundness of the payment institution.

524  Part I: European Union Legislation Article 22 Professional secrecy 1. Member States shall ensure that all persons working or who have worked for the competent authorities, as well as experts acting on behalf of the competent authorities, are bound by the obligation of professional secrecy, without prejudice to cases covered by criminal law. 2. In the exchange of information in accordance with Article 24, professional secrecy shall be strictly applied to ensure the protection of individual and business rights. 3. Member States may apply this Article taking into account, mutatis mutandis, Articles 44 to 52 of Directive 2006/48/EC. Article 23 Right to apply to the courts 1. Member States shall ensure that decisions taken by the competent authorities in respect of a payment institution pursuant to the laws, regulations and administrative provisions adopted in accordance with this Directive may be contested before the courts. 2. Paragraph 1 shall apply also in respect of failure to act. Article 24 Exchange of information 1. The competent authorities of the different Member States shall cooperate with each other and, where appropriate, with the European Central Bank and the national central banks of the Member States and other relevant competent authorities designated under Community or national legislation applicable to payment service providers. 2. Member States shall, in addition, allow the exchange of information between their competent authorities and the following: (a) the competent authorities of other Member States responsible for the authorisation and supervision of payment institutions; (b) the European Central Bank and the national central banks of Member States, in their capacity as monetary and oversight authorities, and, where appropriate, other public authorities responsible for overseeing payment and settlement systems; (c) other relevant authorities designated under this Directive, Directive 95/46/EC, Directive 2005/60/EC and other Community legislation applicable to payment service providers, such as legislation applicable to the protection of individuals with regard to the processing of personal data as well as money laundering and terrorist financing.

Directive 2007/64/EC 525 Article 25 Exercise of the right of establishment and freedom to provide services 1. Any authorised payment institution wishing to provide payment services for the first time in a Member State other than its home Member State, in exercise of the right of establishment or the freedom to provide services, shall so inform the competent authorities in its home Member State. Within one month of receiving that information, the competent authorities of the home Member State shall inform the competent authorities of the host Member State of the name and address of the payment institution, the names of those responsible for the management of the branch, its organisational structure and of the kind of payment services it intends to provide in the territory of the host Member State. 2. In order to carry out the controls and take the necessary steps provided for in Article 21 in respect of the agent, branch or entity to which activities are outsourced of a payment institution located in the territory of another Member State, the competent authorities of the home Member State shall cooperate with the competent authorities of the host Member State. 3. By way of cooperation in accordance with paragraphs 1 and 2, the competent authorities of the home Member State shall notify the competent authorities of the host Member State whenever they intend to carry out an on-site inspection in the territory of the latter. However, if they so wish, the competent authorities of the home Member State may delegate to the competent authorities of the host Member State the task of carrying out on-site inspections of the institution concerned. 4. The competent authorities shall provide each other with all essential and/or relevant information, in particular in the case of infringements or suspected infringements by an agent, a branch or an entity to which activities are outsourced. In this regard, the competent authorities shall communicate, upon request, all relevant information and, on their own initiative, all essential information. 5. Paragraphs 1 to 4 shall be without prejudice to the obligation of competent authorities under Directive 2005/60/EC and Regulation (EC) No 1781/2006, in particular under Article 37(1) of Directive 2005/60/EC and Article 15(3) of Regulation (EC) No 1781/2006 to supervise or monitor the compliance with the requirements laid down in those instruments. Section 4 Waiver Article 26 Conditions 1. Notwithstanding Article 13, Member States may waive or allow their competent authorities to waive the application of all or part of the procedure and conditions set out in Sections 1 to 3, with the exception of Articles 20, 22, 23

526  Part I: European Union Legislation

2. 3. 4. 5.

6.

and 24, and allow natural or legal persons to be entered in the register provided for in Article 13, where: (a) the average of the preceding 12 months’ total amount of payment transactions executed by the person concerned, including any agent for which it assumes full responsibility, does not exceed EUR 3 million per month. That requirement shall be assessed on the projected total amount of payment transactions in its business plan, unless an adjustment to that plan is required by the competent authorities; and (b) none of the natural persons responsible for the management or operation of the business has been convicted of offences relating to money laundering or terrorist financing or other financial crimes. Any natural or legal person registered in accordance with paragraph 1 shall be required to have its head office or place of residence in the Member State in which it actually carries on its business. The persons referred to in paragraph 1 shall be treated as payment institutions, save that Article 10(9) and Article 25 shall not apply to them. Member States may also provide that any natural or legal person registered in accordance with paragraph 1 may engage only in certain activities listed in Article 16. The persons referred to in paragraph 1 shall notify the competent authorities of any change in their situation which is relevant to the conditions specified in that paragraph. Member States shall take the necessary steps to ensure that where the conditions set out in paragraphs 1, 2 and 4 are no longer fulfilled, the persons concerned shall seek authorisation within 30 calendar days in accordance with the procedure laid down in Article 10. This Article shall not be applied in respect of provisions of Directive 2005/60/ EC or national anti-money-laundering provisions. Article 27 Notification and information

If a Member State avails itself of the waiver provided for in Article 26, it shall notify the Commission accordingly by 1 November 2009 and it shall notify the Commission forthwith of any subsequent change. In addition, the Member State shall inform the Commission of the number of natural and legal persons concerned and, on an annual basis, of the total amount of payment transactions executed as of 31 December of each calendar year, as referred to in Article 26(1)(a). CHAPTER 2 Common provisions Article 28 Access to payment systems 1. Member States shall ensure that the rules on access of authorised or registered payment service providers that are legal persons to payment systems shall be

Directive 2007/64/EC 527 objective, non-discriminatory and proportionate and that those rules do not inhibit access more than is necessary to safeguard against specific risks such as settlement risk, operational risk and business risk and to protect the financial and operational stability of the payment system. Payment systems shall impose on payment service providers, on payment service users or on other payment systems none of the following requirements: (a) any restrictive rule on effective participation in other payment systems; (b) any rule which discriminates between authorised payment service providers or between registered payment service providers in relation to the rights, obligations and entitlements of participants; or (c) any restriction on the basis of institutional status. 2. Paragraph 1 shall not apply to: (a) payment systems designated under Directive 98/26/EC; (b) payment systems composed exclusively of payment service providers belonging to a group composed of entities linked by capital where one of the linked entities enjoys effective control over the other linked entities; or (c) payment systems where a sole payment service provider (whether as a single entity or as a group): —— acts or can act as the payment service provider for both the payer and the payee and is exclusively responsible for the management of the system, and —— licenses other payment service providers to participate in the system and the latter have no right to negotiate fees between or amongst themselves in relation to the payment system although they may establish their own pricing in relation to payers and payees. TITLE III TRANSPARENCY OF CONDITIONS AND INFORMATION REQUIREMENTS FOR PAYMENT SERVICES CHAPTER 1 General rules Article 30 Scope 1. This Title shall apply to single payment transactions, framework contracts and payment transactions covered by them. The parties may agree that it shall not apply in whole or in part when the payment service user is not a consumer. 2. Member States may provide that the provisions in this Title shall be applied to micro enterprises in the same way as to consumers. 3. This Directive shall be without prejudice to national measures implementing Directive 87/102/EEC. This Directive shall also be without prejudice to other relevant Community or national legislation regarding conditions for granting

528  Part I: European Union Legislation credit to consumers not harmonised by this Directive that are in conformity with Community law. Article 31 Other provisions in Community legislation The provisions of this Title are without prejudice to any Community legislation containing additional requirements on prior information. However, where Directive 2002/65/EC is also applicable, the information requirements set out in Article 3(1) of that Directive, with the exception of points (2)(c) to (g), (3)(a), (d) and (e), and (4)(b) of that paragraph shall be replaced by Articles 36, 37, 41 and 42 of this Directive. Article 32 Charges for information 1. The payment service provider shall not charge the payment service user for providing information under this Title. 2. The payment service provider and the payment service user may agree on charges for additional or more frequent information, or transmission by means of communication other than those specified in the framework contract, provided at the payment service user’s request. 3. Where the payment service provider may impose charges for information in accordance with paragraph 2, they shall be appropriate and in line with the payment service provider’s actual costs. Article 33 Burden of proof on information requirements Member States may stipulate that the burden of proof shall lie with the payment service provider to prove that it has complied with the information requirements set out in this Title. Article 34 Derogation from information requirements for low-value payment instruments and electronic money 1. In cases of payment instruments which, according to the framework contract, concern only individual payment transactions that do not exceed EUR 30 or that either have a spending limit of EUR 150 or store funds that do not exceed EUR 150 at any time: (a) by way of derogation from Articles 41, 42 and 46, the payment service provider shall provide the payer only with information on the main characteristics of the payment service, including the way in which the payment instrument can be used, liability, charges levied and other material information needed to take an informed decision as well as an indication

Directive 2007/64/EC 529 of where any other information and conditions specified in Article 42 are made available in an easily accessible manner; (b) it may be agreed that, by way of derogation from Article 44, the payment service provider shall not be required to propose changes in the conditions of the framework contract in the same way as provided for in Article 41(1); (c) it may be agreed that, by way of derogation from Articles 47 and 48, after the execution of a payment transaction: (i) the payment service provider shall provide or make available only a reference enabling the payment service user to identify the payment transaction, the amount of the payment transaction, any charges and/or, in the case of several payment transactions of the same kind made to the same payee, information on the total amount and charges for those payment transactions; (ii) the payment service provider shall not be required to provide or make available information referred to in point (i) if the payment instrument is used anonymously or if the payment service provider is not otherwise technically in a position to provide it. However, the payment service provider shall provide the payer with a possibility to verify the amount of funds stored. 2. For national payment transactions, Member States or their competent authorities may reduce or double the amounts referred to in paragraph 1. For prepaid payment instruments, Member States may increase those amounts up to EUR 500. CHAPTER 2 Single payment transactions Article 35 Scope 1. This Chapter shall apply to single payment transactions not covered by a framework contract. 2. When a payment order for a single payment transaction is transmitted by a payment instrument covered by a framework contract, the payment service provider shall not be obliged to provide or make available information which is already given to the payment service user on the basis of a framework contract with another payment service provider or which will be given to him according to that framework contract. Article 36 Prior general information 1. Member States shall require that before the payment service user is bound by any single payment service contract or offer, the payment service ­provider,

530  Part I: European Union Legislation in an easily accessible manner, makes available to the payment service user the information and conditions specified in Article 37. At the payment ­service user’s request, the payment service provider shall provide the information and conditions on paper or on another durable medium. The information and conditions shall be given in easily understandable words and in a clear and comprehensible form, in an official language of the Member State where the payment service is offered or in any other language agreed between the parties. 2. If the single payment service contract has been concluded at the request of the payment service user using a means of distance communication which does not enable the payment service provider to comply with paragraph 1, the payment service provider shall fulfil its obligations under that paragraph immediately after the execution of the payment transaction. 3. The obligations under paragraph 1 may also be discharged by supplying a copy of the draft single payment service contract or the draft payment order including the information and conditions specified in Article 37. Article 37 Information and conditions 1. Member States shall ensure that the following information and conditions are provided or made available to the payment service user: (a) a specification of the information or unique identifier that has to be provided by the payment service user in order for a payment order to be properly executed; (b) the maximum execution time for the payment service to be provided; (c) all charges payable by the payment service user to his payment service provider and, where applicable, the breakdown of the amounts of any charges; (d) where applicable, the actual or reference exchange rate to be applied to the payment transaction. 2. Where applicable, any other relevant information and conditions specified in Article 42 shall be made available to the payment service user in an easily accessible manner. Article 38 Information for the payer after receipt of the payment order Immediately after receipt of the payment order, the payer’s payment service provider shall provide or make available to the payer, in the same way as provided for in Article 36(1), the following information: (a) a reference enabling the payer to identify the payment transaction and, where appropriate, information relating to the payee; (b) the amount of the payment transaction in the currency used in the payment order; (c) the amount of any charges for the payment transaction payable by the payer and, where applicable, a breakdown of the amounts of such charges;

Directive 2007/64/EC 531 (d) where applicable, the exchange rate used in the payment transaction by the payer’s payment service provider or a reference thereto, when different from the rate provided in accordance with Article 37(1)(d), and the amount of the payment transaction after that currency conversion; and (e) the date of receipt of the payment order. Article 39 Information for the payee after execution Immediately after the execution of the payment transaction, the payee’s payment service provider shall provide or make available to the payee, in the same way as provided for in Article 36(1), the following information: (a) the reference enabling the payee to identify the payment transaction and, where appropriate, the payer and any information transferred with the payment transaction; (b) the amount of the payment transaction in the currency in which the funds are at the payee’s disposal; (c) the amount of any charges for the payment transaction payable by the payee and, where applicable, a breakdown of the amount of such charges; (d) where applicable, the exchange rate used in the payment transaction by the payee’s payment service provider, and the amount of the payment transaction before that currency conversion; and (e) the credit value date. CHAPTER 3 Framework contracts Article 40 Scope This Chapter applies to payment transactions covered by a framework contract. Article 41 Prior general information 1. Member States shall require that, in good time before the payment service user is bound by any framework contract or offer, the payment service provider provide the payment service user on paper or on another durable medium with the information and conditions specified in Article 42. The information and conditions shall be given in easily understandable words and in a clear and comprehensible form, in an official language of the Member State where the payment service is offered or in any other language agreed between the parties. 2. If the framework contract has been concluded at the request of the payment service user using a means of distance communication which does not e­ nable

532  Part I: European Union Legislation the payment service provider to comply with paragraph 1, the payment service provider shall fulfil its obligations under that paragraph immediately after the conclusion of the framework contract. 3. The obligations under paragraph 1 may also be discharged by supplying a copy of the draft framework contract including the information and conditions specified in Article 42. Article 42 Information and conditions Member States shall ensure that the following information and conditions are provided to the payment service user: 1. on the payment service provider: (a) the name of the payment service provider, the geographical address of its head office and, where applicable, the geographical address of its agent or branch established in the Member State where the payment service is offered, and any other address, including electronic mail address, relevant for communication with the payment service provider; and (b) the particulars of the relevant supervisory authorities and of the register provided for in Article 13 or of any other relevant public register of authorisation of the payment service provider and the registration number, or equivalent means of identification in that register; 2. on use of the payment service: (a) a description of the main characteristics of the payment service to be provided; (b) a specification of the information or unique identifier that has to be provided by the payment service user in order for a payment order to be properly executed; (c) the form of and procedure for giving consent to execute a payment transaction and withdrawal of such consent in accordance with Articles 54 and 66; (d) a reference to the point in time of receipt of a payment order as defined in Article 64 and the cut-off time, if any, established by the payment service provider; (e) the maximum execution time for the payment services to be provided; and (f) whether there is a possibility to agree on spending limits for the use of the payment instrument in accordance with Article 55(1); 3. on charges, interest and exchange rates: (a) all charges payable by the payment service user to the payment service provider and, where applicable, the breakdown of the amounts of any charges; (b) where applicable, the interest and exchange rates to be applied or, if reference interest and exchange rates are to be used, the method of

Directive 2007/64/EC 533 c­ alculating the actual interest, and the relevant date and index or base for determining such reference interest or exchange rate; and (c) if agreed, the immediate application of changes in reference interest or exchange rate and information requirements related to the changes in accordance with Article 44(2); 4. on communication: (a) where applicable, the means of communication, including the technical requirements for the payment service user’s equipment, agreed between the parties for the transmission of information or notifications under this Directive; (b) the manner in and frequency with which information under this ­Directive is to be provided or made available; (c) the language or languages in which the framework contract will be concluded and communication during this contractual relationship undertaken; and (d) the payment service user’s right to receive the contractual terms of the framework contract and information and conditions in accordance with Article 43; 5. on safeguards and corrective measures: (a) where applicable, a description of steps that the payment service user is to take in order to keep safe a payment instrument and how to notify the payment service provider for the purposes of Article 56(1)(b); (b) if agreed, the conditions under which the payment service provider reserves the right to block a payment instrument in accordance with Article 55; (c) the liability of the payer in accordance with Article 61, including information on the relevant amount; (d) how and within what period of time the payment service user is to notify the payment service provider of any unauthorised or incorrectly executed payment transaction in accordance with Article 58 as well as the payment service provider’s liability for unauthorised payment transactions in accordance with Article 60; (e) the liability of the payment service provider for the execution of payment transactions in accordance with Article 75; and (f) the conditions for refund in accordance with Articles 62 and 63; 6. on changes in and termination of framework contract: (a) if agreed, information that the payment service user will be deemed to have accepted changes in the conditions in accordance with Article 44, unless he notifies the payment service provider that he does not accept them before the date of their proposed date of entry into force; (b) the duration of the contract; and (c) the right of the payment service user to terminate the framework contract and any agreements relating to termination in accordance with Article 44(1) and Article 45;

534  Part I: European Union Legislation 7. on redress: (a) any contractual clause on the law applicable to the framework contract and/or the competent courts; and (b) the out-of-court complaint and redress procedures available to the payment service user in accordance with Articles 80 to 83. Article 43 Accessibility of information and conditions of the framework contract At any time during the contractual relationship the payment service user shall have a right to receive, on request, the contractual terms of the framework contract as well as the information and conditions specified in Article 42 on paper or on another durable medium. Article 44 Changes in conditions of the framework contract 1. Any changes in the framework contract as well as the information and conditions specified in Article 42, shall be proposed by the payment service provider in the same way as provided for in Article 41(1) and no later than two months before their proposed date of application. Where applicable in accordance with point (6)(a) of Article 42, the payment service provider shall inform the payment service user that he is to be deemed to have accepted these changes if he does not notify the payment service provider that he does not accept them before the proposed date of their entry into force. In this case, the payment service provider shall also specify that the payment service user has the right to terminate the framework contract immediately and without charge before the date of the proposed application of the changes. 2. Changes in the interest or exchange rates may be applied immediately and without notice, provided that such a right is agreed upon in the framework contract and that the changes are based on the reference interest or exchange rates agreed on in accordance with Article 42(3)(b) and (c). The payment service user shall be informed of any change in the interest rate at the earliest opportunity in the same way as provided for in Article 41(1), unless the parties have agreed on a specific frequency or manner in which the information is to be provided or made available. However, changes in interest or exchange rates which are more favourable to the payment service users, may be applied without notice. 3. Changes in the interest or exchange rate used in payment transactions shall be implemented and calculated in a neutral manner that does not discriminate against payment service users.

Directive 2007/64/EC 535 Article 45 Termination 1. The payment service user may terminate the framework contract at any time, unless the parties have agreed on a period of notice. Such a period may not exceed one month. 2. Termination of a framework contract concluded for a fixed period exceeding 12 months or for an indefinite period shall be free of charge for the payment service user after the expiry of 12 months. In all other cases charges for the termination shall be appropriate and in line with costs. 3. If agreed in the framework contract, the payment service provider may terminate a framework contract concluded for an indefinite period by giving at least two months’ notice in the same way as provided for in Article 41(1). 4. Charges for payment services levied on a regular basis shall be payable by the payment service user only proportionally up to the termination of the contract. If such charges are paid in advance, they shall be reimbursed proportionally. 5. The provisions of this Article are without prejudice to the Member States’ laws and regulations governing the rights of the parties to declare the framework contract unenforceable or void. 6. Member States may provide more favourable provisions for payment service users. Article 46 Information before execution of individual payment transactions In the case of an individual payment transaction under a framework contract initiated by the payer, a payment service provider shall, at the payer’s request for this specific payment transaction, provide explicit information on the maximum execution time and the charges payable by the payer and, where applicable, a breakdown of the amounts of any charges. Article 47 Information for the payer on individual payment transactions 1. After the amount of an individual payment transaction is debited from the payer’s account or, where the payer does not use a payment account, after the receipt of the payment order, the payer’s payment service provider shall ­provide the payer without undue delay in the same way as laid down in Article 41(1) with the following information: (a) a reference enabling the payer to identify each payment transaction and, where appropriate, information relating to the payee; (b) the amount of the payment transaction in the currency in which the payer’s payment account is debited or in the currency used for the ­payment order; (c) the amount of any charges for the payment transaction and, where ­applicable, a breakdown thereof, or the interest payable by the payer;

536  Part I: European Union Legislation (d) where applicable, the exchange rate used in the payment transaction by the payer’s payment service provider, and the amount of the payment transaction after that currency conversion; and (e) the debit value date or the date of receipt of the payment order. 2. A framework contract may include a condition that the information referred to in paragraph 1 is to be provided or made available periodically at least once a month and in an agreed manner which allows the payer to store and reproduce information unchanged. 3. However, Member States may require payment service providers to provide information on paper once a month free of charge. Article 48 Information for the payee on individual payment transactions 1. After the execution of an individual payment transaction, the payee’s payment service provider shall provide the payee without undue delay in the same way as laid down in Article 41(1) with the following information: (a) the reference enabling the payee to identify the payment transaction and, where appropriate, the payer, and any information transferred with the payment transaction; (b) the amount of the payment transaction in the currency in which the payee’s payment account is credited; (c) the amount of any charges for the payment transaction and, where applicable, a breakdown thereof, or the interest payable by the payee; (d) where applicable, the exchange rate used in the payment transaction by the payee’s payment service provider, and the amount of the payment transaction before that currency conversion; and (e) the credit value date. 2. A framework contract may include a condition that the information referred to in paragraph 1 is to be provided or made available periodically at least once a month and in an agreed manner which allows the payee to store and reproduce information unchanged. 3. However, Member States may require payment service providers to provide information on paper once a month free of charge. CHAPTER 4 Common provisions Article 49 Currency and currency conversion 1. Payments shall be made in the currency agreed between the parties. 2. Where a currency conversion service is offered prior to the initiation of the payment transaction and where that currency conversion service is offered at the point of sale or by the payee, the party offering the currency ­conversion

Directive 2007/64/EC 537 service to the payer shall disclose to the payer all charges as well as the exchange rate to be used for converting the payment transaction. The payer shall agree to the currency conversion service on that basis. Article 50 Information on additional charges or reductions 1. Where, for the use of a given payment instrument, the payee requests a charge or offers a reduction, the payee shall inform the payer thereof prior to the initiation of the payment transaction. 2. Where, for the use of a given payment instrument, a payment service provider or a third party requests a charge, he shall inform the payment service user thereof prior to the initiation of the payment transaction. TITLE IV RIGHTS AND OBLIGATIONS IN RELATION TO THE PROVISION AND USE OF PAYMENT SERVICES CHAPTER 1 Common provisions Article 51 Scope 1. Where the payment service user is not a consumer, the parties may agree that Article 52(1), the second subparagraph of Article 54(2), and Articles 59, 61, 62, 63, 66 and 75 shall not apply in whole or in part. The parties may also agree on a time period different from that laid down in Article 58. 2. Member States may provide that Article 83 does not apply where the payment service user is not a consumer. 3. Member States may provide that provisions in this Title are applied to micro enterprises in the same way as to consumers. 4. This Directive shall be without prejudice to national measures implementing Directive 87/102/EEC. This Directive shall also be without prejudice to other relevant Community or national legislation regarding conditions for granting credit to consumers not harmonised by this Directive that are in conformity with Community law. Article 52 Charges applicable 1. The payment service provider may not charge the payment service user for fulfilment of its information obligations or corrective and preventive m ­ easures under this Title, unless otherwise specified in Articles 65(1), 66(5) and 74(2). Those charges shall be agreed between the payment service user and

538  Part I: European Union Legislation the ­payment service provider and shall be appropriate and in line with the payment service provider’s actual costs. 2. Where a payment transaction does not involve any currency conversion, Member States shall require that the payee pays the charges levied by his payment service provider, and the payer pays the charges levied by his payment service provider. 3. The payment service provider shall not prevent the payee from requesting from the payer a charge or from offering him a reduction for the use of a given payment instrument. However, Member States may forbid or limit the right to request charges taking into account the need to encourage competition and promote the use of efficient payment instruments. Article 53 Derogation for low value payment instruments and electronic money 1. In the case of payment instruments which according to the framework contract, solely concern individual payment transactions not exceeding EUR 30 or which either have a spending limit of EUR 150 or store funds which do not exceed EUR 150 at any time payment service providers may agree with their payment service users that: (a) Article 56(1)(b) and Article 57(1)(c) and (d) as well as Article 61(4) and (5) do not apply if the payment instrument does not allow its blocking or prevention of its further use; (b) Articles 59, 60 and Article 61(1) and (2) do not apply if the payment instrument is used anonymously or the payment service provider is not in a position for other reasons which are intrinsic to the payment instrument to prove that a payment transaction was authorised; (c) by way of derogation from Article 65(1), the payment service provider is not required to notify the payment service user of the refusal of a ­payment order, if the non-execution is apparent from the context; (d) by way of derogation from Article 66, the payer may not revoke the payment order after transmitting the payment order or giving his consent to execute the payment transaction to the payee; (e) by way of derogation from Articles 69 and 70, other execution periods apply. 2. For national payment transactions, Member States or their competent authorities may reduce or double the amounts referred to in paragraph 1. They may increase them for prepaid payment instruments up to EUR 500. 3. Articles 60 and 61 shall apply also to electronic money within the meaning of Article 1(3)(b) of Directive 2000/46/EC, except where the payer’s payment service provider does not have the ability to freeze the payment account or block the payment instrument. Member States may limit that derogation to payment accounts or payment instruments of a certain value.

Directive 2007/64/EC 539 CHAPTER 2 Authorisation of payment transactions Article 54 Consent and withdrawal of consent 1. Member States shall ensure that a payment transaction is considered to be authorised only if the payer has given consent to execute the payment transaction. A payment transaction may be authorised by the payer prior to or, if agreed between the payer and his payment service provider, after the execution of the payment transaction. 2. Consent to execute a payment transaction or a series of payment transactions shall be given in the form agreed between the payer and his payment service provider. In the absence of such consent, a payment transaction shall be considered to be unauthorised. 3. Consent may be withdrawn by the payer at any time, but no later than the point in time of irrevocability under Article 66. Consent to execute a series of payment transactions may also be withdrawn with the effect that any future payment transaction is to be considered as unauthorised. 4. The procedure for giving consent shall be agreed between the payer and the payment service provider. Article 55 Limits of the use of the payment instrument 1. In cases where a specific payment instrument is used for the purposes of giving consent, the payer and his payment service provider may agree on spending limits for payment transactions executed through that payment instrument. 2. If agreed in the framework contract, the payment service provider may reserve the right to block the payment instrument for objectively justified reasons related to the security of the payment instrument, the suspicion of unauthorised or fraudulent use of the payment instrument or, in the case of a payment instrument with a credit line, a significantly increased risk that the payer may be unable to fulfil his liability to pay. 3. In such cases the payment service provider shall inform the payer of the blocking of the payment instrument and the reasons for it in an agreed manner, where possible, before the payment instrument is blocked and at the latest immediately thereafter, unless giving such information would compromise objectively justified security reasons or is prohibited by other relevant Community or national legislation. 4. The payment service provider shall unblock the payment instrument or replace it with a new payment instrument once the reasons for blocking no longer exist.

540  Part I: European Union Legislation Article 56 Obligations of the payment service user in relation to payment instruments 1. The payment service user entitled to use a payment instrument shall have the following obligations: (a) to use the payment instrument in accordance with the terms governing the issue and use of the payment instrument; and (b) to notify the payment service provider, or the entity specified by the latter, without undue delay on becoming aware of loss, theft or misappropriation of the payment instrument or of its unauthorised use. 2. For the purposes of paragraph 1(a), the payment service user shall, in particular, as soon as he receives a payment instrument, take all reasonable steps to keep its personalised security features safe. Article 57 Obligations of the payment service provider in relation to payment instruments 1. The payment service provider issuing a payment instrument shall have the following obligations: (a) to make sure that the personalised security features of the payment instrument are not accessible to parties other than the payment service user entitled to use the payment instrument, without prejudice to the obligations on the payment service user set out in Article 56; (b) to refrain from sending an unsolicited payment instrument, except where a payment instrument already given to the payment service user is to be replaced; (c) to ensure that appropriate means are available at all times to enable the payment service user to make a notification pursuant to Article 56(1)(b) or request unblocking pursuant to Article 55(4); on request, the payment service provider shall provide the payment service user with the means to prove, for 18 months after notification, that he made such notification; and (d) to prevent all use of the payment instrument once notification pursuant to Article 56(1)(b) has been made. 2. The payment service provider shall bear the risk of sending a payment instrument to the payer or of sending any personalised security features of it. Article 58 Notification of unauthorised or incorrectly executed payment transactions The payment service user shall obtain rectification from the payment service provider only if he notifies his payment service provider without undue delay on becoming aware of any unauthorised or incorrectly executed payment transactions giving rise to a claim, including that under Article 75, and no later than 13 months after the

Directive 2007/64/EC 541 debit date, unless, where applicable, the payment service provider has failed to provide or make available the information on that payment transaction in accordance with Title III. Article 59 Evidence on authentication and execution of payment transactions 1. Member States shall require that, where a payment service user denies having authorised an executed payment transaction or claims that the payment transaction was not correctly executed, it is for his payment service provider to prove that the payment transaction was authenticated, accurately recorded, entered in the accounts and not affected by a technical breakdown or some other deficiency. 2. Where a payment service user denies having authorised an executed payment transaction, the use of a payment instrument recorded by the payment service provider shall in itself not necessarily be sufficient to prove either that the payment transaction was authorised by the payer or that the payer acted fraudulently or failed with intent or gross negligence to fulfil one or more of his obligations under Article 56. Article 60 Payment service provider’s liability for unauthorised payment transactions 1. Member States shall ensure that, without prejudice to Article 58, in the case of an unauthorised payment transaction, the payer’s payment service provider refunds to the payer immediately the amount of the unauthorised payment transaction and, where applicable, restores the debited payment account to the state in which it would have been had the unauthorised payment transaction not taken place. 2. Further financial compensation may be determined in accordance with the law applicable to the contract concluded between the payer and his payment service provider. Article 61 Payer’s liability for unauthorised payment transactions 1. By way of derogation from Article 60 the payer shall bear the losses relating to any unauthorised payment transactions, up to a maximum of EUR 150, resulting from the use of a lost or stolen payment instrument or, if the payer has failed to keep the personalised security features safe, from the misappropriation of a payment instrument. 2. The payer shall bear all the losses relating to any unauthorised payment transactions if he incurred them by acting fraudulently or by failing to fulfil one or more of his obligations under Article 56 with intent or gross negligence. In such cases, the maximum amount referred to in paragraph 1 of this Article shall not apply.

542  Part I: European Union Legislation 3. In cases where the payer has neither acted fraudulently nor with intent failed to fulfil his obligations under Article 56, Member States may reduce the liability referred to in paragraphs 1 and 2 of this Article, taking into account, in particular, the nature of the personalised security features of the payment instrument and the circumstances under which it was lost, stolen or misappropriated. 4. The payer shall not bear any financial consequences resulting from use of the lost, stolen or misappropriated payment instrument after notification in accordance with Article 56(1)(b), except where he has acted fraudulently. 5. If the payment service provider does not provide appropriate means for the notification at all times of a lost, stolen or misappropriated payment instrument, as required under Article 57(1)(c), the payer shall not be liable for the financial consequences resulting from use of that payment instrument, except where he has acted fraudulently. Article 62 Refunds for payment transactions initiated by or through a payee 1. Member States shall ensure that a payer is entitled to a refund from his payment service provider of an authorised payment transaction initiated by or through a payee which has already been executed, if the following conditions are met: (a) the authorisation did not specify the exact amount of the payment transaction when the authorisation was made; and (b) the amount of the payment transaction exceeded the amount the payer could reasonably have expected taking into account his previous spending pattern, the conditions in his framework contract and relevant ­circumstances of the case. At the payment service provider’s request, the payer shall provide factual elements relating to such conditions. The refund consists of the full amount of the executed payment transaction. For direct debits the payer and his payment service provider may agree in the framework contract that the payer is entitled to a refund from his payment service provider even though the conditions for refund in the first subparagraph are not met. 2. However, for the purposes of point (b) of the first subparagraph of p ­ aragraph 1, the payer may not rely on currency exchange reasons if the reference exchange rate agreed with his payment service provider in accordance with Articles 37(1)(d) and 42(3)(b) was applied. 3. It may be agreed in the framework contract between the payer and the payment service provider that the payer has no right to a refund where he has given his consent to execute the payment transaction directly to his payment service provider and, where applicable, information on the future payment transaction was provided or made available in an agreed manner to the payer for at least four weeks before the due date by the payment service provider or by the payee.

Directive 2007/64/EC 543 Article 63 Requests for refunds for payment transactions initiated by or through a payee 1. Member States shall ensure that the payer can request the refund referred to in Article 62 of an authorised payment transaction initiated by or through a payee for a period of eight weeks from the date on which the funds were debited. 2. Within ten business days of receiving a request for a refund, the payment service provider shall either refund the full amount of the payment transaction or provide justification for refusing the refund, indicating the bodies to which the payer may refer the matter in accordance with Articles 80 to 83 if he does not accept the justification provided. The payment service provider’s right under the first subparagraph to refuse the refund shall not apply in the case set out in the fourth subparagraph of Article 62(1). CHAPTER 3 Execution of payment transactions Section 1 Payment orders and amounts transferred Article 64 Receipt of payment orders 1. Member States shall ensure that the point in time of receipt is the time when the payment order transmitted directly by the payer or indirectly by or through a payee is received by the payer’s payment service provider. If the point in time of receipt is not on a business day for the payer’s payment service provider, the payment order shall be deemed to have been received on the following business day. The payment service provider may establish a cut-off time near the end of a business day beyond which any payment order received shall be deemed to have been received on the following business day. 2. If the payment service user initiating a payment order and his payment s­ ervice provider agree that execution of the payment order shall start on a specific day or at the end of a certain period or on the day on which the payer has set funds at his payment service provider’s disposal, the point in time of receipt for the purposes of Article 69 is deemed to be the agreed day. If the agreed day is not a business day for the payment service provider, the payment order received shall be deemed to have been received on the following business day.

544  Part I: European Union Legislation Article 65 Refusal of payment orders 1. Where the payment service provider refuses to execute a payment order, the refusal and, if possible, the reasons for it and the procedure for correcting any factual mistakes that led to the refusal shall be notified to the payment service user, unless prohibited by other relevant Community or national legislation. The payment service provider shall provide or make available the notification in an agreed manner at the earliest opportunity, and in any case, within the periods specified in Article 69. The framework contract may include a condition that the payment service provider may charge for such a notification if the refusal is objectively justified. 2. In cases where all the conditions set out in the payer’s framework contract are met, the payer’s payment service provider shall not refuse to execute an authorised payment order irrespective of whether the payment order is initiated by a payer or by or through a payee, unless prohibited by other relevant Community or national legislation. 3. For the purposes of Articles 69 and 75 a payment order of which execution has been refused shall be deemed not to have been received. Article 66 Irrevocability of a payment order 1. Member States shall ensure that the payment service user may not revoke a payment order once it has been received by the payer’s payment service ­provider, unless otherwise specified in this Article. 2. Where the payment transaction is initiated by or through the payee, the payer may not revoke the payment order after transmitting the payment order or giving his consent to execute the payment transaction to the payee. 3. However, in the case of a direct debit and without prejudice to refund rights the payer may revoke the payment order at the latest by the end of the business day preceding the day agreed for debiting the funds. 4. In the case referred to in Article 64(2) the payment service user may revoke a payment order at the latest by the end of the business day preceding the agreed day. 5. After the time limits specified in paragraphs 1 to 4, the payment order may be revoked only if agreed between the payment service user and his payment service provider. In the case referred to in paragraphs 2 and 3, the payee’s agreement shall also be required. If agreed in the framework contract, the payment service provider may charge for revocation.

Directive 2007/64/EC 545 Article 67 Amounts transferred and amounts received 1. Member States shall require the payment service provider of the payer, the payment service provider of the payee and any intermediaries of the payment service providers to transfer the full amount of the payment transaction and refrain from deducting charges from the amount transferred. 2. However, the payee and his payment service provider may agree that the payment service provider deduct its charges from the amount transferred before crediting it to the payee. In such a case, the full amount of the payment transaction and charges shall be separated in the information given to the payee. 3. If any charges other than those referred to in paragraph 2 are deducted from the amount transferred, the payment service provider of the payer shall ensure that the payee receives the full amount of the payment transaction initiated by the payer. In cases where the payment transaction is initiated by or through the payee, his payment service provider shall ensure that the full amount of the payment transaction is received by the payee. Section 2 Execution time and value date Article 68 Scope 1. This Section shall apply to: (a) payment transactions in euro; (b) national payment transactions in the currency of the Member State outside the euro area concerned; and (c) payment transactions involving only one currency conversion between the euro and the currency of a Member State outside the euro area, provided that the required currency conversion is carried out in the Member State outside the euro area concerned and, in the case of cross-border payment transactions, the cross-border transfer takes place in euro. 2. This Section shall apply to other payment transactions, unless otherwise agreed between the payment service user and his payment service provider, with the exception of Article 73, which is not at the disposal of the parties. However, when the payment service user and his payment service provider agree on a longer period than those laid down in Article 69, for intra-­Community ­payment transactions such period shall not exceed 4 business days following the point in time of receipt in accordance with Article 64.

546  Part I: European Union Legislation Article 69 Payment transactions to a payment account 1. Member States shall require the payer’s payment service provider to ensure that, after the point in time of receipt in accordance with Article 64, the amount of the payment transaction is credited to the payee’s payment service provider’s account at the latest by the end of the next business day. Until 1 January 2012, a payer and his payment service provider may agree on a period no longer than three business days. These periods may be extended by a further business day for paper-initiated payment transactions. 2. Member States shall require the payment service provider of the payee to value date and make available the amount of the payment transaction to the payee’s payment account after the payment service provider has received the funds in accordance with Article 73. 3. Member States shall require the payee’s payment service provider to transmit a payment order initiated by or through the payee to the payer’s payment service provider within the time limits agreed between the payee and his payment service provider, enabling settlement, as far as direct debit is concerned, on the agreed due date. Article 70 Absence of payee’s payment account with the payment service provider Where the payee does not have a payment account with the payment service provider, the funds shall be made available to the payee by the payment service provider who receives the funds for the payee within the period specified in Article 69. Article 71 Cash placed on a payment account Where a consumer places cash on a payment account with that payment service provider in the currency of that payment account, the payment service provider shall ensure that the amount is made available and value dated immediately after the point of time of the receipt of the funds. Where the payment service user is not a consumer, the amount shall be made available and value dated at the latest on the next business day after the receipt of the funds. Article 72 National payment transactions For national payment transactions, Member States may provide for shorter maximum execution times than those provided for in this Section.

Directive 2007/64/EC 547 Article 73 Value date and availability of funds 1. Member States shall ensure that the credit value date for the payee’s payment account is no later than the business day on which the amount of the payment transaction is credited to the payee’s payment service provider’s account. The payment service provider of the payee shall ensure that the amount of the payment transaction is at the payee’s disposal immediately after that amount is credited to the payee’s payment service provider’s account. 2. Member States shall ensure that the debit value date for the payer’s payment account is no earlier than the point in time at which the amount of the payment transaction is debited to that payment account. Section 3 Liability Article 74 Incorrect unique identifiers 1. If a payment order is executed in accordance with the unique identifier, the payment order shall be deemed to have been executed correctly with regard to the payee specified by the unique identifier. 2. If the unique identifier provided by the payment service user is incorrect, the payment service provider shall not be liable under Article 75 for nonexecution or defective execution of the payment transaction. However the payer’s payment service provider shall make reasonable efforts to recover the funds involved in the payment transaction. If agreed in the framework contract, the payment service provider may charge the payment service user for recovery. 3. If the payment service user provides information additional to that specified in Articles 37(1)(a) or 42(2)(b), the payment service provider shall be liable only for the execution of payment transactions in accordance with the unique identifier provided by the payment service user. Article 75 Non-execution or defective execution 1. Where a payment order is initiated by the payer, his payment service provider shall, without prejudice to Article 58, Article 74(2) and (3), and Article 78, be liable to the payer for correct execution of the payment transaction, unless he can prove to the payer and, where relevant, to the payee’s payment service provider that the payee’s payment service provider received the amount of the payment transaction in accordance with Article 69(1), in which case, the payee’s payment service provider shall be liable to the payee for the correct execution of the payment transaction.

548  Part I: European Union Legislation Where the payer’s payment service provider is liable under the first subparagraph, he shall without undue delay refund to the payer the amount of the non-executed or defective payment transaction and, where applicable, restore the debited payment account to the state in which it would have been had the defective payment transaction not taken place. Where the payee’s payment service provider is liable under the first subparagraph, he shall immediately place the amount of the payment transaction at the payee’s disposal and, where applicable, credit the corresponding amount to the payee’s payment account. In the case of a non-executed or defectively executed payment transaction where the payment order is initiated by the payer, his payment service provider shall regardless of liability under this paragraph, on request, make immediate efforts to trace the payment transaction and notify the payer of the outcome. 2. Where a payment order is initiated by or through the payee, his payment service provider shall, without prejudice to Article 58, Article 74(2) and (3), and Article 78, be liable to the payee for correct transmission of the payment order to the payment service provider of the payer in accordance with Article 69(3). Where the payee’s payment service provider is liable under this subparagraph, he shall immediately re-transmit the payment order in question to the payment service provider of the payer. In addition, the payment service provider of the payee shall, without prejudice to Article 58, Article 74(2) and (3), and Article 78, be liable to the payee for handling the payment transaction in accordance with its obligations under Article 73. Where the payee’s payment service provider is liable under this subparagraph, he shall ensure that the amount of the payment transaction is at the payee’s disposal immediately after that amount is credited to the payee’s payment service provider’s account. In the case of a non-executed or defectively executed payment transaction for which the payee’s payment service provider is not liable under the first and second subparagraphs, the payer’s payment service provider shall be liable to the payer. Where the payer’s payment service provider is so liable he shall, as appropriate and without undue delay, refund to the payer the amount of the non-executed or defective payment transaction and restore the debited payment account to the state in which it would have been had the defective payment transaction not taken place. In the case of a non-executed or defectively executed payment transaction where the payment order is initiated by or through the payee, his payment service provider shall, regardless of liability under this paragraph, on request, make immediate efforts to trace the payment transaction and notify the payee of the outcome. 3. In addition, payment service providers shall be liable to their respective payment service users for any charges for which they are responsible, and for any interest to which the payment service user is subject as a consequence of non-execution or defective execution of the payment transaction.

Directive 2007/64/EC 549 Article 76 Additional financial compensation Any financial compensation additional to that provided for under this Section may be determined in accordance with the law applicable to the contract concluded between the payment service user and his payment service provider. Article 77 Right of recourse 1. Where the liability of a payment service provider under Article 75 is attributable to another payment service provider or to an intermediary, that payment service provider or intermediary shall compensate the first payment service provider for any losses incurred or sums paid under Article 75. 2. Further financial compensation may be determined in accordance with agreements between payment service providers and/or intermediaries and the law applicable to the agreement concluded between them. Article 78 No liability Liability under Chapter 2 and 3 shall not apply in cases of abnormal and unforeseeable circumstances beyond the control of the party pleading for the application of those circumstances, the consequences of which would have been unavoidable despite all efforts to the contrary, or where a payment service provider is bound by other legal obligations covered by national or Community legislation. CHAPTER 4 Data protection Article 79 Data protection Member States shall permit the processing of personal data by payment systems and payment service providers when this is necessary to safeguard the prevention, investigation and detection of payment fraud. The processing of such personal data shall be carried out in accordance with Directive 95/46/EC.

550  Part I: European Union Legislation CHAPTER 5 Out-of-court complaint and redress procedures for the settlement of disputes Section 1 Complaint procedures Article 80 Complaints 1. Member States shall ensure that procedures are set up which allow payment service users and other interested parties, including consumer associations, to submit complaints to the competent authorities with regard to payment service providers’ alleged infringements of the provisions of national law ­implementing the provisions of this Directive. 2. Where appropriate and without prejudice to the right to bring proceedings before a court in accordance with national procedural law, the reply from the competent authorities shall inform the complainant of the existence of the out-of-court complaint and redress procedures set up in accordance with Article 83. Article 81 Penalties 1. Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. Such ­penalties shall be effective, proportionate and dissuasive. 2. Member States shall notify the Commission of the rules referred to in paragraph 1 and of the competent authorities referred to in Article 82 by 1 November 2009 and shall notify it without delay of any subsequent ­amendment affecting them. Article 82 Competent authorities 1. Member States shall take all the measures necessary to ensure that the complaints procedures and penalties provided for in Articles 80(1) and 81(1) respectively are administered by the authorities empowered to ensure compliance with the provisions of national law adopted pursuant to the requirements laid down in this Section.

Directive 2007/64/EC 551 2. In the event of infringement or suspected infringement of the provisions of national law adopted pursuant to Titles III and IV, the competent authorities referred to in paragraph 1 shall be those of the home Member State of the payment service provider, except for agents and branches conducted under the right of establishment where the competent authorities shall be those of the host Member State. Section 2 Out-of-court redress procedures Article 83 Out-of-court redress 1. Member States shall ensure that adequate and effective out-of-court complaint and redress procedures for the settlement of disputes between payment service users and their payment service providers are put in place for disputes concerning rights and obligations arising under this Directive, using existing bodies where appropriate. 2. In the case of cross-border disputes, Member States shall make sure that those bodies cooperate actively in resolving them. TITLE V IMPLEMENTING MEASURES AND PAYMENTS COMMITTEE Article 84 Implementing measures In order to take account of technological and market developments in payment services and to ensure the uniform application of this Directive, the Commission may, in accordance with the regulatory procedure with scrutiny referred to in Article 85(2), adopt implementing measures designed to amend non-essential ­elements of this Directive and relating to the following: (a) adapting the list of activities in the Annex, in accordance with Articles 2 to 4 and 16; (b) changing the definition of micro enterprise within the meaning of Article 4(26) in accordance with an amendment of Recommendation 2003/361/EC; (c) updating the amounts specified in Articles 26(1) and 61(1) in order to take account of inflation and significant market developments. Article 85 Committee 1. The Commission shall be assisted by a Payments Committee. 2. Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of ­Article 8 thereof.

552  Part I: European Union Legislation TITLE VI FINAL PROVISIONS Article 86 Full harmonization 1. Without prejudice to Article 30(2), Article 33, Article 34(2), Article 45(6), Article 47(3), Article 48(3), Article 51(2), Article 52(3), Article 53(2), Article 61(3), and Articles 72 and 88 insofar as this Directive contains harmonised provisions, Member States shall not maintain or introduce provisions other than those laid down in this Directive. 2. Where a Member State makes use of any of the options referred to in ­paragraph 1, it shall inform the Commission thereof as well as of any subsequent changes. The Commission shall make the information public on a website or other easily accessible means. 3. Member States shall ensure that payment service providers do not derogate, to the detriment of payment service users, from the provisions of national law implementing or corresponding to provisions of this Directive except where explicitly provided for therein. However, payment service providers may decide to grant more favourable terms to payment service users. Article 87 Review No later than 1 November 2012, the Commission shall present to the European Parliament, the Council, the European Economic and Social Committee and the European Central Bank a report on the implementation and impact of this Directive, in particular on: —— the possible need to extend the scope of the Directive to payment transactions in all currencies and to payment transactions where only one of the payment service providers is located in the Community, —— the application of Articles 6, 8 and 9 concerning prudential requirements for payment institutions, in particular as regards own funds requirements and ­safeguarding requirements (ringfencing), —— the possible impact of the granting of credit by payment institutions related to payments services, as set out in Article 16(3), —— the possible impact of the authorisation requirements of payment institutions on competition between payment institutions and other payment service providers as well as on barriers to market entry by new payment service providers, —— the application of Articles 34 and 53 and the possible need to revise the scope of this Directive with respect to low value payment instruments and electronic money, and —— the application and functioning of Articles 69 and 75 for all kinds of payment instruments, accompanied, where appropriate, by a proposal for its revision.

Directive 2007/64/EC 553 Article 88 Transitional provision 1. Without prejudice to Directive 2005/60/EC or other relevant Community legislation, Member States shall allow legal persons who have commenced before 25 December 2007 the activities of payment institutions within the meaning of this Directive, in accordance with the national law in force to continue those activities within the Member State concerned until 30 April 2011, without authorisation under Article 10. Any such persons who have not been granted authorisation within this period shall be prohibited in accordance with Article 29 to provide payment services. 2. Notwithstanding paragraph 1, an exemption to the authorisation requirement under Article 10 shall be granted to financial institutions that have commenced activities listed in point 4 of Annex I to Directive 2006/48/EC and meet the conditions of point (e) of the first subparagraph of Article 24(1), of that Directive in accordance with national law before 25 December 2007. However, they shall notify the competent authorities of the home Member State of these activities by 25 December 2007. Furthermore, this notification shall include the information demonstrating that they have complied with Article 5(a), (d), (g) to (i), (k) and (l) of this Directive. Where the competent authorities are satisfied that those requirements are complied with, the financial institutions concerned shall be registered in accordance with Article 13 of this Directive. Member States may allow their competent authorities to exempt those financial institutions from the requirements under Article 5. 3. Member States may provide that legal persons referred to in paragraph 1 shall be automatically granted authorisation and entered into the register provided for in Article 13 if the competent authorities already have evidence that the requirements laid down in Articles 5 and 10 are complied with. The competent authorities shall inform the entities concerned before the authorisation is granted. 4. Without prejudice to Directive 2005/60/EC or other relevant Community legislation, Member States may allow natural or legal persons who have commenced the activities of payment institutions within the meaning of this Directive, in accordance with the national law in force before 25 December 2007 and who are eligible for waiver under Article 26 to continue those activities within the Member State concerned for a transitional period not longer than 3 years without being waived in accordance with Article 26 and entered into the register provided for in Article 13. Any such persons who are not waived within this period shall be prohibited in accordance with Article 29 to provide payment services. Article 89 Amendment of Directive 97/7/EC Article 8 of Directive 97/7/EC shall be deleted.

554  Part I: European Union Legislation Article 90 Amendments of Directive 2002/65/EC Directive 2002/65/EC is hereby amended as follows: 1. in Article 4 the following paragraph shall be added: ‘5. Where Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (28) is also applicable, the information provisions under Article 3(1) of this Directive, with the exception of paragraphs (2)(c) to (g), (3)(a), (d) and (e), and (4)(b), shall be replaced with Articles 36, 37, 41 and 42 of that Directive’. 2. Article 8 shall be deleted. Article 91 Amendments of Directive 2005/60/EC Directive 2005/60/EC is hereby amended as follows: 1. Article 3(2)(a) shall be replaced by the following: ‘(a) an undertaking other than a credit institution which carries out one or more of the activities listed in points 2 to 12 and 14 of Annex I to Directive 2006/48/EC, including the activities of currency exchange offices (bureaux de change)’; 2. in Article 15 paragraphs 1 and 2 shall be replaced by the following: ‘1. Where a Member State permits credit and financial institutions referred to in Article 2(1)(1) or (2) situated in its territory to be relied on as a third party domestically, that Member State shall in any case permit institutions and persons referred to in Article 2(1) situated in its territory to recognise and accept, in accordance with Article 14, the outcome of the customer due diligence requirements laid down in Article 8(1)(a) to (c), carried out in accordance with this Directive by an institution referred to in Article 2(1)(1) or (2) in another Member State, with the exception of currency exchange offices and payment institutions as defined in Article 4(4) of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on p ­ ayment services in the internal market (29), which mainly provide the payment service listed in point 6 of the Annex to that Directive, including natural and legal persons benefiting from a waiver under Article 26 of that Directive, and meeting the requirements laid down in Articles 16 and 18 of this Directive, even if the documents or data on which these requirements have been based are different to those required in the Member State to which the customer is being referred’. 2. Where a Member State permits currency exchange offices referred to in Article 3(2)(a) and payment institutions as defined in Article 4(4) of Directive 2007/64/EC, which mainly provide the payment service listed in point 6 of the

Directive 2007/64/EC 555 Annex to that Directive, situated in its territory to be relied on as a third party domestically, that Member State shall in any case permit them to recognise and accept, in accordance with Article 14 of this Directive, the outcome of the customer due diligence requirements laid down in Article 8(1)(a) to (c), carried out in accordance with this Directive by the same category of institution in another Member State and meeting the requirements laid down in Articles 16 and 18 of this Directive, even if the documents or data on which these requirements have been based are different to those required in the Member State to which the customer is being referred. 3.  the second sentence of Article 36(1) shall be deleted. Article 92 Amendments of Directive 2006/48/EC Annex I to Directive 2006/48/EC is hereby amended as follows: 1. point 4 shall be replaced by the following: ‘(4) Payment services as defined in Article 4(3) of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (30) 2. point 5 shall be replaced by the following: ‘(5) Issuing and administering other means of payment (e.g. travellers’ cheques and bankers’ drafts) insofar as this activity is not covered by point 4’. Article 93 Repeal Directive 97/5/EC shall be repealed with effect from 1 November 2009. Article 94 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive before 1 November 2009. They shall forthwith inform the Commission thereof. When they are adopted by Member States, those measures shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States.

556  Part I: European Union Legislation 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 95 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Article 96 Addressees This Directive is addressed to the Member States. (1) OJ

C 109, 9.5.2006, p. 10. of the European Parliament of 24 April 2007 (not yet published in the Official Journal) and Council Decision of 15 October 2007. (3) OJ L 43, 14.2.1997, p. 25. (4) OJ L 344, 28.12.2001, p. 13. (5) OJ L 365, 24.12.1987, p. 72. (6) OJ L 317, 24.11.1988, p. 55. (7) OJ L 208, 2.8.1997, p. 52. (8)  OJ L 177, 30.6.2006, p. 1. Directive as amended by Commission Directive 2007/44/EC (OJ L 247, 21.9.2007, p. 1). (9) OJ L 275, 27.10.2000, p. 39. (10) OJ L 222, 14.8.1978, p. 11. Directive as last amended by Directive 2006/46/EC of the European Parliament and of the Council (OJ L 224, 16.8.2006, p. 1). (11) OJ L 193, 18.7.1983, p. 1. Directive as last amended by Directive 2006/99/EC (OJ L 363, 20.12.2006, p. 137). (12)  OJ L 372, 31.12.1986, p. 1. Directive as last amended by Directive 2006/ 46/EC. (13)  OJ L 42, 12.2.1987, p. 48. Directive as last amended by Directive 98/7/EC of the European Parliament and of the Council (OJ L 101, 1.4.1998, p. 17). (14) OJ L 166, 11.6.1998, p. 45. (15) OJ L 124, 20.5.2003, p. 36. (16) OJ L 149, 11.6.2005, p. 22. (17) OJ L 178, 17.7.2000, p. 1. (18) OJ L 271, 9.10.2002, p. 16. Directive as amended by Directive 2005/29/EC. (19)  OJ L 281, 23.11.1995, p. 31. Directive as amended by Regulation (EC) No 1882/2003 (OJ L 284, 31.10.2003, p. 1). (20) OJ C 27, 26.1.1998, p. 34. (21) OJ L 144, 4.6.1997, p. 19. Directive as last amended by Directive 2005/29/EC. (2) Opinion

Directive 2007/64/EC 557 (22) OJ

L 309, 25.11.2005, p. 15. L 184, 17.7.1999, p. 23. Decision as amended by Decision 2006/512/EC (OJ L 200, 22.7.2006, p. 11). (24) OJ C 321, 31.12.2003, p. 1. (25) OJ L 345, 8.12.2006, p. 1. (26) OJ L 157, 9.6.2006, p. 87. (27) OJ L 243, 11.9.2002, p. 1. (28) OJ L 319, 5.12.2007, p. 1’. (29) OJ L 319, 5.12.2007, p. 1’. (30) OJ L 319, 5.12.2007, p. 1’. (23)  OJ

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* (OJ 2008 L133 p.66) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) Council Directive 87/102/EEC of 22 December 1986 for the ­approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (3) lays down rules at Community level ­concerning consumer credit agreements. (2) In 1995, the Commission presented a report on the operation of Directive 87/102/EEC and undertook a broad consultation of the interested parties. In 1997, the Commission presented a summary report of reactions to the 1995 report. A second report was produced in 1996 on the operation of Directive 87/102/EEC. (3) Those reports and consultations revealed substantial differences between the laws of the various Member States in the field of credit for natural persons in general and consumer credit in particular. An analysis of the national laws transposing Directive 87/102/EEC shows that Member States use a variety of consumer protection mechanisms, in addition to Directive 87/102/EEC, on account of differences in the legal or economic situation at national level.

* Implemented in the United Kingdom by the Timeshare, Holiday Products, Resale and Exchange ­Contracts Regulations 2010, S.I. No. 2010 No. 2960.

Directive 2008/48/EC 559 (4) The de facto and de jure situation resulting from those national differences in some cases leads to distortions of competition among creditors in the ­Community and creates obstacles to the internal market where ­Member States have adopted different mandatory provisions more stringent than those provided for in Directive 87/102/EEC. It restricts consumers’ ability to make direct use of the gradually increasing availability of cross-border credit. Those distortions and restrictions may in turn have consequences in terms of the demand for goods and services. (5) In recent years the types of credit offered to and used by consumers have evolved considerably. New credit instruments have appeared, and their use continues to develop. It is therefore necessary to amend existing provisions and to extend their scope, where appropriate. (6) In accordance with the Treaty, the internal market comprises an area without internal frontiers in which the free movement of goods and services and freedom of establishment are ensured. The development of a more transparent and efficient credit market within the area without internal frontiers is vital in order to promote the development of cross-border activities. (7) In order to facilitate the emergence of a well-functioning internal market in consumer credit, it is necessary to make provision for a harmonised Community framework in a number of core areas. In view of the continuously developing market in consumer credit and the increasing mobility of ­European citizens, forward-looking Community legislation which is able to adapt to future forms of credit and which allows Member States the appropriate degree of flexibility in their implementation should help to establish a ­modern body of law on consumer credit. (8) It is important that the market should offer a sufficient degree of consumer protection to ensure consumer confidence. Thus, it should be possible for the free movement of credit offers to take place under optimum conditions for both those who offer credit and those who require it, with due regard to specific situations in the individual Member States. (9) Full harmonisation is necessary in order to ensure that all consumers in the Community enjoy a high and equivalent level of protection of their interests and to create a genuine internal market. Member States should therefore not be allowed to maintain or introduce national provisions other than those laid down in this Directive. However, such restriction should only apply where there are provisions harmonised in this Directive. Where no such harmonised provisions exist, Member States should remain free to maintain or introduce national legislation. Accordingly, Member States may, for instance, maintain or introduce national provisions on joint and several liability of the seller or the service provider and the creditor. Another example of this possibility for Member States could be the maintenance or introduction of national provisions on the cancellation of a contract for the sale of goods or supply of services if the consumer exercises his right of withdrawal from the credit agreement. In this respect Member States, in the case of open-end credit agreements, should be allowed to fix a minimum period needing to elapse between the time when the creditor asks for reimbursement and the day on which the credit has to be reimbursed.

560  Part 1: European Union Legislation (10) The definitions contained in this Directive determine the scope of harmonisation. The obligation on Member States to implement the provisions of this Directive should therefore be limited to its scope as determined by those definitions. However, this Directive should be without prejudice to the application by Member States, in accordance with Community law, of the provisions of this Directive to areas not covered by its scope. A Member State could thereby maintain or introduce national legislation ­corresponding to the provisions of this Directive or certain of its provisions on credit agreements outside the scope of this Directive, for instance on credit agreements involving amounts less than EUR 200 or more than EUR 75 000. Furthermore, Member States could also apply the provisions of this Directive to linked credit which does not fall within the definition of a linked credit agreement as contained in this Directive. Thus, the provisions on linked credit agreements could be applied to credit agreements that serve only partially to finance a contract for the supply of goods or provision of a service. (11) In the case of specific credit agreements to which only some provisions of this Directive are applicable, Member States should not be allowed to adopt national legislation implementing other provisions of this Directive. However, Member States should remain free to regulate, in their national legislation, such types of credit agreements as regards other aspects not harmonised by this Directive. (12) Agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for them for the duration of their provision by means of instalments, may differ considerably, in terms of the interests of the contractual parties involved, and the modalities and performance of the transactions, from credit agreements covered by this Directive. Therefore, it should be clarified that such agreements are not regarded as credit agreements for the purposes of this Directive. Such types of agreement include, for example, an insurance contract where the insurance is paid for in monthly instalments. (13) This Directive should not apply to certain types of credit agreement, such as deferred debit cards, under the terms of which the credit has to be repaid within three months and only insignificant charges are payable. (14) Credit agreements covering the granting of credit secured by real estate should be excluded from the scope of this Directive. That type of credit is of a very specific nature. Also, credit agreements the purpose of which is to finance the acquisition or retention of property rights in land or in an ­existing or projected building should be excluded from the scope of this Directive. However, credit agreements should not be excluded from the scope of this Directive only because their purpose is the renovation or increase of value of an existing building. (15) The provisions of this Directive apply irrespective of whether the creditor is a legal person or a natural person. However, this Directive does not affect the right of Member States to limit, in conformity with Community law, the provision of credit for consumers to legal persons only or to certain legal persons.

Directive 2008/48/EC 561 (16) Certain provisions of this Directive should apply to natural and legal persons (credit intermediaries) who, in the course of their trade, business or profession, for a fee, present or offer credit agreements to consumers, assist consumers by undertaking preparatory work in respect of credit agreements or conclude credit agreements with consumers on behalf of the c­ reditor. Organisations which allow their identity to be used in promoting credit products, such as credit cards, and which may also recommend those products to their members should not be regarded as credit intermediaries for the purposes of this Directive. (17) This Directive regulates only certain obligations of credit intermediaries in relation to consumers. Member States should therefore remain free to maintain or introduce additional obligations incumbent on credit intermediaries, including the conditions under which a credit intermediary may receive fees from a consumer who has requested his service. (18) Consumers should be protected against unfair or misleading practices, in particular with respect to the disclosure of information by the ­creditor, in line with Directive 2005/29/EC of the European Parliament and of the ­Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial Practices ­Directive) (4). However, this Directive should contain specific provisions on advertising concerning credit agreements as well as certain items of standard information to be provided to consumers in order to enable them, in particular, to compare different offers. Such information should be given in a clear, concise and prominent way by means of a representative example. A ceiling should be provided where it is not possible to indicate the total amount of credit as the total sums made available, in particular where a credit agreement gives the consumer freedom of drawdown with a limitation with regard to the amount. The ceiling should indicate the upper limit of credit which can be made available to the consumer. In addition, ­Member States should remain free to regulate information requirements in their national law regarding advertising which does not contain ­information on the cost of the credit. (19) In order to enable consumers to make their decisions in full knowledge of the facts, they should receive adequate information, which the consumer may take away and consider, prior to the conclusion of the credit agreement, on the conditions and cost of the credit and on their obligations. To ensure the fullest possible transparency and comparability of offers, such information should, in particular, include the annual percentage rate of charge applicable to the credit, determined in the same way throughout the Community. As the annual percentage rate of charge can at this stage be indicated only through an example, such example should be representative. Therefore, it should correspond, for instance, to the average duration and total amount of credit granted for the type of credit agreement under consideration and, if applicable, to the goods purchased. When determining the representative example, the frequency of certain types of credit agreement in a specific market should also be taken into account. As regards

562  Part 1: European Union Legislation

(20)

(21)

(22)

(23)

(24)

the borrowing rate, the frequency of instalments and the capitalisation of ­interest, creditors should use their conventional method of calculation for the consumer credit concerned. The total cost of the credit to the consumer should comprise all the costs, including interest, commissions, taxes, fees for credit intermediaries and any other fees which the consumer has to pay in connection with the credit agreement, except for notarial costs. Creditors’ actual knowledge of the costs should be assessed objectively, taking into account the requirements of professional diligence. Credit agreements in which a borrowing rate is periodically revised in line with changes occurring in a reference rate referred to in the credit agreement should not be regarded as credit agreements with a fixed borrowing rate. Member States should remain free to maintain or introduce national provisions prohibiting the creditor from requiring the consumer, in connection with the credit agreement, to open a bank account or conclude an agreement in respect of another ancillary service, or to pay the expenses or fees for such bank accounts or other ancillary services. In those Member States where such combined offers are allowed, consumers should be informed before the conclusion of the credit agreement about any ancillary services which are compulsory in order for the credit to be obtained in the first place or on the terms and conditions marketed. The costs payable in respect of those ancillary services should be included in the total cost of the credit; alternatively, if the amount of such costs cannot be determined in advance, consumers should receive adequate information about the existence of costs at a pre-contractual stage. The creditor must be presumed to have knowledge of the costs of the ancillary services which he offers to the consumer himself, or on behalf of a third party, unless the price thereof depends on the specific characteristics or situation of the consumer. For specific types of credit agreements, however, it is appropriate, in order to ensure an adequate level of consumer protection without placing an excessive burden on creditors or, where applicable, credit intermediaries, to restrict the pre-contractual information requirements of this Directive, taking into account the specific character of such types of agreements. The consumer needs to be given comprehensive information before he concludes the credit agreement, regardless of whether or not a credit intermediary is involved in the marketing of the credit. Therefore, in general, the pre-contractual information requirements should also apply to credit intermediaries. However, where suppliers of goods and services act as credit intermediaries in an ancillary capacity, it is not appropriate to burden them with the legal obligation to provide the pre-contractual information in accordance with this Directive. Suppliers of goods and services may be deemed, for example, to be acting as credit intermediaries in an ancillary capacity if their activity as credit intermediaries is not the main purpose of their trade, business or profession. In those cases, a sufficient level of consumer protection is still achieved since the creditor is responsible for

Directive 2008/48/EC 563

(25)

(26)

(27)

(28)

ensuring that the consumer receives the full pre-contractual information, either from the intermediary, if the creditor and the intermediary so agree, or in some other appropriate manner. The potentially binding character of the information to be provided to the consumer prior to the conclusion of the credit agreement and the period of time during which the creditor is to be bound by it may be regulated by the Member States. Member States should take appropriate measures to promote responsible practices during all phases of the credit relationship, taking into account the specific features of their credit market. Those measures may include, for instance, the provision of information to, and the education of, consumers, including warnings about the risks attaching to default on payment and to over-indebtedness. In the expanding credit market, in particular, it is important that creditors should not engage in irresponsible lending or give out credit without prior assessment of creditworthiness, and the Member States should carry out the necessary supervision to avoid such behaviour and should determine the necessary means to sanction creditors in the event of their doing so. Without prejudice to the credit risk provisions of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit ­institutions (5), creditors should bear the responsibility of checking individually the creditworthiness of the consumer. To that end, they should be allowed to use information provided by the consumer not only during the preparation of the credit agreement in question, but also during a longstanding commercial relationship. The Member States’ authorities could also give appropriate instructions and guidelines to creditors. Consumers should also act with prudence and respect their contractual obligations. Despite the pre-contractual information to be provided, the consumer may still need additional assistance in order to decide which credit agreement, within the range of products proposed, is the most appropriate for his needs and financial situation. Therefore, Member States should ensure that creditors provide such assistance in relation to the credit products which they offer to the consumer. Where appropriate, the relevant pre-contractual information, as well as the essential characteristics of the products proposed, should be explained to the consumer in a personalised manner so that the consumer can understand the effects which they may have on his economic situation. Where applicable, this duty to assist the consumer should also apply to credit intermediaries. Member States could determine when and to what extent such explanations are to be given to the consumer, taking into account the particular circumstances in which the credit is offered, the consumer’s need for assistance and the nature of individual credit products. To assess the credit status of a consumer, the creditor should also consult relevant databases; the legal and actual circumstances may require that such consultations vary in scope. To prevent any distortion of competition among creditors, it should be ensured that creditors have access to private

564  Part 1: European Union Legislation

(29)

(30)

(31) (32)

(33)

or public databases concerning consumers in a Member State where they are not established under non-discriminatory conditions compared with creditors in that Member State. Where a decision to reject an application for credit is based on the consultation of a database, the creditor should inform the consumer of this fact and of the particulars of the database consulted. However, the creditor should not be obliged to give such information when this is prohibited by other Community legislation, for example legislation on money laundering or the financing of terrorism. Furthermore, such information should not be given if this would be contrary to objectives of public policy or public security, such as the prevention, investigation, detection or prosecution of criminal offences. This Directive does not regulate contract law issues related to the validity of credit agreements. Therefore, in that area, the Member States may maintain or introduce national provisions which are in conformity with C ­ ommunity law. Member States may regulate the legal regime governing the offer to conclude the credit agreement, in particular when it is to be given and the period during which it is to be binding on the creditor. If such an offer is made at the same time as the pre-contractual information provided for by this Directive is given, it should, like any additional information the creditor may wish to give to the consumer, be provided in a separate document which may be annexed to the Standard European Consumer Credit Information. In order to enable the consumer to know his rights and obligations under the credit agreement, it should contain all necessary information in a clear and concise manner. In order to ensure full transparency, the consumer should be provided with information concerning the borrowing rate, both at a pre-contractual stage and when the credit agreement is concluded. During the contractual relationship, the consumer should further be informed of changes to the variable borrowing rate and changes to the payments caused thereby. This is without prejudice to provisions of national law not related to consumer information which lay down conditions for, or prescribe the consequences of, changes, other than changes concerning payments, in borrowing rates and other economic conditions governing the credit, for instance rules providing that the creditor may change the borrowing rate only where there is a valid reason for such change or that the consumer may terminate the contract should there be a change in the borrowing rate or in some other economic condition concerning the credit. The contracting parties should have the right to effect a standard termination of an open-end credit agreement. In addition, if agreed in the credit agreement, the creditor should have the right to suspend the consumer’s right to draw down on an open-end credit agreement for objectively justified reasons. Such reasons may include, for instance, suspicion of an unauthorised or fraudulent use of the credit or a significantly increased risk of the consumer being unable to fulfil his obligation to repay the credit.

Directive 2008/48/EC 565

(34)

(35)

(36)

(37)

(38)

This Directive does not affect national law in the area of contract law regulating the rights of the contracting parties to terminate the credit agreement on the basis of a breach of contract. In order to approximate the procedures for exercising the right of withdrawal in similar areas, it is necessary to make provision for a right of withdrawal without penalty and with no obligation to provide justification, under conditions similar to those provided for by Directive 2002/65/ EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (6). Where a consumer withdraws from a credit agreement in connection with which he has received goods, in particular from a purchase in instalments or from a hiring or leasing agreement providing for an obligation to purchase, this Directive should be without prejudice to any regulation by ­Member States of questions concerning the return of the goods or any related questions. In some cases, national legislation already provides that funds cannot be made available to the consumer before the expiry of a specific deadline. In these cases, consumers may wish to ensure that they receive the goods or services purchased early. Therefore, in the case of linked credit agreements, Member States may exceptionally provide that, if the consumer explicitly wishes early receipt, the deadline for the exercise of the right of withdrawal could be reduced to the same deadline before which funds cannot be made available. In the case of linked credit agreements, a relationship of interdependence exists between the purchase of goods or services and the credit ­agreement concluded for that purpose. Therefore, where the consumer exercises his right of withdrawal in respect of the purchase agreement, based on C ­ ommunity law, he should no longer be bound by the linked credit ­agreement. This should not affect national law applicable to linked credit agreements in cases where a purchase agreement has been voided or where the consumer has exercised his right of withdrawal based on national law. Nor should this affect the rights of consumers granted by national provisions according to which no commitment may be entered into between the consumer and a supplier of goods or services, nor any payment made between those persons, as long as the consumer has not signed the credit agreement to finance the purchase of the goods or services. Under certain conditions, the consumer should be allowed to pursue remedies against the creditor in the event of problems related to the purchase agreement. However, Member States should determine to what extent and under what conditions the consumer is required to pursue his remedies against the supplier, in particular by bringing an action against the latter, before being in a position to pursue them against the creditor. This Directive should not deprive consumers of their rights under national provisions attaching joint and several liability to the seller or supplier of services and to the creditor.

566  Part 1: European Union Legislation (39) The consumer should have the right to discharge his obligations before the date agreed in the credit agreement. In the case of early repayment, either in part or in full, the creditor should be entitled to compensation for the costs directly linked to the early repayment, taking into account also any savings thereby made by the creditor. However, in order to determine the method of calculating the compensation, it is important to respect several principles. The calculation of the compensation due to the creditor should be ­transparent and comprehensible to consumers already at the pre-contractual­stage and in any case during the performance of the credit agreement. In addition, the calculation method should be easy for creditors to apply, and supervisory control of the compensation by the responsible authorities should be facilitated. Therefore, and due to the fact that consumer credit is, given its duration and volume, not financed by longterm funding mechanisms, the ceiling for the compensation should be fixed in terms of a flat-rate amount. This approach reflects the special nature of credits for consumers and should not prejudice the possibly different approach in respect of other products which are financed by long-term funding mechanisms, such as fixed-rate mortgage loans. (40) Member States should have the right to provide that compensation for early repayment may be claimed by the creditor only on condition that the amount repaid over a 12-month period exceeds a threshold defined by Member States. When fixing that threshold, which should not exceed EUR 10 000, Member States should for instance take into account the average amount of consumer credits in their market. (41) Assignment of the creditor’s rights under a credit agreement should not have the effect of placing the consumer in a less favourable position. The consumer should also be properly informed when the credit agreement is assigned to a third party. However, where the initial creditor, in agreement with the assignee, continues to service the credit vis-à-vis the consumer, the consumer has no significant interest in being informed of the assignment. Therefore, a requirement at EU level that the consumer be informed of the assignment in such cases would be excessive. (42) Member States should remain free to maintain or introduce national rules providing for collective forms of communication when this is necessary for purposes relating to the effectiveness of complex transactions such as securitisations or liquidation of assets that take place in the compulsory ­administrative liquidation of banks. (43) In order to promote the establishment and functioning of the internal market and to ensure a high degree of protection for consumers throughout the Community, it is necessary to ensure the comparability of information relating to annual percentage rates of charge throughout the Community. Despite the uniform mathematical formula for its calculation, the annual percentage rate of charge provided for in Directive 87/102/EEC is not yet fully comparable throughout the Community. In individual Member States different cost factors are taken into account in the calculation thereof.

Directive 2008/48/EC 567

(44) (45)

(46)

(47)

(48)

(49)

(50)

(51)

This Directive should therefore clearly and comprehensively define the total cost of a credit to the consumer. In order to ensure market transparency and stability, and pending further harmonisation, Member States should ensure that appropriate measures for the regulation or supervision of creditors are in place. This Directive respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. In particular, this Directive seeks to ensure full respect for the rules on protection of personal data, the right to property, non-discrimination­, protection of family and professional life, and consumer protection p ­ ursuant to the Charter of Fundamental Rights of the European Union. Since the objective of this Directive, namely the establishment of common rules for certain aspects of the laws, regulations and administrative provisions of the Member States concerning consumer credit, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. Member States should lay down rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and ensure that they are implemented. While the choice of penalties remains within the discretion of the Member States, the penalties provided for should be effective, proportionate and dissuasive. The measures necessary for the implementation of this Directive should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (7). In particular, the Commission should be empowered to adopt additional assumptions for the calculation of the annual percentage rate of charge. Since those measures are of general scope and are designed to amend nonessential elements of this Directive, they must be adopted in accordance with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC. In accordance with point 34 of the Interinstitutional Agreement on better law-making (8), Member States are encouraged to draw up, for themselves and in the interests of the Community, their own tables illustrating, as far as possible, the correlation between this Directive and the transposition measures, and to make them public. Accordingly, taking account of the number of amendments that need to be made to Directive 87/102/EEC due to the evolution of the consumer credit sector and in the interests of the clarity of Community legislation, that Directive should be repealed and replaced by this Directive,

568  Part 1: European Union Legislation HAVE ADOPTED THIS DIRECTIVE: CHAPTER I SUBJECT MATTER, SCOPE AND DEFINITIONS Article 1 Subject matter The purpose of this Directive is to harmonise certain aspects of the laws, regulations and administrative provisions of the Member States concerning agreements covering credit for consumers. Article 2 Scope 1. This Directive shall apply to credit agreements. 2. This Directive shall not apply to the following: (a) credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on immovable property or secured by a right related to immovable property; (b) credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building; (c) credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75 000; (d) hiring or leasing agreements where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by any separate agreement; such an obligation shall be deemed to exist if it is so decided unilaterally by the creditor; (e) credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month; (f) credit agreements where the credit is granted free of interest and without any other charges and credit agreements under the terms of which the credit has to be repaid within three months and only insignificant charges are payable; (g) credit agreements where the credit is granted by an employer to his employees as a secondary activity free of interest or at annual percentage rates of charge lower than those prevailing on the market and which are not offered to the public generally; (h) credit agreements which are concluded with investment firms as defined in Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (9) or with credit institutions as defined in Article 4 of Directive 2006/48/EC for the purposes of allowing an investor to carry out a transaction relating to one or more of the instruments listed in Section C of Annex I to Directive 2004/39/EC, where the investment firm or credit institution granting the credit is involved in such transaction;

Directive 2008/48/EC 569 (i)

credit agreements which are the outcome of a settlement reached in court or before another statutory authority; (j) credit agreements which relate to the deferred payment, free of charge, of an existing debt; (k) credit agreements upon the conclusion of which the consumer is requested to deposit an item as security in the creditor’s safe-keeping and where the liability of the consumer is strictly limited to that pledged item; (l) credit agreements which relate to loans granted to a restricted public under a statutory provision with a general interest purpose, and at lower interest rates than those prevailing on the market or free of interest or on other terms which are more favourable to the consumer than those prevailing on the market and at interest rates not higher than those ­prevailing on the market. 3. In the case of credit agreements in the form of an overdraft facility and where the credit has to be repaid on demand or within three months, only ­Articles 1 to 3, Article 4(1), Article 4(2)(a) to (c), Article 4(4), Articles 6 to 9, ­Article 10(1), Article 10(4), Article 10(5), Articles 12, 15, 17 and Articles 19 to 32 shall apply. 4. In the case of credit agreements in the form of overrunning, only Articles 1 to 3, 18, 20 and 22 to 32 shall apply. 5. Member States may determine that only Articles 1 to 4, 6, 7 and 9, Article 10(1), points (a) to (h) and (l) of Article 10(2), Article 10(4) and Articles 11, 13 and 16 to 32 shall apply to credit agreements which are concluded by an organisation which: (a) is established for the mutual benefit of its members; (b) does not make profits for any other person than its members; (c) fulfils a social purpose required by domestic legislation; (d) receives and manages the savings of, and provides sources of credit to, its members only; and (e) provides credit on the basis of an annual percentage rate of charge which is lower than that prevailing on the market or subject to a ceiling laid down by national law, and whose membership is restricted to persons residing or employed in a particular location or employees and retired employees of a particular employer, or to persons meeting other qualifications laid down under national law as the basis for the existence of a common bond between the members. Member States may exempt from the application of this Directive credit agreements concluded by such an organisation where the total value of all existing credit agreements entered into by the organisation is insignificant in relation to the total value of all existing credit agreements in the Member State in which the organisation is based and the total value of all existing credit agreements entered into by all such organisations in the Member State is less than 1 % of the total value of all existing credit agreements entered into in that Member State. Member States shall each year review whether the conditions for the application of any such exemption continue to exist and shall take action to withdraw the exemption where they consider that the conditions are no longer met.

570  Part 1: European Union Legislation 6. Member States may determine that only Articles 1 to 4, 6, 7, 9, Article 10(1), points (a) to (i), (l) and (r) of Article 10(2), Article 10(4), Articles 11, 13, 16 and Articles 18 to 32 shall apply to credit agreements which provide for arrangements to be agreed by the creditor and the consumer in respect of deferred payment or repayment methods, where the consumer is already in default on the initial credit agreement and where: (a) such arrangements would be likely to avert the possibility of legal proceedings concerning such default; and (b) the consumer would not thereby be subject to terms less favourable than those laid down in the initial credit agreement. However, if the credit agreement falls within the scope of paragraph 3, only the provisions of that paragraph shall apply. Article 3 Definitions For the purposes of this Directive, the following definitions shall apply: (a) ‘consumer’ means a natural person who, in transactions covered by this Directive, is acting for purposes which are outside his trade, business or profession; (b) ‘creditor’ means a natural or legal person who grants or promises to grant credit in the course of his trade, business or profession; (c) ‘credit agreement’ means an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments; (d) ‘overdraft facility’ means an explicit credit agreement whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer’s current account; (e) ‘overrunning’ means a tacitly accepted overdraft whereby a creditor makes available to a consumer funds which exceed the current balance in the ­consumer’s current account or the agreed overdraft facility; (f) ‘credit intermediary’ means a natural or legal person who is not acting as a creditor and who, in the course of his trade, business or profession, for a fee, which may take a pecuniary form or any other agreed form of financial consideration: (i) presents or offers credit agreements to consumers; (ii) assists consumers by undertaking preparatory work in respect of credit agreements other than as referred to in (i); or (iii) concludes credit agreements with consumers on behalf of the creditor; (g) ‘total cost of the credit to the consumer’ means all the costs, including interest, commissions, taxes and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs; costs in respect of ancillary

Directive 2008/48/EC 571

(h) (i) (j) (k)

(l) (m)

(n)

services relating to the credit agreement, in particular insurance premiums, are also included if, in addition, the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed; ‘total amount payable by the consumer’ means the sum of the total amount of the credit and the total cost of the credit to the consumer; ‘annual percentage rate of charge’ means the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, where applicable including the costs referred to in Article 19(2); ‘borrowing rate’ means the interest rate expressed as a fixed or variable percentage applied on an annual basis to the amount of credit drawn down; ‘fixed borrowing rate’ means that the creditor and the consumer agree in the credit agreement on one borrowing rate for the entire duration of the credit agreement or on several borrowing rates for partial periods using exclusively a fixed specific percentage. If not all borrowing rates are determined in the credit agreement, the borrowing rate shall be deemed to be fixed only for the partial periods for which the borrowing rates are determined exclusively by a fixed specific percentage agreed on the conclusion of the credit agreement; ‘total amount of credit’ means the ceiling or the total sums made available under a credit agreement; ‘durable medium’ means any instrument which enables the consumer to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; ‘linked credit agreement’ means a credit agreement where (i) the credit in question serves exclusively to finance an agreement for the supply of specific goods or the provision of a specific service, and (ii) those two agreements form, from an objective point of view, a commercial unit; a commercial unit shall be deemed to exist where the supplier or service provider himself finances the credit for the consumer or, if it is financed by a third party, where the creditor uses the services of the supplier or service provider in connection with the conclusion or preparation of the credit agreement, or where the specific goods or the provision of a specific service are explicitly specified in the credit agreement. CHAPTER II INFORMATION AND PRACTICES PRELIMINARY TO THE CONCLUSION OF THE CREDIT AGREEMENT Article 4 Standard information to be included in advertising

1. Any advertising concerning credit agreements which indicates an interest rate or any figures relating to the cost of the credit to the consumer shall include standard information in accordance with this Article.

572  Part 1: European Union Legislation This obligation shall not apply where national legislation requires the indication of the annual percentage rate of charge in advertising c­ oncerning credit agreements which does not indicate an interest rate or any figures relating to any cost of credit to the consumer within the meaning of the first subparagraph. 2. The standard information shall specify in a clear, concise and prominent way by means of a representative example: (a) the borrowing rate, fixed or variable or both, together with particulars of any charges included in the total cost of the credit to the consumer; (b) the total amount of credit; (c) the annual percentage rate of charge; in the case of a credit agreement of the kind referred to in Article 2(3), Member States may decide that the annual percentage rate of charge need not be provided; (d) if applicable, the duration of the credit agreement; (e) in the case of a credit in the form of deferred payment for a specific good or service, the cash price and the amount of any advance payment; and (f) if applicable, the total amount payable by the consumer and the amount of the instalments. 3. Where the conclusion of a contract regarding an ancillary service relating to the credit agreement, in particular insurance, is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed, and the cost of that service cannot be determined in advance, the obligation to enter into that contract shall also be stated in a clear, concise and prominent way, together with the annual percentage rate of charge. 4. This Article shall be without prejudice to Directive 2005/29/EC. Article 5 Pre-contractual information 1. In good time before the consumer is bound by any credit agreement or offer, the creditor and, where applicable, the credit intermediary shall, on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer, provide the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. Such information, on paper or on another durable medium, shall be provided by means of the Standard European Consumer Credit Information form set out in Annex II. The creditor shall be deemed to have fulfilled the information requirements in this paragraph and in Article 3, paragraphs (1) and (2) of Directive 2002/65/EC if he has supplied the Standard European Consumer Credit Information. The information in question shall specify: (a) the type of credit; (b) the identity and the geographical address of the creditor as well as, if applicable, the identity and geographical address of the credit ­intermediary involved;

Directive 2008/48/EC 573 (c) the total amount of credit and the conditions governing the drawdown; (d) the duration of the credit agreement; (e) in the case of a credit in the form of deferred payment for a specific good or service and linked credit agreements, that good or service and its cash price; (f) the borrowing rate, the conditions governing the application of the borrowing rate and, where available, any index or reference rate ­ ­applicable to the initial borrowing rate, as well as the periods, conditions and procedure for changing the borrowing rate; if different borrowing rates apply in different circumstances, the abovementioned information on all the applicable rates; (g) the annual percentage rate of charge and the total amount payable by the consumer, illustrated by means of a representative example mentioning all the assumptions used in order to calculate that rate; where the consumer has informed the creditor of one or more components of his preferred credit, such as the duration of the credit agreement and the total amount of credit, the creditor shall take those components into account; if a credit agreement provides different ways of drawdown with different charges or borrowing rates and the creditor uses the assumption set out in point (b) of Part II of Annex I, he shall indicate that other drawdown mechanisms for this type of credit agreement may result in higher annual percentage rates of charge; (h) the amount, number and frequency of payments to be made by the consumer and, where appropriate, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement; (i) where applicable, the charges for maintaining one or several accounts recording both payment transactions and drawdowns, unless the opening of an account is optional, together with the charges for using a means of payment for both payment transactions and drawdowns, any other charges deriving from the credit agreement and the conditions under which those charges may be changed; (j) where applicable, the existence of costs payable by the consumer to a notary on conclusion of the credit agreement; (k) the obligation, if any, to enter into an ancillary service contract relating to the credit agreement, in particular an insurance policy, where the conclusion of such a contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed; (l) the interest rate applicable in the case of late payments and the arrangements for its adjustment, and, where applicable, any charges payable for default; (m) a warning regarding the consequences of missing payments; (n) where applicable, the sureties required; (o) the existence or absence of a right of withdrawal; (p) the right of early repayment, and, where applicable, information concerning the creditor’s right to compensation and the way in which that compensation will be determined in accordance with Article 16;

574  Part 1: European Union Legislation

2.

3.

4.

5.

6.

(q) the consumer’s right to be informed immediately and free of charge, pursuant to Article 9(2), of the result of a database consultation carried out for the purposes of assessing his creditworthiness; (r) the consumer’s right to be supplied, on request and free of charge, with a copy of the draft credit agreement. This provision shall not apply if the creditor is at the time of the request unwilling to proceed to the conclusion of the credit agreement with the consumer; and (s) if applicable, the period of time during which the creditor is bound by the pre-contractual information. Any additional information which the creditor may provide to the consumer shall be given in a separate document which may be annexed to the Standard European Consumer Credit Information form. However, in the case of voice telephony communications, as referred to in Article 3(3) of Directive 2002/65/EC, the description of the main characteristics of the financial service to be provided pursuant to the second indent of Article 3(3)(b) of that Directive shall include at least the items referred to in points (c), (d), (e), (f) and (h) of paragraph (1) of this Article, together with the annual percentage rate of charge illustrated by means of a representative example and the total amount payable by the consumer. If the agreement has been concluded at the consumer’s request using a means of distance communication which does not enable the information to be provided in accordance with paragraph 1, in particular in the case referred to in paragraph 2, the creditor shall provide the consumer with the full precontractual­information using the Standard European Consumer Credit ­Information form immediately after the conclusion of the credit agreement. Upon request, the consumer shall, in addition to receiving the Standard ­European Consumer Credit Information, be supplied free of charge with a copy of the draft credit agreement. This provision shall not apply if the creditor is at the time of the request unwilling to proceed to the conclusion of the credit agreement with the consumer. In the case of a credit agreement under which payments made by the consumer do not give rise to an immediate corresponding amortisation of the total amount of credit, but are used to constitute capital during periods and under conditions laid down in the credit agreement or in an ancillary agreement, the pre-contractual information required under paragraph 1 shall include a clear and concise statement that such credit agreements do not provide for a guarantee of repayment of the total amount of credit drawn down under the credit agreement, unless such a guarantee is given. Member States shall ensure that creditors and, where applicable, credit intermediaries provide adequate explanations to the consumer, in order to place the consumer in a position enabling him to assess whether the proposed credit agreement is adapted to his needs and to his financial situation, where appropriate by explaining the pre-contractual information to be provided in ­accordance with paragraph 1, the essential characteristics of the products proposed and the specific effects they may have on the consumer, including the consequences of default in payment by the consumer. Member States may

Directive 2008/48/EC 575 adapt the manner by which and the extent to which such assistance is given, as well as by whom it is given, to the particular circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the type of credit offered. Article 6 Pre-contractual information requirements for certain credit agreements in the form of an overdraft facility and for certain specific credit agreements 1. In good time before the consumer becomes bound by any credit agreement or offer concerning a credit agreement as referred to in Article 2(3), (5) or (6), the creditor and, where applicable, the credit intermediary shall, on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer, provide the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. The information in question shall specify: (a) the type of credit; (b) the identity and geographical address of the creditor as well as, if applicable, the identity and geographical address of the credit intermediary involved; (c) the total amount of credit; (d) the duration of the credit agreement; (e) the borrowing rate; the conditions governing the application of that rate, any index or reference rate applicable to the initial borrowing rate, the charges applicable from the time the credit agreement is concluded, and, where applicable, the conditions under which those charges may be changed; (f) the annual percentage rate of charge, illustrated by means of representative examples mentioning all the assumptions used in order to calculate that rate; (g) the conditions and procedure for terminating the credit agreement; (h) in the case of credit agreements as referred to in Article 2(3), where applicable, an indication that the consumer may be requested to repay the amount of credit in full at any time; (i) the interest rate applicable in the case of late payments and the arrangements for its adjustment, and, where applicable, any charges payable for default; (j) the consumer’s right to be informed immediately and free of charge, ­pursuant to Article 9(2), of the result of a database consultation carried out for the purposes of assessing his creditworthiness; (k) in the case of credit agreements as referred to in Article 2(3), information about the charges applicable from the time such agreements are concluded and, if applicable, the conditions under which those charges may be changed;

576  Part 1: European Union Legislation

2. 3.

4.

5.

6.

7.

(l) if applicable, the period of time during which the creditor is bound by the pre-contractual information. Such information shall be provided on paper or on another durable medium and all information shall be equally prominent. It may be provided by means of the European Consumer Credit Information form set out in Annex III. The creditor shall be deemed to have fulfilled the information requirements in this paragraph and in Article 3(1) and (2) of Directive 2002/65/EC if he has ­supplied the European Consumer Credit Information. In the case of a credit agreement of the kind referred to in Article 2(3), ­Member States may decide that the annual percentage rate of charge need not be provided. In the case of a credit agreement as referred to in Article 2(5) and (6), the information provided to the consumer in accordance with paragraph 1 of this Article shall also include: (a) the amount, number and frequency of payments to be made by the consumer and, where appropriate, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement; and (b) the right of early repayment, and, where applicable, information concerning the creditor’s right to compensation and the way in which that compensation will be determined. However, if the credit agreement falls within the scope of Article 2(3), only the provisions of paragraph 1 of this Article shall apply. However, in the case of voice telephony communications and where the consumer requests that the overdraft facility be made available with immediate effect, the description of the main characteristics of the financial service shall include at least the items referred to in points (c), (e), (f) and (h) of ­paragraph 1. In addition, in credit agreements of the kind referred to in ­paragraph 3, the description of the main characteristics shall include a specification of the duration of the credit agreement. Notwithstanding the exclusion provided for in Article 2(2)(e), the Member States shall apply at least the requirements of the first sentence of paragraph 4 of this Article to credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month. Upon request, the consumer shall, in addition to receiving the information referred to in paragraphs 1 to 4, be supplied free of charge with a copy of the draft credit agreement containing the contractual information provided for by Article 10 insofar as that Article is applicable. This provision shall not apply if the creditor is at the time of the request unwilling to proceed to the conclusion of the credit agreement with the consumer. If the agreement has been concluded at the consumer’s request using a means of distance communication which does not enable the information to be provided in accordance with paragraphs 1 and 3, including in the cases referred to in paragraph 4, the creditor shall immediately after the conclusion of the credit agreement fulfil his obligations under paragraphs 1 and 3 by providing the contractual information pursuant to Article 10 insofar as that Article is applicable.

Directive 2008/48/EC 577 Article 7 Exemptions from the pre-contractual information requirements Articles 5 and 6 shall not apply to suppliers of goods or services acting as credit intermediaries in an ancillary capacity. This is without prejudice to the creditor’s obligation to ensure that the consumer receives the pre-contractual information referred to in those Articles. Article 8 Obligation to assess the creditworthiness of the consumer 1. Member States shall ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer’s creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database. ­Member States whose legislation requires creditors to assess the creditworthiness of consumers on the basis of a consultation of the relevant database may retain this requirement. 2. Member States shall ensure that, if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the creditor updates the financial information at his disposal concerning the consumer and assesses the consumer’s creditworthiness before any significant increase in the total amount of credit. CHAPTER III DATABASE ACCESS Article 9 Database access 1. Each Member State shall in the case of cross-border credit ensure access for creditors from other Member States to databases used in that Member State for assessing the creditworthiness of consumers. The conditions for access shall be non-discriminatory. 2. If the credit application is rejected on the basis of consultation of a database, the creditor shall inform the consumer immediately and without charge of the result of such consultation and of the particulars of the database consulted. 3. The information shall be provided unless the provision of such information is prohibited by other Community legislation or is contrary to objectives of public policy or public security. 4. This Article shall be without prejudice to the application of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (10).

578  Part 1: European Union Legislation CHAPTER IV INFORMATION AND RIGHTS CONCERNING CREDIT AGREEMENTS Article 10 Information to be included in credit agreements 1. Credit agreements shall be drawn up on paper or on another durable medium. All the contracting parties shall receive a copy of the credit agreement. This Article shall be without prejudice to any national rules regarding the validity of the conclusion of credit agreements which are in conformity with ­Community law. 2. The credit agreement shall specify in a clear and concise manner: (a) the type of credit; (b) the identities and geographical addresses of the contracting parties as well as, if applicable, the identity and geographical address of the credit intermediary involved; (c) the duration of the credit agreement; (d) the total amount of credit and the conditions governing the drawdown; (e) in case of a credit in the form of deferred payment for a specific good or service or in the case of linked credit agreements, that good or service and its cash price; (f) the borrowing rate, the conditions governing the application of that rate and, where available, any index or reference rate applicable to the initial borrowing rate, as well as the periods, conditions and procedures for changing the borrowing rate and, if different borrowing rates apply in different circumstances, the abovementioned information in respect of all the applicable rates; (g) the annual percentage rate of charge and the total amount payable by the consumer, calculated at the time the credit agreement is concluded; all the assumptions used in order to calculate that rate shall be mentioned; (h) the amount, number and frequency of payments to be made by the consumer and, where appropriate, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement; (i) where capital amortisation of a credit agreement with a fixed duration is involved, the right of the consumer to receive, on request and free of charge, at any time throughout the duration of the credit agreement, a statement of account in the form of an amortisation table. The amortisation table shall indicate the payments owing and the periods and conditions relating to the payment of such amounts; the table shall ­contain a breakdown of each repayment showing capital amortisation, the interest calculated on the basis of the borrowing rate and, where applicable, any additional costs; where the interest rate is not fixed or the additional costs may be changed under the credit agreement, the amortisation table shall indicate, clearly and concisely, that the data ­contained

Directive 2008/48/EC 579 in the table will remain valid only until such time as the borrowing rate or the additional costs are changed in accordance with the credit agreement; (j) if charges and interest are to be paid without capital amortisation, a statement showing the periods and conditions for the payment of the interest and of any associated recurrent and non-recurrent charges; (k) where applicable, the charges for maintaining one or several accounts recording both payment transactions and drawdowns, unless the opening of an account is optional, together with the charges for using a means of payment for both payment transactions and drawdowns, and any other charges deriving from the credit agreement and the conditions under which those charges may be changed; (l) the interest rate applicable in the case of late payments as applicable at the time of the conclusion of the credit agreement and the arrangements for its adjustment and, where applicable, any charges payable for default; (m) a warning regarding the consequences of missing payments; (n) where applicable, a statement, that notarial fees will be payable; (o) the sureties and insurance required, if any; (p) the existence or absence of a right of withdrawal, the period during which that right may be exercised and other conditions governing the exercise thereof, including information concerning the obligation of the consumer to pay the capital drawn down and the interest in accordance with Article 14(3)(b) and the amount of interest payable per day; (q) information concerning the rights resulting from Article 15 as well as the conditions for the exercise of those rights; (r) the right of early repayment, the procedure for early repayment, as well as, where applicable, information concerning the creditor’s right to compensation and the way in which that compensation will be determined; (s) the procedure to be followed in exercising the right of termination of the credit agreement; (t) whether or not there is an out-of-court complaint and redress mechanism for the consumer and, if so, the methods for having access to it; (u) where applicable, other contractual terms and conditions; (v) where applicable, the name and address of the competent supervisory authority. 3. Where paragraph 2(i) applies, the creditor shall make available to the consumer, free of charge and at any time throughout the duration of the credit agreement, a statement of account in the form of an amortisation table. 4. In the case of a credit agreement under which payments made by the consumer do not give rise to an immediate corresponding amortisation of the total amount of credit, but are used to constitute capital during periods and under conditions laid down in the credit agreement or in an ancillary agreement, the information required under paragraph 2 shall include a clear and concise statement that such credit agreements do not provide for a ­guarantee of repayment of the total amount of credit drawn down under the credit agreement, unless such a guarantee is given.

580  Part 1: European Union Legislation 5. In the case of credit agreements in the form of overdraft facilities as referred to in Article 2(3), the following shall be specified in a clear and concise manner: (a) the type of credit; (b) the identities and geographical addresses of the contracting parties as well as, if applicable, the identity and geographical address of the credit intermediary involved; (c) the duration of the credit agreement; (d) the total amount of the credit and the conditions governing the drawdown; (e) the borrowing rate, the conditions governing the application of the ­borrowing rate and, where available, any index or reference rate applicable to the initial borrowing rate, as well as the periods, conditions and procedure for changing the borrowing rate and, if different borrowing rates apply in different circumstances, the abovementioned information in respect of all the applicable rates; (f) the annual percentage rate of charge and the total cost of the credit to the consumer, calculated at the time the credit agreement is concluded; all the assumptions used in order to calculate that rate as referred to in Article 19(2) in conjunction with Article 3(g) and (i) shall be mentioned; Member States may decide that the annual percentage rate of charge need not be provided; (g) an indication that the consumer may be requested to repay the amount of credit in full on demand at any time; (h) conditions governing the exercise of the right of withdrawal from the credit agreement; and (i) information concerning the charges applicable from the time such agreements are concluded and, if applicable, the conditions under which those charges may be changed. Article 11 Information concerning the borrowing rate 1. Where applicable, the consumer shall be informed of any change in the ­borrowing rate, on paper or another durable medium, before the change enters into force. The information shall state the amount of the payments to be made after the entry into force of the new borrowing rate and, if the number or frequency of the payments changes, particulars thereof. 2. However, the parties may agree in the credit agreement that the information referred to in paragraph 1 is to be given to the consumer periodically in cases where the change in the borrowing rate is caused by a change in a reference rate, the new reference rate is made publicly available by appropriate means and the information concerning the new reference rate is also kept available in the premises of the creditor.

Directive 2008/48/EC 581 Article 12 Obligations in connection with credit agreement in the form of an overdraft facility 1. Where a credit agreement covers credit in the form of an overdraft facility, the consumer shall be kept regularly informed by means of a statement of account, on paper or on another durable medium, containing the following particulars: (a) the precise period to which the statement of account relates; (b) the amounts and dates of drawdowns; (c) the balance from the previous statement, and the date thereof; (d) the new balance; (e) the dates and amounts of payments made by the consumer; (f) the borrowing rate applied; (g) any charges that have been applied; (h) where applicable, the minimum amount to be paid. 2. In addition, the consumer shall be informed on paper or another durable medium of increases in the borrowing rate, or in any charges payable, before the change in question enters into force. However, the parties may agree in the credit agreement that information concerning changes in the borrowing rate is to be given in the manner provided for in paragraph 1 in cases where the change in the borrowing rate is caused by a change in a reference rate, the new reference rate is made publicly available by appropriate means and the information concerning the new reference rate is also kept available in the premises of the creditor. Article 13 Open-end credit agreements 1. The consumer may effect standard termination of an open-end credit agreement free of charge at any time unless the parties have agreed on a period of notice. Such a period may not exceed one month. If agreed in the credit agreement, the creditor may effect standard termination of an open-end credit agreement by giving the consumer at least two months’ notice drawn up on paper or on another durable medium. 2. If agreed in the credit agreement, the creditor may, for objectively justified reasons, terminate the consumer’s right to draw down on an open-end credit agreement. The creditor shall inform the consumer of the termination and the reasons for it on paper or on another durable medium, where possible before the termination and at the latest immediately thereafter, unless the provision of such information is prohibited by other Community legislation or is ­contrary to objectives of public policy or public security.

582  Part 1: European Union Legislation Article 14 Right of withdrawal 1. The consumer shall have a period of 14 calendar days in which to withdraw from the credit agreement without giving any reason. That period of withdrawal shall begin (a) either from the day of the conclusion of the credit agreement, or (b) from the day on which the consumer receives the contractual terms and conditions and information in accordance with Article 10, if that day is later than the date referred to in point (a) of this subparagraph. 2. Where in the case of a linked credit agreement, as defined in Article 3(n), national legislation at the time of the entry into force of this Directive already provides that funds cannot be made available to the consumer before the expiry of a specific period, Member States may exceptionally provide that the period referred to in paragraph 1 of this Article may be reduced to this specific period at the explicit request of the consumer. 3. If the consumer exercises his right of withdrawal, he shall: (a) in order to give effect to the withdrawal before the expiry of the deadline referred to in paragraph 1, notify this to the creditor in line with the information given by the creditor pursuant to Article 10(2)(p) by means which can be proven in accordance with national law. The deadline shall be deemed to have been met if that notification, if it is on paper or on another durable medium that is available and accessible to the creditor, is dispatched before the deadline expires; and (b) pay to the creditor the capital and the interest accrued thereon from the date the credit was drawn down until the date the capital is repaid, without any undue delay and no later than 30 calendar days after the despatch by him to the creditor of notification of the withdrawal. The interest shall be calculated on the basis of the agreed borrowing rate. The creditor shall not be entitled to any other compensation from the consumer in the event of withdrawal, except compensation for any nonreturnable charges paid by the creditor to any public administrative body. 4. If an ancillary service relating to the credit agreement is provided by the ­creditor or by a third party on the basis of an agreement between the third party and the creditor, the consumer shall no longer be bound by the ancillary service contract if the consumer exercises his right of withdrawal from the credit agreement in accordance with this Article. 5. If the consumer has a right of withdrawal under paragraphs 1, 3 and 4, Articles 6 and 7 of Directive 2002/65/EC and Article 5 of Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (11) shall not apply. 6. Member States may provide that paragraphs 1 to 4 of this Article shall not apply to credit agreements which by law are required to be concluded through the services of a notary, provided that the notary confirms that the consumer is guaranteed the rights provided for under Articles 5 and 10.

Directive 2008/48/EC 583 7. This Article shall be without prejudice to any rule of national law establishing a period of time during which the performance of the contract may not begin. Article 15 Linked credit agreements 1. Where the consumer has exercised a right of withdrawal, based on C ­ ommunity law, concerning a contract for the supply of goods or services, he shall no longer be bound by a linked credit agreement. 2. Where the goods or services covered by a linked credit agreement are not ­supplied, or are supplied only in part, or are not in conformity with the contract for the supply thereof, the consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier but has failed to obtain the satisfaction to which he is entitled according to the law or the contract for the supply of goods or services. Member States shall determine to what extent and under what conditions those remedies shall be exercisable. 3. This Article shall be without prejudice to any national rules rendering the creditor jointly and severally liable in respect of any claim which the consumer may have against the supplier where the purchase of goods or services from the supplier has been financed by a credit agreement. Article 16 Early repayment 1. The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract. 2. In the event of early repayment of credit the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed. Such compensation may not exceed 1 % of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. If the period does not exceed one year, the compensation may not exceed 0.5 % of the amount of credit repaid early. 3. Compensation for early repayment shall not be claimed: (a) if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee; (b) in the case of overdraft facilities; or (c) if the repayment falls within a period for which the borrowing rate is not fixed.

584  Part 1: European Union Legislation 4. Member States may provide that: (a) such compensation may be claimed by the creditor only on condition that the amount of the early repayment exceeds the threshold defined by national law. That threshold shall not exceed EUR 10 000 within any period of 12 months; (b) the creditor may exceptionally claim higher compensation if he can prove that the loss he suffered from early repayment exceeds the amount determined under paragraph 2. If the compensation claimed by the creditor exceeds the loss actually suffered, the consumer may claim a corresponding reduction. In this case, the loss shall consist of the difference between the initially agreed interest rate and the interest rate at which the creditor can lend out the amount repaid early on the market at the time of early repayment, and shall take into account the impact of early repayment on administrative costs. 5. Any compensation shall not exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date of termination of the credit agreement. Article 17 Assignment of rights 1. In the event of assignment to a third party of the creditor’s rights under a credit agreement or the agreement itself, the consumer shall be entitled to plead against the assignee any defence which was available to him against the original creditor, including set-off where the latter is permitted in the Member State concerned. 2. The consumer shall be informed of the assignment referred to in paragraph 1 except where the original creditor, by agreement with the assignee, continues to service the credit vis-à-vis the consumer. Article 18 Overrunning 1. In the case of an agreement to open a current account, where there is a possibility that the consumer is allowed an overrun, the agreement shall contain in addition the information referred to in Article 6(1)(e). The creditor shall in any case provide that information on paper or another durable medium on a regular basis. 2. In the event of a significant overrunning exceeding a period of one month, the creditor shall inform the consumer without delay, on paper or on another durable medium, (a) of the overrunning; (b) of the amount involved; (c) of the borrowing rate; (d) of any penalties, charges or interest on arrears applicable.

Directive 2008/48/EC 585 3. This Article shall be without prejudice to any rule of national law requiring the creditor to offer another kind of credit product when the duration of the overrunning is significant. CHAPTER V ANNUAL PERCENTAGE RATE OF CHARGE Article 19 Calculation of the annual percentage rate of charge 1. The annual percentage rate of charge, equating, on an annual basis, to the present value of all commitments (drawdowns, repayments and charges), future or existing, agreed by the creditor and the consumer, shall be calculated in accordance with the mathematical formula set out in Part I of Annex I. 2. For the purpose of calculating the annual percentage rate of charge, the total cost of the credit to the consumer shall be determined, with the exception of any charges payable by the consumer for non-compliance with any of his commitments laid down in the credit agreement and charges other than the purchase price which, for purchases of goods or services, he is obliged to pay whether the transaction is effected in cash or on credit. The costs of maintaining an account recording both payment transactions and drawdowns, the costs of using a means of payment for both payment transactions and drawdowns, and other costs relating to payment transactions shall be included in the total cost of credit to the consumer unless the opening of the account is optional and the costs of the account have been clearly and separately shown in the credit agreement or in any other agreement concluded with the consumer. 3. The calculation of the annual percentage rate of charge shall be based on the assumption that the credit agreement is to remain valid for the period agreed and that the creditor and the consumer will fulfil their obligations under the terms and by the dates specified in the credit agreement. 4. In the case of credit agreements containing clauses allowing variations in the borrowing rate and, where applicable, charges contained in the annual percentage rate of charge but unquantifiable at the time of calculation, the annual percentage rate of charge shall be calculated on the assumption that the borrowing rate and other charges will remain fixed in relation to the initial level and will remain applicable until the end of the credit agreement. 5. Where necessary, the additional assumptions set out in Annex I may be used in calculating the annual percentage rate of charge. If the assumptions set out in this Article and in Part II of Annex I do not suffice to calculate the annual percentage rate of charge in a uniform manner or are not adapted any more to the commercial situation at the market, the Commission may determine the necessary additional assumptions for the calculation of the annual percentage rate of charge, or modify existing ones.

586  Part 1: European Union Legislation These measures, designed to amend non-essential elements of this Directive, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 25(2). CHAPTER VI CREDITORS AND CREDIT INTERMEDIARIES Article 20 Regulation of creditors Member States shall ensure that creditors are supervised by a body or authority independent from financial institutions, or regulated. This shall be without prejudice to Directive 2006/48/EC. Article 21 Certain obligations of credit intermediaries vis-à-vis consumers Member States shall ensure that: (a) a credit intermediary indicates in advertising and documentation intended for consumers the extent of his powers, in particular whether he works exclusively with one or more creditors or as an independent broker; (b) the fee, if any, payable by the consumer to the credit intermediary for his services is disclosed to the consumer, and agreed between the consumer and the credit intermediary on paper or another durable medium before the conclusion of the credit agreement; (c) the fee, if any, payable by the consumer to the credit intermediary for his services is communicated to the creditor by the credit intermediary, for the purpose of calculation of the annual percentage rate of charge. CHAPTER VII IMPLEMENTING MEASURES Article 22 Harmonisation and imperative nature of this Directive 1. Insofar as this Directive contains harmonised provisions, Member States may not maintain or introduce in their national law provisions diverging from those laid down in this Directive. 2. Member States shall ensure that consumers may not waive the rights conferred on them by the provisions of national law implementing or ­corresponding to this Directive. 3. Member States shall further ensure that the provisions they adopt in implementation of this Directive cannot be circumvented as a result of the way in which agreements are formulated, in particular by integrating drawdowns or

Directive 2008/48/EC 587 credit agreements falling within the scope of this Directive into credit agreements the character or purpose of which would make it possible to avoid its application. 4. Member States shall take the necessary measures to ensure that consumers do not lose the protection granted by this Directive by virtue of the choice of the law of a third country as the law applicable to the credit agreement, if the credit agreement has a close link with the territory of one or more Member States. Article 23 Penalties Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive. Article 24 Out-of-court dispute resolution 1. Member States shall ensure that adequate and effective out-of-court dispute resolution procedures for the settlement of consumer disputes concerning credit agreements are put in place, using existing bodies where appropriate. 2. Member States shall encourage those bodies to cooperate in order to also resolve cross-border disputes concerning credit agreements. Article 25 Committee procedure 1. The Commission shall be assisted by a Committee. 2. Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of A ­ rticle 8 thereof. Article 26 Information to be supplied to the Commission Where a Member State makes use of any of the regulatory choices referred to in Article 2(5) and 2(6), Article 4(1), Article 4(2)(c), Article 6(2), Article 10(1), ­ ­Article 10(2)(g), Article 14(2) and Article 16(4), it shall inform the Commission thereof as well as of any subsequent changes. The Commission shall make that information public on a website or in another easily accessible way. Member States shall take the appropriate measures to diffuse that information amongst national creditors and consumers.

588  Part 1: European Union Legislation Article 27 Transposition 1. Before 12 May 2010 Member States shall adopt and publish the provisions necessary to comply with this Directive. They shall forthwith inform the ­Commission thereof. They shall apply those provisions from 12 May 2010. When Member States adopt these provisions, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States. 2. The Commission shall undertake, every five years and for the first time 12 May 2013, a review of the thresholds laid down in this Directive and its annexes and the percentages used to calculate the compensation payable in the event of early repayment, assessing them in the light of economic trends in the Community and the situation of the market concerned. The Commission shall also monitor the effect of the existence of the regulatory choices referred to in Article 2(5) and 2(6), Article 4(1), Article 4(2)(c), Article 6(2), Article 10(1), Article 10(2)(g), Article 14(2) and Article 16(4) on the internal market and consumers. The results shall be made known to the European Parliament and the Council, accompanied where appropriate by a proposal to modify the thresholds and percentages as well as the abovementioned regulatory choices accordingly. Article 28 Conversion of amounts expressed in euro into national currency 1. For the purposes of this Directive, those Member States who convert the amounts expressed in euro into their national currency shall initially use in the conversion the exchange rate prevailing on the date of adoption of this Directive. 2. Member States may round off the amounts resulting from the conversion provided that such rounding off does not exceed EUR 10. CHAPTER VIII TRANSITIONAL AND FINAL PROVISIONS Article 29 Repeal Directive 87/102/EEC shall be repealed with effect from 12 May 2010.

Directive 2008/48/EC 589 Article 30 Transitional measures 1. This Directive shall not apply to credit agreements existing on the date when the national implementing measures enter into force. 2. However, Member States shall ensure that Articles 11, 12, 13 and 17, the ­second sentence of Article 18(1), and Article 18(2) are applied also to ­open-end credit agreements existing on the date when the national implementing measures enter into force. Article 31 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Article 32 Addressees This Directive is addressed to the Member States. ANNEX I I. The basic equation expressing the equivalence of drawdowns on the one hand and repayments and charges on the other. The basic equation, which establishes the annual percentage rate of charge (APR), equates, on an annual basis, the total present value of drawdowns on the one hand and the total present value of repayments and payments of charges on the other hand, i.e.: [Formula not reproduced] where: —— X is the APR, —— m is the number of the last drawdown, —— k is the number of a drawdown, thus 1 ≤ k ≤ m, —— Ck is the amount of drawdown k, —— tk is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each subsequent drawdown, thus t1 = 0, —— m’ is the number of the last repayment or payment of charges, —— l is the number of a repayment or payment of charges, —— Dl is the amount of a repayment or payment of charges, —— sl is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each repayment or payment of charges.

590  Part 1: European Union Legislation Remarks: (a) The amounts paid by both parties at different times shall not necessarily be equal and shall not necessarily be paid at equal intervals. (b) The starting date shall be that of the first drawdown. (c) Intervals between dates used in the calculations shall be expressed in years or in fractions of a year. A year is presumed to have 365 days (or 366 days for leap years), 52 weeks or 12 equal months. An equal month is presumed to have 30,41666 days (i.e. 365/12) regardless of whether or not it is a leap year. (d) The result of the calculation shall be expressed with an accuracy of at least one decimal place. If the figure at the following decimal place is greater than or equal to 5, the figure at that particular decimal place shall be increased by one. (e) The equation can be rewritten using a single sum and the concept of flows (Ak), which will be positive or negative, in other words either paid or received during periods 1 to k, expressed in years, i.e.: [Formula not reproduced] S being the present balance of flows. If the aim is to maintain the equivalence of flows, the value will be zero. II. Additional assumptions for the calculation of the annual percentage rate of charge (a) if a credit agreement gives the consumer freedom of drawdown, the total amount of credit shall be deemed to be drawn down immediately and in full; (b) if a credit agreement provides different ways of drawdown with different charges or borrowing rates, the total amount of credit shall be deemed to be drawn down at the highest charge and borrowing rate applied to the most common drawdown mechanism for this type of credit agreement; OJ 2008 L133/852008 · Official Journal of the European Union · L133/85 (c) if a credit agreement gives the consumer freedom of drawdown in general but imposes, amongst the different ways of drawdown, a limitation with regard to the amount and period of time, the amount of credit shall be deemed to be drawn down on the earliest date provided for in the agreement and in accordance with those drawdown limits; (d) if there is no fixed timetable for repayment, it shall be assumed: (i) that the credit is provided for a period of one year; and (ii) that the credit will be repaid in 12 equal instalments and at monthly intervals; (e) if there is a fixed timetable for repayment but the amount of such repayments is flexible, the amount of each repayment shall be deemed to be the lowest for which the agreement provides; (f) unless otherwise specified, where the credit agreement provides for more than one repayment date, the credit is to be made available and the repayments made on the earliest date provided for in the agreement; (g) if the ceiling applicable to the credit has not yet been agreed, that ceiling is assumed to be EUR 1 500; (h) in the case of an overdraft facility the total amount of credit shall be deemed to be drawn down in full and for the whole duration of the credit agreement. If the duration of the credit agreement is not known the annual percentage rate

Directive 2008/48/EC 591 of charge shall be calculated on the assumption that the duration of the credit is three months; (i) if different interest rates and charges are offered for a limited period or amount, the interest rate and the charges shall be deemed to be the highest rate for the whole duration of the credit agreement; (j) for consumer credit agreements for which a fixed borrowing rate is agreed in relation to the initial period, at the end of which a new borrowing rate is determined and subsequently periodically adjusted according to an agreed indicator, the calculation of the annual percentage rate shall be based on the assumption that, at the end of the fixed borrowing rate period, the borrowing rate is the same as at the time of calculating the annual percentage rate, based on the value of the agreed indicator at that time. ANNEX II STANDARD EUROPEAN CONSUMER CREDIT INFORMATION 1. Identity and contact details of the creditor/credit intermediary Wherever ‘if applicable’ is indicated, the creditor must fill in the box if the information is relevant to the credit product or delete the respective information or the entire row if the information is not relevant for the type of credit considered. Indications between square brackets provide explanations for the creditor and must be replaced with the corresponding information. 2. Description of the main features of the credit product 3. Costs of the credit [Table not reproduced] 4. Other important legal aspects [Table not reproduced] If applicable 5. Additional information in the case of distance marketing of financial services [Table not reproduced] ANNEX III EUROPEAN CONSUMER CREDIT INFORMATION FOR (1) overdrafts (2) consumer credit offered by certain credit organisations (Article 2(5) of Directive 2008/48/EC) (3) debt conversion 1. dentity and contact details of the creditor/credit intermediary [Table not reproduced] Wherever ‘if applicable’ is indicated, the creditor must fill in the box if the information is relevant to the credit product or delete the respective information or the entire row if the information is not relevant for the type of credit considered.

592  Part 1: European Union Legislation Indications between square brackets provide explanations for the creditor and must be replaced with the corresponding information. 2. Description of the main features of the credit product [Table not reproduced] 3. Costs of the credit [Table not reproduced] 4. Other important legal aspects [Table not reproduced] If applicable 5. Additional information to be given where the pre-contractual information is provided by certain credit organisations (Article 2(5) of Directive 2008/48/EC or relates to a consumer credit for debt conversion [Table not reproduced] If applicable 6. Additional information to be given in the case of distance marketing of financial services [Table not reproduced] (1)

OJ C 234, 30.9.2003, p. 1. of the European Parliament of 20 April 2004 (OJ C 104 E, 30.4.2004, p. 233), Council common position of 20 September 2007 (OJ C 270 E, 13.11.2007, p. 1) and Position of the E ­ uropean Parliament of 16 ­January 2008 (not yet published in the Official Journal). Council Decision of 7 April 2008. (3) OJ L 42, 12.2.1987, p. 48. Directive as last amended by Directive 98/7/EC of the European Parliament and of the Council (OJ L 101, 1.4.1998, p. 17). (4) OJ L 149, 11.6.2005, p. 22. (5) OJ L 177, 30.6.2006, p. 1. Directive as last amended by Directive 2008/24/EC (OJ L 81, 20.3.2008, p. 38). (6) OJ L 271, 9.10.2002, p. 16. Directive as last amended by Directive 2007/64/EC (OJ L 319, 5.12.2007, p. 1). (7)  OJ L 184, 17.7.1999, p. 23. Decision as amended by Decision 2006/512/EC (OJ L 200, 22.7.2006, p. 11). (8) OJ C 321, 31.12.2003, p. 1. (9) OJ L 145, 30.4.2004, p. 1. Directive as last amended by Directive 2008/10/EC (OJ L 76, 19.3.2008, p. 33). (10)  OJ L 281, 23.11.1995, p. 31. Directive as amended by Regulation (EC) No 1882/2003 (OJ L 284, 31.10.2003, p. 1). (11) OJ L 372, 31.12.1985, p. 31. (2) Opinion

Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts1 (OJ 2009 L33 p.10) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1)

(2)

Since the adoption of Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis (3), timeshare has evolved and new holiday products similar to it have appeared on the market. These new holiday products and certain transactions related to timeshare, such as resale contracts and exchange contracts, are not covered by Directive 94/47/EC. In addition, experience with the application of Directive 94/47/ EC has shown that some subjects already covered need to be updated or clarified, in order to prevent the development of products aiming at circumventing this Directive. The existing regulatory gaps create appreciable distortions of competition and cause serious problems for consumers, thus hindering the smooth functioning of the internal market. Directive 94/47/EC should therefore be replaced by a new up-to-date directive. Since tourism plays an ­increasingly

1 Implemented in the United Kingdom by the Timeshare, Holiday Products, Resale and Exchange Contracts Regulations 2010, S.I. No. 2010 No. 2960.

594  Part 1: European Union Legislation

(3)

(4)

(5) (6)

(7)

(8) (9)

important role in the economies of the Member States, greater growth and productivity in the timeshare and long-term holiday product industries should be encouraged by adopting certain common rules. In order to enhance legal certainty and fully achieve the benefits of the internal market for consumers and businesses, the relevant laws of the Member States need to be approximated further. Therefore, certain aspects of the marketing, sale and resale of timeshares and long-term holiday products as well as the exchange of rights deriving from timeshare contracts should be fully harmonised. Member States should not be allowed to maintain or introduce in their national legislation provisions diverging from those laid down in this Directive. Where no such harmonised provisions exist, Member States should remain free to maintain or introduce national legislation in conformity with Community law. Thus, Member States should, for instance, be able to maintain or introduce provisions on the effects of exercising the right of withdrawal in legal relationships falling outside the scope of this Directive or provisions according to which no commitment may be entered into between a consumer and a trader of a timeshare or long-term holiday product, nor any payment made between those persons, as long as the consumer has not signed a credit agreement to finance the purchase of those services. This Directive should be without prejudice to the application by Member States, in accordance with Community law, of the provisions of this Directive to areas not within its scope. Member States could therefore maintain or introduce national legislation corresponding to the provisions of this Directive or certain of its provisions in relation to transactions that fall outside the scope of this Directive. The different contracts covered by this Directive should be clearly defined in such a way as to preclude circumvention of its provisions. For the purposes of this Directive, timeshare contracts should not be understood as covering multiple reservations of accommodation, including hotel rooms, in so far as multiple reservations do not imply rights and obligations beyond those arising from separate reservations. Nor should timeshare contracts be understood as covering ordinary lease contracts since the latter refer to one single continuous period of occupation and not to multiple periods. For the purposes of this Directive, long-term holiday product contracts should not be understood as covering ordinary loyalty schemes which provide discounts on future stays in the hotels of a hotel chain, since membership in the scheme is not obtained for consideration nor is the consideration paid by the consumer primarily for the purpose of obtaining discounts or other benefits in respect of accommodation. This Directive should not affect the provisions of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (4). Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (Unfair Commercial Practices Directive) (5) prohibits

Directive 2008/122/EC 595

(10)

(11)

(12)

(13) (14)

misleading, aggressive and other unfair commercial business-to-consumer practices. Given the nature of the products and the commercial practices related to timeshares, long-term holiday products, resale and exchange, it is appropriate to adopt more detailed and specific provisions regarding information requirements and sales events. The commercial purpose of invitations to sales events should be made clear to consumers. The provisions concerning pre-contractual information and the contract should be clarified and updated. In order to give consumers the possibility to acquaint themselves with the information before the conclusion of the contract, it should be provided by means which are easily accessible to them at that time. Consumers should have the right, which should not be refused by traders, to be provided with pre-contractual information and the contract in a language, of their choice, with which they are familiar. In addition, in order to facilitate the execution and the enforcement of the contract, Member States should be allowed to determine that further language versions of the contract should be provided to consumers. In order to provide consumers with the opportunity of fully understanding their rights and obligations under the contract, they should be allowed a period during which they may withdraw from the contract without having to justify the withdrawal and without bearing any cost. Currently the length of this period varies between Member States, and experience shows that the length prescribed in Directive 94/47/EC is not sufficiently long. The period should therefore be extended in order to achieve a high level of consumer protection and more clarity for consumers and traders. The length of the period, the modalities for and the effects of exercising the right of withdrawal should be harmonised. Consumers should have effective remedies in the event that traders do not comply with the provisions regarding pre-contractual information or the contract, in particular those laying down that the contract should include all the information required and that the consumer should receive a copy of the contract at the time of its conclusion. In addition to the remedies existing under national law, consumers should benefit from an extended withdrawal period where information has not been provided by traders. The exercise of the right of withdrawal should remain free of charge during that extended period regardless of what services consumers may have enjoyed. The expiration of the withdrawal period does not preclude consumers from seeking remedies in accordance with national law for breaches of the information requirements. Council Regulation (EEC, Euratom) No 1182/71 of 3 June 1971 determining the rules applicable to periods, dates and time limits (6) should apply to the calculation of the periods set out in this Directive. The prohibition on advance payments to traders or any third party before the end of the withdrawal period should be clarified in order to improve consumer protection. For resale contracts, the prohibition of advance payment should apply until the actual sale takes place or the resale contract is terminated, but Member States should remain free to regulate the ­possibility

596  Part 1: European Union Legislation

(15)

(16)

(17)

(18)

(19)

(20) (21)

and modalities of final payments to intermediaries where resale contracts are terminated. For long-term holiday product contracts, the price to be paid in the context of a staggered payment schedule could take into consideration the possibility that subsequent amounts could be adjusted after the first year in order to ensure that the real value of those instalments is maintained, for instance to take account of inflation. In the event of a consumer withdrawing from a contract where the price is entirely or partly covered by credit granted to the consumer by the trader or by a third party on the basis of an arrangement between that third party and the trader, the credit agreement should be terminated at no cost to the consumer. The same should apply to contracts for other related services provided by the trader or by a third party on the basis of an arrangement between that third party and the trader. Consumers should not be deprived of the protection granted by this Directive where the law applicable to the contract is that of a Member State. The law applicable to a contract should be determined in accordance with the Community rules on private international law, in particular Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (7). Under that Regulation, the law of a third country may be applicable, in particular where consumers are targeted by traders whilst on holiday in a country other than their country of residence. Given that such commercial practices are common in the area covered by this Directive and that the contracts involve considerable amounts of money, an additional safeguard should be provided in certain specific situations, in particular where the courts of any Member State have jurisdiction over the contract, to ensure that the consumer is not deprived of the protection granted by this Directive. This concept reflects the particular needs of consumer protection arising from the typical complexity, long-term nature and financial relevance of the contracts falling within the scope of this Directive. It should be determined in accordance with Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (8) which courts have jurisdiction in proceedings which have as their object matters covered by this Directive. In order to ensure that the protection afforded to consumers under this Directive is fully effective, in particular as regards compliance by traders with the information requirements both at the pre-contractual stage and in the contract, it is necessary that the Member States lay down effective, proportionate and dissuasive penalties for infringements of this Directive. It is necessary to ensure that persons or organisations having, under national law, a legitimate interest in the matter have legal remedies for initiating proceedings against infringements of this Directive. It is necessary to develop suitable and effective redress procedures in the Member States for settling disputes between consumers and traders.

Directive 2008/122/EC 597

(22)

(23)

(24)

(25)

To this end, Member States should encourage the establishment of public or ­private bodies for settling disputes out of court. Member States should ensure that consumers are effectively informed of the national provisions transposing this Directive and encourage traders and code owners to inform consumers about their codes of conduct in this field. With the aim of pursuing a high level of consumer protection, consumer organisations could be informed of, and involved in, the drafting of codes of conduct. Since the objectives of this Directive cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to eliminate the internal market barriers and achieve a high common level of consumer protection. This Directive respects the fundamental rights and observes the principles recognised in particular by the European Convention on Human Rights and Fundamental Freedoms and the Charter of Fundamental Rights of the European Union. In accordance with point 34 of the Interinstitutional agreement on better law-making (9), Member States are encouraged to draw up, for themselves and in the interests of the Community, their own tables, which will, as far as possible, illustrate the correlation between this Directive and the transposition measures, and to make them public,

HAVE ADOPTED THIS DIRECTIVE: Article 1 Purpose and scope 1. The purpose of this Directive is to contribute to the proper functioning of the internal market and to achieve a high level of consumer protection, by approximating the laws, regulations and administrative provisions of the Member States in respect of certain aspects of the marketing, sale and resale of timeshares and long-term holiday products as well as exchange contracts. 2. This Directive applies to trader-to-consumer transactions. This Directive is without prejudice to national legislation which: (a) provides for general contract law remedies; (b) relates to the registration of immovable or movable property and conveyance of immovable property; (c) relates to conditions of establishment or authorisation regimes or licensing requirements; and (d) relates to the determination of the legal nature of the rights which are the subject of the contracts covered by this Directive.

598  Part 1: European Union Legislation Article 2 Definitions 1. For the purposes of this Directive, the following definitions shall apply: (a) ‘timeshare contract’ means a contract of a duration of more than one year under which a consumer, for consideration, acquires the right to use one or more overnight accommodation for more than one period of occupation; (b) ‘long-term holiday product contract’ means a contract of a duration of more than one year under which a consumer, for consideration, acquires primarily the right to obtain discounts or other benefits in respect of accommodation, in isolation or together with travel or other services; (c) ‘resale contract’ means a contract under which a trader, for consideration, assists a consumer to sell or buy a timeshare or a long-term holiday product; (d) ‘exchange contract’ means a contract under which a consumer, for consideration, joins an exchange system which allows that consumer access to overnight accommodation or other services in exchange for granting to other persons temporary access to the benefits of the rights deriving from that consumer’s timeshare contract; (e) ‘trader’ means a natural or legal person who is acting for purposes relating to that person’s trade, business, craft or profession and anyone acting in the name of or on behalf of a trader; (f) ‘consumer’ means a natural person who is acting for purposes which are outside that person’s trade, business, craft or profession; (g) ‘ancillary contract’ means a contract under which the consumer acquires services which are related to a timeshare contract or long-term holiday product contract and which are provided by the trader or a third party on the basis of an arrangement between that third party and the trader; (h) ‘durable medium’ means any instrument which enables the consumer or the trader to store information addressed personally to him in a way which is accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (i) ‘code of conduct’ means an agreement or set of rules not imposed by law, regulation or administrative provision of a Member State which defines the behaviour of traders who undertake to be bound by the code in relation to one or more particular commercial practices or business sectors; (j) ‘code owner’ means any entity, including a trader or group of traders, which is responsible for the formulation and revision of a code of conduct and/or for monitoring compliance with the code by those who have undertaken to be bound by it. 2. In calculating the duration of a timeshare contract or a long-term holiday product contract, as defined in points (a) and (b) of paragraph 1 respectively, any provision in the contract allowing for tacit renewal or prolongation shall be taken into account.

Directive 2008/122/EC 599 Article 3 Advertising 1. Member States shall ensure that any advertising specifies the possibility of obtaining the information referred to in Article 4(1) and indicates where it can be obtained. 2. Where a timeshare, long-term holiday product, resale or exchange contract is to be offered to a consumer in person at a promotion or sales event, the trader shall clearly indicate in the invitation the commercial purpose and the nature of the event. 3. The information referred to in Article 4(1) shall be available to the consumer at any time during the event. 4. A timeshare or a long-term holiday product shall not be marketed or sold as an investment. Article 4 Pre-contractual information 1. In good time before the consumer is bound by any contract or offer, the trader shall provide the consumer, in a clear and comprehensible manner, with accurate and sufficient information, as follows: (a) in the case of a timeshare contract: by means of the standard information form as set out in Annex I and information as listed in Part 3 of that form; (b) in the case of a long-term holiday product contract: by means of the standard information form as set out in Annex II and information as listed in Part 3 of that form; (c) in the case of a resale contract: by means of the standard information form as set out in Annex III and information as listed in Part 3 of that form; (d) in the case of an exchange contract: by means of the standard information form as set out in Annex IV and information as listed in Part 3 of that form. 2. The information referred to in paragraph 1 shall be provided, free of charge, by the trader on paper or on another durable medium which is easily accessible to the consumer. 3. Member States shall ensure that the information referred to in paragraph 1 is drawn up in the language or one of the languages of the Member State in which the consumer is resident or a national, at the choice of the consumer, provided it is an official language of the Community. Article 5 The timeshare, long-term holiday product, resale or exchange contract 1. Member States shall ensure that the contract is in writing, on paper or on another durable medium, and drawn up in the language or one of the

600  Part 1: European Union Legislation

2.

3.

4.

5.

languages of the Member State in which the consumer is resident or a national, at the choice of the consumer, provided it is an official language of the Community. However, the Member State in which the consumer is resident may require that in addition: (a) in every instance, the contract be provided to the consumer in the language or one of the languages of that Member State, provided it is an official language of the Community; (b) in the case of a timeshare contract concerning one specific immovable property, the trader provide the consumer with a certified translation of the contract in the language or one of the languages of the Member State in which the property is situated, provided it is an official language of the Community. The Member State on whose territory the trader carries out sale activities may require that, in every instance, the contract be provided to the consumer in the language or one of the languages of that Member State, provided it is an official language of the Community. The information referred to in Article 4(1) shall form an integral part of the contract and shall not be altered unless the parties expressly agree otherwise or the changes result from unusual and unforeseeable circumstances beyond the trader’s control, the consequences of which could not have been avoided even if all due care had been exercised. These changes shall be communicated to the consumer on paper or on another durable medium easily accessible to him, before the contract is concluded. The contract shall expressly mention any such changes. In addition to the information referred to in Article 4(1), the contract shall include: (a) the identity, place of residence and signature of each of the parties; and (b) the date and place of the conclusion of the contract. Before the conclusion of the contract, the trader shall explicitly draw the consumer’s attention to the existence of the right of withdrawal, the length of the withdrawal period referred to in Article 6, and the ban on advance payments during the withdrawal period referred to in Article 9. The corresponding contractual clauses shall be signed separately by the consumer. The contract shall include a separate standard withdrawal form, as set out in Annex V, intended to facilitate the exercise of the right of withdrawal in accordance with Article 6. The consumer shall receive a copy or copies of the contract at the time of its conclusion.

Directive 2008/122/EC 601 Article 6 Right of withdrawal 1. In addition to the remedies available to the consumer under national law in the event of breach of the provisions of this Directive, Member States shall ensure that the consumer is given a period of 14 calendar days to withdraw from the timeshare, long-term holiday product, resale or exchange contract, without giving any reason. 2. The withdrawal period shall be calculated: (a) from the day of the conclusion of the contract or of any binding preliminary contract; or (b) from the day when the consumer receives the contract or any binding preliminary contract if it is later than the date referred to in point (a). 3. The withdrawal period shall expire: (a) after one year and 14 calendar days from the day referred to in paragraph 2 of this Article, where a separate standard withdrawal form as required by Article 5(4) has not been filled in by the trader and provided to the consumer in writing, on paper or on another durable medium; (b) after three months and 14 calendar days from the day referred to in paragraph 2 of this Article, where the information referred to in Article 4(1), including the applicable standard information form set out in Annexes I to IV, has not been provided to the consumer in writing, on paper or on another durable medium. In addition, Member States shall provide for appropriate penalties in accordance with Article 15, in particular in the event that, on expiry of the withdrawal period, the trader has failed to comply with the information requirements set out in this Directive. 4. Where a separate standard withdrawal form as required by Article 5(4) has been filled in by the trader and provided to the consumer in writing, on paper or on another durable medium, within one year from the day referred to in paragraph 2 of this Article, the withdrawal period shall start from the day the consumer receives that form. Similarly, where the information referred to in Article 4(1), including the applicable standard information form set out in Annexes I to IV, has been provided to the consumer in writing, on paper or on another durable medium, within three months from the day referred to in paragraph 2 of this Article, the withdrawal period shall start from the day the consumer receives such information. 5. In the event that the exchange contract is offered to the consumer together with and at the same time as the timeshare contract, only a single withdrawal period in accordance with paragraph 1 shall apply to both contracts. The withdrawal period for both contracts shall be calculated according to the provisions of paragraph 2 as they apply to the timeshare contract.

602  Part 1: European Union Legislation Article 7 Modalities for exercising the right of withdrawal Where the consumer intends to exercise the right of withdrawal the consumer shall, before the expiry of the withdrawal period, notify the trader on paper or on another durable medium of the decision to withdraw. The consumer may use the standard withdrawal form set out in Annex V and provided by the trader in accordance with Article 5(4). The deadline is met if the notification is sent before the withdrawal period has expired. Article 8 Effects of exercising the right of withdrawal 1. The exercise of the right of withdrawal by the consumer terminates the ­obligation of the parties to perform the contract. 2. Where the consumer exercises the right of withdrawal, the consumer shall neither bear any cost nor be liable for any value corresponding to the service which may have been performed before withdrawal. Article 9 Advance payment 1. Member States shall ensure that in relation to timeshare, long-term holiday product and exchange contracts any advance payment, provision of guarantees, reservation of money on accounts, explicit acknowledgement of debt or any other consideration to the trader or to any third party by the consumer before the end of the withdrawal period according to Article 6, is prohibited. 2. Member States shall ensure that in relation to resale contracts any advance payment, provision of guarantees, reservation of money on accounts, explicit acknowledgement of debt or any other consideration to the trader or to any third party by the consumer before the actual sale takes place or the resale contract is otherwise terminated, is prohibited. Article 10 Specific provisions relating to long-term holiday product contracts 1. For long-term holiday product contracts, payment shall be made according to a staggered payment schedule. Any payment of the price specified in the contract otherwise than in accordance with the staggered payment schedule shall be prohibited. The payments, including any membership fee, shall be divided into yearly instalments, each of which shall be of equal value. The trader shall send a written request for payment, on paper or on another durable medium, at least fourteen calendar days in advance of each due date. 2. From the second instalment payment onwards, the consumer may terminate the contract without incurring any penalty by giving notice to the trader

Directive 2008/122/EC 603 within fourteen calendar days of receiving the request for payment of each instalment. This right shall not affect rights to terminate the contract under existing national legislation. Article 11 Termination of ancillary contracts 1. Member States shall ensure that, where the consumer exercises the right to withdraw from the timeshare or long-term holiday product contract, any exchange contract ancillary to it or any other ancillary contract is automatically terminated, at no cost to the consumer. 2. Without prejudice to Article 15 of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (10), where the price is fully or partly covered by a credit granted to the consumer by the trader, or by a third party on the basis of an arrangement between the third party and the trader, the credit agreement shall be terminated, at no cost to the consumer, where the consumer exercises the right to withdraw from the timeshare, long-term holiday product, resale or exchange contract. 3. The Member States shall lay down detailed rules on the termination of such contracts. Article 12 Imperative nature of the Directive and application in international cases 1. Member States shall ensure that, where the law applicable to the contract is the law of a Member State, consumers may not waive the rights conferred on them by this Directive. 2. Where the applicable law is that of a third country, consumers shall not be deprived of the protection granted by this Directive, as implemented in the Member State of the forum if: —— any of the immovable properties concerned is situated within the territory of a Member State, or, —— in the case of a contract not directly related to immovable property, the trader pursues commercial or professional activities in a Member State or, by any means, directs such activities to a Member State and the contract falls within the scope of such activities. Article 13 Judicial and administrative redress 1. Member States shall ensure that, in the interests of consumers, adequate and effective means exist to ensure compliance by traders with this Directive. 2. The means referred to in paragraph 1 shall include provisions whereby one or more of the following bodies, as determined by national law, shall be entitled to take action in accordance with national law before the courts or competent

604  Part 1: European Union Legislation administrative bodies to ensure that the national provisions for implementing this Directive are applied: (a) public bodies and authorities or their representatives; (b) consumer organisations with a legitimate interest in protecting consumers; (c) professional organisations with a legitimate interest in taking such action. Article 14 Consumer information and out-of-court redress 1. Member States shall take appropriate measures to inform consumers of the national law transposing this Directive and shall encourage, where appropriate, traders and code owners to inform consumers of their codes of conduct. The Commission shall encourage the drawing up at Community level, particularly by professional bodies, organisations and associations, of codes of conduct aimed at facilitating the implementation of this Directive, in conformity with Community law. It shall also encourage traders and their branch organisations to inform consumers of any such codes, including, where ­appropriate, by means of a specific marking. 2. Member States shall encourage the setting up or development of adequate and effective out-of-court complaints and redress procedures for the settlement of consumer disputes under this Directive and shall, where appropriate, encourage traders and their branch organisations to inform consumers of the availability of such procedures. Article 15 Penalties 1. Member States shall provide for appropriate penalties in the event of a ­trader’s failure to comply with the national provisions adopted pursuant to this Directive. 2. Those penalties shall be effective, proportionate and dissuasive. Article 16 Transposition 1. Member States shall adopt and publish, by 23 February 2011, the laws, regulations and administrative provisions necessary to comply with this ­ Directive. They shall forthwith communicate to the Commission the text of those provisions. They shall apply those provisions from 23 February 2011. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

Directive 2008/122/EC 605 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 17 Review The Commission shall review this Directive and report to the European Parliament and the Council no later than 23 February 2014. If necessary, it shall make further proposals to adapt it to developments in the area. The Commission may request information from the Member States and the national regulatory authorities. Article 18 Repeal Directive 94/47/EC shall be repealed. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex VI. Article 19 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Article 20 Addressees This Directive is addressed to the Member States. (1)

OJ C 44, 16.2.2008, p. 27. of the European Parliament of 22 October 2008 (not yet published in the Official Journal) and Council Decision of 18 December 2008. (3) OJ L 280, 29.10.1994, p. 83. (4) OJ L 158, 23.6.1990, p. 59. (5) OJ L 149, 11.6.2005, p. 22. (6) OJ L 124, 8.6.1971, p. 1. (7) OJ L 177, 4.7.2008, p. 6. (8) OJ L 12, 16.1.2001, p. 1. (9) OJ C 321, 31.12.2003, p. 1. (10) OJ L 133, 22.5.2008, p. 66. (2) Opinion

Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests (Codified version)* (OJ 2009 L110 p.30)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular ­Article 95 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the procedure laid down in Article 251 of the Treaty (2),

Whereas: (1) Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests (3) has been substantially amended several times (4). In the interests of clarity and rationality the said Directive should be codified. (2) Certain Directives, listed in Annex I to this Directive, lay down rules with regard to the protection of consumers’ interests. (3) Current mechanisms available for ensuring compliance with those Directives, both at national and at Community level, do not always allow infringements harmful to the collective interests of consumers to be ­terminated in good time. Collective interests means interests which do not include the cumulation of interests of individuals who have been harmed by an infringement. This is without prejudice to individual actions brought by individuals who have been harmed by an infringement.

* 

Implemented in the United Kingdom by Enterprise Act 2002 Pt 8.

Directive 2009/22/EC 607 (4) As far as the purpose of bringing about the cessation of practices that are unlawful under the national provisions applicable is concerned, the ­effectiveness of national measures transposing the Directives in question, including protective measures that go beyond the level required by those Directives, provided they are compatible with the Treaty and allowed by those Directives, may be thwarted where those practices produce effects in a Member State other than that in which they originate. (5) Those difficulties can disrupt the smooth functioning of the internal market, their consequence being that it is sufficient to move the source of an unlawful practice to another country in order to place it out of reach of all forms of enforcement. This constitutes a distortion of competition. (6) Those difficulties are likely to diminish consumer confidence in the internal market and may limit the scope for action by organisations representing the collective interests of consumers or independent public bodies responsible for protecting the collective interests of consumers, adversely affected by practices that infringe Community law. (7) Those practices often extend beyond the frontiers between the Member States. There is an urgent need for some degree of approximation of national provisions designed to enjoin the cessation of the unlawful practices irrespective of the Member State in which the unlawful practice has produced its effects. With regard to jurisdiction, this is without prejudice to the rules of private international law and the Conventions in force between Member States, while respecting the general obligations of the Member States deriving from the Treaty, in particular those related to the smooth functioning of the internal market. (8) The objective of the action envisaged can only be attained by the Community. It is therefore incumbent on the Community to act. (9) The third paragraph of Article 5 of the Treaty makes it incumbent on the Community not to go beyond what is necessary to achieve the objectives of the Treaty. In accordance with that Article, the specific features of national legal systems must be taken into account to every extent possible by leaving Member States free to choose between different options having equivalent effect. The courts or administrative authorities competent to rule on the proceedings referred to in this Directive should have the right to examine the effects of previous decisions. (10) One option should consist in requiring one or more independent public bodies, specifically responsible for the protection of the collective interests of consumers, to exercise the rights of action set out in this Directive. Another option should provide for the exercise of those rights by organisations whose purpose is to protect the collective interests of consumers, in accordance with criteria laid down by national law. (11) Member States should be able to choose between or combine these two options in designating at national level the bodies and/or organisations qualified for the purposes of this Directive.

608  Part 1: European Union Legislation (12) For the purposes of intra-Community infringements the principle of mutual recognition should apply to these bodies and/or organisations. The Member States should, at the request of their national entities, communicate to the Commission the name and purpose of their national entities which are qualified to bring an action in their own country according to the provisions of this Directive. (13) It is the business of the Commission to ensure the publication of a list of these qualified entities in the Official Journal of the European Union. Until a statement to the contrary is published, a qualified entity is assumed to have legal capacity if its name is included in that list. (14) Member States should be able to require that a prior consultation be undertaken by the party that intends to bring an action for an injunction, in order to give the defendant an opportunity to bring the contested infringement to an end. Member States should be able to require that this prior consultation take place jointly with an independent public body designated by those Member States. (15) Where the Member States have established that there should be prior consultation, a deadline of two weeks after the request for consultation is received should be set after which, should the cessation of the infringement not be achieved, the applicant shall be entitled to bring an action, without any further delay, before the competent court or administrative authority. (16) It is appropriate that the Commission report on the functioning of this Directive and in particular on its scope and on the operation of prior consultation. (17) The application of this Directive should not prejudice the application of Community competition rules. (18) This Directive should be without prejudice to the obli- gations of the Member States concerning the time limits for transposition and application in national law of the Directives set out in Annex II, Part B, HAVE ADOPTED THIS DIRECTIVE: Article 1 Scope 1. The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to actions for an injunction referred to in Article 2 aimed at the protection of the collective interests of consumers included in the Directives listed in Annex I, with a view to ensuring the smooth functioning of the internal market. 2. For the purposes of this Directive, an infringement means any act contrary to the Directives listed in Annex I as transposed into the internal legal order of the Member States which harms the collective interests referred to in paragraph 1.

Directive 2009/22/EC 609 Article 2 Actions for an injunction 1. Member States shall designate the courts or administrative authorities competent to rule on proceedings commenced by qualified entities within the meaning of Article 3 seeking: (a) an order with all due expediency, where appropriate by way of summary procedure, requiring the cessation or prohibition of any infringement; (b) where appropriate, measures such as the publication of the decision, in full or in part, in such form as deemed adequate and/or the publication of a corrective statement with a view to eliminating the continuing effects of the infringement; (c) in so far as the legal system of the Member State concerned so permits, an order against the losing defendant for payments into the public purse or to any beneficiary designated in or under national legislation, in the event of failure to comply with the decision within a time limit specified by the courts or administrative authorities, of a fixed amount for each day’s delay or any other amount provided for in national legislation, with a view to ensuring compliance with the decisions. 2. This Directive shall be without prejudice to the rules of private international law with respect to the applicable law, that is, normally, either the law of the Member State where the infringement originated or the law of the Member State where the infringement has its effects. Article 3 Entities qualified to bring an action For the purposes of this Directive, a ‘qualified entity’ means any body or organisation which, being properly constituted according to the law of a Member State, has a legitimate interest in ensuring that the provisions referred to in Article 1 are complied with, in particular: (a) one or more independent public bodies, specifically responsible for protecting the interests referred to in Article 1, in Member States in which such ­bodies exist; and/or (b) organisations whose purpose is to protect the interests referred to in ­Article 1, in accordance with the criteria laid down by the national law. Article 4 Intra-Community infringements 1. Each Member State shall take the measures necessary to ensure that, in the event of an infringement originating in that Member State, any qualified entity from another Member State where the interests protected by that qualified entity are affected by the infringement, may apply to the court or administrative authority referred to in Article 2, on presentation of the list provided for in paragraph 3 of this Article. The courts or administrative authorities shall

610  Part 1: European Union Legislation accept this list as proof of the legal capacity of the qualified entity without prejudice to their right to examine whether the purpose of the qualified entity justifies its taking action in a specific case. 2. For the purposes of intra-Community infringements, and without prejudice to the rights granted to other entities under national legislation, the Member States shall, at the request of their qualified entities, communicate to the Commission that these entities are qualified to bring an action under Article 2. The Member States shall inform the Commission of the name and purpose of these qualified entities. 3. The Commission shall draw up a list of the qualified entities referred to in paragraph 2, with the specification of their purpose. This list shall be published in the Official Journal of the European Union; changes to this list shall be published without delay and the updated list shall be published every six months. Article 5 Prior consultation 1. Member States may introduce or maintain in force provisions whereby the party that intends to seek an injunction can only start this procedure after it has tried to achieve the cessation of the infringement in consultation either with the defendant or with both the defendant and a qualified entity within the meaning of Article 3(a) of the Member State in which the injunction is sought. It shall be for the Member State to decide whether the party seeking the injunction must consult the qualified entity. If the cessation of the infringement is not achieved within two weeks after the request for consultation is received, the party concerned may bring an action for an injunction without any further delay. 2. The rules governing prior consultation adopted by Member States shall be notified to the Commission and shall be published in the Official Journal of the European Union. Article 6 Reports 1. Every three years and for the first time no later than 2 July 2003 the Commission shall submit to the European Parliament and to the Council a report on the application of this Directive. 2. In its first report the Commission shall examine in particular: (a) the scope of this Directive in relation to the protection of the collective interests of persons exercising a commercial, industrial, craft or professional activity; (b) the scope of this Directive as determined by the Directives listed in Annex I; (c) whether the prior consultation provided for in Article 5 has contributed to the effective protection of consumers.

Directive 2009/22/EC 611 Where appropriate, this report shall be accompanied by proposals with a view to amending this Directive. Article 7 Provisions for wider action This Directive shall not prevent Member States from adopting or maintaining in force provisions designed to grant qualified entities and any other person concerned more extensive rights to bring action at national level. Article 8 Implementation Member States shall communicate to the Commission the provisions of national law which they adopt in the field covered by this Directive. Article 9 Repeal Directive 98/27/EC, as amended by the Directives set out in Annex II, Part A, is repealed, without prejudice to the obligations of the Member States concerning the time limits for transposition into national law and application of the Directives set out in Annex II, Part B. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex III. Article 10 Entry into force This Directive shall enter into force on 29 December 2009. Article 11 Addressees This Directive is addressed to the Member States. Done at Strasbourg, 23 April 2009. ANNEX I LIST OF DIRECTIVES REFERRED TO IN ARTICLE 1 1 1. 2.

Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ L 372, 31.12.1985, p. 31). Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (OJ L 42, 12.2.1987, p. 48) 2.

612  Part 1: European Union Legislation 3.

4. 5. 6. 7. 8.

9. 10. 11. 12. 13.

Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in M ­ ember States concerning the pursuit of television broadcasting activities: Articles 10 to 21 (OJ L 298, 17.10.1989, p. 23). Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (OJ L 158, 23.6.1990, p. 59). Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29). Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (OJ L 144, 4.6.1997, p. 19). 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 (OJ L 171, 7.7.1999, p. 12). Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects on information society services, in particular electronic commerce, in the internal market (Directive on electronic commerce) (OJ L 178, 17.7.2000, p. 1). Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use: Articles 86 to 100 (OJ L 311, 28.11.2001, p. 67). Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (OJ L 271, 9.10.2002, p. 16). 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 (OJ L 149, 11.6.2005, p. 22). Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376, 27.12.2006, p. 36). Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts (OJ L 33, 3.2.2009, p. 10). ANNEX II

Part A Repealed Directive and its amendments (referred to in Article 9) Directive 98/27/EC of the European Parliament and of the Council Directive 1999/44/EC of the European Parliament and of the Council Article 10 only Directive 2000/31/EC of the European Parliament and of the Council Article 18(2) only Directive 2002/65/EC of the European Parliament and of the Council

Directive 2009/22/EC 613 Article 19 only Directive 2005/29/EC of the European Parliament and of the Council Article 16(1) only Directive 2006/123/EC of the European Parliament and of the Council Article 42 only Part B List of time limits for transposition into national law and application (referred to in Article 9) [Table not reproduced] ANNEX III CORRELATION TABLE [Table not reproduced] (1)

OJ C 161, 13.7.2007, p. 39. Opinion of the European Parliament of 19 June 2007 (OJ C 146 E, 12.6.2008, p. 73) and Council Decision of 23 March 2009. (3) OJ L 166, 11.6.1998, p. 51. (4) See Annex II, Part A. 1. The Directives referred to in points 5, 6, 9 and 11 contain specific provisions concerning injunctions. 2. The said Directive was repealed and replaced, with effect from 12 May 2010, by Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (OJ L 133, 22.5.2008, p. 66). (2)

Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (recast)* (OJ 2011 L48 p.1) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in p ­ articular Article 114 thereof, Having regard to the proposal from the European Commission, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) A number of substantive changes are to be made to Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions (3). It is desirable, for reasons of clarity and rationalisation, that the provisions in question be recast. (2) Most goods and services are supplied within the internal market by e­ conomic operators to other economic operators and to public authorities on a deferred payment basis whereby the supplier gives its client time to pay the invoice, as agreed between parties, as set out in the supplier’s invoice or as laid down by law. (3) Many payments in commercial transactions between economic operators or between economic operators and public authorities are made later than agreed in the contract or laid down in the general commercial conditions. Although the goods are delivered or the services performed, many ­corresponding invoices are paid well after the deadline. Such late payment

*  Implemented in the United Kingdom by the Late Payment of Commercial Debts Act 1998, as am by. The Late Payment of Commercial Debts Regulations 2013, S.I. No. 2013 No. 395; the Late Payment of Commercial Debts (Scotland) Regulations 2013, S.S.I. No. 2013 No. 77; the Late Payment of Commercial Debts (Scotland) (No. 2) Regulations 2013, S.S.I No. 2013 No. 131.

Directive 2011/7/EU 615 negatively affects liquidity and complicates the financial management of undertakings. It also affects their competitiveness and profitability when the creditor needs to obtain external financing because of late payment. The risk of such negative effects strongly increases in periods of economic downturn when access to financing is more difficult. (4) Judicial claims related to late payment are already facilitated by Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (4), Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims (5), Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure (6) and Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure (7). However, in order to discourage late payment in commercial transactions, it is necessary to lay down ­complementary provisions. (5) Undertakings should be able to trade throughout the internal market under conditions which ensure that transborder operations do not entail greater risks than domestic sales. Distortions of competition would ensue if substantially different rules applied to domestic and transborder operations. (6) In its Communication of 25 June 2008 entitled ‘“Think Small First”— A “Small Business Act” for Europe’, the Commission emphasised that small and medium-sized enterprises’ (SMEs) access to finance should be facilitated and that a legal and business environment supportive of timely payments in commercial transactions should be developed. It should be noted that public authorities have a special responsibility in this regard. The criteria for the definition of SMEs are set out in Commission Recommendation 2003/361/ EC of 6 May 2003 concerning the definition of micro, small and mediumsized enterprises (8). (7) One of the priority actions of the Commission Communication of 26 ­November 2008 entitled ‘European Economic Recovery Plan’ is the reduction of administrative burdens and the promotion of entrepreneurship by, inter alia, ensuring that, as a matter of principle, invoices, including to SMEs, for supplies and services are paid within 1 month to ease liquidity constraints. (8) The scope of this Directive should be limited to payments made as remuneration for commercial transactions. This Directive should not regulate transactions with consumers, interest in connection with other payments, for instance payments under the laws on cheques and bills of exchange, or payments made as compensation for damages including payments from insurance companies. Furthermore, Member States should be able to exclude debts that are subject to insolvency proceedings, including proceedings aimed at debt restructuring. (9) This Directive should regulate all commercial transactions irrespective of whether they are carried out between private or public undertakings or between undertakings and public authorities, given that public authorities handle a considerable volume of payments to undertakings. It should

616  Part 1: European Union Legislation t­ herefore also regulate all commercial transactions between main contractors and their suppliers and subcontractors. (10) The fact that the liberal professions are covered by this Directive should not oblige Member States to treat them as undertakings or merchants for purposes outside the scope of this Directive. (11) The delivery of goods and the provision of services for remuneration to which this Directive applies should also include the design and execution of public works and building and civil engineering works. (12) Late payment constitutes a breach of contract which has been made ­financially attractive to debtors in most Member States by low or no interest rates charged on late payments and/or slow procedures for redress. A decisive shift to a culture of prompt payment, including one in which the exclusion of the right to charge interest should always be considered to be a grossly unfair contractual term or practice, is necessary to reverse this trend and to discourage late payment. Such a shift should also include the introduction of specific provisions on payment periods and on the compensation of creditors for the costs incurred, and, inter alia, that the exclusion of the right to compensation for recovery costs should be presumed to be grossly unfair. (13) Accordingly, provision should be made for business-to-business contractual payment periods to be limited, as a general rule, to 60 calendar days. However, there may be circumstances in which undertakings require more extensive payment periods, for example when undertakings wish to grant trade credit to their customers. It should therefore remain possible for the parties to expressly agree on payment periods longer than 60 calendar days, provided, however, that such extension is not grossly unfair to the creditor. (14) In the interest of consistency of Union legislation, the definition of ‘contracting authorities’ in Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (9) and in Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public ­services contracts (10) should apply for the purposes of this Directive. (15) Statutory interest due for late payment should be calculated on a daily basis as simple interest, in accordance with Regulation (EEC, Euratom) No 1182/71 of the Council of 3 June 1971 determining the rules applicable to periods, dates and time limits (11). (16) This Directive should not oblige a creditor to claim interest for late payment. In the event of late payment, this Directive should allow a creditor to resort to charging interest for late payment without giving any prior notice of non-performance or other similar notice reminding the debtor of his obligation to pay. (17) A debtor’s payment should be regarded as late, for the purposes of entitlement to interest for late payment, where the creditor does not have the sum

Directive 2011/7/EU 617

(18)

(19)

(20)

(21)

(22)

(23)

owed at his disposal on the due date provided that he has fulfilled his legal and contractual obligations. Invoices trigger requests for payment and are important documents in the chain of transactions for the supply of goods and services, inter alia, for determining payment deadlines. For the purposes of this Directive, Member States should promote systems that give legal certainty as regards the exact date of receipt of invoices by the debtors, including in the field of e-invoicing where the receipt of invoices could generate electronic evidence and which is partly governed by the provisions on invoicing contained in Council Directive 2006/112/EC of 28 November 2006 on the common ­system of value added tax (12). Fair compensation of creditors for the recovery costs incurred due to late payment is necessary to discourage late payment. Recovery costs should also include the recovery of administrative costs and compensation for internal costs incurred due to late payment for which this Directive should determine a fixed minimum sum which may be cumulated with interest for late payment. Compensation in the form of a fixed sum should aim at limiting the administrative and internal costs linked to the recovery. Compensation for the recovery costs should be determined without prejudice to national provisions according to which a national court may award compensation to the creditor for any additional damage regarding the debtor’s late payment. In addition to an entitlement to payment of a fixed sum to cover internal recovery costs, creditors should also be entitled to reimbursement of the other recovery costs they incur as a result of late payment by a debtor. Such costs should include, in particular, those incurred by creditors in instructing a lawyer or employing a debt collection agency. This Directive should be without prejudice to the right of Member States to provide for fixed sums for compensation of recovery costs which are higher and therefore more favourable to the creditor, or to increase those sums, inter alia, in order to keep pace with inflation. This Directive should not prevent payments by instalments or staggered payments. However, each instalment or payment should be paid on the agreed terms and should be subject to the rules for late payment set out in this Directive. As a general rule, public authorities benefit from more secure, predictable and continuous revenue streams than undertakings. In addition, many public authorities can obtain financing at more attractive conditions than undertakings. At the same time, public authorities depend less than undertakings on building stable commercial relationships for the achievement of their aims. Long payment periods and late payment by public authorities for goods and services lead to unjustified costs for undertakings. It is therefore appropriate to introduce specific rules as regards commercial transactions for the supply of goods or services by undertakings to ­public authorities, which should provide in particular for payment periods ­normally not exceeding 30 calendar days, unless otherwise expressly agreed in the contract and provided it is objectively justified in the light of the

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(25)

(26)

(27)

­ articular nature or features of the contract, and in any event not exceeding p 60 calendar days. However, account should be taken of the specific situation of public authorities carrying out economic activities of an industrial or commercial nature by offering goods or services on the market as a public undertaking. For that purpose, Member States should be allowed, under certain conditions, to extend the statutory payment period up to a maximum of 60 calendar days. A particular cause for concern in connection with late payment is the situation of health services in a large number of Member States. Healthcare systems, as a fundamental part of Europe’s social infrastructure, are often obliged to reconcile individual needs with the available finances, as the population of Europe ages, as expectations rise, and as medicine advances. All systems have to deal with the challenge of prioritising healthcare in a way that balances the needs of individual patients with the financial resources available. Member States should therefore be able to grant public entities providing healthcare a certain amount of flexibility in meeting their commitments. For that purpose, Member States should be allowed, under certain conditions, to extend the statutory payment period up to a maximum of 60 calendar days. Member States should, nonetheless, make every effort to ensure that payments in the healthcare sector are made within the statutory payment periods. In order not to jeopardise the achievement of the objective of this Directive, Member States should ensure that in commercial transactions the maximum duration of a procedure of acceptance or verification does not exceed, as a general rule, 30 calendar days. Nevertheless, it should be possible for a verification procedure to exceed 30 calendar days, for example in the case of particularly complex contracts, when expressly agreed in the contract and in any tender documents and if it is not grossly unfair to the creditor. The Union institutions are in a situation comparable to that of the public authorities of Member States with regard to their financing and commercial relationships. Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (13) specifies that the validation, authorisation and payment of expenditure by Union institutions must be completed within the time limits laid down in its implementing rules. Those implementing rules are currently set out in Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities (14), and specify the circumstances in which creditors which are paid late are entitled to receive default interest. In the context of the ongoing review of those Regulations, it should be ensured that the ­maximum time limits for payment by the Union institutions are aligned with statutory periods applicable to public authorities in accordance with this Directive.

Directive 2011/7/EU 619 (28) This Directive should prohibit abuse of freedom of contract to the disadvantage of the creditor. As a result, where a term in a contract or a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is not justified on the grounds of the terms granted to the debtor, or it mainly serves the purpose of procuring the debtor additional liquidity at the expense of the creditor, it may be regarded as constituting such an abuse. For that purpose, and in accordance with the academic ‘Draft Common Frame of Reference’, any contractual term or practice which grossly deviates from good commercial practice and is contrary to good faith and fair dealing should be regarded as unfair to the creditor. In particular, the outright exclusion of the right to charge interest should always be considered as grossly unfair, whereas the exclusion of the right to compensation for recovery costs should be presumed to be grossly unfair. This Directive should not affect national provisions relating to the way contracts are concluded or regulating the validity of contractual terms which are unfair to the debtor. (29) In the context of enhanced efforts to prevent the abuse of freedom of contract to the detriment of creditors, organisations officially recognised as representing undertakings and organisations with a legitimate interest in representing undertakings should be able to take action before national courts or administrative bodies in order to prevent the continued use of contract terms or practices which are grossly unfair to the creditor. (30) In order to contribute to the achievement of the objective of this Directive, Member States should foster the spread of good practices, including by encouraging the publication of a list of prompt payers. (31) It is desirable to ensure that creditors are in a position to exercise a retention of title clause on a non-discriminatory basis throughout the Union, if the retention of title clause is valid under the applicable national provisions designated by private international law. (32) This Directive only defines the term ‘enforceable title’ but should not regulate the various procedures for forced execution of such a title or the conditions under which forced execution of such a title can be stopped or suspended. (33) The consequences of late payment can be dissuasive only if they are accompanied by procedures for redress which are rapid and effective for the creditor. In accordance with the principle of non-discrimination set out in Article 18 of the Treaty on the Functioning of the European Union, those procedures should be available to all creditors who are established in the Union. (34) In order to facilitate compliance with the provisions of this Directive, Member States should encourage recourse to mediation or other means of alternative dispute resolution. Directive 2008/52/EC of the European P ­ arliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters (15) already sets a framework for systems of

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(35)

(36)

(37)

(38) (39)

­ ediation at Union level, especially for cross-border disputes, without prem venting its application to internal mediation systems. Member States should also encourage interested parties to draw up voluntary codes of conduct aimed, in particular, at contributing to the implementation of this Directive. It is necessary to ensure that the recovery procedures for unchallenged claims related to late payment in commercial transactions be completed within a short period of time, including through an expedited procedure and irrespective of the amount of the debt. Since the objective of this Directive, namely combating late payment in the internal market, cannot be sufficiently achieved by the Member States and can, therefore, by reason of its scale and effect, be better achieved at the Union level, the Union may adopt measures, in accordance with the ­principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive change as compared with Directive 2000/35/EC. The obligation to transpose the provisions which are unchanged arises under that Directive. This Directive should be without prejudice to the obligations of the M ­ ember States relating to the time limits for transposition into national law and application of Directive 2000/35/EC. In accordance with point 34 of the Interinstitutional Agreement on better law-making (16), Member States are encouraged to draw up, for themselves and in the interest of the Union, their own tables which will, as far as possible, illustrate the correlation between this Directive and their transposition measures, and to make those tables public,

HAVE ADOPTED THIS DIRECTIVE: Article 1 Subject matter and scope 1. The aim of this Directive is to combat late payment in commercial transactions, in order to ensure the proper functioning of the internal market, thereby fostering the competitiveness of undertakings and in particular of SMEs. 2. This Directive shall apply to all payments made as remuneration for commercial transactions. 3. Member States may exclude debts that are subject to insolvency proceedings instituted against the debtor, including proceedings aimed at debt restructuring.

Directive 2011/7/EU 621 Article 2 Definitions For the purposes of this Directive, the following definitions shall apply: (1) ‘commercial transactions’ means transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration; (2) ‘public authority’ means any contracting authority, as defined in point (a) of Article 2(1) of Directive 2004/17/EC and in Article 1(9) of Directive 2004/18/EC, regardless of the subject or value of the contract; (3) ‘undertaking’ means any organisation, other than a public authority, acting in the course of its independent economic or professional activity, even where that activity is carried out by a single person; (4) ‘late payment’ means payment not made within the contractual or statutory period of payment and where the conditions laid down in Article 3(1) or Article 4(1) are satisfied; (5) ‘interest for late payment’ means statutory interest for late payment or interest at a rate agreed upon between undertakings, subject to Article 7; (6) ‘statutory interest for late payment’ means simple interest for late payment at a rate which is equal to the sum of the reference rate and at least eight percentage points; (7) ‘reference rate’ means either of the following (a) for a Member State whose currency is the euro, either: (i) the interest rate applied by the European Central Bank to its most recent main refinancing operations; or (ii) the marginal interest rate resulting from variable-rate tender procedures for the most recent main refinancing operations of the European Central Bank; (b) for a Member State whose currency is not the euro, the equivalent rate set by its national central bank; (8) ‘amount due’ means the principal sum which should have been paid within the contractual or statutory period of payment, including the applicable taxes, duties, levies or charges specified in the invoice or the equivalent request for payment; (9) ‘retention of title’ means the contractual agreement according to which the seller retains title to the goods in question until the price has been paid in full; (10) ‘enforceable title’ means any decision, judgment or order for payment issued by a court or other competent authority, including those that are provisionally enforceable, whether for immediate payment or payment by instalments, which permits the creditor to have his claim against the debtor collected by means of forced execution.

622  Part 1: European Union Legislation Article 3 Transactions between undertakings 1. Member States shall ensure that, in commercial transactions between undertakings, the creditor is entitled to interest for late payment without the necessity of a reminder, where the following conditions are satisfied: (a) the creditor has fulfilled its contractual and legal obligations; and (b) the creditor has not received the amount due on time, unless the debtor is not responsible for the delay. 2. Member States shall ensure that the applicable reference rate: (a) for the first semester of the year concerned shall be the rate in force on 1 January of that year; (b) for the second semester of the year concerned shall be the rate in force on 1 July of that year. 3. Where the conditions set out in paragraph 1 are satisfied, Member States shall ensure the following: (a) that the creditor is entitled to interest for late payment from the day following the date or the end of the period for payment fixed in the contract; (b) where the date or period for payment is not fixed in the contract, that the creditor is entitled to interest for late payment upon the expiry of any of the following time limits: (i) 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment; (ii) where the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of receipt of the goods or services; (iii) where the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 30 calendar days after the date of the receipt of the goods or services; (iv) where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, 30 calendar days after that date. 4. Where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for, Member States shall ensure that the maximum duration of that procedure does not exceed 30 calendar days from the date of receipt of the goods or services, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor within the meaning of Article 7. 5. Member States shall ensure that the period for payment fixed in the contract does not exceed 60 calendar days, unless otherwise expressly agreed in the contract and provided it is not grossly unfair to the creditor within the meaning of Article 7.

Directive 2011/7/EU 623 Article 4 Transactions between undertakings and public authorities 1. Member States shall ensure that, in commercial transactions where the debtor is a public authority, the creditor is entitled upon expiry of the period defined in paragraphs 3, 4 or 6 to statutory interest for late payment, without the necessity of a reminder, where the following conditions are satisfied: (a) the creditor has fulfilled its contractual and legal obligations; and (b) the creditor has not received the amount due on time, unless the debtor is not responsible for the delay. 2. Member States shall ensure that the applicable reference rate: (a) for the first semester of the year concerned shall be the rate in force on 1 January of that year; (b) for the second semester of the year concerned shall be the rate in force on 1 July of that year. 3. Member States shall ensure that in commercial transactions where the debtor is a public authority: (a) the period for payment does not exceed any of the following time limits: (i) 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment; (ii) where the date of receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of the receipt of the goods or services; (iii) where the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 30 calendar days after the date of the receipt of the goods or services; (iv) where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, 30 calendar days after that date; (b) the date of receipt of the invoice is not subject to a contractual agreement between debtor and creditor. 4. Member States may extend the time limits referred to in point (a) of paragraph 3 up to a maximum of 60 calendar days for: (a) any public authority which carries out economic activities of an industrial or commercial nature by offering goods or services on the market and which is subject, as a public undertaking, to the transparency requirements laid down in Commission Directive 2006/111/EC of 16 November 2006 on the transparency of financial relations between Member States and public undertakings as well as on financial transparency within certain undertakings (17); (b) public entities providing healthcare which are duly recognised for that purpose.

624  Part 1: European Union Legislation If a Member State decides to extend the time limits in accordance with this ­paragraph, it shall send a report on such extension to the Commission by 16 March 2018. On that basis, the Commission shall submit a report to the European Parliament and the Council indicating which Member States have extended the time limits in accordance with this paragraph and taking into account the impact on the functioning of the internal market, in particular on SMEs. That report shall be accompanied by any appropriate proposals. 5. Member States shall ensure that the maximum duration of a procedure of acceptance or verification referred to in point (iv) of point (a) of paragraph 3 does not exceed 30 calendar days from the date of receipt of the goods or services, unless otherwise expressly agreed in the contract and any tender documents and provided it is not grossly unfair to the creditor within the meaning of Article 7. 6. Member States shall ensure that the period for payment fixed in the contract does not exceed the time limits provided for in paragraph 3, unless otherwise expressly agreed in the contract and provided it is objectively justified in the light of the particular nature or features of the contract, and that it in any event does not exceed 60 calendar days. Article 5 Payment schedules This Directive shall be without prejudice to the ability of parties to agree, subject to the relevant provisions of applicable national law, on payment schedules providing for instalments. In such cases, where any of the instalments is not paid by the agreed date, interest and compensation provided for in this Directive shall be c­ alculated solely on the basis of overdue amounts. Article 6 Compensation for recovery costs 1. Member States shall ensure that, where interest for late payment becomes payable in commercial transactions in accordance with Article 3 or 4, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of EUR 40. 2. Member States shall ensure that the fixed sum referred to in paragraph 1 is payable without the necessity of a reminder and as compensation for the creditor’s own recovery costs. 3. The creditor shall, in addition to the fixed sum referred to in paragraph 1, be entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment. This could include expenses incurred, inter alia, in instructing a lawyer or employing a debt collection agency.

Directive 2011/7/EU 625 Article 7 Unfair contractual terms and practices 1. Member States shall provide that a contractual term or a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is either unenforceable or gives rise to a claim for damages if it is grossly unfair to the creditor. In determining whether a contractual term or a practice is grossly unfair to the creditor, within the meaning of the first subparagraph, all circumstances of the case shall be considered, including: (a) any gross deviation from good commercial practice, contrary to good faith and fair dealing; (b) the nature of the product or the service; and (c) whether the debtor has any objective reason to deviate from the statutory rate of interest for late payment, from the payment period as referred to in Article 3(5), point (a) of Article 4(3), Article 4(4) and Article 4(6) or from the fixed sum as referred to in Article 6(1). 2. For the purpose of paragraph 1, a contractual term or a practice which excludes interest for late payment shall be considered as grossly unfair. 3. For the purpose of paragraph 1, a contractual term or a practice which excludes compensation for recovery costs as referred to in Article 6 shall be presumed to be grossly unfair. 4. Member States shall ensure that, in the interests of creditors and competitors, adequate and effective means exist to prevent the continued use of contractual terms and practices which are grossly unfair within the meaning of paragraph 1. 5. The means referred to in paragraph 4 shall include provisions whereby organisations officially recognised as representing undertakings, or organisations with a legitimate interest in representing undertakings may take action according to the applicable national law before the courts or before competent administrative bodies on the grounds that contractual terms or practices are grossly unfair within the meaning of paragraph 1, so that they can apply appropriate and effective means to prevent their continued use. Article 8 Transparency and awareness raising 1. Member States shall ensure transparency regarding the rights and obligations stemming from this Directive, including by making publicly available the applicable rate of statutory interest for late payment. 2. The Commission shall make publicly available on the Internet details of the current statutory rates of interest which apply in all the Member States in the event of late payment in commercial transactions. 3. Member States shall, where appropriate, use professional publications, promotion campaigns or any other functional means to increase awareness of the remedies for late payment among undertakings.

626  Part 1: European Union Legislation 4. Member States may encourage the establishment of prompt payment codes which set out clearly defined payment time limits and a proper process for dealing with any payments that are in dispute, or any other initiatives that tackle the crucial issue of late payment and contribute to developing a culture of prompt payment which supports the objective of this Directive. Article 9 Retention of title 1. Member States shall provide in conformity with the applicable national provisions designated by private international law that the seller retains title to goods until they are fully paid for if a retention of title clause has been expressly agreed between the buyer and the seller before the delivery of the goods. 2. Member States may adopt or retain provisions dealing with down payments already made by the debtor. Article 10 Recovery procedures for unchallenged claims 1. Member States shall ensure that an enforceable title can be obtained, including through an expedited procedure and irrespective of the amount of the debt, normally within 90 calendar days of the lodging of the creditor’s action or application at the court or other competent authority, provided that the debt or aspects of the procedure are not disputed. Member States shall carry out this duty in accordance with their respective national laws, regulations and administrative provisions. 2. National laws, regulations and administrative provisions shall apply the same conditions for all creditors who are established in the Union. 3. When calculating the period referred to in paragraph 1, the following shall not be taken into account: (a) periods for service of documents; (b) any delays caused by the creditor, such as periods devoted to correcting applications. 4. This Article shall be without prejudice to the provisions of Regulation (EC) No 1896/2006. Article 11 Report By 16 March 2016, the Commission shall submit a report to the European ­Parliament and the Council on the implementation of this Directive. The report shall be ­accompanied by any appropriate proposals.

Directive 2011/7/EU 627 Article 12 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 1 to 8 and 10 by 16 March 2013. They shall forthwith communicate to the Commission the text of those provisions. When Member States adopt those measures, they shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations and administrative provisions to the repealed Directive shall be construed as references to this Directive. The methods of making such reference and the formulation of such statement shall be laid down by Member States. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. 3. Member States may maintain or bring into force provisions which are more favourable to the creditor than the provisions necessary to comply with this Directive. 4. In transposing the Directive, Member States shall decide whether to exclude contracts concluded before 16 March 2013. Article 13 Repeal Directive 2000/35/EC is repealed with effect from 16 March 2013, without prejudice to the obligations of the Member States relating to the time limit for its transposition into national law and its application. However, it shall remain applicable to contracts concluded before that date to which this Directive does not apply pursuant to Article 12(4). References to the repealed Directive shall be construed as references to this Directive and be read in accordance with the correlation table set out in the Annex. Article 14 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union.

628  Part 1: European Union Legislation Article 15 Addressees This Directive is addressed to the Member States. (1)

OJ C 255, 22.9.2010, p. 42. of the European Parliament of 20 October 2010 (not yet published in the Official Journal) and decision of the Council of 24 January 2011. OJ L 200, 8.8.2000, p. 35. OJ L 12, 16.1.2001, p. 1. OJ L 143, 30.4.2004, p. 15. OJ L 399, 30.12.2006, p. 1. OJ L 199, 31.7.2007, p. 1. OJ L 124, 20.5.2003, p. 36. OJ L 134, 30.4.2004, p. 1. OJ L 134, 30.4.2004, p. 114. OJ L 124, 8.6.1971, p. 1. OJ L 347, 11.12.2006, p. 1. OJ L 248, 16.9.2002, p. 1. OJ L 357, 31.12.2002, p. 1. OJ L 136, 24.5.2008, p. 3. OJ C 321, 31.12.2003, p. 1. OJ L 318, 17.11.2006, p. 17.

(2) Position (3) (4) (5) (6) (7) (8) (9)

(10) (11) (12) (13) (14) (15) (16) (17)

Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 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* (OJ 2011 L304 p.64) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, Having regard to the opinion of the European Economic and Social Committee (1), Having regard to the opinion of the Committee of the Regions (2), Acting in accordance with the ordinary legislative procedure (3),

Whereas: (1) Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (4) and Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (5) lay down a number of contractual rights for consumers. (2) Those Directives have been reviewed in the light of experience with a view to simplifying and updating the applicable rules, removing inconsistencies and closing unwanted gaps in the rules. That review has shown that it is appropriate to replace those two Directives by a single Directive. This Directive should therefore lay down standard rules for the common aspects of distance and off-premises contracts, moving away from the minimum harmonisation * Implemented in the United Kingdom by 1. Consumer Contracts (Information, Cancellation and ­ dditional Charges) Regulations 2013, S.I. No. 2013/3134; the Consumer Rights (Payment ­Surcharges) A Regulations 2012, S.I. No. 2012/3110; see also (for contracts made on or after 1 October 2015) ­Consumer Rights Act 2015, Part 1.

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(3)

(4)

(5)

(6)

(7)

approach in the former Directives whilst allowing Member States to maintain or adopt national rules in relation to certain aspects. Article 169(1) and point (a) of Article 169(2) of the Treaty on the Functioning of the European Union (TFEU) provide that the Union is to contribute to the attainment of a high level of consumer protection through the measures adopted pursuant to Article 114 thereof. In accordance with Article 26(2) TFEU, the internal market is to comprise an area without internal frontiers in which the free movement of goods and services and freedom of establishment are ensured. The harmonisation of certain aspects of consumer distance and off-premises contracts is necessary for the promotion of a real consumer internal market striking the right balance between a high level of consumer protection and the competitiveness of enterprises, while ensuring respect for the principle of subsidiarity. The cross-border potential of distance selling, which should be one of the main tangible results of the internal market, is not fully exploited. Compared with the significant growth of domestic distance sales over the last few years, the growth in cross-border distance sales has been limited. This discrepancy is particularly significant for Internet sales for which the potential for further growth is high. The cross-border potential of contracts negotiated away from business premises (direct selling) is constrained by a number of factors including the different national consumer protection rules imposed upon the industry. Compared with the growth of domestic direct selling over the last few years, in particular in the services sector, for instance utilities, the number of consumers using this channel for cross-border purchases has remained flat. Responding to increased business opportunities in many Member States, small and medium-sized enterprises (including individual traders) or agents of direct selling companies should be more inclined to seek business opportunities in other Member States, in particular in border regions. Therefore the full harmonisation of consumer information and the right of withdrawal in distance and off-premises contracts will contribute to a high level of consumer protection and a better functioning of the business-to-consumer internal market. Certain disparities create significant internal market barriers affecting traders and consumers. Those disparities increase compliance costs to traders wishing to engage in the cross-border sale of goods or provision of services. Disproportionate fragmentation also undermines consumer confidence in the internal market. Full harmonisation of some key regulatory aspects should considerably increase legal certainty for both consumers and traders. Both consumers and traders should be able to rely on a single regulatory framework based on clearly defined legal concepts regulating certain aspects of business-toconsumer­contracts across the Union. The effect of such harmonisation should be to eliminate the barriers stemming from the fragmentation of the rules and to complete the internal market in this area. Those barriers can only be eliminated by establishing uniform rules at Union level. Furthermore consumers should enjoy a high common level of protection across the Union.

Directive 2011/83/EU 631 (8) The regulatory aspects to be harmonised should only concern contracts concluded between traders and consumers. Therefore, this Directive should not affect national law in the area of contracts relating to employment, contracts relating to succession rights, contracts relating to family law and contracts relating to the incorporation and organisation of companies or partnership agreements. (9) This Directive establishes rules on information to be provided for distance contracts, off-premises contracts and contracts other than distance and offpremises contracts. This Directive also regulates the right of withdrawal for distance and off-premises contracts and harmonises certain provisions dealing with the performance and some other aspects of business-to-consumer contracts. (10) This Directive should be without prejudice to Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (6). (11) This Directive should be without prejudice to Union provisions relating to specific sectors, such as medicinal products for human use, medical devices, privacy and electronic communications, patients’ rights in cross-border healthcare, food labelling and the internal market for electricity and natural gas. (12) The information requirements provided for in this Directive should complete the information requirements of Directive 2006/123/EC of the E ­ uropean Parliament and of the Council of 12 December 2006 on services in the internal market (7) and Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (‘Directive on electronic commerce’) (8). Member States should retain the possibility to impose additional information requirements applicable to service providers established in their territory. (13) Member States should remain competent, in accordance with Union law, to apply the provisions of this Directive to areas not falling within its scope. Member States may therefore maintain or introduce national legislation corresponding to the provisions of this Directive, or certain of its provisions, in relation to contracts that fall outside the scope of this Directive. For instance, Member States may decide to extend the application of the rules of this Directive to legal persons or to natural persons who are not consumers within the meaning of this Directive, such as non-governmental organisations, start-ups or small and medium-sized enterprises. Similarly, Member States may apply the provisions of this Directive to contracts that are not distance contracts within the meaning of this Directive, for ­example because they are not concluded under an organised distance sales or service-provision scheme. Moreover, Member States may also maintain or introduce national provisions on issues not specifically addressed in this Directive, such as additional rules concerning sales contracts, including in relation to the delivery of goods, or requirements for the provision of information during the existence of a contract.

632  Part 1: European Union Legislation (14) This Directive should not affect national law in the area of contract law for contract law aspects that are not regulated by this Directive. Therefore, this Directive should be without prejudice to national law regulating for instance the conclusion or the validity of a contract (for instance in the case of lack of consent). Similarly, this Directive should not affect national law in relation to the general contractual legal remedies, the rules on public economic order, for instance rules on excessive or extortionate prices, and the rules on unethical legal transactions. (15) This Directive should not harmonise language requirements applicable to consumer contracts. Therefore, Member States may maintain or introduce in their national law language requirements regarding contractual information and contractual terms. (16) This Directive should not affect national laws on legal representation such as the rules relating to the person who is acting in the name of the trader or on his behalf (such as an agent or a trustee). Member States should remain competent in this area. This Directive should apply to all traders, whether public or private. (17) The definition of consumer should cover natural persons who are acting outside their trade, business, craft or profession. However, in the case of dual purpose contracts, where the contract is concluded for purposes partly within and partly outside the person’s trade and the trade purpose is so limited as not to be predominant in the overall context of the contract, that person should also be considered as a consumer. (18) This Directive does not affect the freedom of Member States to define, in conformity with Union law, what they consider to be services of general economic interest, how those services should be organised and financed, in compliance with State aid rules, and which specific obligations they should be subject to. (19) Digital content means data which are produced and supplied in digital form, such as computer programs, applications, games, music, videos or texts, irrespective of whether they are accessed through downloading or streaming, from a tangible medium or through any other means. Contracts for the supply of digital content should fall within the scope of this Directive. If digital content is supplied on a tangible medium, such as a CD or a DVD, it should be considered as goods within the meaning of this Directive. Similarly to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating, contracts for digital content which is not supplied on a tangible medium should be classified, for the purpose of this Directive, neither as sales contracts nor as service contracts. For such contracts, the consumer should have a right of withdrawal unless he has consented to the beginning of the performance of the contract during the withdrawal period and has acknowledged that he will consequently lose the right to withdraw from the contract. In addition to the general information requirements, the trader should inform the consumer about the functionality and the relevant interoperability of digital content. The notion of functionality should refer to

Directive 2011/83/EU 633 the ways in which digital content can be used, for instance for the tracking of consumer behaviour; it should also refer to the absence or presence of any technical restrictions such as protection via Digital Rights Management or region coding. The notion of relevant interoperability is meant to describe the information regarding the standard hardware and software environment with which the digital content is compatible, for instance the operating system, the necessary version and certain hardware features. The Commission should examine the need for further harmonisation of provisions in respect of digital content and submit, if necessary, a legislative proposal for addressing this matter. (20) The definition of distance contract should cover all cases where a contract is concluded between the trader and the consumer under an organised distance sales or service-provision scheme, with the exclusive use of one or more means of distance communication (such as mail order, Internet, ­telephone or fax) up to and including the time at which the contract is concluded. That definition should also cover situations where the consumer visits the business premises merely for the purpose of gathering information about the goods or services and subsequently negotiates and concludes the contract at a distance. By contrast, a contract which is negotiated at the business premises of the trader and finally concluded by means of distance communication should not be considered a distance contract. ­Neither should a contract initiated by means of distance communication, but finally concluded at the business premises of the trader be considered a distance contract. Similarly, the concept of distance contract should not include reservations made by a consumer through a means of distance communications to request the provision of a service from a professional, such as in the case of a consumer phoning to request an appointment with a hairdresser. The notion of an organised distance sales or service-provision scheme should include those schemes offered by a third party other than the trader but used by the trader, such as an online platform. It should not, however, cover cases where websites merely offer information on the trader, his goods and/or services and his contact details. (21) An off-premises contract should be defined as a contract concluded with the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader, for example at the consumer’s home or workplace. In an off-premises context, the consumer may be under potential psychological pressure or may be confronted with an element of surprise, irrespective of whether or not the consumer has solicited the trader’s visit. The definition of an off-premises contract should also include situations where the consumer is personally and individually addressed in an off-premises context but the contract is concluded immediately afterwards on the business premises of the trader or through a means of distance communication. The definition of an off-premises contract should not cover situations in which the trader first comes to the consumer’s home strictly with a view to taking measurements or giving an estimate without any commitment of the consumer and where the contract is then concluded

634  Part 1: European Union Legislation

(22)

(23)

(24)

(25)

(26)

only at a later point in time on the business premises of the trader or via means of distance communication on the basis of the trader’s estimate. In those cases, the contract is not to be considered as having been concluded immediately after the trader has addressed the consumer if the consumer has had time to reflect upon the estimate of the trader before concluding the contract. Purchases made during an excursion organised by the trader during which the products acquired are promoted and offered for sale should be considered as off-premises contracts. Business premises should include premises in whatever form (such as shops, stalls or lorries) which serve as a permanent or usual place of business for the trader. Market stalls and fair stands should be treated as business premises if they fulfil this condition. Retail premises where the trader carries out his activity on a seasonal basis, for instance during the tourist season at a ski or beach resort, should be considered as business premises as the trader carries out his activity in those premises on a usual basis. Spaces accessible to the public, such as streets, shopping malls, beaches, sports facilities and public transport, which the trader uses on an exceptional basis for his business activities as well as private homes or workplaces should not be regarded as business premises. The business premises of a person acting in the name or on behalf of the trader as defined in this Directive should be considered as business premises within the meaning of this Directive. Durable media should enable the consumer to store the information for as long as it is necessary for him to protect his interests stemming from his relationship with the trader. Such media should include in particular paper, USB sticks, CD-ROMs, DVDs, memory cards or the hard disks of ­computers as well as e-mails. A public auction implies that traders and consumers attend or are given the possibility to attend the auction in person. The goods or services are offered by the trader to the consumer through a bidding procedure authorised by law in some Member States, to offer goods or services at public sale. The successful bidder is bound to purchase the goods or services. The use of online platforms for auction purposes which are at the disposal of consumers and traders should not be considered as a public auction within the meaning of this Directive. Contracts related to district heating should be covered by this Directive, similarly to the contracts for the supply of water, gas or electricity. District heating refers to the supply of heat, inter alia, in the form of steam or hot water, from a central source of production through a transmission and distribution system to multiple buildings, for the purpose of heating. Contracts related to the transfer of immovable property or of rights in immovable property or to the creation or acquisition of such immovable property or rights, contracts for the construction of new buildings or the substantial conversion of existing buildings as well as contracts for the rental of accommodation for residential purposes are already subject to a number of specific requirements in national legislation. Those contracts include for instance sales of immovable property still to be developed and

Directive 2011/83/EU 635 hire-purchase. The provisions of this Directive are not appropriate to those contracts, which should be therefore excluded from its scope. A substantial conversion is a conversion comparable to the construction of a new building, for example where only the façade of an old building is retained. Service contracts in particular those related to the construction of annexes to buildings (for example a garage or a veranda) and those related to repair and renovation of buildings other than substantial conversion, should be included in the scope of this Directive, as well as contracts related to the services of a real estate agent and those related to the rental of accommodation for non-residential purposes. (27) Transport services cover passenger transport and transport of goods. ­Passenger transport should be excluded from the scope of this Directive as it is already subject to other Union legislation or, in the case of public transport and taxis, to regulation at national level. However, the provisions of this Directive protecting consumers against excessive fees for the use of means of payment or against hidden costs should apply also to passenger transport contracts. In relation to transport of goods and car rental which are services, consumers should benefit from the protection afforded by this Directive, with the exception of the right of withdrawal. (28) In order to avoid administrative burden being placed on traders, Member States may decide not to apply this Directive where goods or services of a minor value are sold off-premises. The monetary threshold should be established at a sufficiently low level as to exclude only purchases of small significance. Member States should be allowed to define this value in their national legislation provided that it does not exceed EUR 50. Where two or more contracts with related subjects are concluded at the same time by the consumer, the total cost thereof should be taken into account for the purpose of applying this threshold. (29) Social services have fundamentally distinct features that are reflected in sector-specific legislation, partially at Union level and partially at national level. Social services include, on the one hand, services for particularly disadvantaged or low income persons as well as services for persons and families in need of assistance in carrying out routine, everyday tasks and, on the other hand, services for all people who have a special need for assistance, support, protection or encouragement in a specific life phase. Social s­ ervices cover, inter alia, services for children and youth, assistance services for families, single parents and older persons, and services for migrants. Social services cover both short-term and long-term care services, for instance services provided by home care services or provided in assisted living facilities and residential homes or housing (‘nursing homes’). Social services include not only those provided by the State at a national, regional or local level by providers mandated by the State or by charities recognised by the State but also those provided by private operators. The provisions of this Directive are not appropriate to social services which should be therefore excluded from its scope.

636  Part 1: European Union Legislation (30) Healthcare requires special regulations because of its technical complexity, its importance as a service of general interest as well as its extensive public funding. Healthcare is defined in Directive 2011/24/EU of the E ­ uropean Parliament and of the Council of 9 March 2011 on the application of patients’ rights in cross-border healthcare (9) as ‘health services provided by health professionals to patients to assess, maintain or restore their state of health, including the prescription, dispensation and provision of medicinal products and medical devices’. Health professional is defined in that Directive as a doctor of medicine, a nurse responsible for general care, a dental practitioner, a midwife or a pharmacist within the meaning of Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional qualifications (10) or another professional exercising activities in the healthcare sector which are restricted to a regulated profession as defined in point (a) of Article 3(1) of Directive 2005/36/EC, or a person considered to be a health professional according to the legislation of the Member State of treatment. The provisions of this Directive are not appropriate to healthcare which should be therefore excluded from its scope. (31) Gambling should be excluded from the scope of this Directive. Gambling activities are those which involve wagering at stake with pecuniary value in games of chance, including lotteries, gambling in casinos and betting transactions. Member States should be able to adopt other, including more stringent, consumer protection measures in relation to such activities. (32) The existing Union legislation, inter alia, relating to consumer financial services, package travel and timeshare contains numerous rules on consumer protection. For this reason, this Directive should not apply to contracts in those areas. With regard to financial services, Member States should be encouraged to draw inspiration from existing Union legislation in that area when legislating in areas not regulated at Union level, in such a way that a level playing field for all consumers and all contracts relating to financial services is ensured. (33) The trader should be obliged to inform the consumer in advance of any arrangement resulting in the consumer paying a deposit to the trader, including an arrangement whereby an amount is blocked on the consumer’s credit or debit card. (34) The trader should give the consumer clear and comprehensible information before the consumer is bound by a distance or off-premises contract, a contract other than a distance or an off-premises contract, or any corresponding offer. In providing that information, the trader should take into account the specific needs of consumers who are particularly vulnerable because of their mental, physical or psychological infirmity, age or credulity in a way which the trader could reasonably be expected to foresee. However, taking into account such specific needs should not lead to different levels of consumer protection. (35) The information to be provided by the trader to the consumer should be mandatory and should not be altered. Nevertheless, the contracting parties

Directive 2011/83/EU 637

(36)

(37)

(38) (39)

(40)

should be able to expressly agree to change the content of the contract subsequently concluded, for instance the arrangements for delivery. In the case of distance contracts, the information requirements should be adapted to take into account the technical constraints of certain media, such as the restrictions on the number of characters on certain mobile tele­ phone screens or the time constraint on television sales spots. In such cases the trader should comply with a minimum set of information requirements and refer the consumer to another source of information, for instance by providing a toll free telephone number or a hypertext link to a webpage of the trader where the relevant information is directly available and easily accessible. As to the requirement to inform the consumer of the cost of returning goods which by their nature cannot normally be returned by post, it will be considered to have been met, for example, if the trader specifies one carrier (for instance the one he assigned for the delivery of the good) and one price concerning the cost of returning the goods. Where the cost of returning the goods cannot reasonably be calculated in advance by the trader, for example because the trader does not offer to arrange for the return of the goods himself, the trader should provide a statement that such a cost will be payable, and that this cost may be high, along with a reasonable estimation of the maximum cost, which could be based on the cost of delivery to the consumer. Since in the case of distance sales, the consumer is not able to see the goods before concluding the contract, he should have a right of withdrawal. For the same reason, the consumer should be allowed to test and inspect the goods he has bought to the extent necessary to establish the nature, characteristics and the functioning of the goods. Concerning off-premises contracts, the consumer should have the right of withdrawal because of the potential surprise element and/or psychological pressure. Withdrawal from the contract should terminate the obligation of the contracting parties to perform the contract. Trading websites should indicate clearly and legibly at the latest at the beginning of the ordering process whether any delivery restrictions apply and which means of payment are accepted. It is important to ensure for distance contracts concluded through websites that the consumer is able to fully read and understand the main elements of the contract before placing his order. To that end, provision should be made in this Directive for those elements to be displayed in the close vicinity of the confirmation requested for placing the order. It is also important to ensure that, in such situations, the consumer is able to determine the moment at which he assumes the obligation to pay the trader. Therefore, the consumer’s attention should specifically be drawn, through an unambiguous formulation, to the fact that placing the order entails the obligation to pay the trader. The current varying lengths of the withdrawal periods both between the Member States and for distance and off-premises contracts cause legal uncertainty and compliance costs. The same withdrawal period should

638  Part 1: European Union Legislation

(41)

(42)

(43)

(44)

apply to all distance and off-premises contracts. In the case of service contracts, the withdrawal period should expire after 14 days from the conclusion of the contract. In the case of sales contracts, the withdrawal period should expire after 14 days from the day on which the consumer or a third party other than the carrier and indicated by the consumer, acquires physical possession of the goods. In addition the consumer should be able to exercise the right to withdraw before acquiring physical possession of the goods. Where multiple goods are ordered by the consumer in one order but are delivered separately, the withdrawal period should expire after 14 days from the day on which the consumer acquires physical possession of the last good. Where goods are delivered in multiple lots or pieces, the withdrawal period should expire after 14 days from the day on which the consumer acquires the physical possession of the last lot or piece. In order to ensure legal certainty, it is appropriate that Council Regulation (EEC, Euratom) No 1182/71 of 3 June 1971 determining the rules applicable to periods, dates and time limits (11) should apply to the calculation of the periods contained in this Directive. Therefore, all periods contained in this Directive should be understood to be expressed in calendar days. Where a period expressed in days is to be calculated from the moment at which an event occurs or an action takes place, the day during which that event occurs or that action takes place should not be considered as falling within the period in question. The provisions relating to the right of withdrawal should be without prejudice to the Member States’ laws and regulations governing the termination or unenforceability of a contract or the possibility for the consumer to fulfil his contractual obligations before the time determined in the contract. If the trader has not adequately informed the consumer prior to the conclusion of a distance or off-premises contract, the withdrawal period should be extended. However, in order to ensure legal certainty as regards the length of the withdrawal period, a 12-month limitation period should be introduced. Differences in the ways in which the right of withdrawal is exercised in the Member States have caused costs for traders selling cross-border. The introduction of a harmonised model withdrawal form that the consumer may use should simplify the withdrawal process and bring legal certainty. For these reasons, Member States should refrain from adding any presentational requirements to the Union-wide model form relating for example to the font size. However, the consumer should remain free to withdraw in his own words, provided that his statement setting out his decision to withdraw from the contract to the trader is unequivocal. A letter, a telephone call or returning the goods with a clear statement could meet this requirement, but the burden of proof of having withdrawn within the time limits fixed in the Directive should be on the consumer. For this reason, it is in the interest of the consumer to make use of a durable medium when communicating his withdrawal to the trader.

Directive 2011/83/EU 639 (45) As experience shows that many consumers and traders prefer to communicate via the trader’s website, there should be a possibility for the trader to give the consumer the option of filling in a web-based withdrawal form. In this case the trader should provide an acknowledgement of receipt for instance by e-mail without delay. (46) In the event that the consumer withdraws from the contract, the trader should reimburse all payments received from the consumer, including those covering the expenses borne by the trader to deliver goods to the consumer. The reimbursement should not be made by voucher unless the consumer has used vouchers for the initial transaction or has expressly accepted them. If the consumer expressly chooses a certain type of delivery (for instance 24-hour express delivery), although the trader had offered a common and generally acceptable type of delivery which would have incurred lower delivery costs, the consumer should bear the difference in costs between these two types of delivery. (47) Some consumers exercise their right of withdrawal after having used the goods to an extent more than necessary to establish the nature, characteristics and the functioning of the goods. In this case the consumer should not lose the right to withdraw but should be liable for any diminished value of the goods. In order to establish the nature, characteristics and functioning of the goods, the consumer should only handle and inspect them in the same manner as he would be allowed to do in a shop. For example, the consumer should only try on a garment and should not be allowed to wear it. Consequently, the consumer should handle and inspect the goods with due care during the withdrawal period. The obligations of the consumer in the event of withdrawal should not discourage the consumer from exercising his right of withdrawal. (48) The consumer should be required to send back the goods not later than 14 days after having informed the trader about his decision to withdraw from the contract. In situations where the trader or the consumer does not fulfil the obligations relating to the exercise of the right of withdrawal, penalties provided for by national legislation in accordance with this Directive should apply as well as contract law provisions. (49) Certain exceptions from the right of withdrawal should exist, both for distance and off-premises contracts. A right of withdrawal could be inappropriate for example given the nature of particular goods or services. That is the case for example with wine supplied a long time after the conclusion of a contract of a speculative nature where the value is dependent on fluctuations in the market (‘vin en primeur’). The right of withdrawal should neither apply to goods made to the consumer’s specifications or which are clearly personalised such as tailor-made curtains, nor to the supply of fuel, for example, which is a good, by nature inseparably mixed with other items after delivery. The granting of a right of withdrawal to the consumer could also be inappropriate in the case of certain services where the conclusion of the contract implies the setting aside of capacity which, if a right of withdrawal were exercised, the trader may find difficult to fill. This would for

640  Part 1: European Union Legislation example be the case where reservations are made at hotels or concerning holiday cottages or cultural or sporting events. (50) On the one hand, the consumer should benefit from his right of withdrawal even in case he has asked for the provision of services before the end of the withdrawal period. On the other hand, if the consumer exercises his right of withdrawal, the trader should be assured to be adequately paid for the service he has provided. The calculation of the proportionate amount should be based on the price agreed in the contract unless the consumer demonstrates that that total price is itself disproportionate, in which case the amount to be paid shall be calculated on the basis of the market value of the service provided. The market value should be defined by comparing the price of an equivalent service performed by other traders at the time of the conclusion of the contract. Therefore the consumer should request the performance of services before the end of the withdrawal period by making this request expressly and, in the case of off-premises contracts, on a durable medium. Similarly, the trader should inform the consumer on a durable medium of any obligation to pay the proportionate costs for the services already provided. For contracts having as their object both goods and services, the rules provided for in this Directive on the return of goods should apply to the goods aspects and the compensation regime for services should apply to the services aspects. (51) The main difficulties encountered by consumers and one of the main sources of disputes with traders concern delivery of goods, including goods getting lost or damaged during transport and late or partial delivery. Therefore it is appropriate to clarify and harmonise the national rules as to when delivery should occur. The place and modalities of delivery and the rules concerning the determination of the conditions for the transfer of the ownership of the goods and the moment at which such transfer takes place, should remain subject to national law and therefore should not be affected by this Directive. The rules on delivery laid down in this Directive should include the possibility for the consumer to allow a third party to acquire on his behalf the physical possession or control of the goods. The consumer should be considered to have control of the goods where he or a third party indicated by the consumer has access to the goods to use them as an owner, or the ability to resell the goods (for example, when he has received the keys or possession of the ownership documents). (52) In the context of sales contracts, the delivery of goods can take place in various ways, either immediately or at a later date. If the parties have not agreed on a specific delivery date, the trader should deliver the goods as soon as possible, but in any event not later than 30 days from the day of the conclusion of the contract. The rules regarding late delivery should also take into account goods to be manufactured or acquired specially for the consumer which cannot be reused by the trader without considerable loss. Therefore, a rule which grants an additional reasonable period of time to the trader in certain circumstances should be provided for in this Directive. When the trader has failed to deliver the goods within the period of time

Directive 2011/83/EU 641

(53)

(54)

(55)

(56)

agreed with the consumer, before the consumer can terminate the contract, the consumer should call upon the trader to make the delivery within a reasonable additional period of time and be entitled to terminate the contract if the trader fails to deliver the goods even within that additional period of time. However, this rule should not apply when the trader has refused to deliver the goods in an unequivocal statement. Neither should it apply in certain circumstances where the delivery period is essential such as, for example, in the case of a wedding dress which should be delivered before the wedding. Nor should it apply in circumstances where the consumer informs the trader that delivery on a specified date is essential. For this purpose, the consumer may use the trader’s contact details given in accordance with this Directive. In these specific cases, if the trader fails to deliver the goods on time, the consumer should be entitled to terminate the contract immediately after the expiry of the delivery period initially agreed. This Directive should be without prejudice to national provisions on the way the consumer should notify the trader of his will to terminate the contract. In addition to the consumer’s right to terminate the contract where the trader has failed to fulfil his obligations to deliver the goods in accordance with this Directive, the consumer may, in accordance with the applicable national law, have recourse to other remedies, such as granting the trader an additional period of time for delivery, enforcing the performance of the contract, withholding payment, and seeking damages. In accordance with Article 52(3) of Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (12), Member States should be able to prohibit or limit traders’ right to request charges from consumers taking into account the need to encourage competition and promote the use of efficient payment instruments. In any event, traders should be prohibited from charging consumers fees that exceed the cost borne by the trader for the use of a certain means of payment. Where the goods are dispatched by the trader to the consumer, disputes may arise, in the event of loss or damage, as to the moment at which the transfer of risk takes place. Therefore this Directive should provide that the consumer be protected against any risk of loss of or damage to the goods occurring before he has acquired the physical possession of the goods. The consumer should be protected during a transport arranged or carried out by the trader, even where the consumer has chosen a particular delivery method from a range of options offered by the trader. However, that provision should not apply to contracts where it is up to the consumer to take delivery of the goods himself or to ask a carrier to take delivery. Regarding the moment of the transfer of the risk, a consumer should be considered to have acquired the physical possession of the goods when he has received them. Persons or organisations regarded under national law as having a legitimate interest in protecting consumer contractual rights should be afforded the right to initiate proceedings, either before a court or before an

642  Part 1: European Union Legislation

(57) (58)

(59) (60)

(61)

(62)

(63) (64) (65)

a­ dministrative authority which is competent to decide upon complaints or to initiate appropriate legal proceedings. It is necessary that Member States lay down penalties for infringements of this Directive and ensure that they are enforced. The penalties should be effective, proportionate and dissuasive. The consumer should not be deprived of the protection granted by this Directive. Where the law applicable to the contract is that of a third country, Regulation (EC) No 593/2008 should apply, in order to determine whether the consumer retains the protection granted by this Directive. The Commission, following consultation with the Member States and stakeholders, should look into the most appropriate way to ensure that all consumers are made aware of their rights at the point of sale. Since inertia selling, which consists of unsolicited supply of goods or provision of services to consumers, is prohibited by Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial Practices Directive’) (13) but no contractual remedy is provided therein, it is necessary to introduce in this Directive the contractual remedy of exempting the consumer from the obligation to provide any consideration for such unsolicited supply or provision. Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications) (14) already regulates unsolicited communications and provides for a high level of consumer protection. The corresponding provisions on the same issue contained in Directive 97/7/EC are therefore not needed. It is appropriate for the Commission to review this Directive if some barriers to the internal market are identified. In its review, the Commission should pay particular attention to the possibilities granted to Member States to maintain or introduce specific national provisions including in certain areas of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (15) and 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 (16). That review could lead to a Commission proposal to amend this Directive; that proposal may include amendments to other consumer protection legislation reflecting the Commission’s Consumer Policy Strategy commitment to review the Union acquis in order to achieve a high, common level of consumer protection. Directives 93/13/EEC and 1999/44/EC should be amended to require ­Member States to inform the Commission about the adoption of specific national provisions in certain areas. Directives 85/577/EEC and 97/7/EC should be repealed. Since the objective of this Directive, namely, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market, cannot be sufficiently achieved by the Member

Directive 2011/83/EU 643 States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (66) This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the ­European Union. (67) In accordance with point 34 of the Interinstitutional agreement on better law-making (17), Member States are encouraged to draw up, for themselves and in the interests of the Union, their own tables, which will, as far as possible, illustrate the correlation between this Directive and the transposition measures, and to make them public, HAVE ADOPTED THIS DIRECTIVE: CHAPTER I SUBJECT MATTER, DEFINITIONS AND SCOPE Article 1 Subject matter The purpose of this Directive is, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market by approximating certain aspects of the laws, regulations and administrative provisions of the Member States concerning contracts concluded between consumers and traders. Article 2 Definitions For the purpose of this Directive, the following definitions shall apply: (1) ‘consumer’ means any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business, craft or profession; (2) ‘trader’ means any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession in relation to contracts covered by this Directive; (3) ‘goods’ means any tangible movable items, with the exception of items sold by way of execution or otherwise by authority of law; water, gas and electricity shall be considered as goods within the meaning of this Directive where they are put up for sale in a limited volume or a set quantity; (4) ‘goods made to the consumer’s specifications’ means non-prefabricated goods made on the basis of an individual choice of or decision by the consumer;

644  Part 1: European Union Legislation (5) ‘sales contract’ means any contract under which the trader transfers or undertakes to transfer the ownership of goods to the consumer and the consumer pays or undertakes to pay the price thereof, including any contract having as its object both goods and services; (6) ‘service contract’ means any contract other than a sales contract under which the trader supplies or undertakes to supply a service to the consumer and the consumer pays or undertakes to pay the price thereof; (7) ‘distance contract’ means any contract concluded between the trader and the consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded; (8) ‘off-premises contract’ means any contract between the trader and the consumer: (a) concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader; (b) for which an offer was made by the consumer in the same circumstances as referred to in point (a); (c) concluded on the business premises of the trader or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the business premises of the trader in the simultaneous physical presence of the trader and the consumer; or (d) concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer; (9) ‘business premises’ means: (a) any immovable retail premises where the trader carries out his activity on a permanent basis; or (b) any movable retail premises where the trader carries out his activity on a usual basis; (10) ‘durable medium’ means any instrument which enables the consumer or the trader to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (11) ‘digital content’ means data which are produced and supplied in digital form; (12) ‘financial service’ means any service of a banking, credit, insurance, personal pension, investment or payment nature; (13) ‘public auction’ means a method of sale where goods or services are offered by the trader to consumers, who attend or are given the possibility to attend the auction in person, through a transparent, competitive bidding procedure run by an auctioneer and where the successful bidder is bound to purchase the goods or services; (14) ‘commercial guarantee’ means any undertaking by the trader or a producer (the guarantor) to the consumer, in addition to his legal obligation relating

Directive 2011/83/EU 645 to the guarantee of conformity, to reimburse the price paid or to replace, repair or service goods in any way if they do not meet the specifications or any other requirements not related to conformity set out in the guarantee statement or in the relevant advertising available at the time of, or before the conclusion of the contract; (15) ‘ancillary contract’ means a contract by which the consumer acquires goods or services related to a distance contract or an off-premises contract and where those goods are supplied or those services are provided by the trader or by a third party on the basis of an arrangement between that third party and the trader. Article 3 Scope 1. This Directive shall apply, under the conditions and to the extent set out in its provisions, to any contract concluded between a trader and a consumer. It shall also apply to contracts for the supply of water, gas, electricity or district heating, including by public providers, to the extent that these commodities are provided on a contractual basis. 2. If any provision of this Directive conflicts with a provision of another Union act governing specific sectors, the provision of that other Union act shall prevail and shall apply to those specific sectors. 3. This Directive shall not apply to contracts: (a) for social services, including social housing, childcare and support of families and persons permanently or temporarily in need, including longterm care; (b) for healthcare as defined in point (a) of Article 3 of Directive 2011/24/ EU, whether or not they are provided via healthcare facilities; (c) for gambling, which involves wagering a stake with pecuniary value in games of chance, including lotteries, casino games and betting transactions; (d) for financial services; (e) for the creation, acquisition or transfer of immovable property or of rights in immovable property; (f) for the construction of new buildings, the substantial conversion of existing buildings and for rental of accommodation for residential purposes; (g) which fall within the scope of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours (18); (h) which fall within the scope of Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts (19); (i) which, in accordance with the laws of Member States, are established by a public office-holder who has a statutory obligation to be independent and impartial and who must ensure, by providing comprehensive legal

646  Part 1: European Union Legislation information, that the consumer only concludes the contract on the basis of careful legal consideration and with knowledge of its legal scope; (j) for the supply of foodstuffs, beverages or other goods intended for current consumption in the household, and which are physically supplied by a trader on frequent and regular rounds to the consumer’s home, residence or workplace; (k) for passenger transport services, with the exception of Article 8(2) and Articles 19 and 22; (l) concluded by means of automatic vending machines or automated commercial premises; (m) concluded with telecommunications operators through public payphones for their use or concluded for the use of one single connection by telephone, Internet or fax established by a consumer. 4. Member States may decide not to apply this Directive or not to maintain or introduce corresponding national provisions to off-premises contracts for which the payment to be made by the consumer does not exceed EUR 50. Member States may define a lower value in their national legislation. 5. This Directive shall not affect national general contract law such as the rules on the validity, formation or effect of a contract, in so far as general contract law aspects are not regulated in this Directive. 6. This Directive shall not prevent traders from offering consumers contractual arrangements which go beyond the protection provided for in this Directive. Article 4 Level of harmonization Member States shall not maintain or introduce, in their national law, provisions diverging from those laid down in this Directive, including more or less stringent provisions to ensure a different level of consumer protection, unless otherwise provided for in this Directive. CHAPTER II CONSUMER INFORMATION FOR CONTRACTS OTHER THAN DISTANCE OR OFF-PREMISES CONTRACTS Article 5 Information requirements for contracts other than distance or off-premises contracts 1. Before the consumer is bound by a contract other than a distance or an offpremises contract, or any corresponding offer, the trader shall provide the consumer with the following information in a clear and comprehensible manner, if that information is not already apparent from the context: (a) the main characteristics of the goods or services, to the extent appropriate to the medium and to the goods or services;

Directive 2011/83/EU 647 (b) the identity of the trader, such as his trading name, the geographical address at which he is established and his telephone number; (c) the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated, as well as, where applicable, all additional freight, delivery or postal charges or, where those charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable; (d) where applicable, the arrangements for payment, delivery, performance, the time by which the trader undertakes to deliver the goods or to perform the service, and the trader’s complaint handling policy; (e) in addition to a reminder of the existence of a legal guarantee of conformity for goods, the existence and the conditions of after-sales services and commercial guarantees, where applicable; (f) the duration of the contract, where applicable, or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract; (g) where applicable, the functionality, including applicable technical protection measures, of digital content; (h) where applicable, any relevant interoperability of digital content with hardware and software that the trader is aware of or can reasonably be expected to have been aware of. 2. Paragraph 1 shall also apply to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium. 3. Member States shall not be required to apply paragraph 1 to contracts which involve day-to-day transactions and which are performed immediately at the time of their conclusion. 4. Member States may adopt or maintain additional pre-contractual information requirements for contracts to which this Article applies. CHAPTER III CONSUMER INFORMATION AND RIGHT OF WITHDRAWAL FOR DISTANCE AND OFF-PREMISES CONTRACTS Article 6 Information requirements for distance and off-premises contracts 1. Before the consumer is bound by a distance or off-premises contract, or any corresponding offer, the trader shall provide the consumer with the following information in a clear and comprehensible manner: (a) the main characteristics of the goods or services, to the extent appropriate to the medium and to the goods or services; (b) the identity of the trader, such as his trading name;

648  Part 1: European Union Legislation (c) the geographical address at which the trader is established and the trader’s telephone number, fax number and e-mail address, where available, to enable the consumer to contact the trader quickly and communicate with him efficiently and, where applicable, the geographical address and identity of the trader on whose behalf he is acting; (d) if different from the address provided in accordance with point (c), the geographical address of the place of business of the trader, and, where applicable, that of the trader on whose behalf he is acting, where the consumer can address any complaints; (e) the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated, as well as, where applicable, all additional freight, delivery or postal charges and any other costs or, where those charges cannot reasonably be calculated in advance, the fact that such additional charges may be payable. In the case of a contract of indeterminate duration or a contract containing a subscription, the total price shall include the total costs per billing period. Where such contracts are charged at a fixed rate, the total price shall also mean the total monthly costs. Where the total costs cannot be reasonably calculated in advance, the manner in which the price is to be calculated shall be provided; (f) the cost of using the means of distance communication for the conclusion of the contract where that cost is calculated other than at the basic rate; (g) the arrangements for payment, delivery, performance, the time by which the trader undertakes to deliver the goods or to perform the services and, where applicable, the trader’s complaint handling policy; (h) where a right of withdrawal exists, the conditions, time limit and procedures for exercising that right in accordance with Article 11(1), as well as the model withdrawal form set out in Annex I(B); (i) where applicable, that the consumer will have to bear the cost of returning the goods in case of withdrawal and, for distance contracts, if the goods, by their nature, cannot normally be returned by post, the cost of returning the goods; (j) that, if the consumer exercises the right of withdrawal after having made a request in accordance with Article 7(3) or Article 8(8), the consumer shall be liable to pay the trader reasonable costs in accordance with ­Article 14(3); (k) where a right of withdrawal is not provided for in accordance with ­Article 16, the information that the consumer will not benefit from a right of withdrawal or, where applicable, the circumstances under which the consumer loses his right of withdrawal; (l) a reminder of the existence of a legal guarantee of conformity for goods; (m) where applicable, the existence and the conditions of after sale customer assistance, after-sales services and commercial guarantees;

Directive 2011/83/EU 649

2.

3. 4.

5. 6.

7. 8.

(n) the existence of relevant codes of conduct, as defined in point (f) of Article 2 of Directive 2005/29/EC, and how copies of them can be ­ obtained, where applicable; (o) the duration of the contract, where applicable, or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract; (p) where applicable, the minimum duration of the consumer’s obligations under the contract; (q) where applicable, the existence and the conditions of deposits or other financial guarantees to be paid or provided by the consumer at the request of the trader; (r) where applicable, the functionality, including applicable technical protection measures, of digital content; (s) where applicable, any relevant interoperability of digital content with hardware and software that the trader is aware of or can reasonably be expected to have been aware of; (t) where applicable, the possibility of having recourse to an out-of-court complaint and redress mechanism, to which the trader is subject, and the methods for having access to it. Paragraph 1 shall also apply to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium. In the case of a public auction, the information referred to in points (b), (c) and (d) of paragraph 1 may be replaced by the equivalent details for the auctioneer. The information referred to in points (h), (i) and (j) of paragraph 1 may be provided by means of the model instructions on withdrawal set out in Annex I(A). The trader shall have fulfilled the information requirements laid down in points (h), (i) and (j) of paragraph 1 if he has supplied these instructions to the consumer, correctly filled in. The information referred to in paragraph 1 shall form an integral part of the distance or off-premises contract and shall not be altered unless the contracting parties expressly agree otherwise. If the trader has not complied with the information requirements on additional charges or other costs as referred to in point (e) of paragraph 1, or on the costs of returning the goods as referred to in point (i) of paragraph 1, the consumer shall not bear those charges or costs. Member States may maintain or introduce in their national law language requirements regarding the contractual information, so as to ensure that such information is easily understood by the consumer. The information requirements laid down in this Directive are in addition to information requirements contained in Directive 2006/123/EC and Directive 2000/31/EC and do not prevent Member States from imposing additional information requirements in accordance with those Directives.

650  Part 1: European Union Legislation Without prejudice to the first subparagraph, if a provision of Directive 2006/123/EC or Directive 2000/31/EC on the content and the manner in which the information is to be provided conflicts with a provision of this Directive, the provision of this Directive shall prevail. 9. As regards compliance with the information requirements laid down in this Chapter, the burden of proof shall be on the trader. Article 7 Formal requirements for off-premises contracts 1. With respect to off-premises contracts, the trader shall give the information provided for in Article 6(1) to the consumer on paper or, if the consumer agrees, on another durable medium. That information shall be legible and in plain, intelligible language. 2. The trader shall provide the consumer with a copy of the signed contract or the confirmation of the contract on paper or, if the consumer agrees, on another durable medium, including, where applicable, the confirmation of the consumer’s prior express consent and acknowledgement in accordance with point (m) of Article 16. 3. Where a consumer wants the performance of services or the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating to begin during the withdrawal period provided for in Article 9(2), the trader shall require that the consumer makes such an express request on a durable medium. 4. With respect to off-premises contracts where the consumer has explicitly requested the services of the trader for the purpose of carrying out repairs or maintenance for which the trader and the consumer immediately perform their contractual obligations and where the payment to be made by the consumer does not exceed EUR 200: (a) the trader shall provide the consumer with the information referred to in points (b) and (c) of Article 6(1) and information about the price or the manner in which the price is to be calculated together with an estimate of the total price, on paper or, if the consumer agrees, on another durable medium. The trader shall provide the information referred to in points (a), (h) and (k) of Article 6(1), but may choose not to provide it on paper or another durable medium if the consumer expressly agrees; (b) the confirmation of the contract provided in accordance with paragraph 2 of this Article shall contain the information provided for in Article 6(1). Member States may decide not to apply this paragraph. 5. Member States shall not impose any further formal pre-contractual information requirements for the fulfilment of the information obligations laid down in this Directive.

Directive 2011/83/EU 651 Article 8 Formal requirements for distance contracts 1. With respect to distance contracts, the trader shall give the information provided for in Article 6(1) or make that information available to the consumer in a way appropriate to the means of distance communication used in plain and intelligible language. In so far as that information is provided on a durable medium, it shall be legible. 2. If a distance contract to be concluded by electronic means places the consumer under an obligation to pay, the trader shall make the consumer aware in a clear and prominent manner, and directly before the consumer places his order, of the information provided for in points (a), (e), (o) and (p) of Article 6(1). The trader shall ensure that the consumer, when placing his order, explicitly acknowledges that the order implies an obligation to pay. If placing an order entails activating a button or a similar function, the button or similar function shall be labelled in an easily legible manner only with the words ‘order with obligation to pay’ or a corresponding unambiguous formulation indicating that placing the order entails an obligation to pay the trader. If the trader has not complied with this subparagraph, the consumer shall not be bound by the contract or order. 3. Trading websites shall indicate clearly and legibly at the latest at the beginning of the ordering process whether any delivery restrictions apply and which means of payment are accepted. 4. If the contract is concluded through a means of distance communication which allows limited space or time to display the information, the trader shall provide, on that particular means prior to the conclusion of such a contract, at least the pre-contractual information regarding the main characteristics of the goods or services, the identity of the trader, the total price, the right of withdrawal, the duration of the contract and, if the contract is of indeterminate duration, the conditions for terminating the contract, as referred to in points (a), (b), (e), (h) and (o) of Article 6(1). The other information referred to in Article 6(1) shall be provided by the trader to the consumer in an appropriate way in accordance with paragraph 1 of this Article. 5. Without prejudice to paragraph 4, if the trader makes a telephone call to the consumer with a view to concluding a distance contract, he shall, at the beginning of the conversation with the consumer, disclose his identity and, where applicable, the identity of the person on whose behalf he makes that call, and the commercial purpose of the call. 6. Where a distance contract is to be concluded by telephone, Member States may provide that the trader has to confirm the offer to the consumer who is bound only once he has signed the offer or has sent his written consent. Member States may also provide that such confirmations have to be made on a durable medium.

652  Part 1: European Union Legislation 7. The trader shall provide the consumer with the confirmation of the contract concluded, on a durable medium within a reasonable time after the ­conclusion of the distance contract, and at the latest at the time of the delivery of the goods or before the performance of the service begins. That confirmation shall include: (a) all the information referred to in Article 6(1) unless the trader has already provided that information to the consumer on a durable medium prior to the conclusion of the distance contract; and (b) where applicable, the confirmation of the consumer’s prior express consent and acknowledgment in accordance with point (m) of Article 16. 8. Where a consumer wants the performance of services, or the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating, to begin during the withdrawal period provided for in Article 9(2), the trader shall require that the consumer make an express request. 9. This Article shall be without prejudice to the provisions on the conclusion of e-contracts and the placing of e-orders set out in Articles 9 and 11 of Directive 2000/31/EC. 10. Member States shall not impose any further formal pre-contractual information requirements for the fulfilment of the information obligations laid down in this Directive. Article 9 Right of withdrawal 1. Save where the exceptions provided for in Article 16 apply, the consumer shall have a period of 14 days to withdraw from a distance or off-premises contract, without giving any reason, and without incurring any costs other than those provided for in Article 13(2) and Article 14. 2. Without prejudice to Article 10, the withdrawal period referred to in paragraph 1 of this Article shall expire after 14 days from: (a) in the case of service contracts, the day of the conclusion of the contract; (b) in the case of sales contracts, the day on which the consumer or a third party other than the carrier and indicated by the consumer acquires physical possession of the goods or: (i) in the case of multiple goods ordered by the consumer in one order and delivered separately, the day on which the consumer or a third party other than the carrier and indicated by the consumer acquires physical possession of the last good; (ii) in the case of delivery of a good consisting of multiple lots or pieces, the day on which the consumer or a third party other than the carrier and indicated by the consumer acquires physical possession of the last lot or piece; (iii) in the case of contracts for regular delivery of goods during defined period of time, the day on which the consumer or a third party other than the carrier and indicated by the consumer acquires physical possession of the first good;

Directive 2011/83/EU 653 (c) in the case of contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium, the day of the conclusion of the contract. 3. The Member States shall not prohibit the contracting parties from performing their contractual obligations during the withdrawal period. Nevertheless, in the case of off-premises contracts, Member States may maintain existing national legislation prohibiting the trader from collecting the payment from the consumer during the given period after the conclusion of the contract. Article 10 Omission of information on the right of withdrawal 1. If the trader has not provided the consumer with the information on the right of withdrawal as required by point (h) of Article 6(1), the withdrawal period shall expire 12 months from the end of the initial withdrawal period, as determined in accordance with Article 9(2). 2. If the trader has provided the consumer with the information provided for in paragraph 1 of this Article within 12 months from the day referred to in ­Article 9(2), the withdrawal period shall expire 14 days after the day upon which the consumer receives that information. Article 11 Exercise of the right of withdrawal 1. Before the expiry of the withdrawal period, the consumer shall inform the trader of his decision to withdraw from the contract. For this purpose, the consumer may either: (a) use the model withdrawal form as set out in Annex I(B); or (b) make any other unequivocal statement setting out his decision to withdraw from the contract. Member States shall not provide for any formal requirements applicable to the model withdrawal form other than those set out in Annex I(B). 2. The consumer shall have exercised his right of withdrawal within the withdrawal period referred to in Article 9(2) and Article 10 if the communication concerning the exercise of the right of withdrawal is sent by the consumer before that period has expired. 3. The trader may, in addition to the possibilities referred to in paragraph 1, give the option to the consumer to electronically fill in and submit either the model withdrawal form set out in Annex I(B) or any other unequivocal statement on the trader’s website. In those cases the trader shall communicate to the consumer an acknowledgement of receipt of such a withdrawal on a durable medium without delay. 4. The burden of proof of exercising the right of withdrawal in accordance with this Article shall be on the consumer.

654  Part 1: European Union Legislation Article 12 Effects of withdrawal The exercise of the right of withdrawal shall terminate the obligations of the parties: (a) to perform the distance or off-premises contract; or (b) to conclude the distance or off-premises contract, in cases where an offer was made by the consumer. Article 13 Obligations of the trader in the event of withdrawal 1. The trader shall reimburse all payments received from the consumer, including, if applicable, the costs of delivery without undue delay and in any event not later than 14 days from the day on which he is informed of the consumer’s decision to withdraw from the contract in accordance with Article 11. The trader shall carry out the reimbursement referred to in the first subpara­ graph using the same means of payment as the consumer used for the initial transaction, unless the consumer has expressly agreed otherwise and provided that the consumer does not incur any fees as a result of such reimbursement. 2. Notwithstanding paragraph 1, the trader shall not be required to reimburse the supplementary costs, if the consumer has expressly opted for a type of delivery other than the least expensive type of standard delivery offered by the trader. 3. Unless the trader has offered to collect the goods himself, with regard to sales contracts, the trader may withhold the reimbursement until he has received the goods back, or until the consumer has supplied evidence of having sent back the goods, whichever is the earliest. Article 14 Obligations of the consumer in the event of withdrawal 1. Unless the trader has offered to collect the goods himself, the consumer shall send back the goods or hand them over to the trader or to a person authorised by the trader to receive the goods, without undue delay and in any event not later than 14 days from the day on which he has communicated his decision to withdraw from the contract to the trader in accordance with Article 11. The deadline shall be met if the consumer sends back the goods before the period of 14 days has expired. The consumer shall only bear the direct cost of returning the goods unless the trader has agreed to bear them or the trader failed to inform the consumer that the consumer has to bear them. In the case of off-premises contracts where the goods have been delivered to the consumer’s home at the time of the conclusion of the contract, the trader shall at his own expense collect the goods if, by their nature, those goods cannot normally be returned by post.

Directive 2011/83/EU 655 2. The consumer shall only be liable for any diminished value of the goods resulting from the handling of the goods other than what is necessary to establish the nature, characteristics and functioning of the goods. The consumer shall in any event not be liable for diminished value of the goods where the trader has failed to provide notice of the right of withdrawal in accordance with point (h) of Article 6(1). 3. Where a consumer exercises the right of withdrawal after having made a request in accordance with Article 7(3) or Article 8(8), the consumer shall pay to the trader an amount which is in proportion to what has been provided until the time the consumer has informed the trader of the exercise of the right of withdrawal, in comparison with the full coverage of the contract. The proportionate amount to be paid by the consumer to the trader shall be calculated on the basis of the total price agreed in the contract. If the total price is excessive, the proportionate amount shall be calculated on the basis of the market value of what has been provided. 4. The consumer shall bear no cost for: (a) the performance of services or the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating, in full or in part, during the withdrawal period, where: (i) the trader has failed to provide information in accordance with points (h) or (j) of Article 6(1); or (ii) the consumer has not expressly requested performance to begin during the withdrawal period in accordance with Article 7(3) and Article 8(8); or (b) the supply, in full or in part, of digital content which is not supplied on a tangible medium where: (i) the consumer has not given his prior express consent to the beginning of the performance before the end of the 14-day period referred to in Article 9; (ii) the consumer has not acknowledged that he loses his right of withdrawal when giving his consent; or (iii) the trader has failed to provide confirmation in accordance with Article 7(2) or Article 8(7). 5. Except as provided for in Article 13(2) and in this Article, the consumer shall not incur any liability as a consequence of the exercise of the right of withdrawal. Article 15 Effects of the exercise of the right of withdrawal on ancillary contracts 1. Without prejudice to Article 15 of Directive 2008/48/EC of the European ­Parliament and of the Council of 23 April 2008 on credit agreements for ­consumers (20), if the consumer exercises his right of withdrawal from a distance or an off-premises contract in accordance with Articles 9 to 14 of this Directive, any ancillary contracts shall be automatically terminated, without

656  Part 1: European Union Legislation any costs for the consumer, except as provided for in Article 13(2) and in Article 14 of this Directive. 2. The Member States shall lay down detailed rules on the termination of such contracts. Article 16 Exceptions from the right of withdrawal Member States shall not provide for the right of withdrawal set out in Articles 9 to 15 in respect of distance and off-premises contracts as regards the following: (a) service contracts after the service has been fully performed if the performance has begun with the consumer’s prior express consent, and with the acknowledgement that he will lose his right of withdrawal once the contract has been fully performed by the trader; (b) the supply of goods or services for which the price is dependent on fluctuations in the financial market which cannot be controlled by the trader and which may occur within the withdrawal period; (c) the supply of goods made to the consumer’s specifications or clearly personalised; (d) the supply of goods which are liable to deteriorate or expire rapidly; (e) the supply of sealed goods which are not suitable for return due to health protection or hygiene reasons and were unsealed after delivery; (f) the supply of goods which are, after delivery, according to their nature, inseparably mixed with other items; (g) the supply of alcoholic beverages, the price of which has been agreed upon at the time of the conclusion of the sales contract, the delivery of which can only take place after 30 days and the actual value of which is dependent on fluctuations in the market which cannot be controlled by the trader; (h) contracts where the consumer has specifically requested a visit from the trader for the purpose of carrying out urgent repairs or maintenance. If, on the occasion of such visit, the trader provides services in addition to those specifically requested by the consumer or goods other than replacement parts necessarily used in carrying out the maintenance or in making the repairs, the right of withdrawal shall apply to those additional services or goods; (i) the supply of sealed audio or sealed video recordings or sealed computer software which were unsealed after delivery; (j) the supply of a newspaper, periodical or magazine with the exception of subscription contracts for the supply of such publications; (k) contracts concluded at a public auction; (l) the provision of accommodation other than for residential purpose, transport of goods, car rental services, catering or services related to leisure activities if the contract provides for a specific date or period of performance; (m) the supply of digital content which is not supplied on a tangible medium if the performance has begun with the consumer’s prior express consent and his acknowledgment that he thereby loses his right of withdrawal.

Directive 2011/83/EU 657 CHAPTER IV OTHER CONSUMER RIGHTS Article 17 Scope 1. Articles 18 and 20 shall apply to sales contracts. Those Articles shall not apply to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or the supply of digital content which is not supplied on a tangible medium. 2. Articles 19, 21 and 22 shall apply to sales and service contracts and to contracts for the supply of water, gas, electricity, district heating or digital content. Article 18 Delivery 1. Unless the parties have agreed otherwise on the time of delivery, the trader shall deliver the goods by transferring the physical possession or control of the goods to the consumer without undue delay, but not later than 30 days from the conclusion of the contract. 2. Where the trader has failed to fulfil his obligation to deliver the goods at the time agreed upon with the consumer or within the time limit set out in paragraph 1, the consumer shall call upon him to make the delivery within an additional period of time appropriate to the circumstances. If the trader fails to deliver the goods within that additional period of time, the consumer shall be entitled to terminate the contract. The first subparagraph shall not be applicable to sales contracts where the trader has refused to deliver the goods or where delivery within the agreed delivery period is essential taking into account all the circumstances attending the conclusion of the contract or where the consumer informs the trader, prior to the conclusion of the contract, that delivery by or on a specified date is essential. In those cases, if the trader fails to deliver the goods at the time agreed upon with the consumer or within the time limit set out in ­paragraph 1, the consumer shall be entitled to terminate the contract immediately. 3. Upon termination of the contract, the trader shall, without undue delay, reimburse all sums paid under the contract. 4. In addition to the termination of the contract in accordance with p ­ aragraph 2, the consumer may have recourse to other remedies provided for by national law. Article 19 Fees for the use of means of payment Member States shall prohibit traders from charging consumers, in respect of the use of a given means of payment, fees that exceed the cost borne by the trader for the use of such means.

658  Part 1: European Union Legislation Article 20 Passing of risk In contracts where the trader dispatches the goods to the consumer, the risk of loss of or damage to the goods shall pass to the consumer when he or a third party indicated by the consumer and other than the carrier has acquired the physical possession of the goods. However, the risk shall pass to the consumer upon delivery to the carrier if the carrier was commissioned by the consumer to carry the goods and that choice was not offered by the trader, without prejudice to the rights of the consumer against the carrier. Article 21 Communication by telephone Member States shall ensure that where the trader operates a telephone line for the purpose of contacting him by telephone in relation to the contract concluded, the consumer, when contacting the trader is not bound to pay more than the basic rate. The first subparagraph shall be without prejudice to the right of telecommunication services providers to charge for such calls. Article 22 Additional payments Before the consumer is bound by the contract or offer, the trader shall seek the express consent of the consumer to any extra payment in addition to the remuneration agreed upon for the trader’s main contractual obligation. If the trader has not obtained the consumer’s express consent but has inferred it by using default options which the consumer is required to reject in order to avoid the additional payment, the consumer shall be entitled to reimbursement of this payment. CHAPTER V GENERAL PROVISIONS Article 23 Enforcement 1. Member States shall ensure that adequate and effective means exist to ensure compliance with this Directive. 2. The means referred to in paragraph 1 shall include provisions whereby one or more of the following bodies, as determined by national law, may take action under national law before the courts or before the competent administrative bodies to ensure that the national provisions transposing this Directive are applied: (a) public bodies or their representatives; (b) consumer organisations having a legitimate interest in protecting consumers; (c) professional organisations having a legitimate interest in acting.

Directive 2011/83/EU 659 Article 24 Penalties 1. Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted pursuant to this Directive and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, proportionate and dissuasive. 2. Member States shall notify those provisions to the Commission by 13 ­December 2013 and shall notify it without delay of any subsequent amendment affecting them. Article 25 Imperative nature of the Directive If the law applicable to the contract is the law of a Member State, consumers may not waive the rights conferred on them by the national measures transposing this Directive. Any contractual terms which directly or indirectly waive or restrict the rights resulting from this Directive shall not be binding on the consumer. Article 26 Information Member States shall take appropriate measures to inform consumers and traders of the national provisions transposing this Directive and shall, where appropriate, encourage traders and code owners as defined in point (g) of Article 2 of Directive 2005/29/EC, to inform consumers of their codes of conduct. Article 27 Inertia selling The consumer shall be exempted from the obligation to provide any consideration in cases of unsolicited supply of goods, water, gas, electricity, district heating or digital content or unsolicited provision of services, prohibited by Article 5(5) and point 29 of Annex I to Directive 2005/29/EC. In such cases, the absence of a response from the consumer following such an unsolicited supply or provision shall not constitute consent. Article 28 Transposition 1. Member States shall adopt and publish, by 13 December 2013, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of these measures in the form of documents. The Commission shall make use of these documents for the purposes of the report referred to in Article 30.

660  Part 1: European Union Legislation They shall apply those measures from 13 June 2014. When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 2. The provisions of this Directive shall apply to contracts concluded after 13 June 2014. Article 29 Reporting requirements 1. Where a Member State makes use of any of the regulatory choices referred to in Article 3(4), Article 6(7), Article 6(8), Article 7(4), Article 8(6) and Article 9(3), it shall inform the Commission thereof by 13 December 2013, as well as of any subsequent changes. 2. The Commission shall ensure that the information referred to in paragraph 1 is easily accessible to consumers and traders, inter alia, on a dedicated website. 3. The Commission shall forward the information referred to in paragraph 1 to the other Member States and the European Parliament. The Commission shall consult stakeholders on that information. Article 30 Reporting by the Commission and review By 13 December 2016, the Commission shall submit a report on the application of this Directive to the European Parliament and the Council. That report shall include in particular an evaluation of the provisions of this Directive regarding digital content including the right of withdrawal. The report shall be accompanied, where necessary, by legislative proposals to adapt this Directive to developments in the field of consumer rights. CHAPTER VI FINAL PROVISIONS Article 31 Repeals Directive 85/577/EEC and Directive 97/7/EC, as amended by Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (21) and by Directives 2005/29/EC and 2007/64/EC, are repealed as of 13 June 2014. References to the repealed Directives shall be construed as references to this Directive and shall be read in accordance with the correlation table set out in Annex II.

Directive 2011/83/EU 661 Article 32 Amendment to Directive 93/13/EEC In Directive 93/13/EEC, the following Article is inserted: ‘Article 8a 1. Where a Member State adopts provisions in accordance with Article 8, it shall inform the Commission thereof, as well as of any subsequent changes, in particular where those provisions: —— extend the unfairness assessment to individually negotiated contractual terms or to the adequacy of the price or remuneration; or, —— contain lists of contractual terms which shall be considered as unfair, 2. The Commission shall ensure that the information referred to in paragraph 1 is easily accessible to consumers and traders, inter alia, on a dedicated website. 3. The Commission shall forward the information referred to in paragraph 1 to the other Member States and the European Parliament. The Commission shall consult stakeholders on that information.’ Article 33 Amendment to Directive 1999/44/EC In Directive 1999/44/EC, the following Article is inserted: ‘Article 8a Reporting requirements 1. Where, in accordance with Article 8(2), a Member State adopts more stringent consumer protection provisions than those provided for in Article 5(1) to (3) and in Article 7(1), it shall inform the Commission thereof, as well as of any subsequent changes. 2. The Commission shall ensure that the information referred to in paragraph 1 is easily accessible to consumers and traders, inter alia, on a dedicated website. 3. The Commission shall forward the information referred to in paragraph 1 to the other Member States and the European Parliament. The Commission shall consult stakeholders on that information.’ Article 34 Entry into force This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union.

662  Part 1: European Union Legislation Article 35 Addressees This Directive is addressed to the Member States. ANNEX I Information concerning the exercise of the right of withdrawal A. Model instructions on withdrawal Right of withdrawal You have the right to withdraw from this contract within 14 days without giving any reason. The withdrawal period will expire after 14 days from the day [1]. To exercise the right of withdrawal, you must inform us ([2]) of your decision to withdraw from this contract by an unequivocal statement (e.g. a letter sent by post, fax or e-mail). You may use the attached model withdrawal form, but it is not obligatory. [3] To meet the withdrawal deadline, it is sufficient for you to send your communication concerning your exercise of the right of withdrawal before the withdrawal period has expired. Effects of withdrawal If you withdraw from this contract, we shall reimburse to you all payments received from you, including the costs of delivery (with the exception of the supplementary costs resulting from your choice of a type of delivery other than the least expensive type of standard delivery offered by us), without undue delay and in any event not later than 14 days from the day on which we are informed about your decision to withdraw from this contract. We will carry out such reimbursement using the same means of payment as you used for the initial transaction, unless you have expressly agreed otherwise; in any event, you will not incur any fees as a result of such reimbursement. [4] [5] [6] Instructions for completion: [1.] Insert one of the following texts between inverted commas: (a) in the case of a service contract or a contract for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium: ‘of the conclusion of the contract.’; (b) in the case of a sales contract: ‘on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the goods.’; (c) in the case of a contract relating to multiple goods ordered by the consumer in one order and delivered separately: ‘on which you acquire, or a third party

Directive 2011/83/EU 663 other than the carrier and indicated by you acquires, physical possession of the last good.’; (d) in the case of a contract relating to delivery of a good consisting of multiple lots or pieces: ‘on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the last lot or piece.’; (e) in the case of a contract for regular delivery of goods during a defined period of time: ‘on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the first good.’. [2.] Insert your name, geographical address and, where available, your telephone number, fax number and e-mail address. [3.] If you give the option to the consumer to electronically fill in and submit information about his withdrawal from the contract on your website, insert the following: ‘You can also electronically fill in and submit the model withdrawal form or any other unequivocal statement on our website [insert Internet address]. If you use this option, we will communicate to you an acknowledgement of receipt of such a withdrawal on a durable medium (e.g. by e-mail) without delay.’. [4.] In the case of sales contracts in which you have not offered to collect the goods in the event of withdrawal insert the following: ‘We may withhold reimbursement until we have received the goods back or you have supplied evidence of having sent back the goods, whichever is the earliest.’. OJ 2011 L304/852011 · Official Journal of the European Union · L304/85 [5.] If the consumer has received goods in connection with the contract: (a) insert: —— ‘We will —— collect the goods.’; or, —— ‘You shall send back the goods or hand them over to us or ... [insert the name and geographical address, where applicable, of the person authorised by you to receive the goods], without undue delay and in any event not later than 14 days from the day on which you communicate your withdrawal from this contract to us. The deadline is met if you send back the goods before the period of 14 days has expired.’ (b) insert: —— ‘We will bear the cost of returning the goods.’, —— ‘You will have to bear the direct cost of returning the goods.’, —— If, in a distance contract, you do not offer to bear the cost of returning the goods and the goods, by their nature, cannot normally be returned by post: ‘You will have to bear the direct cost of returning the goods, ... EUR [insert the amount].’; or if the cost of returning the goods cannot reasonably be calculated in advance: ‘You will have to bear the direct cost of returning the goods. The cost is estimated at a maximum of approximately ... EUR [insert the amount].’; or —— If, in an off-premises contract, the goods, by their nature, cannot normally be returned by post and have been delivered to the consumer’s home at the time of the conclusion of the contract: ‘We will collect the goods at our own expense.’; and,

664  Part 1: European Union Legislation (c) insert ‘You are only liable for any diminished value of the goods resulting from the handling other than what is necessary to establish the nature, characteristics and functioning of the goods.’ [6.] In the case of a contract for the provision of services or the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, or of district heating, insert the following: ‘If you requested to begin the performance of services or the supply of water/gas/electricity/district heating [delete where inapplicable] during the withdrawal period, you shall pay us an amount which is in proportion to what has been provided until you have communicated us your withdrawal from this contract, in comparison with the full coverage of the contract.’. B. Model withdrawal form (complete and return this form only if you wish to withdraw from the contract) —— To [here the trader’s name, geographical address and, where available, his fax number and e-mail address are to be inserted by the trader]: —— I/We (*) hereby give notice that I/We (*) withdraw from my/our (*) contract of sale of the following goods (*)/for the provision of the following service (*), —— Ordered on (*)/received on (*), —— Name of consumer(s), —— Address of consumer(s), —— Signature of consumer(s) (only if this form is notified on paper), —— Date (*) Delete as appropriate. OJ 2011 L304/862011 · Official Journal of the European Union · L304/86 (1)

OJ C 317, 23.12.2009, p. 54. OJ C 200, 25.8.2009, p. 76. (3) Position of the European Parliament of 23 June 2011 (not yet published in the Official Journal) and decision of the Council of 10 October 2011. (4) OJ L 372, 31.12.1985, p. 31. (5) OJ L 144, 4.6.1997, p. 19. (6) OJ L 177, 4.7.2008, p. 6. (7) OJ L 376, 27.12.2006, p. 36. (8) OJ L 178, 17.7.2000, p. 1. (9) OJ L 88, 4.4.2011, p. 45. (10) OJ L 255, 30.9.2005, p. 22. (11) OJ L 124, 8.6.1971, p. 1. (12) OJ L 319, 5.12.2007, p. 1. (13) OJ L 149, 11.6.2005, p. 22. (14) OJ L 201, 31.7.2002, p. 37. (15) OJ L 95, 21.4.1993, p. 29. (16) OJ L 171, 7.7.1999, p. 12. (17) OJ C 321, 31.12.2003, p. 1. (18) OJ L 158, 23.6.1990, p. 59. (2)

Directive 2011/83/EU 665 (19)

OJ L 33, 3.2.2009, p. 10. OJ L 133, 22.5.2008, p. 66. (21) OJ L 271, 9.10.2002, p. 16. (20)

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 (Directive on consumer ADR)* (OJ 2013 L165 p.63) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national Parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Acting in accordance with the ordinary legislative procedure (2),

Whereas: (1) Article 169(1) and point (a) of Article 169(2) of the Treaty on the Functioning of the European Union (TFEU) provide that the Union is to contribute to the attainment of a high level of consumer protection through measures adopted pursuant to Article 114 TFEU. Article 38 of the Charter of Fundamental Rights of the European Union provides that Union policies are to ensure a high level of consumer protection. (2) In accordance with Article 26(2) TFEU, the internal market is to comprise an area without internal frontiers in which the free movement of goods and services is ensured. The internal market should provide consumers with added value in the form of better quality, greater variety, reasonable prices and high safety standards for goods and services, which should promote a high level of consumer protection.

* Implemented in the United Kingdom by Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015/542 (am SI 2015/1392 and SI 2015/19720.

Directive 2013/11/EU 667 (3) Fragmentation of the internal market is detrimental to competitiveness, growth and job creation within the Union. Eliminating direct and indirect obstacles to the proper functioning of the internal market and improving citizens’ trust is essential for the completion of the internal market. (4) Ensuring access to simple, efficient, fast and low-cost ways of resolving domestic and cross-border disputes which arise from sales or service contracts should benefit consumers and therefore boost their confidence in the market. That access should apply to online as well as to offline transactions, and is particularly important when consumers shop across borders. (5) Alternative dispute resolution (ADR) offers a simple, fast and low-cost outof-court solution to disputes between consumers and traders. However, ADR is not yet sufficiently and consistently developed across the Union. It is regrettable that, despite Commission Recommendations 98/257/EC of 30 March 1998 on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes (3) and 2001/310/EC of 4 April 2001 on the principles for out-of-court bodies involved in the consensual resolution of consumer disputes (4), ADR has not been correctly established and is not running satisfactorily in all geographical areas or business sectors in the Union. Consumers and traders are still not aware of the existing out-of-court redress mechanisms, with only a small percentage of citizens knowing how to file a complaint with an ADR entity. Where ADR procedures are available, their quality levels vary considerably in the Member States and cross-border disputes are often not handled effectively by ADR entities. (6) The disparities in ADR coverage, quality and awareness in Member States constitute a barrier to the internal market and are among the reasons why many consumers abstain from shopping across borders and why they lack confidence that potential disputes with traders can be resolved in an easy, fast and inexpensive way. For the same reasons, traders might abstain from selling to consumers in other Member States where there is no sufficient access to high-quality ADR procedures. Furthermore, traders established in a Member State where high-quality ADR procedures are not sufficiently available are put at a competitive disadvantage with regard to traders that have access to such procedures and can thus resolve consumer disputes faster and more cheaply. (7) In order for consumers to exploit fully the potential of the internal market, ADR should be available for all types of domestic and cross-border disputes covered by this Directive, ADR procedures should comply with consistent quality requirements that apply throughout the Union, and consumers and traders should be aware of the existence of such procedures. Due to increased cross-border trade and movement of persons, it is also important that ADR entities handle cross-border disputes effectively. (8) As advocated by the European Parliament in its resolutions of 25 O ­ ctober 2011 on alternative dispute resolution in civil, commercial and family ­matters and of 20 May 2010 on delivering a single market to consumers and citizens, any holistic approach to the single market which delivers

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results for its citizens should as a priority develop simple, affordable, expedient and accessible system of redress. In its Communication of 13 April 2011 entitled ‘Single Market Act—Twelve levers to boost growth and strengthen confidence—“Working together to create new growth”’, the Commission identified legislation on ADR which includes an electronic commerce (e-commerce) dimension, as one of the twelve levers to boost growth, strengthen confidence and make progress towards completing the Single Market. In its conclusions of 24–25 March and 23 October 2011, the European Council invited the European Parliament and the Council to adopt, by the end of 2012, a first set of priority measures to bring a new impetus to the Single Market. Moreover, in its Conclusions of 30 May 2011 on the Priorities for relaunching the Single Market, the Council of the European Union highlighted the importance of e-commerce and agreed that consumer ADR schemes can offer low-cost, simple and quick redress for both consumers and traders. The successful implementation of those schemes requires sustained political commitment and support from all actors, without compromising the affordability, transparency, flexibility, speed and quality of decision-making by the ADR entities falling within the scope of this Directive. Given the increasing importance of online commerce and in particular crossborder trade as a pillar of Union economic activity, a properly functioning ADR infrastructure for consumer disputes and a properly integrated online dispute resolution (ODR) framework for consumer disputes arising from online transactions are necessary in order to achieve the Single Market Act’s aim of boosting citizens’ confidence in the internal market. This Directive 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 (5) are two interlinked and complementary legislative instruments. Regulation (EU) No 524/2013 provides for the establishment of an ODR platform which offers consumers and traders a single point of entry for the out-of-court resolution of online disputes, through ADR entities which are linked to the platform and offer ADR through quality ADR procedures. The availability of quality ADR entities across the Union is thus a precondition for the proper functioning of the ODR platform. This Directive should not apply to non-economic services of general interest. Non-economic services are services which are not performed for economic consideration. As a result, non-economic services of general interest performed by the State or on behalf of the State, without remuneration, should not be covered by this Directive irrespective of the legal form through which those services are provided. This Directive should not apply to health care services as defined in point (a) of Article 3 of Directive 2011/24/EU of the European Parliament and of the Council of 9 March 2011 on the application of patients’ rights in cross-border healthcare (6).

Directive 2013/11/EU 669 (15) The development within the Union of properly functioning ADR is necessary to strengthen consumers’ confidence in the internal market, including in the area of online commerce, and to fulfil the potential for and opportunities of cross-border and online trade. Such development should build on existing ADR procedures in the Member States and respect their legal t­raditions. Both existing and newly established properly functioning ­dispute resolution entities that comply with the quality requirements set out in this Directive should be considered as ‘ADR entities’ within the meaning of this Directive. The dissemination of ADR can also prove to be important in those Member States in which there is a substantial backlog of cases pending before the courts, preventing Union citizens from exercising their right to a fair trial within a reasonable time. (16) This Directive should apply to disputes between consumers and traders concerning contractual obligations stemming from sales or services contracts, both online and offline, in all economic sectors, other than the exempted sectors. This should include disputes arising from the sale or provision of digital content for remuneration. This Directive should apply to complaints submitted by consumers against traders. It should not apply to complaints submitted by traders against consumers or to disputes between traders. However, it should not prevent Member States from adopting or maintaining in force provisions on procedures for the out-of-court resolution of such disputes. (17) Member States should be permitted to maintain or introduce national ­provisions with regard to procedures not covered by this Directive, such as internal complaint handling procedures operated by the trader. Such ­internal complaint handling procedures can constitute an effective means for resolving consumer disputes at an early stage. (18) The definition of ‘consumer’ should cover natural persons who are acting outside their trade, business, craft or profession. However, if the contract is concluded for purposes partly within and partly outside the person’s trade (dual purpose contracts) and the trade purpose is so limited as not to be predominant in the overall context of the supply, that person should also be considered as a consumer. (19) Some existing Union legal acts already contain provisions concerning ADR. In order to ensure legal certainty, it should be provided that, in the event of conflict, this Directive is to prevail, except where it explicitly provides otherwise. In particular, this Directive should be without prejudice to Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters (7), which already sets out a framework for systems of mediation at Union level for cross-border disputes, without preventing the application of that Directive to internal mediation systems. This Directive is intended to apply horizontally to all types of ADR procedures, including to ADR procedures covered by Directive 2008/52/EC. (20) ADR entities are highly diverse across the Union but also within the ­Member States. This Directive should cover any entity that is established

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(23)

(24)

on a durable basis, offers the resolution of a dispute between a consumer and a trader through an ADR procedure and is listed in accordance with this Directive. This Directive may also cover, if Member States so decide, ­dispute resolution entities which impose solutions which are binding on the parties. However, an out-of-court procedure which is created on an ad hoc basis for a single dispute between a consumer and a trader should not be considered as an ADR procedure. Also ADR procedures are highly diverse across the Union and within Member States. They can take the form of procedures where the ADR entity brings the parties together with the aim of facilitating an amicable solution, or procedures where the ADR entity proposes a solution or procedures where the ADR entity imposes a solution. They can also take the form of a combination of two or more such procedures. This Directive should be without prejudice to the form which ADR procedures take in the Member States. Procedures before dispute resolution entities where the natural persons in charge of dispute resolution are employed or receive any form of remuneration exclusively from the trader are likely to be exposed to a conflict of interest. Therefore, those procedures should, in principle, be excluded from the scope of this Directive, unless a Member State decides that such procedures can be recognised as ADR procedures under this Directive and provided that those entities are in complete conformity with the specific requirements on independence and impartiality laid down in this Directive. ADR entities offering dispute resolution through such procedures should be subject to regular evaluation of their compliance with the quality requirements set out in this Directive, including the specific additional requirements ensuring their independence. This Directive should not apply to procedures before consumer-complaint handling systems operated by the trader, nor to direct negotiations between the parties. Furthermore, it should not apply to attempts made by a judge to settle a dispute in the course of a judicial proceeding concerning that dispute. Member States should ensure that disputes covered by this Directive can be submitted to an ADR entity which complies with the requirements set out in this Directive and is listed in accordance with it. Member States should have the possibility of fulfilling this obligation by building on existing properly functioning ADR entities and adjusting their scope of application, if needed, or by providing for the creation of new ADR entities. This Directive should not preclude the functioning of existing dispute resolution entities operating within the framework of national consumer protection authorities of Member States where State officials are in charge of dispute resolution. State officials should be regarded as representatives of both consumers’ and traders’ interests. This Directive should not oblige Member States to create a specific ADR entity in each retail sector. When necessary, in order to ensure full sectoral and geographical coverage by and access to ADR, Member States should have the possibility to provide for the creation

Directive 2013/11/EU 671

(25)

(26)

(27)

(28)

of a residual ADR entity that deals with disputes for the resolution of which no specific ADR entity is competent. Residual ADR entities are intended to be a safeguard for consumers and traders by ensuring that there are no gaps in access to an ADR entity. This Directive should not prevent Member States from maintaining or introducing legislation on procedures for out-of-court resolution of consumer contractual disputes which is in compliance with the requirements set out in this Directive. Furthermore, in order to ensure that ADR entities can operate effectively, those entities should have the possibility of maintaining or introducing, in accordance with the laws of the Member State in which they are established, procedural rules that allow them to refuse to deal with disputes in specific circumstances, for example where a dispute is too complex and would therefore be better resolved in court. However, procedural rules allowing ADR entities to refuse to deal with a dispute should not impair significantly consumers’ access to ADR procedures, including in the case of cross-border disputes. Thus, when providing for a monetary threshold, Member States should always take into account that the real value of a dispute may vary among Member States and, consequently, setting a disproportionately high threshold in one Member State could impair access to ADR procedures for consumers from other Member States. Member States should not be required to ensure that the consumer can submit his complaint to another ADR entity, where an ADR entity to which the complaint was first submitted has refused to deal with it because of its procedural rules. In such cases Member States should be deemed to have fulfilled their obligation to ensure full coverage of ADR entities. This Directive should allow traders established in a Member State to be covered by an ADR entity which is established in another Member State. In order to improve the coverage of and consumer access to ADR across the Union, Member States should have the possibility of deciding to rely on ADR entities established in another Member State or regional, transnational or pan-European ADR entities, where traders from different Member States are covered by the same ADR entity. Recourse to ADR entities established in another Member State or to transnational or pan-European ADR entities should, however, be without prejudice to Member States’ r­ esponsibility to ensure full coverage by and access to ADR entities. This Directive should be without prejudice to Member States maintaining or introducing ADR procedures dealing jointly with identical or similar disputes between a trader and several consumers. Comprehensive impact assessments should be carried out on collective out-of-court settlements before such settlements are proposed at Union level. The existence of an effective system for collective claims and easy recourse to ADR should be complementary and they should not be mutually exclusive procedures. The processing of information relating to disputes covered by this Directive should comply with the rules on the protection of personal data laid down in the laws, regulations and administrative provisions of the Member States

672  Part 1: European Union Legislation

(29)

(30)

(31)

(32)

(33)

(34)

(35)

adopted pursuant to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (8). Confidentiality and privacy should be respected at all times during the ADR procedure. Member States should be encouraged to protect the confidentiality of ADR procedures in any subsequent civil or commercial judicial proceedings or arbitration. Member States should nevertheless ensure that ADR entities make publicly available any systematic or significant problems that occur frequently and lead to disputes between consumers and traders. The information communicated in this regard could be accompanied by recommendations as to how such problems can be avoided or resolved in future, in order to raise traders’ standards and to facilitate the exchange of information and best practices. Member States should ensure that ADR entities resolve disputes in a manner that is fair, practical and proportionate to both the consumer and the trader, on the basis of an objective assessment of the circumstances in which the complaint is made and with due regard to the rights of the parties. The independence and integrity of ADR entities is crucial in order to gain Union citizens’ trust that ADR mechanisms will offer them a fair and independent outcome. The natural person or collegial body in charge of ADR should be independent of all those who might have an interest in the outcome and should have no conflict of interest which could impede him or it from reaching a decision in a fair, impartial and independent manner. The natural persons in charge of ADR should only be considered impartial if they cannot be subject to pressure that potentially influences their attitude towards the dispute. In order to ensure the independence of their actions, those persons should also be appointed for a sufficient duration, and should not be subject to any instructions from either party or their representative. In order to ensure the absence of any conflict of interest, natural persons in charge of ADR should disclose any circumstances that might affect their independence and impartiality or give rise to a conflict of interest with either party to the dispute they are asked to resolve. This could be any financial interest, direct or indirect, in the outcome of the ADR procedure or any personal or business relationship with one or more of the parties during the three years prior to assuming the post, including any capacity other than for the purposes of ADR in which the person concerned has acted for one or more of the parties, for a professional organisation or a business association of which one of the parties is a member or for any other member thereof. There is a particular need to ensure the absence of such pressure where the natural persons in charge of ADR are employed or receive any form of remuneration from the trader. Therefore, specific requirements should be provided for in the event that Member States decide to allow dispute resolution procedures in such cases to qualify as ADR procedures under this

Directive 2013/11/EU 673

(36)

(37)

(38)

(39)

(40)

(41)

Directive. Where natural persons in charge of ADR are employed or receive any form of remuneration exclusively from a professional organisation or a business association of which the trader is a member, they should have at their disposal a separate and dedicated budget sufficient to fulfil their tasks. It is essential for the success of ADR, in particular in order to ensure the necessary trust in ADR procedures, that the natural persons in charge of ADR possess the necessary expertise, including a general understanding of law. In particular, those persons should have sufficient general knowledge of legal matters in order to understand the legal implications of the dispute, without being obliged to be a qualified legal professional. The applicability of certain quality principles to ADR procedures strengthens both consumers’ and traders’ confidence in such procedures. Such quality principles were first developed at Union level in Recommendations 98/257/EC and 2001/310/EC. By making some of the principles established in those Commission Recommendations binding, this Directive establishes a set of quality requirements which apply to all ADR procedures carried out by an ADR entity which has been notified to the Commission. This Directive should establish quality requirements of ADR entities, which should ensure the same level of protection and rights for consumers in both domestic and cross-border disputes. This Directive should not prevent Member States from adopting or maintaining rules that go beyond what is provided for in this Directive. ADR entities should be accessible and transparent. In order to ensure the transparency of ADR entities and of ADR procedures it is necessary that the parties receive the clear and accessible information they need in order to take an informed decision before engaging in an ADR procedure. The provision of such information to traders should not be required where their participation in ADR procedures is mandatory under national law. A properly functioning ADR entity should conclude online and offline dispute resolution proceedings expeditiously within a timeframe of 90 ­calendar days starting on the date on which the ADR entity has received the complete complaint file including all relevant documentation pertaining to that complaint, and ending on the date on which the outcome of the ADR procedure is made available. The ADR entity which has received a complaint should notify the parties after receiving all the documents necessary to carry out the ADR procedure. In certain exceptional cases of a highly complex nature, including where one of the parties is unable, on justified grounds, to take part in the ADR procedure, ADR entities should be able to extend the timeframe for the purpose of undertaking an examination of the case in question. The parties should be informed of any such extension, and of the expected approximate length of time that will be needed for the conclusion of the dispute. ADR procedures should preferably be free of charge for the consumer. In the event that costs are applied, the ADR procedure should be accessible, attractive and inexpensive for consumers. To that end, costs should not exceed a nominal fee.

674  Part 1: European Union Legislation (42) ADR procedures should be fair so that the parties to a dispute are fully informed about their rights and the consequences of the choices they make in the context of an ADR procedure. ADR entities should inform consumers of their rights before they agree to or follow a proposed solution. Both parties should also be able to submit their information and evidence w ­ ithout being physically present. (43) An agreement between a consumer and a trader to submit complaints to an ADR entity should not be binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute. Furthermore, in ADR procedures which aim at resolving the dispute by imposing a solution, the solution imposed should be binding on the parties only if they were informed of its binding nature in advance and specifically accepted this. Specific acceptance by the trader should not be required if national rules provide that such solutions are binding on traders. (44) In ADR procedures which aim at resolving the dispute by imposing a solution on the consumer, in a situation where there is no conflict of laws, the solution imposed should not result in the consumer being deprived of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law of the Member State where the consumer and the trader are habitually resident. In a situation involving a conflict of laws, where the law applicable to the sales or service contract is determined in accordance with Article 6(1) and (2) of Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (9), the solution imposed by the ADR entity should not result in the consumer being deprived of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law of the Member State in which the consumer is habitually resident. In a situation involving a conflict of laws, where the law applicable to the sales or service contract is determined in accordance with Article 5(1) to (3) of the Rome Convention of 19 June 1980 on the law applicable to contractual obligations (10), the solution imposed by the ADR entity should not result in the consumer being deprived of the protection afforded to the consumer by the mandatory rules of the law of the Member State in which the consumer is habitually resident. (45) The right to an effective remedy and the right to a fair trial are f­ undamental rights laid down in Article 47 of the Charter of Fundamental Rights of the European Union. Therefore, ADR procedures should not be designed to replace court procedures and should not deprive consumers or traders of their rights to seek redress before the courts. This Directive should not prevent parties from exercising their right of access to the judicial ­system. In cases where a dispute could not be resolved through a given ADR procedure whose outcome is not binding, the parties should subsequently not be prevented from initiating judicial proceedings in relation to that dispute. Member States should be free to choose the appropriate means to achieve this objective. They should have the possibility to provide, inter

Directive 2013/11/EU 675

(46)

(47)

(48)

(49)

alia, that limitation or prescription periods do not expire during an ADR procedure. In order to function efficiently, ADR entities should have sufficient human, material and financial resources at their disposal. Member States should decide on an appropriate form of funding for ADR entities on their territories, without restricting the funding of entities that are already operational. This Directive should be without prejudice to the question of whether ADR entities are publicly or privately funded or funded through a combination of public and private funding. However, ADR entities should be ­encouraged to specifically consider private forms of funding and to utilise public funds only at Member States’ discretion. This Directive should not affect the possibility for businesses or for professional organisations or business a­ ssociations to fund ADR entities. When a dispute arises it is necessary that consumers are able to identify quickly which ADR entities are competent to deal with their complaint and to know whether or not the trader concerned will participate in proceedings submitted to an ADR entity. Traders who commit to use ADR entities to resolve disputes with consumers should inform consumers of the address and website of the ADR entity or entities by which they are covered. That information should be provided in a clear, comprehensible and easily accessible way on the trader’s website, where one exists, and if applicable in the general terms and conditions of sales or service contracts between the trader and the consumer. Traders should have the possibility of including on their websites, and in the terms and conditions of the relevant contracts, any additional information on their internal complaint handling procedures or on any other ways of directly contacting them with a view to settling disputes with consumers without referring them to an ADR entity. Where a dispute cannot be settled directly, the trader should provide the consumer, on paper or another durable medium, with the information on relevant ADR entities and specify if he will make use of them. The obligation on traders to inform consumers about the ADR entities by which those traders are covered should be without prejudice to provisions on consumer information on out-of-court redress procedures contained in other Union legal acts, which should apply in addition to the relevant ­information obligation provided for in this Directive. This Directive should not require the participation of traders in ADR procedures to be mandatory or the outcome of such procedures to be binding on traders, when a consumer has lodged a complaint against them. However, in order to ensure that consumers have access to redress and that they are not obliged to forego their claims, traders should be encouraged as far as possible to participate in ADR procedures. Therefore, this Directive should be without prejudice to any national rules making the participation of traders in such procedures mandatory or subject to incentives or sanctions or making their outcome binding on traders, provided that such legislation does not prevent the parties from exercising their right of access to the judicial

676  Part 1: European Union Legislation system as provided for in Article 47 of the Charter of Fundamental Rights of the European Union. (50) In order to avoid an unnecessary burden being placed on ADR entities, Member States should encourage consumers to contact the trader in an effort to solve the problem bilaterally before submitting a complaint to an ADR entity. In many cases, doing so would allow consumers to settle their disputes swiftly and at an early stage. (51) Member States should involve the representatives of professional organisations, business associations and consumer organisations when ­ developing ADR, in particular in relation to the principles of impartiality and independence. (52) Member States should ensure that ADR entities cooperate on the resolution of cross-border disputes. (53) Networks of ADR entities, such as the financial dispute resolution network ‘FIN-NET’ in the area of financial services, should be strengthened within the Union. Member States should encourage ADR entities to become part of such networks. (54) Close cooperation between ADR entities and national authorities should strengthen the effective application of Union legal acts on consumer protection. The Commission and the Member States should facilitate cooperation between the ADR entities, in order to encourage the exchange of best practice and technical expertise and to discuss any problems arising from the operation of ADR procedures. Such cooperation should be supported, inter alia, through the Union’s forthcoming Consumer Programme. (55) In order to ensure that ADR entities function properly and effectively, they should be closely monitored. For that purpose, each Member States should designate a competent authority or competent authorities which should perform that function. The Commission and competent authorities under this Directive should publish and update a list of ADR entities that comply with this Directive. Member States should ensure that ADR entities, the European Consumer Centre Network, and, where appropriate, the bodies designated in accordance with this Directive publish that list on their website by providing a link to the Commission’s website, and whenever possible on a durable medium at their premises. Furthermore, Member States should also encourage relevant consumer organisations and business associations to publish the list. Member States should also ensure the appropriate dissemination of information on what consumers should do if they have a dispute with a trader. In addition, competent authorities should publish regular reports on the development and functioning of ADR entities in their Member States. ADR entities should notify to competent authorities specific information on which those reports should be based. Member States should encourage ADR entities to provide such information using Commission Recommendation 2010/304/EU of 12 May 2010 on the use of a harmonised methodology for classifying and reporting consumer complaints and enquiries (11).

Directive 2013/11/EU 677 (56) It is necessary for Member States to lay down rules on penalties for infringements of the national provisions adopted to comply with this Directive and to ensure that those rules are implemented. The penalties should be effective, proportionate and dissuasive. (57) Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the ­Regulation on consumer protection cooperation) (12) should be amended to include a reference to this Directive in its Annex so as to reinforce ­cross-border cooperation on enforcement of this Directive. (58) Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests (13) (Injunctions Directive) should be amended to include a reference to this Directive in its Annex so as to ensure that the consumers’ collective interests laid down in this Directive are protected. (59) In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents (14), Member States have undertaken to accompany, in justified cases, the ­ notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. (60) Since the objective of this Directive, namely to contribute, through the achievement of a high level of consumer protection and without restricting consumers’ access to the courts, to the proper functioning of the internal market, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (61) This Directive respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the E ­ uropean Union and specifically Articles 7, 8, 38 and 47 thereof. (62) The European Data Protection Supervisor was consulted in accordance with Article 28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community ­institutions and bodies and on the free movement of such data (15) and delivered an opinion on 12 January 2012 (16),

678  Part 1: European Union Legislation HAVE ADOPTED THIS DIRECTIVE: CHAPTER I GENERAL PROVISIONS Article 1 Subject matter The purpose of this Directive is, through the achievement of a high level of consumer protection, to contribute to the proper functioning of the internal market by e­ nsuring that consumers can, on a voluntary basis, submit complaints against traders to entities offering independent, impartial, transparent, effective, fast and fair alternative dispute resolution procedures. This Directive is without prejudice to national legislation making participation in such procedures mandatory, provided that such legislation does not prevent the parties from exercising their right of access to the judicial system. Article 2 Scope 1. This Directive shall apply to procedures for the out-of-court resolution of domestic and cross-border disputes concerning contractual obligations stemming from sales contracts or service contracts between a trader established in the Union and a consumer resident in the Union through the intervention of an ADR entity which proposes or imposes a solution or brings the parties together with the aim of facilitating an amicable solution. 2. This Directive shall not apply to: (a) procedures before dispute resolution entities where the natural persons in charge of dispute resolution are employed or remunerated exclusively by the individual trader, unless Member States decide to allow such procedures as ADR procedures under this Directive and the requirements set out in Chapter II, including the specific requirements of independence and transparency set out in Article 6(3), are met; (b) procedures before consumer complaint-handling systems operated by the trader; (c) non-economic services of general interest; (d) disputes between traders; (e) direct negotiation between the consumer and the trader; (f) attempts made by a judge to settle a dispute in the course of a judicial proceeding concerning that dispute; (g) procedures initiated by a trader against a consumer; (h) health services provided by health professionals to patients to assess, maintain or restore their state of health, including the prescription, dispensation and provision of medicinal products and medical devices; (i) public providers of further or higher education.

Directive 2013/11/EU 679 3. This Directive establishes harmonised quality requirements for ADR entities and ADR procedures in order to ensure that, after its implementation, consumers have access to high-quality, transparent, effective and fair out-ofcourt redress mechanisms no matter where they reside in the Union. Member States may maintain or introduce rules that go beyond those laid down by this Directive, in order to ensure a higher level of consumer protection. 4. This Directive acknowledges the competence of Member States to determine whether ADR entities established on their territories are to have the power to impose a solution. Article 3 Relationship with other Union legal acts 1. Save as otherwise set out in this Directive, if any provision of this Directive conflicts with a provision laid down in another Union legal act and relating to out-of-court redress procedures initiated by a consumer against a trader, the provision of this Directive shall prevail. 2. This Directive shall be without prejudice to Directive 2008/52/EC. 3. Article 13 of this Directive shall be without prejudice to provisions on consumer information on out-of-court redress procedures contained in other Union legal acts which shall apply in addition to that Article. Article 4 Definitions 1. For the purposes of this Directive: (a) ‘consumer’ means any natural person who is acting for purposes which are outside his trade, business, craft or profession; (b) ‘trader’ means any natural persons, or any legal person irrespective of whether privately or publicly owned, who is acting, including through any person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession; (c) ‘sales contract’ means any contract under which the trader transfers or undertakes to transfer the ownership of goods to the consumer and the consumer pays or undertakes to pay the price thereof, including any contract having as its object both goods and services; (d) ‘service contract’ means any contract other than a sales contract under which the trader supplies or undertakes to supply a service to the consumer and the consumer pays or undertakes to pay the price thereof; (e) ‘domestic dispute’ means a contractual dispute arising from a sales or service contract where, at the time the consumer orders the goods or services, the consumer is resident in the same Member State as that in which the trader is established; (f) ‘cross-border dispute’ means a contractual dispute arising from a sales or service contract where, at the time the consumer orders the goods

680  Part 1: European Union Legislation or ­services, the consumer is resident in a Member State other than the Member State in which the trader is established; (g) ‘ADR procedure’ means a procedure, as referred to in Article 2, which complies with the requirements set out in this Directive and is carried out by an ADR entity; (h) ‘ADR entity’ means any entity, however named or referred to, which is established on a durable basis and offers the resolution of a dispute through an ADR procedure and that is listed in accordance with Article 20(2); (i) ‘competent authority’ means any public authority designated by a Member State for the purposes of this Directive and established at national, regional or local level. 2. A trader is established: —— if the trader is a natural person, where he has his place of business, —— if the trader is a company or other legal person or association of natural or legal persons, where it has its statutory seat, central administration or place of business, including a branch, agency or any other establishment. 3. An ADR entity is established: —— if it is operated by a natural person, at the place where it carries out ADR activities, —— if the entity is operated by a legal person or association of natural or legal persons, at the place where that legal person or association of natural or legal persons carries out ADR activities or has its statutory seat, —— if it is operated by an authority or other public body, at the place where that authority or other public body has its seat. CHAPTER II ACCESS TO AND REQUIREMENTS APPLICABLE TO ADR ENTITIES AND ADR PROCEDURES Article 5 Access to ADR entities and ADR procedures 1. Member States shall facilitate access by consumers to ADR procedures and shall ensure that disputes covered by this Directive and which involve a trader established on their respective territories can be submitted to an ADR entity which complies with the requirements set out in this Directive. 2. Member States shall ensure that ADR entities: (a) maintain an up-to-date website which provides the parties with easy access to information concerning the ADR procedure, and which enables consumers to submit a complaint and the requisite supporting ­documents online; (b) provide the parties, at their request, with the information referred to in point (a) on a durable medium; (c) where applicable, enable the consumer to submit a complaint offline;

Directive 2013/11/EU 681

3.

4.

5.

6.

(d) enable the exchange of information between the parties via electronic means or, if applicable, by post; (e) accept both domestic and cross-border disputes, including disputes covered by Regulation (EU) No 524/2013; and (f) when dealing with disputes covered by this Directive, take the necessary measures to ensure that the processing of personal data complies with the rules on the protection of personal data laid down in the national legislation implementing Directive 95/46/EC in the Member State in which the ADR entity is established. Member States may fulfil their obligation under paragraph 1 by ensuring the existence of a residual ADR entity which is competent to deal with disputes as referred to in that paragraph for the resolution of which no existing ADR entity is competent. Member States may also fulfil that obligation by relying on ADR entities established in another Member State or regional, transnational or pan-European dispute resolution entities, where traders from different Member States are covered by the same ADR entity, without prejudice to their responsibility to ensure full coverage and access to ADR entities. Member States may, at their discretion, permit ADR entities to maintain and introduce procedural rules that allow them to refuse to deal with a given dispute on the grounds that: (a) the consumer did not attempt to contact the trader concerned in order to discuss his complaint and seek, as a first step, to resolve the matter directly with the trader; (b) the dispute is frivolous or vexatious; (c) the dispute is being or has previously been considered by another ADR entity or by a court; (d) the value of the claim falls below or above a pre-specified monetary threshold; (e) the consumer has not submitted the complaint to the ADR entity within a pre-specified time limit, which shall not be set at less than one year from the date upon which the consumer submitted the complaint to the trader; (f) dealing with such a type of dispute would otherwise seriously impair the effective operation of the ADR entity. Where, in accordance with its procedural rules, an ADR entity is unable to consider a dispute that has been submitted to it, that ADR entity shall provide both parties with a reasoned explanation of the grounds for not considering the dispute within three weeks of receiving the complaint file. Such procedural rules shall not significantly impair consumers’ access to ADR procedures, including in the case of cross-border disputes. Member States shall ensure that, when ADR entities are permitted to establish pre-specified monetary thresholds in order to limit access to ADR procedures, those thresholds are not set at a level at which they significantly impair the consumers’ access to complaint handling by ADR entities. Where, in accordance with the procedural rules referred to in paragraph 4, an ADR entity is unable to consider a complaint that has been submitted to it, a

682  Part 1: European Union Legislation Member State shall not be required to ensure that the consumer can submit his complaint to another ADR entity. 7. Where an ADR entity dealing with disputes in a specific economic sector is competent to consider disputes relating to a trader operating in that sector but which is not a member of the organisation or association forming or funding the ADR entity, the Member State shall be deemed to have fulfilled its obligation under paragraph 1 also with respect to disputes concerning that trader. Article 6 Expertise, independence and impartiality 1. Member States shall ensure that the natural persons in charge of ADR possess the necessary expertise and are independent and impartial. This shall be guaranteed by ensuring that such persons: (a) possess the necessary knowledge and skills in the field of alternative or judicial resolution of consumer disputes, as well as a general understanding of law; (b) are appointed for a term of office of sufficient duration to ensure the independence of their actions, and are not liable to be relieved from their duties without just cause; (c) are not subject to any instructions from either party or their representatives; (d) are remunerated in a way that is not linked to the outcome of the procedure; (e) without undue delay disclose to the ADR entity any circumstances that may, or may be seen to, affect their independence and impartiality or give rise to a conflict of interest with either party to the dispute they are asked to resolve. The obligation to disclose such circumstances shall be a continuing obligation throughout the ADR procedure. It shall not apply where the ADR entity comprises only one natural person. 2. Member States shall ensure that ADR entities have in place procedures to ensure that in the case of circumstances referred to in point (e) of paragraph 1: (a) the natural person concerned is replaced by another natural person that shall be entrusted with conducting the ADR procedure; or failing that (b) the natural person concerned refrains from conducting the ADR ­procedure and, where possible, the ADR entity proposes to the parties to submit the dispute to another ADR entity which is competent to deal with the dispute; or failing that (c) the circumstances are disclosed to the parties and the natural person concerned is allowed to continue to conduct the ADR procedure only if the parties have not objected after they have been informed of the circumstances and their right to object. This paragraph shall be without prejudice to point (a) of Article 9(2). Where the ADR entity comprises only one natural person, only points (b) and (c) of the first subparagraph of this paragraph shall apply.

Directive 2013/11/EU 683 3. Where Member States decide to allow procedures referred to in point (a) of Article 2(2) as ADR procedures under this Directive, they shall ensure that, in addition to the general requirements set out in paragraphs 1 and 5, those procedures comply with the following specific requirements: (a) the natural persons in charge of dispute resolution are nominated by, or form part of, a collegial body composed of an equal number of representatives of consumer organisations and of representatives of the trader and are appointed as result of a transparent procedure; (b) the natural persons in charge of dispute resolution are granted a period of office of a minimum of three years to ensure the independence of their actions; (c) the natural persons in charge of dispute resolution commit not to work for the trader or a professional organisation or business association of which the trader is a member for a period of three years after their ­position in the dispute resolution entity has ended; (d) the dispute resolution entity does not have any hierarchical or functional link with the trader and is clearly separated from the trader’s operational entities and has a sufficient budget at its disposal, which is separate from the trader’s general budget, to fulfil its tasks. 4. Where the natural persons in charge of ADR are employed or remunerated exclusively by a professional organisation or a business association of which the trader is a member, Member States shall ensure that, in addition to the general requirements set out in paragraphs 1 and 5, they have a separate and dedicated budget at their disposal which is sufficient to fulfil their tasks. This paragraph shall not apply where the natural persons concerned form part of a collegial body composed of an equal number of representatives of the professional organisation or business association by which they are employed or remunerated and of consumer organisations. 5. Member States shall ensure that ADR entities where the natural persons in charge of dispute resolution form part of a collegial body provide for an equal number of representatives of consumers’ interests and of representatives of traders’ interests in that body. 6. For the purposes of point (a) of paragraph 1, Member States shall encourage ADR entities to provide training for natural persons in charge of ADR. If such training is provided, competent authorities shall monitor the training schemes established by ADR entities, on the basis of information communicated to them in accordance with point (g) of Article 19(3). Article 7 Transparency 1. Member States shall ensure that ADR entities make publicly available on their websites, on a durable medium upon request, and by any other means they consider appropriate, clear and easily understandable information on: (a) their contact details, including postal address and e-mail address;

684  Part 1: European Union Legislation (b) the fact that ADR entities are listed in accordance with Article 20(2); (c) the natural persons in charge of ADR, the method of their appointment and the length of their mandate; (d) the expertise, impartiality and independence of the natural persons in charge of ADR, if they are employed or remunerated exclusively by the trader; (e) their membership in networks of ADR entities facilitating cross-border dispute resolution, if applicable; (f) the types of disputes they are competent to deal with, including any threshold if applicable; (g) the procedural rules governing the resolution of a dispute and the grounds on which the ADR entity may refuse to deal with a given ­dispute in accordance with Article 5(4); (h) the languages in which complaints can be submitted to the ADR entity and in which the ADR procedure is conducted; (i) the types of rules the ADR entity may use as a basis for the dispute resolution (for example legal provisions, considerations of equity, codes of conduct); (j) any preliminary requirements the parties may have to meet before an ADR procedure can be instituted, including the requirement that an attempt be made by the consumer to resolve the matter directly with the trader; (k) whether or not the parties can withdraw from the procedure; (l) the costs, if any, to be borne by the parties, including any rules on awarding costs at the end of the procedure; (m) the average length of the ADR procedure; (n) the legal effect of the outcome of the ADR procedure, including the penalties for non-compliance in the case of a decision having binding effect on the parties, if applicable; (o) the enforceability of the ADR decision, if relevant. 2. Member States shall ensure that ADR entities make publicly available on their websites, on a durable medium upon request, and by any other means they consider appropriate, annual activity reports. Those reports shall include the following information relating to both domestic and cross-border disputes: (a) the number of disputes received and the types of complaints to which they related; (b) any systematic or significant problems that occur frequently and lead to disputes between consumers and traders; such information may be accompanied by recommendations as to how such problems can be avoided or resolved in future, in order to raise traders’ standards and to facilitate the exchange of information and best practices; (c) the rate of disputes the ADR entity has refused to deal with and the ­percentage share of the types of grounds for such refusal as referred to in Article 5(4); (d) in the case of procedures referred to in point (a) of Article 2(2), the percentage shares of solutions proposed or imposed in favour of the

Directive 2013/11/EU 685

(e) (f) (g) (h)

c­ onsumer and in favour of the trader, and of disputes resolved by an amicable solution; the percentage share of ADR procedures which were discontinued and, if known, the reasons for their discontinuation; the average time taken to resolve disputes; the rate of compliance, if known, with the outcomes of the ADR procedures; cooperation of ADR entities within networks of ADR entities which facilitate the resolution of cross-border disputes, if applicable. Article 8 Effectiveness

Member States shall ensure that ADR procedures are effective and fulfil the following requirements: (a) the ADR procedure is available and easily accessible online and offline to both parties irrespective of where they are; (b) the parties have access to the procedure without being obliged to retain a lawyer or a legal advisor, but the procedure shall not deprive the parties of their right to independent advice or to be represented or assisted by a third party at any stage of the procedure; (c) the ADR procedure is free of charge or available at a nominal fee for consumers; (d) the ADR entity which has received a complaint notifies the parties to the dispute as soon as it has received all the documents containing the relevant information relating to the complaint; (e) the outcome of the ADR procedure is made available within a period of 90 calendar days from the date on which the ADR entity has received the complete complaint file. In the case of highly complex disputes, the ADR entity in charge may, at its own discretion, extend the 90 calendar days’ time period. The parties shall be informed of any extension of that period and of the expected length of time that will be needed for the conclusion of the dispute. Article 9 Fairness 1. Member States shall ensure that in ADR procedures: (a) the parties have the possibility, within a reasonable period of time, of expressing their point of view, of being provided by the ADR entity with the arguments, evidence, documents and facts put forward by the other party, any statements made and opinions given by experts, and of being able to comment on them; (b) the parties are informed that they are not obliged to retain a lawyer or a legal advisor, but they may seek independent advice or be represented or assisted by a third party at any stage of the procedure;

686  Part 1: European Union Legislation (c) the parties are notified of the outcome of the ADR procedure in writing or on a durable medium, and are given a statement of the grounds on which the outcome is based. 2. In ADR procedures which aim at resolving the dispute by proposing a ­solution, Member States shall ensure that: (a) The parties have the possibility of withdrawing from the procedure at any stage if they are dissatisfied with the performance or the operation of the procedure. They shall be informed of that right before the procedure commences. Where national rules provide for mandatory participation by the trader in ADR procedures, this point shall apply only to the consumer. (b) The parties, before agreeing or following a proposed solution, are informed that: (i) they have the choice as to whether or not to agree to or follow the proposed solution; (ii) participation in the procedure does not preclude the possibility of seeking redress through court proceedings; (iii) the proposed solution may be different from an outcome determined by a court applying legal rules. (c) The parties, before agreeing to or following a proposed solution, are informed of the legal effect of agreeing to or following such a proposed solution. (d) The parties, before expressing their consent to a proposed solution or amicable agreement, are allowed a reasonable period of time to reflect. 3. Where, in accordance with national law, ADR procedures provide that their outcome becomes binding on the trader once the consumer has accepted the proposed solution, Article 9(2) shall be read as applicable only to the consumer. Article 10 Liberty 1. Member States shall ensure that an agreement between a consumer and a trader to submit complaints to an ADR entity is not binding on the consumer if it was concluded before the dispute has materialised and if it has the effect of depriving the consumer of his right to bring an action before the courts for the settlement of the dispute. 2. Member States shall ensure that in ADR procedures which aim at resolving the dispute by imposing a solution the solution imposed may be binding on the parties only if they were informed of its binding nature in advance and specifically accepted this. Specific acceptance by the trader is not required if national rules provide that solutions are binding on traders.

Directive 2013/11/EU 687 Article 11 Legality 1. Member States shall ensure that in ADR procedures which aim at resolving the dispute by imposing a solution on the consumer: (a) in a situation where there is no conflict of laws, the solution imposed shall not result in the consumer being deprived of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law of the Member State where the consumer and the trader are habitually resident; (b) in a situation involving a conflict of laws, where the law applicable to the sales or service contract is determined in accordance with Article 6(1) and (2) of Regulation (EC) No 593/2008, the solution imposed by the ADR entity shall not result in the consumer being deprived of the protection afforded to him by the provisions that cannot be derogated from by agreement by virtue of the law of the Member State in which he is habitually resident; (c) in a situation involving a conflict of laws, where the law applicable to the sales or service contract is determined in accordance with Article 5(1) to (3) of the Rome Convention of 19 June 1980 on the law applicable to contractual obligations, the solution imposed by the ADR entity shall not result in the consumer being deprived of the protection afforded to him by the mandatory rules of the law of the Member State in which he is habitually resident. 2. For the purposes of this Article, ‘habitual residence’ shall be determined in accordance with Regulation (EC) No 593/2008. Article 12 Effect of ADR procedures on limitation and prescription periods 1. Member States shall ensure that parties who, in an attempt to settle a dispute, have recourse to ADR procedures the outcome of which is not binding, are not subsequently prevented from initiating judicial proceedings in relation to that dispute as a result of the expiry of limitation or prescription periods ­during the ADR procedure. 2. Paragraph 1 shall be without prejudice to provisions on limitation or prescription contained in international agreements to which Member States are party.

688  Part 1: European Union Legislation CHAPTER III INFORMATION AND COOPERATION Article 13 Consumer information by traders 1. Member States shall ensure that traders established on their territories inform consumers about the ADR entity or ADR entities by which those traders are covered, when those traders commit to or are obliged to use those entities to resolve disputes with consumers. That information shall include the website address of the relevant ADR entity or ADR entities. 2. The information referred to in paragraph 1 shall be provided in a clear, ­comprehensible and easily accessible way on the traders’ website, where one exists, and, if applicable, in the general terms and conditions of sales or service ­contracts between the trader and a consumer. 3. Member States shall ensure that, in cases where a dispute between a consumer and a trader established in their territory could not be settled further to a complaint submitted directly by the consumer to the trader, the trader provides the consumer with the information referred to in paragraph 1, specifying whether he will make use of the relevant ADR entities to settle the dispute. That information shall be provided on paper or on another durable medium. Article 14 Assistance for consumers 1. Member States shall ensure that, with regard to disputes arising from crossborder sales or service contracts, consumers can obtain assistance to access the ADR entity operating in another Member State which is competent to deal with their cross-border dispute. 2. Member States shall confer responsibility for the task referred to in paragraph 1 on their centres of the European Consumer Centre Network, on consumer organisations or on any other body. Article 15 General information 1. Member States shall ensure that ADR entities, the centres of the European Consumer Centre Network and, where appropriate, the bodies designated in accordance with Article 14(2) make publicly available on their websites, by providing a link to the Commission’s website, and whenever possible on a durable medium at their premises, the list of ADR entities referred to in ­Article 20(4). 2. Member States shall encourage relevant consumer organisations and business associations to make publicly available on their websites, and by any

Directive 2013/11/EU 689 other means they consider appropriate, the list of ADR entities referred to in Article 20(4). 3. The Commission and Member States shall ensure appropriate dissemination of information on how consumers can access ADR procedures for resolving disputes covered by this Directive. 4. The Commission and the Member States shall take accompanying measures to encourage consumer organisations and professional organisations, at Union and at national level, to raise awareness of ADR entities and their procedures and to promote ADR take-up by traders and consumers. Those bodies shall also be encouraged to provide consumers with information about competent ADR entities when they receive complaints from consumers. Article 16 Cooperation and exchanges of experience between ADR entities 1. Member States shall ensure that ADR entities cooperate in the resolution of cross-border disputes and conduct regular exchanges of best practices as regards the settlement of both cross-border and domestic disputes. 2. The Commission shall support and facilitate the networking of national ADR entities and the exchange and dissemination of their best practices and experiences. 3. Where a network of ADR entities facilitating the resolution of cross-border disputes exists in a sector-specific area within the Union, Member States shall encourage ADR entities that deal with disputes in that area to become a ­member of that network. 4. The Commission shall publish a list containing the names and contact details of the networks referred to in paragraph 3. The Commission shall, when ­necessary, update this list. Article 17 Cooperation between ADR entities and national authorities enforcing Union legal acts on consumer protection 1. Member States shall ensure cooperation between ADR entities and national authorities entrusted with the enforcement of Union legal acts on consumer protection. 2. This cooperation shall in particular include mutual exchange of information on practices in specific business sectors about which consumers have repeatedly lodged complaints. It shall also include the provision of technical assessment and information by such national authorities to ADR entities where such assessment or information is necessary for the handling of individual disputes and is already available. 3. Member States shall ensure that cooperation and mutual information exchanges referred to in paragraphs 1 and 2 comply with the rules on the protection of personal data laid down in Directive 95/46/EC.

690  Part 1: European Union Legislation 4. This Article shall be without prejudice to provisions on professional and commercial secrecy which apply to the national authorities enforcing Union legal acts on consumer protection. ADR entities shall be subject to rules of professional secrecy or other equivalent duties of confidentiality laid down in the legislation of the Member States where they are established. CHAPTER IV THE ROLE OF COMPETENT AUTHORITIES AND THE COMMISSION Article 18 Designation of competent authorities 1. Each Member State shall designate a competent authority which shall carry out the functions set out in Articles 19 and 20. Each Member State may designate more than one competent authority. If a Member State does so, it shall determine which of the competent authorities designated is the single point of contact for the Commission. Each Member State shall communicate the competent authority or, where appropriate, the competent authorities, including the single point of contact it has designated, to the Commission. 2. The Commission shall establish a list of the competent authorities including, where appropriate, the single point of contact communicated to it in accordance with paragraph 1, and publish that list in the Official Journal of the European Union. Article 19 Information to be notified to competent authorities by dispute resolution entities 1. Member States shall ensure that dispute resolution entities established on their territories, which intend to qualify as ADR entities under this ­Directive and be listed in accordance with Article 20(2), notify to the competent authority the following: (a) their name, contact details and website address; (b) information on their structure and funding, including information on the natural persons in charge of dispute resolution, their remuneration, term of office and by whom they are employed; (c) their procedural rules; (d) their fees, if applicable; (e) the average length of the dispute resolution procedures; (f) the language or languages in which complaints can be submitted and the dispute resolution procedure conducted; (g) a statement on the types of disputes covered by the dispute resolution procedure;

Directive 2013/11/EU 691 (h) the grounds on which the dispute resolution entity may refuse to deal with a given dispute in accordance with Article 5(4); (i) a reasoned statement on whether the entity qualifies as an ADR entity falling within the scope of this Directive and complies with the quality requirements set out in Chapter II. In the event of changes to the information referred to in points (a) to (h), ADR entities shall without undue delay notify those changes to the competent authority. 2. Where Member States decide to allow procedures as referred to in point (a) of Article 2(2), they shall ensure that ADR entities applying such procedures notify to the competent authority, in addition to the information and statements referred to in paragraph 1, the information necessary to assess their compliance with the specific additional requirements of independence and transparency set out in Article 6(3). 3. Member States shall ensure that ADR entities communicate to the competent authorities every two years information on: (a) the number of disputes received and the types of complaints to which they related; (b) the percentage share of ADR procedures which were discontinued before an outcome was reached; (c) the average time taken to resolve the disputes received; (d) the rate of compliance, if known, with the outcomes of the ADR procedures; (e) any systematic or significant problems that occur frequently and lead to disputes between consumers and traders. The information communicated in this regard may be accompanied by recommendations as to how such problems can be avoided or resolved in future; (f) where applicable, an assessment of the effectiveness of their cooperation within networks of ADR entities facilitating the resolution of crossborder disputes; (g) where applicable, the training provided to natural persons in charge of ADR in accordance with Article 6(6); (h) an assessment of the effectiveness of the ADR procedure offered by the entity and of possible ways of improving its performance. Article 20 Role of the competent authorities and of the Commission 1. Each competent authority shall assess, in particular on the basis of the information it has received in accordance with Article 19(1), whether the dispute resolution entities notified to it qualify as ADR entities falling within the scope of this Directive and comply with the quality requirements set out in Chapter II and in national provisions implementing it, including national provisions going beyond the requirements of this Directive, in conformity with Union law.

692  Part 1: European Union Legislation 2. Each competent authority shall, on the basis of the assessment referred to in paragraph 1, list all the ADR entities that have been notified to it and fulfil the conditions set out in paragraph 1. That list shall include the following: (a) the name, the contact details and the website addresses of the ADR entities referred to in the first subparagraph; (b) their fees, if applicable; (c) the language or languages in which complaints can be submitted and the ADR procedure conducted; (d) the types of disputes covered by the ADR procedure; (e) the sectors and categories of disputes covered by each ADR entity; (f) the need for the physical presence of the parties or of their representatives, if applicable, including a statement by the ADR entity on whether the ADR procedure is or can be conducted as an oral or a written procedure; (g) the binding or non-binding nature of the outcome of the procedure; and (h) the grounds on which the ADR entity may refuse to deal with a given dispute in accordance with Article 5(4). Each competent authority shall notify the list referred to in the first subparagraph of this paragraph to the Commission. If any changes are notified to the competent authority in accordance with the second subparagraph of Article 19(1), that list shall be updated without undue delay and the relevant information notified to the Commission. If a dispute resolution entity listed as ADR entity under this Directive no longer complies with the requirements referred to in paragraph 1, the competent authority concerned shall contact that dispute resolution entity, stating the requirements the dispute resolution entity fails to comply with and requesting it to ensure compliance immediately. If the dispute resolution entity after a period of three months still does not fulfil the requirements referred to in paragraph 1, the competent authority shall remove the dispute resolution entity from the list referred to in the first subparagraph of this paragraph. That list shall be updated without undue delay and the relevant information notified to the Commission. 3. If a Member State has designated more than one competent authority, the list and its updates referred to in paragraph 2 shall be notified to the Commission by the single point of contact referred to in Article 18(1). That list and those updates shall relate to all ADR entities established in that Member State. 4. The Commission shall establish a list of the ADR entities notified to it in accordance with paragraph 2 and update that list whenever changes are notified to the Commission. The Commission shall make publicly available that list and its updates on its website and on a durable medium. The Commission shall transmit that list and its updates to the competent authorities. Where a Member State has designated a single point of contact in accordance with Article 18(1), the Commission shall transmit that list and its updates to the single point of contact. 5. Each competent authority shall make publicly available the consolidated list of ADR entities referred to in paragraph 4 on its website by providing a link

Directive 2013/11/EU 693 to the relevant Commission website. In addition, each competent authority shall make publicly available that consolidated list on a durable medium. 6. By 9 July 2018, and every four years thereafter, each competent authority shall publish and send to the Commission a report on the development and functioning of ADR entities. That report shall in particular: (a) identify best practices of ADR entities; (b) point out the shortcomings, supported by statistics, that hinder the functioning of ADR entities for both domestic and cross-border disputes, where appropriate; (c) make recommendations on how to improve the effective and efficient functioning of ADR entities, where appropriate. 7. If a Member State has designated more than one competent authority in accordance with Article 18(1), the report referred to in paragraph 6 of this Article shall be published by the single point of contact referred to in Article 18(1). That report shall relate to all ADR entities established in that Member State. CHAPTER V FINAL PROVISIONS Article 21 Penalties Member States shall lay down the rules on penalties applicable to infringements of the national provisions adopted in particular pursuant to Article 13 and shall take all measures necessary to ensure that they are implemented. The penalties provided for shall be effective, proportionate and dissuasive. Article 22 Amendment to Regulation (EC) No 2006/2004 In the Annex to Regulation (EC) No 2006/2004, the following point is added: ‘20. Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes (OJ L 165, 18.6.2013, p. 63): Article 13.’. Article 23 Amendment to Directive 2009/22/EC In Annex I to Directive 2009/22/EC the following point is added: ‘14. Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes (OJ L 165, 18.6.2013, p. 63): Article 13.’.

694  Part 1: European Union Legislation Article 24 Communication 1. By 9 July 2015, Member States shall communicate to the Commission: (a) where appropriate, the names and contact details of the bodies ­designated in accordance with Article 14(2); and (b) the competent authorities including, where appropriate, the single point of contact, designated in accordance with Article 18(1). Member States shall inform the Commission of any subsequent changes to this information. 2. By 9 January 2016, Member States shall communicate to the Commission the first list referred to in Article 20(2). 3. The Commission shall transmit to the Member States the information referred to in point (a) of paragraph 1. Article 25 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 9 July 2015. They shall forthwith communicate to the Commission the text of those provisions. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 26 Report By 9 July 2019, and every four years thereafter, the Commission shall submit to the European Parliament, the Council and the European Economic and Social ­Committee a report on the application of this Directive. That report shall consider the development and the use of ADR entities and the impact of this Directive on consumers and traders, in particular on the awareness of consumers and the level of adoption by traders. That report shall be accompanied, where appropriate, by proposals for amendment of this Directive. Article 27 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Directive 2013/11/EU 695 Article 28 Addressees This Directive is addressed to the Member States.

(1)

OJ C 181, 21.6.2012, p. 93. of the European Parliament of 12 March 2013 (not yet published in the Official Journal) and decision of the Council of 22 April 2013. OJ L 115, 17.4.1998, p. 31. OJ L 109, 19.4.2001, p. 56. See page 1 of this Official Journal. OJ L 88, 4.4.2011, p. 45. OJ L 136, 24.5.2008, p. 3. OJ L 281, 23.11.1995, p. 31. OJ L 177, 4.7.2008, p. 6. OJ L 266, 9.10.1980, p. 1. OJ L 136, 2.6.2010, p. 1. OJ L 364, 9.12.2004, p. 1. OJ L 110, 1.5.2009, p. 30. OJ C 369, 17.12.2011, p. 14. OJ L 8, 12.1.2001, p. 1. OJ C 136, 11.5.2012, p. 1.

(2) Position (3) (4) (5) (6) (7) (8) (9)

(10) (11) (12) (13) (14) (15) (16)

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* (OJ 2014 L60 p.34) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Central Bank (1), Having regard to the opinion of the European Economic and Social Committee (2), Acting in accordance with the ordinary legislative procedure (3),

Whereas: (1) In March 2003, the Commission launched a process of identifying and assessing the impact of barriers to the internal market for credit agreements relating to residential immovable property. On 18 December 2007, it adopted a White Paper on the Integration of EU Mortgage Credit Markets. The White Paper announced the Commission’s intention to assess the impact of, among other things, the policy options for pre-contractual information, credit databases, creditworthiness, the annual percentage rate of charge (APRC) and advice on credit agreements. The Commission established an Expert Group on Credit Histories to assist the Commission in preparing measures to improve the accessibility, comparability and completeness of credit data. Studies on the role and operations of credit intermediaries and non-credit institutions providing credit agreements relating to residential immovable property were also launched. (2) In accordance with the Treaty on the Functioning of the European Union (TFEU), the internal market comprises an area without internal frontiers in which the free movement of goods and services and the freedom of * 

Not yet implemented in the United Kingdom.

Directive 2014/17/EU 697 e­ stablishment are ensured. The development of a more transparent and efficient credit market within that area is vital in promoting the development of cross-border activity and creating an internal market for credit agreements relating to residential immovable property. There are substantial differences in the laws of the various Member States with regard to the conduct of business in the granting of credit agreements relating to residential immovable property and in the regulation and supervision of credit intermediaries and non-credit institutions providing credit agreements relating to residential immovable property. Such differences create obstacles that restrict the level of cross-border activity on the supply and demand sides, thus reducing competition and choice in the market, raising the cost of lending for providers and even preventing them from doing business. (3) The financial crisis has shown that irresponsible behaviour by market participants can undermine the foundations of the financial system, leading to a lack of confidence among all parties, in particular consumers, and potentially severe social and economic consequences. Many consumers have lost confidence in the financial sector and borrowers have found their loans increasingly unaffordable, resulting in defaults and forced sales rising. As a result, the G20 has commissioned work from the Financial Stability Board to establish principles on sound underwriting standards in relation to residential immovable property. Although some of the greatest problems in the financial crisis occurred outside the Union, consumers within the Union hold significant levels of debt, much of which is concentrated in credits related to residential immovable property. It is therefore appropriate to ensure that the Union’s regulatory framework in this area is robust, consistent with international principles and makes appropriate use of the range of tools available, which may include the use of loan-to-value, loan-to-income, debt-to-income or similar ratios, minimum levels below which no credit would be deemed acceptable or other compensatory measures for the situations where the underlying risks are higher to consumers or where needed to prevent household over-indebtedness. In view of the problems brought to light in the financial crisis and with a view to ensuring an efficient and competitive internal market which contributes to financial stability, the Commission has proposed, in its Communication of 4 March 2009 entitled ‘Driving European recovery’, measures with regard to credit agreements relating to residential immovable property, including a reliable framework on credit intermediation, in the context of delivering responsible and reliable markets for the future and restoring consumer confidence. The Commission reaffirmed its commitment to an efficient and competitive internal market in its Communication of 13 April 2011 entitled ‘Single ­Market Act: Twelve levers to boost growth and strengthen confidence’. (4) A series of problems have been identified in mortgage markets within the Union relating to irresponsible lending and borrowing and the potential scope for irresponsible behaviour by market participants including credit intermediaries and non-credit institutions. Some problems concerned credits denominated in a foreign currency which consumers had taken out in that currency in order to take advantage of the borrowing rate offered but without having adequate information about or understanding of the exchange

698  Part 1: European Union Legislation

(5)

(6)

(7)

(8)

rate risk involved. Those problems are driven by market and regulatory failures as well as other factors such as the general economic climate and low levels of financial literacy. Other problems include ineffective, inconsistent, or non-existent regimes for credit intermediaries and non-credit institutions providing credit for residential immovable property. The problems identified have potentially significant macroeconomic spill-over effects, can lead to consumer detriment, act as economic or legal barriers to cross-border activity and create an unlevel playing field between actors. In order to facilitate the emergence of a smoothly functioning internal market with a high level of consumer protection in the area of credit agreements relating to immovable property and in order to ensure that consumers looking for such agreements are able to do so confident in the knowledge that the institutions they interact with act in a professional and responsible manner, an appropriately harmonised Union legal framework needs to be established in a number of areas, taking into account differences in credit agreements arising in particular from differences in national and regional immovable property markets. This Directive should therefore develop a more transparent, efficient and competitive internal market, through consistent, flexible and fair credit agreements relating to immovable property, while promoting sustainable lending and borrowing and financial inclusion, and hence providing a high level of consumer protection. In order to create a genuine internal market with a high and equivalent level of consumer protection, this Directive lays down provisions subject to maximum harmonisation in relation to the provision of pre-contractual information through the European Standardised Information Sheet (ESIS) standardised format and the calculation of the APRC. However, taking into account the specificity of credit agreements relating to immovable property and differences in market developments and conditions in Member States, concerning in particular market structure and market participants, categories of products available and procedures involved in the credit granting process, Member States should be allowed to maintain or introduce more stringent provisions than those laid down in this Directive in those areas not clearly specified as being subject to maximum harmonisation. Such a targeted approach is necessary in order to avoid adversely affecting the level of protection of consumers relating to credit agreements in the scope of this Directive. Member States should, for example, be allowed to maintain or introduce more stringent provisions with regard to knowledge and competence requirements for staff and instructions for completing the ESIS. This Directive should improve conditions for the establishment and functioning of the internal market through the approximation of Member States’ laws and the establishment of quality standards for certain services, in particular with regard to the distribution and provision of credit through creditors and credit intermediaries and the promotion of good practices. The establishment of quality standards for services for the provision of credit necessarily involves the introduction of certain provisions regarding admission, supervision and prudential requirements.

Directive 2014/17/EU 699 (9) For those areas not covered by this Directive, Member States are free to maintain or introduce national law. In particular, Member States may maintain or introduce national provisions in areas such as contract law relating to the validity of credit agreements, property law, land registration, contractual information and, to the extent that they are not regulated in this Directive, post-contractual issues. Member States may provide that the appraiser or appraisal company or notaries may be chosen by mutual agreement of the parties. Given the differences between the processes for the purchase or sale of residential immovable property in the Member States, there is scope for creditors or credit intermediaries to seek to receive payments in advance from consumers on the understanding that such payments could help to secure the conclusion of a credit agreement or the purchase or sale of an immovable property, and for such practices to be misused in particular where consumers are unfamiliar with the requirements and usual practice in that Member State. It is therefore appropriate to allow Member States to impose restrictions on such payments. (10) This Directive should apply irrespective of whether the creditor or credit intermediary is a legal person or a natural person. However, this Directive should not affect the right of Member States to limit, in conformity with Union law, the role of creditor or credit intermediary under this Directive to legal persons only or to certain types of legal persons. (11) Since consumers and enterprises are not in the same position, they do not need the same level of protection. While it is important to guarantee the rights of consumers by means of provisions that cannot be derogated from by contract, it is reasonable to allow enterprises and organisations to enter into other agreements. (12) The definition of consumer should cover natural persons who are acting outside their trade, business or profession. However, in the case of dual purpose contracts, where the contract is concluded for purposes partly within and partly outside the person’s trade, business or profession and the trade, business or professional purpose is so limited as not to be predominant in the overall context of the contract, that person should also be considered as a consumer. (13) While this Directive regulates credit agreements which solely or predominantly relate to residential immovable property, it does not prevent Member States from extending the measures taken in accordance with this Directive to protect consumers in relation to credit agreements related to other forms of immovable property, or from otherwise regulating such credit agreements. (14) The definitions set out in this Directive determine the scope of harmonisation. The obligations of Member States to transpose this Directive should therefore be limited to its scope as determined by those definitions. For instance, the obligations of Member States to transpose this Directive are limited to credit agreements concluded with consumers, meaning with natural persons who, in transactions covered by this Directive, are acting outside their trade, business or profession. Similarly, Member States are

700  Part 1: European Union Legislation obliged to transpose provisions of this Directive regulating the activity of persons acting as credit intermediary as defined in the Directive. However, this Directive should be without prejudice to the application by Member States, in accordance with Union law, of this Directive to areas not covered by its scope. In addition, the definitions set out in this Directive should be without prejudice to the possibility for Member States to adopt subdefinitions under national law for specific purposes, provided that they are still compliant with the definitions set out in this Directive. For example, Member States should be allowed to determine under national law subcategories of credit intermediaries that are not identified in this Directive, where such sub-categories are necessary at national level for instance to differentiate the level of knowledge and competence requirements to be fulfilled by the different credit intermediaries. (15) The objective of this Directive is to ensure that consumers entering into credit agreements relating to immovable property benefit from a high level of protection. It should therefore apply to credits secured by immovable property regardless of the purpose of the credit, refinancing agreements or other credit agreements that would help an owner or part owner continue to retain rights in immovable property or land and credits which are used to purchase an immovable property in some Member States including credits that do not require the reimbursement of the capital or, unless Member States have an adequate alternative framework in place, those whose purpose is to provide temporary financing between the sale of one immovable property and the purchase of another, and to secured credits for the renovation of residential immovable property. (16) This Directive should not apply to certain credit agreements where the creditor contributes a lump sum, periodic payments or other forms of credit disbursement in return for a sum deriving from the sale of an immovable property and whose primary objective is to facilitate consumption, such as equity release products or other equivalent specialised products. Such credit agreements have specific characteristics which are beyond the scope of this Directive. An assessment of the consumer’s creditworthiness, for example, is irrelevant since the payments are made from the creditor to the consumer rather than the other way round. Such a transaction would require, inter alia, substantially different pre-contractual information. Furthermore, other products, such as home reversions, which have comparable functions to reverse mortgages or lifetime mortgages, do not involve the provision of credit and so would remain outside the scope of this Directive. (17) This Directive should not cover other explicitly listed types of niche credit agreements, that are different in their nature and risks involved from ­standard mortgage credits and therefore require a tailored approach, in particular credit agreements which are the outcome of a settlement reached in court or before another statutory authority, and certain types of credit agreements where the credit is granted by an employer to his employees under certain circumstances, as already provided in Directive 2008/48/EC

Directive 2014/17/EU 701 of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (4). It is appropriate to allow Member States to exclude certain credit agreements, such as those which are granted to a restricted public on advantageous terms or provided by credit unions, provided that adequate alternative arrangements are in place to ensure that policy objectives relating to financial stability and the internal market can be met without impeding financial inclusion and access to credit. Credit agreements where the immovable property is not to be occupied as a house, apartment or another place of residence by the consumer or a family member of the consumer and is occupied as a house, apartment or another place of residence on a basis of a rental agreement, have risks and features that are different from standard credit agreements and therefore may require a more adapted framework. Member States should therefore be able to exclude such credit agreements from the Directive where an appropriate national framework is in place for them. (18) Unsecured credit agreements the purpose of which is the renovation of a residential immovable property involving a total amount of credit above EUR 75 000 should fall under the scope of Directive 2008/48/EC in order to ensure an equivalent level of protection to those consumers and to avoid any regulatory gap between that Directive and this Directive. Directive 2008/48/EC should therefore be amended accordingly. (19) For reasons of legal certainty, the Union legal framework in the area of credit agreements relating to residential immovable property should be consistent with and complementary to other Union acts, particularly in the areas of consumer protection and prudential supervision. Certain essential definitions including the definition of ‘consumer’, and ‘durable medium’, as well as key concepts used in standard information to designate the financial characteristics of the credit, including ‘total amount payable by the consumer’ and ‘borrowing rate’ should be in line with those set out in Directive 2008/48/EC so that the same terminology refers to the same type of facts irrespective of whether the credit is a consumer credit or a credit relating to residential immovable property. Member States should therefore ensure, in the transposition of this Directive, that there is consistency of application and interpretation in relation to those essential definitions and key concepts. (20) In order to ensure a consistent framework for consumers in the area of credit as well as to minimise the administrative burden for creditors and credit intermediaries, the core framework of this Directive should follow the structure of Directive 2008/48/EC where possible, notably the notions that information included in advertising concerning credit agreements relating to residential immovable property be provided to the consumer by means of a representative example, that detailed pre-contractual information be given to the consumer by means of a standardised information sheet, that the consumer receives adequate explanations before concluding the credit agreement, a common basis be established for calculating the APRC

702  Part 1: European Union Legislation excluding notary fees, and that creditors assess the consumer’s creditworthiness before providing a credit. Similarly, non-discriminatory access for creditors to relevant credit databases should be ensured in order to achieve a level playing field with the provisions laid down in Directive 2008/48/EC. Similarly to Directive 2008/48/EC, this Directive should ensure the appropriate admission process and supervision of all creditors providing credit agreements relating to immovable property and should lay down requirements for the establishment of, and access to, out-of-court dispute resolution mechanisms. (21) This Directive should supplement Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services (5) which requires that in distance sales a consumer be informed of the existence or absence of a right of withdrawal and provides for a right of withdrawal. However, while Directive 2002/65/EC provides for the possibility for the supplier to communicate pre-contractual information after the conclusion of the contract, this would be inappropriate for contracts for credit agreements relating to residential immovable property given the significance of the financial commitment for the consumer. This Directive should not affect national general contract law such as the rules on the validity, formation or effect of a contract, insofar as general contract law aspects are not regulated in this Directive. (22) At the same time, it is important to take into consideration the specificities of credit agreements relating to residential immovable property, which justify a differentiated approach. Given the nature and the possible consequences of a credit agreement relating to residential immovable property for the consumer, advertising materials and personalised pre-contractual information should include adequate specific risk warnings, for instance about the potential impact of exchange rate fluctuations on what the consumer has to repay and, where assessed as appropriate by the Member States, the nature and implications of taking out a security. Following what already existed as a voluntary approach by the industry concerning home loans, general precontractual information should be made available at all times in addition to the personalised pre-contractual information. Furthermore, a differentiated approach is justified in order to take into consideration the lessons learnt from the financial crisis and in order to ensure that credit origination takes place in a sound manner. In this respect, the provisions on the creditworthiness assessment should be strengthened in comparison to consumer credit, more precise information should be provided by credit intermediaries on their status and relationship with the creditors in order to disclose potential conflicts of interest, and all actors involved in the origination of credit agreements relating to immovable property should be adequately admitted and supervised. (23) It is necessary to regulate some additional areas in order to reflect the specificity of credits related to residential immovable property. Given the significance of the transaction it is necessary to ensure that consumers have

Directive 2014/17/EU 703 sufficient time of at least seven days to consider the implications. Member States should have flexibility to provide this sufficient time either as a period of reflection before the credit agreement is concluded, a period of withdrawal after the conclusion of the credit agreement or a combination of the two. It is appropriate that Member States should have the flexibility to make the reflection period binding on the consumer for a period not exceeding 10 days but that in other cases consumers who wish to proceed during the reflection period are able to do so and that, in the interests of legal certainty in the context of property transactions, Member States should be able to provide that the reflection period or right of withdrawal should cease where the consumer undertakes any action which, under national law, results in the creation or transfer of a property right connected to or using funds obtained through the credit agreement or, where applicable, transfers the funds to a third party. (24) Given the particular characteristics of credit agreements related to residential immovable property it is common practice for creditors to offer to consumers a set of products or services which can be purchased together with the credit agreement. Therefore, given the significance of such agreements for consumers, it is appropriate to lay down specific rules on tying practices. Combining a credit agreement with one or more other financial services or products in packages is a means for creditors to diversify their offer and to compete against each other, provided that the components of the package can also be bought separately. While a combination of credit agreements with one or more other financial services or products in packages can benefit consumers, it may negatively affect consumers’ mobility and their ability to make informed choices, unless the components of the package can be bought separately. It is important to prevent practices such as tying of certain products which may induce consumers to enter into credit agreements which are not in their best interest, without however restricting product bundling which can be beneficial to consumers. Member States should however continue monitoring retail financial services markets closely to ensure that bundling practices do not distort consumer choice and competition in the market. (25) As a general rule, tying practices should not be allowed unless the financial service or product offered together with the credit agreement could not be offered separately as it is a fully integrated part of the credit, for example in the event of a secured overdraft. In other instances, it may however be justified for creditors to offer or sell a credit agreement in a package with a payment account, savings account, investment product or pension product, for instance where the capital in the account is used to repay the credit or is a prerequisite for pooling resources to obtain the credit, or in situations where, for instance, an investment product or a private pension product serves as an additional security for the credit. While it is justified for creditors to be able to require the consumer to have a relevant insurance policy in order to guarantee repayment of the credit or insure the value of the security, the consumer should have the opportunity to choose his own

704  Part 1: European Union Legislation insurance provider, provided that his insurance policy has an equivalent level of guarantee as the insurance policy proposed or offered by the creditor. Moreover Member States may standardise, wholly or in part, the cover provided by insurance contracts in order to facilitate comparisons between different offers for consumers who wish to make such comparisons. (26) It is important to ensure that the residential immovable property is appropriately valued before the conclusion of the credit agreement and, in particular where the valuation affects the residual obligation of the consumer in the event of default. Member States should therefore ensure that reliable valuation standards are in place. In order to be considered reliable, valuation standards should take into account internationally recognised valuation standards, in particular those developed by the International Valuation Standards Committee, the European Group of Valuers’ Associations or the Royal Institution of Chartered Surveyors. Those internationally recognised valuation standards contain high level principles which require creditors, amongst others, to adopt and adhere to adequate internal risk management and securities management processes, which include sound appraisal processes, to adopt appraisal standards and methods that lead to realistic and substantiated property appraisals in order to ensure that all appraisal reports are prepared with appropriate professional skill and diligence and that appraisers meet certain qualification requirements and to maintain adequate appraisal documentation for securities that is comprehensive and plausible. In this regard it is desirable to ensure appropriate monitoring of residential immovable property markets and for the mechanisms in such provisions to be in line with Directive 2013/36/EU of the European Parliament and the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (6). The provisions of this Directive relating to property valuation standards can be complied with for example through law or self-regulation. (27) Given the significant consequences for creditors, consumers and potentially financial stability of foreclosure, it is appropriate to encourage creditors to deal proactively with emerging credit risk at an early stage and that the necessary measures are in place to ensure that creditors exercise reasonable forbearance and make reasonable attempts to resolve the situation through other means before foreclosure proceedings are initiated. Where possible, solutions should be found which take account of the practical circumstances and reasonable need for living expenses of the consumer. Where after foreclosure proceedings outstanding debt remains, Member States should ensure the protection of minimum living conditions and put in place measures to facilitate repayment while avoiding long-term ­over-indebtedness. At least where the price obtained for the immovable property affects the amount owed by the consumer, Member States should encourage creditors to take reasonable steps to obtain the best efforts price for the foreclosed immovable property in the context of market conditions. Member States should not prevent the parties to a credit agreement from expressly agree-

Directive 2014/17/EU 705

(28)

(29)

(30)

(31)

ing that the transfer of the security to the creditor is sufficient to repay the credit. Intermediaries often engage in more activities than just credit intermediation, in particular insurance intermediation or investment services provision. This Directive should therefore also ensure a degree of coherence with Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation (7) and Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (8). In particular, credit institutions authorised in accordance with Directive 2013/36/EU and other financial institutions subject to an equivalent admission regime under national law should not require a separate admission to operate as a credit intermediary in order to simplify the process of establishing as a credit intermediary and operating cross-border. The full and unconditional responsibility placed on creditors and credit intermediaries for the activities of tied credit intermediaries or appointed representatives should only extend to activities within the scope of this Directive unless Member States choose to extend that responsibility to other areas. In order to increase the ability of consumers to make informed decisions for themselves about borrowing and managing debt responsibly, Member States should promote measures to support the education of consumers in relation to responsible borrowing and debt management in particular relating to mortgage credit agreements. It is particularly important to provide guidance for consumers taking out mortgage credit for the first time. In that regard, the Commission should identify examples of best practices to facilitate the further development of measures to enhance consumers’ financial awareness. Due to the significant risks attached to borrowing in a foreign currency, it is necessary to provide for measures to ensure that consumers are aware of the risk they are taking on and that the consumer has the possibility to limit their exposure to exchange rate risk during the lifetime of the credit. The risk could be limited either through giving the consumer the right to convert the currency of the credit, or through other arrangements such as caps or, where they are sufficient to limit the exchange rate risk, warnings. The applicable legal framework should give consumers the confidence that creditors, credit intermediaries and appointed representatives take account of the interests of the consumer, based on the information available to the creditor, credit intermediary and appointed representative at that moment in time and on reasonable assumptions about risks to the consumer’s situation over the term of the proposed credit agreement. It could imply, amongst other things, that creditors should not market the credit so that the marketing significantly impairs or is likely to impair the consumer’s ability to carefully consider the taking of the credit, or that the creditor should not use the granting of the credit as a main method of marketing when marketing goods, services or immovable property to consumers. A key aspect of ensuring such consumer confidence is the requirement to ensure a high

706  Part 1: European Union Legislation

(32)

(33)

(34)

(35)

degree of fairness, honesty and professionalism in the industry, appropriate management of conflicts of interest including those arising from remuneration and to require advice to be given in the best interests of the consumer. It is appropriate to ensure that the relevant staff of creditors, credit intermediaries and appointed representatives possess an adequate level of knowledge and competence in order to achieve a high level of professionalism. This Directive should, therefore, require relevant knowledge and competence to be proven at the level of the company, based on the minimum knowledge and competence requirements set out in this Directive. Member States should be free to introduce or maintain such requirements applicable to individual natural persons. Member States should be able to allow creditors, credit intermediaries and appointed representatives to differentiate between the levels of minimum knowledge requirements according to the involvement in carrying out particular services or processes. In this context, staff includes outsourced personnel, working for and within the creditor, credit intermediary or appointed representatives as well as their employees. For the purpose of this Directive, staff directly engaged in activities under this Directive should include both front- and back-office staff, including management, who fulfil an important role in the credit agreement process. Persons fulfilling support functions which are unrelated to the credit agreement process (for instance human resources and information and communications technology personnel) should not be considered as staff under this Directive. Where a creditor or credit intermediary provides its services within the territory of another Member State under the freedom to provide services, the home Member State should be responsible for establishing the minimum knowledge and competence requirements applicable to the staff. However host Member States which deem it necessary should be able to establish their own competence requirements in certain specified areas applicable to creditors and credit intermediaries that provide services within the territory of that Member State under the freedom to provide services. Given the importance of ensuring that knowledge and competence requirements are applied and complied with in practice, Member States should require competent authorities to supervise creditors, credit intermediaries and appointed representatives and empower them to obtain such evidence as they need to reliably assess compliance. The way in which creditors, credit intermediaries and appointed representatives remunerate their staff should constitute one of the key aspects of ensuring consumer confidence in the financial sector. This Directive provides rules for staff remuneration, with the aim of limiting mis-selling practices and of ensuring that the way in which staff are remunerated does not impede compliance with the obligation to take account of the interests of the consumer. In particular, creditors, credit intermediaries and appointed representatives should not design their remuneration policies in a way that would incentivise their staff to conclude a given number or type of credit agreements or to offer particular ancillary services to consumers with no

Directive 2014/17/EU 707 explicit consideration of their interests and needs. In this context, M ­ ember States may find it necessary to decide that a particular practice, for example, tied intermediaries collecting fees, is against the interests of a consumer. Member States should also be able to specify that the remuneration received by staff is not dependent on the rate or the type of credit agreement concluded with the consumer. (36) This Directive provides for harmonised rules as regards the fields of knowledge and competence that creditors’, credit intermediaries’ and appointed representatives’ staff should possess in relation to the manufacturing, offering, granting and intermediation of a credit agreement. This Directive does not provide for specific arrangements directly related to the recognition of professional qualifications obtained by an individual in one Member State in order to meet the knowledge and competence requirements in another Member State. Directive 2005/36/EC of the European Parliament and of the Council of 7 September 2005 on the recognition of professional qualifications (9) should therefore continue to apply concerning the conditions for recognition and the compensation measures that a host Member State may require from an individual whose qualification has not been issued within its jurisdiction. (37) Creditors and credit intermediaries frequently use advertisements, often featuring special terms and conditions, to attract consumers to a particular product. Consumers should, therefore, be protected against unfair or misleading advertising practices and should be able to compare advertisements. Specific provisions on the advertising of credit agreements and a list of items to be included in advertisements and marketing materials directed at consumers where such advertising specifies interest rates or any figures relating to the cost of credit, are necessary to enable them to compare different offers. Member States should remain free to introduce or maintain disclosure requirements in their national laws regarding advertising which does not indicate an interest rate or contain any figures relating to the cost of credit. Any such requirements should take into account the specificities of credit agreements relating to residential immovable property. In any event, it should be ensured in accordance with 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 (10) that advertising of credit agreements should not create a misleading impression of the product. (38) Advertising tends to focus on one or several products in particular, while consumers should be able to make their decisions in full knowledge of the range of credit products on offer. In that respect, general information plays an important role in educating the consumer in relation to the broad range of products and services available and the key features thereof. Consumers should therefore be able at all times to access general information on credit products available. Where this requirement is not applicable to non-tied credit intermediaries, this should be without prejudice to their obligation to provide consumers with personalised pre-contractual information.

708  Part 1: European Union Legislation (39) In order to ensure a level playing field and in order for the consumer’s decision to be based on the details of the credit products on offer rather than on the distribution channel through which such credit products are accessed, consumers should receive information on the credit regardless of whether they are dealing directly with a creditor or a credit intermediary. (40) Consumers should further receive personalised information in good time prior to the conclusion of the credit agreement in order to enable them to compare and reflect on the characteristics of credit products. Pursuant to Commission Recommendation 2001/193/EC of 1 March 2001 on precontractual information to be given to consumers by lenders offering home loans (11), the Commission committed itself to monitoring compliance with the Voluntary Code of Conduct on pre-contractual information for home loans, which contains the ESIS which provides information, personalised for the consumer, on the credit agreement being provided. Evidence collected by the Commission highlighted the need to revise the content and presentation of the ESIS to ensure that it is clear, understandable and contains all information found to be relevant for consumers. The content and layout of the ESIS should incorporate the necessary improvements identified during consumer testing in all Member States. The structure of the ESIS, in particular, the order of the information items, should be revised, the wording should be more user-friendly, while sections, such as ‘nominal rate’ and ‘annual percentage rate of charge’, should be merged and new sections, such as ‘flexible features’, should be added. An illustrative amortisation table should be provided to a consumer as part of the ESIS where the credit is a deferred interest credit, in which the repayment of principal is deferred for an initial period or where the borrowing rate is fixed for the duration of the credit agreement. Member States should be able to provide that such an illustrative amortisation table in the ESIS is not compulsory for other credit agreements. (41) Consumer research has underlined the importance of using simple and understandable language in disclosures provided to consumers. For this reason, the terms used in the ESIS are not necessarily the same as the legal terms defined in this Directive but have the same meaning. (42) The information requirements on credit agreements contained in the ESIS should be without prejudice to Union or national information requirements for other products or services that might be offered with the credit agreement, as conditions for obtaining the credit agreement related to immovable property, or offered so as to obtain that agreement at a lower borrowing rate, such as fire or life insurance or investment products. Member States should be free to maintain or introduce national law where no harmonised provisions exist, for instance information requirements on the level of usury rates at the pre-contractual stage or information which might be useful for the purposes of financial education or for out-of-court settlements. Any additional information should, however, be given in a separate document which may be annexed to the ESIS. Member States should be able, in their national languages, to use different vocabulary in the ESIS, without chang-

Directive 2014/17/EU 709

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(44)

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ing its contents and the order in which information is provided, when this is needed in order to employ a language which might be more easily understandable for consumers. In order to ensure that the ESIS provides the consumer with all relevant information to make an informed choice, the creditor should follow the instructions set out in this Directive when completing the ESIS. Member States should be able to elaborate or further specify the instructions for completing the ESIS on the basis of the instructions set out in this Directive. For instance, Member States should be able to further specify the information to be given in order to describe the ‘type of borrowing rate’ in order to take into account the specificities of the national products and market. However, such further specifications should not be contrary to the instructions contained in this Directive nor imply any change in the text of the ESIS model, which should be reproduced as such by the creditor. Member States should be able to specify further warnings on credit agreements, adapted to their national market and practices, where such warnings are not already specifically included in the ESIS. Member States should be able to provide that the creditor is bound by the information provided for in the ESIS, provided that the creditor decides to grant the credit. The consumer should receive information by means of the ESIS without undue delay after the consumer has delivered the necessary information on his needs, financial situation and preferences and in good time before the consumer is bound by any credit agreement or offer, in order to enable him to compare and reflect on the characteristics of credit products and obtain third party advice if necessary. In particular when a binding offer is made to the consumer, it should be accompanied by the ESIS, unless the ESIS has already been delivered to the consumer and the characteristics of the offer are consistent with the information previously provided. However, Member States should be able to provide for the obligatory provision of the ESIS both before the provision of any binding offer and together with the binding offer, where an ESIS containing the same information has not previously been given. While the ESIS should be personalised and reflect the preferences expressed by the consumer, the provision of such personalised information should not imply an obligation to provide advice. Credit agreements should only be concluded where the consumer has had sufficient time to compare offers, assess their implications, obtain third party advice if necessary and has taken an informed decision on whether to accept an offer. Where the consumer has a secured credit agreement for the purchase of immovable property or land and the duration of the security is longer than that of the credit agreement, and where the consumer can decide to withdraw the repaid capital again subject to signature of a new credit agreement, a new ESIS disclosing the new APRC and based on the specific characteristics of the new credit agreement should be provided to the consumer before the signature of the new credit agreement. At least where no right of withdrawal exists, the creditor or, where applicable, the credit intermediary or appointed representative should provide

710  Part 1: European Union Legislation

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(50)

the consumer with a copy of the draft credit agreement, at the time of the provision of an offer binding on the creditor. In other cases, the consumer should at least be offered a copy of the draft credit agreement at the time a binding offer is made. In order to ensure the fullest possible transparency and to prevent abuses arising from possible conflicts of interest when consumers use the services of credit intermediaries, the latter should be subject to certain information disclosure obligations prior to the performance of their services. Such disclosures should include information on their identity and links with creditors, for instance whether they are considering products from a broad range of creditors or only from a more limited number of creditors. The existence of any commission or other inducement payable to the credit intermediary by the creditor or by third parties in relation to the credit agreement should be disclosed to consumers before the carrying out of any credit intermediation activities and consumers should be informed at that stage either of the amount of such payments, where that is known, or of the fact that the amount will be disclosed at a later pre-contractual stage in the ESIS and of their right to be given information on the level of such payments at that stage. Consumers should be informed of any fees they should pay to credit intermediaries in relation to their services. Without prejudice to competition law, Member States should be free to introduce or maintain provisions prohibiting the payment of fees by consumers to some or all categories of credit intermediary. A consumer may still need additional assistance in order to decide which credit agreement, within the range of products proposed, is the most appropriate for his needs and financial situation. Creditors and, where applicable, credit intermediaries should provide such assistance in relation to the credit products which they offer to the consumer by explaining the relevant information including in particular the essential characteristics of the products proposed to the consumer in a personalised manner so that the consumer can understand the effects which they may have on his economic situation. Creditors and, where applicable, credit intermediaries should adapt the way in which such explanations are given to the circumstances in which the credit is offered and the consumer’s need for assistance, taking into account the consumer’s knowledge and experience of credit and the nature of individual credit products. Such explanations should not in itself constitute a personal recommendation. In order to promote the establishment and functioning of the internal market and to ensure a high degree of protection for consumers throughout the Union, it is necessary to uniformly ensure the comparability of information relating to the APRC throughout the Union. The total cost of the credit to the consumer should comprise all the costs that the consumer has to pay in connection with the credit agreement and which are known to the creditor. It should therefore include interest, commissions, taxes, fees for credit intermediaries, the costs of property valuation for a mortgage and any other fees, except for notarial fees, required

Directive 2014/17/EU 711 to obtain the credit, for example life insurance, or to obtain it on the terms and conditions marketed, for example fire insurance. The provisions of this Directive concerning ancillary products and services (for instance concerning the costs of opening and maintaining a bank account) should be without prejudice to Directive 2005/29/EC and Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (12). The total cost of the credit to the consumer should exclude costs that the consumer pays in relation to the purchase of the immovable property or land, such as associated taxes and notarial costs or the costs of land registration. The creditor’s actual knowledge of the costs should be assessed objectively, taking into account the requirements of professional diligence. In that respect, the creditor should be presumed to have knowledge of the costs of the ancillary services which he offers to the consumer himself, or on behalf of a third party, unless the price thereof depends on the specific characteristics or situation of the consumer. (51) If estimated information is used, the consumer should be made aware of this and that the information is expected to be representative of the type of agreement or practices under consideration. The additional assumptions for the calculation of the APRC aim to ensure that the APRC is calculated in a consistent way and to ensure comparability. Additional assumptions are necessary for specific types of credit agreement, such as where the amount, duration or cost of the credit are uncertain or vary depending on how the agreement is operated. Where the provisions in themselves do not suffice to calculate the APRC, the creditor should use the additional assumptions set out in Annex I. However, given that the calculation of the APRC will depend on the terms of the individual credit agreement, only those assumptions necessary and relevant to a given credit should be used. (52) In order to further ensure a high degree of comparability of the APRC between offers from different creditors, the intervals between dates used in the calculation should not be expressed in days where they can be expressed as a whole number of years, months or weeks. Implicit in that context is that if certain time intervals are used in the APRC formula, those intervals should be used to ascertain the amounts of interest and other charges used in the formula. For this reason, creditors should use the method of measurement of time intervals described in Annex I to obtain the figures for the payment of charges. However, that is only applicable for the purposes of calculation of the APRC and does not impact on the amounts actually charged by the creditor under the credit agreement. Where those numbers are different it may be necessary to explain them to the consumer in order to avoid misleading the consumer. That implies that in the absence of noninterest charges and assuming an identical method of calculation the APRC will be equal to the effective borrowing rate of the credit. (53) As the APRC can at the advertising stage be indicated only through an example, such an example should be representative. Therefore, it should correspond, for instance, to the average duration and total amount of credit granted for the type of credit agreement under consideration. When

712  Part 1: European Union Legislation determining the representative example, the prevalence of certain types of credit agreements in a specific market should be taken into account. It may be preferable for each creditor to base the representative example on an amount of credit which is representative of that creditor’s own product range and expected customer base, as these may vary considerably among creditors. As regards the APRC disclosed in the ESIS, the preferences of and information provided by the consumer should where possible be taken into account and the creditor or credit intermediary should make it clear whether the information provided is illustrative or reflects the preferences and information given. In any event, the representative examples should not be contrary to the requirements of Directive 2005/29/EC. It is important that in the ESIS it is made clear to the consumer, where applicable, that the APRC is based on assumptions and could change so that consumers can take this into account when comparing products. It is important that the APRC should take account of all drawdowns under the credit agreement, whether paid directly to the consumer or to a third party on the consumer’s behalf. (54) In order to ensure consistency between the calculation of the APRC for different types of credit, the assumptions used for calculating similar forms of credit agreement should be generally consistent. In this respect, assumptions from Commission Directive 2011/90/EU of 14 November 2011 amending Part II of Annex I to Directive 2008/48/EC of the European Parliament and of the Council providing additional assumptions for the calculation of the annual percentage rate of charge (13), modifying the assumptions for calculating the APRC should be incorporated. While not all assumptions will necessarily apply to credit agreements available now, product innovation in this sector is active and so it is necessary to have the assumptions in place. Furthermore, for the purpose of calculating the APRC, the identification of the most common drawdown mechanism should be based on reasonable expectations of the drawdown mechanism most frequently used by consumers for the type of product offered by that specific creditor. For existing products, the expectation should be based on the previous 12 months. (55) It is essential that the consumer’s ability and propensity to repay the credit is assessed and verified before a credit agreement is concluded. That assessment of creditworthiness should take into consideration all necessary and relevant factors that could influence a consumer’s ability to repay the credit over its lifetime. In particular, the consumer’s ability to service and fully repay the credit should include consideration of future payments or payment increases needed due to negative amortisation or deferred payments of principal or interest and should be considered in the light of other regular expenditure, debts and other financial commitments as well as income, savings and assets. Reasonable allowance should be made for future events during the term of the proposed credit agreement such as a reduction in income where the credit term lasts into retirement or, where applicable, an increase in the borrowing rate or negative change in the exchange rate. While the value of the immovable property is an important element in ascer-

Directive 2014/17/EU 713 taining the amount of the credit that may be granted to a consumer under a secured credit agreement, the assessment of creditworthiness should focus on the consumer’s ability to meet their obligations under the credit agreement. Consequently, the possibility that the value of the immovable property could exceed the credit amount or could increase in the future should not generally be a sufficient condition for granting the credit in question. Nevertheless, where the purpose of a credit agreement is to construct or renovate an existing immovable property, the creditor should be able to consider this possibility. Member States should be able to issue additional guidance on those or additional criteria and on methods to assess a consumer’s creditworthiness, for example by setting limits on loan-to-value or loan-to-income ratios and should be encouraged to implement the Financial Stability Board’s Principles for Sound Residential Mortgage Underwriting Practices. (56) Specific provisions may be necessary for the different elements that may be taken into consideration in the creditworthiness assessment of certain types of credit agreements. For example, for credit agreements which relate to an immovable property which explicitly state that the immovable property is not to be occupied as a house, apartment or another place of residence by the consumer or a family member of the consumer (buy-to-let agreements), Member States should be able to specify that future rental income is taken into account when assessing the consumer’s ability to repay the credit. In those Member States where such a specification is not set out by national provisions, creditors may decide to include a prudent assessment of future rental income. The assessment of creditworthiness should not imply the transfer of responsibility to the creditor for any subsequent non-compliance by the consumer with his obligations under the credit agreement. (57) The creditor’s decision as to whether to grant the credit should be consistent with the outcome of the assessment of creditworthiness. For example, the capacity for the creditor to transfer part of the credit risk to a third party should not lead him to ignore the conclusions of the creditworthiness assessment by making a credit agreement available to a consumer who is likely not to be able to repay it. Member States should be able to transpose this principle by requiring competent authorities to take relevant actions as part of the supervisory activities and to monitor the compliance of creditors’ creditworthiness assessment procedures. However, a positive creditworthiness assessment should not constitute an obligation for the creditor to provide credit. (58) In line with the recommendations of the Financial Stability Board, the assessment of creditworthiness should be based on information on the financial and economic situation, including income and expenses, of the consumer. That information can be obtained from various sources including from the consumer, and the creditor should appropriately verify such information before granting the credit. In that respect consumers should provide information in order to facilitate the creditworthiness assessment, since failure to do so is likely to result in refusal of the credit they seek to

714  Part 1: European Union Legislation obtain unless the information can be obtained from elsewhere. Without prejudice to private contract law, Member States should ensure that creditors cannot terminate a credit agreement because they realised, after the signature of the credit agreement, that the assessment of creditworthiness was incorrectly conducted due to incomplete information at the time of the creditworthiness assessment. However, this should be without prejudice to the possibility for Member States to allow creditors to terminate the credit agreement where it can be established that the consumer deliberately provided inaccurate or falsified information at the time of the creditworthiness assessment or intentionally did not provide information that would have led to a negative creditworthiness assessment or where there are other valid reasons compatible with Union law. While it would not be appropriate to apply sanctions to consumers for not being in a position to provide certain information or assessments or for deciding to discontinue the application process for getting a credit, Member States should be able to provide for sanctions where consumers knowingly provide incomplete or incorrect information in order to obtain a positive creditworthiness assessment, in particular where the complete and correct information would have resulted in a negative creditworthiness assessment and the consumer is subsequently unable to fulfil the conditions of the agreement. (59) Consultation of a credit database is a useful element in the assessment of creditworthiness. Some Member States require creditors to assess the creditworthiness of consumers on the basis of a consultation of the relevant database. Creditors should be able to consult the credit database over the lifetime of the credit solely in order to identify and assess the potential for default. Such consultation of the credit database should be subject to appropriate safeguards to ensure that it is used for the early identification and resolution of credit risk in the interest of the consumer and not to inform commercial negotiations. Pursuant to Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (14), consumers should be informed by creditors of the consultation of the credit database prior to its consultation, and should have the right to access the information held on them in such a credit database in order to, where necessary, rectify, erase or block the personal data concerning them processed therein where it is inaccurate or has been unlawfully processed. (60) To prevent any distortion of competition among creditors, it should be ensured that all creditors, including credit institutions or non-credit institutions providing credit agreements relating to residential immovable property, have access to all public and private credit databases concerning consumers under non-discriminatory conditions. Such conditions should not therefore include a requirement for creditors to be established as a credit institution. Access conditions, such as the costs of accessing the database or requirements to provide information to the database on the basis of reciprocity should continue to apply. Member States should be free to

Directive 2014/17/EU 715

(61)

(62)

(63)

(64)

determine whether, within their jurisdictions, credit intermediaries may have access to such databases. Where a decision to reject an application for credit is based on data obtained through the consultation of a database or the lack of data therein, the creditor should inform the consumer thereof, and provide the name of the database consulted and of any other elements required by Directive 95/46/EC so as to enable the consumer to exercise his right to access and, where justified, rectify, erase or block personal data concerning him and processed therein. Where a decision to reject an application for credit results from a negative creditworthiness assessment, the creditor should inform the consumer of the rejection without undue delay. Member States should be free to decide whether they require creditors to provide further explanations on the reasons of the rejection. However, the creditor should not be required to give such information when to do so would be prohibited by other Union law such as provisions on money laundering or the financing of terrorism. Such information should not be provided where to do so would be contrary to the objectives of public policy or public security such as the prevention, investigation, detection or prosecution of criminal offences. This Directive addresses the use of personal data in the context of the assessment of a consumer’s creditworthiness. In order to ensure the protection of personal data, Directive 95/46/EC should apply to the data processing activities carried out within the context of such assessments. Providing advice in the form of a personalised recommendation is a distinct activity which may but need not be combined with other aspects of granting or intermediating credit. Therefore, in order to be in a position to understand the nature of the services provided to them, consumers should be made aware of whether advisory services are being or can be provided and when they are not and of what constitutes advisory services. Given the importance which consumers attach to the use of the terms ‘advice’ and ‘advisors’, it is appropriate that Member States should be allowed to prohibit the use of the those terms, or similar terms, when advisory services are being provided to consumers. It is appropriate to ensure that Member States impose safeguards where advice is described as independent to ensure that the range of products considered and remuneration arrangements are commensurate with consumers’ expectations of such advice. Those providing advisory services should comply with certain standards in order to ensure that the consumer is presented with products suitable for his needs and circumstances. Advisory services should be based on a fair and sufficiently wide-ranging analysis of the products offered, where the advisory services are provided by creditors and tied credit intermediaries, or, where the advisory services are provided by credit intermediaries that are not tied, of products available on the market. Those providing advisory services should be able to specialise in certain ‘niche’ products such as bridging finance, provided they consider a range of products within that particular ‘niche’ and ‘their specialisation in those ‘niche’ products is made clear to the consumer. In any event, creditors and credit i­ntermediaries

716  Part 1: European Union Legislation should disclose to the consumer whether they are advising only on their own product range or a wide range from across the market to ensure that the consumer understands the basis for a recommendation. (65) Advisory services should be based on a proper understanding of the consumer’s financial situation, preferences and objectives based on the necessary up-to-date information and reasonable assumptions about risks to the consumer’s circumstances during the lifetime of the credit agreement. Member States should be able to clarify how the suitability of a given product is to be assessed in the context of the provision of advisory services. (66) A consumer’s ability to repay the credit prior to the expiry of the credit agreement may play an important role in promoting competition in the internal market and the free movement of Union citizens as well as helping to provide the flexibility during the lifetime of the credit agreement needed to promote financial stability in line with the recommendations of the Financial Stability Board. However, substantial differences exist between the national principles and conditions under which consumers have the ability to repay their credit and the conditions under which such early repayment can take place. Whilst recognising the diversity in mortgage funding mechanisms and the range of products available, certain standards with regard to early repayment of credit are essential at Union level in order to ensure that consumers have the possibility to discharge their obligations before the date agreed in the credit agreement and the confidence to compare offers in order to find the best products to meet their needs. Member States should therefore ensure, whether through law or other means such as contractual clauses, that consumers have a right to early repayment. Nevertheless, Member States should be able to define the conditions for the exercise of such a right. These conditions may include time limitations on the exercise of the right, different treatment depending on the type of the borrowing rate or restrictions with regard to the circumstances under which the right may be exercised. Where the early repayment falls within a period for which the borrowing rate is fixed, exercise of the right may be made subject to the existence of a legitimate interest on the part of the consumer specified by the Member State. Such legitimate interest may for example occur in the event of divorce or unemployment. The conditions set by Member States may provide that the creditor is entitled to fair and objectively justified compensation for potential costs directly linked to early repayment of the credit. In the event where Member States provide that the creditor is entitled to compensation such compensation should be a fair and objectively justified compensation for potential costs directly linked to early repayment of the credit in accordance with the national rules on compensation. The compensation should not exceed the financial loss of the creditor. (67) It is important to ensure that sufficient transparency exists to provide clarity for consumers on the nature of the commitments made in the interests of preserving financial stability and on where there is flexibility during the term of the credit agreement. Consumers should be provided with information concerning the borrowing rate during the contractual relationship as

Directive 2014/17/EU 717 well as at the pre-contractual stage. Member States should be able to maintain or introduce restrictions or prohibitions on unilateral changes to the borrowing rate by the creditor. Member States should be able to provide that where the borrowing rate changes the consumer is entitled to receive an updated amortisation table. (68) Although credit intermediaries play a central role in the distribution of credit agreements relating to residential immovable property in the Union, substantial differences remain between national provisions on the conduct of business and supervision of credit intermediaries which create barriers to the taking-up and pursuit of the activities of credit intermediaries in the internal market. The inability of credit intermediaries to operate freely throughout the Union hinders the proper functioning of the internal market in credit agreements relating to residential immovable property. While recognising the diversity in the types of actor involved in credit intermediation, certain standards at Union level are essential in order to ensure a high level of professionalism and service. (69) Before being able to carry out their activities, credit intermediaries should be subject to an admission process by the competent authority of their home Member State and subject to ongoing supervision to ensure that they meet strict professional requirements at least in relation to their competence, good repute and professional indemnity cover. Such requirements should apply at least at the level of the institution. However, Member States may clarify whether such requirements for admission apply to individual employees of the credit intermediary. The home Member State may provide for additional requirements, for instance that the credit intermediary’s shareholders are of good repute or that a tied credit intermediary can only be tied to one creditor, where those are proportionate and compatible with other Union law. Relevant information about admitted credit intermediaries should be entered in a public register. Tied credit intermediaries who work exclusively with one creditor under its full and unconditional responsibility should have the possibility to be admitted by the competent authority under the auspices of the creditor on whose behalf they act. Member States should have the right to maintain or to impose restrictions regarding the legal form of certain credit intermediaries, whether they are allowed to act exclusively as legal or natural persons. Member States should be free to decide whether all credit intermediaries are entered into one register or whether different registers are required depending on whether the credit intermediary is tied or acts as independent credit intermediary. Furthermore Member States should be free to maintain or to impose restrictions on the possibility to charge any fees to consumers by the credit intermediaries tied to one or more creditors. (70) In some Member States, credit intermediaries may decide to use the services of appointed representatives to perform activities on their behalf. Member States should have the possibility to apply the specific regime laid down by this Directive for appointed representatives. However, Member States should be free not to introduce such a regime or to allow other entities to

718  Part 1: European Union Legislation

(71)

(72)

(73)

(74)

perform a role which is comparable to that of appointed representatives, provided that those entities are subject to the same regime as credit intermediaries. The rules on appointed representatives set out in this Directive do not oblige Member States to allow appointed representatives to operate in their jurisdiction unless such appointed representatives are considered credit intermediaries under this Directive. In order to ensure the effective supervision of credit intermediaries by competent authorities, a credit intermediary which is a legal person should be admitted in the Member State in which it has its registered office. A credit intermediary which is not a legal person should be admitted in the Member State in which it has its head office. In addition, Member States should require that a credit intermediary’s head office always be situated in its home Member State and that it actually operates there. The requirements for admission should allow credit intermediaries to operate in other Member States in accordance with the principles of freedom of establishment and freedom to provide services, provided that an appropriate notification procedure has been followed between the competent authorities. Even in cases where Member States decide to admit all individual staff within the credit intermediary, the notification of the intention to provide services should be made on the basis of the credit intermediary rather than the individual employee. However, while this Directive provides a framework for all admitted credit intermediaries, including credit intermediaries tied to only one creditor, to operate throughout the Union, this Directive does not provide such a framework for appointed representatives. In such instances, appointed representatives wishing to operate in another Member State would have to comply with the requirements for the admission of credit intermediaries set out in this Directive. In some Member States, credit intermediaries can carry out their activities in respect of credit agreements offered by non-credit institutions and credit institutions. As a principle, admitted credit intermediaries should be allowed to operate in the entire territory of the Union. However, the admission by the competent authorities of the home Member States should not allow credit intermediaries to provide their services in relation to credit agreements offered by non-credit institutions to a consumer in a Member State where such non-credit institutions are not allowed to operate. Member States should be able to provide that persons carrying out credit intermediation activities only on an incidental basis in the course of professional activity, such as lawyers or notaries, are not subject to the admission procedure set out in this Directive provided that such professional activity is regulated and the relevant rules do not prohibit the carrying out, on an incidental basis, of credit intermediation activities. Such an exemption from the admission procedure laid down in this Directive should however mean that such persons cannot benefit from the passport regime provided in this Directive. Persons who merely introduce or refer a consumer to a creditor or credit intermediary on an incidental basis in the course of their professional activity, for instance by indicating the existence of a particular

Directive 2014/17/EU 719

(75)

(76)

(77)

(78)

creditor or credit intermediary to the consumer or a type of product with this particular creditor or credit intermediary to the consumer without further advertising or engaging in the presentation, offering, preparatory work or conclusion of the credit agreement, should not be regarded as credit intermediaries for the purposes of this Directive. Neither should borrowers who merely transfer a credit agreement to a consumer through a process of subrogation without carrying out any other credit intermediation activity be regarded as credit intermediaries for the purposes of this Directive. In order to ensure a level playing field between creditors and promote financial stability, and pending further harmonisation, Member States should ensure that appropriate measures are in place for the admission and supervision of non-credit institutions providing credit agreements relating to residential immovable property. In accordance with the principle of proportionality, this Directive should not lay down detailed conditions for the admission or supervision of creditors providing such credit agreements and that are not credit institutions as defined in Regulation (EU) No 575/2013 of the European Parliament and the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (15). The number of such institutions operating in the Union at present is limited as is their market share and the number of Member States in which they are active, particularly since the financial crisis. Nor should the introduction of a ‘passport’ for such institutions be provided for in this Directive for the same reason. Member States should lay down rules on sanctions applicable to infringements of the national provisions adopted pursuant to this Directive and ensure that they are implemented. While the choice of sanctions remains within the discretion of Member States, the sanctions provided for should be effective, proportionate and dissuasive. Consumers should have access to out-of-court complaint and redress procedures for the settlement of disputes arising from the rights and obligations set out in this Directive between creditors and consumers as well as between credit intermediaries and consumers. Member States should ensure that participation in such alternative dispute resolution procedures is not optional for creditors and credit intermediaries. To ensure the smooth functioning of alternative dispute resolution procedures in cases of cross-border activity, Member States should require and encourage the bodies responsible for resolving out-of-court complaints and redress to cooperate. In that context, Member States’ out-of-court complaint and redress bodies should be encouraged to participate in FIN-NET, a financial dispute resolution network of national out-of-court schemes that are responsible for handling disputes between consumers and financial services providers. In order to ensure consistent harmonisation and to take account of developments in the markets for credit agreements or in the evolution of credit products or in economic conditions, and in order to further specify certain requirements in this Directive, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of

720  Part 1: European Union Legislation amending the standard wording or the instructions for completing the ESIS and amending the remarks or update the assumptions used to calculate the APRC. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council. (79) In order to facilitate the ability of credit intermediaries to provide their services on a cross-border basis, for the purposes of cooperation, information exchange and dispute resolution between competent authorities, the competent authorities responsible for the admission of credit intermediaries should be those acting under the auspices of the European Supervisory Authority (European Banking Authority) (EBA), as set out in Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority) (16) or other national authorities provided that they cooperate with the authorities acting under the auspices of EBA in order to carry out their duties under this Directive. (80) Member States should designate competent authorities empowered to ensure enforcement of this Directive and ensure that they are granted investigation and enforcement powers and adequate resources necessary for the performance of their duties. Competent authorities could act for certain aspects of this Directive by application to courts competent to grant a legal decision, including, where appropriate, by appeal. This could enable Member States, in particular where provisions of this Directive were transposed into civil law, to leave the enforcement of these provisions to the abovementioned bodies and the courts. Member States should be able to designate different competent authorities in order to enforce the wide ranging obligations laid down in this Directive. For instance, for some provisions, Member States could designate competent authorities responsible for the enforcement of consumer protection, while for others, they could decide to designate prudential supervisors. The option to designate different competent authorities should not affect the obligations for ongoing supervision and cooperation between the competent authorities, as provided for in this Directive. (81) The efficient functioning of this Directive will need to be reviewed, as will progress on the establishment of an internal market with a high level of consumer protection for credit agreements relating to residential immovable property. The review should include, among other things, an assessment of compliance with and the impact of this Directive, an assessment of whether the scope of the Directive remains appropriate, an analysis of the provision of credit agreements by non-credit institutions, an assessment of the need for further measures, including a passport for non-credit ­institutions and examination of the necessity to introduce further rights and obligations with regard to the post-contractual stage of credit agreements.

Directive 2014/17/EU 721 (82) Action by Member States alone is likely to result in different sets of rules, which may undermine or create new obstacles to the functioning of the internal market. Since the objective of this Directive, namely the creation of an efficient and competitive internal market in credit agreements relating to residential immovable property whilst ensuring a high level of consumer protection, cannot be sufficiently achieved by Member States and can therefore, by reason of the effectiveness of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (83) Member States may decide to transpose certain aspects covered by this Directive in national law by prudential law, for example the creditworthiness assessment of the consumer, while others are transposed by civil or criminal law, for example the obligations relating to responsible borrowers. (84) In accordance with the Joint Political Declaration of Member States and the Commission on explanatory documents of 28 September 2011 (17), Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. (85) The European Data Protection Supervisor delivered an opinion on 25 July 2011 (18) based on Article 28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (19), HAVE ADOPTED THIS DIRECTIVE: CHAPTER 1 SUBJECT MATTER, SCOPE, DEFINITIONS AND COMPETENT AUTHORITIES Article 1 Subject matter This Directive lays down a common framework for certain aspects of the laws, regulations and administrative provisions of the Member States concerning agreements covering credit for consumers secured by a mortgage or otherwise relating to residential immovable property, including an obligation to carry out a creditworthiness assessment before granting a credit, as a basis for the development of effective

722  Part 1: European Union Legislation underwriting standards in relation to residential immovable property in the Member States, and for certain prudential and supervisory requirements, including for the establishment and supervision of credit intermediaries, appointed representatives and non-credit institutions. Article 2 Level of harmonisation 1. This Directive shall not preclude Member States from maintaining or introducing more stringent provisions in order to protect consumers, provided that such provisions are consistent with their obligations under Union law. 2. Notwithstanding paragraph 1, Member States shall not maintain or introduce in their national law provisions diverging from those laid down in Article 14(2) and Annex II Part A with regard to standard pre-contractual information through a European Standardised Information Sheet (ESIS) and Article 17(1) to (5), (7) and (8) and Annex I with regard to a common, consistent Union standard for the calculation of the annual percentage rate of charge (APRC). Article 3 Scope 1. This Directive shall apply to: (a) credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property; and (b) credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building. 2. This Directive shall not apply to: (a) Equity release credit agreements where the creditor: (i) contributes a lump sum, periodic payments or other forms of credit disbursement in return for a sum deriving from the future sale of a residential immovable property or a right relating to residential immovable property; and (ii) will not seek repayment of the credit until the occurrence of one or more specified life events of the consumer, as defined by Member States, unless the consumer breaches his contractual obligations which allows the creditor to terminate the credit agreement; (b) credit agreements where the credit is granted by an employer to his employees as a secondary activity where such a credit agreement is offered free of interest or at an APRC lower than those prevailing on the market and not offered to the public generally; (c) credit agreements where the credit is granted free of interest and without any other charges except those that recover costs directly related to the securing of the credit;

Directive 2014/17/EU 723 (d) credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month; (e) credit agreements which are the outcome of a settlement reached in court or before another statutory authority; (f) credit agreements which relate to the deferred payment, free of charge, of an existing debt and which do not fall within the scope of point (a) of paragraph 1. 3. Member States may decide not to apply: (a) Articles 11 and 14 and Annex II to credit agreements for consumers, secured by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property, the purpose of which is not to acquire or retain the right to residential immovable property, provided that the Member States apply to such credit agreements Articles 4 and 5 of and Annexes II and III to Directive 2008/48/EC; (b) this Directive to credit agreements which relate to an immovable property where the credit agreement provides that the immovable property cannot at any time be occupied as a house, apartment or another place of residence by the consumer or a family member of the consumer and is to be occupied as a house, apartment or another place of residence on the basis of a rental agreement; (c) this Directive to credit agreements which relate to credits granted to a restricted public under a statutory provision with a general interest purpose, free of interest or at lower borrowing rates than those prevailing on the market or on other terms which are more favourable to the consumer than those prevailing on the market and at borrowing rates not higher than those prevailing on the market; (d) this Directive to bridging loans; (e) this Directive to credit agreements where the creditor is an organisation within the scope of Article 2(5) of Directive 2008/48/EC. 4. Member States which use the option referred to in point (b) of paragraph 3 shall ensure the application of an appropriate framework at a national level for this type of credit. 5. Member States which use the option referred to in point (c) or (e) of paragraph 3 shall ensure the application of adequate alternative arrangements to ensure consumers receive timely information on the main features, risks and costs of such credit agreements at the pre-contractual stage and that advertising of such credit agreements is fair, clear and not misleading. Article 4 Definitions For the purposes of this Directive, the following definitions shall apply: (1) ‘Consumer’ means a consumer as defined in point (a) of Article 3 of Directive 2008/48/EC.

724  Part 1: European Union Legislation (2) ‘Creditor’ means a natural or legal person who grants or promises to grant credit falling within the scope of Article 3 in the course of his trade, business or profession. (3) ‘Credit agreement’ means an agreement whereby a creditor grants or promises to grant, to a consumer, a credit falling within the scope of Article 3 in the form of a deferred payment, loan or other similar financial accommodation. (4) ‘Ancillary service’ means a service offered to the consumer in conjunction with the credit agreement. (5) ‘Credit intermediary’ means a natural or legal person who is not acting as a creditor or notary and not merely introducing, either directly or indirectly, a consumer to a creditor or credit intermediary, and who, in the course of his trade, business or profession, for remuneration, which may take a pecuniary form or any other agreed form of financial consideration: (a) presents or offers credit agreements to consumers; (b) assists consumers by undertaking preparatory work or other precontractual­administration in respect of credit agreements other than as referred to in point (a); or (c) concludes credit agreements with consumers on behalf of the creditor. (6) ‘Group’ means a group of creditors which are to be consolidated for the purposes of drawing up consolidated accounts, as defined in Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (20). (7) ‘Tied credit intermediary’ means any credit intermediary who acts on behalf of and under the full and unconditional responsibility of: (a) only one creditor; (b) only one group; or (c) a number of creditors or groups which does not represent the majority of the market. (8) ‘Appointed representative’ means a natural or legal person who performs activities referred to in point 5 that is acting on behalf of and under the full and unconditional responsibility of only one credit intermediary. (9) ‘Credit institution’ means credit institution as defined in point 1 of Article 4(1) of Regulation (EU) No 575/2013. (10) ‘Non-credit institution’ means any creditor that is not a credit institution. (11) ‘Staff’ means: (a) any natural person working for the creditor, or credit intermediary who is directly engaged in the activities covered by this Directive or who has contacts with consumers in the course of activities covered by this Directive; (b) any natural person working for an appointed representative who has contacts with consumers in the course of activities covered by this Directive; (c) any natural person directly managing or supervising the natural persons referred to in points (a) and (b).

Directive 2014/17/EU 725 (12) ‘Total amount of credit’ means the total amount of credit as defined in point (l) of Article 3 of Directive 2008/48/EC. (13) ‘Total cost of the credit to the consumer’ means the total cost of the credit to the consumer as defined in point (g) of Article 3 of Directive 2008/48/EC including the cost of valuation of property where such valuation is necessary to obtain the credit but excluding registration fees for the transfer of ownership of the immovable property. It excludes any charges payable by the consumer for non-compliance with the commitments laid down in the credit agreement. (14) ‘Total amount payable by the consumer’ means the total amount payable by the consumer as defined in point (h) of Article 3 of Directive 2008/48/EC. (15) ‘Annual percentage rate of charge’ (APRC) means the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, where applicable, including the costs referred to in Article 17(2) and equates, on an annual basis, to the present value of all future or existing commitments (drawdowns, repayments and charges) agreed by the creditor and the consumer. (16) ‘Borrowing rate’ means the borrowing rate as defined in point (j) of ­Article 3 of Directive 2008/48/EC. (17) ‘Creditworthiness assessment’ means the evaluation of the prospect for the debt obligation resulting from the credit agreement to be met. (18) ‘Durable medium’ means durable medium as defined in point (m) of ­Article 3 of Directive 2008/48/EC. (19) ‘Home Member State’ means: (a) where the creditor or credit intermediary is a natural person, the ­Member State in which his head office is situated; (b) where the creditor or credit intermediary is a legal person, the Member State in which its registered office is situated or, if under its national law it has no registered office, the Member State in which its head office is situated. (20) ‘Host Member State’ means the Member State, other than the home ­Member State, in which the creditor or credit intermediary has a branch or provides services. (21) ‘Advisory services’ means the provision of personal recommendations to a consumer in respect of one or more transactions relating to credit agreements and constitutes a separate activity from the granting of a credit and from the credit intermediation activities set out in point 5. (22) ‘Competent authority’ means an authority designated as competent by a Member State in accordance with Article 5. (23) ‘Bridging loan’ means a credit agreement either of no fixed duration or which is due to be repaid within 12 months, used by the consumer as a temporary financing solution while transitioning to another financial arrangement for the immovable property. (24) ‘Contingent liability or guarantee’ means a credit agreement which acts as a guarantee to another separate but ancillary transaction, and where the

726  Part 1: European Union Legislation

(25) (26) (27)

(28)

capital secured against an immovable property is only drawn down if an event or events specified in the contract occur. ‘Shared equity credit agreement’ means a credit agreement where the capital repayable is based on a contractually set percentage of the value of the immovable property at the time of the capital repayment or repayments. ‘Tying practice’ means the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is not made available to the consumer separately. ‘Bundling practice’ means the offering or the selling of a credit agreement in a package with other distinct financial products or services where the credit agreement is also made available to the consumer separately but not necessarily on the same terms or conditions as when offered bundled with the ancillary services. ‘Foreign currency loan’ means a credit agreement where the credit is: (a) denominated in a currency other than that in which the consumer receives the income or holds the assets from which the credit is to be repaid; or (b) denominated in a currency other than that of the Member State in which the consumer is resident. Article 5 Competent authorities

1. Member States shall designate the national competent authorities empowered to ensure the application and enforcement of this Directive and shall ensure that they are granted investigating and enforcement powers and adequate resources necessary for the efficient and effective performance of their duties. The authorities referred to in the first subparagraph shall be either public authorities or bodies recognised by national law or by public authorities expressly empowered for that purpose by national law. They shall not be creditors, credit intermediaries or appointed representatives. 2. Member States shall ensure that competent authorities, all persons who work or who have worked for the competent authorities, as well as auditors and experts instructed by the competent authorities, are bound by the obligation of professional secrecy. No confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, save in summary or aggregate form, without prejudice to cases covered by criminal law or by this Directive. This shall not, however, prevent the competent authorities from exchanging or transmitting confidential information in accordance with national and Union law. 3. Member States shall ensure that the authorities designated as competent for ensuring the application and enforcement of Articles 9, 29, 32, 33, 34 and 35 of this Directive are either or both of the following: (a) competent authorities as defined in Article 4(2) of Regulation (EU) No 1093/2010; (b) authorities other than the competent authorities referred to in point (a) provided that national laws, regulations or administrative provisions

Directive 2014/17/EU 727

4.

5.

6.

7.

require those authorities to cooperate with the competent authorities referred to in point (a) whenever necessary in order to carry out their duties under this Directive, including for the purposes of cooperating with the European Supervisory Authority (European Banking Authority) (EBA) as required under this Directive. Member States shall inform the Commission and EBA of the designation of the competent authorities and any changes thereto, indicating any division of the respective duties between different competent authorities. The first such notification shall be made as soon as possible and at the latest on 21 March 2016. The competent authorities shall exercise their powers in conformity with national law either: (a) directly under their own authority or under the supervision of the judicial authorities; or (b) by application to courts which are competent to grant the necessary decision, including, where appropriate, by appeal, if the application to grant the necessary decision is not successful, except for Articles 9, 29, 32, 33, 34 and 35. Where there is more than one competent authority on their territory, Member States shall ensure that their respective duties are clearly defined and that those authorities collaborate closely so that they can discharge their respective duties effectively. The Commission shall publish a list of the competent authorities in the Official Journal of the European Union at least once a year, and update it continuously on its website. CHAPTER 2 FINANCIAL EDUCATION Article 6 Financial education of consumers

1. Member States shall promote measures that support the education of consumers in relation to responsible borrowing and debt management, in particular in relation to mortgage credit agreements. Clear and general information on the credit granting process is necessary in order to guide consumers, especially those who take out a mortgage credit for the first time. Information regarding the guidance that consumer organisations and national authorities may provide to consumers, is also necessary. 2. The Commission shall publish an assessment of the financial education available to consumers in the Member States and identify examples of best practices which could be further developed in order to increase the financial awareness of consumers.

728  Part 1: European Union Legislation CHAPTER 3 CONDITIONS APPLICABLE TO CREDITORS, CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVES Article 7 Conduct of business obligations when providing credit to consumers 1. Member States shall require that when manufacturing credit products or granting, intermediating or providing advisory services on credit and, where appropriate, ancillary services to consumers or when executing a credit agreement, the creditor, credit intermediary or appointed representative acts honestly, fairly, transparently and professionally, taking account of the rights and interests of the consumers. In relation to the granting, intermediating or provision of advisory services on credit and, where appropriate, of ancillary services the activities shall be based on information about the consumer’s circumstances and any specific requirement made known by a consumer and on reasonable assumptions about risks to the consumer’s situation over the term of the credit agreement. In relation to such provision of advisory services, the activity shall in addition be based on the information required under point (a) of Article 22(3). 2. Member States shall ensure that the manner in which creditors remunerate their staff and credit intermediaries and the manner in which credit intermediaries remunerate their staff and appointed representatives do not impede compliance with the obligation set out in paragraph 1. 3. Member States shall ensure that, when establishing and applying remuneration policies for staff responsible for the assessment of creditworthiness, creditors comply with the following principles in a way and to the extent that is appropriate to their size, internal organisation and the nature, scope and complexity of their activities: (a) the remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the creditor; (b) the remuneration policy is in line with the business strategy, objectives, values and long-term interests of the creditor, and incorporates measures to avoid conflicts of interest, in particular by providing that remuneration is not contingent on the number or proportion of applications accepted. 4. Member States shall ensure that where creditors, credit intermediaries or appointed representatives provide advisory services the remuneration structure of the staff involved does not prejudice their ability to act in the consumer’s best interest and in particular is not contingent on sales targets. In order to achieve that goal, Member States may in addition ban commissions paid by the creditor to the credit intermediary. 5. Member States may prohibit or impose restrictions on payments from a consumer to a creditor or credit intermediary prior to the conclusion of a credit agreement.

Directive 2014/17/EU 729 Article 8 Obligation to provide information free of charge to consumers Member States shall ensure that, when information is provided to consumers in compliance with the requirements set out in this Directive, such information is provided without charge to the consumer. Article 9 Knowledge and competence requirements for staff 1. Member States shall ensure that creditors, credit intermediaries and appointed representatives require their staff to possess and to keep up-to-date an appropriate level of knowledge and competence in relation to the manufacturing, the offering or granting of credit agreements, the carrying out of credit intermediation activities set out in point 5 of Article 4 or the provision of advisory services. Where the conclusion of a credit agreement includes an ancillary service, appropriate knowledge and competence in relation to that ancillary service shall be required. 2. Except in the circumstances referred to in paragraph 3, home Member States shall establish minimum knowledge and competence requirements for creditors’, credit intermediaries’ and appointed representatives’ staff in accordance with the principles set out in Annex III. 3. Where a creditor or credit intermediary provides its services within the territory of one or more other Member States: (i) through a branch, the host Member State shall be responsible for establishing the minimum knowledge and competence requirements applicable to the staff of a branch; (ii) under the freedom to provide services, the home Member State shall be responsible for establishing the minimum knowledge and competence requirements applicable to the staff in accordance with Annex III, however host Member States may establish the minimum knowledge and competence requirements for those requirements referred to in points (b), (c), (e) and (f) of paragraph 1 of Annex III. 4. Member States shall ensure that compliance with the requirements of paragraph 1 is supervised by the competent authorities, and that the competent authorities have powers to require creditors, credit intermediaries and appointed representatives to provide such evidence as the competent authority deems necessary to enable such supervision. 5. For the effective supervision of creditors and credit intermediaries providing their services within the territory of other Member States under the freedom to provide services, the competent authorities of the host and the home M ­ ember States shall cooperate closely for the effective supervision and enforcement of the minimum knowledge and competence requirements of the host Member State. For that purpose they may delegate tasks and responsibilities to each other.

730  Part 1: European Union Legislation CHAPTER 4 INFORMATION AND PRACTICES PRELIMINARY TO THE CONCLUSION OF THE CREDIT AGREEMENT Article 10 General provisions applicable to advertising and marketing Without prejudice to Directive 2005/29/EC, Member States shall require that any advertising and marketing communications concerning credit agreements are fair, clear and not misleading. In particular, wording that may create false expectations for a consumer regarding the availability or the cost of a credit shall be prohibited. Article 11 Standard information to be included in advertising 1. Member States shall ensure that any advertising concerning credit agreements which indicates an interest rate or any figures relating to the cost of the credit to the consumer includes the standard information in accordance with this Article. Member States may provide that the first subparagraph shall not apply where national law requires the indication of the APRC in advertising concerning credit agreements which does not indicate an interest rate or any figures relating to any cost of credit to the consumer within the meaning of the first subparagraph. 2. The standard information shall specify in a clear, concise and prominent way: (a) the identity of the creditor or, where applicable, the credit intermediary or appointed representative; (b) where applicable, that the credit agreement will be secured by a mortgage or another comparable security commonly used in a Member State on residential immovable property or by a right related to residential immovable property; (c) the borrowing rate, indicating whether this is fixed or variable or a combination of both, together with particulars of any charges included in the total cost of the credit to the consumer; (d) the total amount of credit; (e) the APRC which shall be included in the advertisement at least as prominently as any interest rate; (f) where applicable, the duration of the credit agreement; (g) where applicable, the amount of the instalments; (h) where applicable, the total amount payable by the consumer; (i) where applicable, the number of instalments; (j) where applicable, a warning regarding the fact that possible fluctuations of the exchange rate could affect the amount payable by the consumer. 3. The information listed in paragraph 2, other than that listed in points (a), (b) or (j) thereof, shall be specified by means of a representative example and shall

Directive 2014/17/EU 731

4.

5. 6. 7.

adhere to that representative example throughout. Member States shall adopt criteria for determining a representative example. Where the conclusion of a contract regarding an ancillary service, in particular insurance, is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed, and the cost of that service cannot be determined in advance, the obligation to enter into that contract shall be stated in a clear, concise and prominent way, together with the APRC. The information referred to in paragraphs 2 and 4 shall be easily legible or clearly audible as appropriate, depending on the medium used for advertising. Member States may require the inclusion of a concise and proportionate warning concerning specific risks associated with credit agreements. They shall notify those requirements to the Commission without delay. This Article shall be without prejudice to Directive 2005/29/EC. Article 12 Tying and bundling practices

1. Member States shall allow bundling practices but shall prohibit tying practices. 2. Notwithstanding paragraph 1, Member States may provide that creditors can request the consumer or a family member or close relation of the consumer to: (a) open or maintain a payment or a savings account, where the only purpose of such an account is to accumulate capital to repay the credit, to service the credit, to pool resources to obtain the credit, or to provide additional security for the creditor in the event of default; (b) purchase or keep an investment product or a private pension product, where such product which primarily offers the investor an income in retirement serves also to provide additional security for the creditor in the event of default or to accumulate capital to repay the credit, to service the credit or to pool resources to obtain the credit; (c) conclude a separate credit agreement in conjunction with a shared-equity credit agreement to obtain the credit. 3. Notwithstanding paragraph 1, Member States may allow tying practices when the creditor can demonstrate to its competent authority that the tied products or categories of product offered, on terms and conditions similar to each other, which are not made available separately, result in a clear benefit to the consumers taking due account of the availability and the prices of the relevant products offered on the market. This paragraph shall only apply to products which are marketed after 20 March 2014. 4. Member States may allow creditors to require the consumer to hold a relevant insurance policy related to the credit agreement. In such cases Member States shall ensure that the creditor accepts the insurance policy from a supplier different to his preferred supplier where such policy has a level of guarantee equivalent to the one the creditor has proposed.

732  Part 1: European Union Legislation Article 13 General information 1. Member States shall ensure that clear and comprehensible general information about credit agreements is made available by creditors or, where applicable, by tied credit intermediaries or their appointed representatives at all times on paper or on another durable medium or in electronic form. In addition, Member States may provide that general information is made available by non-tied credit intermediaries. Such general information shall include at least the following: (a) the identity and the geographical address of the issuer of the information; (b) the purposes for which the credit may be used; (c) the forms of security, including, where applicable, the possibility for it to be located in a different Member State; (d) the possible duration of the credit agreements; (e) types of available borrowing rate, indicating whether fixed or variable or both, with a short description of the characteristics of a fixed and variable rate, including related implications for the consumer; (f) where foreign currency loans are available, an indication of the foreign currency or currencies, including an explanation of the implications for the consumer where the credit is denominated in a foreign currency; (g) a representative example of the total amount of credit, the total cost of the credit to the consumer, the total amount payable by the consumer and the APRC; (h) an indication of possible further costs, not included in the total cost of the credit to the consumer, to be paid in connection with a credit agreement; (i) the range of different options available for reimbursing the credit to the creditor, including the number, frequency and amount of the regular repayment instalments; (j) where applicable, a clear and concise statement that compliance with the terms and conditions of the credit agreement does not guarantee repayment of the total amount of credit under the credit agreement; (k) a description of the conditions directly relating to early repayment; (l) whether a valuation of the property is necessary and, where applicable, who is responsible for ensuring that the valuation is carried out, and whether any related costs arise for the consumer; (m) indication of ancillary services the consumer is obliged to acquire in order to obtain the credit or to obtain it on the terms and conditions marketed and, where applicable, a clarification that the ancillary services may be purchased from a provider that is not the creditor; and (n) a general warning concerning possible consequences of non-compliance with the commitments linked to the credit agreement. 2. Member States may oblige the creditors to include other types of warnings which are relevant in a Member State. They shall notify those requirements to the Commission without delay.

Directive 2014/17/EU 733 Article 14 Pre-contractual information 1. Member States shall ensure that the creditor and, where applicable, the credit intermediary or appointed representative, provides the consumer with the personalised information needed to compare the credits available on the market, assess their implications and make an informed decision on whether to conclude a credit agreement: (a) without undue delay after the consumer has given the necessary information on his needs, financial situation and preferences in accordance with Article 20; and (b) in good time before the consumer is bound by any credit agreement or offer. 2. The personalised information referred to in paragraph 1, on paper or on another durable medium, shall be provided by means of the ESIS, as set out in Annex II. 3. Member States shall ensure that when an offer binding on the creditor is provided to the consumer, it shall be provided on paper or on another durable medium and accompanied by an ESIS where: (a) no ESIS has been provided to the consumer previously; or (b) the characteristics of the offer are different from the information contained in the ESIS previously provided. 4. Member States may provide for the obligatory provision of the ESIS before the provision of an offer binding on the creditor. Where a Member State so provides, it shall require that the ESIS shall only be required to be provided again where point (b) of paragraph 3 is met. 5. Member States which before 20 March 2014 have implemented an information sheet that meets equivalent information requirements to those set out in Annex II may continue to use it for the purposes of this Article until 21 March 2019. 6. Member States shall specify a time period of at least seven days during which the consumer will have sufficient time to compare offers, assess their implications and make an informed decision. Member States shall specify that the time period referred to in the first subparagraph shall be either a reflection period before the conclusion of the credit agreement or a period for exercising a right of withdrawal after the conclusion of the credit agreement or a combination of the two. Where a Member State specifies a reflection period before the conclusion of a credit agreement: (a) the offer shall be binding on the creditor for the duration of the reflection period; and (b) the consumer may accept the offer at any time during the reflection period. Member States may provide that consumers cannot accept the offer for a period not exceeding the first 10 days of the reflection period. Where the borrowing rate or other costs applicable to the offer are determined on the basis of the selling of underlying bonds or other long-term funding instruments, Member States may provide that the borrowing rate or other

734  Part 1: European Union Legislation costs may vary from that stated in the offer in accordance with the value of the underlying bond or other long-term funding instrument. Where the consumer has a right of withdrawal in accordance with the second subparagraph of this paragraph, Article 6 of Directive 2002/65/EC shall not apply. 7. The creditor and, where applicable, the credit intermediary or appointed representative who has supplied the ESIS to the consumer shall be deemed to have fulfilled the requirements regarding information provision to the consumer prior to the conclusion of a distance contract as laid down in Article 3(1) of Directive 2002/65/EC and shall be deemed to satisfy the requirements of Article 5(1) of that Directive only where they have at least supplied the ESIS prior to the conclusion of the contract. 8. Member States shall not modify the ESIS model other than as provided for in Annex II. Any additional information which the creditor or, where applicable, the credit intermediary or appointed representative, may provide to the consumer or is required to provide to the consumer by national law shall be given in a separate document which may be annexed to the ESIS. 9. The Commission shall be empowered to adopt delegated acts in accordance with Article 40 to amend the standard wording in Part A of Annex II or the instructions in Part B thereof to address the need for information or warnings concerning new products that were not marketed before 20 March 2014. Such delegated acts shall however not change the structure or format of the ESIS. 10. In the case of voice telephony communications, as referred to in Article 3(3) of Directive 2002/65/EC, the description of the main characteristics of the financial service to be provided pursuant to the second indent of point (b) of Article 3(3) of that Directive shall include at least the items referred to in sections 3 to 6 of Part A of Annex II to this Directive. 11. Member States shall ensure that at least where no right of withdrawal exists the creditor or, where applicable, the credit intermediary or appointed representative provides the consumer with a copy of the draft credit agreement, at the time of the provision of an offer binding on the creditor. Where a right of withdrawal exists, Member States shall ensure that the creditor or, where applicable, the credit intermediary or appointed representative offers to provide the consumer with a copy of the draft credit agreement at the time of the provision of an offer binding on the creditor. Article 15 Information requirements concerning credit intermediaries and appointed representatives 1. Member States shall ensure that in good time before the carrying out of any of the credit intermediation activities set out in point 5 of Article 4, the credit intermediary or appointed representative shall provide the consumer with at least the following information on paper or on another durable medium: (a) the identity and the geographical address of the credit intermediary;

Directive 2014/17/EU 735

2.

3.

4. 5.

(b) the register in which he has been included, the registration number, where applicable, and the means for verifying such registration; (c) whether the credit intermediary is tied to or works exclusively for one or more creditors. Where the credit intermediary is tied to or works exclusively for one or more creditors, it shall provide the names of the creditors for which it is acting. The credit intermediary may disclose that it is independent where it meets the conditions laid down in accordance with Article 22(4); (d) whether the credit intermediary offers advisory services; (e) the fee, where applicable, payable by the consumer to the credit intermediary for its services or where this is not possible, the method for calculating the fee; (f) the procedures allowing consumers or other interested parties to register complaints internally about credit intermediaries and, where appropriate, the means by which recourse to out-of-court complaint and redress procedures can be sought; (g) where applicable, the existence and where known the amount of commissions or other inducements, payable by the creditor or third parties to the credit intermediary for their services in relation to the credit agreement. Where the amount is not known at the time of disclosure the credit intermediary shall inform the consumer that the actual amount will be disclosed at a later stage in the ESIS. Credit intermediaries who are not tied but who receive commission from one or more creditors shall, at the consumer’s request, provide information on the variation in levels of commission payable by the different creditors providing the credit agreements being offered to the consumer. The consumer shall be informed that he has the right to request such information. Where the credit intermediary charges a fee to the consumer and additionally receives commission from the creditor or a third party, the credit intermediary shall explain to the consumer whether or not the commission will be offset against the fee, either in part or in full. Member States shall ensure that the fee, if any, payable by the consumer to the credit intermediary for its services is communicated to the creditor by the credit intermediary, for the purpose of calculating of the APRC. Member States shall require credit intermediaries to ensure that in addition to the disclosures required by this Article, their appointed representative discloses to the consumer the capacity in which he is acting and the credit intermediary he is representing when contacting or before dealing with any consumer. Article 16 Adequate explanations

1. Member States shall ensure that creditors and, where applicable, credit intermediaries or appointed representatives provide adequate explanations to the consumer on the proposed credit agreements and any ancillary services, in order to place the consumer in a position enabling him to assess whether the

736  Part 1: European Union Legislation proposed credit agreements and ancillary services are adapted to his needs and financial situation. The explanations shall, where applicable, include in particular: (a) the pre-contractual information to be provided in accordance with: (i) Article 14 in the case of creditors; (ii) Articles 14 and 15 in the case of credit intermediaries or appointed representatives; (b) the essential characteristics of the products proposed; (c) the specific effects the products proposed may have on the consumer, including the consequences of default in payment by the consumer; and (d) where ancillary services are bundled with a credit agreement, whether each component of the bundle can be terminated separately and the implications for the consumer of doing so. 2. Member States may adapt the manner by which and the extent to which the explanations referred to in paragraph 1 is given, as well as by whom it is given, to the circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the nature of the credit offered. CHAPTER 5 ANNUAL PERCENTAGE RATE OF CHARGE Article 17 Calculation of the APRC 1. The APRC shall be calculated in accordance with the mathematical formula set out in Annex I. 2. The costs of opening and maintaining a specific account, of using a means of payment for both transactions and drawdowns on that account and of other costs relating to payment transactions shall be included in the total cost of credit to the consumer whenever the opening or maintaining of an account is obligatory in order to obtain the credit or to obtain it on the terms and conditions marketed. 3. The calculation of the APRC shall be based on the assumption that the credit agreement is to remain valid for the period agreed and that the creditor and the consumer will fulfil their obligations under the terms and by the dates specified in the credit agreement. 4. In the case of credit agreements containing clauses allowing variations in the borrowing rate and, where applicable, in the charges contained in the APRC but unquantifiable at the time of calculation, the APRC shall be calculated on the assumption that the borrowing rate and other charges will remain fixed in relation to the level set at the conclusion of the contract. 5. For credit agreements for which a fixed borrowing rate is agreed in relation to the initial period of at least five years, at the end of which a negotiation on the borrowing rate takes place to agree on a new fixed rate for a further material period, the calculation of the additional, illustrative APRC disclosed in the ESIS shall cover only the initial fixed rate period and shall be based on

Directive 2014/17/EU 737 the assumption that, at the end of the fixed borrowing rate period, the capital outstanding is repaid. 6. Where the credit agreement allows for variations in the borrowing rate, ­Member States shall ensure that the consumer is informed of the possible impacts of variations on the amounts payable and on the APRC at least by means of the ESIS. This shall be done by providing the consumer with an additional APRC which illustrates the possible risks linked to a significant increase in the borrowing rate. Where the borrowing rate is not capped, this information shall be accompanied by a warning highlighting that the total cost of the credit to the consumer, shown by the APRC, may change. This provision shall not apply to credit agreements where the borrowing rate is fixed for an initial period of at least five years, at the end of which a negotiation on the borrowing rate takes place in order to agree on a new fixed rate for a further material period, for which an additional, illustrative APRC is provided for in the ESIS. 7. Where applicable, the additional assumptions set out in Annex I shall be used in calculating the APRC. 8. The Commission shall be empowered to adopt delegated acts in accordance with Article 40 in order to amend the remarks or update the assumptions used to calculate the APRC as set out in Annex I, in particular if the remarks or assumptions set out in this Article and in Annex I do not suffice to calculate the APRC in a uniform manner or are no longer adapted to the commercial situation on the market. CHAPTER 6 CREDITWORTHINESS ASSESSMENT Article 18 Obligation to assess the creditworthiness of the consumer 1. Member States shall ensure that, before concluding a credit agreement, the creditor makes a thorough assessment of the consumer’s creditworthiness. That assessment shall take appropriate account of factors relevant to verifying the prospect of the consumer to meet his obligations under the credit agreement. 2. Member States shall ensure that the procedures and information on which the assessment is based are established, documented and maintained. 3. The assessment of creditworthiness shall not rely predominantly on the value of the residential immovable property exceeding the amount of the credit or the assumption that the residential immovable property will increase in value unless the purpose of the credit agreement is to construct or renovate the residential immovable property. 4. Member States shall ensure that where a creditor concludes a credit agreement with a consumer the creditor shall not subsequently cancel or alter the credit agreement to the detriment of the consumer on the grounds that the assessment of creditworthiness was incorrectly conducted. This paragraph

738  Part 1: European Union Legislation shall not apply where it is demonstrated that the consumer knowingly withheld or falsified the information within the meaning of Article 20. 5. Member States shall ensure that: (a) the creditor only makes the credit available to the consumer where the result of the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met in the manner required under that agreement; (b) in accordance with Article 10 of Directive 95/46/EC, the creditor informs the consumer in advance that a database is to be consulted; (c) where the credit application is rejected the creditor informs the consumer without delay of the rejection and, where applicable, that the decision is based on automated processing of data. Where the rejection is based on the result of the database consultation, the creditor shall inform the consumer of the result of such consultation and of the particulars of the database consulted. 6. Member States shall ensure that the consumer’s creditworthiness is re-assessed on the basis of updated information before any significant increase in the total amount of credit is granted after the conclusion of the credit agreement unless such additional credit was envisaged and included in the original creditworthiness assessment. 7. This Article shall be without prejudice to Directive 95/46/EC. Article 19 Property valuation 1. Member States shall ensure that reliable standards for the valuation of residential immovable property for mortgage lending purposes are developed within their territory. Member States shall require creditors to ensure that those standards are used where they carry out a property valuation or to take reasonable steps to ensure that those standards are applied where a valuation is conducted by a third party. Where national authorities are responsible for regulating independent appraisers who carry out property valuations they shall ensure that they comply with the national rules that are in place. 2. Member States shall ensure that internal and external appraisers conducting property valuations are professionally competent and sufficiently independent from the credit underwriting process so that they can provide an impartial and objective valuation, which shall be documented in a durable medium and of which a record shall be kept by the creditor. Article 20 Disclosure and verification of consumer information 1. The assessment of creditworthiness referred to in Article 18 shall be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The information shall be obtained by the creditor from

Directive 2014/17/EU 739

2.

3.

4.

5.

r­elevant internal or external sources, including the consumer, and including information provided to the credit intermediary or appointed representative during the credit application process. The information shall be appropriately verified, including through reference to independently verifiable documentation when necessary. Member States shall ensure that credit intermediaries or appointed representatives accurately submit the necessary information obtained from the consumer to the relevant creditor to enable the creditworthiness assessment to be carried out. Member States shall ensure that creditors specify in a clear and straightforward way at the pre-contractual phase the necessary information and independently verifiable evidence that the consumer needs to provide and the timeframe within which the consumer needs to provide the information. Such request for information shall be proportionate and limited to what is necessary to conduct a proper creditworthiness assessment. Member States shall allow creditors to seek clarification of the information received in response to that request where necessary to enable the assessment of creditworthiness. Member States shall not allow a creditor to terminate the credit agreement on the grounds that the information provided by the consumer before the conclusion of the credit agreement was incomplete. The second subparagraph shall not prevent Member States from allowing the termination of the credit agreement by the creditor where it is demonstrated that the consumer knowingly withheld or falsified the information. Member States shall have measures in place to ensure that consumers are aware of the need to provide correct information in response to the request referred to in the first subparagraph of paragraph 3 and that such information is as complete as necessary to conduct a proper creditworthiness assessment. The creditor, credit intermediary or appointed representative shall warn the consumer that, where the creditor is unable to carry out an assessment of creditworthiness because the consumer chooses not to provide the information or verification necessary for an assessment of creditworthiness, the credit cannot be granted. That warning may be provided in a standardised format. This Article shall be without prejudice to Directive 95/46/EC, in particular Article 6 thereof. CHAPTER 7 DATABASE ACCESS Article 21 Database access

1. Each Member State shall ensure access for all creditors from all Member States to databases used in that Member State for assessing the creditworthiness of consumers and for the sole purpose of monitoring consumers’ compliance with the credit obligations over the life of the credit agreement. The conditions for such access shall be non-discriminatory.

740  Part 1: European Union Legislation 2. Paragraph 1 shall apply both to databases which are operated by private credit bureaux or credit reference agencies and to public registers. 3. This Article shall be without prejudice to Directive 95/46/EC. CHAPTER 8 ADVISORY SERVICES Article 22 Standards for advisory services 1. Member States shall ensure that the creditor, credit intermediary or appointed representative explicitly informs the consumer, in the context of a given transaction, whether advisory services are being or can be provided to the consumer. 2. Member States shall ensure that before the provision of advisory services or, where applicable, the conclusion of a contract for the provision of advisory services, the creditor, credit intermediary or appointed representative provides the consumer with the following information on paper or another durable medium: (a) whether the recommendation will be based on considering only their own product range in accordance with point (b) of paragraph 3 or a wide range of products from across the market in accordance with point (c) of paragraph 3 so that the consumer can understand the basis on which the recommendation is made; (b) where applicable, the fee payable by the consumer for the advisory services or, where the amount cannot be ascertained at the time of disclosure, the method used for its calculation. The information referred to in points (a) and (b) of the first subparagraph may be provided to the consumer in the form of additional pre-contractual information. 3. Where advisory services are provided to consumers, Member States shall ensure, in addition to the requirements set out in Articles 7 and 9, that: (a) creditors, credit intermediaries or appointed representatives obtain the necessary information regarding the consumer’s personal and financial situation, his preferences and objectives so as to enable the recommendation of suitable credit agreements. Such an assessment shall be based on information that is up to date at that moment in time and shall take into account reasonable assumptions as to risks to the consumer’s situation over the term of the proposed credit agreement; (b) creditors, tied credit intermediaries or appointed representatives of tied credit intermediaries consider a sufficiently large number of credit agreements in their product range and recommend a suitable credit agreements or several suitable credit agreements from among their product range for the consumer’s needs, financial situation and personal circumstances; (c) non-tied credit intermediaries or appointed representatives of nontied credit intermediaries consider a sufficiently large number of credit

Directive 2014/17/EU 741 a­ greements available on the market and recommend a suitable credit agreement or several suitable credit agreements available on the market for the consumer’s needs, financial situation and personal circumstances; (d) creditors, credit intermediaries or appointed representatives act in the best interests of the consumer by: (i) informing themselves about the consumer’s needs and circumstances; and (ii) recommending suitable credit agreements in accordance with points (a), (b) and (c); and (e) creditors, credit intermediaries or appointed representatives give the consumer a record on paper or on another durable medium of the recommendation provided. 4. Member States may prohibit the use of the term ‘advice’ and ‘advisor’ or similar terms when the advisory services are being provided to consumers by creditors, tied credit intermediaries or appointed representatives of tied credit intermediaries. Where Member States do not prohibit the use of the term ‘advice’ and ‘advisor’, they shall impose the following conditions on the use of the term ‘independent advice’ or ‘independent advisor’ by creditors, credit intermediaries or appointed representatives providing advisory services: (a) creditors, credit intermediaries or appointed representatives shall consider a sufficiently large number of credit agreements available on the market; and (b) creditors, credit intermediaries or appointed representatives shall not be remunerated for those advisory services by one or more creditors. Point (b) of the second subparagraph shall apply only where the number of creditors considered is less than a majority of the market. Member States may impose more stringent requirements in relation to the use of the terms ‘independent advice’ or ‘independent advisor’ by creditors, credit intermediaries or appointed representatives, including a ban on receiving remuneration from a creditor. 5. Member States may provide for an obligation for creditors, credit intermediaries and appointed representatives to warn a consumer when, considering the consumer’s financial situation, a credit agreement may induce a specific risk for the consumer. 6. Member States shall ensure that advisory services are only provided by creditors, credit intermediaries or appointed representatives. Member States may decide not to apply the first subparagraph to persons: (a) carrying out the credit intermediation activities set out in point 5 of Article 4 or providing advisory services where those activities are carried out or services are provided in an incidental manner in the course of a professional activity and that activity is regulated by legal or regulatory provisions or a code of ethics governing the profession which do not exclude carrying out of those activities or the provision of those services; (b) providing advisory services in the context of managing existing debt which are insolvency practitioners where that activity is regulated by

742  Part 1: European Union Legislation legal or regulatory provisions or public or voluntary debt advisory services which do not operate on a commercial basis; or (c) providing advisory services who are not creditors, credit intermediaries or appointed representatives where such persons are admitted and supervised by competent authorities in accordance with the requirements for credit intermediaries under this Directive. Persons benefiting from the waiver in the second subparagraph shall not benefit from the right referred to in Article 32(1) to provide services for the entire territory of the Union. 7. This Article shall be without prejudice to Article 16 and to Member States’ competence to ensure that services are made available to consumers to help them understand their financial needs and which types of products are likely to meet those needs. CHAPTER 9 FOREIGN CURRENCY LOANS AND VARIABLE RATE LOANS Article 23 Foreign currency loans 1. Member States shall ensure that, where a credit agreement relates to a foreign currency loan, an appropriate regulatory framework is in place at the time the credit agreement is concluded to at least ensure that: (a) the consumer has a right to convert the credit agreement into an alternative currency under specified conditions; or (b) there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the credit agreement. 2. The alternative currency referred to in point (a) of paragraph 1 shall be either: (a) the currency in which the consumer primarily receives income or holds assets from which the credit is to be repaid, as indicated at the time the most recent creditworthiness assessment in relation to the credit agreement was made; or (b) the currency of the Member State in which the consumer either was resident at the time the credit agreement was concluded or is currently resident. Member States may specify whether both of the choices referred to in points (a) and (b) of the first subparagraph are available to the consumer or only one of them or may allow creditors to specify whether both of the choices referred to in points (a) and (b) of the first subparagraph are available to the consumer or only one of them. 3. Where a consumer has a right to convert the credit agreement into an alternative currency in accordance with point (a) of paragraph 1, the Member States shall ensure that the exchange rate at which the conversion is carried out is the market exchange rate applicable on the day of application for conversion unless otherwise specified in the credit agreement.

Directive 2014/17/EU 743 4. Member States shall ensure that where a consumer has a foreign currency loan, the creditor warns the consumer on a regular basis on paper or on another durable medium at least where the value of the total amount payable by the consumer which remains outstanding or of the regular instalments varies by more than 20 % from what it would be if the exchange rate between the currency of the credit agreement and the currency of the Member State applicable at the time of the conclusion of the credit agreement were applied. The warning shall inform the consumer of a rise in the total amount payable by the consumer, set out where applicable the right to convert to an alternative currency and the conditions for doing so and explain any other applicable mechanism for limiting the exchange rate risk to which the consumer is exposed. 5. Member States may further regulate foreign currency loans provided that such regulation is not applied with retrospective effect. 6. The arrangements applicable under this Article shall be disclosed to the consumer in the ESIS and in the credit agreement. Where there is no provision in the credit agreement to limit the exchange rate risk to which the consumer is exposed to a fluctuation in the exchange rate of less than 20 %, the ESIS shall include an illustrative example of the impact of a 20 % fluctuation in the exchange rate. Article 24 Variable rate credits Where the credit agreement is a variable rate credit, Member States shall ensure that: (a) any indexes or reference rates used to calculate the borrowing rate are clear, accessible, objective and verifiable by the parties to the credit agreement and the competent authorities; and (b) historical records of indexes for calculating the borrowing rates are maintained either by the providers of these indexes or the creditors. CHAPTER 10 SOUND EXECUTION OF CREDIT AGREEMENTS AND RELATED RIGHTS Article 25 Early repayment 1. Member States shall ensure that the consumer has a right to discharge fully or partially his obligations under a credit agreement prior to the expiry of that agreement. In such cases, the consumer shall be entitled to a reduction in the total cost of the credit to the consumer, such reduction consisting of the interest and the costs for the remaining duration of the contract. 2. Member States may provide that the exercise of the right referred to in paragraph 1 is subject to certain conditions. Such conditions may include time limitations on the exercise of the right, a different treatment depending on the

744  Part 1: European Union Legislation type of the borrowing rate or on the moment the consumer exercises the right, or restrictions with regard to the circumstances under which the right may be exercised. 3. Member States may provide that the creditor is entitled to fair and objective compensation, where justified, for possible costs directly linked to the early repayment but shall not impose a sanction on the consumer. In that regard, the compensation shall not exceed the financial loss of the creditor. Subject to those conditions Member States may provide that the compensation may not exceed a certain level or be allowed only for a certain period of time. 4. Where a consumer seeks to discharge his obligations under a credit agreement prior to the expiry of the agreement, the creditor shall provide the consumer without delay after receipt of the request, on paper or on another durable medium, with the information necessary to consider that option. That information shall at least quantify the implications for the consumer of discharging his obligations prior to the expiry of the credit agreement and clearly set out any assumptions used. Any assumptions used shall be reasonable and justifiable. 5. Where the early repayment falls within a period for which the borrowing rate is fixed Member States may provide that the exercise of the right referred to in paragraph 1 is subject to the existence of a legitimate interest on the part of the consumer. Article 26 Flexible and reliable markets 1. Member States shall have appropriate mechanisms in place to ensure that the claim against the security is enforceable by or on behalf of creditors. Member States shall ensure that creditors keep appropriate records concerning the types of immovable property accepted as a security as well as the related mortgage underwriting policies used. 2. Member States shall take the necessary measures to ensure an appropriate statistical monitoring of the residential property market, including for market surveillance purposes, where appropriate by encouraging the development and use of specific price indexes which may be public or private or both. Article 27 Information concerning changes in the borrowing rate 1. Member States shall ensure that the creditor informs the consumer of any change in the borrowing rate, on paper or another durable medium, before the change takes effect. The information shall at least state the amount of the payments to be made after the new borrowing rate takes effect and, in cases where the number or frequency of the payments changes, particulars thereof. 2. However, the Member States may allow the parties to agree in the credit agreement that the information referred to in paragraph 1 is to be given to the consumer periodically where the change in the borrowing rate is correlated with a change in a reference rate, the new reference rate is made publicly available

Directive 2014/17/EU 745 by appropriate means and the information concerning the new reference rate is kept available in the premises of the creditor and communicated personally to the consumer together with the amount of new periodic instalments. 3. Creditors may continue to inform consumers periodically where the change in the borrowing rate is not correlated with a change in a reference rate where this was allowed under national law before 20 March 2014. 4. Where changes in the borrowing rate are determined by way of auction on the capital markets and it is therefore impossible for the creditor to inform the consumer of any change before the change takes effect, the creditor shall, in good time before the auction, inform the consumer on paper or on another durable medium of the upcoming procedure and provide an indication of how the borrowing rate could be affected. Article 28 Arrears and foreclosure 1. Member States shall adopt measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated. 2. Member States may require that, where the creditor is permitted to define and impose charges on the consumer arising from the default, those charges are no greater than is necessary to compensate the creditor for costs it has incurred as a result of the default. 3. Member States may allow creditors to impose additional charges on the consumer in the event of default. In that case Member States shall place a cap on those charges. 4. Member States shall not prevent the parties to a credit agreement from expressly agreeing that return or transfer to the creditor of the security or proceeds from the sale of the security is sufficient to repay the credit. 5. Where the price obtained for the immovable property affects the amount owed by the consumer Member States shall have procedures or measures to enable the best efforts price for the foreclosed immovable property to be obtained. Where after foreclosure proceedings outstanding debt remains, Member States shall ensure that measures to facilitate repayment in order to protect consumers are put in place. CHAPTER 11 REQUIREMENTS FOR ESTABLISHMENT AND SUPERVISION OF CREDIT INTERMEDIARIES AND APPOINTED REPRESENTATIVES Article 29 Admission of credit intermediaries 1. Credit intermediaries shall be duly admitted to carry out all or part of the credit intermediation activities set out in point 5 of Article 4 or to provide

746  Part 1: European Union Legislation advisory services by a competent authority in their home Member State. Where a Member State allows appointed representatives under Article 31, such an appointed representative shall not need to be admitted as a credit intermediary under this Article. 2. Member States shall ensure that the admission of credit intermediaries is made subject to fulfilment of at least the following professional requirements in addition to the requirements provided for in Article 9: (a) Credit intermediaries shall hold professional indemnity insurance covering the territories in which they offer services, or some other comparable guarantee against liability arising from professional negligence. However, for tied credit intermediaries, the home Member State may provide that such insurance or comparable guarantee can be provided by a creditor for which the credit intermediary is empowered to act. Powers are delegated to the Commission to adopt and, where necessary amend, regulatory technical standards to stipulate the minimum monetary amount of the professional indemnity insurance or comparable guarantee referred to in the first paragraph of this point. Those regulatory technical standards shall be adopted in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. EBA shall develop draft regulatory technical standards to stipulate the minimum monetary amount of the professional indemnity insurance or comparable guarantee referred to in the first paragraph of this point for submission to the Commission by 21 September 2014. EBA shall review, and if necessary, develop draft regulatory technical standards to amend the minimum monetary amount of the professional indemnity insurance or comparable guarantee referred to in the first paragraph of this point for submission to the Commission for the first time by 21 March 2018 and every two years thereafter. (b) A natural person established as a credit intermediary, the members of the board of a credit intermediary established as a legal person and natural persons performing equivalent tasks within a credit intermediary which is a legal person but does not have a board shall be of good repute. As a minimum they shall have a clean police record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities and they shall not have previously been declared bankrupt, unless they have been rehabilitated in accordance with national law. (c) A natural person established as a credit intermediary, the members of the board of a credit intermediary established as a legal person and natural persons performing equivalent tasks within a credit intermediary which is a legal person but does not have a board shall possess the appropriate level of knowledge and competence in relation to credit agreements. The home Member State shall establish the appropriate level of knowledge and competence in accordance with the principles set out in Annex III. 3. Member States shall ensure that the criteria established in order for credit intermediaries’ or creditors’ staff to meet their professional requirements are made public.

Directive 2014/17/EU 747 4. Member States shall ensure that all admitted credit intermediaries, whether established as natural or legal persons, are entered into a register with a competent authority in their home Member State. Member States shall ensure that the register of credit intermediaries is kept up to date and is publicly available online. The register of credit intermediaries shall contain at least the following information: (a) the names of the persons within the management who are responsible for the intermediation business. Member States may require the registration of all natural persons who exercise a client-facing function in an undertaking that pursues the activity of credit intermediation; (b) the Member States in which the credit intermediary conducts business under the rules on the freedom of establishment or on the freedom to provide services and of which the credit intermediary has informed the competent authority of the home Member State in accordance with Article 32(3); (c) whether the credit intermediary is tied or not. Member States that decide to avail themselves of the option referred to in Article 30 shall ensure that the register indicates the creditor on whose behalf the tied credit intermediary acts. Member States that decide to avail themselves of the option referred to in Article 31 shall ensure that the register indicates the credit intermediary or in the case of an appointed representative of a tied credit intermediary, the creditor on whose behalf the appointed representatives acts. 5. Member States shall ensure that: (a) any credit intermediary which is a legal person has its head office in the same Member State as its registered office if under its national law it has a registered office; (b) any credit intermediary which is not a legal person or any credit intermediary which is a legal person but under its national law has no registered office has its head office in the Member State in which it actually carries on its main business. 6. Each Member State shall establish a single information point to allow quick and easy public access to information from the national register, which shall be compiled electronically and kept constantly updated. These information points shall provide the identification details of the competent authorities of each Member State. EBA shall publish on its website references or hyperlinks to that information point. 7. Home Member States shall ensure that all admitted credit intermediaries and appointed representatives comply with the requirements defined in paragraph 2 on a continuing basis. This paragraph shall be without prejudice to Articles 30 and 31. 8. Member States may decide not to apply this Article to persons carrying out the credit intermediation activities set out in point 5 of Article 4 where those activities are carried out in an incidental manner in the course of a professional activity and that activity is regulated by legal or regulatory provisions

748  Part 1: European Union Legislation or a code of ethics governing the profession which do not exclude the carrying out of those activities. 9. This Article shall not apply to credit institutions authorised in accordance with Directive 2013/36/EU or to other financial institutions which under national law are subject to an equivalent authorisation and supervision regime. Article 30 Credit intermediaries tied to only one creditor 1. Without prejudice to Article 31(1), Member States may allow tied credit intermediaries specified in point (a) of point 7 of Article 4 to be admitted by competent authorities through the creditor on whose behalf the tied credit intermediary is exclusively acting. In such cases, the creditor shall remain fully and unconditionally responsible for any action or omission on the part of the tied credit intermediary that is acting on behalf of the creditor in areas regulated by this Directive. Member States shall require the creditor to ensure that those tied credit intermediaries comply with at least the professional requirements set out in Article 29(2). 2. Without prejudice to Article 34, creditors shall monitor the activities of tied credit intermediaries specified in point (a) of point 7 of Article 4 in order to ensure that they continue to comply with this Directive. In particular, the creditor shall be responsible for monitoring compliance with the knowledge and competence requirements of the tied credit intermediary and its staff. Article 31 Appointed representatives 1. Member States may decide to allow a credit intermediary to appoint appointed representatives. Where the appointed representative is appointed by a tied credit intermediary specified in point (a) of point 7 of Article 4, the creditor shall remain fully and unconditionally responsible for any action or omission on the part of the appointed representative that is acting on behalf of that tied credit intermediary in areas regulated by this Directive. In other cases the credit intermediary shall remain fully and unconditionally responsible for any action or omission on the part of the appointed representative acting on behalf of the credit intermediary in areas regulated by this Directive. 2. The credit intermediaries shall ensure that their appointed representatives comply at least with the professional requirements set out in Article 29(2). However, the home Member State may provide that the professional indemnity insurance or a comparable guarantee can be provided by a credit intermediary for which the appointed representative is empowered to act. 3. Without prejudice to Article 34, credit intermediaries shall monitor the activities of their appointed representatives in order to ensure full compliance with this Directive. In particular, the credit intermediaries shall be responsible for

Directive 2014/17/EU 749 monitoring compliance with the knowledge and competence requirements of the appointed representatives and their staff. 4. Member States that decide to allow a credit intermediary to appoint appointed representatives shall establish a public register containing at least the information referred to in Article 29(4). Appointed representatives shall be registered in the public register in the Member State where they are established. The register shall be updated on a regular basis. It shall be publicly available for consultation online. Article 32 Freedom of establishment and freedom to provide services by credit intermediaries 1. The admission of a credit intermediary by the competent authority of its home Member State as laid down in Article 29(1) shall be effective for the entire territory of the Union without further admission by the competent authorities of the host Member States being required for the carrying out of the activities and provision of services covered by the admission, provided that the activities a credit intermediary intends to carry out in the host Member States are covered by the admission. However, credit intermediaries shall not be allowed to provide their services in relation to credit agreements offered by non-credit institutions to consumers in a Member State where such non-credit institutions are not allowed to operate. 2. Appointed representatives appointed in Member States which avail themselves of the option under Article 31 are not allowed to carry out part or all of the credit intermediation activities set out in point 5 of Article 4 or to provide advisory services in Member States where such appointed representatives are not allowed to operate. 3. Any admitted credit intermediary intending to carry out business for the first time in one or more Member States under the freedom to provide services or when establishing a branch shall inform the competent authorities of its home Member State. Within a period of one month after being informed, those competent authorities shall notify the competent authorities of the host Member States concerned of the intention of the credit intermediary and shall at the same time inform the credit intermediary concerned of that notification. They shall notify the competent authorities of the host Member States concerned of the creditors to which the credit intermediary is tied and whether the creditors take full and unconditional responsibility for the credit intermediary’s activities. The host Member State shall use the information received from the home Member State to enter the necessary information into its register. The credit intermediary may start business one month after the date on which he was informed by the competent authorities of the home Member State of the notification referred to in the second subparagraph.

750  Part 1: European Union Legislation 4. Before the branch of a credit intermediary commences its activities or within two months of receiving the notification referred to in the second subparagraph of paragraph 3, the competent authorities of the host Member State shall prepare for the supervision of the credit intermediary in accordance with Article 34 and, if necessary, indicate to the credit intermediary the conditions under which, in areas not harmonised in Union law, those activities are to be carried out in the host Member State. Article 33 Withdrawal of admission of credit intermediaries 1. The competent authority of the home Member State may withdraw the admission granted to a credit intermediary in accordance with Article 29 where such a credit intermediary: (a) expressly renounces the admission or has carried out neither credit intermediation activities set out in point 5 of Article 4 nor provided advisory services for the preceding six months, unless the Member State concerned has provided for admission to lapse in such cases; (b) has obtained the admission through false or misleading statements or any other irregular means; (c) no longer fulfils the requirements under which admission was granted; (d) falls within any of the cases where national law, in respect of matters outside the scope of this Directive, provides for withdrawal; (e) has seriously or systematically infringed the provisions adopted pursuant to this Directive governing the operating conditions for credit intermediaries. 2. Where the admission of a credit intermediary is withdrawn by the competent authority of the home Member State, the latter shall notify the competent authorities of the host Member States of such withdrawal as soon as possible and at the latest within 14 days, by any appropriate means. 3. Member States shall ensure that credit intermediaries whose admission has been withdrawn are deleted from the register without undue delay. Article 34 Supervision of credit intermediaries and appointed representatives 1. Member States shall ensure that credit intermediaries are subject to supervision of their ongoing activities by the competent authorities of the home Member State. Home Member States shall provide that tied credit intermediaries are to be subject to supervision directly or as part of the supervision of the creditor on behalf of which they act if the creditor is a credit institution authorised in accordance with Directive 2013/36/EU or another financial institution which under national law is subject to an equivalent authorisation and supervision regime. However, if the tied credit intermediary provides services in a Member State other than the home Member State, then the tied credit intermediary shall be subject to supervision directly.

Directive 2014/17/EU 751 Home Member States which allow credit intermediaries to appoint representatives in accordance with Article 31 shall ensure that such appointed representatives are subject to supervision either directly or as part of the supervision of the credit intermediary on behalf of which it acts. 2. The competent authorities of the Member States in which a credit intermediary has a branch shall be responsible for ensuring that the services provided by the credit intermediary within its territory comply with the obligations laid down in Article 7(1) and Articles 8, 9, 10, 11, 13, 14, 15, 16, 17, 20, 22 and 39 and in measures adopted pursuant thereto. Where the competent authorities of a host Member State ascertain that a credit intermediary that has a branch within its territory is in breach of the measures adopted in that Member State pursuant to Article 7(1) and Articles 8, 9, 10, 11, 13, 14, 15, 16, 17, 20, 22 and 39, those authorities shall require the credit intermediary concerned to put an end to its irregular situation. If the credit intermediary concerned fails to take the necessary steps, the competent authorities of the host Member State shall take all appropriate action to ensure that the credit intermediary concerned puts an end to its irregular situation. The nature of that action shall be communicated to the competent authorities of the home Member State. If, despite the action taken by the host Member State, the credit intermediary persists in breaching the measures referred to in the first subparagraph in force in the host Member State, the host Member State may, after informing the competent authorities of the home Member State, take appropriate action to prevent or to penalise further irregularities and, in so far as necessary, to prevent the credit intermediary from initiating any further transactions within its territory. The Commission shall be informed of any such action without undue delay. Where the competent authority of the home Member State disagrees with such action taken by the host Member State, it may refer the matter to EBA and request its assistance in accordance with Article 19 of Regulation (EU) No 1093/2010. In that case, EBA may act in accordance with the powers conferred on it by that Article. 3. The competent authorities of the Member States in which the branch is located shall have the right to examine branch arrangements and to request such changes as are strictly needed to fulfil its responsibilities under paragraph 2 and to enable the competent authorities of the home Member State to enforce the obligations under Article 7(2), (3) and (4) and measures adopted pursuant thereto with respect to the services provided by the branch. 4. Where the competent authority of the host Member State has clear and demonstrable grounds for concluding that a credit intermediary acting within its territory under the freedom to provide services is in breach of the obligations arising from the measures adopted pursuant to this Directive or that a credit intermediary that has a branch within its territory is in breach of the obligations arising from the measures adopted pursuant to this Directive, other than those specified in paragraph 2, it shall refer those findings to the competent authority of the home Member State which shall take the appropriate action.

752  Part 1: European Union Legislation Where the competent authority of the home Member State fails to take any action within one month from obtaining those findings or where, despite the action taken by the competent authority of the home Member State, a credit intermediary persists in acting in a manner that is clearly prejudicial to the interests of the host Member State consumers or orderly functioning of the markets, the competent authority of the host Member State: (a) shall, after having informed the competent authority of the home Member State, take all appropriate action needed to protect consumers and ensure the proper functioning of the markets, including by preventing the offending credit intermediary from initiating any further transactions within its territory. The Commission and EBA shall be informed of such action without undue delay; (b) may refer the matter to EBA and request its assistance in accordance with Article 19 of Regulation (EU) No 1093/2010. In that case EBA may act in accordance with the powers conferred on it by that Article. 5. Member States shall provide that, where a credit intermediary admitted in another Member State has established a branch within its territory, the competent authorities of the home Member State, in the exercise of their responsibilities and after having informed the competent authorities of the host Member State, may carry out on-site inspections in that branch. 6. The allocation of tasks between Member States specified in this Article shall be without prejudice to the Member States’ competences in relation to fields not covered by this Directive in conformity with their obligations under Union law. CHAPTER 12 ADMISSION AND SUPERVISION OF NON-CREDIT INSTITUTIONS Article 35 Admission and supervision of non-credit institutions Member States shall ensure that non-credit institutions are subject to adequate admission process including entering the non-credit institution in a register and supervision arrangements by a competent authority. CHAPTER 13 COOPERATION BETWEEN COMPETENT AUTHORITIES OF DIFFERENT MEMBER STATES Article 36 Obligation to cooperate 1. Competent authorities of different Member States shall cooperate with each other whenever necessary for the purpose of carrying out their duties under this Directive, making use of their powers, whether set out in this Directive or in national law.

Directive 2014/17/EU 753 Competent authorities shall render assistance to competent authorities of the other Member States. In particular, they shall exchange information and cooperate in any investigation or supervisory activities. In order to facilitate and accelerate cooperation, and more particularly the exchange of information, Member States shall designate one single competent authority as a contact point for the purposes of this Directive. Member States shall communicate to the Commission and to the other Member States the names of the authorities which are designated to receive requests for exchange of information or cooperation pursuant to this paragraph. 2. Member States shall take the necessary administrative and organisational measures to facilitate assistance provided for in paragraph 1. 3. Competent authorities of Member States having been designated as contact points for the purposes of this Directive in accordance with paragraph 1 shall without undue delay supply one another with the information required for the purposes of carrying out the duties of the competent authorities, designated in accordance with Article 5, set out in the measures adopted pursuant to this Directive. Competent authorities exchanging information with other competent authorities under this Directive may indicate at the time of communication that such information must not be disclosed without their express agreement, in which case such information may be exchanged solely for the purposes for which those authorities gave their agreement. The competent authority having been designated as the contact point may transmit the information received to the other competent authorities, however it shall not transmit the information to other bodies or natural or legal persons without the express agreement of the competent authorities which disclosed it and solely for the purposes for which those authorities gave their agreement, except in duly justified circumstances in which case it shall immediately inform the contact point that supplied the information. 4. A competent authority may refuse to act on a request for cooperation in carrying out an investigation or supervisory activity or to exchange information as provided for in paragraph 3 only where: (a) such an investigation, on-the-spot verification, supervisory activity or exchange of information might adversely affect the sovereignty, security or public policy of the Member State addressed; (b) judicial proceedings have already been initiated in respect of the same actions and the same persons before the authorities of the Member State addressed; (c) final judgement has already been delivered in the Member State addressed in respect of the same persons and the same actions. In the event of such a refusal, the competent authority shall notify the requesting competent authority accordingly, providing as detailed information as possible.

754  Part 1: European Union Legislation Article 37 Settlement of disagreements between competent authorities of different Member States The competent authorities may refer the situation to EBA where a request for cooperation, in particular the exchange of information, has been rejected or has not been acted upon within a reasonable time, and request EBA’s assistance in accordance with Article 19 of Regulation (EU) No 1093/2010. In such cases, EBA may act in accordance with the powers conferred on it by that Article and any binding decision made by EBA in accordance with that Article shall be binding on the competent authorities concerned regardless of whether those competent authorities are members of EBA or not. CHAPTER 14 FINAL PROVISIONS Article 38 Sanctions 1. Member States shall lay down the rules on sanctions applicable to infringements of the national provisions adopted on the basis of this Directive and shall take all measures necessary to ensure that they are implemented. Those sanctions shall be effective, proportionate and dissuasive. 2. Member States shall provide that the competent authority may disclose to the public any administrative sanction that will be imposed for infringement of the measures adopted in the transposition of this Directive, unless such disclosure would seriously jeopardise the financial markets or cause disproportionate damage to the parties involved. Article 39 Dispute resolution mechanisms 1. Member States shall ensure that appropriate and effective complaints and redress procedures are established for the out-of-court settlement of consumer disputes with creditors, credit intermediaries and appointed representatives in relation to credit agreements, using existing bodies where appropriate. Member States shall ensure that such procedures are applicable to creditors and credit intermediaries and cover the activities of appointed representatives. 2. Member States shall require the bodies responsible for the out-of-court settlement of consumer disputes to cooperate so that cross-border disputes concerning credit agreements can be resolved. Article 40 Exercise of the delegation 1. The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article.

Directive 2014/17/EU 755 2. The power to adopt delegated acts referred to in Articles 14(9) and 17(8) shall be conferred on the Commission for an indeterminate period of time from 20 March 2014. 3. The delegation of power referred to in Articles 14(9) and 17(8) may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the powers specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4. As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5. A delegated act adopted pursuant to Articles 14(9) and 17(8) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and to the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council. Article 41 Imperative nature of this Directive Member States shall ensure that: (a) consumers may not waive the rights conferred on them by national law transposing this Directive; (b) the measures they adopt in transposing this Directive cannot be circumvented in a way which could lead to consumers losing the protection granted by this Directive as a result of the way in which agreements are formulated, in particular by integrating credit agreements falling within the scope of this Directive into credit agreements the character or purpose of which would make it possible to avoid the application of those measures. Article 42 Transposition 1. Member States shall adopt and publish, by 21 March 2016, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those measures. 2. Member States shall apply measures referred to in paragraph 1 from 21 March 2016. When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made.

756  Part 1: European Union Legislation 3. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 43 Transitional provisions 1. This Directive shall not apply to credit agreements existing before 21 March 2016. 2. Credit intermediaries already carrying out credit intermediation activities set out in point 5 of Article 4 before 21 March 2016 and which have not yet been admitted in accordance with the conditions set out in the national law of the home Member State transposing this Directive may continue to carry out those activities in compliance with national law until 21 March 2017. Where a credit intermediary relies on this derogation it may perform the activities only within their home Member State unless it also satisfies the necessary legal requirements of the host Member States. 3. Creditors, credit intermediaries or appointed representatives performing activities regulated by this Directive before 20 March 2014 shall comply with the national law transposing Article 9 by 21 March 2017. Article 44 Review clause The Commission shall undertake a review of this Directive by 21 March 2019. The review shall consider the effectiveness and appropriateness of the provisions on consumers and the internal market. The review shall include the following: (a) an assessment of the use and consumer understanding of and satisfaction with the ESIS; (b) an analysis of other pre-contractual disclosures; (c) an analysis of cross-border business by credit intermediaries and creditors; (d) an analysis of the evolution of the market for non-credit institutions providing credit agreements relating to residential immovable property; (e) an assessment on the need for further measures, including a passport for noncredit institutions providing credit agreements relating to residential immovable property; (f) an examination of the need to introduce additional rights and obligations with regard to the post-contractual stage of credit agreements; (g) an assessment of whether the scope of this Directive remains appropriate, taking account of its impact on other, substitutable forms of credit; (h) an assessment of whether additional measures are necessary to ensure the traceability of credit agreements secured against residential immovable property; (i) an assessment of the availability of data on trends in prices of residential immovable property and on the extent to which data are comparable;

Directive 2014/17/EU 757 (j) an assessment of whether it continues to be appropriate to apply Directive 2008/48/EC to unsecured credits the purpose of which is the renovation of a residential immovable property involving a total amount of credit above the maximum amount specified in point (c) of Article 2(2) of that Directive; (k) an assessment of whether the arrangements for the publication of sanctions under Article 38(2) provide sufficient transparency; (l) an assessment of the proportionality of warnings referred to in Articles 11(6) and 13(2) and the potential for further harmonisation of risk warnings. Article 45 Further initiatives on responsible lending and borrowing By 21 March 2019, the Commission shall submit a comprehensive report assessing the wider challenges of private over-indebtedness directly linked to credit activity. It will also examine the need for the supervision of credit registers and the possibility for the development of more flexible and reliable markets. That report shall be accompanied, where appropriate, by legislative proposals. Article 46 Amendment of Directive 2008/48/EC In Article 2 of Directive 2008/48/EC, the following paragraph is inserted: ‘2a. Notwithstanding point (c) of paragraph 2, this Directive shall apply to unsecured credit agreements the purpose of which is the renovation of a residential immovable property involving a total amount of credit above EUR 75 000.’ Article 47 Amendment of Directive 2013/36/EU In Directive 2013/36/EU, the following Article is inserted: ‘Article 54a Articles 53 and 54 shall be without prejudice to the powers of investigation conferred on the European Parliament pursuant to Article 226 TFEU.’ Article 48 Amendment of Regulation (EU) No 1093/2010 Regulation (EU) No 1093/2010 is amended as follows: (1) The second subparagraph of Article 13(1) is replaced by the following: ‘Where the Commission adopts a regulatory technical standard which is the same as the draft regulatory technical standard submitted by the Authority, the period during which the European Parliament and the Council may object shall be 1 month from the date of notification. At the initiative of

758  Part 1: European Union Legislation the European Parliament or the Council that period shall be extended for an initial period of 1 month and shall be extendable for a further period of 1 month.’ (2) The second subparagraph of Article 17(2) is replaced by the following: ‘Without prejudice to the powers laid down in Article 35, the competent authority shall, without delay, provide the Authority with all information which the Authority considers necessary for its investigation including as to how the acts referred to in Article 1(2) are applied in accordance with Union law.’ Article 49 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 50 Addressees This Directive is addressed to the Member States. ANNEX I CALCULATION OF THE ANNUAL PERCENTAGE RATE OF CHARGE (APRC) I. Basic equation expressing the equivalence of drawdowns on the one hand and repayments and charges on the other. The basic equation, which establishes the annual percentage rate of charge (APRC), equates, on an annual basis, the total present value of drawdowns on the one hand and the total present value of repayments and payments of charges on the other hand, i.e.: [Formula not reproduced] where: —— —— —— —— —— —— —— —— ——

X is the APRC m is the number of the last drawdown k is the number of a drawdown, thus 1 ≤ k ≤ m Ck is the amount of drawdown k tk is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each subsequent drawdown, thus t1 = 0 m’ is the number of the last repayment or payment of charges l is the number of a repayment or payment of charges Dl is the amount of a repayment or payment of charges sl is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date of each repayment or payment of charges.

Directive 2014/17/EU 759 Remarks: (a) The amounts paid by both parties at different times shall not necessarily be equal and shall not necessarily be paid at equal intervals. (b) The starting date shall be that of the first drawdown. (c) Intervals between dates used in the calculations shall be expressed in years or in fractions of a year. A year is presumed to have 365 days (or 366 days for leap years), 52 weeks or 12 equal months. An equal month is presumed to have 30,41666 days (i.e. 365/12) regardless of whether or not it is a leap year. Where intervals between dates used in the calculations cannot be expressed as a whole number of weeks, months or years, the intervals shall be expressed as a whole number of one of those periods in combination with a number of days. Where using days: (i) every day shall be counted, including weekends and holidays; (ii) equal periods and then days shall be counted backwards to the date of the initial drawdown; (iii) the length of the period of days shall be obtained excluding the first day and including the last day and shall be expressed in years by dividing this period by the number of days (365 or 366 days) of the c­ omplete year counted backwards from the last day to the same day of the previous year. (d) The result of the calculation shall be expressed with an accuracy of at least one decimal place. If the figure at the following decimal place is greater than or equal to 5, the figure at the preceding decimal place shall be increased by one. OJ 2014 L60/722014 · Official Journal of the European Union · L60/72 (e) The equation can be rewritten using a single sum and the concept of flows (Ak), which will be positive or negative, in other words either paid or received during periods 1 to n, expressed in years, i.e.: [Formula not reproduced] S being the present balance of flows. If the aim is to maintain the equivalence of flows, the value will be zero. II. Additional assumptions for the calculation of the APRC (a) If a credit agreement gives the consumer freedom of drawdown, the total amount of credit shall be deemed to be drawn down immediately and in full. (b) If a credit agreement provides different ways of drawdown with different charges or borrowing rates, the total amount of credit shall be deemed to be drawn down at the highest charge and borrowing rate applied to the most common drawdown mechanism for this type of credit agreement. (c) If a credit agreement gives the consumer freedom of drawdown in general but imposes, amongst the different ways of drawdown, a limitation with regard to the amount of credit and period of time, the amount of credit shall be deemed to be drawn down on the earliest date provided for in the credit agreement and in accordance with those drawdown limits.

760  Part 1: European Union Legislation (d) If different borrowing rates and charges are offered for a limited period or amount, the highest borrowing rate and charges shall be deemed to be the borrowing rate and charges for the whole duration of the credit agreement. (e) For credit agreements for which a fixed borrowing rate is agreed in relation to the initial period, at the end of which a new borrowing rate is determined and subsequently periodically adjusted according to an agreed indicator or internal reference rate the calculation of the APRC shall be based on the assumption that, at the end of the fixed borrowing rate period, the borrowing rate is the same as at the time of calculation of the APRC, based on the value of the agreed indicator or internal reference rate at that time, but is not less than the fixed borrowing rate. (f) If the ceiling applicable to the credit has not yet been agreed, that ceiling is assumed to be EUR 170 000. In the case of credit agreements—other than contingent liabilities or guarantees - the purpose of which is not to acquire or retain a right in immovable property or land, overdrafts, deferred debit cards or credit cards this ceiling is assumed to be EUR 1 500. (g) In the case of credit agreements other than overdrafts, bridging loans, shared equity credit agreements, contingent liabilities or guarantees and open-ended credit agreements as referred to in the assumptions set out in points (i), (j), (k), (l) and (m): (i) if the date or amount of a repayment of capital to be made by the consumer cannot be ascertained, it shall be assumed that the repayment is made at the earliest date provided for in the credit agreement and is for the lowest amount for which the credit agreement provides; (ii) if the interval between the date of initial drawdown and the date of the first payment to be made by the consumer cannot be ascertained, it shall be assumed to be the shortest interval. (h) Where the date or amount of a payment to be made by the consumer cannot be ascertained on the basis of the credit agreement or the assumptions set out in points (g), (i), (j), (k), (l) and (m) it shall be assumed that the payment is made in accordance with the dates and conditions required by the creditor and, when these are unknown: (i) interest charges are paid together with the repayments of the capital; (ii) non-interest charges expressed as a single sum are paid at the date of the conclusion of the credit agreement; (iii) non-interest charges expressed as several payments are paid at regular intervals, commencing with the date of the first repayment of capital, and if the amount of such payments is not known they shall be assumed to be equal amounts; (iv) the final payment clears the balance of capital, interest and other charges, if any. OJ 2014 L60/732014 · Official Journal of the European Union · L60/73 (i) In the case of an overdraft facility, the total amount of credit shall be deemed to be drawn down in full and for the whole duration of the credit agreement.

Directive 2014/17/EU 761

(j)

(k)

(l)

(m)

If the duration of the overdraft facility is not known, the APRC shall be calculated on the assumption that the duration of the credit is three months. In the case of a bridging loan, the total amount of credit shall be deemed to be drawn down in full and for the whole duration of the credit agreement. If the duration of the credit agreement is not known the APRC shall be calculated on the assumption that the duration of the credit is 12 months. In the case of an open ended credit agreement, other than an overdraft facility and bridging loan, it shall be assumed that: (i) for credit agreements, the purpose of which is to acquire or retain rights in immovable property the credit is provided for a period of 20 years starting from the date of the initial drawdown, and that the final payment made by the consumer clears the balance of capital, interest and other charges, if any; in the case of credit agreements the purpose of which is not to acquire or retain rights in immovable property or which are drawn down by deferred debit cards or credit cards, this period shall be of one year; (ii) the capital is repaid by the consumer in equal monthly payments, commencing one month after the date of the initial drawdown. However, in cases where the capital must be repaid only in full, in a single payment, within each payment period, successive drawdowns and repayments of the entire capital by the consumer shall be assumed to occur over the period of one year. Interest and other charges shall be applied in accordance with those drawdowns and repayments of capital and as provided for in the credit agreement. For the purposes of this point, an open-ended credit agreement is a credit agreement without fixed duration and includes credits which must be repaid in full within or after a period but, once repaid, become available to be drawn down again. In the case of contingent liabilities or guarantees, the total amount of credit shall be deemed to be drawn down in full as a single amount at the earlier of: (a) the latest draw down date permitted under the credit agreement being the potential source of the contingent liability or guarantee; or (b) in the case of a rolling credit agreement at the end of the initial period prior to the rollover of the agreement. In the case of shared equity credit agreements: (i) the payments by consumers shall be deemed to occur at the latest date or dates permitted under the credit agreement; (ii) percentage increases in value of the immovable property which secures the shared equity credit agreement, and the rate of any inflation index referred to in the agreement, shall be assumed to be a percentage equal to the higher of the current central bank target inflation rate or the level of inflation in the Member State where the immovable property is located at the time of conclusion of the credit agreement or 0 % if those percentages are negative.

762  Part 1: European Union Legislation ANNEX II EUROPEAN STANDARDISED INFORMATION SHEET (ESIS) PART A The text in this model shall be reproduced as such in the ESIS. Indications between square brackets shall be replaced with the corresponding information. Instructions for the creditor or, where applicable, credit intermediary on how to complete the ESIS are provided in Part B. Wherever the words ‘where applicable’ are indicated, the creditor shall provide the information required if it is relevant to the credit agreement. Where the information is not relevant, the creditor shall delete the information in question or the entire section (for example, in cases where the section is not applicable). Where the entire section is deleted, the numbering of the ESIS sections shall be adjusted accordingly. The information below shall be provided in a single document. The font used shall be clearly readable. Bold font, shading or larger font sizes shall be used for the information elements to be highlighted. All applicable risk warnings shall be highlighted. ESIS Model (Introductory text) This document was produced for [name of consumer] on [current date]. This document was produced on the basis of the information that you have provided so far and on the current financial market conditions. The information below remains valid until [validity date], (where applicable) apart from the interest rate and other costs. After that date, it may change in line with market conditions. (Where applicable) This document does not constitute an obligation for [name of creditor] to grant you a loan. 1. Lender [Name] [Telephone number] [Geographical address] (Optional) [E-mail address] (Optional) [Fax number] (Optional) [Web address] (Optional) [Contact person/point] (Where applicable information as to whether advisory services are being provided:) [(We recommend, having assessed your needs and circumstances, that you take out this mortgage./We are not recommending a particular mortgage for you. However, based on your answers to some questions, we are giving you information about this mortgage so that you can make your own choice.)]

Directive 2014/17/EU 763 2. (Where applicable) Credit intermediary [Name] [Telephone number] [Geographical address] OJ 2014 L60/752014 · Official Journal of the European Union · L60/75 (Optional) [E-mail address] (Optional) [Fax number] (Optional) [Web address] (Optional) [Contact person/point] (Where applicable [information as to whether advisory services are being provided]) [(We recommend, having assessed your needs and circumstances, that you take out this mortgage./We are not recommending a particular mortgage for you. However, based on your answers to some questions, we are giving you information about this mortgage so that you can make your own choice.)] [Remuneration] 3. Main features of the loan Amount and currency of the loan to be granted: [value][currency] (Where applicable) This loan is not in [national currency of the borrower]. (Where applicable) The value of your loan in [national currency of the borrower] could change. (Where applicable) For example, if the value of [national currency of the borrower] fell by 20 % relative to [credit currency], the value of your loan would increase to [insert amount in national currency of the borrower]. However, it could be more than this if the value of [national currency of the borrower] falls by more than 20 %. (Where applicable) The maximum value of your loan will be [insert amount in national currency of the borrower]. (Where applicable) You will receive a warning if the credit amount reaches [insert amount in national currency of the borrower]. (Where applicable) You will have the opportunity to [insert right to renegotiate foreign currency loan or right to convert loan into [relevant currency] and conditions]. Duration of the loan: [duration] [Type of loan] [Type of applicable interest rate] Total amount to be reimbursed: This means that you will pay back [amount] for every [unit of the currency] borrowed. (Where applicable) [This/Part of this] is an interest-only loan. You will still owe [insert amount of loan on an interest-only basis] at the end of the mortgage term. (Where applicable) Value of the property assumed to prepare this information sheet: [insert amount]

764  Part 1: European Union Legislation (Where applicable) Maximum available loan amount relative to the value of the property [insert ratio] or Minimum value of the property required to borrow the illustrated amount [insert amount] (Where applicable) [Security] 4. Interest rate and other costs The annual percentage rate of charge (APRC) is the total cost of the loan expressed as an annual percentage. The APRC is provided to help you to compare different offers. The APRC applicable to your loan is [APRC]. OJ 2014 L60/762014 · Official Journal of the European Union · L60/76 It comprises: Interest rate [value in percentage or, where applicable, indication of a reference rate and percentage value of creditor’s spread] [Other components of the APRC] Costs to be paid on a one-off basis (Where applicable) You will need to pay a fee to register the mortgage. [Insert amount of fee where known or basis for calculation.] Costs to be paid regularly (Where applicable) This APRC is calculated using assumptions regarding the interest rate. (Where applicable) Because [part of] your loan is a variable interest rate loan, the actual APRC could be different from this APRC if the interest rate for your loan changes. For example, if the interest rate rose to [scenario as described in Part B], the APRC could increase to [insert illustrative APRC corresponding to the scenario]. (Where applicable) Please note that this APRC is calculated on the basis that the interest rate remains at the level fixed for the initial period throughout the duration of the contract. (Where applicable) The following costs are not known to the lender and are therefore not included in the APRC: [Costs] (Where applicable) You will need to pay a fee to register the mortgage. Please make sure that you are aware of all other taxes and costs associated with your loan. 5. Frequency and number of payments Repayment frequency: [frequency] Number of payments: [number] 6. Amount of each instalment [Amount] [currency] Your income may change. Please consider whether you will still be able to afford your [frequency] repayment instalments if your income falls.

Directive 2014/17/EU 765 (Where applicable) Because [this/part of this] is an interest-only loan you will need to make separate arrangements to repay the [insert amount of loan on an interestonly basis] you will owe at the end of the mortgage term. Remember to add any extra payments you will need to make to the instalment amount shown here. (Where applicable) The interest rate on [part of] this loan can change. This means the amount of your instalments could increase or decrease. For example, if the interest rate rose to [scenario as described in Part B] your payments could increase to [insert instalment amount corresponding to the scenario]. (Where applicable) The value of the amount you have to pay in [national currency of the borrower] each [frequency of instalment] could change. (Where applicable) Your payments could increase to [insert maximum amount in national currency of the borrower] each [insert period]. (Where applicable) For example, if the value of [national currency of the borrower] fell by 20 % relative to [credit currency] you would have to pay an extra [insert amount in national currency of the borrower] each [insert period]. Your payments could increase by more than this. (Where applicable) The exchange rate used for converting your repayment in [credit currency] to [national currency of the borrower] will be the rate published by [name of institution publishing exchange rate] on [date] or will be calculated on [date] using [insert name of benchmark or method of calculation]. OJ 2014 L60/772014 · Official Journal of the European Union · L60/77 (Where applicable) [Details on tied savings products, deferred-interest loans] 7. (Where applicable) Illustrative repayment table This table shows the amount to be paid every [frequency]. The instalments (column [relevant no.]) are the sum of interest to be paid (column [relevant no.]), where applicable, capital paid (column [relevant no.]) and, where applicable, other costs (column [relevant no.]). (Where applicable) The costs in the other costs column relate to [list of costs]. Outstanding capital (column [relevant no.]) is the amount of the loan that remains to be reimbursed after each instalment. [Table] 8. Additional obligations The borrower must comply with the following obligations in order to benefit from the lending conditions described in this document. [Obligations] (Where applicable) Please note that the lending conditions described in this document (including the interest rate) may change if these obligations are not complied with. (Where applicable) Please note the possible consequences of terminating at a later stage any of the ancillary services relating to the loan: [Consequences]

766  Part 1: European Union Legislation 9. Early repayment You have the possibility to repay this loan early, either fully or partially. (Where applicable) [Conditions] (Where applicable) Exit charge: [insert amount or, where not possible, the method of calculation] (Where applicable) Should you decide to repay this loan early, please contact us to ascertain the exact level of the exit charge at that moment. 10. Flexible features (Where applicable) [Information on portability/subrogation] You have the possibility to transfer this loan to another [lender][or] [property]. [Insert conditions] (Where applicable) You do not have the possibility to transfer this loan to another [lender] [or] [property]. (Where applicable) Additional features: [insert explanation of additional features listed in Part B and, optionally, any other features offered by the lender as part of the credit agreement not referred to in previous sections]. 11. Other rights of the borrower (Where applicable) You have [length of reflection period] after [point in time when the reflection period begins] to reflect before committing yourself to taking out this loan. (Where applicable) Once you have received the credit contract from the lender, you may not accept it before the end of [length of reflection period]. (Where applicable) For a period of [length of withdrawal period] after [point in time when the withdrawal period begins] you may exercise your right to cancel the agreement. [Conditions] [Insert procedure] OJ 2014 L60/782014 · Official Journal of the European Union · L60/78 (Where applicable) You may lose your right to cancel the agreement if, during that period, you buy or sell a property connected to this credit agreement. (Where applicable) Should you decide to exercise your right of withdrawal [from the credit agreement], please verify whether you will remain bound by your other obligations relating to the loan [including the ancillary services relating to the loan] [, referred to in Section 8]. 12. Complaints If you have a complaint please contact [insert internal contact point and source of information on procedure]. (Where applicable) Maximum time for handling the complaint [period of time] (Where applicable) [If we do not resolve the complaint to your satisfaction internally,] you can also contact: [insert name of external body for out-of-court complaints and redress] (Where applicable) or you can contact FIN-NET for details of the equivalent body in your own country.

Directive 2014/17/EU 767 13. Non-compliance with the commitments linked to the loan: consequences for the borrower [Types of non-compliance] [Financial and/or legal consequences] Should you encounter difficulties in making your [frequency] payments, please contact us straight away to explore possible solutions. (Where applicable) As a last resort, your home may be repossessed if you do not keep up with payments. (Where applicable) 14. Additional information (Where applicable) [Indication of the law applicable to the credit contract]. (Where the lender intends to use a language different from the language of the ESIS) Information and contractual terms will be supplied in [language]. With your consent, we intend to communicate in [language/s] during the duration of the credit agreement. [Insert statement on right to be provided with or offered, as applicable, a draft credit agreement] 15. Supervisor This lender is supervised by [Name(s), and web address(es) of supervisory authority/ies] (Where applicable) This credit intermediary is supervised by [Name and web address of supervisory authority]. PART B Instructions to complete the ESIS In completing the ESIS, at least the following instructions shall be followed. Member States may however elaborate or further specify the instructions for completing the ESIS. Section ‘Introductory text’ (1) The validity date shall be properly highlighted. For the purpose of this section, the ‘validity date’ means the length of time the information, e.g. the borrowing rate, contained in the ESIS will remain unchanged and will apply should the creditor decide to grant the credit within this period of time. Where the determination of the applicable borrowing rate and other costs depends on the results of the selling of underlying bonds, the eventual borrowing rate and other costs may be different from those stated. In those circumstances only, it shall be stipulated that the validity date does not apply to the borrowing rate and other costs by adding the words: ‘apart from the interest rate and other costs’. OJ 2014 L60/792014 · Official Journal of the European Union · L60/79

768  Part 1: European Union Legislation Section ‘1. Lender’ (1) Name, telephone number, and geographical address of the creditor shall refer to the contact information that the consumer may use for future correspondence. (2) Information on the e-mail address, fax number, web address and contact person/point is optional. (3) In line with Article 3 of Directive 2002/65/EC, where the transaction is being offered at a distance, the creditor shall indicate, where applicable, the name and geographical address of its representative in the Member State of residence of the consumer. Indication of the telephone number, e-mail address and web address of the representative of the credit provider is optional. (4) Where Section 2 is not applicable, the creditor shall inform the consumer whether advisory services are being provided and on what basis using the wording in Part A. (Where applicable) Section ‘2. Credit intermediary’ Where the product information is being provided to the consumer by a credit intermediary, that intermediary shall include the following information: (1) Name, telephone number and geographical address of the credit intermediary shall refer to the contact information that the consumer may use for future correspondence. (2) Information on the e-mail address, fax number, web address and contact person/point is optional. (3) The credit intermediary shall inform the consumer whether advisory services are being provided and on what basis using the wording in Part A. (4) An explanation of how the credit intermediary is being remunerated. Where it is receiving commission from a creditor, the amount and, where different from the name in Section 1, the name of the creditor shall be provided. Section ‘3. Main features of the loan’ (1) This section shall clearly explain the main characteristics of the credit, including the value and currency and the potential risks associated with the borrowing rate, including the ones referred to in point (8), and amortisation structure. (2) Where the credit currency is different from the national currency of the consumer, the creditor shall indicate that the consumer will receive a regular warning at least when the exchange rate fluctuates by more than 20 %, where applicable the right to convert the currency of the credit agreement or to the possibility to renegotiate the conditions and any other arrangements available to the consumer to limit their exposure to exchange rate risk. Where there is a provision in the credit agreement to limit the exchange rate risk, the creditor shall indicate the maximum amount the consumer could

Directive 2014/17/EU 769

(3)

(4)

(5) (6)

(7) (8)

(9)

(10)

have to pay back. Where there is no provision in the credit agreement to limit the exchange rate risk to which the consumer is exposed to a fluctuation in the exchange rate of less than 20 %, the creditor shall indicate an illustration of the effect of a 20 % fall in the value of consumer’s national currency relative to the credit currency on the value of the credit. The duration of the credit shall be expressed in years or months, whichever is the most relevant. Where the duration of the credit can vary during the lifetime of the contract, the creditor shall explain when and under which conditions this can occur. Where the credit is open-ended, for example, for a secured credit card, the creditor shall clearly state that fact. The type of credit shall be clearly indicated (e.g. mortgage credit, home loan, secured credit card). The description of the type of credit shall clearly indicate how the capital and the interest shall be reimbursed during the life of the credit (i.e. the amortisation structure), specifying clearly whether the credit agreement is on capital repayment or interest-only basis, or a mixture of the two. Where all or part of the credit is an interest-only credit, a statement clearly indicating that fact shall be inserted prominently at the end of this section using the wording in Part A. This section shall explain whether the borrowing rate is fixed or variable and, where applicable, the periods during which it will remain fixed; the frequency of subsequent revisions and the existence of limits to the borrowing rate variability, such as caps or floors. OJ 2014 L60/802014 · Official Journal of the European Union · L60/80 The formula used to revise the borrowing rate and its different components (e.g. reference rate, interest rate spread) shall be explained. The creditor shall indicate, e.g. by means of a web address, where further information on the indices or rates used in the formula can be found, e.g. Euribor or central bank reference rate. If different borrowing rates apply in different circumstances, the information shall be provided on all applicable rates. The ‘total amount to be reimbursed’ corresponds to the total amount payable by the consumer. It shall be shown as the sum of the credit amount and the total cost of the credit to the consumer. Where the borrowing rate is not fixed for the duration of the contract, it shall be highlighted that this amount is illustrative and may vary in particular in relation with the variation in the borrowing rate. Where the credit will be secured by a mortgage on the immovable property or another comparable security or by a right related to immovable property, the creditor shall draw the consumer’s attention to this. Where applicable the creditor shall indicate the assumed value of the immovable property or other security used for the purpose of preparing this information sheet. The creditor shall indicate, where applicable, either: a) ‘maximum available loan amount relative to the value of the property’, indicating the loan-to-value ratio. This ratio is to be accompanied by

770  Part 1: European Union Legislation an example in absolute terms of the maximum amount that can be borrowed for a given property value; or b) the ‘minimum value of the property required by the creditor to lend the illustrated amount’. (11) Where credits are multi-part credits (e.g. concurrently part fixed rate, part variable rate), this shall be reflected in the indication of the type of credit and the required information shall be given for each part of the credit. Section ‘4. Interest rate’ and other costs (1) The reference to ‘interest rate’ corresponds to the borrowing rate or rates. (2) The borrowing rate shall be mentioned as a percentage value. Where the borrowing rate is variable and based on a reference rate the creditor may indicate the borrowing rate by stating a reference rate and a percentage value of creditor’s spread. The creditor shall however indicate the value of the reference rate valid on the day of issuing the ESIS. Where the borrowing rate is variable the information shall include: (a) the assumptions used to calculate the APRC; (b) where relevant, the applicable caps and floors and (c) a warning that the variability could affect the actual level of the APRC. In order to attract the consumer’s attention the font size used for the warning shall be bigger and shall figure prominently in the main body of the ESIS. The warning shall be accompanied by an illustrative example on the APRC. Where there is a cap on the borrowing rate, the example shall assume that the borrowing rate rises at the earliest possible opportunity to the highest level foreseen in the credit agreement. Where there is no cap the example shall illustrate the APRC at the highest borrowing rate in at least the last 20 years, or where the underlying data for the calculation of the borrowing rate is available for a period of less than 20 years the longest period for which such data is available, based on the highest value of any external reference rate used in calculating the borrowing rate where applicable or the highest value of a benchmark rate specified by a competent authority or EBA where the creditor does not use an external reference rate. Such requirement shall not apply to credit agreements where the borrowing rate is fixed for a material initial period of several years and may then be fixed for a further period following negotiation between the creditor and the consumer. For credit agreements where the borrowing rate is fixed for a material initial period of several years and may then be fixed for a further period following negotiation between the creditor and the consumer, the information shall include a warning that the APRC is calculated on the basis of the borrowing rate for the initial period. The warning shall be accompanied by an additional, illustrative APRC calculated in accordance with Article 17(4). Where credits are multi-part credits (e.g. concurrently part fixed rate, part variable rate), the information shall be given for each part of the credit. (3) In the section on ‘other components of the APRC’ all the other costs contained in the APRC shall be listed, including one-off costs such as administration fees, and regular costs, such as annual administration fees. The creditor

Directive 2014/17/EU 771 shall list each of the costs by category (costs to be paid on a one-off basis, costs to be paid regularly and included in the instalments, costs to be paid regularly but not included in the instalments), indicating their amount, to whom they are to be paid and when. This does not have to include costs incurred for breaches of contractual obligations. Where the amount is not known, the creditor shall provide an indication of the amount if possible, or if not possible, how the amount will be calculated and specify that the amount provided is indicative only. Where certain costs are not included in the APRC because they are unknown to the creditor, this shall be highlighted. OJ 2014 L60/812014 · Official Journal of the European Union · L60/81 Where the consumer has informed the creditor of one or more components of his preferred credit, such as the duration of the credit agreement and the total amount of credit, the creditor shall, where possible, use those components; if a credit agreement provides different ways of drawdown with different charges or borrowing rates and the creditor uses the assumptions set out in Part II of Annex I, it shall indicate that other drawdown mechanisms for this type of credit agreement may result in a higher APRC. Where the conditions for drawdown are used for calculating the APRC, the creditor shall highlight the charges associated with other drawdown mechanisms that are not necessarily the ones used in calculating the APRC. (4) Where a fee is payable for registration of the mortgage or comparable security that shall be disclosed in this section with the amount, where known, or where this is not possible the basis for determining the amount. Where the fees are known and included in the APRC the existence and amount of the fee shall be listed under ‘Costs to be paid on a one-off basis’. Where the fees are not known to the creditor and therefore not included in the APRC the existence of the fee shall be clearly mentioned in the list of costs which are not known to the creditor. In either case the standardised wording in Part A shall be used under the appropriate heading. Section ‘5. Frequency and number of payments’ (1) Where payments are to be made on a regular basis, the frequency of payments shall be indicated (e.g. monthly). Where the frequency of payments will be irregular, this shall be clearly explained to the consumer. (2) The number of payments indicated shall cover the whole duration of the credit. Section ‘6. Amount of each instalment’ (1) The credit currency and currency of the instalments shall be clearly indicated. (2) Where the amount of the instalments may change during the life of the credit, the creditor shall specify the period during which that initial instalment amount will remain unchanged and when and how frequently afterwards it will change.

772  Part 1: European Union Legislation (3) Where all or part of the credit is an interest-only credit, a statement clearly indicating that fact, shall be inserted prominently at the end of this section using the wording in Part A. If there is a requirement for the consumer to take out a tied savings product as a condition for being granted an interest-only credit secured by a mortgage or another comparable security, the amount and frequency of any payments for this product shall be provided. (4) Where the borrowing rate is variable the information shall include a statement indicating that fact, using the wording in Part A and an illustration of a maximum instalment amount. Where there is a cap, the illustration shall show the amount of the instalments if the borrowing rate rises to the level of the cap. Where there is no cap, the worst case scenario shall illustrate the level of instalments at the highest borrowing rate in the last 20 years, or where the underlying data for the calculation of the borrowing rate is available for a period of less than 20 years the longest period for which such data is available, based on the highest value of any external reference rate used in calculating the borrowing rate where applicable, or the highest value of a benchmark rate specified by a competent authority or EBA where the creditor does not use an external reference rate. The requirement to provide an illustrative example shall not apply to credit agreements where the borrowing rate is fixed for a material initial period of several years and may then be fixed for a further period following negotiation between the creditor and the consumer. Where credits are multi-part credits (e.g. concurrently part fixed rate, part variable rate), the information shall be given for each part of the credit, and in total. (5) (Where applicable) Where the credit currency is different from the consumer’s national currency or where the credit is indexed to a currency which is different from the consumer’s national currency, the creditor shall include a numerical example clearly showing how changes to the relevant exchange rate may affect the amount of the instalments using the wording in Part A. That example shall be based on a 20 % reduction in the value of the consumer’s national currency together with a prominent statement that the instalments could increase by more than the amount assumed in that example. Where there is a cap which limits that increase to less than 20 %, the maximum value of the payments in the consumer’s currency shall be given instead and the statement on the possibility of further increases omitted. (6) Where the credit is fully or partly a variable rate credit and point 3 applies, the illustration in point 5 shall be given on the basis of the instalment amount referred to in point 1. OJ 2014 L60/822014 · Official Journal of the European Union · L60/82 (7) Where the currency used for the payment of instalments is different from the credit currency or where the amount of each instalment expressed in the consumer’s national currency depends on the corresponding amount in a different currency, this section shall indicate the date at which the applicable exchange rate is calculated and either the exchange rate or the basis on which it will be calculated and the frequency of their adjustment. Where applicable

Directive 2014/17/EU 773 such indication shall include the name of institution publishing the exchange rate. (8) Where the credit is a deferred-interest credit under which interest due is not fully repaid by the instalments and is added to the total amount of credit outstanding, there shall be an explanation of: how and when deferred interest is added to the credit as a cash amount; and what the implications are for the consumer in terms of their remaining debt. Section ‘7. Illustrative repayment table’ (1) This section shall be included where the credit is a deferred interest credit under which interest due is not fully repaid by the instalments and is added to the total amount of credit outstanding or where the borrowing rate is fixed for the duration of the credit agreement. Member States may provide that the illustrative amortisation table is compulsory in other cases. Where the consumer has the right to receive a revised amortisation table, this shall be indicated along with the conditions under which the consumer has that right. (2) Member States may require that where the borrowing rate may vary during the lifetime of the credit, the creditor shall indicate the period during which that initial borrowing rate will remain unchanged. (3) The table to be included in this section shall contain the following columns: ‘repayment schedule’ (e.g. month 1, month 2, month 3), ‘amount of the instalment’, ‘interest to be paid per instalment’, ‘other costs included in the instalment’ (where relevant), ‘capital repaid per instalment’ and ‘outstanding capital after each instalment’. (4) For the first repayment year the information shall be given for each instalment and a subtotal shall be indicated for each of the columns at the end of that first year. For the following years, the detail can be provided on an annual basis. An overall total row shall be added at the end of the table and shall provide the total amounts for each column. The total cost of the credit paid by the consumer (i.e. the overall sum of the ‘amount of the instalment’ column) shall be clearly highlighted and presented as such. (5) Where the borrowing rate is subject to revision and the amount of the instalment after each revision is unknown, the creditor may indicate in the amortisation table the same instalment amount for the whole credit duration. In such a case, the creditor shall draw that fact to the attention of the consumer by visually differentiating the amounts which are known from the hypothetical ones (e.g. using a different font, borders or shading). In addition, a clearly legible text shall explain for which periods the amounts represented in the table may vary and why. Section ‘8. Additional obligations’ (1) The creditor shall refer in this section to obligations such as the obligation to insure the immovable property, to purchase life insurance, to have a salary paid into an account with the creditor or to buy any other product or service.

774  Part 1: European Union Legislation For each obligation, the creditor shall specify towards whom and by when the obligation needs to be fulfilled. (2) The creditor shall specify the duration of the obligation, e.g. until the end of the credit agreement. The creditor shall specify for each obligation any costs to be paid by the consumer, which are not included in the APRC. (3) The creditor shall state whether it is compulsory for the consumer to hold any ancillary services to obtain the credit on the stated terms, and if so whether the consumer is obliged to purchase them from the creditor’s preferred supplier or whether they may be purchased from a provider of consumer’s choice. Where such possibility is conditional on the ancillary services meeting certain minimum characteristics, such characteristics shall be described in this section. Where the credit agreement is bundled with other products the creditor shall state the key features of those other products and clearly state whether the consumer has a right to terminate the credit agreement or the bundled products separately, the conditions for and implications of doing so, and, where applicable, of the possible consequences of terminating the ancillary services required in connection with the credit agreement. Section ‘9. Early repayment’ (1) The creditor shall indicate under what conditions the consumer can repay the credit early, either fully or partially. OJ 2014 L60/832014 · Official Journal of the European Union · L60/83 (2) In the section on exit charges the creditor shall draw the consumer’s attention to any exit charge or other costs payable on early repayment in order to compensate the creditor and where possible indicate their amount. In cases where the amount of compensation would depend on different factors, such as the amount repaid or the prevailing interest rate at the moment of the early repayment, the creditor shall indicate how the compensation will be calculated and provide the maximum amount that the charge might be, or where this is not possible, an illustrative example in order to demonstrate to the consumer the level of compensation under different possible scenarios. Section ‘10. Flexible features’ (1) Where applicable, the creditor shall explain the possibility to and conditions for transferring the credit to another creditor or immovable property. (2) (Where appropriate) Additional features: Where the product contains any of the features listed in point 5, this section must list these features and provide a brief explanation of: the circumstances in which the consumer can use the feature; any conditions attached to the feature; if the feature being part of the credit secured by a mortgage or comparable security means that the consumer loses any statutory or other protections usually associated with the feature; and the firm providing the feature (if not the creditor). (3) If the feature contains any additional credit, then this section must explain to the consumer: the total amount of credit (including the credit secured by the

Directive 2014/17/EU 775 mortgage or comparable security); whether the additional credit is secured or not; the relevant borrowing rates; and whether it is regulated or not. Such additional credit amount shall either be included in the original creditworthiness assessment or, if it is not, this section shall make clear that the availability of the additional amount is dependent on a further assessment of the consumer’s ability to repay. (4) If the feature involves a savings vehicle, the relevant interest rate must be explained. (5) The possible additional features are: ‘Overpayments/Underpayments’ [paying more or less than the instalment ordinarily required by the amortisation structure]; ‘Payment holidays’ [periods where the consumer is not required to make payments]; ‘Borrow back’ [ability for the consumer to borrow again funds already drawn down and repaid]; ‘Additional borrowing available without further approval’; ‘Additional secured or unsecured borrowing’ [in accordance with point 3 above]; ‘Credit card’; ‘Linked current account’; and ‘Linked savings account’. (6) The creditor may include any other features offered by the creditor as part of the credit agreement not mentioned in previous sections. Section ‘11. Other rights of the borrower’ (1) The creditor shall clarify the right(s) of e.g. withdrawal or reflection and where applicable other rights such as, portability (including subrogation) that exist, specify the conditions to which this/these right(s) is subject, the procedure that the consumer will need to follow in order to exercise this/ these right(s), inter alia, the address to which the notification of withdrawal shall be sent, and the corresponding fees (where applicable). (2) Where a reflection period or right of withdrawal for the consumer applies this shall be clearly mentioned. (3) In line with Article 3 of Directive 2002/65/EC, where the transaction is being offered at a distance, the consumer shall be informed of the existence or absence of a right of withdrawal. Section ‘12. Complaints’ (1) This Section shall indicate the internal contact point [name of the relevant department] and a means of contacting them to complain [Geographical address] or [Telephone number] or [Contact person:] [contact details] and a link to the complaints procedure on the relevant page of a website or similar information source. (2) It shall indicate the name of the relevant external body for out-of-court complaints and redress and where using the internal complaint procedure is a precondition for access to that body, indicate that fact using the wording in Part A. (3) In the case of credit agreements with a consumer who is resident in another Member State, the creditor shall refer to the existence of FIN-NET (http:// ec.europa.eu/internal_market/fin-net/). OJ 2014 L60/842014 · Official Journal of the European Union · L60/84

776  Part 1: European Union Legislation Section ‘13. Non-compliance with the commitments linked to the credit: consequences for the borrower’ (1) Where non-observance of any of the consumer’s obligations linked to the credit may have financial or legal consequences for the consumer, the creditor shall describe in this section the different main cases (e.g. late payments/ default, failure to respect the obligations set out in Section 8 ‘Additional obligations’) and indicate where further information could be obtained. (2) For each of those cases, the creditor shall specify, in clear, easy comprehensible terms, the sanctions or consequences to which they may give rise. Reference to serious consequences shall be highlighted. (3) Where the immovable property used to secure the credit may be returned or transferred to the creditor, if the consumer does not comply with the obligations, this section shall include a statement indicating that fact, using the wording in Part A. Section ‘14. Additional information’ (1) In the case of distance marketing, this section will include any clause stipulating the law applicable to the credit agreement or the competent court. (2) Where the creditor intends to communicate with the consumer during the life of the contract in a language different from the language of the ESIS that fact shall be included and the language of communication named. This is without prejudice to point (g) of point 3 of paragraph 1 of Article 3 of Directive 2002/65/EC. (3) The creditor or credit intermediary shall state the consumer’s right to be provided with or offered, as applicable, a copy of the draft credit agreement at least once an offer binding on the creditor has been made. Section ‘15. Supervisor’ (1) The relevant authority or authorities for the supervision of the pre-contractual stage of lending shall be indicated. ANNEX III MINIMUM KNOWLEDGE AND COMPETENCE REQUIREMENTS 1. The minimum knowledge and competence requirements for creditors’, credit intermediaries’ and appointed representatives’ staff referred to in Article 9 and for persons involved in the management of credit intermediaries or appointed representatives referred to in point (c) of Article 29(2) and Article 31(2) need to include at least: (a) appropriate knowledge of credit products within the scope of Article 3 and the ancillary services typically offered with them; (b) appropriate knowledge of the laws related to the credit agreements for consumers, in particular consumer protection; (c) appropriate knowledge and understanding of the immovable property purchasing process;

Directive 2014/17/EU 777 (d) (e) (f) (g) (h)

appropriate knowledge of security valuation; appropriate knowledge of organisation and functioning of land registers; appropriate knowledge of the market in the relevant Member State; appropriate knowledge of business ethics standards; appropriate knowledge of the consumer’s creditworthiness assessment process or where applicable, competence in assessing consumers’ credit­ worthiness; (i) appropriate level of financial and economic competency. 2. When establishing minimum knowledge and competence requirements Member States may differentiate between the levels and types of requirements applicable to the staff of creditors, the staff of credit intermediaries or appointed representatives and the management of credit intermediaries or appointed representatives. 3. Member States shall determine the appropriate level of knowledge and competence on the basis of: (a) professional qualifications, e.g. diplomas, degrees, training, competency tests; or (b) professional experience, which may be defined as a minimum number of years working in areas related to the origination, distribution or intermediation of credit products. After 21 March 2019, the determination of the appropriate level of knowledge and competence shall not be based solely on the methods listed in point (b) of the first subparagraph.

(1)

OJ C 240, 18.8.2011, p. 3. OJ C 318, 29.10.2011, p. 133. (3) Position of the European Parliament of 10 December 2013 (not yet published in the Official Journal) and decision of the Council of 28 January 2014. (4) OJ L 133, 22.5.2008, p. 66. (5) OJ L 271, 9.10.2002, p. 16. (6) OJ L 176, 27.6.2013, p. 338. (7) OJ L 9, 15.1.2003, p. 3. (8) OJ L 145, 30.4.2004, p. 1. (9) OJ L 255, 30.9.2005, p. 22. (10) OJ L 149, 11.6.2005, p. 22. (11) OJ L 69, 10.3.2001, p. 25. (12) OJ L 95, 21.4.1993, p. 29. (13) OJ L 296, 15.11.2011, p. 35. (14) OJ L 281, 23.11.1995, p. 31. (15) OJ L 176, 27.6.2013, p. 1. (16) OJ L 331, 15.12.2010, p. 12. (17) OJ C 369, 17.12.2011, p. 14. (18) OJ C 377, 23.12.2011, p. 5. (19) OJ L 8, 12.1.2001, p. 1. (20) OJ L 182, 29.6.2013, p. 19. (2)

778

Current Commission Proposals

780

Brussels, 9.12.2015 COM(2015) 634 final 2015/0287 (COD) Proposal for a

Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content (Text with EEA relevance) {SWD(2015) 274 final} {SWD(2015) 275 final}

782  Part 1: European Union Legislation EXPLANATORY MEMORANDUM The Digital Single Market Strategy(1) adopted by the Commission on 6 May 2015 announced a legislative initiative on harmonised rules for the supply of digital content and online sales of goods. This initiative is composed of (i) a proposal on certain aspects concerning contracts for the supply of digital content, and (ii) a proposal on certain aspects concerning contracts for the online and other distance sales of goods. As announced by the Commission in its 2015 Work Programme, these two proposals draw on the experience acquired during the negotiations for a Regulation on a Common European Sales Law. In particular, they no longer follow the approach of an optional regime and a comprehensive set of rules. Instead, the proposals contain a targeted and focused set of fully harmonised rules. The proposals also build on a number of amendments adopted by the European Parliament in first reading concerning the proposal for a Regulation on the Common European Sales Law, in particular the restriction of the scope to online and other distance sales of goods and the extension of the scope to certain digital content which is provided against another counter-performance than money. While this explanatory memorandum covers specifically the proposal on certain aspects of contracts for the supply of digital content, the parts of this explanatory memorandum about the reasons for the proposal, the collection of expertise and the impact assessments concern both proposals as these two proposals are envisaged as a package with common objectives. 1.  CONTEXT OF THE PROPOSAL •  Reasons for and objectives of the proposal The general objective of the proposals is to contribute to faster growth of the Digital Single Market, to the benefit of both consumers and businesses. By eliminating the key contract law-related barriers hindering cross-border trade, the rules put forward in the proposals will reduce the uncertainty faced by businesses and consumers due to the complexity of the legal framework and the costs incurred by businesses resulting from differences in contract law between Member States. The initiative will increase consumer trust by providing uniform rules with clear consumer rights. 39 % of businesses selling online but not cross-border quote different national contract laws as one of the main obstacles to cross-border sales.(2) This applies particularly to remedies in case of a faulty product as mentioned by 49% of EU retailers selling online and 67% of those who are currently trying to sell or considering selling online cross-border.(3) Different national contract law rules have created oneoff costs for retailers selling to consumers of approximately !4 billion; these costs mostly affect micro and small- and medium-sized enterprises (SMEs). The purpose of these proposals is to create a business-friendly environment and make it easier for businesses, especially SMEs, to sell cross-border. Businesses should be given legal certainty and avoid unnecessary costs caused by differing national laws when selling goods and digital content outside their domestic market.

Proposed Directive on Digital Content 783 Only 18% of consumers who used the Internet for private purposes in 2014 purchased online from another EU country while 55% did so domestically.(4) Consumers suffer detriment due to lack of clear contractual rights for faulty digital content. Digital content covers a wide range of items, such as music, movies, apps, games, films, cloud storage services or broadcasts of sport events. The combined value of the financial detriment resulting from the most recent problem faced by consumers with digital content and the time spent trying to resolve these problems during the last 12 months is estimated at between ! 9 and 11 billion. Consumers are also not confident when buying online across borders. One of the major reasons is their uncertainty about their key contractual rights. As a result, they miss opportunities and face a narrower range of offers at less competitive prices. •  Consistency with existing policy provisions in the policy area This proposal aims at filling the current legal gap in the consumer acquis at EU level regarding certain contractual aspects for which there are currently no rules. The proposal supplements Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 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,(5) which has already fully harmonised certain rules for the supply of digital content (mainly pre-contractual information requirements and the right of withdrawal). While some Member States like the United Kingdom and the Netherlands have already adopted legislation specifically on digital content, there are currently no specific EU rules to protect consumers against digital content which is not in conformity with the contract. Therefore there is a need to act quickly in order to prevent possible further legal fragmentation due to the emerging different national rules. In addition, the proposal tackles two contractual rights (modification and termination of long term contracts), which have been identified as problematic(6) and which are currently only subject to the general clause on the unfairness control in Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.(7) The proposal also supplements Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market,(8) which, among others, partially establishes harmonised rules on electronic contracts. The proposal is compatible with the existing EU rules on applicable law and jurisdiction in the Digital Single Market.(9) Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters(10) and Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I),(11) which provide rules to determine the competent jurisdiction and applicable law, apply also in the digital environment. These instruments have been adopted quite recently and the implications of the internet were considered closely in the legislative process. Some

784  Part 1: European Union Legislation rules take specific account of internet transactions, in particular those on consumer contracts. These rules aim at protecting consumers inter alia in the Digital Single Market by giving them the benefit of the non-derogable rules of the Member State in which they are habitually resident. Together with the proposed new contract rules for the purchase of digital content as set out in this proposal, the existing rules on private international law establish a clear legal framework for buying and selling in a European digital market, which takes into account both consumers’ and businesses’ interests. Therefore, this legislative proposal does not require any changes to the current framework of EU private international law, including to the Regulation (EC) No 593/2008 (Rome I). •  Consistency with other Union policies The Digital Single Market Strategy intends to deal with all major obstacles to the development of cross-border e-commerce in the Digital Single Market in a holistic manner. The proposal should be seen in the context of this holistic approach. The Strategy covers among others the initiatives related to the cross-border portability of content, role of platforms, the Free Flow of Data, European Cloud, VAT related burden and parcel delivery. Especially, in the context of the cross-border portability of content and European Cloud, the Strategy envisages decisive actions towards ensuring portability and interoperability of content, which is crucial for the supply of digital content within the EU. The Strategy also covers initiatives related to enforcement/ redress, i.e. the entry into operation of the Online Dispute Resolution platform(12) and the review of Regulation (EC) No 2006/2004 of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation).(13) In particular, fully harmonised contract law rules in the EU will also facilitate coordinated enforcement actions undertaken by the Consumer Protection Co-operation authorities.(14) The proposal will also be consistent with the general EU framework on copyright and will be without prejudice to any rights and obligations according to copyright law. Finally, the protection of individuals with regard to the processing of personal data is governed by Directive 1995/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data(15) and Directive 2002/58/ EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector(16) which are fully applicable to supplies of digital content. Those Directives already establish a legal framework in the field of personal data in the Union. The application and implementation of this proposal should be made in full compliance with that legal framework. 2.  LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •  Legal basis The legal basis of this proposal is Article 114 of the Treaty on the Functioning of the European Union and its main objective is the improvement of the establishment and the functioning of the internal market.

Proposed Directive on Digital Content 785 When supplying digital content to consumers in other Member States, businesses are confronted with different mandatory consumer contract law rules. Contracts for the supply of digital content are categorised differently from one Member State to another. Depending on the Member State, these contracts are considered as sales contracts, as services contracts or as rental contracts. In addition, contracts for the supply of digital content are sometimes categorised differently within the same Member State depending on the type of digital content offered.(17) As a consequence, for digital content, national rights and obligations as well as the remedies for consumers vary between Member States. While some of these national rules are non-mandatory and can be modified contractually by the parties, others are of a mandatory character. Moreover, several Member States have recently enacted or started preparatory work to adopt specific mandatory rules on contracts for the supply of digital content. These national rules differ however in scope and content. It is also to be expected that other Member States will follow this trend. If the EU does not act, businesses will thus increasingly be confronted with different mandatory consumer contract law rules on the supply of digital content. The existing and upcoming fragmentation creates obstacles for businesses to sell cross-border because they have to incur contract law-related costs. Businesses are also uncertain about their rights and obligations. This has a direct effect on the establishment and functioning of the internal market and negatively affects competition. Given the heterogeneity of the online market for digital content it would be difficult for the market to overcome this fragmentation. •  Subsidiarity (for non-exclusive competence) The proposal complies with the subsidiarity principle as set out in Article 5 of the Treaty on European Union. The objectives of the proposal cannot be adequately achieved by the Member States. The general objective of the initiative is to remove consumer contract law barriers in the online world and help to establish a genuine Digital Single Market for the benefit of businesses and consumers. Member States cannot on their own initiative sufficiently be able to remove the barriers that exist between national legislations. An initiative at EU level is able to better achieve this. More specifically, the initiative aims to provide consumers with specific rights in a coordinated manner and to create legal certainty for businesses which want to sell their digital content in other Member States. When developing specific legislation on the supply of digital content, each Member State individually would not be able to ensure an overall coherence of its national legislation with other Member States legislations. An initiative at EU level would therefore help to ensure the development of specific consumer rights for digital content in a coherent manner. Action at EU level would be more effective than action at national level. Furthermore, an initiative at EU level will secure the application of consumer rights in a coherent manner while ensuring that all consumers in the EU benefit from the

786  Part 1: European Union Legislation same high level of consumer protection. It will create legal certainty for businesses which want to sell their digital content in other Member States. Such an initiative will provide a consistent legal basis for coordinated enforcement actions as the ­proposed Directive will be included in the Annex of Regulation (EC) No 2006/2004(18) on cooperation of national authorities responsible for the enforcement of consumer protection laws. Moreover, enforcement actions would be largely facilitated by the proposed uniform fully harmonised rules. Thus, the enforcement of EU legislation will be strengthened for the benefit of EU consumers. Such a result can only be achieved by an action at the EU level. •  Proportionality The proposal complies with the principle of proportionality as set out in Article 5 of the Treaty on European Union because the proposal will not go beyond what is necessary for the achievement of the objectives. The proposal will not harmonise all aspects concerning contracts for the supply of digital content; among many other examples, rules on the conclusion of the contract will not be regulated. Instead, it will focus on harmonising at Union level only those targeted, key mandatory consumer EU contractual rights, which are essential in cross-border online transactions, and which have been identified as barriers to trade by stakeholders and are necessary to build consumer trust when buying online abroad. Moreover, the choice of the legal form of a Directive instead of a Regulation will have as a result considerably less interference into national laws (see below under “Choice of the instrument”) as it will leave Member States freedom to adapt the implementation to their national law. •  Choice of the instrument The Commission presents a set of two full harmonisation Directives: a Directive on certain aspects concerning contracts for the supply of digital content and a Directive on certain aspects concerning contracts for the online and other distance sales of goods. The choice of a Directive leaves Member States freedom to adapt the implementation to their national law. For instance, the proposal does not determine whether the contract for the supply of digital content is to be considered as a sales, services, rental or a sui generis contract; it would leave this decision to Member States. A Regulation would require a much more detailed and comprehensive regime than a Directive in order to allow its effects to be directly applicable. As a consequence, this would have considerably more interference into national laws. It may also jeopardise the future-proof character of the instrument, since, contrary to a Directive, it would have to go to a level of details that would not allow the margin to adapt the implementation of the fully harmonised rules to a technologically and commercially fast-moving market like the one for digital content. The choice of full harmonisation will lead to simple and modern rules that remove contract law barriers and create a favourable legal framework for businesses while

Proposed Directive on Digital Content 787 at the same time ensuring that consumers benefit from the same high level of consumer protection throughout the EU. A non-binding instrument such as a voluntary model contract would not achieve the objective to improve the establishment and functioning of the internal market. Traders would still be obliged to comply with different mandatory national rules of the consumer’s country of residence, when the latter provide for a higher level of consumer protection than the model contract, and would thus still face contract law-related costs. 3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •  Stakeholder consultations Consultation process An extensive consultation strategy has been developed to ensure a wide participation throughout the policy cycle of this initiative. This strategy was based on a mix of public and targeted consultations. The Commission has sought a wide and balanced range of views on this issue by giving the opportunity to all relevant parties (businesses, consumers, national authorities, lawyers and academics) to express their opinions.(19) —— Public Consultation: An open 12 weeks web-based public consultation resulted in 189 responses from all categories of stakeholders from across the EU. —— Targeted consultations: A stakeholder consultation group was composed of 22 organisations representing a wide range of interests. The group met 7 times. In-depth interviews with businesses were also conducted from June to August 2015 in order to gather data on contract law related costs faced by business when selling abroad. Within the framework of the Digital Single Market Strategy, two surveys, a consumer survey(20) and a business survey,(21) were used in 2015 to collect data identifying the main cross-border obstacles to the Digital Single Market. Finally, as part of an economic study on consumer digital content, consumers and businesses were asked about the type of problems they have encountered when purchasing digital content.(22) —— Consultation of Member States: three workshops with Member States were organised between June and October 2015. The relevant issues were also discussed with national enforcement authorities at the Consumer Protection Cooperation committee meeting (April 2015) and the national authorities responsible for consumer policy at the Consumer Policy Network meeting (May 2015). Summary of the results A majority of general businesses see a need for EU action in the form of full harmonisation; the IT industry and legal professions are more divided. Consumer organi-

788  Part 1: European Union Legislation sations also recognise the need to act and support full harmonisation provided that a high level of consumer protection is guaranteed. A majority of responding Member States also welcome action on digital content at EU level. Some of them specify they would prefer full harmonisation or targeted full harmonisation. Other ­Member States would prefer a better enforcement and an assessment of existing rules. A ­number of them express the need to ensure consistency between rules for goods and digital content. The vast majority of respondents support an approach including contracts between businesses and consumers only. The vast majority of consumers, Member States and legal professions are in favour of covering digital content supplied not only for a price but also in exchange for (personal and other) data provided by consumers. Businesses are more divided on this issue. On the substance of the rules, consumers and legal professions argue that users should be able to terminate the contract as a first remedy. Businesses underline that suppliers of digital content should have the choice to bring the goods into conformity before giving the possibility to terminate the contract. For some IT associations, consumers should only have a right to terminate the contract and to receive a reimbursement of the price, but not the right to request that the content is brought into conformity, as this may be too costly for traders. Other IT associations do not consider remedies for non-conformity to be appropriate at all for digital content. ­Member States are almost unanimous in supporting the inclusion of all remedies already available for goods. The vast majority of respondents agree that traders should be able to modify the features of the supplied digital content under certain conditions (such as the prior information of the consumer) and that consumers should be able to terminate long term contracts. •  Collection and use of expertise Mainly over 2014, an Expert Group on Cloud Computing Contracts met seven times. The Expert Group was established under the European Cloud Computing Strategy and composed of practitioners and organisations representing cloud service providers and customers, as well as representatives of legal professions or academics with expertise in cloud computing contracts and in personal data protection issues relevant to cloud computing contracts. Cloud computing contracts played a particularly important role in identifying contractual problems relevant for this Directive. These issues, which were extensively discussed by the Group, relate to quality, liability or modification of the contracts.(23) The Commission also relied on several economic and legal studies, which were either commissioned for the specific purpose of this initiative or as a part of the Digital Single Market Strategy.(24) •  Impact assessment The Regulatory Scrutiny Board delivered an initial opinion on the draft impact assessment on 16 October 2015 which has been modified taking into account ­

Proposed Directive on Digital Content 789 comments from the Board and resubmitted. The second opinion, which approved the draft impact assessment subject to comments, was delivered by the Board on 9 November 2015.(25) The revised impact assessment report and an executive summary are published with the proposals.(26) Policy alternatives examined In addition to examining the consequences of the absence of policy change, the impact assessment examined the following policy alternatives: (i) option 1: targeted fully harmonised rules for digital content and goods; (ii) option 2: targeted fully ­harmonised rules for digital content and application of the trader’s law combined with the existing harmonised rules on goods; (iii) option 3: targeted fully harmonised rules for digital content and no policy change for goods; (iv) option 4: ­minimum ­harmonisation rules for digital content and no policy change for goods; (v) option 5: a voluntary European model contract combined with an EU trust-mark. On a comparative analysis of the impacts of these options, the Impact Assessment Report arrived at the conclusion that option 1 would best meet the policy objectives. This option will reduce contract law-related costs for traders and facilitate crossborder e-commerce. Businesses will be able to rely largely on their own law when selling cross-border as the main rules, which are relevant for cross-border trade, will be the same in all Member States. While the new rules on digital content may entail certain additional costs for businesses, these costs will be limited compared to the existing situation as the new rights will be fully harmonised. Therefore they will provide businesses with a legally certain and business friendly environment. Consumers will have a clear set of rights throughout the EU and will thus be more confident in buying goods or acquiring access to digital content cross-border. This will create a win-win situation for businesses and consumers. Competition will be increased, leading to an overall increase of trade and consequently an increased and better choice at more competitive prices for consumers, with significant macroeconomic gains for the EU. Lack of policy change would not contribute to achieving the objectives of the Digital Single Market, and would risk having negative economic impacts relative to the current situation. Option 2 would have the positive impact of fully harmonised rules for digital content. For goods, it would lead to increased incentives for cross-border supply, since traders would be able to sell their products cross-border entirely on the basis of their own law. Consumers may to some extent benefit from increased choice and lower prices. However, under such an option, consumers would no longer benefit from a higher level of consumer protection that their own national law provide. Vice versa, consumers may benefit from a potentially higher level of consumer protection of the trader’s law if that goes beyond their own national law on specific points. Option 3 would have the positive impact of fully harmonised rules for digital content but contract law-related obstacles to cross-border trade would remain for goods.

790  Part 1: European Union Legislation Option 4 would create minimum rights for consumers concerning the contracts for the supply of digital content in the EU and therefore increase consumers’ trust to a certain extent. Member States would be able to adopt more protective rules. However, this option would not reduce costs for traders, who would still need to comply with different national mandatory consumer contract law rules that provide a higher level of consumer protection when selling in other Member States. Option 5 could help businesses sell digital content across the EU and provide consumers with a satisfactory level of consumer protection, very much depending on the content of the model contract rules to be agreed upon by the industry and on the degree of usage and acceptance of the trust mark by EU businesses. Consumers may be more confident to buy from foreign traders to whom the EU trust mark has been awarded. However, traders would still be obliged to comply with mandatory national rules of the consumer’s country of habitual residence, when they provide for a higher level of consumer protection than the model contract rules, and may thus still face contract law-related costs. Main impacts of the proposal The impact assessment considers the impact of both proposals, the Directive on certain aspects concerning contracts for the supply of digital content and the Directive on certain aspects concerning contracts for the online and other distance sales of goods. The two proposals will eliminate contract law-related barriers to cross-border online trade, both for consumers and traders. Removing these obstacles is an incentive for cross-border trade: if the barriers related to contract law were lifted, 122,000 more businesses would be selling online across borders. Intra-EU exports would increase by around €1 billion. Increased online retail competition will lead to retail prices going down in all Member States, averaging -0.25% at EU level. As a result of this price decrease and increased consumer trust stemming from uniform EU rights, there will be additional consumer demand. Household consumption, which mirrors consumers’ welfare, would rise in every Member State with an EU average of +0.23%, which corresponds to about €18 billion. Between 7.8 and 13 million additional consumers would start buying online cross-border. The average amount spent annually by each cross-border buyer would also increase by €40. This increase in supply and demand will have direct effects on the main macroeconomic variables in each Member State and in the EU as a whole. Overall real EU GDP is expected to gain about €4 billion per year. Who would be affected and how Businesses will face costs to comply with the new Directive but eventually benefit even more from fully harmonised rules to export goods and digital content throughout the EU. SMEs will not be exempted from the new legislation: exemptions would decrease consumers’ trust when purchasing from them. There is no justification for giving consumers less protection when they buy from SMEs instead of bigger suppliers. An exemption would also undermine the benefits for SMEs of having one

Proposed Directive on Digital Content 791 single set of rules applying throughout the EU. On the contrary, the initiative will be particularly beneficial to SMEs, which are more affected by the costs to adapt their contract to mandatory rules of other Member States and are more often confined to their home market than their bigger competitors. Cross-border trade is an important way for them to benefit from the advantages of economies of scale. SMEs face a problem in finding customers. This would be easier to cope with in the online context, since the internet enables online sales at reduced costs compared to offline trade. •  Fundamental rights The proposal for the supply of digital content will impact positively a number of rights protected under the EU Charter of Fundamental Rights, in particular ­Article 38 on consumer protection and Article 16 on the freedom to conduct a business. A targeted set of fully harmonised rules for digital content will meet the objective of Article 38 of the Charter of Fundamental Rights by enhancing consumer protection throughout the EU, since it will provide EU consumers with clear and specific rights when they buy/acquire access to digital content domestically or from other Member States. A set of fully harmonised rules for key aspects of the supply of the digital content will also contribute to achieving the objective of Article 16 because businesses will be facilitated to sell digital content in the EU, both domestically and cross-border. Their ability to expand their business will therefore be reinforced. Finally, clear contract law rights will help fulfilling the objective of Article 47 (Right to an effective remedy) because it will increase the ability to exercise one’s right to an effective remedy before the courts. The new rules should clarify the remedies available in case of disputes. 4.  BUDGETARY IMPLICATIONS The proposal will not have any budgetary implications. 5.  OTHER ELEMENTS •  Implementation plans and monitoring, evaluation and reporting arrangements Member States will be required to send to the Commission the measures implementing the Directive on certain aspects concerning contracts for the supply of digital content. These measures will set out the text of the adopted legislation by the ­Member States. The Commission will monitor these measures to ensure that they comply with the Directive. The Commission will launch a monitoring and evaluation exercise to assess how effectively the Directive is achieving the objectives. The results of the evaluation will feed into a review process, to be carried out 5 years after the entry into force of the Directive, which will examine the effectiveness of the Directive.

792  Part 1: European Union Legislation •  Explanatory documents In accordance with the Joint Political Declaration of 28 September 2011 of M ­ ember States and the Commission on explanatory documents, Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, it is considered that the transmission of such documents is justified. •  Detailed explanation of the specific provisions of the proposal The proposal consists of 20 articles. Article 1 sets the subject matter of the Directive, which is to fully harmonise a set of key rules concerning contracts for the supply of digital content. It clarifies that the Directive includes rules on conformity of the digital content, remedies available to consumers in cases of lack of conformity of digital content with the contract, as well as certain aspects concerning the right to terminate a long term contract and the modification of the digital content. Article 2 contains a list of definitions for terms used in the Directive. Some definitions stem from the current acquis, such as the definition of a consumer or from the proposal for a Regulation on a Common European Sales Law. Other definitions reflect the specificity of digital content and reflect the rapid technological and commercial evolution. For example, the definition of digital content is deliberately broad and encompasses all types of digital content, including for example, downloaded or web streamed movies, cloud storage, social media or visual modelling files for 3D printing, in order to be future-proof and to avoid distortions of competition and to create a level playing field. Article 3 sets, based on the subject matter, the personal and material scope of the Directive. The Directive covers only business-to-consumer transactions. Contract law related problems in B2B relations, especially in relation to specific needs of SMEs, has been recognised in the Digital Single Market Strategy and will be analysed in the context of other actions announced in the Strategy. The Directive covers the supply of all types of digital content. It also covers digital content supplied not only for a monetary payment but also in exchange for (personal and other) data provided by consumers, except where the data have been collected for the sole purpose of meeting legal requirements. The Directive does not cover services performed with a significant element of human intervention or contracts governing specific sectorial services such as healthcare, gambling or financial services. Article 3 also clarifies that in case of conflict between the Directive and another EU act, the other EU act takes precedence. In particular, it clarifies that the Directive is without prejudice to the rules on data protection. Finally, it clarifies that the Directive does not affect national laws to the extent that they are not regulated in this Directive, such as national rules providing for obligations of the consumer towards the supplier of digital content or regulating the qualification, formation or validity of contracts.

Proposed Directive on Digital Content 793 Article 4 establishes that the present Directive is a full harmonisation Directive. It precludes Member States, within its scope of application, from adopting or maintaining laws remaining below or going beyond the requirements of the Directive. The effect of Article 4 combined with Article 1 is also to determine that in the other areas not included in the scope of application of this Directive, Member States are free to provide national solutions. Article 5 clarifies the modalities and time of supply of digital content. The digital content must be supplied to the consumer or to a third party which operates a physical or virtual facility allowing processing of, access to or transmission of digital content to the final consumer and with which the consumer is in a contractual relation. As a default rule, the digital content should be supplied instantly unless the parties agree otherwise. Article 6 contains a mixture of contractual and statutory conformity criteria against which the quality of the digital content is assessed. The digital content must ­primarily conform to what was promised in the contract. In the absence of such explicit benchmarks, the conformity of the digital content must be assessed according to an objective criterion, i.e. it must be fit for the purpose for which digital content of the same description would normally be used. Article 6 also clarifies that when the digital content is supplied over a period of time, the digital content must be in conformity with the contract throughout the duration of the contract and that the version of digital content supplied to the consumer shall also be the most recent version available at the time of the conclusion of contract. Article 7 explains that a lack of conformity of the digital content resulting from an incorrect integration into the consumer’s hardware and software should be equal to a lack of conformity of the digital content itself if the reasons for the incorrect integration are in the sphere of the supplier. Article 8 contains an additional conformity requirement according to which the digital content must be cleared from any third-party rights, including those based on intellectual property. Article 9 imposes the burden of proof for the absence of lack of conformity on the supplier, unless the consumer’s digital environment is not compatible with the digital content. This reversal of the burden of proof is not limited in time as digital content is not subject to wear and tear. Article 9 specifies that the consumer shall cooperate with the supplier in order to allow the supplier to ascertain the consumer’s digital environment. The obligation to cooperate shall be limited to the least intrusive means technically available to the supplier. Article 10 states the cases of liability of the supplier towards the consumer, namely where the digital content is not in conformity with the contract or the supplier failed to supply the digital content altogether. Given that digital content may be supplied over a period of time, the supplier should also be liable for any lack of conformity which occurs during that period. Article 11 gives the right to the consumer to terminate the contract immediately when the supplier failed to supply the digital content altogether as set out in Article 5.

794  Part 1: European Union Legislation Article 12 lists the remedies available to the consumer in case of any failure to supply or lack of conformity of the digital content. In a first step, the consumer shall be entitled to have the digital content brought to conformity within a reasonable time, without significant inconvenience and without incurring any costs. In a second step, the consumer shall be entitled to have the price reduced or the contract terminated if the lack of conformity relates to main performance features. Article 13 details the consequences of termination of the contract for lack of conformity of the digital content. For example, it provides that the supplier shall reimburse the price or if the counter-performance consisted of data refrain from using these data and any other information which the consumer has provided in exchange for the digital content. It also clarifies that the consumer shall also refrain from using further the digital content after termination. Article 14 establishes a right to damages restricted to cases where damage has been done to the digital content and hardware of the consumer. However, it provides that Member States should lay down the detailed conditions for the exercise of the right to damages. Article 15 lists the conditions, such as prior agreement and prior information of the consumer or the right for the consumer to terminate the contract, under which the supplier can modify the contract for the supply of digital content as regards main performance features. Article 16 establishes the conditions under which the consumer has a right to terminate contracts concluded for an indeterminate duration or for duration exceeding 12 months and thereby is able to switch provider. For example, the consumer shall notify the supplier 14 days before the termination becomes effective. Article 16 also details the consequences of termination of the long term contract. It also provides that the supplier shall refrain from using data and any other information which the consumer has provided in exchange for the digital content. Article 17 provides the supplier with a right to redress in case of an act or omission by a person in earlier links of the chain of transactions which triggered the supplier’s liability for lack of conformity or a failure to supply towards the consumer. The modalities for exercising this right are to be regulated by the national laws of Member States. Article 18 obliges Member States to ensure that adequate and effective means exist to ensure compliance with this Directive. Article 19 contains the clause about the mandatory nature of consumer contract law rules, i.e. it states that any derogation from the requirements contained in the Directive to the detriment of the consumer is not binding on the consumer. Article 20 provides for amendments to other EU legislation. It amends Directive 1999/44/EC in order to avoid overlaps between the two instruments. Article 20 also adds a reference to this Directive in the Annex of Regulation (EC) No 2006/2004 so as to facilitate cross-border cooperation on enforcement of this Directive. It also adds a reference to this Directive in Annex I of Directive 2009/22/EC of the

Proposed Directive on Digital Content 795 ­ uropean Parliament and of the Council(27) so as to ensure that the consumers’ colE lective interests laid down in this Directive are protected. Article 21 establishes the deadline for transposition by Member States. Article 22 establishes an obligation for the Commission to review the application of this Directive no later than 5 years after its entering into force. Article 23 sets the date of entry into force of the Directive. Article 24 specifies the addressees of the Directive.

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COM(2015) 192 final http://ec.europa.eu/priorities/digital-single-market/. Flash Eurobarometer 396 “Retailers’ attitudes towards cross-border trade and consumer protection” (2015). Flash Eurobarometer 396 “Retailers’ attitudes towards cross-border trade and consumer protection” (2015). Eurostat survey on ICT usage in households and by individuals (2014). OJ L 304, 22.11.2011, p.64 See in particular Expert Group on Cloud Computing Contracts—Detailed information on the composition of the Expert Group and minutes of the meetings available at: http://ec.europa.eu/justice/contract/cloud-computing/ expert-group/index_en.htm. OJ L 095, 21.04.1993 p. 29. OJ L 178, 17.7.2000, p. 1. A detailed explanation of the EU rule on applicable law and jurisdiction in the Digital Single Market can be found in Annex 7 to the Commission Staff Working Document containing the Impact Assessment accompanying the Proposals for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content and a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods, SWD (2015) 275. OJ L 351, 20.12.2012, p. 1. OJ L 177, 4.07.2008, p. 6. Regulation (EU) No 524/2013 of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR), OJ L 165, 18.06.2013, p.1. OJ L 364, 9.12.2004, p. 1. This Directive will amend the Regulation on consumer protection cooperation to add a reference of this Directive in the Annex of that Regulation enabling coordinated enforcement actions by the Consumer Protection authorities in the field covered by this Directive. OJ L 281, 23/11/1995, p. 31—50) [to be replaced by the General Data Protection Regulation] and Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications).

796  Part 1: European Union Legislation (16)

OJ L 201, 31.7.2002, p. 37–47. Comparative Study on cloud computing contracts (2014) DLA Piper, p.33 and seq.; Analysis of the applicable legal frameworks and suggestions for the contours of a model system of consumer protection in relation to digital content contracts; University of Amsterdam: Centre for the Study of European Contract Law (CSECL) Institute for Information Law (IViR): Amsterdam Centre for Law and Economics (ACLE) p.32 and seq. (18) OJ L 364, 9.12.2004, p. 1 (19) For more details about the consultations, please see: http://ec.europa.eu/justice/ newsroom/contract/opinion/index_en.htm. (20) GfK for the European Commission, Consumer survey identifying the main cross-border obstacles to the Digital Single Market and where they matter most, 2015. (21) Flash Eurobarometer 413 “Companies engaged in online activities” (2015) http://ec.europa.eu/public_opinion/flash/fl_413_en.pdf. (22) Economic study on consumer digital Content products, ICF International, 2015. (23) Expert Group on Cloud Computing Contracts—detailed information on the composition of the Group and minutes of its meetings available at: http:// ec.europa.eu/justice/contract/cloud-computing/expert-group/index_en.htm. (24) See, in particular: (17)

—— GfK for the European Commission, Consumer survey identifying the main cross-border obstacles to the Digital Single Market and where they matter most, 2015. —— Eurostat survey on ICT usage in households and by individuals (2014). —— Comparative Study on cloud computing contracts (2014) DLA Piper, p.33 and seq.; Analysis of the applicable legal frameworks and suggestions for the contours of a model system of consumer protection in relation to digital content contracts; University of Amsterdam: Centre for the Study of European Contract Law (CSECL) Institute for Information Law (IViR): Amsterdam Centre for Law and Economics (ACLE) p.32 and seq. —— Flash Eurobarometer 413 “Companies engaged in online activities” (2015) http://ec.europa.eu/public_opinion/flash/fl_413_en.pdf. —— Economic study on consumer digital Content products, ICF International, 2015. (25)

The opinion of the Regulatory Scrutiny Board is available at: http://ec.europa. eu/justice/contract/index_en.htm. (26) The impact assessment report and the Executive summary are available at: http://ec.europa.eu/justice/contract/index_en.htm. (27) OJ L110, 1.05.2009, p.30.

2015/0287 (COD) Proposal for a

Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee,(28) Acting in accordance with the ordinary legislative procedure,

Whereas: (1) The growth potential of e-commerce has not yet been fully exploited. The Digital Single Market Strategy for Europe(29) tackles in a holistic manner the major obstacles to the development of cross-border e-commerce in the Union in order to unleash this potential. Ensuring better access for consumers to digital content and facilitating businesses to supply digital content is necessary to boost the Union’s digital economy and stimulate overall growth. (2) For the achievement of a genuine digital single market, the harmonisation of certain aspects concerning contracts for supply of digital content, taking as a base a high level of consumer protection, is necessary. (3) Differences in national mandatory consumer contract law rules and a lack of clear contract law rules are among the key obstacles which hinder the development of the supply of digital content, as very few tailor-made rules exist at Union level. Businesses face additional costs stemming from differences in national mandatory consumer contract law rules and legal uncertainty when selling digital content across borders. Businesses also face costs when adapting their contracts to specific mandatory rules for the supply of digital content are already emerging in several Member States, creating differences in scope and content between specific national rules governing these contracts. In those Member States where there are not yet specific rules for the supply of digital content, traders willing to sell cross-border face uncertainty, as they will often

798  Part 1: European Union Legislation not know which rules apply to digital content in the Member State they want to export to, nor the content of those rules and whether they are mandatory. (4) Consumers are not confident when buying cross border and especially online. One of the major factors for this lack of confidence is uncertainty about their key contractual rights and the lack of a clear contractual framework for digital content. Many consumers of digital content experience problems related to the quality of, or access to, digital content. For instance, they receive wrong or faulty digital content, or they are not able to access the digital content in question. As a result, consumers suffer financial and non-financial detriment. (5) In order to remedy these problems, both businesses and consumers should be able to rely on fully harmonised rules for the supply of digital content setting out Union-wide contractual rights which are essential for this type of transactions. (6) Fully harmonised consumer contract law rules in all Member States will make it easier for businesses to offer digital content cross-border. They will have a stable contract law environment when selling online and otherwise at a distance to other Member States. Fully harmonised rules specific for digital content throughout the EU will remove the complexity caused by the different national rules that currently apply to contracts for the supply of digital content. They will also prevent legal fragmentation that otherwise would arise from new national legislations regulating specifically digital content. (7) Consumers will benefit from fully harmonised rights for digital content at a high level of protection. They will have clear rights when they receive or access digital content from anywhere in the EU. This will increase their confidence in buying digital content. This will also contribute to reducing the detriment consumers currently suffer, since there will be a set of clear rights that will enable them to address problems they face with digital content. (8) This Directive should fully harmonise a set of key rules that are so far not regulated at Union level. It should include therefore rules on conformity of the digital content, remedies available to consumers in cases of lack of conformity of digital content with the contract and certain modalities for the exercise of those remedies. This Directive should also harmonise certain aspects concerning the right to terminate a long term contract, as well as certain aspects concerning the modification of the digital content. (9) By fully harmonising all requirements related to the topics regulated by this Directive, it precludes Member States, within its scope of application, from providing any further formal or substantive requirements, such as a period during which the lack of conformity has to become apparent, an obligation for the consumer to notify the supplier of a lack of conformity within a specific period or an obligation for the consumer to pay for the use of the digital content until the moment of termination because of a lack of conformity with the contract. (10) This Directive should not affect national laws to the extent that the topics concerned are not regulated by this Directive, such as national rules providing for obligations of the consumer towards the supplier of digital content

Proposed Directive on Digital Content 799 or regulating the qualification, formation and validity of contracts or the legality of the content. Member States should also remain free to provide rules for the detailed conditions for the exercise of rights, such as the right to damages to the extent not covered by the Directive, or rules which provide for the consequences of termination of the contract which apply in addition to restitution rules regulated by this Directive. (11) The Directive should address problems across different categories of digital content and its supply. In order to cater for fast technological developments and to maintain the future-proof nature of the notion of digital content, this notion as used in this Directive should be broader than in Directive 2011/83/EU of the European Parliament and of the Council.(30) In particular it should cover services which allow the creation, processing or storage of data. While there are numerous ways for digital content to be supplied, such as transmission on a durable medium, downloading by consumers on their devices, web-streaming, allowing access to storage capabilities of digital content or access to the use of social media, this Directive should apply to all digital content independently of the medium used for its transmission. Differentiating between different categories in this technologically fast changing market is not desirable because it would hardly be possible to avoid discriminations between suppliers. A level-playing field between suppliers of different categories of digital content should be ensured. However this Directive should not apply to digital content which is embedded in goods in such a way that it operates as an integral part of the goods and its functions are subordinate to the main functionalities of the goods. (12) In order to meet the expectations of consumers and ensure a clear-cut and simple legal framework for suppliers of digital content offered on a durable medium, in relation to conformity requirements and remedies available to consumers for non-conformity, this Directive should apply to goods such as DVDs and CDs, incorporating digital content in such a way that the goods function only as a carrier of the digital content. The Directive should apply to the digital content supplied on a durable medium, independently whether it is sold at a distance or in face-to-face situations, so as to avoid fragmentation between the different distribution channels. The Directive 2011/83 should continue to apply to those goods, including to obligations related to the delivery of goods, remedies in case of the failure to deliver and the nature of the contract under which those goods are supplied. The Directive is also without prejudice to the distribution right applicable to these goods under copyright law. (13) In the digital economy, information about individuals is often and increasingly seen by market participants as having a value comparable to money. Digital content is often supplied not in exchange for a price but against counter-performance other than money i.e. by giving access to personal data or other data. Those specific business models apply in different forms in a considerable part of the market. Introducing a differentiation d ­ epending on the nature of the counter-performance would discriminate between different business models; it would provide an unjustified incentive for busi-

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nesses to move towards offering digital content against data. A level playing field should be ensured. In addition, defects of the performance features of the digital content supplied against counter-performance other than money may have an impact on the economic interests of consumers. Therefore the applicability of the rules of this Directive should not depend on whether a price is paid for the specific digital content in question. As regards digital content supplied not in exchange for a price but against counter-performance other than money, this Directive should apply only to contracts where the supplier requests and the consumer actively provides data, such as name and e-mail address or photos, directly or indirectly to the supplier for example through individual registration or on the basis of a contract which allows access to consumers’ photos. This Directive should not apply to situations where the supplier collects data necessary for the digital content to function in conformity with the contract, for example geographical location where necessary for a mobile application to function properly, or for the sole purpose of meeting legal requirements, for instance where the registration of the consumer is required for security and identification purposes by applicable laws. This Directive should also not apply to situations where the supplier collects information, including personal data, such as the IP address, or other automatically generated information such as information collected and transmitted by a cookie, without the consumer actively supplying it, even if the consumer accepts the cookie. It should also not apply to situations where the consumer is exposed to advertisements exclusively in order to gain access to digital content. Content generated by consumers should be treated on the same basis as any other digital content that the consumer provides or stores throughout the period of duration of the contract such as music and video files, pictures, games or applications. Content generated by consumers comprises a wide range of examples including digital images, video and audio files, blogs, discussion forums, text-based collaboration formats, posts, chats, tweets, logs, podcasting, content created on mobile devices, content created in the context of online virtual environments, ratings and collections of links referring to online content. In order to ensure a common set of rights for consumers and a level playing field for business, consumers should have the same remedies for digital content which is not in conformity with the contract irrespective of the way the content has been developed. Consequently the Directive should apply to contracts for the development of digital content tailor made to the specific requirements of the consumer including tailor made software. This Directive should also apply to the supply of visual modelling files required in the context of 3D printing. However this Directive should not regulate goods produced with the use of 3D printing technology or the damage caused to them. Digital content is highly relevant in the context of the Internet of Things. However it is opportune to address specific issues of liability related to the

Proposed Directive on Digital Content 801

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Internet of Things, including the liability for data and machine-to-machine contracts, in a separate way. Contracts may include general terms and conditions of the supplier that need to be accepted by the consumer. For some digital content, suppliers often describe the service and measurable service targets in a service level agreement. These service level agreements are generally appended to the main contract and form an important component of the contractual relationship between the supplier and the consumer. They should be covered by the definition of a contract under this Directive, and should thus comply with the rules laid down therein. This Directive should apply only to those services whose main subject matter is providing digital content. Therefore, the Directive should not apply to services, which are performed personally by the supplier and where the digital means are only used for access or delivery purposes, such as a translation offered by a person or other professional advice services where only the output of the service is delivered to the consumer by digital means. Where, under a contract or a bundle of contracts, the supplier offers digital content in combination with other services such as telecommunication services or goods, which do not function merely as a carrier of the digital content, this Directive should only apply to the digital content component of such a bundle. The other elements should be governed by the applicable law. This Directive should not deal with copyright and other intellectual property related aspects of the supply of digital content. Therefore it should be without prejudice to any rights and obligations according to copyright law and other intellectual property laws. The protection of individuals with regard to the processing of personal data is governed by Directive 95/46/EC of the European Parliament and of the Council(31) and by Directive 2002/58/EC of the European Parliament and of the Council(32) which are fully applicable in the context of contracts for the supply of digital content. Those Directives already establish a legal framework in the field of personal data in the Union. The implementation and application of this Directive should be made in full compliance with that legal framework. There are various ways for digital content to reach consumers. It is opportune to set simple and clear rules as to the modalities and the time for performing the supplier’s main contractual obligation to supply digital content to the consumer. Considering that the supplier is not in principle ­responsible for acts or omissions of an internet provider or an electronic platform which the consumer selected for receiving the digital content, it should be sufficient for the supplier to supply the digital content to this third party. With regard to the time of supply, in line with market practices and technical possibilities, the digital content should be supplied immediately, unless the parties decide to agree otherwise in order to cater for other supply models. In order to promote innovation in the Digital Single Market and cater for technological developments reflected in the fast changing characteristics of

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digital content, it is justified for the digital content to be, above all, in conformity with what was agreed in the contract. In cases where the contract does not stipulate sufficiently clear and comprehensive benchmarks to ascertain the conformity of the digital content with the contract, it is necessary to set objective conformity criteria to ensure that consumers are not deprived of their rights. In such cases the conformity with the contract should be assessed considering the purpose for which digital content of the same description would normally be used. Due to its nature digital content needs to interact with other digital equipment to function properly; interoperability should therefore form a part of the conformity criteria. In particular it needs to interact with hardware including processor speed and graphics card features and software including a specific version of the operating system or specific multi-media player. The notion of functionality should refer to the ways in which digital content can be used; it should also refer to the absence or presence of any technical restrictions such as protection via Digital Rights Management or regional coding. While data-driven services and technologies bring significant benefits, they also create some vulnerabilities. As recognised by the Digital Single Market Strategy a high level of network and information security is essential across the European Union to ensure respect of fundamental rights such as the right to privacy and personal data, to increase user confidence and strengthen their trust in the digital economy. As software becomes pervasive, qualities such as reliability, security and adaptability to evolving needs are also becoming a prime concern. It is therefore increasingly important that those data-driven services and technologies ensure that those qualities are guaranteed, to the extent that is proportionate to the role and function those technologies play. In particular, quality in terms of security and reliability is becoming an important concern for innovative, composite services that have to rely on the interconnection of diverse systems in different domains. When applying the rules of this Directive, suppliers should make use of standards, open technical specifications, good practices and codes of conduct, including in relation to the commonly used data format for retrieving the content generated by the user or any other content provided by the consumer, whether established at the international level, the European level or at the level of a specific industry sector. In this context, the C ­ ommission may consider the promotion of the development of international and ­European standards and the drawing up of a code of conduct by trade associations and other representative organisations that could support the uniform implementation of the Directive. Many types of digital content are supplied over a period of time. For instance, consumers access cloud services over a period of time. It is therefore important to ensure that the digital content is in conformity with the contract throughout the duration of the contract. Moreover, given the frequent improvement of digital content, notably by updates, the version of

Proposed Directive on Digital Content 803

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digital content supplied to the consumer should be the most recent one available at the time of the conclusion of the contract. In order to work properly, digital content needs to be correctly integrated into the consumer’s hardware and software environment. Where a lack of conformity with the contract of the digital content results from an incorrect integration, it should be regarded as a lack of conformity with the contract of the digital content itself, where it was integrated by the supplier or under its control, or by the consumer following supplier’s instructions for integration and the incorrect integration was due to shortcomings in the required integration instructions. In such scenarios the origin of the lack of conformity stems from the sphere of the supplier. Conformity should cover material as well as legal defects. Third party rights might effectively bar the consumer from enjoying the digital content or some of its features in accordance with the contract if those third party rights are infringed, and if when the third party rightfully compels the supplier to stop infringing those rights and to discontinue offering the digital content in question. Legal defects are particularly important for digital content, which, by its nature, is subject to intellectual property rights. Therefore the supplier should be obliged to ensure that the digital content is free from any right of a third party, for example a copyright claim related to the digital content, which precludes the consumer from enjoying the digital content in accordance with the contract. Due to the specific nature of digital content with its high complexity as well as the supplier’s better knowledge and access to know how, technical information and high-tech assistance, it is the supplier who is in a better position than the consumer to know the reasons for the digital content not being in conformity with the contract. The supplier is also in a better position to assess whether the lack of conformity with the contract is due to incompatibility of the consumer’s digital environment with the technical requirements for the digital content. Therefore in case of a dispute it should be for the supplier to prove that the digital content is in conformity with the contract, unless the supplier proves that the consumer’s digital environment is not compatible with the digital content. Only where the supplier proves that the consumer’s digital environment is not compatible with the interoperability and other technical requirements, it should be for the consumer to prove that the digital content is not in conformity with the contract. Without prejudice to the fundamental rights to the protection of private life, including confidentiality of communications, and the protection of personal data of the consumer, the consumer should cooperate with the supplier in order to allow the supplier to ascertain the consumer’s digital environment with the use of the least intrusive means which are at the disposal of both parties in the circumstances. This may often be done for instance by providing the supplier with automatically generated incident reports or details of the consumer’s internet connection. Only in exceptional and duly justified circumstances where with the best use of all other means there is no

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other way possible, this may also be done by allowing virtual access to the consumer’s digital environment. However, where the consumer does not cooperate with the supplier, it should be for the consumer to prove that the digital content is not in conformity with the contract. The supplier should be liable to the consumer for the lack of conformity with the contract and for any failure to supply the digital content. Moreover, given that digital content may be supplied over a period of time, it is justified that the supplier should be liable for any lack of conformity which occurs during that period. A failure of the supplier to supply the digital content to the consumer in accordance with the contract is a serious breach of the main contractual obligation of the supplier, which should allow the consumer to immediately terminate the contract. Where the supplier has initially not failed to supply the digital content, interruptions of the supply making the digital content not available or accessible to the consumer over a short period of time should be treated as non-conformity with the contract, and not a failure to supply. In particular, the requirement of proper continuity of the digital content should also cover more than negligible short term interruptions of the supply. In the case of non-conformity with the contract, consumers should as a first step be entitled to have the digital content brought to conformity with the contract. Depending on technical characteristics of the digital content, the supplier may select a specific way of bringing the digital content to conformity with the contract, for example by issuing updates or requiring the consumer to access a new copy of the digital content. Given the diversity of digital content, it is not appropriate to set fixed deadlines for the exercise of rights or the fulfilling of obligations related to that digital content. Such deadlines may not capture this diversity and be either too short or too long, depending on the case. It is therefore more appropriate to refer to reasonable deadlines. The digital content should be brought into conformity with the contract within a reasonable time and free of any costs; in particular the consumer should not incur any costs associated with the development of an update for the digital content. As a second step, the consumer should be entitled to have the price reduced or the contract terminated. The right of a consumer to have the contract terminated should be limited to those cases where for instance bringing the digital content to conformity is not possible and the non-conformity impairs the main performance features of the digital content. Where the consumer terminates the contract, the supplier should reimburse the price paid by the consumer or, where the digital content is supplied not in exchange for a price but against access to data provided by the consumer, the supplier should refrain from using it, from transferring that data to third parties or allowing third parties to access it after termination of the contract. Fulfilling the obligation to refrain from using data should mean in the case when the counter-performance consists of personal data, that the supplier should take all measures in order to comply with data protection rules by deleting

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(41) (42)

(43)

it or rendering it anonymous in such a way that the consumer cannot be identified by any means likely reasonably to be used either by the supplier or by any other person. Without prejudice to obligations of a controller under Directive 95/46/EC the supplier should not be obliged to undertake any further steps in relation to data which the supplier has lawfully provided to third parties in the course of the duration of the contract for the supply of the digital content. Upon termination the supplier should also refrain from using the content generated by the consumer. However, in those cases where more than one consumer generated particular content, the supplier is entitled to continue to use the content generated by the consumer where those other consumers make use of it. In order to ensure that the consumer benefits from effective protection in relation to the right to terminate the contract, the supplier should allow the consumer to retrieve all data uploaded by the consumer, produced by the consumer with the use of the digital content or generated through the consumer’s use of the digital content. This obligation should extend to data which the supplier is obliged to retain under the contract for the supply of the digital content as well as to data which the supplier has effectively retained in relation to the contract. Where, following the termination of the contract because of a lack of conformity with the contract, the supplier provides the consumer with the technical means to retrieve the data, the consumer should be entitled to retrieve the data free of any costs, for example the cost of employing a commonly used data format with the exception of costs generated by the consumer’s own digital environment including the costs of a network connection as they are not specifically linked with the retrieval of the data. Where the contract is terminated, the consumer should not be required to pay for the use of digital content which is not in conformity with the contract because that would deprive the consumer of effective protection. Considering the need to balance legitimate interests of consumers and suppliers, where the digital content provided over a period of time in exchange for a payment of a price, gives rise to the right to terminate, the consumer should be entitled to terminate only the part of the contract which corresponds to the time when the digital content was not in conformity with the contract. However where the digital content is provided against a counterperformance other than money partial termination is not feasible because it is impossible to proportionally apportion a counter-performance other than money. Due to its nature the digital content is not subject to wear and tear while being used and it is often supplied over a period of time rather than as a one-off supply. It is, therefore, justified not to provide a period during which the supplier should be held liable for any lack of conformity which exists at the time of the supply of the digital content. Consequently ­Member States should refrain from maintaining or introducing such a period. M ­ ember States should remain free to rely on national prescription rules in order to

806  Part 1: European Union Legislation ensure legal certainty in relation to claims based on the lack of conformity of digital content. (44) The principle of the supplier’s liability for damages is an essential element of the contracts for supply of digital content. In order to increase consumers’ trust in digital content this principle should thus be regulated at Union level to ensure that consumers do not suffer a detriment if their hardware or software is damaged by digital content which is not in conformity with the contract. Therefore, consumers should be entitled to a compensation for damages caused to the consumer’s digital environment by a lack of conformity with the contract or a failure to supply the digital content. However, it should be for Member States to lay down the detailed conditions for the exercise of the right to damages while taking into account that discounts on prices for future supplies of the digital content, especially when offered by suppliers as an exclusive compensation for losses, do not necessarily put the consumer as nearly as possible into the position in which the consumer would have been if the digital content had been duly supplied and been in conformity with the contract. (45) Due to technological or other reasons the supplier might be compelled to change features of the digital content supplied over a period of time. These changes are often to the advantage of the consumer as they improve the digital content. Consequently, the parties to the contract may include respective clauses in the contract which allow the supplier to undertake modifications. However, where such modifications negatively affect the way the consumer benefits from main performance features of the digital content, they may disturb the balance of the contract or the nature of the performance due under the contract to an extent that the consumer may not have concluded such a contract. Therefore, in such cases these modifications should be subject to certain conditions. (46) Competition is an important element for a well-functioning digital single market. In order to stimulate such a competition, consumers should be enabled to respond to competitive offers and to switch between suppliers. In order to make this work in practice, they should be able to do so without being hindered by legal, technical or practical obstacles, including contractual conditions or lack of means for retrieving all data uploaded by the consumer, produced by the consumer with the use of the digital content or generated through the consumer’s use of the digital content. However, it is also important to protect existing investments and the trust in c­ oncluded contracts. Therefore consumers should be given the right to terminate longterm contracts under certain balanced conditions. This does not preclude that consumer contracts may be concluded for longer contractual periods. However, the consumer should be entitled to terminate any contractual relation that altogether lasts for a period longer than 12 months. In order to prevent any circumvention of this right it should cover any contract which results in the consumer being bound by the contract for more than 12 months, irrespective of whether the contract is of indeterminate duration

Proposed Directive on Digital Content 807

(47)

(48)

(49)

(50)

(51)

(52)

(53)

(54)

or is extended automatically or following a subsequent agreement by the parties. The lack of conformity with the contract of the final digital content as supplied to the consumer is often due to one of the transactions in a chain, from the original designer to the final supplier. While the final supplier should be liable towards the consumer in case of lack of conformity with the contract between these two parties, it is important to ensure that the supplier has appropriate rights vis-a-vis different members of the chain of transactions in order to be able to cover his liability towards the consumer. However, it should be for the applicable national law to identify the members of the chains of transactions against which the final supplier can turn and the modalities and conditions of such actions. Persons or organisations regarded under national law as having a legitimate interest in protecting consumer contractual rights should be afforded the right to initiate proceedings, either before a court or before an administrative authority which is competent to decide upon complaints or to initiate appropriate legal proceedings. Nothing in this Directive should prejudice the application of the rules of private international law, in particular Regulation (EC) No 593/2008 of the European Parliament and of the Council(33) and Regulation (EC) No 1215/2012 of the European Parliament and the Council.(34) Directive 1999/44/EC of the European Parliament and of the Council(35) should be amended to reflect the scope of this Directive in relation to a durable medium incorporating digital content where it has been used exclusively as carrier of the digital content to the consumer. Regulation (EC) No 2006/2004 of the European Parliament and of the Council(36) should be amended to include a reference to this Directive in its Annex so as to facilitate cross-border cooperation on enforcement of this Directive. Directive 2009/22/EC of the European Parliament and of the Council(37) should be amended to include a reference to this Directive in its Annex so as to ensure that the consumers’ collective interests laid down in this Directive are protected. In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents,(38) Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. Since the objectives of this Directive, namely to contribute to the functioning of the internal market by tackling in a consistent manner contract lawrelated obstacles for the supply of digital content while preventing legal fragmentation cannot be sufficiently achieved by the Member States but can rather, by reasons of ensuring the overall coherence of the national legislations through harmonised contract law rules which would also ­facilitate

808  Part 1: European Union Legislation coordinated enforcement actions, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives. (55) This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the ­European Union and specifically Article 16, 38 and 47 thereof. HAVE ADOPTED THIS DIRECTIVE: Article 1 Subject matter This Directive lays down certain requirements concerning contracts for the supply of digital content to consumers, in particular rules on conformity of digital content with the contract, remedies in case of the lack of such conformity and the modalities for the exercise of those remedies as well as on modification and termination of such contracts. Article 2 Definitions For the purposes of this Directive, the following definitions shall apply: 1. ‘digital content’ means (a) data which is produced and supplied in digital form, for example video, audio, applications, digital games and any other software, (b) a service allowing the creation, processing or storage of data in digital form, where such data is provided by the consumer, and (c) a service allowing sharing of and any other interaction with data in digital form provided by other users of the service; 2. ‘integration’ means linking together different components of a digital environment to act as a coordinated whole in conformity with its intended purpose; 3. ‘supplier’ means any natural or legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in his name or on his behalf, for purposes relating to that person’s trade, business, craft, or profession; 4. ‘consumer’ means any natural person who in contracts covered by this Directive, is acting for purposes which are outside that person’s trade, business, craft, or profession; 5. ‘damages’ means a sum of money to which consumers may be entitled as compensation for economic damage to their digital environment; 6. ‘price’ means money that is due in exchange for digital content supplied;

Proposed Directive on Digital Content 809 7. ‘contract’ means an agreement intended to give rise to obligations or other legal effects; 8. ‘digital environment’ means hardware, digital content and any network connection to the extent that they are within the control of the user; 9. ‘interoperability’ means the ability of digital content to perform all its functionalities in interaction with a concrete digital environment; 10. ‘supply’ means providing access to digital content or making digital content available; 11. ‘durable medium’ means any instrument which enables the consumer or the supplier to store information addressed personally to that person in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored. Article 3 Scope 1. This Directive shall apply to any contract where the supplier supplies digital content to the consumer or undertakes to do so and, in exchange, a price is to be paid or the consumer actively provides counter-performance other than money in the form of personal data or any other data. 2. This Directive shall apply to any contract for the supply of digital product developed according to consumer’s specifications. 3. With the exception of Articles 5 and 11, this Directive shall apply to any durable medium incorporating digital content where the durable medium has been used exclusively as carrier of digital content. 4. This Directive shall not apply to digital content provided against counterperformance­other than money to the extent the supplier requests the ­consumer to provide personal data the processing of which is strictly necessary for the performance of the contract or for meeting legal requirements and the supplier does not further process them in a way incompatible with this purpose. It shall equally not apply to any other data the supplier requests the consumer to provide for the purpose of ensuring that the digital content is in conformity with the contract or of meeting legal requirements, and the supplier does not use that data for commercial purposes. 5. This Directive shall not apply to contracts regarding: (a) services performed with a predominant element of human intervention by the supplier where the digital format is used mainly as a carrier; (b) electronic communication services as defined in Directive 2002/21/EC; (c) healthcare as defined in point (a) of Article 3 of Directive 2011/24/EU; (d) gambling services meaning services which involve wagering a stake with monetary value in games of chance, including those with an element of skill, such as lotteries, casino games, poker games and betting transactions, by electronic means and at the individual request of a recipient of a service; (e) financial services.

810  Part 1: European Union Legislation 6. Where a contract includes elements in addition to the supply of digital content, this Directive shall only apply to the obligations and remedies of the parties as supplier and consumer of the digital content. 7. If any provision of this Directive conflicts with a provision of another Union act governing a specific sector or subject matter, the provision of that other Union act shall take precedence over this Directive. 8. This Directive is without prejudice to the protection of individuals with regard to the processing of personal data. 9. In so far as not regulated in this Directive, this Directive shall not affect national general contract laws such as rules on formation, the validity or effects of contracts, including the consequences of the termination of a contract. Article 4 Level of harmonisation Member States shall not maintain or introduce provisions diverging from those laid down in this Directive, including more or less stringent provisions to ensure a different level of consumer protection. Article 5 Supply of the digital content 1. When performing the contract for the supply of digital content, the supplier shall supply the digital content to (a) the consumer; or (b) a third party which operates a physical or virtual facility making the digital content available to the consumer or allowing the consumer to access it and which has been chosen by the consumer for receiving the digital content. 2. The supplier shall supply the digital content immediately after the conclusion of the contract, unless the parties have agreed otherwise. The supply shall be deemed to take place when the digital content is supplied to the consumer or, where point (b) of paragraph 1 applies, to the third party chosen by the consumer, whichever is the earlier. Article 6 Conformity of the digital content with the contract 1. In order to conform with the contract, the digital content shall, where relevant: (a) be of the quantity, quality, duration and version and shall possess functionality, interoperability and other performance features such as accessibility, continuity and security, as required by the contract including in any pre-contractual information which forms integral part of the contract;

Proposed Directive on Digital Content 811

2.

3. 4. 5.

(b) be fit for any particular purpose for which the consumer requires it and which the consumer made known to the supplier at the time of the conclusion of the contract and which the supplier accepted; (c) be supplied along with any instructions and customer assistance as stipulated by the contract; and (d) be updated as stipulated by the contract. To the extent that the contract does not stipulate, where relevant, in a clear and comprehensive manner, the requirements for the digital content under paragraph 1, the digital content shall be fit for the purposes for which digital content of the same description would normally be used including its functionality, interoperability and other performance features such as accessibility, continuity and security, taking into account: (a) whether the digital content is supplied in exchange for a price or other counter-performance than money; (b) where relevant, any existing international technical standards or, in the absence of such technical standards, applicable industry codes of conduct and good practices; and (c) any public statement made by or on behalf of the supplier or other persons in earlier links of the chain of transactions unless the supplier shows that (i) he was not, and could not reasonably have been, aware of the statement in question; (ii) by the time of conclusion of the contract the statement had been corrected; (iii) the decision to acquire the digital content could not have been influenced by the statement. Where the contract stipulates that the digital content shall be supplied over a period of time, the digital content shall be in conformity with the contract throughout the duration of that period. Unless otherwise agreed, digital content shall be supplied in conformity with the most recent version of the digital content which was available at the time of the conclusion of the contract. In order to conform with the contract the digital content must also meet the requirements of Articles 7 and 8. Article 7 Integration of the digital content

Where the digital content is incorrectly integrated into the consumer’s digital environment, any lack of conformity resulting from the incorrect integration shall be regarded as lack of conformity of the digital content if: (a) the digital content was integrated by the supplier or under the supplier’s responsibility; or (b) the digital content was intended to be integrated by the consumer and the incorrect integration was due to shortcomings in the integration instructions

812  Part 1: European Union Legislation where those instructions were supplied in accordance with point (c) of Article 6(1) or should have been supplied in accordance with Article 6(2). Article 8 Third party rights 1. At the time the digital content is supplied to the consumer, the digital content shall be free of any right of a third party, including based on intellectual property, so that the digital content can be used in accordance with the contract. 2. Where the digital content is supplied over a period of time, the supplier shall, for the duration of that period, keep the digital content supplied to the consumer free of any right of a third party, including that based on intellectual property, so that the digital content can be used in accordance with the contract. Article 9 Burden of proof 1. The burden of proof with respect to the conformity with the contract at the time indicated in Article 10 shall be on the supplier. 2. Paragraph 1 shall not apply where the supplier shows that the digital environment of the consumer is not compatible with interoperability and other technical requirements of the digital content and where the supplier informed the consumer of such requirements before the conclusion of the contract. 3. The consumer shall cooperate with the supplier to the extent possible and necessary to determine the consumer’s digital environment. The obligation to cooperate shall be limited to the technically available means which are the least intrusive for the consumer. Where the consumer fails to cooperate, the burden of proof with respect to the non-conformity with the contract shall be on the consumer. Article 10 Liability of the supplier The supplier shall be liable to the consumer for: (a) any failure to supply the digital content; (b) any lack of conformity which exists at the time the digital content is supplied; and (c) where the contract provides that the digital content shall be supplied over a period of time, any lack of conformity which occurs during the duration of that period.

Proposed Directive on Digital Content 813 Article 11 Remedy for the failure to supply Where the supplier has failed to supply the digital content in accordance with ­Article 5 the consumer shall be entitled to terminate the contract immediately under Article 13. Article 12 Remedies for the lack of conformity with the contract 1. In the case of a lack of conformity with the contract, the consumer shall be entitled to have the digital content brought into conformity with the contract free of charge, unless this is impossible, disproportionate or unlawful. Bringing the digital content into conformity with the contract shall be deemed to be disproportionate where the costs it imposes on the supplier are unreasonable. The following shall be taken into account when deciding whether the costs are unreasonable: (a) the value the digital content would have if it were in conformity with the contract; and (b) the significance of the lack of conformity with the contract for attaining the purpose for which the digital content of the same description would normally be used. 2. The supplier shall bring the digital content in conformity with the contract pursuant to paragraph 1 within a reasonable time from the time the supplier has been informed by the consumer about the lack of conformity with the contract and without any significant inconvenience to the consumer, taking account of the nature of digital content and the purpose for which the consumer required this digital content. 3. The consumer shall be entitled to either a proportionate reduction of the price in the manner set out in paragraph 4 where the digital content is supplied in exchange for a payment of a price, or terminate the contract under ­paragraph 5 and Article 13, where (a) the remedy to bring the digital content in conformity is impossible, disproportionate or unlawful; (b) the supplier has not completed the remedy within the time specified in paragraph 2; (c) the remedy to bring the digital content in conformity would cause significant inconvenience to the consumer; or (d) the supplier has declared, or it is equally clear from the circumstances, that the supplier will not bring the digital content in conformity with the contract. 4. The reduction in price shall be proportionate to the decrease in the value of the digital content which was received by the consumer compared to the value of the digital content that is in conformity with the contract.

814  Part 1: European Union Legislation 5. The consumer may terminate the contract only if the lack of conformity with the contract impairs functionality, interoperability and other main performance features of the digital content such as its accessibility, continuity and security where required by Article 6 paragraphs (1) and (2). The burden of proof that the lack of conformity with the contract does not impair functionality, interoperability and other main performance features of the digital content shall be on the supplier. Article 13 Termination 1. The consumer shall exercise the right to terminate the contract by notice to the supplier given by any means. 2. Where the consumer terminates the contract: (a) the supplier shall reimburse to the consumer the price paid without undue delay and in any event not later than 14 days from receipt of the notice; (b) the supplier shall take all measures which could be expected in order to refrain from the use of the counter-performance other than money which the consumer has provided in exchange for the digital content and any other data collected by the supplier in relation to the supply of the digital content including any content provided by the consumer with the exception of the content which has been generated jointly by the consumer and others who continue to make use of the content; (c) the supplier shall provide the consumer with technical means to retrieve all content provided by the consumer and any other data produced or generated through the consumer’s use of the digital content to the extent that data has been retained by the supplier. The consumer shall be entitled to retrieve the content free of charge, without significant inconvenience, in reasonable time and in a commonly used data format; (d) where the digital content was not supplied on a durable medium, the consumer shall refrain from using the digital content or making it available to third parties, in particular by deleting the digital content or rendering it otherwise unintelligible; (e) where the digital content was supplied on a durable medium, the consumer shall: (i) upon the request of the supplier, return, at the supplier’s expense, the durable medium to the supplier without undue delay, and in any event not later than 14 days from the receipt of the supplier’s request; and (ii) delete any usable copy of the digital content, render it unintelligible or otherwise refrain from using it or making it available to third parties. 3. Upon termination, the supplier may prevent any further use of the digital content by the consumer, in particular by making the digital content not

Proposed Directive on Digital Content 815 a­ ccessible to the consumer or disabling the user account of the consumer, without prejudice to point (c) of paragraph 2. 4. The consumer shall not be liable to pay for any use made of the digital content in the period prior to the termination of the contract. 5. Where the digital content has been supplied in exchange for a payment of a price and over the period of time stipulated in the contract, the consumer may terminate the contract only in relation to that part of the period of time where the digital content has not been in conformity with the contract. 6. Where the consumer terminates a part of the contract in accordance with ­paragraph 5, paragraph 2 shall apply, with the exception of point (b) in regards to the period during which the digital content was in conformity with the contract. The supplier shall reimburse to the consumer the part of the price paid corresponding to the period of time when the digital content was not in conformity with the contract. Article 14 Right to damages 1. The supplier shall be liable to the consumer for any economic damage to the digital environment of the consumer caused by a lack of conformity with the contract or a failure to supply the digital content. Damages shall put the consumer as nearly as possible into the position in which the consumer would have been if the digital content had been duly supplied and been in conformity with the contract. 2. The Member States shall lay down detailed rules for the exercise of the right to damages. Article 15 Modification of the digital content 1. Where the contract provides that the digital content shall be supplied over the period of time stipulated in the contract, the supplier may alter functionality, interoperability and other main performance features of the digital content such as its accessibility, continuity and security, to the extent those ­alternations adversely affect access to or use of the digital content by the consumer, only if: (a) the contract so stipulates; (b) the consumer is notified reasonably in advance of the modification by an explicit notice on a durable medium; (c) the consumer is allowed to terminate the contract free of any charges within no less than 30 days from the receipt of the notice; and (d) upon termination of the contract in accordance with point (c), the consumer is provided with technical means to retrieve all content provided in accordance with Article 13(2)(c). 2. Where the consumer terminates the contract in accordance with paragraph 1, where relevant,

816  Part 1: European Union Legislation (a) the supplier shall reimburse to the consumer the part of the price paid corresponding to the period of time after modification of the digital content; (b) the supplier shall refrain from the use of the counter-performance other than money which the consumer has provided in exchange for the digital content and any other data collected by the supplier in relation to the supply of the digital content including any content provided by the consumer. Article 16 Right to terminate long term contracts 1. Where the contract provides for the supply of the digital content for an indeterminate period or where the initial contract duration or any combination of renewal periods exceed 12 months, the consumer shall be entitled to terminate the contract any time after the expiration of the first 12 months period. 2. The consumer shall exercise the right to terminate the contract by notice to the supplier given by any means. The termination shall become effective 14 days after the receipt of the notice. 3. Where the digital content is supplied in exchange for a payment of a price, the consumer remains liable to pay the part of the price for the digital content supplied corresponding to the period of time before the termination becomes effective. 4. Where the consumer terminates the contract in accordance with this Article: (a) the supplier shall take all measures which could be expected in order to refrain from the use of other counter-performance than money which the consumer has provided in exchange for the digital content and any other data collected by the supplier in relation to the supply of the digital content including any content provided by the consumer; (b) the supplier shall provide the consumer with technical means to retrieve all any content provided by the consumer and any other data produced or generated through the consumer’s use of the digital content to the extent this data has been retained by the supplier. The consumer shall be entitled to retrieve the content without significant inconvenience, in reasonable time and in a commonly used data format; and (c) where applicable, the consumer shall delete any usable copy of the digital content, render it unintelligible or otherwise refrain from using it including by making it available to a third party. 5. Upon termination, the supplier may prevent any further use of the digital content by the consumer, in particular by making the digital content not accessible to the consumer or disabling the user account of the consumer, without prejudice to paragraph (4) point (b).

Proposed Directive on Digital Content 817 Article 17 Right of redress Where the supplier is liable to the consumer because of any failure to supply the digital content or a lack of conformity with the contract resulting from an act or omission by a person in earlier links of the chain of transactions, the supplier shall be entitled to pursue remedies against the person or persons liable in the chain of transactions. The person against whom the supplier may pursue remedies and the relevant actions and conditions of exercise, shall be determined by national law. Article 18 Enforcement 1. Member States shall ensure that adequate and effective means exist to ensure compliance with this Directive. 2. The means referred to in paragraph 1 shall include provisions whereby one or more of the following bodies, as determined by national law, may take action under national law before the courts or before the competent administrative bodies to ensure that the national provisions transposing this Directive are applied: (a) public bodies or their representatives; (b) consumer organisations having a legitimate interest in protecting consumers; (c) professional organisations having a legitimate interest in acting. Article 19 Mandatory nature Unless otherwise provided for in this Directive, any contractual term which, to the detriment of the consumer, excludes the application of the national measures transposing this Directive, derogates from them or varies their effects before the lack of conformity with the contract is brought to the supplier’s attention by the consumer, shall not be binding on the consumer. Article 20 Amendments to Directive 1999/44/EC, Regulation (EC) No 2006/2004, Directive 2009/22/EC 1. In Article 1 (2) of Directive 1999/44/EC, point (b) is replaced by the following: “(b)consumer goods: shall mean any tangible movable item, with the exception of: —— goods sold by way of execution or otherwise by authority of law, —— water and gas where they are not put up for sale in a limited volume or set quantity,

818  Part 1: European Union Legislation —— electricity, —— a durable medium incorporating digital content where it has been used exclusively as carrier of the digital content to the consumer as referred to in ­Directive (EU) N/XXX.”(39) 2. In the Annex to Regulation (EC) No 2006/2004, the following point is added: “21. Directive (EU) N/XXX of the European Parliament and of the Council of XX/XX/201X on contracts for the supply of digital content (OJ…)” 3. In Annex I to Directive 2009/22/EC the following point is added: “16. Directive (EU) N/XXX of the European Parliament and of the Council of XX/XX/201X on contracts for the supply of digital content (OJ…)” Article 21 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by [the date of two years after the entry into force] at the latest. 2. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 3. Member States shall communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive. Article 22 Review The Commission shall, not later than on [the date of five years after entry into force] review the application of this Directive and submit a report to the ­European Parliament and the Council. The report shall examine, inter alia, the case for ­harmonisation of rules applicable to contracts for the supply of digital content against counterperformance other than that covered by this Directive, in particular supplied against advertisement or indirect collection of data. Article 23 Entering into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

Proposed Directive on Digital Content 819 Article 24 Addressees This Directive is addressed to the Member States. (28) (29) (30)

(31) (32) (33) (34) (35) (36) (37) (38)

(39)

OJ C, p. COM(2015) 192 final. OJ L 304, 22.11.2011, p.64. OJ L 281, 23/11/1995, p. 31–50) [to be replaced by the General Data Protection Regulation, once adopted]. OJ L 201, 31.7.2002, p. 37–47. OJ L 177, 4.7.2008, p. 6–16. OJ L 351, 20.12.2012, p.1. OJ L 171,7.7.1999, p.12. OJ L 364, 9.12.2004, p. 1. OJ L110, 1.05.2009, p.30. OJ C 369, 17.12.2011, p. 14. Directive (EU) N/XXX of the European Parliament and of the Council of …. on contracts for the supply of digital content (OJ …).

Brussels, 9.12.2015 COM(2015) 635 final 2015/0288 (COD) Proposal for a

Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods (Text with EEA relevance) {SWD(2015) 274 final} {SWD(2015) 275 final}

Proposed Directive on Online sales 821 EXPLANATORY MEMORANDUM 1.  CONTEXT OF THE PROPOSAL The Digital Single Market Strategy(1) adopted by the Commission on 6 May 2015 announced a legislative initiative on harmonised rules for the supply of digital content and the online sales of goods. This initiative is composed of (i) a proposal on certain aspects concerning contracts for the supply of digital content, and (ii) a proposal on certain aspects concerning contracts for the online(2) and other distance sales of goods. As announced by the Commission in its 2015 Work Programme, these two proposals draw on the experience acquired during the negotiations for a Regulation on a Common European Sales Law. In particular, they no longer follow the approach of an optional regime and a comprehensive set of rules. Instead, the proposals contain a targeted, fully harmonised set of rules. The proposals also build on a number of amendments made by the European Parliament in first reading concerning the proposal for a Regulation on a Common European Sales Law, in particular the restriction of the scope to online and other distance sales of goods and the extension of the scope to certain digital content which is provided against another counterperformance than money. While this explanatory memorandum covers specifically the proposal on certain aspects concerning contracts for the online and other distance sales of goods, the part of this explanatory memorandum explaining the reasons for the proposal concerns both proposals as these two proposals are envisaged as a package with common objectives. •  Reasons for and objectives of the proposal The general objective of the proposals is to contribute to faster growth of opportunities offered by creating a true Digital Single Market, to the benefit of both consumers and businesses. By eliminating the key contract law-related barriers hindering crossborder trade, the rules put forward in the proposals will reduce the uncertainty faced by businesses and consumers due to the complexity of the legal framework and the costs incurred by businesses resulting from differences in contract law. 39% of businesses selling online but not cross-border quote different national contract laws as one of the main obstacles to cross-border sales.(3) This applies particularly to remedies in case of a faulty product as mentioned by 49% of EU retailers selling online and 67% of those who are currently trying to sell or considering selling online cross-border.(4) Different national contract law rules have created oneoff costs for retailers selling to consumers of approximately €4 billion; these costs mostly affect micro and small- and medium-sized enterprises (SMEs). The purpose of these proposals is to create a business-friendly environment and make it easier for businesses, especially SMEs, to sell cross-border. Businesses should be given legal certainty and avoid unnecessary costs caused by differing national laws when selling goods and digital content outside their domestic market.

822  Part 1: European Union Legislation Only 18% of consumers who used the Internet for private purposes in 2014 purchased online from another EU country while 55% did so domestically.(5) Consumers are not confident when buying online across borders and believe that they are better protected when buying online in their own country, under their familiar domestic law. One of the major reasons is their uncertainty about their key contractual rights. Differing national regimes also constitute an obstacle to efficient enforcement of consumer rights. As a result, consumers miss opportunities and face a narrower range of goods at less competitive prices. Moreover, since consumers are not confident to shop online cross-border, they are unable to take advantage of existing price divergences between Member States and thus miss important potential opportunities. It is necessary to act fast in relation to the online sales of goods. At the same time, harmonising the rules on distance sales may bear the risk to have rules on the distance sales which are different from the rules on the face-to-face sales. Given the increasing importance of the omni-channel distribution model (i.e. selling at the same time via multiple channels such as directly in a shop, online or otherwise at a distance), the Commission will take steps to avoid such a result and ensure that consumers and traders will indeed be able to rely on a coherent legal framework which is simple to apply everywhere in the EU. Therefore, together with the current proposal, the Commission has, in the context of its Regulatory Fitness and Performance Programme, launched an in-depth analysis of the existing EU consumer legislation. Data from the Fitness Check Analysis on the application of the Consumer Sales and Guarantees Directive to face-to-face purchases of goods are likely to be available in the 2nd half of 2016. While these data and therefore the outcome of the Fitness Check exercise on this point are not yet available, its possible conclusions if pointing to the need for a Commission initiative on the face-to-face sales of goods, could feed into the progress made by the co-legislators on the proposal for online and other distance sales of goods. •  Consistency with existing policy provisions in the policy area The key substantive provisions of this proposal cover the main differences of national consumer mandatory rules following the Member States implementation of the mini­mum harmonisation rules of 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.(6) It is those main differences on national rules which affect traders’ decision whether or to which extent to sell goods cross-border. While the proposal takes the rules of Directive 1999/44/EC as a basis, it provides for a full harmonisation of the conformity criteria for the goods, of the hierarchy of the remedies, available to consumers and of the periods for the reversal of burden of proof and the legal guarantees. Furthermore, certain features of the current Directive 1999/44/EC are clarified, such as the fact the consumer would be entitled to termination or price reduction if the seller does not repair or replace the goods within a reasonable time. Differently from Directive 1999/44/EC, the consumer would also have the right to terminate in case of minor defects. Also, unlike Directive 1999/44/

Proposed Directive on Online sales 823 EC, under the proposal consumers would not have the duty that they currently have under a number of national laws to notify a defect of the goods to the seller within a certain period of time from its discovery. A major change compared to Directive 1999/44/EC is certainly that the period for the shift of the burden of proof is extended to two years. Like Directive 1999/44/EC, the proposal leaves provisions on the consumer’s right to receive compensation for the losses caused by such lack of conformity to national laws. Furthermore, the proposal also supplements Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 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,(7) which has already fully harmonised certain rules for the online and other distance sales of goods (mainly pre-contractual­information requirements and the right of withdrawal). The proposal also supplements Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic ­commerce),(8) which, among others, partially establishes harmonised rules on electronic contracts. The proposal will not fully harmonise any rules on unfair terms and therefore will not have any impact on Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.(9) The proposal is compatible with the existing EU rules on applicable law and jurisdiction in the Digital Single Market.(10) Regulation (EU) No 1215/2012 of the E ­ uropean Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters(11) and the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I),(12) which provide rules to determine the competent jurisdiction and applicable law, apply also in the digital environment. These instruments have been adopted quite recently and the implications of the internet were considered closely in the legislative process. Some rules take specific account of internet transactions, in particular those on consumer contracts. These rules aim at protecting consumers inter alia in the Digital Single Market by giving them the benefit of the non-derogable rules of the Member State in which they are habitually resident. Since the current proposal on the online and other distance sales of goods aims at harmonising the key mandatory provisions for the consumer protection, traders will no longer face such wide disparities across the 28 different legal regimes. Together with the proposed new contract rules for online and other distance sales of goods as set out in this proposal, the existing rules on private international law establish a clear legal framework for buying and selling in a European digital market, which takes into account both consumers’ and businesses’ interests. Therefore, this legislative proposal does not require any changes to the current framework of EU private international law, including to Regulation (EC) No 593/2008 (Rome I).

824  Part 1: European Union Legislation The proposal complements and allows sector specific Union legislation, such as the Ecodesign(13) or Energy Labelling(14) legislation, its implementing and delegated acts, to introduce product specific durability requirements for example durability information requirements. •  Consistency with other Union policies The Digital Single Market Strategy intends to deal with all major obstacles to the development of cross-border e-commerce in the Digital Single Market in a holistic manner. The proposal should be seen in the context of this holistic approach. This covers among others the initiatives related to the role of platforms, the European Cloud initiative, VAT related burden and parcel delivery. It also covers initiatives related to enforcement/redress, i.e. the entry into operation of the Online Dispute Resolution platform(15) and the review of the Regulation (EC) No 2006/2004 of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws.(16) In particular, fully harmonised contract law rules in the EU will also facilitate coordinated enforcement actions undertaken by the Consumer Protection Co-operation authorities.(17) 2.  LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •  Legal basis The legal basis of this proposal is Article 114 of the Treaty on the Functioning of the European Union and its main objective is the improvement of the establishment and the functioning of the internal market. The existing differences in consumer contract law rules hinder traders from selling online cross-border because they have to adapt their contracts to different mandatory consumer contract law rules in different Member States they export to and consequently incur contract law related costs. Consumers are uncertain about their key contractual rights when shopping abroad and therefore prefer to stick to their own domestic markets. Those problems have a direct effect on the establishment and functioning of the internal market and limit competition. The differences between national mandatory rules that apply to consumer sales contracts in the Member States mainly result from national mandatory rules going beyond EU minimum harmonisation Directives.(18),(19) There are several key areas where such differences exist and bring additional costs for businesses and lack of legal certainty for consumers. Directive 1999/44/EC provides for a hierarchy of the remedies available to consumers. If goods are not in conformity with the contract, a consumer is entitled to have the goods brought into conformity by first requesting repair or replacement. Only as a second step can the consumer ask for termination of the contract or price reduction. 20 Member States(20) have followed this approach, while other Member States have either offered the consumers a free choice of remedies, or have taken over the hierarchy of remedies but have also provided for another remedy, for instance a right to reject non-conforming goods within a short deadline.

Proposed Directive on Online sales 825 According to Directive 1999/44/EC Member States are authorised to oblige the consumers to inform the seller of the defect within two months from its discovery in order to benefit from their rights. In case of non-notification consumers lose their right to remedies. While in 11 Member States(21) consumers do not have such an obligation, in 12 Member States(22) the consumer has to notify the defect within 2 months, and in 5 Member States(23) the consumer has to do so within a different period of time. Pursuant to Directive 1999/44/EC a consumer can only ask for a remedy if the goods were non-conforming when delivered. The burden of proof is reversed during the first 6 months, obliging the trader to prove during this period that no such defect existed at the time of delivery. While 25 Member States have followed that approach, 3 Member States(24) have recently extended the period for shifting the burden of proof. Directive 1999/44/EC provides that the trader can be held liable for a period of no less than 2 years for defects which were present at the time of delivery. While 23 Member States have implemented this 2 year period, in 1 Member State(25) that period is longer and in 2 Member States(26) it is unlimited. In 2 other Member States(27) there is no specific legal guarantee period, but the consumer rights are limited by the prescription period (time limits in national legislations within which rights can be invoked in court). Overall, the proposal will remove obstacles to the exercise of fundamental freedoms which result from these differences between national mandatory consumer contract law rules, in particular from the additional transaction costs when concluding crossborder transactions and the lack of confidence in their rights experienced by consumers when purchasing from another EU country all of which have a direct effect on the establishment and functioning of the internal market and limit competition. The proposal will guarantee a high level of consumer protection by providing a set of fully harmonised mandatory rules which maintain and in a number of cases improve the level of protection that consumers enjoy under the existing Directive 1999/44/EC. •  Subsidiarity The proposal complies with the subsidiarity principle as set out in Article 5 of the Treaty on European Union. The objective of the initiative is to remove consumer contract law barriers in the online trade and help to establish a genuine Digital Single Market for the benefit of businesses and consumers. This objective cannot be adequately achieved by the Member States. Rules on the sales of goods in Directive 1999/44/EC are of minimum harmonisation and therefore allow for different implementation by the Member States. This has led to legal fragmentation. Only a coordinated intervention at the Union level aiming at removing existing diverging national approaches in the European Union consumer laws by way of full harmonisation can contribute to the completion of the internal market by solving this problem.

826  Part 1: European Union Legislation The proposal is based on full harmonisation of certain key consumer contractual rights. Thus it will create a single set of rules ensuring the same high level of consumer protection across the European Union and allowing traders to sell to consumers in all Member States based on the same contractual terms. The proposal would significantly reduce traders’ compliance costs while granting consumers a high level of protection. Therefore, action at EU level would be more effective than action at national level. The full harmonisation approach has already proven successful in the area of EU consumer protection legislation, for instance through the rules of Directive 2011/83/ EU, by ensuring a set of uniform consumer rights for all consumers within the ­European Union which are interpreted and enforced in a uniform way in all Member States. An initiative at EU level will secure the development of consumer rights in a coherent manner while ensuring that all consumers in the EU benefit from the same high level of consumer protection. It will create legal certainty for businesses which want to sell their goods in other Member States. Such a result can only be achieved by an action at the EU level. Furthermore, an initiative at EU level will secure the application of consumer rights in a coherent manner while ensuring that all consumers in the EU benefit from the same high level of consumer protection. It will create legal certainty for businesses which want to sell their goods in other Member States. Such an initiative will provide a consistent legal basis for coordinated enforcement actions as the proposed Directive will be included in the Annex of Regulation (EC) No 2006/2004 on cooperation of national authorities responsible for the enforcement of consumer protection laws. Moreover, enforcement actions would be largely facilitated by the proposed uniform fully harmonised rules. Thus the enforcement of EU legislation will be strengthened for the benefit of EU consumers. Such a result can only be achieved by an action at the EU level. •  Proportionality The proposal complies with the principle of proportionality as set out in Article 5 of the Treaty on European Union because the proposal will not go beyond what is necessary for the achievement of the objectives. The proposal will not harmonise all aspects concerning contracts for the online and other distance sales of goods. Instead, it will focus on further harmonising only those targeted, key mandatory consumer EU contractual rights which are essential in cross-border online transactions, and which have been identified as barriers to trade by stakeholders and are necessary to build consumer trust when buying at a distance abroad. Moreover, the choice of the legal form of a Directive instead of a Regulation will have as a result considerably less interference into national laws (see below under “Choice of the instrument”). •  Choice of the instrument The Commission presents a set of two full harmonisation Directives: one Directive on certain aspects concerning contracts for the online and other distance sales

Proposed Directive on Online sales 827 of goods and a Directive on certain aspects concerning contracts for the supply of digital content. The choice of a Directive leaves Member States freedom to adapt the implementation to their national law. A Regulation would require a much more detailed and comprehensive regime than a Directive in order to allow its effects to be directly applicable. This would have as a consequence considerably more interference into national laws. The choice of full harmonisation will lead to simple and modern rules that remove contract law barriers and create a level playing field for businesses while at the same time ensuring that consumers benefit from a high level of consumer protection all over the EU. A non-binding instrument such as a voluntary model contract would not achieve the objective to improve the establishment and functioning of the internal market. Traders would still be obliged to comply with different mandatory national rules of the consumer’s country of residence, when the latter provide for a higher level of consumer protection than the model contract, and would thus still face increased contract law-related costs. 3.  RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •  Stakeholder consultations Consultation process An extensive consultation strategy has been developed to ensure a wide participation throughout the policy cycle of this initiative. This strategy was based on a mix of public and targeted consultations. The Commission has sought a wide and ­balanced range of views on this issue by giving the opportunity to all relevant parties (businesses, consumers, national authorities, lawyers and academics) to express their opinions.(28) —— Public Consultation: An open 12 weeks web-based public consultation resulted in 189 responses from all categories of stakeholders from across the EU. —— Targeted consultations: A stakeholder consultation group was composed of 22 organisations representing a wide range of interests. The group met 7 times. In-depth interviews with businesses were also conducted from June to August 2015 in order to gather data on contract law related costs faced by business when selling abroad. Within the framework of the Digital Single Market Strategy, two surveys, a consumer survey(29) and a business survey,(30) were used in 2015 to collect data identifying the main cross-border obstacles to the Digital Single Market. Consultation of Member States: Three one-day workshops with Member States were organised between June and October 2015. The relevant issues were also discussed with national enforcement authorities at the Consumer Protection C ­ ooperation

828  Part 1: European Union Legislation committee meeting (April 2015) and the national authorities responsible for consumer policy at the Consumer Policy Network meeting (May 2015). Summary of the results The majority of respondents from the consumer side recognise that harmonisation may improve cross border e-commerce but they would only support full harmonisation as long as existing consumer protection levels across Member States are not reduced. They also warn about the risk of creating different regimes depending on the sales’ channel. Consumer associations strongly oppose any form of the application of the trader’s law. Moreover considering the different characteristics of B2B and B2C contracts and taking into account possible frictions with already existing legal instruments consumer organisations do not support the inclusion of B2B contracts in the scope of this proposal. The majority of businesses would favour harmonised EU rules on the B2C sales of goods. Some business associations however are doubtful about the need to take any action, but if there is some action at EU-level they would prefer the application of the trader’s law and a modification of Regulation (EC) No 593/2008 (Rome I). Business organisations recommend avoiding as much as possible a sectorial approach which could lead to diverging rules for online and offline sales and for goods and digital content. The large majority of legal professions’ associations would favour harmonised EU rules and the same regime for B2C and B2B contracts. Member States would in general support EU harmonised rules, but are cautious about political feasibility and the differentiation between online and offline sales rules. Some of them would prefer a better implementation, enforcement and evaluation of the existing legislation before producing new legislation. The vast majority of Member State respondents support the inclusion of only B2C contracts. In addition, an important number of Member States explicitly oppose any form of application of the trader’s law and, thus, amending the Rome I Regulation. On the substance of the rules, the majority of consumer associations support a free choice of remedies while the majority of respondents from the business side argue in favour of a hierarchy of consumer remedies across the EU. Member States are divided: while some of them are in favour of a hierarchy of remedies, others would support a free choice of remedies by the consumer. A majority of respondents from the legal professions are in favour of a free choice of consumer remedies, while some others prefer to keep a hierarchy of remedies, possibly negotiable between the parties. On the reversal of the burden of proof consumer organisations advocate for a period longer than 6 months (mainly 2 years) and practically all of them are in favour of a longer legal guarantee period. Businesses would want to maintain the current 6-month reversal of burden of proof period and would support full harmonisation of the current 2-year legal guarantee period. Member States and legal professions would in general support maintaining the existing rules for the reversal of the burden of proof and the legal guarantee. •  Collection and use of expertise

Proposed Directive on Online sales 829 The Commission relied on several economic and legal studies, which were either commissioned for the specific purpose of this initiative or as part of the Digital Single Market Strategy. Those include a survey carried out in 2015 in order to identify the main cross-border obstacles to the Digital Single Market,(31) Eurostat statistics 2014, Eurobarometers and an SME panel.(32) A comparative law study provided an overview of the mandatory rules applicable to contractual obligations in contracts for sales of goods sold at a distance and in particular online. •  Impact assessment The Regulatory Scrutiny Board delivered an initial opinion on the draft impact assessment on 16 October 2015 which has been modified taking into account comments from the Board and resubmitted. The second opinion, which approved the draft impact assessment subject to comments, was delivered by the Board on 9 November 2015.(33) The revised impact assessment report and an executive summary are published with the proposals.(34) Policy alternatives examined In addition to examining the consequences of the absence of policy change, the impact assessment examined the following policy alternatives: (i) option 1: targeted fully harmonised rules for goods and digital content; (ii) option 2: application of the trader’s law combined with the existing harmonised rules on goods/targeted and fully harmonised rules for digital content; (iii) option 3: no policy change for goods and targeted fully harmonised rules for digital content; (iv) option 4: no policy change for goods and minimum harmonisation rules for digital content; (v) option 5: a voluntary European model contract combined with an EU trust-mark. On a comparative analysis of the impacts of these options, the Impact Assessment Report arrived at the conclusion that option 1 would best meet the policy objectives. This option will reduce contract law-related costs for traders and facilitate cross-border e-commerce. Businesses will be able to rely largely on their own law when selling cross-border as the main rules, which are relevant for cross-border trade, will be the same in all Member States. While the new rules on online sales of goods will entail certain one-off adaptation costs for businesses selling online, these costs would be counterbalanced by the cost savings resulting from the possibility to sell throughout the EU at no additional contract law-related costs, due to fully harmonised rules. Particularly small businesses will benefit compared to the current situation, as the cost savings from fully harmonised cross-border rules for goods will be the more significant the smaller a business is. Therefore the new rules will provide businesses with a legally certain and business friendly environment. Consumers will have a clear set of rights throughout the EU and will thus be more confident in buying goods or accessing digital content cross-border. While in a few Member States the level of protection may be lowered on a few individual points, this option will significantly increase the overall current level of EU consumer protection under

830  Part 1: European Union Legislation Directive 1999/44/EC, notably by extending the period of reversal of the burden of proof to two years. Although Member States will not be able to adopt or maintain more protective consumer protection rules, overall a high level of consumer protection will be ensured, and cross-border enforcement of the rules will be enhanced. This will create a win-win situation for businesses and consumers. Competition will be increased, leading to an overall increase of trade and consequently an increased choice at more competitive prices for consumers, with significant macroeconomic gains for the EU. Lack of policy change would not contribute to achieving the objectives of the Digital Single Market, and would risk having negative economic impacts relative to the current situation. Option 2 would lead to increased incentives for cross-border supply, since traders would be able to sell their products cross-border entirely on the basis of their own law. Consumers may to some extent benefit from increased choice and lower prices. In certain cases they may benefit from a potentially higher level of consumer protection under the trader’s law, if that goes on specific points beyond their own national law. However, as a result of the application of the trader’s law for the online sales of goods and the respective derogation from Regulation (EC) No 593/2008 (Rome I), European consumers would no longer benefit from a higher level of consumer protection that their own national law, going in its implementation beyond Directive 1999/44/EC, may provide on top of the trader’s law. This would have a negative impact on consumers’ confidence in cross-border purchasing. In addition, it is very likely that such a change could not be limited to EU traders and, consequently, would entail the removal of protection offered by mandatory consumer contract rules in transactions with traders from third countries. In options 3 and 4 contract law-related obstacles to cross-border trade would remain for goods. Option 5 could help businesses sell goods across the EU and provide consumers with a satisfactory level of consumer protection, very much depending on the content of the model contract rules to be agreed upon by the industry and on the degree of usage and acceptance of the trust mark by EU businesses. Consumers may be more confident to buy from foreign traders to whom the EU trust mark has been awarded. However, traders would still be obliged to comply with mandatory national rules of the consumer’s country of habitual residence, when they provide for a higher level of consumer protection than the model contract rules, and may thus still face contract law-related costs. Main impacts of the proposal The impact assessment considers the impact of both proposals, the Directive on certain aspects concerning contracts for the supply of digital content and the Directive certain aspects concerning contracts for the online and other distance sales of goods. The two proposals will eliminate contract law related barriers to cross-border online trade, both for consumers and traders. Removing these obstacles is an incentive for

Proposed Directive on Online sales 831 cross-border trade: if the barriers related to contract law were lifted, 122,000 more businesses would be selling online across borders. Intra-EU exports would increase by around €1 billion. Increased online retail competition will lead to retail prices going down in all Member States, averaging −0.25% at EU level. As a result of this price decrease and increased consumer trust stemming from uniform EU rights, there will be additional consumer demand. Household consumption, which mirrors consumers’ welfare, would rise in every Member State with an EU average of +0.23%, which corresponds to about €18 billion. Between 7.8 and 13 million additional ­consumers would start buying online cross-border. The average amount spent annually by each cross-border buyer would also increase by €40. This increase in supply and demand will have direct effects on the main macroeconomic variables in each Member State and in the EU as a whole. Overall real EU GDP is expected to permanently gain about €4 billion per year. Who would be affected and how Businesses will face costs to comply with the new Directive but eventually benefit even more from fully harmonised rules to export goods and digital content throughout the EU. Having implemented the new rules, businesses will largely not have to adapt their contract terms to the laws of other Member States, no matter how many Member States they sell to. SMEs will not be exempted from the new legislation: exemptions would decrease consumers’ trust when purchasing from them. There is no justification for giving consumers less protection when they buy from SMEs instead of bigger sellers. An exemption would also undermine the benefits for SMEs of having one single set of rules applying throughout the EU. On the contrary, the initiative will be particularly beneficial to SMEs, which are more affected by the costs to adapt their contract to mandatory rules of other Member States and are more often confined to their home market that their bigger competitors. Cross-border­trade is an important way for them to benefit from the advantages of economies of scale. SMEs face a problem in finding customers. This would be easier to cope with in the online context, since the internet enables online sales at reduced costs compared to offline trade. For goods in particular, businesses currently selling only face-to-face will not have to incur any adaptation costs. Businesses already selling or wishing to sell online to consumers in other Member States will directly benefit from the cost savings resulting from fully harmonised EU rules. Businesses currently selling both online and face-to-face will not in practice be faced with additional costs due to different regimes, as a fragmentation between the rules on online and face-to-face sales of goods is not likely to occur or would probably not have a significant impact. If such costs do occur, they would be limited and only for a short transitional period. According to retail business representatives, omni-channel businesses could actually cope with possible transitional differences between the online and face-to-face sales regimes for goods by applying the respective higher standards to all of their sales and thus operating under a single business model. For businesses the application of the new rules will entail a certain number of obligations in their relations with consumers. However, many of these obligations are

832  Part 1: European Union Legislation already contained in national laws, to different degrees and extent, as a result of EU minimum harmonisation legislation and therefore businesses are familiar with them. Regarding in particular the prolongation of the period for the shift of the burden of proof from 6 months to two years, this is not expected to have a very significant impact on businesses, since recent data show that in practice only a minority of businesses insist on consumers proving the trader’s liability within the entire 2 year legal guarantee period and that the reversal of the burden of proof often operates de facto throughout the entire 2-year legal guarantee period, with very limited change in traders’ behaviour before or after the 6 months on this point.(35) Consumer protection level will be increased compared to the existing EU level. This applies in particular to the extension of the reversal of the burden of proof to two years by aligning it with the legal guarantee period. Compared to their national standards, all EU consumers will benefit on this point from a higher level of consumer protection (except in the case of two Member States where the level will remain the same). This higher level of protection will facilitate consumers exercising their rights and is expected to significantly boost consumers’ trust, which is particularly relevant for cross-border purchases given the element of distance involved. As regards the level of consumer protection on other points, like the consumer’s duty to notify the defect to the seller and the consumer’s right to terminate the contract even in case where the non-performance is minor, in comparison with current national standards, in most cases the proposal will result in a higher level of protection, while in a limited number of Member States certain additional rights in some individual points may be lower. Nevertheless, overall a high level of consumer protection will be ensured and enforcement of the rules will be enhanced. In addition, not only consumers will have access to a wider choice of products from traders across the EU at competitive prices, but they will also be able to benefit from higher quality and more durable products, in line with European Commission’s Circular Economy Package. •  Fundamental rights The proposal for the online and other distance sales of goods will impact positively a number of rights protected under the EU Charter of Fundamental Rights, in particular Article 38 on consumer protection and Article 16 on the freedom to conduct a business. A set of fully harmonised rules for online sales of goods will ensure a fully harmonised high level of consumer protection throughout the EU in conformity with Article 38 of the Charter of Fundamental Rights by providing consumers with clear and specific rights when they buy goods online domestically or from other Member States. However, these rules will replace the current national rules that exist for goods which could lower the level of protection consumers enjoy in certain Member States. A set of fully harmonised rules for online sales of goods will also contribute to achieving the objective of Article 16 because businesses will be facilitated to sell goods in the EU, both domestically and cross-border. Their ability to expand their business will therefore be reinforced.

Proposed Directive on Online sales 833 Finally, clear contract law rights may help to fulfil the objective of Article 47 (Right to an effective remedy) because it may increase the ability to exercise one’s right to an effective remedy before the courts. The new rules should clarify the remedies available in case of disputes. 4.  BUDGETARY IMPLICATIONS The proposal will not have any budgetary implications 5.  OTHER ELEMENTS •  Implementation plans and monitoring, evaluation and reporting arrangements Member States will be required to send to the Commission the measures implementing the Directive on certain aspects concerning contracts for the online and other distance sales of goods. These measures will set out the text of the adopted legislation by the Member States. The Commission will monitor these measures to ensure that they comply with the Directive. •  Explanatory documents In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents, Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. •  Detailed explanation of the specific provisions of the proposal The proposal consists of 21 articles. Many of these provisions have their origin in Directive 1999/44/EC or the proposal for a Regulation on a Common European Sales Law. Article 1 sets the subject matter and the scope of the Directive by clarifying that the Directive sets certain rules on conformity, remedies and the modalities for the exercise of these remedies. In the course of the impact assessment, which accompanies the proposals, no B2B problems were identified; consequently the Directive does not deal with those matters. This Directive does not apply to goods like DVDs and CDs incorporating digital content in such a way that the goods function only as a carrier of the digital content, neither it applies to distance contracts for provision of services. However, it applies to goods like household appliances or toys where the digital content is embedded in such a way that its functions are subordinate to the main functionalities of the goods and it operates as an integral part of the goods. Furthermore, where a sale contract provides both for the sale of goods and the provision of services this Directive applies only to the part relating to the sale of goods.

834  Part 1: European Union Legislation Article 2 contains a list of definitions for terms used in the Directive. Some definitions stem from the current acquis (such as, for example, the definition of ‘­consumer’ and ‘goods’) and as they refer to the same concepts, they should be applied and interpreted in a manner consistent with the acquis. Others definitions come from ­Directive 2011/83/EU or from the proposal for a Regulation on a Common ­European Sales Law. Article 3 establishes that the present Directive is a full harmonisation Directive. Member States will not be able to adopt or maintain laws that remain below or go beyond the requirements contained therein. The effect of Article 3 combined with Article 1 is also to determine that in areas not included in the scope of the Directive Member States can still legislate. Article 4 sets the conformity criteria which the goods have to meet in order to conform to the contract. The goods must primarily conform to what was promised in the contract. It also clarifies that, as a default rule, the conformity of the goods would be assessed not only with regard to the contract terms but also a combination of subjective and objective criteria should apply in order to safeguard legitimate interests of both parties to a sales contract. Those additional objective criteria are set in articles 5, 6 and 7. Article 5 sets objective criteria for conformity of the goods. In the absence of explicit contractual terms, specifying conformity criteria, the goods must conform to these objective criteria. Article 6 explains that a lack of conformity resulting from an incorrect installation of the goods is to be regarded as a lack of conformity of the goods themselves if the reason for the incorrect installation is in the sphere of the seller. Article 7 contains an additional conformity requirement relating to the legal defects goods may have. According to that rule the goods must be clear of any third-party rights, including those based on intellectual property. Article 8 specifies at which time the conditions for the lack of conformity must be completed in order to engage the seller’s liability for non-performance. Generally, that is the time of passing of risk, similarly as in Directive 2011/83/EU, where the consumer or a third party, designated by the consumer, including a carrier, commissioned by the consumer, obtains control over the goods. In cases where the goods need to be installed, the relevant time for establishing conformity is when the installation is completed or after the consumer had a reasonable time for installation but in any case not later than 30 days from the moment of passing of risk. Finally, paragraph 3 of article 8 shifts the burden of proof for the absence of lack of conformity to the seller for a period of two years. Article 9 lists the remedies for lack of conformity the consumer has available by fully harmonising the order in which remedies could be exercised. In a first step the consumer should be entitled to have the goods repaired or replaced within a reasonable time and without any significant inconvenience. In a second step the consumer should be entitled to a price reduction or to terminate the contract where the lack of

Proposed Directive on Online sales 835 conformity is not or cannot be remedied through repair or replacement. The article also provides the consumer with the right to withhold performance until the goods are brought in conformity. Article 10 imposes on the seller the obligation, when remedying a lack of conformity by replacement of goods, to take back the replaced goods at its own expenses. The seller may take back the defective goods and install the new ones itself or ­commission a third party to do that at the seller’s expenses. The article also clarifies that the consumer should not be obliged to pay for the use which was made of the replaced goods prior to the replacement. Article 11 clarifies that it is up to the consumer to choose between repair and replacement unless the option chosen would be disproportionate compared to the other option available, impossible or unlawful. It also provides criteria for assessing whether the option chosen is disproportionate compared to the other option available. Article 12 provides guidance as to how to calculate the price reduction. Article 13 regulates the modalities for and the consequences of exercising the right to terminate the contract. The right to terminate the contract due to the lack of conformity is a last resort remedy applicable where other ways to remedy that lack of non-conformity are not feasible or have failed. The consumer should enjoy this right also in cases where the lack of conformity is minor. The article specifies that the contract can be terminated by any means of notice from the consumer and that termination should be only partial, where the lack of conformity relates only to part of the goods delivered under the contract. However where the lack of conformity can justify the termination of the contract as a whole, that remedy should not be limited to only partial termination. Article 13 furthermore regulates the restitution as a consequence of the termination by providing that no later than 14 days the seller should reimburse the price paid at its own expenses and that the consumer should return the defective goods at the seller’s expense. Finally, this article regulates consumers’ obligations under certain restricted conditions to pay the monetary value of the goods where the goods cannot be returned and also to pay to a limited extent for the diminution of the value of the goods. Article 14 maintains the time limits of two years for the availability of the remedies under this Directive. Where in some Member States the rights available to consumers under article 9 may be subject to a prescription period that period cannot expire earlier. Article 15 provides transparency requirements as to the commercial guarantees issued by the sellers, for instance as to the form for delivery and the content a guarantee statement should have. Moreover, it states that the guarantee is binding for the seller in accordance with the conditions which are contained in advertisements, pre-contractual information and in the guarantee statement. It clarifies that where conditions which are for instance advertised differ from those included in the guarantee statement the more advantageous to the consumers should prevail.

836  Part 1: European Union Legislation Article 16 provides the seller with a right to redress in case of an act or omission by a person in earlier links of the chain of transactions which triggered the seller’s liability for lack of conformity towards the consumer. The modalities for exercising this right are to be regulated by the national laws of Member States. Article 17 obliges Member States to ensure that adequate and effective means exist to ensure compliance with this Directive. Article 18 affirms the mandatory nature of the consumer contract law rules of this Directive by the usual clause clarifying that any deviation from the requirements contained in the Directive to the detriment of the consumer is not binding on the consumer. Article 19 provides for amendments to other EU legislation. It amends Directive 1999/44/EC in order to avoid overlaps between the two instruments. Article 19 also adds a reference to the Directive in the Annex of Regulation (EC) No 2006/2004 so as to facilitate cross-border cooperation on enforcement of this Directive. It also adds a reference to the Directive in Annex 1 of Directive 2009/22/EC of the ­European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests(36) so as to ensure that the consumers’ collective interests laid down in this Directive are protected. Article 20 establishes the deadline for transposition by Member States. Article 21 sets the date of entry into force. Article 22 specifies the addressees of the Directive. (1)

COM(2015) 192 final http://ec.europa.eu/priorities/digital-single-market/. the purpose of this Explanatory memorandum, any reference to “online sales” shall be understood as “online and other distance sales”. (3) Flash Eurobarometer 396 “Retailers’ attitudes towards cross-border trade and consumer protection” (2015). (4)  Flash Eurobarometer 413 “Companies engaged in online activities” (2015), breakdown by sector (B2C only). (5) Eurostat survey on ICT usage in households and by individuals (2014). (6) OJ L 171, 7.7.1999, p.12. (7) OJ L 304, 22.11.2011, p.64. (8) OJ L 178, 17.7.2000, p. 1–16. (9) OJ L 095, 21.04.1993 p. 29–34. (10) A detailed explanation of the EU rule on applicable law and jurisdiction in the Digital Single Market can be found in Annex 7 to the Commission Staff Working Document containing the Impact Assessment accompanying the Proposals for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content and a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods, SWD(2015) 275. (11) OJ L 351, 20.12.2012, p. 1–32. (2)  For

Proposed Directive on Online sales 837 (12)

OJ L 177, 4.07.2008, p. 6. Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products, OJ L285, 31.10.2009, p.10–35. (14) Directive 2010/30/EU of the European Parliament and of the Council of 19 May 2010 on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products, OJ L 153, 18.06.2010, p. 1–12. (15) Regulation (EU) No 524/2013 of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC, OJ L 165, 18.06.2013, p.1. (16) OJ L 364, 9.12.2004, p. 1. (17) This Directive will amend the Regulation on consumer protection cooperation to add a reference of this Directive in the Annex of that Regulation. (18) That information is mainly drawn from the notifications by Member States to the Commission according to Articles 32 and 33 of Directive 2011/83/ EU regarding the transposition of Council Directive 93/13/EEC and Directive 1999/44/EC; for full notifications see: http://ec.europa.eu/consumers/ consumer_rights/rights-contracts/directive/notifications/index_en.htm. (19) While most of the differences in the national consumer rules come from the different ways the Member States have implemented the EU minimum harmonisation directives, there are also some other national mandatory consumer contract law rules which do not have their origin in the implementation of EU consumer acquis. For specific examples see: the Impact Assessment accompanying the Proposals for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content and a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods, SWD (2015) 275, s­ ection 1.2. “Main differences between consumer mandatory contract law rules affecting cross-border trade of goods”. (20) Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Germany, H ­ ungary, Italy, Latvia, Luxemburg, Malta, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden. (21) Austria, Bulgaria, Czech Republic, France, Germany, Greece, Ireland, L ­ ithuania, Luxembourg, Poland and the United Kingdom. (22) Belgium, Croatia, Cyprus, Estonia, Finland, Italy, Latvia, Malta, Portugal, Romania, Slovenia and Spain. (23) Within reasonable time in Denmark and Sweden; promptly in the Netherlands and immediately in Hungary (in these countries a notification within 2 months is always considered to be within the time limit); within 6 months in Slovakia. (24) France, Portugal and Poland. (25) Sweden. (26) Finland and the Netherlands. (27) Ireland and the United Kingdom. (13)

838  Part 1: European Union Legislation (28) For

more details about the consultations, please see: http://ec.europa.eu/justice/ newsroom/contract/opinion/index_en.htm. (29)  GfK for the European Commission, Consumer survey identifying the main cross-border obstacles to the Digital Single Market and where they matter most, 2015. (30)  Flash Eurobarometer 413 “Companies engaged in online activities” (2015) http://ec.europa.eu/public_opinion/flash/fl_413_en.pdf. (31) See, in particular: —— GfK for the European Commission, Consumer survey identifying the main cross-border obstacles to the Digital Single Market and where they matter most, 2015 http://ec.europa.eu/consumers/consumer_evidence/market_studies/ obstacles_dsm/docs/21.09_dsm_final_report.pdf —— Eurostat survey on ICT usage in households and by individuals (2014), —— Comparative Study on cloud computing contracts (2014) DLA Piper, p.33 and seq.; Analysis of the applicable legal frameworks and suggestions for the contours of a model system of consumer protection in relation to digital content contracts; University of Amsterdam: Centre for the Study of European Contract Law (CSECL) Institute for Information Law (IViR): Amsterdam Centre for Law and Economics (ACLE) p.32 and seq —— Flash Eurobarometer 413 “Companies engaged in online activities” (2015) http://ec.europa.eu/public_opinion/flash/fl_413_en.pdf —— Economic study on consumer digital Content products, ICF International, 2015. (32) (33) (34) (35) (36)

A SME panel survey conducted in 2011 within the Europe Enterprise network, which gathered responses from 1047 micro, small and medium sized businesses. The opinion of the Regulatory Scrutiny Board is available at: http://ec.europa. eu/justice/contract/index_en.htm. The impact assessment report and the Executive summary are available at: http://ec.europa.eu/justice/contract/index_en.htm. “Consumer market study on the functioning of Legal and Commercial Guarantees for consumers in the EU” (2015, to be published). OJ L110, 1.05.2009, p.30.

2015/0288 (COD) Proposal for a

Directive of the European Parliament and of the Council on certain aspects concerning contracts for the online and other distance sales of goods (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee,(37) Acting in accordance with the ordinary legislative procedure,

Whereas: (1) In order to remain competitive on global markets, the Union needs to successfully answer the multiple challenges raised today by an increasingly technologically-driven economy. The Digital Single Market Strategy(38) lays down a comprehensive framework facilitating the integration of the digital dimension into the Single Market. The first pillar of the Strategy tackles fragmentation in intra-EU trade by approaching all major obstacles to the development of cross-border e-commerce. (2) For the achievement of a genuine digital single market, the harmonisation of certain aspects concerning contracts for sales of goods, taking as a base a high level of consumer protection, is necessary. (3) E-commerce is the main driver for growth within the Digital Single Market. However its growth potential is far from being fully exploited. In order to strengthen Union competiveness and to boost growth, the Union needs to act swiftly and encourage economic actors to unleash the full potential offered by the Digital Single Market. The full potential of the Digital Single Market can only be unleashed if all market participants enjoy smooth access to the online sales of goods and are able to confidently engage in

840  Part 1: European Union Legislation

(4)

(5)

(6)

(7)

e-commerce transactions. The contract law rules on the basis of which market participants conclude transactions are among the key factors shaping business’ decisions whether to offer goods online cross-border. Those rules also influence consumers’ willingness to embrace and trust this type of purchase. While online sales of goods constitute the vast majority of distance sales in the Union, this Directive should cover all distance sales channels, including phone and mail orders, in order to avoid any unjustified distortions of competition and to create a level playing field for all businesses selling at a distance. The Union rules applicable to the online and other distance sales of goods are still fragmented although rules on pre-contractual information requirements, the right of withdrawal and delivery conditions have already been fully harmonised. Other key contractual elements such as the conformity criteria, the remedies and modalities for their exercise for goods which do not conform to the contract are subject to minimum harmonisation in Directive 1999/44/EC of the European Parliament and of the Council.(39) Member States have been allowed to go beyond the Union standards and introduce rules that ensure even higher level of consumer protection. Having done so, they have acted on different elements and to different extents. Thus, national provisions transposing the Union legislation on consumer contract law significantly diverge today on essential elements of a sales contract, such as the absence or existence of a hierarchy of remedies, the period of the legal guarantee, the period of the reversal of the burden of proof, or the notification of the defect to the seller. Existing disparities may adversely affect businesses and consumers. Pursuant to Regulation (EC) No 593/2008 of the European Parliament and of the Council,(40) businesses directing activities to consumers in other Member States need to take account of the mandatory consumer contract law rules of the consumer’s country of habitual residence. As these rules differ among Member States, businesses may be faced with additional costs. Consequently many businesses may prefer to continue trading domestically or only export to one or two Member States. That choice of minimising exposure to costs and risks associated with cross-border e-commerce results in lost opportunities of commercial expansion and economies of scale. Small and medium enterprises are in particular affected. While consumers enjoy a high level of protection when they purchase online or otherwise at a distance from abroad as a result of the application of Regulation (EC) No 593/2008, fragmentation also impacts negatively on consumers’ levels of confidence in e-commerce. While several factors contribute to this mistrust, uncertainty about key contractual rights ranks prominently among consumers’ concerns. This uncertainty exists independently of whether or not consumers are protected by the mandatory consumer contract law provisions of their own Member State in the case where a seller directs his cross-border activities to them or whether or not consumers conclude cross-border contracts with a seller without the respective seller pursuing commercial activities in the consumer’s Member State.

Proposed Directive on Online sales 841 (8) In order to remedy those problems, businesses and consumers should be able to rely on a set of fully harmonised, targeted rules for the online and other distance sales of goods. Uniform rules are necessary in relation to several essential elements of consumer contract law which under the current minimum harmonisation approach led to disparities and trade barriers across the Union. (9) Fully harmonised consumer contract law rules will make it easier for traders to offer their products in other Member States. Businesses will have reduced costs as they will no longer need to take account of different consumer mandatory rules. They will enjoy more legal certainty when selling at a distance to other Member States through a stable contract law environment. (10) Increased competition among retailers is likely to result in wider choices at more competitive prices being offered to consumers. Consumers will benefit from a high level of consumer protection and welfare gains through targeted fully harmonised rules. This in turn would increase their trust in the cross-border commerce at a distance and in particular online. Consumers will more confidently buy at a distance cross-border knowing they would enjoy the same rights across the Union. (11) This Directive covers rules applicable to the online and other distance sales of goods only in relation to key contract elements needed to overcome ­contract-law related barriers in the Digital Single Market. For this purpose, rules on conformity requirements, remedies available to consumers for lack of conformity of the goods with the contract and modalities for their exercise should be fully harmonised and the level of consumer protection as compared to Directive 1999/44/EC, should be increased. (12) Where a contract includes elements of both sales of goods and provision of services, the Directive should apply only to the part relating to the sale of goods in line with the approach taken by Directive 2011/83/EU. (13) This Directive should not apply to goods like DVDs and CDs incorporating digital content in such a way that the goods function only as a carrier of the digital content. However, this Directive should apply to digital content integrated in goods such as household appliances or toys where the digital content is embedded in such a way that its functions are subordinate to the main functionalities of the goods and it operates as an integral part of the goods. (14) This Directive should not affect contract laws of Member States in areas not regulated by this Directive. Member States should also be free to provide more detailed conditions in relation to aspects regulated in this Directive to the extent those are not fully harmonised by this Directive: this concerns limitation periods for exercising the consumers’ rights, commercial guarantees, and the right of redress of the seller. (15) Where referring to the same concepts, the rules of this Directive should be applied and interpreted in a manner consistent with the rules of Directive 1999/44/EC and Directive 2011/83/EU of the European Parliament and of the Council(41) as interpreted by the case law of the Court of Justice of the ­European Union.

842  Part 1: European Union Legislation (16) For the purpose of legal clarity the Directive includes a definition of a sales contract. This definition maintains that contracts where goods are yet to be produced or manufactured, including under consumer’s specifications, are also included in the scope of the Directive. (17) In order to bring clarity and certainty for sellers and consumers the D ­ irective should define the notion of a contract. This definition follows the common traditions of all Member States by requiring an agreement intended to give rise to obligations or other legal effects for a contract to exist. (18) In order to balance the requirement of legal certainty with an appropriate flexibility of the legal rules, any reference to what can be expected of or by a person in this Directive should be understood as a reference to what can reasonably be expected. The standard of reasonableness should be objectively ascertained, having regard to the nature and purpose of the contract, to the circumstances of the case and to the usages and practices of the parties involved. In particular, the reasonable time for completing a repair or replacement should be objectively ascertained, having regard to the nature of the goods and the lack of conformity. (19) In order to provide clarity as to what a consumer can expect from the goods and what the seller would be liable for in case of failure to deliver what is expected, it is essential to fully harmonise rules for determining the conformity with the contract. Applying a combination of subjective and objective criteria should safeguard legitimate interests of both parties to a sales contract. Conformity with the contract should be assessed by taking into account not only requirements which have actually been set in the contract—including in pre-contractual information which forms an integral part of the contract—but also certain objective requirements which constitute the standards normally expected for goods, in particular in terms of fitness for the purpose, packaging, installation instructions and normal qualities and performance capabilities. (20) A large number of consumer goods are intended to be installed before they can be usefully used by the consumer. Therefore any lack of conformity resulting from an incorrect installation of the goods should be regarded as a lack of conformity with the contract where the installation was performed by the seller or under the seller’s control, as well as where the goods were installed by the consumer but the incorrect installation is due to incorrect installation instructions. (21) Conformity should cover material defects as well as legal defects. Third party rights and other legal defects might effectively bar the consumer from enjoying the goods in accordance with the contract when the right’s holder rightfully compels the consumer to stop infringing those rights. Therefore the seller should ensure that the goods are free from any right of a third party, which precludes the consumer from enjoying the goods in accordance with the contract. (22) While freedom of contract with regard to the criteria of conformity with the contract should be ensured, in order to avoid circumvention of the liability for lack of conformity and ensure a high level of consumer protection, any

Proposed Directive on Online sales 843

(23)

(24)

(25)

(26)

derogation from the mandatory rules on criteria of conformity and incorrect installation, which is detrimental to the interests of the consumer, shall be valid only if the consumer has been expressly informed and has expressly consented to it when concluding the contract. Ensuring longer durability of consumer goods is important for achieving more sustainable consumption patterns and a circular economy. Similarly, keeping non-compliant products out of the Union market by strengthening market surveillance and providing the right incentives to economic operators is essential to increase trust in the single market. For these purposes, product specific Union legislation is the most appropriate approach to introduce durability and other product related requirements in relation to specific types or groups of products, using for this purpose adapted criteria. This Directive should therefore be complementary to the objectives followed in this Union sector specific legislation. In so far as specific durability information is indicated in any pre-contractual statement which forms part of the sales contract, the consumer should be able to rely on them as a part of the criteria for conformity. Enhancing legal certainty for both consumers and sellers requires a clear indication of the time when the conformity of the goods to the contracts should be assessed. In order to ensure coherence between the present Directive and Directive 2011/83/EU it is appropriate to indicate the time of the passing of risk as the time for assessing the conformity of the goods. However, in cases where the goods need to be installed, that relevant time should be adapted. The optional possibility for Member States to maintain notification obligations for consumers may lead them to easily lose well-substantiated claims for remedies in case of delayed or lack of notification, especially in a crossborder transaction where a law of another Member State applies and the consumer is not aware of this notification obligation resulting from the law of another Member State. Therefore a notification obligation for consumers should not be established. Accordingly, Member States should be prevented from introducing or maintaining a requirement for the consumer to notify the seller the lack of conformity within a certain deadline. In order to allow businesses to rely on a single set of rules across the Union, it is necessary to fully harmonise the period of time during which the burden of proof for the lack of conformity is reversed in favour of the consumer. Within the first two years, in order to benefit from the presumption of lack of conformity, the consumer should only establish that the good is not conforming, without needing to demonstrate that the lack of conformity actually existed at the relevant time for establishing conformity. In order to increase legal certainty in relation to available remedies for lack of conformity with the contract and in order to eliminate one of the major obstacles inhibiting the Digital Single Market, a fully harmonised order in which remedies can be exercised should be provided for. In particular, the consumer should enjoy a choice between repair or replacement as a first remedy which should help in maintaining the contractual relation and mutual

844  Part 1: European Union Legislation

(27)

(28)

(29)

(30)

(31)

trust. Moreover, enabling consumers to require repair should encourage a sustainable consumption and could contribute to a greater durability of products. The consumer’s choice between repair and replacement should only be limited where the option chosen would be disproportionate compared to the other option available, impossible or unlawful. For instance, it might be disproportionate to request the replacement of goods because of a minor scratch where this replacement would create significant costs while, at the same time, the scratch could easily be repaired. Where the seller has not remedied the lack of conformity through repair or replacement without significant inconvenience for the consumer and within a reasonable time, the consumer should be entitled to a price reduction or to terminate the contract. In particular any repair or replacement needs to be successfully accomplished within this reasonable period. What is a reasonable time should be objectively ascertained considering the nature of the goods and the lack of conformity. If upon the laps of the reasonable period, the seller has failed to successfully remedy the lack of conformity, the consumer should not be obliged to accept any further attempts by the seller in relation to the same lack of conformity. Considering that the right to terminate the contract due to the lack of conformity is an important remedy applicable where repair or replacement are not feasible or have failed, the consumer should also enjoy the right to terminate the contract in cases where the lack of conformity is minor. This would provide a strong incentive to remedy all cases of a lack of conformity at an early stage. In order to make the right to terminate effective for consumers, in situations where the consumer acquires multiple goods, some being an accessory to the main item which the consumer would not have acquired without the main item, and the lack of conformity impacts that main item, the consumer should have the right to terminate the contract also in relation to the accessory elements, even if the latter are in conformity with the contract. Where the consumer terminates the contract due to the lack of conformity, this Directive prescribes only the main effects and modalities of the right of termination, in particular the obligation for the parties to return what they have received. Thus, the seller shall be obliged to refund the price received from the consumer and the consumer shall return the goods. In order to ensure the effectiveness of the right to terminate for consumers while avoiding the consumer’s unjustified enrichment, the consumer’s obligation to pay for the decrease of the value of the goods should be limited to those situations where the decrease exceeds normal use. In any case the consumer should not be obliged to pay more than the price agreed for the goods. In situations where the return of the goods is impossible due to their destruction or loss, the consumer should pay the monetary value of the goods which were destroyed. However, the consumer should not be obliged to pay the monetary value where the destruction or loss is caused by the lack of conformity of the goods with the contract.

Proposed Directive on Online sales 845 (32) In order to increase legal certainty for sellers and overall consumer confidence in cross-border purchases it is necessary to harmonise the period during which the seller is held liable for any lack of conformity which exists at the time when the consumer acquires the physical possession of goods. Considering that the large majority of Member States have foreseen a two-year period when implementing Directive 1999/44 and in practice this is considered by market participants as a reasonable period, this period should be maintained. (33) In order to ensure higher awareness of consumers and easier enforcement of the Union rules on consumer’s rights in relation to non-conforming goods, this Directive should align the period of time during which the burden of proof is reversed in favour of the consumer with the period during which the seller is held liable for any lack of conformity. (34) In order to ensure transparency, certain transparency requirements for commercial guarantees should be provided. Moreover in order to improve legal certainty and to avoid that consumers are misled, this Directive provides that where commercial guarantee conditions contained in advertisements or pre-contractual information are more favourable to the consumer than those included in the guarantee statement the more advantageous conditions should prevail. (35) Considering that the seller is liable towards the consumer for any lack of conformity of the goods resulting from an act or omission of the seller or a third party it is justified that the seller should be able to pursue remedies against the responsible person earlier in the chain of transactions. However, this Directive should not affect the principle of freedom of contract between the seller and other parties in the chain of transactions. The details for exercising that right, in particular against whom and how such remedies are to be pursued, should be provided by the Member States. (36) Persons or organisations regarded under national law as having a legitimate interest in protecting consumer contractual rights should be afforded the right to initiate proceedings, either before a court or before an administrative authority which is competent to decide upon complaints or to initiate appropriate legal proceedings. (37) Nothing in this Directive should prejudice the application of rules of private international law, in particular Regulation (EC) No 593/2008 Regulation (EC) No 1215/2012 of the European Parliament and of the Council.(42) (38) Directive 1999/44/EC should be amended to exclude distance sales contracts from its scope of application. (39) Regulation (EC) No 2006/2004 of the European Parliament and of the ­Council(43) should be amended to include a reference to this Directive in its Annex so as to facilitate cross-border cooperation on enforcement of this Directive. (40) Directive 2009/22/EC of the European Parliament and of the Council(44) should be amended to include a reference to this Directive in its Annex so as to ensure that the consumers’ collective interests laid down in this Directive are protected.

846  Part 1: European Union Legislation (41) In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents,(45) Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. (42) Since the objectives of this Directive, namely to contribute to the functioning of the internal market by tackling in a consistent manner contract lawrelated obstacles for the online and other distance sales of goods cannot be sufficiently achieved by the Member States but can rather be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives. (43) This Directive respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the ­European Union and specifically Article 16, 38 and 47 thereof. HAVE ADOPTED THIS DIRECTIVE: Article 1 Subject matter and scope 1. This Directive lays down certain requirements concerning distance sales contracts concluded between the seller and the consumer, in particular rules on conformity of goods, remedies in case of non-conformity and the modalities for the exercise of these remedies. 2. This Directive shall not apply to distance contracts for the provision of services. However, in case of sales contracts providing both for the sale of goods and the provision of services, this Directive shall apply to the part relating to the sale of goods. 3. This Directive shall not apply to any durable medium incorporating digital content where the durable medium has been used exclusively as a carrier for the supply of the digital content to the consumer. 4. In so far as not regulated therein, this Directive shall not affect national general contract laws such as rules on formation, the validity or effects of contracts, including the consequences of the termination of a contract.

Proposed Directive on Online sales 847 Article 2 Definitions For the purpose of this Directive, the following definitions shall apply: (a) ‘sales contract’ means any contract under which the seller transfers or undertakes to transfer the ownership of goods, including goods which are to be manufactured or produced, to the consumer and the consumer pays or undertakes to pay the price thereof. (b) ‘consumer’ means any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business, craft or profession; (c) ‘seller’ means any natural person or any legal person, irrespective of whether privately or publicly owned, who is acting, including through any other person acting in his name or on his behalf, for purposes relating to his trade, business, craft or profession in relation to contracts covered by this Directive; (d) ‘goods’ means any tangible movable items with the exception of (a) items sold by way of execution or otherwise by authority of law; (b) water, gas and electricity unless they are put up for sale in a limited ­volume or a set quantity. (e) ‘distance sales contract’ means any sales contract concluded under an organised distance scheme without the simultaneous physical presence of the seller and the consumer, with the exclusive use of one or more means of distance communication, including via internet, up to and including the time at which the contract is concluded; (f) ‘durable medium’ means any instrument which enables the consumer or the seller to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (g) ‘commercial guarantee’ means any undertaking by the seller or a producer (the guarantor) to the consumer, in addition to his legal obligation relating to the guarantee of conformity, to reimburse the price paid or to replace, repair or service goods in any way if they do not meet the specifications or any other requirements not related to conformity set out in the guarantee statement or in the relevant advertising available at the time of, or before the conclusion of the contract; (h) ‘contract’ means an agreement intended to give rise to obligations or other legal effects; (i) ‘repair’ means, in the event of lack of conformity, bringing goods into conformity with the contract; (j) ‘free of charge’ means free of the costs necessarily incurred in order to bring the goods into conformity, particularly the cost of postage, labour and materials.

848  Part 1: European Union Legislation Article 3 Level of harmonisation Member States shall not maintain or introduce provisions diverging from those laid down in this Directive including more or less stringent provisions to ensure a different level of consumer protection. Article 4 Conformity with the contract 1. The seller shall ensure that, in order to conform with the contract, the goods shall, where relevant: (a) be of the quantity, quality and description required by the contract, which includes that where the seller shows a sample or a model to the consumer, the goods shall possess the quality of and correspond to the description of this sample or model; (b) be fit for any particular purpose for which the consumer requires them and which the consumer made known to the seller at the time of the conclusion of the contract and which the seller has accepted; and (c) possess the qualities and performance capabilities indicated in any precontractual statement which forms an integral part of the contract. 2. In order to conform with the contract, the goods must also meet the requirements of Articles 5, 6 and 7. 3. Any agreement excluding, derogating from or varying the effects of Articles 5 and 6 to the detriment of the consumer is valid only if, at the time of the conclusion of the contract, the consumer knew of the specific condition of the goods and the consumer has expressly accepted this specific condition when concluding the contract. Article 5 Requirements for conformity of the goods The goods shall, where relevant: (a) be fit for all the purposes for which goods of the same description would ordinarily be used; (b) be delivered along with such accessories including packaging, installation instructions or other instructions as the consumer may expect to receive; and (c) possess qualities and performance capabilities which are normal in goods of the same type and which the consumer may expect given the nature of the goods and taking into account any public statement made by or on behalf of the seller or other persons in earlier links of the chain of transactions, including the producer, unless the seller shows that: (i) the seller was not, and could not reasonably have been, aware of the statement in question; (ii) by the time of conclusion of the contract the statement had been corrected; or

Proposed Directive on Online sales 849 (iii) the decision to buy the goods could not have been influenced by the statement. Article 6 Incorrect installation Where the goods are incorrectly installed, any lack of conformity resulting from the incorrect installation is regarded as lack of conformity with the contract of the goods if: (a) the goods were installed by the seller or under the seller’s responsibility; or (b) the goods, intended to be installed by the consumer, were installed by the consumer and the incorrect installation was due to a shortcoming in the installation instructions. Article 7 Third party rights At the time relevant for establishing the conformity with the contract as determined by Article 8, the goods must be free from any right of a third party, including based on intellectual property, so that the goods can be used in accordance with the contract. Article 8 Relevant time for establishing conformity with the contract 1. The seller shall be liable for any lack of conformity with the contract which exists at the time when: (a) the consumer or a third party indicated by the consumer and other than the carrier has acquired the physical possession of the goods; or (b) the goods are handed over to the carrier chosen by the consumer, where that carrier was not proposed by the seller or where the seller proposes no means of carriage. 2. In cases where the goods were installed by the seller or under the seller’s responsibility, the time when the installation is complete shall be considered as the time when the consumer has acquired the physical possession of the goods. In a case where the goods were intended to be installed by the consumer, the time when the consumer had reasonable time for the installation but in any case not later than 30 days after the time indicated in paragraph 1 shall be considered as the time when the consumer has acquired the physical possession of the goods. 3. Any lack of conformity with the contract which becomes apparent within two years from the time indicated in paragraphs 1 and 2 is presumed to have existed at the time indicated in paragraphs 1 and 2 unless this is incompatible with the nature of the goods or with the nature of the lack of conformity.

850  Part 1: European Union Legislation Article 9 Consumer’s remedies for the lack of conformity with the contract 1. In the case of a lack of conformity with the contract, the consumer shall be entitled to have the goods brought into conformity by the seller, free of charge, by repair or replacement in accordance with Article 11. 2. A repair or replacement shall be completed within a reasonable time and without any significant inconvenience to the consumer, taking account of the nature of the goods and the purpose for which the consumer required the goods. 3. The consumer shall be entitled to a proportionate reduction of the price in accordance with Article 12 or to terminate the contract in accordance with Article 13 where: (a) a repair or replacement are impossible or unlawful; (b) the seller has not completed repair or replacement within a reasonable time; (c) a repair or replacement would cause significant inconvenience to the consumer; or (d) the seller has declared, or it is equally clear from the circumstances, that the seller will not bring the goods in conformity with the contract within a reasonable time. 4. The consumer shall be entitled to withhold the payment of any outstanding part of the price, until the seller has brought the goods into conformity with the contract. 5. The consumer shall not be entitled to a remedy to the extent that the consumer has contributed to the lack of conformity with the contract or its effects. Article 10 Replacement of goods 1. Where the seller remedies the lack of conformity with the contract by replacement, the seller shall take back the replaced goods at the seller’s expense unless the parties have agreed otherwise after the lack of conformity with the contract has been brought to the seller’s attention by the consumer. 2. Where the consumer had installed the goods in a manner consistent with their nature and purpose, before the lack of conformity with the contract became apparent, the obligation to take back the replaced goods shall include the removal of the nonconforming goods and the installation of replacement goods, or bearing the costs thereof. 3. The consumer shall not be liable to pay for any use made of the replaced goods in the period prior to the replacement. Article 11 Consumer’s choice between repair and replacement The consumer may choose between repair and replacement unless the option chosen would be impossible, unlawful or, compared to the other option, would impose costs

Proposed Directive on Online sales 851 on the seller that would be disproportionate, taking into account all circumstances, including: (a) the value the goods would have if there were no lack of conformity with the contract; (b) the significance of the lack of conformity with the contract; (c) whether the alternative remedy could be completed without significant inconvenience to the consumer. Article 12 Price reduction The reduction of price shall be proportionate to the decrease in the value of the goods which were received by the consumer compared to the value the goods would have if in conformity with the contract Article 13 The consumer’s right to terminate the contract 1. The consumer shall exercise the right to terminate the contract by notice to the seller given by any means. 2. Where the lack of conformity with the contract relates to only some of the goods delivered under the contract and there is a ground for termination of a contract pursuant to Article 9, the consumer may terminate the contract only in relation to those goods and any other goods, which the consumer acquired as an accessory to the non-conforming goods. 3. Where the consumer terminates a contract as a whole or in relation to some of the goods delivered under the contract in accordance with paragraph 2: (a) the seller shall reimburse to the consumer the price paid without undue delay and in any event not later than 14 days from receipt of the notice and shall bear the cost of the reimbursement; (b) the consumer shall return, at the seller’s expense, to the seller the goods without undue delay and in any event not later than 14 days from sending the notice of termination; (c) where the goods cannot be returned because of destruction or loss, the consumer shall pay to the seller the monetary value which the nonconforming­goods would have had at the date when the return was to be made, if they had been kept by the consumer without destruction or loss until that date, unless the destruction or loss has been caused by a lack of conformity of the goods with the contract; and (d) the consumer shall pay for a decrease in the value of the goods only to the extent that the decrease in value exceeds depreciation through regular use. The payment for decrease in value shall not exceed the price paid for the goods.

852  Part 1: European Union Legislation Article 14 Time limits The consumer shall be entitled to a remedy for the lack of conformity with the contract of the goods where the lack of conformity becomes apparent within two years as from the relevant time for establishing conformity. If, under national legislation, the rights laid down in Article 9 are subject to a limitation period, that period shall not be shorter than two years from the relevant time for establishing conformity with the contract. Article 15 Commercial guarantees 1. Any commercial guarantee shall be binding on the guarantor under the conditions laid down in: (a) pre-contractual information provided by the seller, including any precontractual statement which forms an integral part of the contract; (b) advertising available at the time of or before the conclusion of the contract; and (c) the guarantee statement. If the guarantee statement is less advantageous to the consumer than the conditions laid down in pre-contractual information provided by the seller or advertising, the commercial guarantee shall be binding under the conditions laid down in the pre-contractual information or advertising relating to the commercial guarantee. 2. The guarantee statement shall be made available on a durable medium and drafted in plain, intelligible language. It shall include the following: (a) a clear statement of the legal rights of the consumer as provided for in this Directive and a clear statement that those rights are not affected by the commercial guarantee; and (b) the terms of the commercial guarantee that go beyond the legal rights of the consumer, information about the duration, transferability, territorial scope and existence of any charges which the consumer might incur in order to benefit from the commercial guarantee, the name and address of the guarantor and, if different from the guarantor, the person against whom any claim is to be made and the procedure by which the claim is to be made. 3. Non-compliance with paragraph 2 shall not affect the binding nature of the commercial guarantee for the guarantor. 4. The Member States may lay down additional rules on commercial guarantees insofar as those rules do not reduce the protection set out in this Article. Article 16 Right of redress Where the seller is liable to the consumer because of a lack of conformity with the contract resulting from an act or omission by a person in earlier links of the chain

Proposed Directive on Online sales 853 of transactions, the seller shall be entitled to pursue remedies against the person or persons liable in the chain of transactions. The person against whom the seller may pursue remedies and the relevant actions and conditions of exercise, shall be ­determined by national law. Article 17 Enforcement 1. Member States shall ensure that adequate and effective means exist to ensure compliance with this Directive. 2. The means referred to in paragraph 1 shall include provisions whereby one or more of the following bodies, as determined by national law, may take action under national law before the courts or before the competent administrative bodies to ensure that the national provisions transposing this Directive are applied: (a) public bodies or their representatives; (b) consumer organisations having a legitimate interest in protecting consumers; (c) professional organisations having a legitimate interest in acting. Article 18 Mandatory nature Any contractual agreement which, to the detriment of the consumer, excludes the application of national measures transposing this Directive, derogates from them or varies their effect before the lack of conformity with the contract of the goods is brought to the seller’s attention by the consumer shall not be binding on the consumer unless parties to the contract exclude, derogate from or vary the effects of the requirements of Articles 5 and 6 in accordance with Article 4 (3). Article 19 Amendments to Directive 1999/44/EC, Regulation (EC) No 2006/2004 and Directive 2009/22/EC 1. Article 1 of Directive 1999/44/EC is amended as follows: (a) paragraph 1 is replaced by the following: “1. The purpose of this Directive is the approximation of the laws, regulations and administrative provisions of the Member States on certain aspects of contracts for the sale of consumer goods and associated guarantees, which are not distance sales contracts, in order to ensure a uniform minimum level of consumer protection in the context of the internal market.”

(b) paragraph 2 is amended as follows: (i) point (f) is replaced by the following: “(f) repair: shall mean, in the event of lack of conformity, bringing consumer goods into conformity with the contract of sale;”

854  Part 1: European Union Legislation (ii) the following point is added: “(g)‘distance sales contract’ means any sales contract concluded under an organised distance scheme without the simultaneous physical presence of the seller and the consumer, with the exclusive use of one or more means of distance communication, including via internet, up to and including the time at which the contract is concluded”.

2. In the Annex to Regulation (EC) No 2006/2004, the following point is added: “22. Directive (EU) N/XXX of the European Parliament and of the Council of XX/ XX/201X on certain aspects concerning contracts for the online and other distance sales of goods (OJ…)”

3. In Annex I to Directive 2009/22/EC the following point is added: “16. Directive (EU) N/XXX of the European Parliament and of the Council of XX/ XX/201X on certain aspects concerning contracts for the online and other distance sales of goods (OJ…)”

Article 20 Transposition 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by [date of two years after the entry into force] at the latest. 2. When Member States adopt those provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made. 3. Member States shall communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive. Article 21 Entering into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 22 Addressees This Directive is addressed to the Member States. (37)

OJ C […], […], p. […]. COM(2015) 192 final. (39) 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 OJ L 171, 7.7.1999, p.12. (38)

Proposed Directive on Online sales 855 (40)

(41)

(42)

(43)

(44)

(45)

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) OJ L177, 4.7.2008, p.6. Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 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 E ­ uropean Parliament and of the Council OJ L 304, 22.11.2011, p.64. Regulation (EC) No 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) OJ L 351, 20.12.2012, p.1. Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27 October 2004 on cooperation between national authorities responsible for the enforcement of consumer protection laws OJ L 165, 18.06.2013, p.1. Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers’ interests OJ L110, 1.05.2009, p.30. OJ C 369, 17.12.2011, p. 14.

856

Part II

Uniform Law

858

European Convention for the Protection of Human Rights and Fundamental Freedoms of 4 November 1950* — Extract — The governments signatory hereto, being members of the Council of Europe— Considering the Universal Declaration of Human Rights proclaimed by the ­General Assembly of the United Nations on 10th December 1948; Considering that this Declaration aims at securing the universal and effective recognition and observance of the Rights therein declared; Considering that the aim of the Council of Europe is the achievement of greater unity between its members and that one of the methods by which that aim is to be pursued is the maintenance and further realisation of human rights and fundamental freedoms; Reaffirming their profound belief in those fundamental freedoms which are the foundation of justice and peace in the world and are best maintained on the one hand by an effective political democracy and on the other by a common understanding and observance of the human rights upon which they depend; Being resolved, as the governments of European countries which are like-minded and have a common heritage of political traditions, ideals, freedom and the rule of law, to take the first steps for the collective enforcement of certain of the rights stated in the Universal Declaration,

*  The Convention came into force on 3 September 1953. The United Kingdom was one of the first signatories, on 4 November 1950. Before being ratified, it was, in accordance with the ‘Ponsonby’ rule, ordered ‘to lie upon the Table’ of the House of Commons, on 23 January 1951. The instrument of ratification was deposited with the Secretary-General of the Council of Europe on 8 March 1951. In accordance with the pivotal precept of British constitutional law, to wit parliamentary sovereignty, the terms of any international treaty ratified by the UK does not become part of its domestic law unless expressly so enacted. This did not happen, as UK law was deemed already to be in full accord with the substance of the Convention rights: therefore, although UK courts could take note of the rights, they could not enforce them as such directly. This was the situation until the passage of the Human Rights Act 1998, which came into force on 2 October 2000. This Act incorporated the substantive rights of the Convention, as well as of Protocols 1 and 6 into domestic law.

860  Part II: Uniform Law Have agreed as follows: Article 1 Obligation to respect human rights The High Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in Section I of this Convention. SECTION I Rights and freedoms Article 2 Right to life (1) Everyone’s right to life shall be protected by law. No one shall be deprived of his life intentionally save in the execution of a sentence of a court following his conviction of a crime for which this penalty is provided by law. (2) Deprivation of life shall not be regarded as inflicted in contravention of this article when it results from the use of force which is no more than absolutely necessary: a) in defence of any person from unlawful violence; b) in order to effect a lawful arrest or to prevent the escape of a person ­lawfully detained; c) in action lawfully taken for the purpose of quelling a riot or insurrection. Article 3 Prohibition of torture No one shall be subjected to torture or to inhuman or degrading treatment or punishment. Article 4 Prohibition of slavery and forced labour (1) No one shall be held in slavery or servitude. (2) No one shall be required to perform forced or compulsory labour. (3) For the purpose of this article the term “forced or compulsory labour” shall not include: a) any work required to be done in the ordinary course of detention imposed according to the provisions of Article 5 of this Convention or during conditional release from such detention; b) any service of a military character or, in case of conscientious objectors in countries where they are recognised, service exacted instead of ­compulsory military service; c) any service exacted in case of an emergency or calamity threatening the life or well-being of the community; d) any work or service which forms part of normal civic obligations.

European Convention on Human Rights 861 Article 5 Right to liberty and security (1) Everyone has the right to liberty and security of person. No one shall be deprived of his liberty save in the following cases and in accordance with a procedure prescribed by law: a) the lawful detention of a person after conviction by a competent court; b) the lawful arrest or detention of a person for non-compliance with the lawful order of a court or in order to secure the fulfilment of any obligation prescribed by law; c) the lawful arrest or detention of a person effected for the purpose of bringing him before the competent legal authority on reasonable suspicion of having committed an offence or when it is reasonably considered necessary to prevent his committing an offence or fleeing after having done so; d) the detention of a minor by lawful order for the purpose of educational supervision or his lawful detention for the purpose of bringing him before the competent legal authority; e) the lawful detention of persons for the prevention of the spreading of infectious diseases, of persons of unsound mind, alcoholics or drug addicts or vagrants; f) the lawful arrest or detention of a person to prevent his effecting an unauthorised entry into the country or of a person against whom action is being taken with a view to deportation or extradition. (2) Everyone who is arrested shall be informed promptly, in a language which he understands, of the reasons for his arrest and of any charge against him. (3) Everyone arrested or detained in accordance with the provisions of paragraph 1.c of this article shall be brought promptly before a judge or other officer authorised by law to exercise judicial power and shall be entitled to trial within a reasonable time or to release pending trial. Release may be conditioned by guarantees to appear for trial. (4) Everyone who is deprived of his liberty by arrest or detention shall be entitled to take proceedings by which the lawfulness of his detention shall be decided speedily by a court and his release ordered if the detention is not lawful. (5) Everyone who has been the victim of arrest or detention in contravention of the provisions of this article shall have an enforceable right to compensation. Article 6 Right to a fair trial (1) In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interests of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent

862  Part II: Uniform Law strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice. (2) Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law. (3) Everyone charged with a criminal offence has the following minimum rights: a) to be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him; b) to have adequate time and facilities for the preparation of his defence; c) to defend himself in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require; d) to examine or have examined witnesses against him and to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him; e) to have the free assistance of an interpreter if he cannot understand or speak the language used in court. Article 7 No punishment without law (1) No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed. (2) This article shall not prejudice the trial and punishment of any person for any act or omission which, at the time when it was committed, was criminal according to the general principles of law recognised by civilised nations. Article 8 Right to respect for private and family life (1) Everyone has the right to respect for his private and family life, his home and his correspondence. (2) There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. Article 9 Freedom of thought, conscience and religion (1) Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief and freedom, either

European Convention on Human Rights 863 alone or in community with others and in public or private, to manifest his religion or belief, in worship, teaching, practice and observance. (2) Freedom to manifest one’s religion or beliefs shall be subject only to such limitations as are prescribed by law and are necessary in a democratic society in the interests of public safety, for the protection of public order, health or morals, or for the protection of the rights and freedoms of others. Article 10 Freedom of expression (1) Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises. (2) The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribed by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary. Article 11 Freedom of assembly and association (1) Everyone has the right to freedom of peaceful assembly and to freedom of association with others, including the right to form and to join trade unions for the protection of his interests. (2) No restrictions shall be placed on the exercise of these rights other than such as are prescribed by law and are necessary in a democratic society in the interests of national security or public safety, for the prevention of disorder or crime, for the protection of health or morals or for the protection of the rights and freedoms of others. This article shall not prevent the imposition of lawful restrictions on the exercise of these rights by members of the armed forces, of the police or of the administration of the State. Article 12 Right to marry Men and women of marriageable age have the right to marry and to found a f­ amily, according to the national laws governing the exercise of this right.

864  Part II: Uniform Law Article 13 Right to an effective remedy Everyone whose rights and freedoms as set forth in this Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity. Article 14 Prohibition of discrimination The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status. Article 15 Derogation in time of emergency (1) In time of war or other public emergency threatening the life of the nation any High Contracting Party may take measures derogating from its obligations under this Convention to the extent strictly required by the exigencies of the situation, provided that such measures are not inconsistent with its other obligations under international law. (2) No derogation from Article 2, except in respect of deaths resulting from lawful acts of war, or from Articles 3, 4 (paragraph 1) and 7 shall be made under this provision. (3) Any High Contracting Party availing itself of this right of derogation shall keep the Secretary General of the Council of Europe fully informed of the measures which it has taken and the reasons therefor. It shall also inform the Secretary General of the Council of Europe when such measures have ceased to operate and the provisions of the Convention are again being fully executed. Article 16 Restrictions on political activity of aliens Nothing in Articles 10, 11 and 14 shall be regarded as preventing the High Contracting Parties from imposing restrictions on the political activity of aliens. Article 17 Prohibition of abuse of rights Nothing in this Convention may be interpreted as implying for any State, group or person any right to engage in any activity or perform any act aimed at the destruction of any of the rights and freedoms set forth herein or at their limitation to a greater extent than is provided for in the Convention.

European Convention on Human Rights 865 Article 18 Limitation on use of restrictions on rights The restrictions permitted under this Convention to the said rights and freedoms shall not be applied for any purpose other than those for which they have been prescribed. SECTION II European Court of Human Rights Articles 19 to 51 (not reproduced) SECTION III Miscellaneous provisions Articles 52 to 59 (not reproduced)

Protocol 1 to the European Convention for the Protection of Human Rights and Fundamental Freedoms* (UKTS 46 (1954), Cmd 9221, 213 UNTS 262, ETS 9)

Amendments Article 4

Nature of Amendment Amended

Effected by Protocol 11

Date 24 July 1995

Source in UK law Human Rights Act 1998

The Governments signatory hereto, being Members of the Council of Europe, Being resolved to take steps to ensure the collective enforcement of certain rights and freedoms other than those already included in Section I of the Convention for the Protection of Human Rights and Fundamental Freedoms signed at Rome on 4 November 1950 (hereinafter referred to as “the Convention”), Have agreed as follows: Article 1 Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of ­international law.

*  The United Kingdom was one of the original signatories of Protocol 1, on 8 March 1952. The instrument of ratification was deposited with the Secretary-General of the Council of Europe on 3 November 1952. The UK made a reservation in respect of Article 2 thereof: the duty of the state to provide educational facilities in accordance with parental convictions was ‘accepted by the UK only in so far as it is compatible with the provisions of efficient instruction and training, and the avoidance of unreasonable expenditure’. Protocol 1 was not made part of domestic law, until the Human Rights Act 1998 explicitly incorporated it on 2 October 2000. Subject to certain reservations and declarations, the Protocol applies in all states in which the ­Convention is in force, as well as in Andorra, the Republic of Moldavia and Switzerland.

Protocol 1 867 The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in a­ ccordance with the general interest or to secure the payment of taxes or other c­ ontributions or penalties. Article 2 No person shall be denied the right to education. In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religions and philosophical convictions. Article 3 The High Contracting Parties undertake to hold free elections at reasonable intervals by secret ballot, under conditions which will ensure the free expression of the ­opinion of the people in the choice of the legislature. Article 4 Any High Contracting Party may at the time of signature or ratification or at any time thereafter communicate to the Secretary-General of the Council of Europe a Declaration stating the extent to which it undertakes that the provisions of the present Protocol shall apply to such of the territories for the international relations of which it is responsible as are named therein. Any High Contracting Party which has communicated a Declaration in virtue of the preceding paragraph may from time to time communicate a further Declaration modifying the terms of any former Declaration or terminating the application of the provisions of this Protocol in respect of any territory. A Declaration made in accordance with this article shall be deemed to have been made in accordance with paragraph 1 of Article 63 of the Convention. Article 5 As between the High Contracting Parties the provisions of Articles 1, 2, 3 and 4 of this Protocol shall be regarded as additional articles to the Convention and all the provisions of the Convention shall apply accordingly. Article 6 This Protocol shall be open for signature by the members of the Council of Europe, who are the signatories of the Convention; it shall be ratified at the same time as or after the ratification of the Convention. It shall enter into force after the deposit of ten instruments of ratification. As regards any signatory ratifying subsequently, the Protocol shall enter into force at the date of the deposit of its instrument of ratification.

868  Part II: Uniform Law The instruments of ratification shall be deposited with the Secretary-General of the Council of Europe, who will notify all the Members of the names of those who have ratified. Done at Paris on the 20th day of March 1952, In English and French, both texts being equally authentic, in a single copy which shall remain deposited in the archives of the Council of Europe. The Secretary-General shall transmit certified copies to each of the signatory Governments. (Undersigned)

Protocol 4 to the Convention for the Protection of Human Rights and Fundamental Freedoms* — Extract — (Misc 6 (1964), Cmnd 2309, ETS 46)

Amendments Article

Nature of Amendment

5

Amended

6

Effected by

Date

Source in UK law

Protocol 11

24 July 1995 Protocol 11 has not been ratified by the UK

Protocol 11

24 July 1995

The Governments signatory hereto, being Members of the Council of Europe, Being resolved to take steps to ensure the collective enforcement of certain rights and freedoms other than those already included in Section 1 of the Convention for the Protection of Human Rights and Fundamental Freedoms signed at Rome on 4 November 1950 (hereinafter referred to as ‘the Convention’) and in Articles 1 to 3 of the First Protocol to the Convention, signed at Paris on 20 March 1952, Have agreed as follows: Article 1 No one shall be deprived of his liberty merely on the ground of inability to fulfil a contractual obligation. Article 2 (1) Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence.

* 

The United Kingdom has not ratified Protocol 4.

870  Part II: Uniform Law (2) Everyone shall be free to leave any country, including his own. (3) No restrictions shall be placed on the exercise of these rights other than such as are in accordance with law and are necessary in a democratic society in the interests of national security or public safety for the maintenance of ‘ordre public’, for the prevention of crime, for the protection of rights and freedoms of others. (4) The rights set forth in paragraph 1 may also be subject, in particular areas, to restrictions imposes in accordance with law and justified by the public ­interest in a democratic society. Article 3 to 7 (not reproduced)

Protocol 7 to the Convention for the Protection of Human Rights and Fundamental Freedoms of 22 November 19841 — Extract — (ETS 117, 7 EHRR 1, 24 ILM 435)

Amendments Article

Nature of Amendment

Effected by

Date

Source in UK law

6

Amended

Protocol 11

24 July 1995

Protocol 11 has not been ratified by the UK

7

Repealed

Protocol 11

24 July 1995

The Member States of the Council of Europe signatory hereto, Being resolved to take further steps to ensure the collective enforcement of certain rights and freedoms by means of the Convention for the Protection of Human Rights and Fundamental Freedoms signed at Rome on 4 November 1950 (hereinafter referred to as “The Convention”); Have agreed as follows: Article 1 (1) An alien lawfully resident in the territory of a State shall not be expelled therefrom except in pursuance of a decision reached in accordance with law and shall be allowed: a) to submit reasons against his expulsion, b) to have his case reviewed, and c) to be represented for these purposes before the competent authority or a person or persons designated by that authority.

1  Protocol 4 came into force on 1 November 1988, in terms of Article 9. The United Kingdom has not ratified it.

872  Part II: Uniform Law (2) An alien may be expelled before the exercise of his rights under paragraph 1(a), (b) and (c) of this Article, when such expulsion is necessary in the interests of public order or is grounded on reasons of national security. Article 2 to 4 (not reproduced) Article 5 Spouses shall enjoy equality of rights and responsibilities of a private law character between them, and in their relations with their children, as to marriage, during marriage and in the event of its dissolution. This Article shall not prevent States from taking such measures as are necessary in the interests of the children. Article 6 (1) Any State may at the time of signature or when depositing its instrument of ratification, acceptance or approval, specify the territory or territories to which this Protocol shall apply and state the extent to which it undertakes that the provisions of this Protocol shall apply to this or these territories. (2) Any State may at any later date, by a declaration addressed to the SecretaryGeneral of the Council of Europe, extend the application of this Protocol to any other territory specified in the declaration. In respect of such territory the Protocol shall enter into force on the first day of the month following the expiration of a period of two months after the date of receipt by the Secretary-General of such declaration. (3) Any declaration made under the two preceding paragraphs may, in respect of any territory specified in such declaration, be withdrawn or modified by a notification addressed to the Secretary-General. The withdrawal or modification shall become effective on the first day of the month following the expiration of a period of two months after the date of receipt of such notification by the Secretary General. (4) A declaration made in accordance with this Article shall be deemed to have been made in accordance with paragraph 1 of Article 63 of the Convention. (5) The territory of any State to which this Protocol applies by virtue of ratification, acceptance or approval by that State, and each territory to which this Protocol is applied by virtue of a declaration by that State under this Article, may be treated as separate territories for the purpose of the reference in ­Article 1 to the territory of a State. Article 7 As between the State Parties, the provisions of Articles 1 to 6 of this Protocol shall be regarded as additional Articles to the Convention, and all the provisions of the Convention shall apply accordingly. Article 8 to 10 (not reproduced)

Convention providing a Uniform Law on the Form of an International Will* of 26 October 1973 (Washington DC) The States signatory to the present Convention, DESIRING to provide to a greater extent for the respecting of last wills by establishing an additional form of will hereinafter to be called an “international will” which, if employed, would dispense to some extent with the search for the applicable law; HAVE RESOLVED to conclude a Convention for this purpose and have agreed upon the following provisions: Article I 1. Each Contracting Party undertakes that not later than six months after the date of entry into force of this Convention in respect of that Party it shall introduce into its law the rules regarding an international will set out in the Annex to this Convention. 2. Each Contracting Party may introduce the provisions of the Annex into its law either by reproducing the actual text, or by translating it into its official language or languages. 3. Each Contracting Party may introduce into its law such further provisions as are necessary to give the provisions of the Annex full effect in its territory. 4. Each Contracting Party shall submit to the Depositary Government the text of the rules introduced into its national law in order to implement the provisions of this Convention. Article II 1. Each Contracting Party shall implement the provisions of the Annex in its law, within the period provided for in the preceding article, by designating the persons who, in its territory, shall be authorized to act in connection with international wills. It may also designate as a person authorized to act with * 

The Convention was ratified by the UK in 1974 but has not been put into force.

874  Part II: Uniform Law regard to its nationals its diplomatic or consular agents abroad insofar as the local law does not prohibit it. 2. The Party shall notify such designation, as well as any modifications thereof, to the Depositary Government. Article III The capacity of the authorized person to act in connection with an international will, if conferred in accordance with the law of a Contracting Party, shall be recognized in the territory of the other Contracting Parties. Article IV The effectiveness of the certificate provided for in Article 10 of the Annex shall be recognized in the territories of all Contracting Parties. Article V 1. The conditions requisite to acting as a witness of an international will shall be governed by the law under which the authorized person was designated. The same rule shall apply as regards an interpreter who is called upon to act. 2. Nonetheless no one shall be disqualified to act as a witness of an international will solely because he is an alien. Article VI 1. The signature of the testator, of the authorized person, and of the witnesses to an internatíonal will, whether on the will or on the certificate, shall be exempt from any legalization or like formality. 2. Nonetheless, the competent authorities of any Contracting Party may, if necessary, satisfy themselves as to the authenticity of the signature of the authorized person. Article VII The safekeeping of an international will shall be governed by the law under which the authorized person was designated. Article VIII No reservation shall be admitted to this Convention or to its Annex. Article IX 1. The present Convention shall be open for signature at Washington from ­October 26, 1973, until December 31, 1974. 2. The Convention shall be subject to ratification. 3. Instruments of ratification shall be deposited with the Government of the United States of America, which shall be the Depositary Government.

Convention providing a Uniform Law on the Form of an International Will 875 Article X 1. The Convention shall be open indefinitely for accession. 2. Instruments of accession shall be deposited with the Depositary Government. Article XI 1. The present Convention shall enter into force six months after the date of deposit of the fifth instrument of ratification or accession with the Depositary Government. 2. In the case of each State which ratifies this Convention or accedes to it after the fifth instrument of ratification or accession has been deposited, this Convention shall enter into force six months after the deposit of its own instrument of ratification or accession. Article XII 1. Any Contracting Party may denounce this Convention by written notification to the Depositary Government. 2. Such denunciation shall take effect twelve months from the date on which the Depositary Government has received the notification, but such denunciation shall not affect the validity of any will made during the period that the Convention was in effect for the denouncing State. Article XIII 1. Any State may, when it deposits its instrument of ratification or accession or at any time thereafter, declare, by a notice addressed to the Depositary ­Government, that this Convention shall apply to all or part of the territories for the international relations of which it is responsible. 2. Such declaration shall have effect six months after the date on which the Depositary Government shall have received notice thereof or, if at the end of such period the Convention has not yet come into force, from the date of its entry into force. 3. Each Contracting Party which has made a declaration in accordance with paragraph 1 of this Article may, in accordance with Article XII, denounce this Convention in relation to all or part of the territories concerned. Article XIV 1. If a State has two or more territorial units in which different systems of law apply in relation to matters respecting the form of wills, it may at the time of signature, ratification, or accession, declare that this Convention shall extend to all its territorial units or only to one or more of them, and may modify its declaration by submitting another declaration at any time. 2. These declarations shall be notified to the Depositary Government and shall state expressly the territorial units to which the Convention applies.

876  Part II: Uniform Law Article XV If a Contracting Party has two or more territorial units in which different systems of law apply in relation to matters respecting the form of wills, any reference to the internal law of the place where the will is made or to the law under which the authorized person has been appointed to act in connection with international wills shall be construed in accordance with the constitutional system of the Party concerned. Article XVI 1. The original of the present Convention, in the English, French, Russian and Spanish languages, each version being equally authentic, shall be deposited with the Government of the United States of America, which shall transmit certified copies thereof to each of the signatory and acceding States and to the International Institute for the Unification of Private Law. 2. The Depositary Government shall give notice to the signatory and acceding States, and to the International Institute for the Unification of Private Law, of: (a) any signature; (b) the deposit of any instrument of ratification or accession; (c) any date on which this Convention enters into force in accordance with Article XI; (d) any communication received in accordance with Article I, paragraph 4; (e) any notice received in accordance with Article II, paragraph 2; (f) any declaration received in accordance with Article XIII, paragraph 2, and the date on which such declaration takes effect; (g) any denunciation received in accordance with Article XII, paragraph 1, or Article XIII, paragraph 3, and the date on which the denunciation takes effect; (h) any declaration received in accordance with Article XIV, paragraph 2, and the date on which the declaration takes effect. IN WITNESS WHEREOF, the undersigned Plenipotentiaries, being duly authorized to that effect, have signed the present Convention. DONE at Washington this twenty-sixth day of October, one thousand nine hundred and seventy-three. ANNEX UNIFORM LAW ON THE FORM OF AN INTERNATIONAL WILL Article 1 1. A will shall be valid as regards form, irrespective particularly of the place where it is made, of the location of the assets and of the nationality, domicile or residence of the testator, if it is made in the form of an international will complying with the provisions set out in Articles 2 to 5 hereinafter. 2. The invalidity of the will as an international will shall not affect its formal validity as a will of another kind.

Convention providing a Uniform Law on the Form of an International Will 877 Article 2 This law shall not apply to the form of testamentary dispositions made by two or more persons in one instrument. Article 3 1. The will shall be made in writing. 2. It need not be written by the testator himself. 3. It may be written in any language, by hand or by any other means. Article 4 1. The testator shall declare in the presence of two witnesses and of a person authorized to act in connection with international wills that the document is his will and that he knows the contents thereof. 2. The testator need not inform the witnesses, or the authorized person, of the contents of the will. Article 5 1. In the presence of the witnesses and of the authorized person, the testator shall sign the will or, if he has previously signed it, shall acknowledge his signature. 2. When the testator is unable to sign, he shall indicate the reason therefor to the authorized person who shall make note of this on the will. Moreover, the testator may be authorized by the law under which the authorized person was designated to direct another person to sign on his behalf. 3. The witnesses and the authorized person shall there and then attest the will by signing in the presence of the testator. Article 6 1. The signatures shall be placed at the end of the will. 2. If the will consists of several sheets, each sheet shall be signed by the testator or, if he is unable to sign, by the person signing on his behalf or, if there is no such person, by the authorized person. In addition, each sheet shall be numbered. Article 7 1. The date of the will shall be the date of its signature by the authorized person. 2. This date shall be noted at the end of the will by the authorized person. Article 8 In the absence of any mandatory rule pertaining to the safekeeping of the will, the authorized person shall ask the testator whether he wishes to make a declaration concerning the safekeeping of his will. If so and at the express request of the testator the place where he intends to have his will kept shall be mentioned in the certificate provided for in Article 9.

878  Part II: Uniform Law Article 9 The authorized person shall attach to the will a certificate in the form prescribed in Article 10 establishing that the obligations of this law have been complied with. Article 10 The certificate drawn up by the authorized person shall be in the following form or in a substantially similar form: CERTIFICATE (Convention of October 26, 1973)

1. I, ........................... (name, address and capacity), a person authorized to act in connection with international wills 2. Certify that on ................ (date) at ..................... (place) 3. (testator) ............................. (name, address, date and place of birth) in my presence and that of the witnesses 4. (a) .......................... (name, address, date and place of birth) (b) .......................... (name, address, date and place of birth) has declared that the attached document is his will and that he knows the contents thereof. 5. I furthermore certify that: 6. (a) in my presence and in that of the witnesses (1) the testator has signed the will or has acknowledged his signature previously affixed. *(2) following a declaration of the testator stating that he was unable to sign his will for the following reason. ................................................. I have mentioned this declaration on the will *the signature has been affixed by. .................... (name, address) 7. (b) the witnesses and I have signed the will; 8. *(c) each page of the will has been signed by. .................................... and numbered; 9. (d) I have satisfied myself as to the identity of the testator and of the w ­ itnesses as designated above; 10. (e) the witnesses met the conditions requisite to act as such according to the law under which I am acting; 11.  *(f) the testator has requested me to include the following statement ­concerning the safekeeping of his will: ......................................................... 12. PLACE 13. DATE 14. SIGNATURE and, if necessary, SEAL * To be completed if appropriate.

Convention providing a Uniform Law on the Form of an International Will 879 Article 11 The authorized person shall keep a copy of the certificate and deliver another to the testator. Article 12 In the absence of evidence to the contrary, the certificate of the authorized person shall be conclusive of the formal validity of the instrument as a will under this Law. Article 13 The absence or irregularity of a certificate shall not affect the formal validity of a will under this Law. Article 14 The international will shall be subject to the ordinary rules of revocation of wills. Article 15 In interpreting and applying the provisions of this law, regard shall be had to its international origin and to the need for uniformity in its interpretation.

United Nations Convention on the Limitation Period in the International Sale of Goods of 14 June 1974 (New York)* (Misc 24 (1980), Cmnd 8074, UN Doc A/Conf. 63/15) Amendments Article

Nature of

Effected by

Source

3, 4, 31, 34, 37, 40

Amended

Protocol of 11 April 1980 (Vienna)

UN Document A/CONF. 97/18 Annex II

36 bis, 43 bis, 43 ter, 44 bis, 45 bis

Inserted

Protocol of 11 April 1980 (Vienna)

UN Document A/CONF. 97/18 Annex II

Preamble The States Parties to the present Convention, Considering that international trade is an important factor in the promotion of friendly relations amongst States, Believing that the adoption of uniform rules governing the limitation period in the international sale of goods would facilitate the development of world trade, Have agreed as follows: PART I: SUBSTANTIVE PROVISIONS Sphere of application Article 1 (1) This Convention shall determine when claims of a buyer and a seller against each other arising from a contract of international sale of goods or relating to its breach, termination or invalidity can no longer be exercised by reason * The text of the Convention is published in Yearbook of the United Nations Commission on I­ nternational Trade Law 1974 210. The 1980 Protocol is published in Yearbook of the United Nations Commission on International Trade Law 1980 162. The Convention has not been adopted by the UK.

UN Convention on Limitation Periods 881 of the expiration of a period of time. Such a period of time is hereinafter referred to as “the limitation period”. (2) This Convention shall not affect a particular time-limit within which one party is required, as a condition for the acquisition or exercise of his claim, to give notice to the other party or perform any act other than the institution of legal proceedings. (3) In this Convention: a) “Buyer”, “seller” and “party” mean persons who buy or sell, or agree to buy or sell, goods, and the successors to and assigns of their rights or obligations under the contract of sale; b) “Creditor” means a party who asserts a claim, whether or not such a claim is for a sum of money; c) “Debtor” means a party against whom a creditor asserts a claim; d) “Breach of contract” means the failure of a party to perform the contract or any performance not in conformity with the contract; e) “Legal proceedings” includes judicial, arbitral and administrative proceedings; f) “Person” includes corporation, company, partnership, association or entity, whether private or public, which can sue or be sued; g) “Writing” includes telegram and telex; h) “Year” means a year according to the Gregorian calendar. Article 2 For the purposes of this Convention: a) A contract of sale of goods shall be considered international if, at the time of the conclusion of the contract, the buyer and the seller have their places of business in different States; b) The fact that the parties have their places of business in different States shall be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract; c) Where a party to a contract of sale of goods has places of business in more than one State, the place of business shall be that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at the time of the conclusion of the contract; d) Where a party does not have a place of business, reference shall be made to his habitual residence; e) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract shall be taken into consideration.

882  Part II: Uniform Law Article 3 (1) This Convention shall apply only a) If, at the time of the conclusion of the contract, the places of business of the parties to a contract of international sale of goods are in Contracting States; or b) If the rules of private international law make the law of a Contracting State applicable to the contract of sale. (2) This Convention shall not apply when the parties have expressly excluded its application. Article 4 This Convention shall not apply to sales: a) Of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; b) By auction; c) On execution or otherwise by authority of law; d) Of stocks, shares, investment securities, negotiable instruments or money; e) Of ships, vessels, hovercraft or aircraft; f) Of electricity. Article 5 This Convention shall not apply to claims based upon: a) b) c) d) e)

Death of, or personal injury to, any person; Nuclear damage caused by the goods sold; A lien, mortgage or other security interest in property; A judgement or award made in legal proceedings; A document on which direct enforcement or execution can be obtained in accordance with the law of the place where such enforcement or execution is sought; f) A bill of exchange, cheque or promissory note. Article 6 (1) This Convention shall not apply to contracts in which the preponderant part of the obligations of the seller consists in the supply of labour or other services. (2) Contracts for the supply of goods to be manufactured or produced shall be considered to be sales, unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production.

UN Convention on Limitation Periods 883 Article 7 In the interpretation and application of the provisions of this Convention, regard shall be had to its international character and to the need to promote uniformity. The duration and commencement of the limitation period Article 8 The limitation period shall be four years. Article 9 (1) Subject to the provisions of articles 10, 11 and 12 the limitation period shall commence on the date [on] which the claim accrues. (2) The commencement of the limitation period shall not be postponed by: a) A requirement that the party be given a notice as described in paragraph 2 of article 1, or b) A provision in an arbitration agreement that no right shall arise until an arbitration award has been made. Article 10 (1) A claim arising from a breach of contract shall accrue on the date on which such breach occurs. (2) A claim arising from a defect or other lack of conformity shall accrue on the date on which the goods are actually handed over to, or their tender is refused by, the buyer. (3) A claim based on fraud committed before or at the time of the conclusion of the contract or during its performance shall accrue on the date on which the fraud was or reasonably could have been discovered. Article 11 If the seller has given an express undertaking relating to the goods which is stated to have effect for a certain period of time, whether expressed in terms of a specific period of time or otherwise, the limitation period in respect of any claim arising from the undertaking shall commence on the date on which the buyer notifies the seller of the fact on which the claim is based, but not later than on the date of the expiration of the period of the undertaking. Article 12 (1) If, in circumstances provided for by the law applicable to the contract, one party is entitled to declare the contract terminated before the time for performance is due, and exercises this right, the limitation period in respect of a claim based on any such circumstances shall commence on the date on which the declaration is made to the other party. If the contract is not declared to

884  Part II: Uniform Law be terminated before performance becomes due, the limitation period shall commence on the date on which performance is due. (2) The limitation period in respect of a claim arising out of a breach by one party of a contract for the delivery of or payment for goods by instalments shall, in relation to each separate instalment, commence on the date on which the particular breach occurs. If, under the law applicable to the contract, one party is entitled to declare the contract terminated by reason of such breach, and exercises this right, the limitation period in respect of all relevant instalments shall commence on the date on which the declaration is made to the other party. Cessation and extension of the limitation period Article 13 The limitation period shall cease to run when the creditor performs any act which, under the law of the court where the proceedings are instituted, is recognized as commencing judicial proceedings against the debtor or as asserting his claim in such proceedings already instituted against the debtor, for the purpose of obtaining satisfaction or recognition of his claim. Article 14 (1) Where the parties have agreed to submit to arbitration, the limitation period shall cease to run when either party commences arbitral proceedings in the manner provided for in the arbitration agreement or by the law applicable to such proceedings. (2) In the absence of any such provision, arbitral proceedings shall be deemed to commence on the date on which a request that the claim in dispute be referred to arbitration is delivered at the habitual residence or place of business of the other party or, if he has no such residence or place of business, then at his last known residence or place of business. Article 15 In any legal proceedings other than those mentioned in articles 13 and 14, including legal proceedings commenced upon the occurrence of: a) The death or incapacity of the debtor, b) The bankruptcy or any state of insolvency affecting the whole of the property of the debtor, or c) The dissolution or liquidation of a corporation, company, partnership, association or entity when it is the debtor, the limitation period shall cease to run when the creditor asserts his claim in such proceedings for the purpose of obtaining satisfaction or recognition of the claim, subject to the law governing the proceedings.

UN Convention on Limitation Periods 885 Article 16 For the purposes of articles 13, 14 and 15, any act performed by way of counterclaim shall be deemed to have been performed on the same date as the act performed in relation to the claim against which the counterclaim is raised, provided that both the claim and the counterclaim relate to the same contract or to several contracts concluded in the course of the same transaction. Article 17 (1) Where a claim has been asserted in legal proceedings within the limitation period in accordance with article 13, 14, 15 or 16, but such legal proceedings have ended without a decision binding on the merits of the claim, the limitation period shall be deemed to have continued to run. (2) If, at the time such legal proceedings ended, the limitation period has expired or has less than one year to run, the creditor shall be entitled to a period of one year from the date on which the legal proceedings ended. Article 18 (1) Where legal proceedings have been commenced against one debtor, the limitation period prescribed in this Convention shall cease to run against any other party jointly and severally liable with the debtor, provided that the creditor informs such party in writing within that period that the proceedings have been commenced. (2) Where legal proceedings have been commenced by a subpurchaser against the buyer, the limitation period prescribed in this Convention shall cease to run in relation to the buyer’s claim over against the seller, if the buyer informs the seller in writing within that period that the proceedings have been commenced. (3) Where the legal proceedings referred to in paragraphs 1 and 2 of this article have ended, the limitation period in respect of the claim of the creditor or the buyer against the party jointly and severally liable or against the seller shall be deemed not to have ceased running by virtue of paragraphs 1 and 2 of this article, but the creditor or the buyer shall be entitled to an additional year from the date on which the legal proceedings ended, if at that time the limitation period had expired or had less than one year to run. Article 19 Where the creditor performs, in the State in which the debtor has his place of business and before the expiration of the limitation period, any act, other than the acts described in articles 13, 14, 15 and 16, which under the law of that State has the effect of recommencing a limitation period, a new limitation period of four years shall commence on the date prescribed by that law.

886  Part II: Uniform Law Article 20 (1) Where the debtor, before the expiration of the limitation period, acknowledges in writing his obligation to the creditor, a new limitation period of four years shall commence to run from the date of such acknowledgement. (2) Payment of interest or partial performance of an obligation by the debtor shall have the same effect as an acknowledgement under paragraph (1) of this article if it can reasonably be inferred from such payment or performance that the debtor acknowledges that obligation. Article 21 Where, as a result of a circumstance which is beyond the control of the creditor and which he could neither avoid nor overcome, the creditor has been prevented from causing the limitation period to cease to run, the limitation period shall be extended so as not to expire before the expiration of one year from the date on which the relevant circumstance ceased to exist. Modification of the limitation period by the parties Article 22 (1) The limitation period cannot be modified or affected by any declaration or agreement between the parties, except in the cases provided for in paragraph (2) of this article. (2) The debtor may at any time during the running of the limitation period extend the period by a declaration in writing to the creditor. This declaration may be renewed. (3) The provisions of this article shall not affect the validity of a clause in the contract of sale which stipulates that arbitral proceedings shall be commenced within a shorter period of limitation than that prescribed by this Convention, provided that such clause is valid under the law applicable to the contract of sale. General limit of the limitation period Article 23 Notwithstanding the provisions of this Convention, a limitation period shall in any event expire not later than 10 years from the date on which it commenced to run under articles 9, 10, 11 and 12 of this Convention. Consequences of the expiration of the limitation period Article 24 Expiration of the limitation period shall be taken into consideration in any legal proceedings only if invoked by a party to such proceedings.

UN Convention on Limitation Periods 887 Article 25 (1) Subject to the provisions of paragraph (2) of this article and of article 24, no claim shall be recognized or enforced in any legal proceedings commenced after the expiration of the limitation period. (2) Notwithstanding the expiration of the limitation period, one party may rely on his claim as a defence or for the purpose of set-off against a claim asserted by the other party, provided that in the latter case this may only be done: a) If both claims relate to the same contract or to several contracts concluded in the course of the same transaction; or b) If the claims could have been set-off at any time before the expiration of the limitation period. Article 26 Where the debtor performs his obligation after the expiration of the limitation period, he shall not on that ground be entitled in any way to claim restitution even if he did not know at the time when he performed his obligation that the limitation period had expired. Article 27 The expiration of the limitation period with respect to a principal debt shall have the same effect with respect to an obligation to pay interest on that debt. Calculation of the period Article 28 (1) The limitation period shall be calculated in such a way that it shall expire at the end of the day which corresponds to the date on which the period commenced to run. If there is no such corresponding date, the period shall expire at the end of the last day of the last month of the limitation period. (2) The limitation period shall be calculated by reference to the date of the place where the legal proceedings are instituted. Article 29 Where the last day of the limitation period falls on an official holiday or other dies non juridicus precluding the appropriate legal action in the jurisdiction where the creditor institutes legal proceedings or asserts a claim as envisaged in article 13, 14 or 15, the limitation period shall be extended so as not to expire until the end of the first day following that official holiday or dies non juridicus on which such proceedings could be instituted or on which such a claim could be asserted in that jurisdiction.

888  Part II: Uniform Law International effect Article 30 The acts and circumstances referred to in articles 13 through 19 which have taken place in one Contracting State shall have effect for the purposes of this Convention in another Contracting State, provided that the creditor has taken all reasonable steps to ensure that the debtor is informed of the relevant act or circumstances as soon as possible. PART II: IMPLEMENTATION Article 31 (1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification or accession, declare that this Convention shall extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time. (2) These declarations shall be notified to the Secretary-General of the United Nations and shall state expressly the territorial units to which the Convention applies. (3) If a Contracting State described in paragraph (1) of this article makes no declaration at the time of signature, ratification or accession, the Convention shall have effect within all territorial units of that State. (4) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party to a contract is located in that State, this place of business shall, for the purposes of this Convention, be considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends. Article 32 Where in this Convention reference is made to the law of a State in which different systems of law apply, such reference shall be construed to mean the law of the particular legal system concerned. Article 33 Each Contracting State shall apply the provisions of this Convention to contracts concluded on or after the date of the entry into force of this Convention.

UN Convention on Limitation Periods 889 PART III: DECLARATIONS AND RESERVATIONS Article 34 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention shall not apply to contracts of international sale of goods where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations. (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention shall not apply to contracts of international sale of goods where the parties have their places of business in those States. (3) If a State which is the object of a declaration under paragraph (2) of this article subsequently becomes a Contracting State, the declaration made shall, as from the date on which this Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration. Article 35 A Contracting State may declare, at the time of the deposit of its instrument of ratification or accession, that it will not apply the provisions of this Convention to actions for annulment of the contract. Article 36 Any State may declare, at the time of the deposit of its instrument of ratification or accession, that it shall not be compelled to apply the provisions of article 24 of this Convention. Article 36 bis Any State may declare at the time of the deposit of its instrument of accession or its notification under article 43 bis that it will not be bound by the amendments to article 3 made by article I of the 1980 Protocol. A declaration made under this article shall be in writing and be formally notified to the depositary. Article 37 This Convention shall not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the seller and buyer have their places of business in States parties to such agreement.

890  Part II: Uniform Law Article 38 (1) A Contracting State which is a party to an existing convention relating to the international sale of goods may declare, at the time of the deposit of its instrument of ratification or accession, that it will apply this Convention exclusively to contracts of international sale of goods as defined in such existing convention. (2) Such declaration shall cease to be effective on the first day of the month following the expiration of 12 months after a new convention on the international sale of goods, concluded under the auspices of the United Nations, shall have entered into force. Article 39 No reservation other than those made in accordance with articles 34, 35, 36, 36 bis and 38 shall be permitted. Article 40 (1) Declarations made under this Convention shall be addressed to the SecretaryGeneral of the United Nations and shall take effect simultaneously with the entry of this Convention into force in respect of the State concerned, except declarations made thereafter. The latter declarations shall take effect on the first day of the month following the expiration of six months after the date of their receipt by the Secretary-General of the United Nations. Reciprocal unilateral declarations under article 34 shall take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the Secretary-General of the United Nations. (2) Any State which has made a declaration under this Convention may withdraw it at any time by a notification addressed to the Secretary-General of the United Nations. Such withdrawal shall take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the Secretary-General of the United Nations. In the case of a declaration made under article 34 of this Convention, such withdrawal shall also render inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article. PART IV: FINAL CLAUSES Article 41 This Convention shall be open until 31 December 1975 for signature by all States at the Headquarters of the United Nations. Article 42 This Convention is subject to ratification. The instruments of ratification shall be deposited with the Secretary-General of the United Nations.

UN Convention on Limitation Periods 891 Article 43 This Convention shall remain open for accession by any State. The instruments of accession shall be deposited with the Secretary-General of the United Nations. Article 43 bis If a State ratifies or accedes to the 1974 Limitation Convention after the entry into force of the 1980 Protocol, the ratification or accession shall also constitute a ­ratification or an accession to the Convention as amended by the 1980 Protocol if the State notifies the depositary accordingly. Article 43 ter Accession to the 1980 Protocol by any State which is not a Contracting Party to the 1974 Limitation Convention shall have the effect of accession to that Convention as amended by the Protocol, subject to the provisions of article 44 bis. Article 44 (1) This Convention shall enter into force on the first day of the month following the expiration of six months after the date of the deposit of the tenth instrument of ratification or accession. (2) For each State ratifying or acceding to this Convention after the deposit of the tenth instrument of ratification or accession, this Convention shall enter into force on the first day of the month following the expiration of six months after the date of the deposit of its instrument of ratification of accession. Article 44 bis Any State which becomes a Contracting Party to the 1974 Limitation Convention, as amended by the 1980 Protocol, shall, unless it notifies the depositary to the contrary, be considered to be also a Contracting Party to the Convention, unamended, in relation to any Contracting Party to the Convention not yet a Contracting Party to the 1980 Protocol. Article 45 (1) Any Contracting State may denounce this Convention by notifying the ­Secretary-General of the United Nations to that effect. (2) The denunciation shall take effect on the first day of the month following the expiration of 12 months after receipt of the notification by the SecretaryGeneral of the United Nations. Article 45 bis Any Contracting State in respect of which the 1980 Protocol ceases to have effect by the application of paragraphs (1) and (2) of article XIII of the 1980 Protocol

892  Part II: Uniform Law shall remain a Contracting Party to the 1974 Limitation Convention, unamended, unless it denounces the unamended Convention in accordance with article 45 of that Convention. Article 46 The original of this Convention, of which the Chinese, English, French, Russian and Spanish texts are equally authentic, shall be deposited with the Secretary-General of the United Nations.

United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980* (Misc 24 (1980), Cmnd 8074, UN Doc A/Conf 97/18, 19 ILM 671) The States Parties to this Convention, Bearing in mind the broad objectives in the resolutions adopted by the sixth ­special session of the General Assembly of the United Nations on the e­ stablishment of a New International Economic Order, Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States, Being of the opinion that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, Have agreed as follows: PART I SPHERE OF APPLICATION AND GENERAL PROVISIONS CHAPTER I SPHERE OF APPLICATION Article 1 (1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: a) When the States are Contracting States; or b) When the rules of private international law lead to the application of the law of a Contracting State.

* 

The Convention has not come into force in the United Kingdom.

894  Part II: Uniform Law (2) The fact that the parties have their places of business in different States is to be disregarded whenever this fact does not appear either from the contract or from any dealings between, or from information disclosed by, the parties at any time before or at the conclusion of the contract. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract is to be taken into consideration in determining the application of this Convention. Article 2 This Convention does not apply to sales: a) Of goods bought for personal, family or household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use; b) By auction; c) On execution or otherwise by authority of law; d) Of stocks, shares, investment securities, negotiable instruments or money; e) Of ships, vessels, hovercraft or aircraft; f) Of electricity. Article 3 (1) Contracts for the supply of goods to be manufactured or produced are to be considered sales unless the party who orders the goods undertakes to supply a substantial part of the materials necessary for such manufacture or production. (2) This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labour or other services. Article 4 This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: a) The validity of the contract or of any of its provisions or of any usage; b) The effect which the contract may have on the property in the goods sold. Article 5 This Convention does not apply to the liability of the seller for death or personal injury caused by the goods to any person. Article 6 The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions.

UN Convention on Sale of Goods 895 CHAPTER II GENERAL PROVISIONS Article 7 (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Article 8 (1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. (2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. (3) In determining the intent of a party or the understanding a reasonable ­person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties. Article 9 (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. Article 10 For the purposes of this Convention: a) If a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; b) If a party does not have a place of business, reference is to be made to his habitual residence.

896  Part II: Uniform Law Article 11 A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Article 12 Any provision of article 11, article 29 or Part II of this Convention that allows a ­contract of sale or its modification or termination by agreement or any offer, acceptance or other indication of intention to be made in any form other than in writing does not apply where any party has his place of business in a Contracting State which has made a declaration under article 96 of this Convention. The parties may not ­derogate from or vary the effect of this article. Article 13 For the purposes of this Convention “writing” includes telegram and telex. PART II FORMATION OF THE CONTRACT Article 14 (1) A proposal for concluding a contract addressed to one or more specific persons constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price. (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. Article 15 (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Article 16 (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. (2) However, an offer cannot be revoked: a) If it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or b) If it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

UN Convention on Sale of Goods 897 Article 17 An offer, even if it is irrevocable, is terminated when a rejection reaches the offeror. Article 18 (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph. Article 19 (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially. Article 20 (1) A period of time for acceptance fixed by the offeror in a telegram or a letter begins to run from the moment the telegram is handed in for dispatch or from the date shown on the letter or, if no such date is shown, from the date shown on the envelope. A period of time for acceptance fixed by the offeror by telephone, telex or other means of instantaneous communication, begins to run from the moment that the offer reaches the offeree.

898  Part II: Uniform Law (2) Official holidays or non-business days occurring during the period for acceptance are included in calculating the period. However, if a notice of acceptance cannot be delivered at the address of the offeror on the last day of the period because that day falls on an official holiday or a non-business day at the place of business of the offeror, the period is extended until the first business day which follows. Article 21 (1) A late acceptance is nevertheless effective as an acceptance if without delay the offeror orally so informs the offeree or dispatches a notice to that effect. (2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror orally informs the offeree that he considers his offer as having lapsed or dispatches a notice to that effect. Article 22 An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. Article 23 A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention. Article 24 For the purposes of this Part of the Convention, an offer, declaration of acceptance or any other indication of intention “reaches” the addressee when it is made orally to him or delivered by any other means to him personally, to his place of business or mailing address or, if he does not have a place of business or mailing address, to his habitual residence. PART III SALE OF GOODS CHAPTER I GENERAL PROVISIONS Article 25 A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

UN Convention on Sale of Goods 899 Article 26 A declaration of avoidance of the contract is effective only if made by notice to the other party. Article 27 Unless otherwise expressly provided in this Part of the Convention, if any notice, request or other communication is given or made by a party in accordance with this Part and by means appropriate in the circumstances, a delay or error in the transmission of the communication or its failure to arrive does not deprive that party of the right to rely on the communication. Article 28 If, in accordance with the provisions of this Convention, one party is entitled to require performance of any obligation by the other party, a court is not bound to enter a judgement for specific performance unless the court would do so under its own law in respect of similar contracts of sale not governed by this Convention. Article 29 (1) A contract may be modified or terminated by the mere agreement of the parties. (2) A contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement. However, a party may be precluded by his conduct from asserting such a provision to the extent that the other party has relied on that conduct. CHAPTER II OBLIGATIONS OF THE SELLER Article 30 The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention. Section I Delivery of the goods and handing over of documents Article 31 If the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists: a) If the contract of sale involves carriage of the goods—in handing the goods over to the first carrier for transmission to the buyer;

900  Part II: Uniform Law b) If, in cases not within the preceding subparagraph, the contract relates to specific goods, or unidentified goods to be drawn from a specific stock or to be manufactured or produced, and at the time of the conclusion of the contract the parties knew that the goods were at, or were to be manufactured or produced at, a particular place—in placing the goods at the buyer’s disposal at that place; c) In other cases—in placing the goods at the buyer’s disposal at the place where the seller had his place of business at the time of the conclusion of the contract. Article 32 (1) If the seller, in accordance with the contract or this Convention, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (2) If the seller is bound to arrange for carriage of the goods, he must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (3) If the seller is not bound to effect insurance in respect of the carriage of the goods, he must, at the buyer’s request, provide him with all available information necessary to enable him to effect such insurance. Article 33 The seller must deliver the goods: a) If a date is fixed by or determinable from the contract, on that date; b) If a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or c) In any other case, within a reasonable time after the conclusion of the contract. Article 34 If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract. If the seller has handed over documents before that time, he may, up to that time, cure any lack of conformity in the documents, if the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention. Section II Conformity of the goods and third party claims Article 35 (1) The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

UN Convention on Sale of Goods 901 (2) Except where the parties have agreed otherwise, the goods do not conform with the contract unless they: a) Are fit for the purposes for which goods of the same description would ordinarily be used; b) Are fit for any particular purpose expressly or impliedly made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for him to rely, on the seller’s skill and judgement; c) Possess the qualities of goods which the seller had held out to the buyer as a sample or model; d) Are contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods. (3) The seller is not liable under subparagraphs (a) to (d) of the preceding ­paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity. Article 36 (1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time. (2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics. Article 37 If the seller has delivered goods before the date for delivery, he may, up to that date, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any non-conforming goods delivered or remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. However, the buyer retains any right to claim damages as provided for in this Convention. Article 38 (1) The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination.

902  Part II: Uniform Law (3) If the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the ­conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. Article 39 (1) The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it. (2) In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does not give the seller notice thereof at the latest within a period of two years from the date on which the goods were actually handed over to the buyer, unless this time-limit is inconsistent with a contractual period of guarantee. Article 40 The seller is not entitled to rely on the provisions of articles 38 and 39 if the lack of conformity relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer. Article 41 The seller must deliver goods which are free from any right or claim of a third party, unless the buyer agreed to take the goods subject to that right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller’s obligation is governed by article 42. Article 42 (1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property: a) Under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or b) in any other case, under the law of the State where the buyer has his place of business. (2) The obligation of the seller under the preceding paragraph does not extend to cases where: a) At the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or

UN Convention on Sale of Goods 903 b) The right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer. Article 43 (1) The buyer loses the right to rely on the provisions of article 41 or article 42 if he does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim. (2) The seller is not entitled to rely on the provisions of the preceding paragraph if he knew of the right or claim of the third party and the nature of it. Article 44 Notwithstanding the provisions of paragraph (1) of article 39 and paragraph (1) of article 43, the buyer may reduce the price in accordance with article 50 or claim damages, except for loss of profit, if he has a reasonable excuse for his failure to give the required notice. Section III Remedies for breach of contract by the seller Article 45 (1) If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may: a) Exercise the rights provided in articles 46 to 52; b) Claim damages as provided in articles 74 to 77. (2) The buyer is not deprived of any right he may have to claim damages by exercising his right to other remedies. (3) No period of grace may be granted to the seller by a court or arbitral tribunal when the buyer resorts to a remedy for breach of contract. Article 46 (1) The buyer may require performance by the seller of his obligations unless the buyer has resorted to a remedy which is inconsistent with this requirement. (2) If the goods do not conform with the contract, the buyer may require ­delivery of substitute goods only if the lack of conformity constitutes a fundamental breach of contract and a request for substitute goods is made either in conjunction with notice given under article 39 or within a reasonable time thereafter. (3) If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair, unless this is unreasonable having regard to all the circumstances. A request for repair must be made either in conjunction with notice given under article 39 or within a reasonable time thereafter.

904  Part II: Uniform Law Article 47 (1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations. (2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance. Article 48 (1) Subject to article 49, the seller may, even after the date for delivery, remedy at his own expense any failure to perform his obligations, if he can do so without unreasonable delay and without causing the buyer unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer. However, the buyer retains any right to claim d ­ amages as ­provided for in this Convention. (2) If the seller requests the buyer to make known whether he will accept performance and the buyer does not comply with the request within a reasonable time, the seller may perform within the time indicated in his request. The buyer may not, during that period of time, resort to any remedy which is inconsistent with performance by the seller. (3) A notice by the seller that he will perform within a specified period of time is assumed to include a request, under the preceding paragraph, that the buyer make known his decision. (4) A request or notice by the seller under paragraph (2) or (3) of this article is not effective unless received by the buyer. Article 49 (1) The buyer may declare the contract avoided: a) If the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or b) In case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed. (2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so: a) In respect of late delivery, within a reasonable time after he has become aware that delivery has been made; b) In respect of any breach other than late delivery, within a reasonable time: i) After he knew or ought to have known of the breach; ii) After the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the

UN Convention on Sale of Goods 905 seller has declared that he will not perform his obligations within such an additional period; or iii) After the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performance. Article 50 If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or ­article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price. Article 51 (1) If the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 apply in respect of the part which is missing or which does not conform. (2) The buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract. Article 52 (1) If the seller delivers the goods before the date fixed, the buyer may take delivery or refuse to take delivery. (2) If the seller delivers a quantity of goods greater than that provided for in the contract, the buyer may take delivery or refuse to take delivery of the excess quantity. If the buyer takes delivery of all or part of the excess quantity, he must pay for it at the contract rate. CHAPTER III OBLIGATIONS OF THE BUYER Article 53 The buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention.

906  Part II: Uniform Law Section I Payment of the price Article 54 The buyer’s obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made. Article 55 Where a contract has been validly concluded but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned. Article 56 If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. Article 57 (1) If the buyer is not bound to pay the price at any other particular place, he must pay it to the seller: a) At the seller’s place of business; or b) If the payment is to be made against the handing over of the goods or of documents, at the place where the handing over takes place. (2) The seller must bear any increase in the expenses incidental to payment which is caused by a change in his place of business subsequent to the conclusion of the contract. Article 58 (1) If the buyer is not bound to pay the price at any other specific time, he must pay it when the seller places either the goods or documents controlling their disposition at the buyer’s disposal in accordance with the contract and this Convention. The seller may make such payment a condition for handing over the goods or documents. (2) If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price. (3) The buyer is not bound to pay the price until he has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed upon by the parties are inconsistent with his having such an opportunity.

UN Convention on Sale of Goods 907 Article 59 The buyer must pay the price on the date fixed by or determinable from the contract and this Convention without the need for any request or compliance with any ­formality on the part of the seller. Section II Taking delivery Article 60 The buyer’s obligation to take delivery consists: a) In doing all the acts which could reasonably be expected of him in order to enable the seller to make delivery; and b) In taking over the goods. Section III Remedies for breach of contract by the buyer Article 61 (1) If the buyer fails to perform any of his obligations under the contract or this Convention, the seller may: a) Exercise the rights provided in articles 62 to 65; b) Claim damages as provided in articles 74 to 77. (2) The seller is not deprived of any right he may have to claim damages by ­exercising his right to other remedies. (3) No period of grace may be granted to the buyer by a court or arbitral ­tribunal when the seller resorts to a remedy for breach of contract. Article 62 The seller may require the buyer to pay the price, take delivery or perform his other obligations, unless the seller has resorted to a remedy which is inconsistent with this requirement. Article 63 (1) The seller may fix an additional period of time of reasonable length for ­performance by the buyer of his obligations. (2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance.

908  Part II: Uniform Law Article 64 (1) The seller may declare the contract avoided: a) If the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or b) If the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed. (2) However, in cases where the buyer has paid the price, the seller loses the right to declare the contract avoided unless he does so: a) In respect of late performance by the buyer, before the seller has become aware that performance has been rendered; or b) In respect of any breach other than late performance by the buyer, within a reasonable time: (i) After the seller knew or ought to have known of the breach; or (ii) After the expiration of any additional period of time fixed by the seller in accordance with paragraph (1) of article 63, or after the buyer has declared that he will not perform his obligations within such an additional period. Article 65 (1) If under the contract the buyer is to specify the form, measurement or other features of the goods and he fails to make such specification either on the date agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights he may have, make the specification himself in accordance with the requirements of the buyer that may be known to him. (2) If the seller makes the specification himself, he must inform the buyer of the details thereof and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding. CHAPTER IV PASSING OF RISK Article 66 Loss of or damage to the goods after the risk has passed to the buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the seller.

UN Convention on Sale of Goods 909 Article 67 (1) If the contract of sale involves carriage of the goods and the seller is not bound to hand them over at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract of sale. If the seller is bound to hand the goods over to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. The fact that the seller is authorized to retain documents controlling the disposition of the goods does not affect the passage of the risk. (2) Nevertheless, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise. Article 68 The risk in respect of goods sold in transit passes to the buyer from the time of the conclusion of the contract. However, if the circumstances so indicate, the risk is assumed by the buyer from the time the goods were handed over to the carrier who issued the documents embodying the contract of carriage. Nevertheless, if at the time of the conclusion of the contract of sale the seller knew or ought to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Article 69 (1) In cases not within articles 67 and 68, the risk passes to the buyer when he takes over the goods or, if he does not do so in due time, from the time when the goods are placed at his disposal and he commits a breach of contract by failing to take delivery. (2) However, if the buyer is bound to take over the goods at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at his disposal at that place. (3) If the contract relates to goods not then identified, the goods are considered not to be placed at the disposal of the buyer until they are clearly identified to the contract. Article 70 If the seller has committed a fundamental breach of contract, articles 67, 68 and 69 do not impair the remedies available to the buyer on account of the breach.

910  Part II: Uniform Law CHAPTER V PROVISIONS COMMON TO THE OBLIGATIONS OF THE SELLER AND OF THE BUYER Section I Anticipatory breach and instalment contracts Article 71 (1) A party may suspend the performance of his obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations as a result of: a) A serious deficiency in his ability to perform or in his creditworthiness; or b) His conduct in preparing to perform or in performing the contract. (2) If the seller has already dispatched the goods before the grounds described in the preceding paragraph become evident, he may prevent the handing over of the goods to the buyer even though the buyer holds a document which entitles him to obtain them. The present paragraph relates only to the rights in the goods as between the buyer and the seller. (3) A party suspending performance, whether before or after dispatch of the goods, must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of his performance. Article 72 (1) If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided. (2) If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance. (3) The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations. Article 73 (1) In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment. (2) If one party’s failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, he may declare the contract avoided for the future, provided that he does so within a reasonable time.

UN Convention on Sale of Goods 911 (3) A buyer who declares the contract avoided in respect of any delivery may, at the same time, declare it avoided in respect of deliveries already made or of future deliveries if, by reason of their interdependence, those deliveries could not be used for the purpose contemplated by the parties at the time of the conclusion of the contract. Section II Damages Article 74 Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible ­consequence of the breach of contract. Article 75 If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74. Article 76 (1) If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance. (2) For the purposes of the preceding paragraph, the current price is the price prevailing at the place where delivery of the goods should have been made or, if there is no current price at that place, the price at such other place as serves as a reasonable substitute, making due allowance for differences in the cost of transporting the goods. Article 77 A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.

912  Part II: Uniform Law Section III Interest Article 78 If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74. Section IV Exemptions Article 79 (1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. (2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: a) He is exempt under the preceding paragraph; and b) The person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him. (3) The exemption provided by this article has effect for the period during which the impediment exists. (4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt. (5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention. Article 80 A party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party’s act or omission. Article 81 (1) Avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due. Avoidance does not affect any provision of the contract for the settlement of disputes or any other provision of the contract governing the rights and obligations of the parties consequent upon the avoidance of the contract.

UN Convention on Sale of Goods 913 (2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently. Article 82 (1) The buyer loses the right to declare the contract avoided or to require the seller to deliver substitute goods if it is impossible for him to make restitution of the goods substantially in the condition in which he received them. (2) The preceding paragraph does not apply: a) if the impossibility of making restitution of the goods or of making restitution of the goods substantially in the condition in which the buyer received them is not due to his act or omission; b) if the goods or part of the goods have perished or deteriorated as a result of the examination provided for in article 38; or c) if the goods or part of the goods have been sold in the normal course of business or have been consumed or transformed by the buyer in the course of normal use before he discovered or ought to have discovered the lack of conformity. Article 83 A buyer who has lost the right to declare the contract avoided or to require the seller to deliver substitute goods in accordance with article 82 retains all other remedies under the contract and this Convention. Article 84 (1) If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid. (2) The buyer must account to the seller for all benefits which he has derived from the goods or part of them: a) if he must make restitution of the goods or part of them; or b) if it is impossible for him to make restitution of all or part of the goods or to make restitution of all or part of the goods substantially in the condition in which he received them, but he has nevertheless declared the contract avoided or required the seller to deliver substitute goods. Section VI Preservation of the goods Article 85 If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to

914  Part II: Uniform Law preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer. Article 86 (1) If the buyer has received the goods and intends to exercise any right under the contract or this Convention to reject them, he must take such steps to preserve them as are reasonable in the circumstances. He is entitled to retain them until he has been reimbursed his reasonable expenses by the seller. (2) If goods dispatched to the buyer have been placed at his disposal at their destination and he exercises the right to reject them, he must take possession of them on behalf of the seller, provided that this can be done without payment of the price and without unreasonable inconvenience or unreasonable expense. This provision does not apply if the seller or a person authorized to take charge of the goods on his behalf is present at the destination. If the buyer takes possession of the goods under this paragraph, his rights and obligations are governed by the preceding paragraph. Article 87 A party who is bound to take steps to preserve the goods may deposit them in a warehouse of a third person at the expense of the other party provided that the expense incurred is not unreasonable. Article 88 (1) A party who is bound to preserve the goods in accordance with article 85 or 86 may sell them by any appropriate means if there has been an unreasonable delay by the other party in taking possession of the goods or in taking them back or in paying the price or the cost of preservation, provided that reasonable notice of the intention to sell has been given to the other party. (2) If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell. (3) A party selling the goods has the right to retain out of the proceeds of sale an amount equal to the reasonable expenses of preserving the goods and of selling them. He must account to the other party for the balance. PART IV FINAL PROVISIONS Article 89 The Secretary-General of the United Nations is hereby designated as the depositary for this Convention.

UN Convention on Sale of Goods 915 Article 90 This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement. Article 91 (1) This Convention is open for signature at the concluding meeting of the United Nations Conference on Contracts for the International Sale of Goods and will remain open for signature by all States at the Headquarters of the United Nations, New York until 30 September 1981. (2) This Convention is subject to ratification, acceptance or approval by the signatory States. (3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature. (4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations. Article 92 (1) A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this ­Convention or that it will not be bound by Part III of this Convention. (2) A Contracting State which makes a declaration in accordance with the ­preceding paragraph in respect of Part II or Part III of this Convention is not to be considered a Contracting State within paragraph (1) of article 1 of this Convention in respect of matters governed by the Part to which the declaration applies. Article 93 (1) If a Contracting State has two or more territorial units in which, according to its constitution, different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time. (2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends.

916  Part II: Uniform Law (4) If a Contracting State makes no declaration under paragraph (1) of this ­article, the Convention is to extend to all territorial units of that State. Article 94 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations. (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply to contracts of sale or to their formation where the parties have their places of business in those States. (3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph (1), provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration. Article 95 Any State may declare at the time of the deposit of its instrument of ratification, acceptance, approval or accession that it will not be bound by subparagraph (1)(b) of article 1 of this Convention. Article 96 A Contracting State whose legislation requires contracts of sale to be concluded in or evidenced by writing may at any time make a declaration in accordance with article 12 that any provision of article 11, article 29, or Part II of this Convention, that allows a contract of sale or its modification or termination by agreement or any offer, acceptance, or other indication of intention to be made in any form other than in writing, does not apply where any party has his place of business in that State. Article 97 (1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval. (2) Declarations and confirmations of declarations are to be in writing and be formally notified to the depositary. (3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral

UN Convention on Sale of Goods 917 declarations under article 94 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary. (4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. (5) A withdrawal of a declaration made under article 94 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that article. Article 98 No reservations are permitted except those expressly authorized in this Convention. Article 99 (1) This Convention enters into force, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession, including an instrument which contains a declaration made under article 92. (2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention, with the exception of the Part excluded, enters into force in respect of that State, subject to the provisions of paragraph (6) of this article, on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, ­acceptance, approval or accession. (3) A State which ratifies, accepts, approves or accedes to this Convention and is a party to either or both the Convention relating to a Uniform Law on the Formation of Contracts for the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Formation Convention) and the ­Convention relating to a Uniform Law on the International Sale of Goods done at The Hague on 1 July 1964 (1964 Hague Sales Convention) shall at the same time denounce, as the case may be, either or both the 1964 Hague Sales Convention and the 1964 Hague Formation Convention by notifying the Government of the Netherlands to that effect. (4) A State party to the 1964 Hague Sales Convention which ratifies, accepts, approves or accedes to the present Convention and declares or has declared under article 52 that it will not be bound by Part II of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Sales Convention by notifying the Government of the Netherlands to that effect. (5) A State party to the 1964 Hague Formation Convention which ratifies, accepts, approves or accedes to the present Convention and declares or

918  Part II: Uniform Law has declared under article 92 that it will not be bound by Part III of this Convention shall at the time of ratification, acceptance, approval or accession denounce the 1964 Hague Formation Convention by notifying the ­Government of the Netherlands to that effect. (6) For the purpose of this article, ratifications, acceptances, approvals and accessions in respect of this Convention by States parties to the 1964 Hague Formation Convention or to the 1964 Hague Sales Convention shall not be effective until such denunciations as may be required on the part of those States in respect of the latter two Conventions have themselves become ­effective. The depositary of this Convention shall consult with the ­Government of the Netherlands, as the depositary of the 1964 Conventions, so as to ensure necessary co-ordination in this respect. Article 100 (1) This Convention applies to the formation of a contract only when the proposal for concluding the contract is made on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1. (2) This Convention applies only to contracts concluded on or after the date when the Convention enters into force in respect of the Contracting States referred to in subparagraph (1)(a) or the Contracting State referred to in subparagraph (1)(b) of article 1. Article 101 (1) A Contracting State may denounce this Convention, or Part II or Part III of the Convention, by a formal notification in writing addressed to the depositary. (2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary. Done at Vienna, this day of eleventh day of April, one thousand nine hundred and eighty, in a single original, of which the Arabic, Chinese, ­ ­English, French, Russian and Spanish texts are equally authentic. In witness whereof the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed this Convention.

Convention on Agency in the International Sale of Goods of 17 February 1983 (Geneva)* (22 ILM 249) The States Parties to this Convention, Desiring to establish common provisions concerning agency in the international sale of goods, Bearing in mind the objectives of the United Nations Convention on Contracts for the International Sale of Goods, Considering that the development of international trade on the basis of equality and mutual benefit is an important element in promoting friendly relations among States, bearing in mind the New International Economic Order, Being of the opinion that the adoption of uniform rules which govern agency in the international sale of goods and take into account the different social, ­economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade, Have agreed as follows: CHAPTER I  SPHERE OF APPLICATION AND GENERAL PROVISIONS Article 1 (1) This Convention applies where one person, the agent, has authority or ­purports to have authority on behalf of another person, the principal, to conclude a contract of sale of goods with a third party. (2) It governs not only the conclusion of such a contract by the agent but also any act undertaken by him for the purpose of concluding that contract or in relation to its performance. (3) It is concerned only with relations between the principal or the agent on the one hand, and the third party on the other. * 

The Convention is published in the American Journal of Comparative Law 32 (1984) 751ff. The Convention has not been adopted by the UK.

920  Part II: Uniform Law (4) It applies irrespective of whether the agent acts in his own name or in that of the principal. Article 2 (1) This Convention applies only where the principal and the third party have their places of business in different States and: a) the agent has his place of business in a Contracting State, or b) the rules of private international law lead to the application of the law of a Contracting State. (2) Where, at the time of contracting, the third party neither knew nor ought to have known that the agent was acting as an agent, the Convention only applies if the agent and the third party had their places of business in different States and if the requirements of paragraph 1 are satisfied. (3) Neither the nationality of the parties nor the civil or commercial character of the parties or of the contract of sale is to be taken into consideration in determining the application of this Convention. Article 3 (1) This Convention does not apply to: a) the agency of a dealer on a stock, commodity or other exchange; b) the agency of an auctioneer; c) agency by operation of law in family law, in the law of matrimonial property, or in the law of succession; d) agency arising from statutory or judicial authorization to act for a p ­ erson without capacity to act; e) agency by virtue of a decision of a judicial or quasi-judicial authority or subject to the direct control of such an authority. (2) Nothing in this Convention affects any rule of law for the protection of consumers. Article 4 For the purposes of this Convention: a) an organ, officer or partner of a corporation, association, partnership or other entity, whether or not possessing legal personality, shall not be regarded as the agent of that entity in so far as, in the exercise of his functions as such, he acts by virtue of an authority conferred by law or by the constitutive documents of that entity; b) a trustee shall not be regarded as an agent of the trust, of the person who has created the trust, or of the beneficiaries. Article 5 The principal, or an agent acting in accordance with the express or implied ­instructions of the principal, may agree with the third party to exclude the a­ pplication of this

Convention on Agency 921 Convention or, subject to Article 11, to derogate from or vary the effect of any of its provisions. Article 6 (1) In the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Article 7 (1) The principal or the agent on the one hand and the third party on the other are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) They are considered, unless otherwise agreed, to have impliedly made applicable to their relations any usage of which they knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to agency relations of the type involved in the particular trade concerned. Article 8 For the purposes of this Convention: a) if a party has more than one place of business, the place of business is that which has the closest relationship to the contract of sale, having regard to the circumstances known to or contemplated by the parties at the time of contracting; b) if a party does not have a place of business, reference is to be made to his habitual residence. CHAPTER II  ESTABLISHMENT AND SCOPE OF THE AUTHORITY OF THE AGENT Article 9 (1) The authorization of the agent by the principal may be express or implied. (2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authorization was given. Article 10 The authorization need not be given in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.

922  Part II: Uniform Law Article 11 Any provision of Article 10, Article 15 or Chapter IV which allows an authorization, a ratification or a termination of authority to be made in any form other than in writing does not apply where the principal or the agent has his place of business in a Contracting State which has made a declaration under Article 27. The parties may not derogate from or vary the effect of this paragraph. CHAPTER III  LEGAL EFFECTS OF ACTS CARRIED OUT BY THE AGENT Article 12 Where an agent acts on behalf of a principal within the scope of his authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly bind the principal and the third party to each other, unless it follows from the circumstances of the case, for example by a reference to a contract of commission, that the agent undertakes to bind himself only. Article 13 (1) Where the agent acts on behalf of a principal within the scope of his ­authority, his acts shall bind only the agent and the third party if: a) the third party neither knew nor ought to have known that the agent was acting as an agent, or b) it follows from the circumstances of the case, for example by a reference to a contract of commission, that the agent undertakes to bind himself only. (2) Nevertheless: a) where the agent, whether by reason of the third party’s failure of performance or for any other reason, fails to fulfil or is not in a position to fulfil his obligations to the principal, the principal may exercise against the third party the rights acquired on the principal’s behalf by the agent, subject to any defences which the third party may set up against the agent; b) where the agent fails to fulfil or is not in a position to fulfil his obligations to the third party, the third party may exercise against the principal the rights which the third party has against the agent, subject to any defences which the agent may set up against the third party and which the principal may set up against the agent. (3) The rights under paragraph 2 may be exercised only if notice of intention to exercise them is given to the agent and the third party or principal, as the case may be. As soon as the third party or principal has received such notice, he may no longer free himself from his obligations by dealing with the agent. (4) Where the agent fails to fulfil or is not in a position to fulfil his obligations to the third party because of the principal’s failure of performance, the agent shall communicate the name of the principal to the third party.

Convention on Agency 923 (5) Where the third party fails to fulfil his obligations under the contract to the agent, the agent shall communicate the name of the third party to the principal. (6) The principal may not exercise against the third party the rights acquired on his behalf by the agent if it appears from the circumstances of the case that the third party, had he known the principal’s identity, would not have entered into the contract. (7) An agent may, in accordance with the express or implied instructions of the principal, agree with the third party to derogate from or vary the effect of paragraph 2. Article 14 (1) Where an agent acts without authority or acts outside the scope of his authority, his acts do not bind the principal and the third party to each other. (2) Nevertheless, where the conduct of the principal causes the third party reasonably and in good faith to believe that the agent has authority to act on behalf of the principal and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent. Article 15 (1) An act by an agent who acts without authority or who acts outside the scope of his authority may be ratified by the principal. On ratification the act produces the same effects as if it had initially been carried out with authority. (2) Where, at the time of the agent’s act, the third party neither knew nor ought to have known of the lack of authority, he shall not be liable to the principal if, at any time before ratification, he gives notice of his refusal to become bound by a ratification. Where the principal ratifies but does not do so within a reasonable time, the third party may refuse to be bound by the ratification if he promptly notifies the principal. (3) Where, however, the third party knew or ought to have known of the lack of authority of the agent, the third party may not refuse to become bound by a ratification before the expiration of any time agreed for ratification or, failing agreement, such reasonable time as the third party may specify. (4) The third party may refuse to accept a partial ratification. (5) Ratification shall take effect when notice of it reaches the third party or the ratification otherwise comes to his attention. Once effective, it may not be revoked. (6) Ratification is effective notwithstanding that the act itself could not have been effectively carried out at the time of ratification. (7) Where the act has been carried out on behalf of a corporation or other legal person before its creation, ratification is effective only if allowed by the law of the State governing its creation. (8) Ratification is subject to no requirement as to form. It may be express or may be inferred from the conduct of the principal.

924  Part II: Uniform Law Article 16 (1) An agent who acts without authority or who acts outside the scope of his authority shall, failing ratification, be liable to pay the third party such compensation as will place the third party in the same position as he would have been in if the agent had acted with authority and within the scope of his authority. (2) The agent shall not be liable, however, if the third party knew or ought to have known that the agent had no authority or was acting outside the scope of his authority. CHAPTER IV  TERMINATION OF THE AUTHORITY OF THE AGENT Article 17 The authority of the agent is terminated: a) when this follows from any agreement between the principal and the agent; b) on completion of the transaction or transactions for which the authority was created; c) on revocation by the principal or renunciation by the agent, whether or not this is consistent with the terms of their agreement. Article 18 The authority of the agent is also terminated when the applicable law so provides. Article 19 The termination of the authority shall not affect the third party unless he knew or ought to have known of the termination or the facts which caused it. Article 20 Notwithstanding the termination of his authority, the agent remains authorised to perform on behalf of the principal or his successors the acts which are necessary to prevent damage to their interests. CHAPTER V  FINAL PROVISIONS Article 21 The Government of Switzerland is hereby designated as the depositary for this Convention. Article 22 (1) This Convention is open for signature at the concluding meeting of the ­Diplomatic Conference on Agency in the International Sale of Goods and will remain open for signature by all States at Berne until 31 December 1984.

Convention on Agency 925 (2) This Convention is subject to ratification, acceptance or approval by the ­signatory States. (3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature. (4) Instruments of ratification, acceptance, approval and accession are to be deposited with the Government of Switzerland. Article 23 This Convention does not prevail over any international agreement which has already been or may be entered into and which contains provisions of substantive law concerning the matters governed by this Convention, provided that the principal and the third party or, in the case referred to in Article 2, paragraph 2, the agent and the third party have their places of business in States parties to such agreement. Article 24 (1) If a Contracting State has two or more territorial units in which different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may amend its declaration by submitting another declaration at any time. (2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this Article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends. (4) If a Contracting State makes no declaration under paragraph 1 of this Article, the Convention is to extend to all territorial units of that State. Article 25 Where a Contracting State has a system of government under which executive, judicial and legislative powers are distributed between central and other authorities within that State, its signature or ratification, acceptance or approval of, or accession to this Convention, or its making of any declaration in terms of Article 24 shall carry no implication as to the internal distribution of powers within that State. Article 26 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply where the principal and the third party or, in the case referred to in Article 2, paragraph 2, the agent and the third party have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.

926  Part II: Uniform Law (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply where the principal and the third party or, in the case referred to in Article 2, paragraph 2, the agent and the third party have their places of business in those States. (3) If a State which is the object of a declaration under the preceding paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the effect of a declaration made under paragraph 1, provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration. Article 27 A Contracting State whose legislation requires an authorization, ratification or termination of authority to be made in or evidenced by writing in all cases governed by this Convention may at any time make a declaration in accordance with Article 11 that any provision of Article 10, Article 15 or Chapter IV which allows an authorization, ratification or termination of authority to be other than in writing, does not apply where the principal or the agent has his place of business in that State. Article 28 A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Article 2, paragraph 1(b). Article 29 A Contracting State, the whole or specific parts of the foreign trade of which are carried on exclusively by specially authorized organizations, may at any time declare that, in cases where such organizations act either as buyers or sellers in foreign trade, all these organizations or the organizations specified in the declaration shall not be considered, for the purposes of Article 13, paragraphs 2(b) and 4, as agents in their relations with other organizations having their place of business in the same State. Article 30 (1) A Contracting State may at any time declare that it will apply the provisions of this Convention to specified cases falling outside its sphere of application. (2) Such declaration may, for example, provide that the Convention shall apply to: a) contracts other than contracts of sale of goods; b) cases where the places of business mentioned in Article 2, paragraph 1, are not situated in Contracting States.

Convention on Agency 927 Article 31 (1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval. (2) Declarations and confirmations of declarations are to be in writing and to be formally notified to the depositary. (3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under Article 26 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary. (4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. (5) A withdrawal of a declaration made under Article 26 renders inoperative, as from the date on which the withdrawal takes effect, any reciprocal declaration made by another State under that Article. Article 32 No reservations are permitted except those expressly authorized in this Convention. Article 33 (1) This Convention enters into force on the first day of the month following the expiration of twelve months after the date of deposit of the tenth instrument of ratification, acceptance, approval or accession. (2) When a State ratifies, accepts, approves or accedes to this Convention after the deposit of the tenth instrument of ratification, acceptance, approval or accession, this Convention enters into force in respect of that State on the first day of the month following the expiration of twelve months after the date of the deposit of its instrument of ratification, acceptance, approval or accession. Article 34 This Convention applies when the agent offers to sell or purchase or accepts an offer of sale or purchase on or after the date when the Convention enters into force in respect of the Contracting State referred to in Article 2, paragraph 1.

928  Part II: Uniform Law Article 35 (1) A Contracting State may denounce this Convention by a formal notification in writing to the depositary. (2) The denunciation takes effect on the first day of the month following the expiration of twelve months after the notification is received by the depositary. Where a longer period for the denunciation to take effect is specified in the notification, the denunciation takes effect upon the expiration of such longer period after the notification is received by the depositary. In witness whereof the undersigned plenipotentiaries, being duly a­ uthorized by their respective Governments, have signed this Convention. Done at Geneva this seventeenth day of February, one thousand nine ­hundred and eighty-three, in a single original, of which the English and French texts are equally authentic.

Convention on the law applicable to Trusts and their Recognition1 of 1 July 1985 (The Hague) (UKTS 14 (1992), Cm 1823) The States signatory to the present Convention Considering that the trust, as developed in courts of equity in common law jurisdictions and adopted with some modifications in other jurisdictions, is a unique legal institution, Desiring to establish common provisions on the law applicable to trusts and to deal with the most important issues concerning the recognition of trusts, Have resolved to conclude a Convention to this effect, and have agreed upon the following provisions: CHAPTER I—SCOPE Article 1 This Convention specifies the law applicable to trusts and governs their recognition. Article 2 For the purposes of this Convention, the term “trust” refers to the legal relationships created—inter vivos or on death—by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. A trust has the following characteristics— a) the assets constitute a separate fund and are not a part of the trustee’s own estate; b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

1 

The UK has ratified the Convention.

930  Part II: Uniform Law c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law. The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself have rights as a beneficiary, are not necessarily inconsistent with the existence of a trust. Article 3 The Convention applies only to trusts created voluntarily and evidenced in writing. Article 4 The Convention does not apply to preliminary issues relating to the validity of wills or of other acts by virtue of which assets are transferred to the trustee. Article 5 The Convention does not apply to the extent that the law specified by Chapter II does not provide for trusts or the category of trusts involved. CHAPTER II—APPLICABLE LAW Article 6 A trust shall be governed by the law chosen by the settlor. The choice must be express or be implied in the terms of the instrument creating or the writing evidencing the trust, interpreted, if necessary, in the light of the circumstances of the case. Where the law chosen under the previous paragraph does not provide for trusts or the category of trust involved, the choice shall not be effective and the law specified in Article 7 shall apply. Article 7 Where no applicable law has been chosen, a trust shall be governed by the law with which it is most closely connected. In ascertaining the law with which a trust is most closely connected reference shall be made in particular to— a) b) c) d)

the place of administration of the trust designated by the settlor; the situs of the assets of the trust; the place of residence or business of the trustee; the objects of the trust and the places where they are to be fulfilled. Article 8

The law specified by Article 6 or 7 shall govern the validity of the trust, its construction, its effects, and the administration of the trust.

Convention on Trusts 931 In particular that law shall govern— a) the appointment, resignation and removal of trustees, the capacity to act as a trustee, and the devolution of the office of trustee; b) the rights and duties of trustees among themselves; c) the right of trustees to delegate in whole or in part the discharge of their duties or the exercise of their powers; d) the power of trustees to administer or to dispose of trust assets, to create security interests in the trust assets, or to acquire new assets; e) the powers of investment of trustees; f) restrictions upon the duration of the trust, and upon the power to accumulate the income of the trust; g) the relationships between the trustees and the beneficiaries including the personal liability of the trustees to the beneficiaries; h) the variation or termination of the trust; i) the distribution of the trust assets; j) the duty of trustees to account for their administration. Article 9 In applying this Chapter a severable aspect of the trust, particularly matters of administration, may be governed by a different law. Article 10 The law applicable to the validity of the trust shall determine whether that law or the law governing a severable aspect of the trust may be replaced by another law. CHAPTER III—RECOGNITION Article 11 A trust created in accordance with the law specified by the preceding Chapter shall be recognized as a trust. Such recognition shall imply, as a minimum, that the trust property constitutes a separate fund, that the trustee may sue and be sued in his capacity as trustee, and that he may appear or act in this capacity before a notary or any person acting in an official capacity. In so far as the law applicable to the trust requires or provides, such recognition shall imply, in particular— a) that personal creditors of the trustee shall have no recourse against the trust assets; b) that the trust assets shall not form part of the trustee’s estate upon his insolvency or bankruptcy; c) that the trust assets shall not form part of the matrimonial property of the trustee or his spouse nor part of the trustee’s estate upon his death; d) that the trust assets may be recovered when the trustee, in breach of trust, has mingled trust assets with his own property or has alienated trust assets.

932  Part II: Uniform Law However, the rights and obligations of any third party holder of the assets shall remain subject to the law determined by the choice of law rules of the forum. Article 12 Where the trustee desires to register assets, movable or immovable, or documents of title to them, he shall be entitled, in so far as this is not prohibited by or inconsistent with the law of the State where registration is sought, to do so in his capacity as trustee or in such other way that the existence of the trust is disclosed. Article 13 No State shall be bound to recognize a trust the significant elements of which, except for the choice of the applicable law, the place of administration and the habitual residence of the trustee, are more closely connected with States which do not have the institution of the trust or the category of trust involved. Article 14 The Convention shall not prevent the application of rules of law more favourable to the recognition of trusts. CHAPTER IV—GENERAL CLAUSES Article 15 The Convention does not prevent the application of provisions of the law designated by the conflicts rules of the forum, in so far as those provisions cannot be derogated from by voluntary act, relating in particular to the following matters— a) the protection of minors and incapable parties; b) the personal and proprietary effects of marriage; c) succession rights, testate and intestate, especially the indefeasible shares of spouses and relatives; d) the transfer of title to property and security interests in property; e) the protection of creditors in matters of insolvency; f) the protection, in other respects, of third parties acting in good faith. Article 16 The Convention does not prevent the application of those provisions of the law of the forum which must be applied even to international situations, irrespective of rules of conflict of laws. If another State has a sufficiently close connection with a case then, in exceptional circumstances, effect may also be given to rules of that State which have the same character as mentioned in the preceding paragraph. Any Contracting State may, by way of reservation, declare that it will not apply the second paragraph of this Article.

Convention on Trusts 933 Article 17 In the Convention the word “law” means the rules of law in force in a State other than its rules of conflict of laws. Article 18 The provisions of the Convention may be disregarded when their application would be manifestly incompatible with public policy (ordre public). Article 19 Nothing in the Convention shall prejudice the powers of States in fiscal matters. Article 20 Any Contracting State may, at any time, declare that the provisions of the Convention will be extended to trusts declared by judicial decisions. This declaration shall be notified to the Ministry of Foreign Affairs of the ­Kingdom of the Netherlands and will come into effect on the day when this notification is received. Article 31 is applicable to the withdrawal of the declaration in the same way as it applies to a denunciation of the Convention. Article 21 Any Contracting State may reserve the right to apply the provisions of Chapter III only to trusts the validity of which is governed by the law of a Contracting State. Article 22 The Convention applies to trusts regardless of the date on which they were created. However, a Contracting State may reserve the right not to apply the Convention to trusts created before the date on which, in relation to that State, the Convention enters into force. Article 23 For the purpose of identifying the law applicable under the Convention, where a State comprises several territorial units each of which has its own rules of law in respect of trusts, any reference to the law of the State is to be construed as referring to the law in force in the territorial unit in question. Article 24 A State within which different territorial units have their own rules of law in respect of trusts is not bound to apply the Convention to conflicts solely between the laws of such units.

934  Part II: Uniform Law Article 25 The Convention shall not affect any other international instrument containing provisions on matters governed by this Convention to which a Contracting State is, or becomes, a party. CHAPTER V—FINAL CLAUSES Article 26 Any State may, at the time of signature, ratification, acceptance, approval or accession, or at the time of making a declaration in terms of Article 29, make the reservations provided for in Articles 16, 21 and 22. No other reservation shall be permitted. Any Contracting State may at any time withdraw a reservation which it has made; the reservation shall cease to have effect on the first day of the third calendar month after notification of the withdrawal. Article 27 The Convention shall be open for signature by the States which were Members of the Hague Conference on Private International Law at the time of its Fifteenth Session. It shall be ratified, accepted or approved and the instruments of ratification, acceptance or approval shall be deposited with the Ministry of Foreign Affairs of the Kingdom of the Netherlands. Article 28 Any other State may accede to the Convention after it has entered into force in accordance with Article 30, paragraph 1. The instrument of accession shall be deposited with the Ministry of Foreign Affairs of the Kingdom of the Netherlands. The accession shall have effect only as regards the relations between the acceding State and those Contracting States which have not raised an objection to its accession in the twelve months after the receipt of the notification referred to in Article 32. Such an objection may also be raised by Member States at the time when they ratify, accept or approve the Convention after an accession. Any such objection shall be notified to the Ministry of Foreign Affairs of the Kingdom of the Netherlands. Article 29 If a State has two or more territorial units in which different systems of law are applicable, it may at the time of signature, ratification, acceptance, approval or accession declare that this Convention shall extend to all of its territorial units or only to one or more of them and may modify this declaration by submitting another declaration at any time.

Convention on Trusts 935 Any such declaration shall be notified to the Ministry of Foreign Affairs of the Kingdom of the Netherlands and shall state expressly the territorial units to which the Convention applies. If a State makes no declaration under this Article, the Convention is to extend to all territorial units of that State. Article 30 The Convention shall enter into force on the first day of the third calendar month after the deposit of the third instrument of ratification, acceptance or approval referred to in Article 27. Thereafter the Convention shall enter into force— a) for each State ratifying, accepting or approving it subsequently, on the first day of the third calendar month after the deposit of its instrument of ratification, acceptance or approval; b) for each acceding State, on the first day of the third calendar month after the expiry of the period referred to in Article 28; c) for a territorial unit to which the Convention has been extended in conformity with Article 29, on the first day of the third calendar month after the notification referred to in that Article. Article 31 Any Contracting State may denounce this Convention by a formal notification in writing addressed to the Ministry of Foreign Affairs of the Kingdom of the ­Netherlands, depositary of the Convention. The denunciation takes effect on the first day of the month following the expiration of six months after the notification is received by the depositary or on such later date as is specified in the notification. Article 32 The Ministry of Foreign Affairs of the Kingdom of the Netherlands shall notify the States Members of the Conference, and the States which have acceded in accordance with Article 28, of the following— a) the signatures and ratifications, acceptances or approvals referred to in Article 27; b) the date on which the Convention enters into force in accordance with Article 30; c) the accessions and the objections raised to accessions referred to in Article 28; d) the extensions referred to in Article 29; e) the declarations referred to in Article 20; f) the reservation or withdrawals referred to in Article 26; g) the denunciations referred to in Article 31.

936  Part II: Uniform Law In witness whereof the undersigned, being duly authorized thereto, have signed this Convention. Done at The Hague, on the first day of July, 1985, in English and French, both texts being equally authentic, in a single copy which shall be deposited in the archives of the Government of the Kingdom of the Netherlands, and of which a certified copy shall be sent, through diplomatic channels, to each of the States Members of the Hague Conference on Private International Law at the date of its Fifteenth Session.

UNIDROIT Convention on International Financial Leasing of 20 May 1988 (Ottawa)* (27 ILM 931) The States Parties to this Convention, Recognising the importance of removing certain legal impediments to the international financial leasing of equipment, while maintaining a fair balance of interests between the different parties to the transaction, Aware of the need to make international financial leasing more available, Conscious of the fact that the rules of law governing the traditional contract of hire need to be adapted to the distinctive triangular relationship created by the financial leasing transaction, Recognising therefore the desirability of formulating certain uniform rules relating primarily to the civil and commercial law aspects of international financial leasing, Have agreed as follows: CHAPTER I—SPHERE OF APPLICATION AND GENERAL PROVISIONS Article 1 (1) This Convention governs a financial leasing transaction as described in paragraph 2 in which one party (the lessor), a) on the specifications of another party (the lessee), enters into an agreement (the supply agreement) with a third party (the supplier) under which the lessor acquires plant, capital goods or other equipment (the equipment) on terms approved by the lessee so far as they concern its interests, and b) enters into an agreement (the leasing agreement) with the lessee, ­granting to the lessee the right to use the equipment in return for the payment of rentals. * 

The Convention has not been adopted by the UK

938  Part II: Uniform Law (2) The financial leasing transaction referred to in the previous paragraph is a transaction which includes the following characteristics: a) the lessee specifies the equipment and selects the supplier without relying primarily on the skill and judgment of the lessor; b) the equipment is acquired by the lessor in connection with a leasing agreement which, to the knowledge of the supplier, either has been made or is to be made between the lessor and the lessee; and c) the rentals payable under the leasing agreement are calculated so as to take into account in particular the amortisation of the whole or a substantial part of the cost of the equipment. (3) This Convention applies whether or not the lessee has or subsequently acquires the option to buy the equipment or to hold it on lease for a further period, and whether or not for a nominal price or rental. (4) This Convention applies to financial leasing transactions in relation to all equipment save that which is to be used primarily for the lessee’s personal, family or household purposes. Article 2 In the case of one or more sub-leasing transactions involving the same equipment, this Convention applies to each transaction which is a financial leasing transaction and is otherwise subject to this Convention as if the person from whom the first ­lessor (as defined in paragraph 1 of the previous article) acquired the equipment were the supplier and as if the agreement under which the equipment was so acquired were the supply agreement. Article 3 (1) This Convention applies when the lessor and the lessee have their places of business in different States and: a) those States and the State in which the supplier has its place of business are Contracting States; or b) both the supply agreement and the leasing agreement are governed by the law of a Contracting State. (2) A reference in this Convention to a party’s place of business shall, if it has more than one place of business, mean the place of business which has the closest relationship to the relevant agreement and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of that agreement. Article 4 (1) The provisions of this Convention shall not cease to apply merely because the equipment has become a fixture to or incorporated in land. (2) Any question whether or not the equipment has become a fixture to or ­incorporated in land, and if so the effect on the rights inter se of the lessor and a person having real rights in the land, shall be determined by the law of the State where the land is situated.

Unidroit Convention on International Leasing 939 Article 5 (1) The application of this Convention may be excluded only if each of the ­parties to the supply agreement and each of the parties to the leasing agreement agree to exclude it. (2) Where the application of this Convention has not been excluded in accordance with the previous paragraph, the parties may, in their relations with each other, derogate from or vary the effect of any of its provisions except as stated in Articles 8(3) and 13(3)(b) and (4). Article 6 (1) In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble, to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. CHAPTER II—RIGHTS AND DUTIES OF THE PARTIES Article 7 (1)  a)  The lessor’s real rights in the equipment shall be valid against the lessee’s trustee in bankruptcy and creditors, including creditors who have obtained an attachment or execution. b) For the purposes of this paragraph “trustee in bankruptcy” includes a liquidator, administrator or other person appointed to administer the lessee’s estate for the benefit of the general body of creditors. (2) Where by the applicable law the lessor’s real rights in the equipment are valid against a person referred to in the previous paragraph only on compliance with rules as to public notice, those rights shall be valid against that person only if there has been compliance with such rules. (3) For the purposes of the previous paragraph the applicable law is the law of the State which, at the time when a person referred to in paragraph 1 becomes entitled to invoke the rules referred to in the previous paragraph, is: a) in the case of a registered ship, the State in which it is registered in the name of the owner (for the purposes of this sub-paragraph a bareboat charterer is deemed not to be the owner); b) in the case of an aircraft which is registered pursuant to the Convention on International Civil Aviation done at Chicago on 7 December 1944, the State in which it is so registered; c) in the case of other equipment of a kind normally moved from one State to another, including an aircraft engine, the State in which the lessee has its principal place of business;

940  Part II: Uniform Law d) in the case of all other equipment, the State in which the equipment is situated. (4) Paragraph 2 shall not affect the provisions of any other treaty under which the lessor’s real rights in the equipment are required to be recognised. (5) This article shall not affect the priority of any creditor having: a) a consensual or non-consensual lien or security interest in the equipment arising otherwise than by virtue of an attachment or execution, or b) any right of arrest, detention or disposition conferred specifically in relation to ships or aircraft under the law applicable by virtue of the rules of private international law. Article 8 (1)  a) Except as otherwise provided by this Convention or stated in the leasing agreement, the lessor shall not incur any liability to the lessee in respect of the equipment save to the extent that the lessee has suffered loss as the result of its reliance on the lessor’s skill and judgment and of the lessor’s intervention in the selection of the supplier or the specifications of the equipment. b) The lessor shall not, in its capacity of lessor, be liable to third parties for death, personal injury or damage to property caused by the equipment. c) The above provisions of this paragraph shall not govern any liability of the lessor in any other capacity, for example as owner. (2) The lessor warrants that the lessee’s quiet possession will not be disturbed by a person who has a superior title or right, or who claims a superior title or right and acts under the authority of a court, where such title, right or claim is not derived from an act or omission of the lessee. (3) The parties may not derogate from or vary the effect of the provisions of the previous paragraph in so far as the superior title, right or claim is derived from an intentional or grossly negligent act or omission of the lessor. (4) The provisions of paragraphs 2 and 3 shall not affect any broader warranty of quiet possession by the lessor which is mandatory under the law applicable by virtue of the rules of private international law. Article 9 (1) The lessee shall take proper care of the equipment, use it in a reasonable manner and keep it in the condition in which it was delivered, subject to fair wear and tear and to any modification of the equipment agreed by the parties. (2) When the leasing agreement comes to an end the lessee, unless exercising a right to buy the equipment or to hold the equipment on lease for a further period, shall return the equipment to the lessor in the condition specified in the previous paragraph.

Unidroit Convention on International Leasing 941 Article 10 (1) The duties of the supplier under the supply agreement shall also be owed to the lessee as if it were a party to that agreement and as if the equipment were to be supplied directly to the lessee. However, the supplier shall not be liable to both the lessor and the lessee in respect of the same damage. (2) Nothing in this article shall entitle the lessee to terminate or rescind the ­supply agreement without the consent of the lessor. Article 11 The lessee’s rights derived from the supply agreement under this Convention shall not be affected by a variation of any term of the supply agreement previously approved by the lessee unless it consented to that variation. Article 12 (1) Where the equipment is not delivered or is delivered late or fails to conform to the supply agreement: a) the lessee has the right as against the lessor to reject the equipment or to terminate the leasing agreement; and b) the lessor has the right to remedy its failure to tender equipment in conformity with the supply agreement, as if the lessee had agreed to buy the equipment from the lessor under the same terms as those of the supply agreement. (2) A right conferred by the previous paragraph shall be exercisable in the same manner and shall be lost in the same circumstances as if the lessee had agreed to buy the equipment from the lessor under the same terms as those of the supply agreement. (3) The lessee shall be entitled to withhold rentals payable under the leasing agreement until the lessor has remedied its failure to tender equipment in conformity with the supply agreement or the lessee has lost the right to reject the equipment. (4) Where the lessee has exercised a right to terminate the leasing agreement, the lessee shall be entitled to recover any rentals and other sums paid in advance, less a reasonable sum for any benefit the lessee has derived from the equipment. (5) The lessee shall have no other claim against the lessor for non-delivery, delay in delivery or delivery of non-conforming equipment except to the extent to which this results from the act or omission of the lessor. (6) Nothing in this article shall affect the lessee’s rights against the supplier under Article 10. Article 13 (1) In the event of default by the lessee, the lessor may recover accrued unpaid rentals, together with interest and damages.

942  Part II: Uniform Law (2) Where the lessee’s default is substantial, then subject to paragraph 5 the lessor may also require accelerated payment of the value of the future rentals, where the leasing agreement so provides, or may terminate the leasing agreement and after such termination: a) recover possession of the equipment; and b) recover such damages as will place the lessor in the position in which it would have been had the lessee performed the leasing agreement in accordance with its terms. (3)  a) The leasing agreement may provide for the manner in which the damages recoverable under paragraph 2(b) are to be computed. b) Such provision shall be enforceable between the parties unless it would result in damages substantially in excess of those provided for under paragraph 2(b). The parties may not derogate from or vary the effect of the provisions of the present sub-paragraph. (4) Where the lessor has terminated the leasing agreement, it shall not be entitled to enforce a term of that agreement providing for acceleration of payment of future rentals, but the value of such rentals may be taken into account in computing damages under paragraphs 2(b) and 3. The parties may not derogate from or vary the effect of the provisions of the present paragraph. (5) The lessor shall not be entitled to exercise its right of acceleration or its right of termination under paragraph 2 unless it has by notice given the lessee a reasonable opportunity of remedying the default so far as the same may be remedied. (6) The lessor shall not be entitled to recover damages to the extent that it has failed to take all reasonable steps to mitigate its loss. Article 14 (1) The lessor may transfer or otherwise deal with all or any of its rights in the equipment or under the leasing agreement. Such a transfer shall not relieve the lessor of any of its duties under the leasing agreement or alter either the nature of the leasing agreement or its legal treatment as provided in this Convention. (2) The lessee may transfer the right to the use of the equipment or any other rights under the leasing agreement only with the consent of the lessor and subject to the rights of third parties. CHAPTER III—FINAL PROVISIONS Article 15 (1) This Convention is open for signature at the concluding meeting of the ­Diplomatic Conference for the Adoption of the Draft Unidroit Conventions on International Factoring and International Financial Leasing and will remain open for signature by all States at Ottawa until 31 December 1990. (2) This Convention is subject to ratification, acceptance or approval by States which have signed it.

Unidroit Convention on International Leasing 943 (3) This Convention is open for accession by all States which are not signatory States as from the date it is open for signature. (4) Ratification, acceptance, approval or accession is effected by the deposit of a formal instrument to that effect with the depositary. Article 16 (1) This convention enters into force on the first day of the month following the expiration of six months after the date of deposit of the third instrument of ratification, acceptance, approval or accession. (2) For each State that ratifies, accepts, approves, or accedes to this Convention after the deposit of the third instrument of ratification, acceptance, approval or accession, this Convention enters into force in respect of that State on the first day of the month following the expiration of six months after the date of the deposit of its instrument of ratification, acceptance, approval or accession. Article 17 This Convention does not prevail over any treaty which has already been or may be entered into; in particular it shall not affect any liability imposed on any person by existing or future treaties. Article 18 (1) If a Contracting State has two or more territorial units in which different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of signature, ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them, and may substitute its declaration by another declaration at any time. (2) These declarations are to be notified to the depositary and are to state expressly the territorial units to which the Convention extends. (3) If, by virtue of a declaration under this article, this Convention extends to one or more but not all of the territorial units of a Contracting State, and if the place of business of a party is located in that State, this place of business, for the purposes of this Convention, is considered not to be in a Contracting State, unless it is in a territorial unit to which the Convention extends. (4) If a Contracting State makes no declaration under paragraph 1, the Convention is to extend to all territorial units of that State. Article 19 (1) Two or more Contracting States which have the same or closely related legal rules on matters governed by this Convention may at any time declare that the Convention is not to apply where the supplier, the lessor and the lessee have their places of business in those States. Such declarations may be made jointly or by reciprocal unilateral declarations.

944  Part II: Uniform Law (2) A Contracting State which has the same or closely related legal rules on matters governed by this Convention as one or more non-Contracting States may at any time declare that the Convention is not to apply where the supplier, the lessor and the lessee have their places of business in those States. (3) If a State which is the object of a declaration under the previous paragraph subsequently becomes a Contracting State, the declaration made will, as from the date on which the Convention enters into force in respect of the new Contracting State, have the affect of a declaration made under paragraph 1, provided that the new Contracting State joins in such declaration or makes a reciprocal unilateral declaration. Article 20 A Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will substitute its domestic law for Article 8(3) if its domestic law does not permit the lessor to exclude its liability for its default or negligence. Article 21 (1) Declarations made under this Convention at the time of signature are subject to confirmation upon ratification, acceptance or approval. (2) Declarations and confirmations of declarations are to be in writing and to be formally notified to the depositary. (3) A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. Reciprocal unilateral declarations under Article 19 take effect on the first day of the month following the expiration of six months after the receipt of the latest declaration by the depositary. (4) Any State which makes a declaration under this Convention may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. (5) A withdrawal of a declaration made under Article 19 renders inoperative in relation to the withdrawing State, as from the date on which the withdrawal takes effect, any joint or reciprocal unilateral declaration made by another State under that article. Article 22 No reservations are permitted except those expressly authorised in this Convention.

Unidroit Convention on International Leasing 945 Article 23 This Convention applies to a financial leasing transaction when the leasing agreement and the supply agreement are both concluded on or after the date on which the Convention enters into force in respect of the Contracting States referred to in Article 3(1)(a), or of the Contracting State or States referred to in paragraph 1(b) of that article. Article 24 (1) This Convention may be denounced by any Contracting State at any time after the date on which it enters into force for that State. (2) Denunciation is effected by the deposit of an instrument to that effect with the depositary. (3) A denunciation takes effect on the first day of the month following the expiration of six months after the deposit of the instrument of denunciation with the depositary. Where a longer period for the denunciation to take effect is specified in the instrument of denunciation it takes effect upon the expiration of such longer period after its deposit with the depositary. Article 25 (1) This Convention shall be deposited with the Government of Canada. (2) The Government of Canada shall: a) inform all States which have signed or acceded to this Convention and the President of the International Institute for the Unification of Private Law (Unidroit) of: i) each new signature or deposit of an instrument of ratification, acceptance, approval or accession, together with the date thereof; ii) each declaration made under Articles 18, 19 and 20; iii) the withdrawal of any declaration made under Article 21(4); iv) the date of entry into force of this Convention; v) the deposit of an instrument of denunciation of this Convention together with the date of its deposit and the date on which it takes effect; b) transmit certified true copies of this Convention to all signatory States, to all States acceding to the Convention and to the President of the International Institute for the Unification of Private Law (Unidroit). In witness whereof the undersigned plenipotentiaries, being duly authorised by their respective Governments, have signed this Convention. Done at Ottawa, this twenty-eighth day of May, one thousand nine hundred and eighty-eight, in a single original, of which the English and French texts are equally authentic.

UNIDROIT Convention on International Factoring* of 28 May 1988 (Ottawa) (Misc 5 (1991), Cm 1487, 27 ILM 943) The States Parties to this Convention, Conscious of the fact that international factoring has a significant role to play in the development of international trade, Recognising therefore the importance of adopting uniform rules to provide a legal framework that will facilitate international factoring, while maintaining a fair ­balance of interests between the different parties involved in factoring transactions, Have agreed as follows: CHAPTER I—SPHERE OF APPLICATION AND GENERAL PROVISIONS Article 1 (1) This Convention governs factoring contracts and assignments of receivables as described in this Chapter. (2) For the purposes of this Convention, “factoring contract” means a contract concluded between one party (the supplier) and another party (the factor) pursuant to which: a) the supplier may or will assign to the factor receivables arising from contracts of sale of goods made between the supplier and its customers (debtors) other than those for the sale of goods bought primarily for their personal, family or household use; b) the factor is to perform at least two of the following functions: finance for the supplier, including loans and advance payments; maintenance of accounts (ledgering) relating to the receivables; collection of receivables; protection against default in payment by debtors; c) notice of the assignment of the receivables is to be given to debtors.

* 

The Convention has been ratified by the UK but it has not been implemented.

UNIDROIT Convention on International Factoring 947 (3) In this Convention references to “goods” and “sale of goods” shall include services and the supply of services. (4) For the purposes of this Convention: a) a notice in writing need not be signed but must identify the person by whom or in whose name it is given; b) “notice in writing” includes, but is not limited to, telegrams, telex and any other telecommunication capable of being reproduced in tangible form; c) a notice in writing is given when it is received by the addressee. Article 2 (1) This Convention applies whenever the receivables assigned pursuant to a factoring contract arise from a contract of sale of goods between a supplier and a debtor whose places of business are in different States and: a) those States and the State in which the factor has its place of business are Contracting States; or b) both the contract of sale of goods and the factoring contract are g­ overned by the law of a Contracting State. (2) A reference in this Convention to a party’s place of business shall, if it has more than one place of business, mean the place of business which has the closest relationship to the relevant contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of that contract. Article 3 (1) The application of this Convention may be excluded: a) by the parties to the factoring contract; or b) by the parties to the contract of sale of goods, as regards receivables ­arising at or after the time when the factor has been given notice in ­writing of such exclusion. (2) Where the application of this Convention is excluded in accordance with the previous paragraph, such exclusion may be made only as regards the Convention as a whole. Article 4 (1) In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble, to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. (2) Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general p ­ rinciples on which it is based or, in the absence of such principles, in c­ onformity with the law applicable by virtue of the rules of private international law.

948  Part II: Uniform Law CHAPTER II—RIGHTS AND DUTIES OF THE PARTIES Article 5 As between the parties to the factoring contract: (a) a provision in the factoring contract for the assignment of existing or future receivables shall not be rendered invalid by the fact that the contract does not specify them individually, if at the time of conclusion of the contract or when they come into existence they can be identified to the contract; (b) a provision in the factoring contract by which future receivables are assigned operates to transfer the receivables to the factor when they come into existence without the need for any new act of transfer. Article 6 (1) The assignment of a receivable by the supplier to the factor shall be effective notwithstanding any agreement between the supplier and the debtor prohibiting such assignment. (2) However, such assignment shall not be effective against the debtor when, at the time of conclusion of the contract of sale of goods, it has its place of business in a Contracting State which has made a declaration under Article 18 of this Convention. (3) Nothing in paragraph 1 shall affect any obligation of good faith owed by the supplier to the debtor or any liability of the supplier to the debtor in respect of an assignment made in breach of the terms of the contract of sale of goods. Article 7 A factoring contract may validly provide as between the parties thereto for the transfer, with or without a new act of transfer, of all or any of the supplier’s rights deriving from the contract of sale of goods, including the benefit of any provision in the contract of sale of goods reserving to the supplier title to the goods or creating any security interest. Article 8 (1) The debtor is under a duty to pay the factor if, and only if, the debtor does not have knowledge of any other person’s superior right to payment and notice in writing of the assignment: a) is given to the debtor by the supplier or by the factor with the supplier’s authority; b) reasonably identifies the receivables which have been assigned and the factor to whom or for whose account the debtor is required to make payment; and c) relates to receivables arising under a contract of sale of goods made at or before the time the notice is given. (2) Irrespective of any other ground on which payment by the debtor to the factor discharges the debtor from liability, payment shall be effective for this purpose if made in accordance with the previous paragraph.

UNIDROIT Convention on International Factoring 949 Article 9 (1) In a claim by the factor against the debtor for payment of a receivable arising under a contract of sale of goods the debtor may set up against the factor all defences arising under that contract of which the debtor could have availed itself if such claim had been made by the supplier. (2) The debtor may also assert against the factor any right of set-off in respect of claims existing against the supplier in whose favour the receivable arose and available to the debtor at the time a notice in writing of assignment conforming to Article 8(1) was given to the debtor. Article 10 (1) Without prejudice to the debtor’s rights under Article 9, non-performance or defective or late performance of the contract of sale of goods shall not by itself entitle the debtor to recover a sum paid by the debtor to the factor if the debtor has a right to recover that sum from the supplier. (2) The debtor who has such a right to recover from the supplier a sum paid to the factor in respect of a receivable shall nevertheless be entitled to recover that sum from the factor to the extent that: a) the factor has not discharged an obligation to make payment to the ­supplier in respect of that receivable; or b) the factor made such payment at a time when it knew of the supplier’s non-performance or defective or late performance as regards the goods to which the debtor’s payment relates. CHAPTER III—SUBSEQUENT ASSIGNMENTS Article 11 (1) Where a receivable is assigned by a supplier to a factor pursuant to a factoring contract governed by this Convention: a) the rules set out in Articles 5 to 10 shall, subject to sub-paragraph (b) of this paragraph, apply to any subsequent assignment of the receivable by the factor or by a subsequent assignee; b) the provisions of Articles 8 to 10 shall apply as if the subsequent assignee were the factor. (2) For the purposes of this Convention, notice to the debtor of the subsequent assignment also constitutes notice of the assignment to the factor. Article 12 This Convention shall not apply to a subsequent assignment which is prohibited by the terms of the factoring contract. Article 13 to 23 (not reproduced)

Convention on International Interests in Mobile Equipment of 16 November 2001 (Cape Town)1 (TS No 31/2015) THE STATES PARTIES TO THIS CONVENTION, AWARE of the need to acquire and use mobile equipment of high value or particular economic significance and to facilitate the financing of the acquisition and use of such equipment in an efficient manner, RECOGNISING the advantages of asset-based financing and leasing for this purpose and desiring to facilitate these types of transaction by establishing clear rules to govern them, MINDFUL of the need to ensure that interests in such equipment are recognised and protected universally, DESIRING to provide broad and mutual economic benefits for all interested parties, BELIEVING that such rules must reflect the principles underlying asset-based financing and leasing and promote the autonomy of the parties necessary in these transactions, CONSCIOUS of the need to establish a legal framework for international interests in such equipment and for that purpose to create an international registration system for their protection, TAKING INTO CONSIDERATION the objectives and principles enunciated in existing Conventions relating to such equipment,

1  There are also Protocols dealing with Aircraft, Railway Rolling Stock and Space Assets. The Convention has been ratified by the UK and the Aircraft Protocol has been implemented by the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015, SI 2015/912.

Convention on International Interests in Mobile Equipment 951 HAVE AGREED upon the following provisions: Chapter I Sphere of application and general provisions Article 1 Definitions In this Convention, except where the context otherwise requires, the following terms are employed with the meanings set out below: (a) “agreement” means a security agreement, a title reservation agreement or a leasing agreement; (b) “assignment” means a contract which, whether by way of security or otherwise, confers on the assignee associated rights with or without a transfer of the related international interest; (c) “associated rights” means all rights to payment or other performance by a debtor under an agreement which are secured by or associated with the object; (d) “commencement of the insolvency proceedings” means the time at which the insolvency proceedings are deemed to commence under the applicable insolvency law; (e) “conditional buyer” means a buyer under a title reservation agreement; (f) “conditional seller” means a seller under a title reservation agreement; (g) “contract of sale” means a contract for the sale of an object by a seller to a buyer which is not an agreement as defined in (a) above; (h) “court” means a court of law or an administrative or arbitral tribunal established by a Contracting State; (i) “creditor” means a chargee under a security agreement, a conditional seller under a title reservation agreement or a lessor under a leasing agreement; (j) “debtor” means a chargor under a security agreement, a conditional buyer under a title reservation agreement, a lessee under a leasing agreement or a person whose interest in an object is burdened by a registrable nonconsensual­right or interest; (k) “insolvency administrator” means a person authorised to administer the reorganisation or liquidation, including one authorised on an interim basis, and includes a debtor in possession if permitted by the applicable insolvency law; (l) “insolvency proceedings” means bankruptcy, liquidation or other collective judicial or administrative proceedings, including interim proceedings, in which the assets and affairs of the debtor are subject to control or supervision by a court for the purposes of reorganisation or liquidation; (m) “interested persons” means: (i) the debtor; (ii) any person who, for the purpose of assuring performance of any of the obligations in favour of the creditor, gives or issues a suretyship or

952  Part II: Uniform Law

(n)

(o) (p) (q)

(r) (s)

(t) (u) (v) (w) (x) (y)

(z)

demand guarantee or a standby letter of credit or any other form of credit insurance; (iii) any other person having rights in or over the object; “internal transaction” means a transaction of a type listed in Article 2(2)(a) to (c) where the centre of the main interests of all parties to such transaction is situated, and the relevant object located (as specified in the Protocol), in the same Contracting State at the time of the conclusion of the contract and where the interest created by the transaction has been registered in a national registry in that Contracting State which has made a declaration under Article 50(1); “international interest” means an interest held by a creditor to which ­Article 2 applies; “International Registry” means the international registration facilities established for the purposes of this Convention or the Protocol; “leasing agreement” means an agreement by which one person (the lessor) grants a right to possession or control of an object (with or without an option to purchase) to another person (the lessee) in return for a rental or other payment; “national interest” means an interest held by a creditor in an object and created by an internal transaction covered by a declaration under Article 50(1); “non-consensual right or interest” means a right or interest conferred under the law of a Contracting State which has made a declaration under ­Article 39 to secure the performance of an obligation, including an obligation to a State, State entity or an intergovernmental or private organisation; “notice of a national interest” means notice registered or to be registered in the International Registry that a national interest has been created; “object” means an object of a category to which Article 2 applies; “pre-existing right or interest” means a right or interest of any kind in or over an object created or arising before the effective date of this Convention as defined by Article 60(2)(a); “proceeds” means money or non-money proceeds of an object arising from the total or partial loss or physical destruction of the object or its total or partial confiscation, condemnation or requisition; “prospective assignment” means an assignment that is intended to be made in the future, upon the occurrence of a stated event, whether or not the occurrence of the event is certain; “prospective international interest” means an interest that is intended to be created or provided for in an object as an international interest in the future, upon the occurrence of a stated event (which may include the debtor’s acquisition of an interest in the object), whether or not the occurrence of the event is certain; “prospective sale” means a sale which is intended to be made in the future, upon the occurrence of a stated event, whether or not the occurrence of the event is certain;

Convention on International Interests in Mobile Equipment 953 (aa)

“Protocol” means, in respect of any category of object and associated rights to which this Convention applies, the Protocol in respect of that category of object and associated rights; (bb) “registered” means registered in the International Registry pursuant to Chapter V; (cc) “registered interest” means an international interest, a registrable nonconsensual right or interest or a national interest specified in a notice of a national interest registered pursuant to Chapter V; (dd) “registrable non-consensual right or interest” means a non-consensual right or interest registrable pursuant to a declaration deposited under Article 40; (ee) “Registrar” means, in respect of the Protocol, the person or body designated by that Protocol or appointed under Article 17(2)(b); (ff) “regulations” means regulations made or approved by the Supervisory Authority pursuant to the Protocol; (gg) “sale” means a transfer of ownership of an object pursuant to a contract of sale; (hh) “secured obligation” means an obligation secured by a security interest; (ii) “security agreement” means an agreement by which a chargor grants or agrees to grant to a chargee an interest (including an ownership interest) in or over an object to secure the performance of any existing or future obligation of the chargor or a third person; (jj) “security interest” means an interest created by a security agreement; (kk) “Supervisory Authority” means, in respect of the Protocol, the Supervisory Authority referred to in Article 17(1); (ll) “title reservation agreement” means an agreement for the sale of an object on terms that ownership does not pass until fulfilment of the condition or conditions stated in the agreement; (mm) “unregistered interest” means a consensual interest or non-consensual right or interest (other than an interest to which Article 39 applies) which has not been registered, whether or not it is registrable under this Convention; and (nn) “writing” means a record of information (including information communicated by teletransmission) which is in tangible or other form and is capable of being reproduced in tangible form on a subsequent occasion and which indicates by reasonable means a person’s approval of the record. Article 2 The international interest 1. This Convention provides for the constitution and effects of an international interest in certain categories of mobile equipment and associated rights. 2. For the purposes of this Convention, an international interest in mobile equipment is an interest, constituted under Article 7, in a uniquely identifiable object of a category of such objects listed in paragraph 3 and designated in the Protocol: (a) granted by the chargor under a security agreement;

954  Part II: Uniform Law (b) vested in a person who is the conditional seller under a title reservation agreement; or (c) vested in a person who is the lessor under a leasing agreement. An interest falling within sub-paragraph (a) does not also fall within subparagraph (b) or (c). 3. The categories referred to in the preceding paragraphs are: (a) airframes, aircraft engines and helicopters; (b) railway rolling stock; and (c) space assets. 4. The applicable law determines whether an interest to which paragraph 2 applies falls within subparagraph (a), (b) or (c) of that paragraph. 5. An international interest in an object extends to proceeds of that object. Article 3 Sphere of application 1. This Convention applies when, at the time of the conclusion of the agreement creating or providing for the international interest, the debtor is situated in a Contracting State. 2. The fact that the creditor is situated in a non-Contracting State does not affect the applicability of this Convention. Article 4 Where debtor is situated 1. For the purposes of Article 3(1), the debtor is situated in any Contracting State: (a) under the law of which it is incorporated or formed; (b) where it has its registered office or statutory seat; (c) where it has its centre of administration; or (d) where it has its place of business. 2. A reference in sub-paragraph (d) of the preceding paragraph to the debtor’s place of business shall, if it has more than one place of business, mean its principal place of business or, if it has no place of business, its habitual residence. Article 5 Interpretation and applicable law 1. In the interpretation of this Convention, regard is to be had to its purposes as set forth in the preamble, to its international character and to the need to promote uniformity and predictability in its application. 2. Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the applicable law.

Convention on International Interests in Mobile Equipment 955 3. References to the applicable law are to the domestic rules of the law applicable by virtue of the rules of private international law of the forum State. 4. Where a State comprises several territorial units, each of which has its own rules of law in respect of the matter to be decided, and where there is no indication of the relevant territorial unit, the law of that State decides which is the territorial unit whose rules shall govern. In the absence of any such rule, the law of the territorial unit with which the case is most closely connected shall apply. Article 6 Relationship between the Convention and the Protocol 1. This Convention and the Protocol shall be read and interpreted together as a single instrument. 2. To the extent of any inconsistency between this Convention and the Protocol, the Protocol shall prevail. Chapter II Constitution of an international interest Article 7 Formal requirements An interest is constituted as an international interest under this Convention where the agreement creating or providing for the interest: (a) is in writing; (b) relates to an object of which the chargor, conditional seller or lessor has power to dispose; (c) enables the object to be identified in conformity with the Protocol; and (d) in the case of a security agreement, enables the secured obligations to be determined, but without the need to state a sum or maximum sum secured. Chapter III Default remedies Article 8 Remedies of chargee 1. In the event of default as provided in Article 11, the chargee may, to the extent that the chargor has at any time so agreed and subject to any declaration that may be made by a Contracting State under Article 54, exercise any one or more of the following remedies: (a) take possession or control of any object charged to it; (b) sell or grant a lease of any such object; (c) collect or receive any income or profits arising from the management or use of any such object.

956  Part II: Uniform Law 2. The chargee may alternatively apply for a court order authorising or directing any of the acts referred to in the preceding paragraph. 3. Any remedy set out in sub-paragraph (a), (b) or (c) of paragraph 1 or by Article 13 shall be exercised in a commercially reasonable manner. A remedy shall be deemed to be exercised in a commercially reasonable manner where it is exercised in conformity with a provision of the security agreement except where such a provision is manifestly unreasonable. 4. A chargee proposing to sell or grant a lease of an object under paragraph 1 shall give reasonable prior notice in writing of the proposed sale or lease to: (a) interested persons specified in Article 1(m)(i) and (ii); and (b) interested persons specified in Article 1(m)(iii) who have given notice of their rights to the chargee within a reasonable time prior to the sale or lease. 5. Any sum collected or received by the chargee as a result of exercise of any of the remedies set out in paragraph 1 or 2 shall be applied towards discharge of the amount of the secured obligations. 6. Where the sums collected or received by the chargee as a result of the exercise of any remedy set out in paragraph 1 or 2 exceed the amount secured by the security interest and any reasonable costs incurred in the exercise of any such remedy, then unless otherwise ordered by the court the chargee shall distribute the surplus among holders of subsequently ranking interests which have been registered or of which the chargee has been given notice, in order of priority, and pay any remaining balance to the chargor. Article 9 Vesting of object in satisfaction; redemption 1. At any time after default as provided in Article 11, the chargee and all the interested persons may agree that ownership of (or any other interest of the chargor in) any object covered by the security interest shall vest in the chargee in or towards satisfaction of the secured obligations. 2. The court may on the application of the chargee order that ownership of (or any other interest of the chargor in) any object covered by the security interest shall vest in the chargee in or towards satisfaction of the secured obligations. 3. The court shall grant an application under the preceding paragraph only if the amount of the secured obligations to be satisfied by such vesting is commensurate with the value of the object after taking account of any payment to be made by the chargee to any of the interested persons. 4. At any time after default as provided in Article 11 and before sale of the charged object or the making of an order under paragraph 2, the chargor or any interested person may discharge the security interest by paying in full the amount secured, subject to any lease granted by the chargee under Article 8(1)(b) or ordered under Article 8(2). Where, after such default, the payment of the amount secured is made in full by an interested person other than the debtor, that person is subrogated to the rights of the chargee. 5. Ownership or any other interest of the chargor passing on a sale under Article 8(1)(b) or passing under paragraph 1 or 2 of this Article is free from any other

Convention on International Interests in Mobile Equipment 957 interest over which the chargee’s security interest has priority under the provisions of Article 29. Article 10 Remedies of conditional seller or lessor In the event of default under a title reservation agreement or under a leasing agreement as provided in Article 11, the conditional seller or the lessor, as the case may be, may: (a) subject to any declaration that may be made by a Contracting State under Article 54, terminate the agreement and take possession or control of any object to which the agreement relates; or (b) apply for a court order authorising or directing either of these acts. Article 11 Meaning of default 1. The debtor and the creditor may at any time agree in writing as to the events that constitute a default or otherwise give rise to the rights and remedies specified in Articles 8 to 10 and 13. 2. Where the debtor and the creditor have not so agreed, “default” for the purposes of Articles 8 to 10 and 13 means a default which substantially deprives the creditor of what it is entitled to expect under the agreement. Article 12 Additional remedies Any additional remedies permitted by the applicable law, including any remedies agreed upon by the parties, may be exercised to the extent that they are not inconsistent with the mandatory provisions of this Chapter as set out in Article 15. Article 13 Relief pending final determination 1. Subject to any declaration that it may make under Article 55, a Contracting State shall ensure that a creditor who adduces evidence of default by the debtor may, pending final determination of its claim and to the extent that the debtor has at any time so agreed, obtain from a court speedy relief in the form of such one or more of the following orders as the creditor requests: (a) preservation of the object and its value; (b) possession, control or custody of the object; (c) immobilisation of the object; and (d) lease or, except where covered by sub-paragraphs (a) to (c), management of the object and the income therefrom.

958  Part II: Uniform Law 2. In making any order under the preceding paragraph, the court may impose such terms as it considers necessary to protect the interested persons in the event that the creditor: (a) in implementing any order granting such relief, fails to perform any of its obligations to the debtor under this Convention or the Protocol; or (b) fails to establish its claim, wholly or in part, on the final determination of that claim. 3. Before making any order under paragraph 1, the court may require notice of the request to be given to any of the interested persons. 4. Nothing in this Article affects the application of Article 8(3) or limits the availability of forms of interim relief other than those set out in paragraph 1. Article 14 Procedural requirements Subject to Article 54(2), any remedy provided by this Chapter shall be exercised in conformity with the procedure prescribed by the law of the place where the remedy is to be exercised. Article 15 Derogation In their relations with each other, any two or more of the parties referred to in this Chapter may at any time, by agreement in writing, derogate from or vary the effect of any of the preceding provisions of this Chapter except Articles 8(3) to (6), 9(3) and (4), 13(2) and 14. Chapter IV The international registration system Article 16 The International Registry 1. An International Registry shall be established for registrations of: (a) international interests, prospective international interests and registrable non-consensual rights and interests; (b) assignments and prospective assignments of international interests; (c) acquisitions of international interests by legal or contractual subrogations under the applicable law; (d) notices of national interests; and (e) subordinations of interests referred to in any of the preceding sub-paragraphs. 2. Different international registries may be established for different categories of object and associated rights. 3. For the purposes of this Chapter and Chapter V, the term “registration” includes, where appropriate, an amendment, extension or discharge of a registration.

Convention on International Interests in Mobile Equipment 959 Article 17 The Supervisory Authority and the Registrar 1. There shall be a Supervisory Authority as provided by the Protocol. 2. The Supervisory Authority shall: (a) establish or provide for the establishment of the International Registry; (b) except as otherwise provided by the Protocol, appoint and dismiss the Registrar; (c) ensure that any rights required for the continued effective operation of the International Registry in the event of a change of Registrar will vest in or be assignable to the new Registrar; (d) after consultation with the Contracting States, make or approve and ensure the publication of regulations pursuant to the Protocol dealing with the operation of the International Registry; (e) establish administrative procedures through which complaints concerning the operation of the International Registry can be made to the Supervisory Authority; (f) supervise the Registrar and the operation of the International Registry; (g) at the request of the Registrar, provide such guidance to the Registrar as the Supervisory Authority thinks fit; (h) set and periodically review the structure of fees to be charged for the services and facilities of the International Registry; (i) do all things necessary to ensure that an efficient notice-based electronic registration system exists to implement the objectives of this Convention and the Protocol; and (j) report periodically to Contracting States concerning the discharge of its obligations under this Convention and the Protocol. 3. The Supervisory Authority may enter into any agreement requisite for the performance of its functions, including any agreement referred to in Article 27(3). 4. The Supervisory Authority shall own all proprietary rights in the data bases and archives of the International Registry. 5. The Registrar shall ensure the efficient operation of the International Registry and perform the functions assigned to it by this Convention, the Protocol and the regulations. Chapter V Other matters relating to registration Article 18 Registration requirements 1. The Protocol and regulations shall specify the requirements, including the criteria for the identification of the object: (a) for effecting a registration (which shall include provision for prior electronic transmission of any consent from any person whose consent is required under Article 20);

960  Part II: Uniform Law

2. 3.

4. 5.

(b) for making searches and issuing search certificates, and, subject thereto; (c) for ensuring the confidentiality of information and documents of the International Registry other than information and documents relating to a registration. The Registrar shall not be under a duty to enquire whether a consent to registration under Article 20 has in fact been given or is valid. Where an interest registered as a prospective international interest becomes an international interest, no further registration shall be required provided that the registration information is sufficient for a registration of an international interest. The Registrar shall arrange for registrations to be entered into the International Registry data base and made searchable in chronological order of receipt, and the file shall record the date and time of receipt. The Protocol may provide that a Contracting State may designate an entity or entities in its territory as the entry point or entry points through which the information required for registration shall or may be transmitted to the ­International Registry. A Contracting State making such a designation may specify the requirements, if any, to be satisfied before such information is transmitted to the International Registry. Article 19 Validity and time of registration

1. A registration shall be valid only if made in conformity with Article 20. 2. A registration, if valid, shall be complete upon entry of the required information into the International Registry data base so as to be searchable. 3. A registration shall be searchable for the purposes of the preceding paragraph at the time when: (a) the International Registry has assigned to it a sequentially ordered file number; and (b) the registration information, including the file number, is stored in durable form and may be accessed at the International Registry. 4. If an interest first registered as a prospective international interest becomes an international interest, that international interest shall be treated as registered from the time of registration of the prospective international interest provided that the registration was still current immediately before the international interest was constituted as provided by Article 7. 5. The preceding paragraph applies with necessary modifications to the registration of a prospective assignment of an international interest. 6. A registration shall be searchable in the International Registry data base according to the criteria prescribed by the Protocol. Article 20 Consent to registration 1. An international interest, a prospective international interest or an assignment or prospective assignment of an international interest may be registered, and

Convention on International Interests in Mobile Equipment 961

2. 3. 4. 5. 6.

any such registration amended or extended prior to its expiry, by either party with the consent in writing of the other. The subordination of an international interest to another international interest may be registered by or with the consent in writing at any time of the person whose interest has been subordinated. A registration may be discharged by or with the consent in writing of the party in whose favour it was made. The acquisition of an international interest by legal or contractual subrogation may be registered by the subrogee. A registrable non-consensual right or interest may be registered by the holder thereof. A notice of a national interest may be registered by the holder thereof. Article 21 Duration of registration

Registration of an international interest remains effective until discharged or until expiry of the period specified in the registration. Article 22 Searches 1. Any person may, in the manner prescribed by the Protocol and regulations, make or request a search of the International Registry by electronic means concerning interests or prospective international interests registered therein. 2. Upon receipt of a request therefor, the Registrar, in the manner prescribed by the Protocol and regulations, shall issue a registry search certificate by electronic means with respect to any object: (a) stating all registered information relating thereto, together with a statement indicating the date and time of registration of such information; or (b) stating that there is no information in the International Registry relating thereto. 3. A search certificate issued under the preceding paragraph shall indicate that the creditor named in the registration information has acquired or intends to acquire an international interest in the object but shall not indicate whether what is registered is an international interest or a prospective international interest, even if this is ascertainable from the relevant registration information. Article 23 List of declarations and declared non-consensual rights or interests The Registrar shall maintain a list of declarations, withdrawals of declaration and of the categories of nonconsensual right or interest communicated to the Registrar by the Depositary as having been declared by Contracting States in conformity with Articles 39 and 40 and the date of each such declaration or withdrawal of declaration. Such list shall be recorded and searchable in the name of the declaring State and

962  Part II: Uniform Law shall be made available as provided in the Protocol and regulations to any person requesting it. Article 24 Evidentiary value of certificates A document in the form prescribed by the regulations which purports to be a certificate issued by the International Registry is prima facie proof: (a) that it has been so issued; and (b) of the facts recited in it, including the date and time of a registration. Article 25 Discharge of registration 1. Where the obligations secured by a registered security interest or the obligations giving rise to a registered non-consensual right or interest have been discharged, or where the conditions of transfer of title under a registered title reservation agreement have been fulfilled, the holder of such interest shall, without undue delay, procure the discharge of the registration after written demand by the debtor delivered to or received at its address stated in the registration. 2. Where a prospective international interest or a prospective assignment of an international interest has been registered, the intending creditor or intending assignee shall, without undue delay, procure the discharge of the registration after written demand by the intending debtor or assignor which is delivered to or received at its address stated in the registration before the intending creditor or assignee has given value or incurred a commitment to give value. 3. Where the obligations secured by a national interest specified in a registered notice of a national interest have been discharged, the holder of such interest shall, without undue delay, procure the discharge of the registration after written demand by the debtor delivered to or received at its address stated in the registration. 4. Where a registration ought not to have been made or is incorrect, the person in whose favour the registration was made shall, without undue delay, procure its discharge or amendment after written demand by the debtor delivered to or received at its address stated in the registration. Article 26 Access to the international registration facilities No person shall be denied access to the registration and search facilities of the International Registry on any ground other than its failure to comply with the procedures prescribed by this Chapter.

Convention on International Interests in Mobile Equipment 963 Chapter VI Privileges and immunities of the Supervisory Authority and the Registrar Article 27 Legal personality; immunity 1. The Supervisory Authority shall have international legal personality where not already possessing such personality. 2. The Supervisory Authority and its officers and employees shall enjoy such immunity from legal or administrative process as is specified in the Protocol. 3. (a) The Supervisory Authority shall enjoy exemption from taxes and such other privileges as may be provided by agreement with the host State. (b) For the purposes of this paragraph, “host State” means the State in which the Supervisory Authority is situated. 4. The assets, documents, data bases and archives of the International Registry shall be inviolable and immune from seizure or other legal or administrative process. 5. For the purposes of any claim against the Registrar under Article 28(1) or Article 44, the claimant shall be entitled to access to such information and documents as are necessary to enable the claimant to pursue its claim. 6. The Supervisory Authority may waive the inviolability and immunity conferred by paragraph 4. Chapter VII Liability of the Registrar Article 28 Liability and financial assurances 1. The Registrar shall be liable for compensatory damages for loss suffered by a person directly resulting from an error or omission of the Registrar and its officers and employees or from a malfunction of the international registration system except where the malfunction is caused by an event of an inevitable and irresistible nature, which could not be prevented by using the best practices in current use in the field of electronic registry design and operation, including those related to back-up and systems security and networking. 2. The Registrar shall not be liable under the preceding paragraph for factual inaccuracy of registration information received by the Registrar or transmitted by the Registrar in the form in which it received that information nor for acts or circumstances for which the Registrar and its officers and employees are not responsible and arising prior to receipt of registration information at the International Registry. 3. Compensation under paragraph 1 may be reduced to the extent that the person who suffered the damage caused or contributed to that damage.

964  Part II: Uniform Law 4. The Registrar shall procure insurance or a financial guarantee covering the liability referred to in this Article to the extent determined by the Supervisory Authority, in accordance with the Protocol. Chapter VIII Effects of an international interest as against third parties Article 29 Priority of competing interests 1. A registered interest has priority over any other interest subsequently registered and over an unregistered interest. 2. The priority of the first-mentioned interest under the preceding paragraph applies: (a) even if the first-mentioned interest was acquired or registered with actual knowledge of the other interest; and (b) even as regards value given by the holder of the first-mentioned interest with such knowledge. 3. The buyer of an object acquires its interest in it: (a) subject to an interest registered at the time of its acquisition of that interest; and (b) free from an unregistered interest even if it has actual knowledge of such an interest. 4. The conditional buyer or lessee acquires its interest in or right over that object: (a) subject to an interest registered prior to the registration of the international interest held by its conditional seller or lessor; and (b) free from an interest not so registered at that time even if it has actual knowledge of that interest. 5. The priority of competing interests or rights under this Article may be varied by agreement between the holders of those interests, but an assignee of a subordinated interest is not bound by an agreement to subordinate that interest unless at the time of the assignment a subordination had been registered relating to that agreement. 6. Any priority given by this Article to an interest in an object extends to proceeds. 7. This Convention: (a) does not affect the rights of a person in an item, other than an object, held prior to its installation on an object if under the applicable law those rights continue to exist after the installation; and (b) does not prevent the creation of rights in an item, other than an object, which has previously been installed on an object where under the applicable law those rights are created.

Convention on International Interests in Mobile Equipment 965 Article 30 Effects of insolvency 1. In insolvency proceedings against the debtor an international interest is effective if prior to the commencement of the insolvency proceedings that interest was registered in conformity with this Convention. 2. Nothing in this Article impairs the effectiveness of an international i­nterest in the insolvency proceedings where that interest is effective under the applicable law. 3. Nothing in this Article affects: (a) any rules of law applicable in insolvency proceedings relating to the avoidance of a transaction as a preference or a transfer in fraud of creditors; or (b) any rules of procedure relating to the enforcement of rights to property which is under the control or supervision of the insolvency administrator. Chapter IX Assignments of associated rights and international interests; rights of subrogation Article 31 Effects of assignment 1. Except as otherwise agreed by the parties, an assignment of associated rights made in conformity with Article 32 also transfers to the assignee: (a) the related international interest; and (b) all the interests and priorities of the assignor under this Convention. 2. Nothing in this Convention prevents a partial assignment of the assignor’s associated rights. In the case of such a partial assignment the assignor and assignee may agree as to their respective rights concerning the related international interest assigned under the preceding paragraph but not so as adversely to affect the debtor without its consent. 3. Subject to paragraph 4, the applicable law shall determine the defences and rights of set-off available to the debtor against the assignee. 4. The debtor may at any time by agreement in writing waive all or any of the defences and rights of set-off referred to in the preceding paragraph other than defences arising from fraudulent acts on the part of the assignee. 5. In the case of an assignment by way of security, the assigned associated rights revest in the assignor, to the extent that they are still subsisting, when the obligations secured by the assignment have been discharged.

966  Part II: Uniform Law Article 32 Formal requirements of assignment 1. An assignment of associated rights transfers the related international interest only if it: (a) is in writing; (b) enables the associated rights to be identified under the contract from which they arise; and (c) in the case of an assignment by way of security, enables the obligations secured by the assignment to be determined in accordance with the Protocol but without the need to state a sum or maximum sum secured. 2. An assignment of an international interest created or provided for by a security agreement is not valid unless some or all related associated rights also are assigned. 3. This Convention does not apply to an assignment of associated rights which is not effective to transfer the related international interest. Article 33 Debtor’s duty to assignee 1. To the extent that associated rights and the related international interest have been transferred in accordance with Articles 31 and 32, the debtor in relation to those rights and that interest is bound by the assignment and has a duty to make payment or give other performance to the assignee, if but only if: (a) the debtor has been given notice of the assignment in writing by or with the authority of the assignor; and (b) the notice identifies the associated rights. 2. Irrespective of any other ground on which payment or performance by the debtor discharges the latter from liability, payment or performance shall be effective for this purpose if made in accordance with the preceding paragraph. 3. Nothing in this Article shall affect the priority of competing assignments. Article 34 Default remedies in respect of assignment by way of security In the event of default by the assignor under the assignment of associated rights and the related international interest made by way of security, Articles 8, 9 and 11 to 14 apply in the relations between the assignor and the assignee (and, in relation to associated rights, apply in so far as those provisions are capable of application to intangible property) as if references: (a) to the secured obligation and the security interest were references to the obligation secured by the assignment of the associated rights and the related international interest and the security interest created by that assignment; (b) to the chargee or creditor and chargor or debtor were references to the assignee and assignor;

Convention on International Interests in Mobile Equipment 967 (c) to the holder of the international interest were references to the assignee; and (d) to the object were references to the assigned associated rights and the related international interest. Article 35 Priority of competing assignments 1. Where there are competing assignments of associated rights and at least one of the assignments includes the related international interest and is registered, the provisions of Article 29 apply as if the references to a registered interest were references to an assignment of the associated rights and the related registered interest and as if references to a registered or unregistered interest were references to a registered or unregistered assignment. 2. Article 30 applies to an assignment of associated rights as if the references to an international interest were references to an assignment of the associated rights and the related international interest. Article 36 Assignee’s priority with respect to associated rights 1. The assignee of associated rights and the related international interest whose assignment has been registered only has priority under Article 35(1) over another assignee of the associated rights: (a) if the contract under which the associated rights arise states that they are secured by or associated with the object; and (b) to the extent that the associated rights are related to an object. 2. For the purposes of sub-paragraph (b) of the preceding paragraph, associated rights are related to an object only to the extent that they consist of rights to payment or performance that relate to: (a) a sum advanced and utilised for the purchase of the object; (b) a sum advanced and utilised for the purchase of another object in which the assignor held another international interest if the assignor transferred that interest to the assignee and the assignment has been registered; (c) the price payable for the object; (d) the rentals payable in respect of the object; or (e) other obligations arising from a transaction referred to in any of the preceding subparagraphs. 3. In all other cases, the priority of the competing assignments of the associated rights shall be determined by the applicable law. Article 37 Effects of assignor’s insolvency The provisions of Article 30 apply to insolvency proceedings against the assignor as if references to the debtor were references to the assignor.

968  Part II: Uniform Law Article 38 Subrogation 1. Subject to paragraph 2, nothing in this Convention affects the acquisition of associated rights and the related international interest by legal or contractual subrogation under the applicable law. 2. The priority between any interest within the preceding paragraph and a competing interest may be varied by agreement in writing between the holders of the respective interests but an assignee of a subordinated interest is not bound by an agreement to subordinate that interest unless at the time of the assignment a subordination had been registered relating to that agreement. Chapter X Rights or interests subject to declarations by Contracting States Article 39 Rights having priority without registration 1. A Contracting State may at any time, in a declaration deposited with the Depositary of the Protocol declare, generally or specifically: (a) those categories of non-consensual right or interest (other than a right or interest to which Article 40 applies) which under that State’s law have priority over an interest in an object equivalent to that of the holder of a registered international interest and which shall have priority over a registered international interest, whether in or outside insolvency proceedings; and (b) that nothing in this Convention shall affect the right of a State or State entity, intergovernmental organisation or other private provider of public services to arrest or detain an object under the laws of that State for payment of amounts owed to such entity, organisation or provider directly relating to those services in respect of that object or another object. 2. A declaration made under the preceding paragraph may be expressed to cover categories that are created after the deposit of that declaration. 3. A non-consensual right or interest has priority over an international interest if and only if the former is of a category covered by a declaration deposited prior to the registration of the international interest. 4. Notwithstanding the preceding paragraph, a Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare that a right or interest of a category covered by a declaration made under sub-paragraph (a) of paragraph 1 shall have priority over an international interest registered prior to the date of such ratification, acceptance, approval or accession.

Convention on International Interests in Mobile Equipment 969 Article 40 Registrable non-consensual rights or interests A Contracting State may at any time in a declaration deposited with the Depositary of the Protocol list the categories of non-consensual right or interest which shall be registrable under this Convention as regards any category of object as if the right or interest were an international interest and shall be regulated accordingly. Such a declaration may be modified from time to time. Chapter XI Application of the Convention to sales Article 41 Sale and prospective sale This Convention shall apply to the sale or prospective sale of an object as provided for in the Protocol with any modifications therein. Chapter XII Jurisdiction Article 42 Choice of forum 1. Subject to Articles 43 and 44, the courts of a Contracting State chosen by the parties to a transaction have jurisdiction in respect of any claim brought under this Convention, whether or not the chosen forum has a connection with the parties or the transaction. Such jurisdiction shall be exclusive unless otherwise agreed between the parties. 2. Any such agreement shall be in writing or otherwise concluded in accordance with the formal requirements of the law of the chosen forum. Article 43 Jurisdiction under Article 13 1. The courts of a Contracting State chosen by the parties and the courts of the Contracting State on the territory of which the object is situated have jurisdiction to grant relief under Article 13(1)(a), (b), (c) and Article 13(4) in respect of that object. 2. Jurisdiction to grant relief under Article 13(1)(d) or other interim relief by virtue of Article 13(4) may be exercised either: (a) by the courts chosen by the parties; or (b) by the courts of a Contracting State on the territory of which the debtor is situated, being relief which, by the terms of the order granting it, is enforceable only in the territory of that Contracting State.

970  Part II: Uniform Law 3. A court has jurisdiction under the preceding paragraphs even if the final determination of the claim referred to in Article 13(1) will or may take place in a court of another Contracting State or by arbitration. Article 44 Jurisdiction to make orders against the Registrar 1. The courts of the place in which the Registrar has its centre of administration shall have exclusive jurisdiction to award damages or make orders against the Registrar. 2. Where a person fails to respond to a demand made under Article 25 and that person has ceased to exist or cannot be found for the purpose of enabling an order to be made against it requiring it to procure discharge of the registration, the courts referred to in the preceding paragraph shall have exclusive jurisdiction, on the application of the debtor or intending debtor, to make an order directed to the Registrar requiring the Registrar to discharge the registration. 3. Where a person fails to comply with an order of a court having jurisdiction under this Convention or, in the case of a national interest, an order of a court of competent jurisdiction requiring that person to procure the amendment or discharge of a registration, the courts referred to in paragraph 1 may direct the Registrar to take such steps as will give effect to that order. 4. Except as otherwise provided by the preceding paragraphs, no court may make orders or give judgments or rulings against or purporting to bind the Registrar. Article 45 Jurisdiction in respect of insolvency proceedings The provisions of this Chapter are not applicable to insolvency proceedings. Chapter XIII Relationship with other Conventions Article 45 bis Relationship with the United Nations Convention on the Assignment of Receivables in International Trade This Convention shall prevail over the United Nations Convention on the Assignment of Receivables in International Trade, opened for signature in New York on 12 December 2001, as it relates to the assignment of receivables which are associated rights related to international interests in aircraft objects, railway rolling stock and space assets.

Convention on International Interests in Mobile Equipment 971 Article 46 Relationship with the UNIDROIT Convention on International Financial Leasing The Protocol may determine the relationship between this Convention and the ­UNIDROIT Convention on International Financial Leasing, signed at Ottawa on 28 May 1988. Chapter XIV Final provisions Article 47 Signature, ratification, acceptance, approval or accession 1. This Convention shall be open for signature in Cape Town on 16 November 2001 by States participating in the Diplomatic Conference to Adopt a Mobile Equipment Convention and an Aircraft Protocol held at Cape Town from 29 October to 16 November 2001. After 16 November 2001, the Convention shall be open to all States for signature at the Headquarters of the International Institute for the Unification of Private Law (UNIDROIT) in Rome until it enters into force in accordance with Article 49. 2. This Convention shall be subject to ratification, acceptance or approval by States which have signed it. 3. Any State which does not sign this Convention may accede to it at any time. 4. Ratification, acceptance, approval or accession is effected by the deposit of a formal instrument to that effect with the Depositary. Article 48 Regional Economic Integration Organisations 1. A Regional Economic Integration Organisation which is constituted by sovereign States and has competence over certain matters governed by this Convention may similarly sign, accept, approve or accede to this Convention. The Regional Economic Integration Organisation shall in that case have the rights and obligations of a Contracting State, to the extent that that Organisation has competence over matters governed by this Convention. Where the number of Contracting States is relevant in this Convention, the Regional Economic Integration Organisation shall not count as a Contracting State in addition to its Member States which are Contracting States. 2. The Regional Economic Integration Organisation shall, at the time of signature, acceptance, approval or accession, make a declaration to the Depositary specifying the matters governed by this Convention in respect of which competence has been transferred to that Organisation by its Member States. The Regional Economic Integration Organisation shall promptly notify the Depositary of any changes to the distribution of competence, including new transfers of competence, specified in the declaration under this paragraph.

972  Part II: Uniform Law 3. Any reference to a “Contracting State” or “Contracting States” or “State Party” or “States Parties” in this Convention applies equally to a Regional Economic Integration Organisation where the context so requires. Article 49 Entry into force 1. This Convention enters into force on the first day of the month following the expiration of three months after the date of the deposit of the third instrument of ratification, acceptance, approval or accession but only as regards a category of objects to which a Protocol applies: (a) as from the time of entry into force of that Protocol; (b) subject to the terms of that Protocol; and (c) as between States Parties to this Convention and that Protocol. 2. For other States this Convention enters into force on the first day of the month following the expiration of three months after the date of the deposit of their instrument of ratification, acceptance, approval or accession but only as regards a category of objects to which a Protocol applies and subject, in relation to such Protocol, to the requirements of sub-paragraphs (a), (b) and (c) of the preceding paragraph. Article 50 Internal transactions 1. A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare that this Convention shall not apply to a transaction which is an internal transaction in relation to that State with regard to all types of objects or some of them. 2. Notwithstanding the preceding paragraph, the provisions of Articles 8(4), 9(1), 16, Chapter V, Article 29, and any provisions of this Convention relating to registered interests shall apply to an internal transaction. 3. Where notice of a national interest has been registered in the International Registry, the priority of the holder of that interest under Article 29 shall not be affected by the fact that such interest has become vested in another person by assignment or subrogation under the applicable law. Article 51 Future Protocols 1. The Depositary may create working groups, in co-operation with such relevant non-governmental organisations as the Depositary considers appropriate, to assess the feasibility of extending the application of this Convention, through one or more Protocols, to objects of any category of high-value mobile equipment, other than a category referred to in Article 2(3), each member of which is uniquely identifiable, and associated rights relating to such objects.

Convention on International Interests in Mobile Equipment 973 2. The Depositary shall communicate the text of any preliminary draft Protocol relating to a category of objects prepared by such a working group to all States Parties to this Convention, all member States of the Depositary, member States of the United Nations which are not members of the Depositary and the relevant intergovernmental organisations, and shall invite such States and organisations to participate in intergovernmental negotiations for the completion of a draft Protocol on the basis of such a preliminary draft Protocol. 3. The Depositary shall also communicate the text of any preliminary draft Protocol prepared by such a working group to such relevant non-governmental organisations as the Depositary considers appropriate. Such non-governmental­ organisations shall be invited promptly to submit comments on the text of the preliminary draft Protocol to the Depositary and to participate as observers in the preparation of a draft Protocol. 4. When the competent bodies of the Depositary adjudge such a draft Protocol ripe for adoption, the Depositary shall convene a diplomatic conference for its adoption. 5. Once such a Protocol has been adopted, subject to paragraph 6, this Convention shall apply to the category of objects covered thereby. 6. Article 45 bis of this Convention applies to such a Protocol only if specifically provided for in that Protocol. Article 52 Territorial units 1. If a Contracting State has territorial units in which different systems of law are applicable in relation to the matters dealt with in this Convention, it may, at the time of ratification, acceptance, approval or accession, declare that this Convention is to extend to all its territorial units or only to one or more of them and may modify its declaration by submitting another declaration at any time. 2. Any such declaration shall state expressly the territorial units to which this Convention applies. 3. If a Contracting State has not made any declaration under paragraph 1, this Convention shall apply to all territorial units of that State. 4. Where a Contracting State extends this Convention to one or more of its territorial units, declarations permitted under this Convention may be made in respect of each such territorial unit, and the declarations made in respect of one territorial unit may be different from those made in respect of another territorial unit. 5. If by virtue of a declaration under paragraph 1, this Convention extends to one or more territorial units of a Contracting State: (a) the debtor is considered to be situated in a Contracting State only if it is incorporated or formed under a law in force in a territorial unit to which this Convention applies or if it has its registered office or statutory seat, centre of administration, place of business or habitual residence in a territorial unit to which this Convention applies;

974  Part II: Uniform Law (b) any reference to the location of the object in a Contracting State refers to the location of the object in a territorial unit to which this Convention applies; and (c) any reference to the administrative authorities in that Contracting State shall be construed as referring to the administrative authorities having jurisdiction in a territorial unit to which this Convention applies. Article 53 Determination of courts A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare the relevant “court” or “courts” for the purposes of Article 1 and Chapter XII of this Convention. Article 54 Declarations regarding remedies 1. A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare that while the charged object is situated within, or controlled from its territory the chargee shall not grant a lease of the object in that territory. 2. A Contracting State shall, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare whether or not any remedy available to the creditor under any provision of this Convention which is not there expressed to require application to the court may be exercised only with leave of the court. Article 55 Declarations regarding relief pending final determination A Contracting State may, at the time of ratification, acceptance, approval of, or accession to the Protocol, declare that it will not apply the provisions of Article 13 or Article 43, or both, wholly or in part. The declaration shall specify under which conditions the relevant Article will be applied, in case it will be applied partly, or otherwise which other forms of interim relief will be applied. Article 56 Reservations and declarations 1. No reservations may be made to this Convention but declarations authorised by Articles 39, 40, 50, 52, 53, 54, 55, 57, 58 and 60 may be made in accordance with these provisions. 2. Any declaration or subsequent declaration or any withdrawal of a declaration made under this Convention shall be notified in writing to the Depositary.

Convention on International Interests in Mobile Equipment 975 Article 57 Subsequent declarations 1. A State Party may make a subsequent declaration, other than a declaration authorised under Article 60, at any time after the date on which this Convention has entered into force for it, by notifying the Depositary to that effect. 2. Any such subsequent declaration shall take effect on the first day of the month following the expiration of six months after the date of receipt of the notification by the Depositary. Where a longer period for that declaration to take effect is specified in the notification, it shall take effect upon the expiration of such longer period after receipt of the notification by the Depositary. 3. Notwithstanding the previous paragraphs, this Convention shall continue to apply, as if no such subsequent declarations had been made, in respect of all rights and interests arising prior to the effective date of any such subsequent declaration. Article 58 Withdrawal of declarations 1. Any State Party having made a declaration under this Convention, other than a declaration authorised under Article 60, may withdraw it at any time by notifying the Depositary. Such withdrawal is to take effect on the first day of the month following the expiration of six months after the date of receipt of the notification by the Depositary. 2. Notwithstanding the previous paragraph, this Convention shall continue to apply, as if no such withdrawal of declaration had been made, in respect of all rights and interests arising prior to the effective date of any such withdrawal. Article 59 Denunciations 1. Any State Party may denounce this Convention by notification in writing to the Depositary. 2. Any such denunciation shall take effect on the first day of the month following the expiration of twelve months after the date on which notification is received by the Depositary. 3. Notwithstanding the previous paragraphs, this Convention shall continue to apply, as if no such denunciation had been made, in respect of all rights and interests arising prior to the effective date of any such denunciation. Article 60 Transitional provisions 1. Unless otherwise declared by a Contracting State at any time, the Convention does not apply to a pre-existing right or interest, which retains the priority it enjoyed under the applicable law before the effective date of this Convention.

976  Part II: Uniform Law 2. For the purposes of Article 1(v) and of determining priority under this Convention: (a) “effective date of this Convention” means in relation to a debtor the time when this Convention enters into force or the time when the State in which the debtor is situated becomes a Contracting State, whichever is the later; and (b) the debtor is situated in a State where it has its centre of administration or, if it has no centre of administration, its place of business or, if it has more than one place of business, its principal place of business or, if it has no place of business, its habitual residence. 3. A Contracting State may in its declaration under paragraph 1 specify a date, not earlier than three years after the date on which the declaration becomes effective, when this Convention and the Protocol will become applicable, for the purpose of determining priority, including the protection of any existing priority, to pre-existing rights or interests arising under an agreement made at a time when the debtor was situated in a State referred to in sub-paragraph (b) of the preceding paragraph but only to the extent and in the manner specified in its declaration. Article 61 Review Conferences, amendments and related matters 1. The Depositary shall prepare reports yearly or at such other time as the circumstances may require for the States Parties as to the manner in which the international regimen established in this Convention has operated in practice. In preparing such reports, the Depositary shall take into account the reports of the Supervisory Authority concerning the functioning of the international registration system. 2. At the request of not less than twenty-five per cent of the States Parties, Review Conferences of States Parties shall be convened from time to time by the Depositary, in consultation with the Supervisory Authority, to consider: (a) the practical operation of this Convention and its effectiveness in facilitating the asset-based financing and leasing of the objects covered by its terms; (b) the judicial interpretation given to, and the application made of the terms of this Convention and the regulations; (c) the functioning of the international registration system, the performance of the Registrar and its oversight by the Supervisory Authority, taking into account the reports of the Supervisory Authority; and (d) whether any modifications to this Convention or the arrangements relating to the International Registry are desirable. 3. Subject to paragraph 4, any amendment to this Convention shall be approved by at least a two-thirds majority of States Parties participating in the Conference referred to in the preceding paragraph and shall then enter into force in

Convention on International Interests in Mobile Equipment 977 respect of States which have ratified, accepted or approved such amendment when ratified, accepted, or approved by three States in accordance with the provisions of Article 49 relating to its entry into force. 4. Where the proposed amendment to this Convention is intended to apply to more than one category of equipment, such amendment shall also be approved by at least a two-thirds majority of States Parties to each Protocol that are participating in the Conference referred to in paragraph 2. Article 62 Depositary and its functions 1. Instruments of ratification, acceptance, approval or accession shall be deposited with the International Institute for the Unification of Private Law (UNIDROIT), which is hereby designated the Depositary. 2. The Depositary shall: (a) inform all Contracting States of: (i) each new signature or deposit of an instrument of ratification, acceptance, approval or accession, together with the date thereof; (ii) the date of entry into force of this Convention; (iii) each declaration made in accordance with this Convention, together with the date thereof; (iv) the withdrawal or amendment of any declaration, together with the date thereof; and (v) the notification of any denunciation of this Convention together with the date thereof and the date on which it takes effect; (b) transmit certified true copies of this Convention to all Contracting States; (c) provide the Supervisory Authority and the Registrar with a copy of each instrument of ratification, acceptance, approval or accession, together with the date of deposit thereof, of each declaration or withdrawal or amendment of a declaration and of each notification of denunciation, together with the date of notification thereof, so that the information contained therein is easily and fully available; and (d) perform such other functions customary for depositaries. IN WITNESS WHEREOF the undersigned Plenipotentiaries, having been duly authorised, have signed this Convention. DONE at Cape Town, this sixteenth day of November, two thousand and one, in a single original in the English, Arabic, Chinese, French, Russian and Spanish languages, all texts being equally authentic, such authenticity to take effect upon verification by the Joint Secretariat of the Conference under the authority of the President of the Conference within ninety days hereof as to the conformity of the texts with one another.

United Nations Convention on the Assignment of Receivables in International Trade* of 12 December 2001 (New York) Preamble The Contracting States, Reaffirming their conviction that international trade on the basis of equality and mutual benefit is an important element in the promotion of friendly relations among States, Considering that problems created by uncertainties as to the content and the choice of legal regime applicable to the assignment of receivables constitute an obstacle to international trade, Desiring to establish principles and to adopt rules relating to the assignment of receivables that would create certainty and transparency and promote the modernization of the law relating to assignments of receivables, while protecting existing assignment practices and facilitating the development of new practices, Desiring also to ensure adequate protection of the interests of debtors in assignments of receivables, Being of the opinion that the adoption of uniform rules governing the assignment of receivables would promote the availability of capital and credit at more affordable rates and thus facilitate the development of international trade,

* 

The Convention has not been adopted by the UK.

Convention on the Assignment of Receivables in International Trade 979 Have agreed as follows: Chapter I Scope of application Article 1 Scope of application 1. This Convention applies to: (a) Assignments of international receivables and to international assignments of receivables as defined in this chapter, if, at the time of conclusion of the contract of assignment, the assignor is located in a Contracting State; and (b) Subsequent assignments, provided that any prior assignment is governed by this Convention. 2. This Convention applies to subsequent assignments that satisfy the criteria set forth in paragraph 1 (a) of this article, even if it did not apply to any prior assignment of the same receivable. 3. This Convention does not affect the rights and obligations of the debtor unless, at the time of conclusion of the original contract, the debtor is located in a Contracting State or the law governing the original contract is the law of a Contracting State. 4. The provisions of chapter V apply to assignments of international receivables and to international assignments of receivables as defined in this chapter independently of paragraphs 1 to 3 of this article. However, those provisions do not apply if a State makes a declaration under article 39. 5. The provisions of the annex to this Convention apply as provided in article 42. Article 2 Assignment of receivables For the purposes of this Convention: (a) “Assignment” means the transfer by agreement from one person (“assignor”) to another person (“assignee”) of all or part of or an undivided interest in the assignor’s contractual right to payment of a monetary sum (“receivable”) from a third person (“the debtor”). The creation of rights in receivables as security for indebtedness or other obligation is deemed to be a transfer; (b) In the case of an assignment by the initial or any other assignee (“subsequent assignment”), the person who makes that assignment is the assignor and the person to whom that assignment is made is the assignee.

980  Part II: Uniform Law Article 3 Internationality A receivable is international if, at the time of conclusion of the original contract, the assignor and the debtor are located in different States. An assignment is international if, at the time of conclusion of the contract of assignment, the assignor and the assignee are located in different States. Article 4 Exclusions and other limitations 1. This Convention does not apply to assignments made: (a) To an individual for his or her personal, family or household purposes; (b) As part of the sale or change in the ownership or legal status of the business out of which the assigned receivables arose. 2. This Convention does not apply to assignments of receivables arising under or from: (a) Transactions on a regulated exchange; (b) Financial contracts governed by netting agreements, except a receivable owed on the termination of all outstanding transactions; (c) Foreign exchange transactions; (d) Inter-bank payment systems, inter-bank payment agreements or clearance and settlement systems relating to securities or other financial assets or instruments; (e) The transfer of security rights in, sale, loan or holding of or agreement to repurchase securities or other financial assets or instruments held with an intermediary; (f) Bank deposits; (g) A letter of credit or independent guarantee. 3. Nothing in this Convention affects the rights and obligations of any person under the law governing negotiable instruments. 4. Nothing in this Convention affects the rights and obligations of the assignor and the debtor under special laws governing the protection of parties to transactions made for personal, family or household purposes. 5. Nothing in this Convention: (a) Affects the application of the law of a State in which real property is situated to either: (i) An interest in that real property to the extent that under that law the assignment of a receivable confers such an interest; or (ii) The priority of a right in a receivable to the extent that under that law an interest in the real property confers such a right; or (b) Makes lawful the acquisition of an interest in real property not permitted under the law of the State in which the real property is situated.

Convention on the Assignment of Receivables in International Trade 981 Chapter II General provisions Article 5 Definitions and rules of interpretation For the purposes of this Convention: (a) “Original contract” means the contract between the assignor and the debtor from which the assigned receivable arises; (b) “Existing receivable” means a receivable that arises upon or before conclusion of the contract of assignment and “future receivable” means a receivable that arises after conclusion of the contract of assignment; (c) “Writing” means any form of information that is accessible so as to be usable for subsequent reference. Where this Convention requires a writing to be signed, that requirement is met if, by generally accepted means or a procedure agreed to by the person whose signature is required, the writing identifies that person and indicates that person’s approval of the information contained in the writing; (d) “Notification of the assignment” means a communication in writing that reasonably identifies the assigned receivables and the assignee; (e) “Insolvency administrator” means a person or body, including one appointed on an interim basis, authorized in an insolvency proceeding to administer the reorganization or liquidation of the assignor’s assets or affairs; (f) “Insolvency proceeding” means a collective judicial or administrative proceeding, including an interim proceeding, in which the assets and affairs of the assignor are subject to control or supervision by a court or other competent authority for the purpose of reorganization or liquidation; (g) “Priority” means the right of a person in preference to the right of another person and, to the extent relevant for such purpose, includes the determination whether the right is a personal or a property right, whether or not it is a security right for indebtedness or other obligation and whether any requirements necessary to render the right effective against a competing claimant have been satisfied; (h) A person is located in the State in which it has its place of business. If the assignor or the assignee has a place of business in more than one State, the place of business is that place where the central administration of the assignor or the assignee is exercised. If the debtor has a place of business in more than one State, the place of business is that which has the closest relationship to the original contract. If a person does not have a place of business, reference is to be made to the habitual residence of that person; (i) “Law” means the law in force in a State other than its rules of private international law; (j) “Proceeds” means whatever is received in respect of an assigned receivable, whether in total or partial payment or other satisfaction of the receivable.

982  Part II: Uniform Law The term includes whatever is received in respect of proceeds. The term does not include returned goods; (k) “Financial contract” means any spot, forward, future, option or swap transaction involving interest rates, commodities, currencies, equities, bonds, indices or any other financial instrument, any repurchase or securities lending transaction, and any other transaction similar to any transaction referred to above entered into in financial markets and any combination of the transactions mentioned above; (l) “Netting agreement” means an agreement between two or more parties that provides for one or more of the following: (i) The net settlement of payments due in the same currency on the same date whether by novation or otherwise; (ii) Upon the insolvency or other default by a party, the termination of all outstanding transactions at their replacement or fair market values, conversion of such sums into a single currency and netting into a single payment by one party to the other; or (iii) The set-off of amounts calculated as set forth in subparagraph (l) (ii) of this article under two or more netting agreements; (m) “Competing claimant” means: (i) Another assignee of the same receivable from the same assignor, including a person who, by operation of law, claims a right in the assigned receivable as a result of its right in other property of the assignor, even if that receivable is not an international receivable and the assignment to that assignee is not an international assignment; (ii) A creditor of the assignor; or (iii) The insolvency administrator. Article 6 Party autonomy Subject to article 19, the assignor, the assignee and the debtor may derogate from or vary by agreement provisions of this Convention relating to their respective rights and obligations. Such an agreement does not affect the rights of any person who is not a party to the agreement. Article 7 Principles of interpretation 1. In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble, to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade. 2. Questions concerning matters governed by this Convention that are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Convention on the Assignment of Receivables in International Trade 983 Chapter III Effects of assignment Article 8 Effectiveness of assignments 1. An assignment is not ineffective as between the assignor and the assignee or as against the debtor or as against a competing claimant, and the right of an assignee may not be denied priority, on the ground that it is an assignment of more than one receivable, future receivables or parts of or undivided interests in receivables, provided that the receivables are described: (a) Individually as receivables to which the assignment relates; or (b) In any other manner, provided that they can, at the time of the assignment or, in the case of future receivables, at the time of conclusion of the original contract, be identified as receivables to which the assignment relates. 2. Unless otherwise agreed, an assignment of one or more future receivables is effective without a new act of transfer being required to assign each receivable. 3. Except as provided in paragraph 1 of this article, article 9 and article 10, paragraphs 2 and 3, this Convention does not affect any limitations on assignments arising from law. Article 9 Contractual limitations on assignments 1. An assignment of a receivable is effective notwithstanding any agreement between the initial or any subsequent assignor and the debtor or any subsequent assignee limiting in any way the assignor’s right to assign its receivables. 2. Nothing in this article affects any obligation or liability of the assignor for breach of such an agreement, but the other party to such agreement may not avoid the original contract or the assignment contract on the sole ground of that breach. A person who is not party to such an agreement is not liable on the sole ground that it had knowledge of the agreement. 3. This article applies only to assignments of receivables: (a) Arising from an original contract that is a contract for the supply or lease of goods or services other than financial services, a construction contract or a contract for the sale or lease of real property; (b) Arising from an original contract for the sale, lease or licence of industrial or other intellectual property or of proprietary information; (c) Representing the payment obligation for a credit card transaction; or (d) Owed to the assignor upon net settlement of payments due pursuant to a netting agreement involving more than two parties.

984  Part II: Uniform Law Article 10 Transfer of security rights 1. A personal or property right securing payment of the assigned receivable is transferred to the assignee without a new act of transfer. If such a right, under the law governing it, is transferable only with a new act of transfer, the assignor is obliged to transfer such right and any proceeds to the assignee. 2. A right securing payment of the assigned receivable is transferred under paragraph 1 of this article notwithstanding any agreement between the ­ assignor and the debtor or other person granting that right, limiting in any way the assignor’s right to assign the receivable or the right securing payment of the assigned receivable. 3. Nothing in this article affects any obligation or liability of the assignor for breach of any agreement under paragraph 2 of this article, but the other party to that agreement may not avoid the original contract or the assignment contract on the sole ground of that breach. A person who is not a party to such an agreement is not liable on the sole ground that it had knowledge of the agreement. 4. Paragraphs 2 and 3 of this article apply only to assignments of receivables: (a) Arising from an original contract that is a contract for the supply or lease of goods or services other than financial services, a construction contract or a contract for the sale or lease of real property; (b) Arising from an original contract for the sale, lease or licence of industrial or other intellectual property or of proprietary information; (c) Representing the payment obligation for a credit card transaction; or (d) Owed to the assignor upon net settlement of payments due pursuant to a netting agreement involving more than two parties. 5. The transfer of a possessory property right under paragraph 1 of this article does not affect any obligations of the assignor to the debtor or the person granting the property right with respect to the property transferred existing under the law governing that property right. 6. Paragraph 1 of this article does not affect any requirement under rules of law other than this Convention relating to the form or registration of the transfer of any rights securing payment of the assigned receivable. Chapter IV Rights, obligations and defences Section I Assignor and assignee Article 11 Rights and obligations of the assignor and the assignee 1. The mutual rights and obligations of the assignor and the assignee arising from their agreement are determined by the terms and conditions set forth in that agreement, including any rules or general conditions referred to therein.

Convention on the Assignment of Receivables in International Trade 985 2. The assignor and the assignee are bound by any usage to which they have agreed and, unless otherwise agreed, by any practices they have established between themselves. 3. In an international assignment, the assignor and the assignee are considered, unless otherwise agreed, implicitly to have made applicable to the assignment a usage that in international trade is widely known to, and regularly observed by, parties to the particular type of assignment or to the assignment of the particular category of receivables. Article 12 Representations of the assignor 1. Unless otherwise agreed between the assignor and the assignee, the assignor represents at the time of conclusion of the contract of assignment that: (a) The assignor has the right to assign the receivable; (b) The assignor has not previously assigned the receivable to another assignee; and (c) The debtor does not and will not have any defences or rights of set-off. 2. Unless otherwise agreed between the assignor and the assignee, the assignor does not represent that the debtor has, or will have, the ability to pay. Article 13 Right to notify the debtor 1. Unless otherwise agreed between the assignor and the assignee, the assignor or the assignee or both may send the debtor notification of the assignment and a payment instruction, but after notification has been sent only the assignee may send such an instruction. 2. Notification of the assignment or a payment instruction sent in breach of any agreement referred to in paragraph 1 of this article is not ineffective for the purposes of article 17 by reason of such breach. However, nothing in this ­article affects any obligation or liability of the party in breach of such an agreement for any damages arising as a result of the breach. Article 14 Right to payment 1. As between the assignor and the assignee, unless otherwise agreed and whether or not notification of the assignment has been sent: (a) If payment in respect of the assigned receivable is made to the assignee, the assignee is entitled to retain the proceeds and goods returned in respect of the assigned receivable; (b) If payment in respect of the assigned receivable is made to the assignor, the assignee is entitled to payment of the proceeds and also to goods returned to the assignor in respect of the assigned receivable; and (c) If payment in respect of the assigned receivable is made to another person over whom the assignee has priority, the assignee is entitled to payment

986  Part II: Uniform Law of the proceeds and also to goods returned to such person in respect of the assigned receivable. 2. The assignee may not retain more than the value of its right in the receivable. Section II Debtor Article 15 Principle of debtor protection 1. Except as otherwise provided in this Convention, an assignment does not, without the consent of the debtor, affect the rights and obligations of the debtor, including the payment terms contained in the original contract. 2. A payment instruction may change the person, address or account to which the debtor is required to make payment, but may not change: (a) The currency of payment specified in the original contract; or (b) The State specified in the original contract in which payment is to be made to a State other than that in which the debtor is located. Article 16 Notification of the debtor 1. Notification of the assignment or a payment instruction is effective when received by the debtor if it is in a language that is reasonably expected to inform the debtor about its contents. It is sufficient if notification of the assignment or a payment instruction is in the language of the original contract. 2. Notification of the assignment or a payment instruction may relate to receivables arising after notification. 3. Notification of a subsequent assignment constitutes notification of all prior assignments. Article 17 Debtor’s discharge by payment 1. Until the debtor receives notification of the assignment, the debtor is entitled to be discharged by paying in accordance with the original contract. 2. After the debtor receives notification of the assignment, subject to paragraphs 3 to 8 of this article, the debtor is discharged only by paying the assignee or, if otherwise instructed in the notification of the assignment or subsequently by the assignee in a writing received by the debtor, in accordance with such payment instruction. 3. If the debtor receives more than one payment instruction relating to a single assignment of the same receivable by the same assignor, the debtor is discharged by paying in accordance with the last payment instruction received from the assignee before payment.

Convention on the Assignment of Receivables in International Trade 987 4. If the debtor receives notification of more than one assignment of the same receivable made by the same assignor, the debtor is discharged by paying in accordance with the first notification received. 5. If the debtor receives notification of one or more subsequent assignments, the debtor is discharged by paying in accordance with the notification of the last of such subsequent assignments. 6. If the debtor receives notification of the assignment of a part of or an undivided interest in one or more receivables, the debtor is discharged by paying in accordance with the notification or in accordance with this article as if the debtor had not received the notification. If the debtor pays in accordance with the notification, the debtor is discharged only to the extent of the part or undivided interest paid. 7. If the debtor receives notification of the assignment from the assignee, the debtor is entitled to request the assignee to provide within a reasonable period of time adequate proof that the assignment from the initial assignor to the initial assignee and any intermediate assignment have been made and, unless the assignee does so, the debtor is discharged by paying in accordance with this article as if the notification from the assignee had not been received. Adequate proof of an assignment includes but is not limited to any writing emanating from the assignor and indicating that the assignment has taken place. 8. This article does not affect any other ground on which payment by the debtor to the person entitled to payment, to a competent judicial or other authority, or to a public deposit fund discharges the debtor. Article 18 Defences and rights of set-off of the debtor 1. In a claim by the assignee against the debtor for payment of the assigned receivable, the debtor may raise against the assignee all defences and rights of set-off arising from the original contract, or any other contract that was part of the same transaction, of which the debtor could avail itself as if the assignment had not been made and such claim were made by the assignor. 2. The debtor may raise against the assignee any other right of set-off, provided that it was available to the debtor at the time notification of the assignment was received by the debtor. 3. Notwithstanding paragraphs 1 and 2 of this article, defences and rights of setoff that the debtor may raise pursuant to article 9 or 10 against the assignor for breach of an agreement limiting in any way the assignor’s right to make the assignment are not available to the debtor against the assignee. Article 19 Agreement not to raise defences or rights of set-off 1. The debtor may agree with the assignor in a writing signed by the debtor not to raise against the assignee the defences and rights of set-off that it could raise pursuant to article 18. Such an agreement precludes the debtor from raising against the assignee those defences and rights of set-off.

988  Part II: Uniform Law 2. The debtor may not waive defences: (a) Arising from fraudulent acts on the part of the assignee; or (b) Based on the debtor’s incapacity. 3. Such an agreement may be modified only by an agreement in a writing signed by the debtor. The effect of such a modification as against the assignee is determined by article 20, paragraph 2. Article 20 Modification of the original contract 1. An agreement concluded before notification of the assignment between the assignor and the debtor that affects the assignee’s rights is effective as against the assignee, and the assignee acquires corresponding rights. 2. An agreement concluded after notification of the assignment between the assignor and the debtor that affects the assignee’s rights is ineffective as against the assignee unless: (a) The assignee consents to it; or (b) The receivable is not fully earned by performance and either the modification is provided for in the original contract or, in the context of the original contract, a reasonable assignee would consent to the modification. 3. Paragraphs 1 and 2 of this article do not affect any right of the assignor or the assignee arising from breach of an agreement between them. Article 21 Recovery of payments Failure of the assignor to perform the original contract does not entitle the debtor to recover from the assignee a sum paid by the debtor to the assignor or the assignee. Section III Third parties Article 22 Law applicable to competing rights With the exception of matters that are settled elsewhere in this Convention and subject to articles 23 and 24, the law of the State in which the assignor is located governs the priority of the right of an assignee in the assigned receivable over the right of a competing claimant. Article 23 Public policy and mandatory rules 1. The application of a provision of the law of the State in which the assignor is located may be refused only if the application of that provision is manifestly contrary to the public policy of the forum State.

Convention on the Assignment of Receivables in International Trade 989 2. The rules of the law of either the forum State or any other State that are mandatory irrespective of the law otherwise applicable may not prevent the application of a provision of the law of the State in which the assignor is located. 3. Notwithstanding paragraph 2 of this article, in an insolvency proceeding commenced in a State other than the State in which the assignor is located, any preferential right that arises, by operation of law, under the law of the forum State and is given priority over the rights of an assignee in insolvency proceedings under the law of that State may be given priority notwithstanding article 22. A State may deposit at any time a declaration identifying any such preferential right. Article 24 Special rules on proceeds 1. If proceeds are received by the assignee, the assignee is entitled to retain those proceeds to the extent that the assignee’s right in the assigned receivable had priority over the right of a competing claimant in the assigned receivable. 2. If proceeds are received by the assignor, the right of the assignee in those proceeds has priority over the right of a competing claimant in those proceeds to the same extent as the assignee’s right had priority over the right in the assigned receivable of that claimant if: (a) The assignor has received the proceeds under instructions from the assignee to hold the proceeds for the benefit of the assignee; and (b) The proceeds are held by the assignor for the benefit of the assignee separately and are reasonably identifiable from the assets of the assignor, such as in the case of a separate deposit or securities account containing only proceeds consisting of cash or securities. 3. Nothing in paragraph 2 of this article affects the priority of a person having against the proceeds a right of set-off or a right created by agreement and not derived from a right in the receivable. Article 25 Subordination An assignee entitled to priority may at any time subordinate its priority unilaterally or by agreement in favour of any existing or future assignees. Chapter V Autonomous conflict-of-laws rules Article 26 Application of chapter V The provisions of this chapter apply to matters that are: (a) Within the scope of this Convention as provided in article 1, paragraph 4; and (b) Otherwise within the scope of this Convention but not settled elsewhere in it.

990  Part II: Uniform Law Article 27 Form of a contract of assignment 1. A contract of assignment concluded between persons who are located in the same State is formally valid as between them if it satisfies the requirements of either the law which governs it or the law of the State in which it is concluded. 2. A contract of assignment concluded between persons who are located in different States is formally valid as between them if it satisfies the requirements of either the law which governs it or the law of one of those States. Article 28 Law applicable to the mutual rights and obligations of the assignor and the assignee 1. The mutual rights and obligations of the assignor and the assignee arising from their agreement are governed by the law chosen by them. 2. In the absence of a choice of law by the assignor and the assignee, their mutual rights and obligations arising from their agreement are governed by the law of the State with which the contract of assignment is most closely connected. Article 29 Law applicable to the rights and obligations of the assignee and the debtor The law governing the original contract determines the effectiveness of contractual limitations on assignment as between the assignee and the debtor, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and whether the debtor’s obligations have been discharged. Article 30 Law applicable to priority 1. The law of the State in which the assignor is located governs the priority of the right of an assignee in the assigned receivable over the right of a competing claimant. 2. The rules of the law of either the forum State or any other State that are mandatory irrespective of the law otherwise applicable may not prevent the application of a provision of the law of the State in which the assignor is located. 3. Notwithstanding paragraph 2 of this article, in an insolvency proceeding commenced in a State other than the State in which the assignor is located, any preferential right that arises, by operation of law, under the law of the forum State and is given priority over the rights of an assignee in insolvency proceedings under the law of that State may be given priority notwithstanding paragraph 1 of this article.

Convention on the Assignment of Receivables in International Trade 991 Article 31 Mandatory rules 1. Nothing in articles 27 to 29 restricts the application of the rules of the law of the forum State in a situation where they are mandatory irrespective of the law otherwise applicable. 2. Nothing in articles 27 to 29 restricts the application of the mandatory rules of the law of another State with which the matters settled in those articles have a close connection if and insofar as, under the law of that other State, those rules must be applied irrespective of the law otherwise applicable. Article 32 Public policy With regard to matters settled in this chapter, the application of a provision of the law specified in this chapter may be refused only if the application of that provision is manifestly contrary to the public policy of the forum State. Chapter VI Final provisions Article 33 Depositary The Secretary-General of the United Nations is the depositary of this Convention. Article 34 Signature, ratification, acceptance, approval, accession 1. This Convention is open for signature by all States at the Headquarters of the United Nations in New York until 31 December 2003. 2. This Convention is subject to ratification, acceptance or approval by the signatory States. 3. This Convention is open to accession by all States that are not signatory States as from the date it is open for signature. 4. Instruments of ratification, acceptance, approval and accession are to be deposited with the Secretary-General of the United Nations. Article 35 Application to territorial units 1. If a State has two or more territorial units in which different systems of law are applicable in relation to the matters dealt with in this Convention, it may at any time declare that this Convention is to extend to all its territorial units or only one or more of them, and may at any time substitute another declaration for its earlier declaration.

992  Part II: Uniform Law 2. Such declarations are to state expressly the territorial units to which this ­Convention extends. 3. If, by virtue of a declaration under this article, this Convention does not extend to all territorial units of a State and the assignor or the debtor is located in a territorial unit to which this Convention does not extend, this location is considered not to be in a Contracting State. 4. If, by virtue of a declaration under this article, this Convention does not extend to all territorial units of a State and the law governing the original contract is the law in force in a territorial unit to which this Convention does not extend, the law governing the original contract is considered not to be the law of a Contracting State. 5. If a State makes no declaration under paragraph 1 of this article, the Convention is to extend to all territorial units of that State. Article 36 Location in a territorial unit If a person is located in a State which has two or more territorial units, that person is located in the territorial unit in which it has its place of business. If the assignor or the assignee has a place of business in more than one territorial unit, the place of business is that place where the central administration of the assignor or the assignee is exercised. If the debtor has a place of business in more than one territorial unit, the place of business is that which has the closest relationship to the original contract. If a person does not have a place of business, reference is to be made to the habitual residence of that person. A State with two or more territorial units may specify by declaration at any time other rules for determining the location of a person within that State. Article 37 Applicable law in territorial units Any reference in this Convention to the law of a State means, in the case of a State which has two or more territorial units, the law in force in the territorial unit. Such a State may specify by declaration at any time other rules for determining the applicable law, including rules that render applicable the law of another territorial unit of that State. Article 38 Conflicts with other international agreements 1. This Convention does not prevail over any international agreement that has already been or may be entered into and that specifically governs a transaction otherwise governed by this Convention. 2. Notwithstanding paragraph 1 of this article, this Convention prevails over the Unidroit Convention on International Factoring (“the Ottawa Convention”). To the extent that this Convention does not apply to the rights and obligations

Convention on the Assignment of Receivables in International Trade 993 of a debtor, it does not preclude the application of the Ottawa Convention with respect to the rights and obligations of that debtor. Article 39 Declaration on application of chapter V A State may declare at any time that it will not be bound by chapter V. Article 40 Limitations relating to Governments and other public entities A State may declare at any time that it will not be bound or the extent to which it will not be bound by articles 9 and 10 if the debtor or any person granting a personal or property right securing payment of the assigned receivable is located in that State at the time of conclusion of the original contract and is a Government, central or local, any subdivision thereof, or an entity constituted for a public purpose. If a State has made such a declaration, articles 9 and 10 do not affect the rights and obligations of that debtor or person. A State may list in a declaration the types of entity that are the subject of a declaration. Article 41 Other exclusions 1. A State may declare at any time that it will not apply this Convention to specific types of assignment or to the assignment of specific categories of receivables clearly described in a declaration. 2. After a declaration under paragraph 1 of this article takes effect: (a) This Convention does not apply to such types of assignment or to the assignment of such categories of receivables if the assignor is located at the time of conclusion of the contract of assignment in such a State; and (b) The provisions of this Convention that affect the rights and obligations of the debtor do not apply if, at the time of conclusion of the original contract, the debtor is located in such a State or the law governing the original contract is the law of such a State. 3. This article does not apply to assignments of receivables listed in article 9, paragraph 3. Article 42 Application of the annex 1. A State may at any time declare that it will be bound by: (a) The priority rules set forth in section I of the annex and will participate in the international registration system established pursuant to section II of the annex;

994  Part II: Uniform Law

2.

3.

4. 5.

6.

(b) The priority rules set forth in section I of the annex and will effectuate such rules by use of a registration system that fulfils the purposes of such rules, in which case, for the purposes of section I of the annex, registration pursuant to such a system has the same effect as registration pursuant to section II of the annex; (c) The priority rules set forth in section III of the annex; (d) The priority rules set forth in section IV of the annex; or (e) The priority rules set forth in articles 7 and 9 of the annex. For the purposes of article 22: (a) The law of a State that has made a declaration pursuant to paragraph 1 (a) or (b) of this article is the set of rules set forth in section I of the annex, as affected by any declaration made pursuant to paragraph 5 of this article; (b) The law of a State that has made a declaration pursuant to paragraph 1 (c) of this article is the set of rules set forth in section III of the annex, as affected by any declaration made pursuant to paragraph 5 of this article; (c) The law of a State that has made a declaration pursuant to paragraph 1 (d) of this article is the set of rules set forth in section IV of the annex, as affected by any declaration made pursuant to paragraph 5 of this article; and (d) The law of a State that has made a declaration pursuant to ­paragraph 1 (e) of this article is the set of rules set forth in articles 7 and 9 of the annex, as affected by any declaration made pursuant to paragraph 5 of this article. A State that has made a declaration pursuant to paragraph 1 of this ­article may establish rules pursuant to which contracts of assignment concluded before the declaration takes effect become subject to those rules within a reasonable time. A State that has not made a declaration pursuant to paragraph 1 of this article may, in accordance with priority rules in force in that State, utilize the registration system established pursuant to section II of the annex. At the time a State makes a declaration pursuant to paragraph 1 of this article or thereafter, it may declare that: (a) It will not apply the priority rules chosen under paragraph 1 of this article to certain types of assignment or to the assignment of certain categories of receivables; or (b) It will apply those priority rules with modifications specified in that declaration. At the request of Contracting or Signatory States to this Convention comprising not less than one third of the Contracting and Signatory States, the depositary shall convene a conference of the Contracting and Signatory States to designate the supervising authority and the first registrar and to prepare or revise the regulations referred to in section II of the annex.

Convention on the Assignment of Receivables in International Trade 995 Article 43 Effect of declaration 1. Declarations made under articles 35, paragraph 1, 36, 37 or 39 to 42 at the time of signature are subject to confirmation upon ratification, acceptance or approval. 2. Declarations and confirmations of declarations are to be in writing and to be formally notified to the depositary. 3. A declaration takes effect simultaneously with the entry into force of this Convention in respect of the State concerned. However, a declaration of which the depositary receives formal notification after such entry into force takes effect on the first day of the month following the expiration of six months after the date of its receipt by the depositary. 4. A State that makes a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 may withdraw it at any time by a formal notification in writing addressed to the depositary. Such withdrawal takes effect on the first day of the month following the expiration of six months after the date of the receipt of the notification by the depositary. 5. In the case of a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 that takes effect after the entry into force of this Convention in respect of the State concerned or in the case of a withdrawal of any such declaration, the effect of which in either case is to cause a rule in this Convention, including any annex, to become applicable: (a) Except as provided in paragraph 5 (b) of this article, that rule is applicable only to assignments for which the contract of assignment is concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, ­paragraph 1 (a); (b) A rule that deals with the rights and obligations of the debtor applies only in respect of original contracts concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 3. 6. In the case of a declaration under articles 35, paragraph 1, 36, 37 or 39 to 42 that takes effect after the entry into force of this Convention in respect of the State concerned or in the case of a withdrawal of any such declaration, the effect of which in either case is to cause a rule in this Convention, including any annex, to become inapplicable: (a) Except as provided in paragraph 6 (b) of this article, that rule is inapplicable to assignments for which the contract of assignment is concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 1 (a); (b) A rule that deals with the rights and obligations of the debtor is inapplicable in respect of original contracts concluded on or after the date when the declaration or withdrawal takes effect in respect of the Contracting State referred to in article 1, paragraph 3. 7. If a rule rendered applicable or inapplicable as a result of a declaration or withdrawal referred to in paragraph 5 or 6 of this article is relevant to the

996  Part II: Uniform Law determination of priority with respect to a receivable for which the contract of assignment is concluded before such declaration or withdrawal takes effect or with respect to its proceeds, the right of the assignee has priority over the right of a competing claimant to the extent that, under the law that would determine priority before such declaration or withdrawal takes effect, the right of the assignee would have priority. Article 44 Reservations No reservations are permitted except those expressly authorized in this Convention. Article 45 Entry into force 1. This Convention enters into force on the first day of the month following the expiration of six months from the date of deposit of the fifth instrument of ratification, acceptance, approval or accession with the depositary. 2. For each State that becomes a Contracting State to this Convention after the date of deposit of the fifth instrument of ratification, acceptance, approval or accession, this Convention enters into force on the first day of the month following the expiration of six months after the date of deposit of the appropriate instrument on behalf of that State. 3. This Convention applies only to assignments if the contract of assignment is concluded on or after the date when this Convention enters into force in respect of the Contracting State referred to in article 1, paragraph 1 (a), provided that the provisions of this Convention that deal with the rights and obligations of the debtor apply only to assignments of receivables arising from original contracts concluded on or after the date when this Convention enters into force in respect of the Contracting State referred to in article 1, paragraph 3. 4. If a receivable is assigned pursuant to a contract of assignment concluded before the date when this Convention enters into force in respect of the Contracting State referred to in article 1, paragraph 1 (a), the right of the assignee has priority over the right of a competing claimant with respect to the receivable to the extent that, under the law that would determine priority in the absence of this Convention, the right of the assignee would have priority. Article 46 Denunciation 1. A Contracting State may denounce this Convention at any time by written notification addressed to the depositary. 2. The denunciation takes effect on the first day of the month following the expiration of one year after the notification is received by the depositary. Where a longer period is specified in the notification, the denunciation takes effect

Convention on the Assignment of Receivables in International Trade 997 upon the expiration of such longer period after the notification is received by the depositary. 3. This Convention remains applicable to assignments if the contract of assignment is concluded before the date when the denunciation takes effect in respect of the Contracting State referred to in article 1, paragraph 1 (a), provided that the provisions of this Convention that deal with the rights and obligations of the debtor remain applicable only to assignments of receivables arising from original contracts concluded before the date when the denunciation takes effect in respect of the Contracting State referred to in article 1, paragraph 3. 4. If a receivable is assigned pursuant to a contract of assignment concluded before the date when the denunciation takes effect in respect of the Contracting State referred to in article 1, paragraph 1 (a), the right of the assignee has priority over the right of a competing claimant with respect to the receivable to the extent that, under the law that would determine priority under this Convention, the right of the assignee would have priority. Article 47 Revision and amendment 1. At the request of not less than one third of the Contracting States to this Convention, the depositary shall convene a conference of the Contracting States to revise or amend it. 2. Any instrument of ratification, acceptance, approval or accession deposited after the entry into force of an amendment to this Convention is deemed to apply to the Convention as amended. Annex to the Convention Section I Priority rules based on registration Article 1 Priority among several assignees As between assignees of the same receivable from the same assignor, the priority of the right of an assignee in the assigned receivable is determined by the order in which data about the assignment are registered under section II of this annex, regardless of the time of transfer of the receivable. If no such data are registered, priority is determined by the order of conclusion of the respective contracts of assignment. Article 2 Priority between the assignee and the insolvency administrator or creditors of the assignor The right of an assignee in an assigned receivable has priority over the right of an insolvency administrator and creditors who obtain a right in the assigned receivable

998  Part II: Uniform Law by attachment, judicial act or similar act of a competent authority that gives rise to such right, if the receivable was assigned, and data about the assignment were registered under section II of this annex, before the commencement of such insolvency proceeding, attachment, judicial act or similar act. Section II Registration Article 3 Establishment of a registration system A registration system will be established for the registration of data about assignments, even if the relevant assignment or receivable is not international, pursuant to the regulations to be promulgated by the registrar and the supervising authority. Regulations promulgated by the registrar and the supervising authority under this annex shall be consistent with this annex. The regulations will prescribe in detail the manner in which the registration system will operate, as well as the procedure for resolving disputes relating to that operation. Article 4 Registration 1. Any person may register data with regard to an assignment at the registry in accordance with this annex and the regulations. As provided in the regulations, the data registered shall be the identification of the assignor and the assignee and a brief description of the assigned receivables. 2. A single registration may cover one or more assignments by the assignor to the assignee of one or more existing or future receivables, irrespective of whether the receivables exist at the time of registration. 3. A registration may be made in advance of the assignment to which it relates. The regulations will establish the procedure for the cancellation of a registration in the event that the assignment is not made. 4. Registration or its amendment is effective from the time when the data set forth in paragraph 1 of this article are available to searchers. The registering party may specify, from options set forth in the regulations, a period of effectiveness for the registration. In the absence of such a specification, a registration is effective for a period of five years. 5. Regulations will specify the manner in which registration may be renewed, amended or cancelled and regulate such other matters as are necessary for the operation of the registration system. 6. Any defect, irregularity, omission or error with regard to the identification of the assignor that would result in data registered not being found upon a search based on a proper identification of the assignor renders the registration ineffective.

Convention on the Assignment of Receivables in International Trade 999 Article 5 Registry searches 1. Any person may search the records of the registry according to identification of the assignor, as set forth in the regulations, and obtain a search result in writing. 2. A search result in writing that purports to be issued by the registry is admissible as evidence and is, in the absence of evidence to the contrary, proof of the registration of the data to which the search relates, including the date and hour of registration. Section III Priority rules based on the time of the contract of assignment

Article 6 Priority among several assignees As between assignees of the same receivable from the same assignor, the priority of the right of an assignee in the assigned receivable is determined by the order of conclusion of the respective contracts of assignment. Article 7 Priority between the assignee and the insolvency administrator or creditors of the assignor The right of an assignee in an assigned receivable has priority over the right of an insolvency administrator and creditors who obtain a right in the assigned receivable by attachment, judicial act or similar act of a competent authority that gives rise to such right, if the receivable was assigned before the commencement of such insolvency proceeding, attachment, judicial act or similar act. Article 8 Proof of time of contract of assignment The time of conclusion of a contract of assignment in respect of articles 6 and 7 of this annex may be proved by any means, including witnesses.

1000  Part II: Uniform Law Section IV Priority rules based on the time of notification of assignment

Article 9 Priority among several assignees As between assignees of the same receivable from the same assignor, the priority of the right of an assignee in the assigned receivable is determined by the order in which notification of the respective assignments is received by the debtor. However, an assignee may not obtain priority over a prior assignment of which the assignee had knowledge at the time of conclusion of the contract of assignment to that assignee by notifying the debtor. Article 10 Priority between the assignee and the insolvency administrator or creditors of the assignor The right of an assignee in an assigned receivable has priority over the right of an insolvency administrator and creditors who obtain a right in the assigned receivable by attachment, judicial act or similar act of a competent authority that gives rise to such right, if the receivable was assigned and notification was received by the debtor before the commencement of such insolvency proceeding, attachment, judicial act or similar act. DONE at New York, this 12th day of December two thousand one, in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic. IN WITNESS WHEREOF the undersigned plenipotentiaries, being duly authorized by their respective Governments, have signed the present Convention.

Part III

Common Principles

1002

Principles of European Contract Law The Commission for European Contract Law* Parts I and II (2000) CHAPTER 1: GENERAL PROVISIONS Section 1: Scope of the Principles Article 1:101: Application of the Principles (1) These Principles are intended to be applied as general rules of contract law in the European Union. (2) These Principles will apply when the parties have agreed to incorporate them into their contract or that their contract is to be governed by them. (3) These Principles may be applied when the parties: (a) have agreed that their contract is to be governed by “general principles of law”, the “lex mercatoria” or the like; or (b) have not chosen any system or rules of law to govern their contract. (4) These Principles may provide a solution to the issue raised where the system or rules of law applicable do not do so. Article 1:102: Freedom of Contract (1) Parties are free to enter into a contract and to determine its contents, subject to the requirements of good faith and fair dealing, and the mandatory rules established by these Principles. (2) The parties may exclude the application of any of the Principles or derogate from or vary their effects, except as otherwise provided by these Principles. Article 1:103: Mandatory Law (1) Where the law otherwise applicable so allows, the parties may choose to have their contract governed by the Principles, with the effect that national mandatory rules are not applicable. *  Published in O. Lando & H. Beale (Eds) Principles of European Contract Law Parts I & II. (Kluwer, 2000) In addition to the text reprinted here this volume contains a commentary and comparative notes.

1004  Part III: Common Principles (2) Effect should nevertheless be given to those mandatory rules of national, supranational and international law which, according to the relevant rules of private international law, are applicable irrespective of the law governing the contract. Article 1:104: Application to Questions of Consent (1) The existence and validity of the agreement of the parties to adopt or incorporate these Principles shall be determined by these Principles. (2) Nevertheless, a party may rely upon the law of the country in which it has its habitual residence to establish that it did not consent if it appears from the circumstances that it would not be reasonable to determine the effect of the party’s conduct in accordance with these Principles. Article 1:105: Usages and Practices (1) The parties are bound by any usage to which they have agreed and by any practice they have established between themselves. (2) The parties are bound by a usage which would be considered generally ­applicable by persons in the same situation as the parties, except where the application of such usage would be unreasonable. Article 1:106: Interpretation and Supplementation (1) These Principles should be interpreted and developed in accordance with their purposes. In particular, regard should be had to the need to promote good faith and fair dealing, certainty in contractual relationships and uniformity of application. (2) Issues within the scope of these Principles but not expressly settled by them are so far as possible to be settled in accordance with the ideas underlying the Principles. Failing this, the legal system applicable by virtue of the rules of private international law is to be applied. Article 1:107: Application of the Principles by Way of Analogy These Principles apply with appropriate modifications to agreements to modify or end a contract, to unilateral promises and to other statements and conduct indicating intention. Section 2: General Duties Article 1:201: Good Faith and Fair Dealing (1) Each party must act in accordance with good faith and fair dealing. (2) The parties may not exclude or limit this duty. Article 1:202: Duty to Co-operate Each party owes to the other a duty to co-operate in order to give full effect to the contract.

Principles of European Contract Law 1005 Section 3: Terminology and Other Provisions Article 1:301: Meaning of Terms In these Principles, except where the context otherwise requires: (1) ‘act’ includes omission; (2) ‘court’ includes arbitral tribunal; (3) an ‘intentional’ act includes an act done recklessly; (4) ‘non-performance’ denotes any failure to perform an obligation under the contract, whether or not excused, and includes delayed performance, defective performance and failure to co-operate in order to give full effect to the contract; (5) a matter is ‘material’ if it is one which a reasonable person in the same situation as one party ought to have known would influence the other party in its decision whether to contract on the proposed terms or to contract at all; (6) ‘written’ statements include communications made by telegram, telex, t­ elefax and electronic mail and other means of communication capable of providing a readable record of the statement on both sides. Article 1:302: Reasonableness Under these Principles reasonableness is to be judged by what persons acting in good faith and in the same situation as the parties would consider to be reasonable. In particular, in assessing what is reasonable the nature and purpose of the contract, the circumstances of the case and the usages and practices of the trades or professions involved should be taken into account. Article 1:303: Notice (1) Any notice may be given by any means, whether in writing or otherwise, appropriate to the circumstances. (2) Subject to paragraphs (4) and (5), any notice becomes effective when it reaches the addressee. (3) A notice reaches the addressee when it is delivered to it or to its place of business or mailing address, or, if it does not have a place of business or mailing address, to its habitual residence. (4) If one party gives notice to the other because of the other’s non-performance or because such non-performance is reasonably anticipated by the first party, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. The notice shall have effect from the time at which it would have arrived in normal circumstances. (5) A notice has no effect if a withdrawal of it reaches the addressee before or at the same time as the notice. (6) In this Article, ‘notice’ includes the communication of a promise, statement, offer, acceptance, demand, request or other declaration.

1006  Part III: Common Principles Article 1:304: Computation of Time (1) A period of time set by a party in a written document for the addressee to reply or take other action begins to run from the date stated as the date of the document. If no date is shown, the period begins to run from the moment the document reaches the addressee. (2) Official holidays and official non-working days occurring during the period are included in calculating the period. However, if the last day of the period is an official holiday or official non-working day at the address of the addressee, or at the place where a prescribed act is to be performed, the period is extended until the first following working day in that place. (3) Periods of time expressed in days, weeks, months or years shall begin at 00.00 on the next day and shall end at 24.00 on the last day of the period; but any reply that has to reach the party which set the period must arrive, or any other act which is to be done must be completed, by the normal close of business in the relevant place on the last day of the period. Article 1:305: Imputed Knowledge and Intention If any person who with a party’s assent was involved in making a contract, or who was entrusted with performance by a party or performed with its assent: (a) knew or foresaw a fact, or ought to have known or foreseen it; or (b) acted intentionally or with gross negligence, or not in accordance with good faith and fair dealing, this knowledge, foresight or behaviour is imputed to the party itself. CHAPTER 2: FORMATION Section 1: General Provisions Article 2:101: Conditions for the Conclusion of a Contract (1) A contract is concluded if: (a) the parties intend to be legally bound, and (b) they reach a sufficient agreement without any further requirement. (2) A contract need not be concluded or evidenced in writing nor is it subject to any other requirement as to form. The contract may be proved by any means, including witnesses. Article 2:102: Intention The intention of a party to be legally bound by contract is to be determined from the party’s statements or conduct as they were reasonably understood by the other party.

Principles of European Contract Law 1007 Article 2:103: Sufficient Agreement (1) There is sufficient agreement if the terms: (a) have been sufficiently defined by the parties so that the contract can be enforced, or (b) can be determined under these Principles. (2) However, if one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached. Article 2:104: Terms Not Individually Negotiated (1) Contract terms which have not been individually negotiated may be invoked against a party which did not know of them only if the party invoking them took reasonable steps to bring them to the other party’s attention before or when the contract was concluded. (2) Terms are not brought appropriately to a party’s attention by a mere reference to them in a contract document, even if that party signs the document. Article 2:105: Merger Clause (1) If a written contract contains an individually negotiated clause stating that the writing embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the writing do not form part of the contract. (2) If the merger clause is not individually negotiated it will only establish a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted. (3) The parties’ prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause. (4) A party may by its statements or conduct be precluded from asserting a merger clause to the extent that the other party has reasonably relied on them. Article 2:106: Written Modification Only (1) A clause in a written contract requiring any modification or ending by agreement to be made in writing establishes only a presumption that an agreement to modify or end the contract is not intended to be legally binding unless it is in writing. (2) A party may by its statements or conduct be precluded from asserting such a clause to the extent that the other party has reasonably relied on them. Article 2:107: Promises Binding without Acceptance A promise which is intended to be legally binding without acceptance is binding.

1008  Part III: Common Principles Section 2: Offer and Acceptance Article 2:201: Offer (1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract. (2) An offer may be made to one or more specific persons or to the public. (3) A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier’s capacity to supply the service, is exhausted. Article 2:202: Revocation of an Offer (1) An offer may be revoked if the revocation reaches the offeree before it has dispatched its acceptance or, in cases of acceptance by conduct, before the contract has been concluded under Article 2:205(2) or (3). (2) An offer made to the public can be revoked by the same means as were used to make the offer. (3) However, a revocation of an offer is ineffective if: (a) the offer indicates that it is irrevocable; or (b) it states a fixed time for its acceptance; or (c) it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. Article 2:203: Rejection When a rejection of an offer reaches the offeror, the offer lapses. Article 2:204: Acceptance (1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. (2) Silence or inactivity does not in itself amount to acceptance. Article 2:205: Time of Conclusion of the Contract (1) If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror. (2) In the case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror. (3) If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by performing an act without notice to the offeror, the contract is concluded when the performance of the act begins.

Principles of European Contract Law 1009 Article 2:206: Time Limit for Acceptance (1) In order to be effective, acceptance of an offer must reach the offeror within the time fixed by it. (2) If no time has been fixed by the offeror acceptance must reach it within a reasonable time. (3) In the case of an acceptance by an act of performance under Article 2:205(3), that act must be performed within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time. Article 2:207: Late Acceptance (1) A late acceptance is nonetheless effective as an acceptance if without delay the offeror informs the offeree that he treats it as such. (2) If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without delay, the offeror informs the offeree that it considers its offer as having lapsed. Article 2:208: Modified Acceptance (1) A reply by the offeree which states or implies additional or different terms which would materially alter the terms of the offer is a rejection and a new offer. (2) A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies additional or different terms, provided these do not materially alter the terms of the offer. The additional or different terms then become part of the contract. (3) However, such a reply will be treated as a rejection of the offer if: (a) the offer expressly limits acceptance to the terms of the offer; or (b) the offeror objects to the additional or different terms without delay; or (c) the offeree makes its acceptance conditional upon the offeror’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time. Article 2:209: Conflicting General Conditions (1) If the parties have reached agreement except that the offer and acceptance refer to conflicting general conditions of contract, a contract is nonetheless formed. The general conditions form part of the contract to the extent that they are common in substance. (2) However, no contract is formed if one party: (a) has indicated in advance, explicitly, and not by way of general conditions, that it does not intend to be bound by a contract on the basis of paragraph (1); or (b) without delay, informs the other party that it does not intend to be bound by such contract.

1010  Part III: Common Principles (3) General conditions of contract are terms which have been formulated in advance for an indefinite number of contracts of a certain nature, and which have not been individually negotiated between the parties. Article 2:210: Professional’s Written Confirmation If professionals have concluded a contract but have not embodied it in a final document, and one without delay sends the other a writing which purports to be a confirmation of the contract but which contains additional or different terms, such terms will become part of the contract unless: (a) the terms materially alter the terms of the contract, or (b) the addressee objects to them without delay. Article 2:211: Contracts not Concluded through Offer and Acceptance The rules in this section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance. Section 3: Liability for negotiations Article 2:301: Negotiations Contrary to Good Faith (1) A party is free to negotiate and is not liable for failure to reach an agreement. (2) However, a party which has negotiated or broken off negotiations contrary to good faith and fair dealing is liable for the losses caused to the other party. (3) It is contrary to good faith and fair dealing, in particular, for a party to enter into or continue negotiations with no real intention of reaching an agreement with the other party. Article 2:302: Breach of Confidentiality If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for its own purposes whether or not a contract is subsequently concluded. The remedy for breach of this duty may include compensation for loss suffered and restitution of the benefit received by the other party. CHAPTER 3: AUTHORITY OF AGENTS Section 1: General Provisions Article 3:101: Scope of the Chapter (1) This Chapter governs the authority of an agent or other intermediary to bind its principal in relation to a contract with a third party. (2) This Chapter does not govern an agent’s authority bestowed by law or the authority of an agent appointed by a public or judicial authority.

Principles of European Contract Law 1011 (3) This Chapter does not govern the internal relationship between the agent or intermediary and its principal. Article 3:102: Categories of Representation (1) Where an agent acts in the name of a principal, the rules on direct representation apply (Section 2). It is irrelevant whether the principal’s identity is revealed at the time the agent acts or is to be revealed later. (2) Where an intermediary acts on instructions and on behalf of, but not in the name of, a principal, or where the third party neither knows nor has reason to know that the intermediary acts as an agent, the rules on indirect representation apply (Section 3). Section 2: Direct Representation Article 3:201: Express, Implied and Apparent Authority (1) The principal’s grant of authority to an agent to act in its name may be express or may be implied from the circumstances. (2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted. (3) A person is to be treated as having granted authority to an apparent agent if the person’s statements or conduct induce the third party reasonably and in good faith to believe that the apparent agent has been granted authority for the act performed by it. Article 3:202: Agent acting in Exercise of its Authority Where an agent is acting within its authority as defined by Article 3:201, its acts bind the principal and the third party directly to each other. The agent itself is not bound to the third party. Article 3:203: Unidentified Principal If an agent enters into a contract in the name of a principal whose identity is to be revealed later, but fails to reveal that identity within a reasonable time after a request by the third party, the agent itself is bound by the contract. Article 3:204: Agent acting without or outside its Authority (1) Where a person acting as an agent acts without authority or outside the scope of its authority, its acts are not binding upon the principal and the third party. (2) Failing ratification by the principal according to Article 3:207, the agent is liable to pay the third party such damages as will place the third party in the same position as if the agent had acted with authority. This does not apply if the third party knew or could not have been unaware of the agent’s lack of authority.

1012  Part III: Common Principles Article 3:205: Conflict of Interest (1) If a contract concluded by an agent involves the agent in a conflict of interest of which the third party knew or could not have been unaware, the ­principal may avoid the contract according to the provisions of Articles 4:112 to 4:116. (2) There is presumed to be a conflict of interest where: (a) the agent also acted as agent for the third party; or (b) the contract was with itself in its personal capacity. (3) However, the principal may not avoid the contract: (a) if it had consented to, or could not have been unaware of, the agent’s so acting; or (b) if the agent had disclosed the conflict of interest to it and it had not objected within a reasonable time. Article 3:206: Subagency An agent has implied authority to appoint a subagent to carry out tasks which are not of a personal character and which it is not reasonable to expect the agent to carry out itself. The rules of this Section apply to the subagency; acts of the subagent which are within its and the agent’s authority bind the principal and the third party directly to each other. Article 3:207: Ratification by Principal (1) Where a person acting as an agent acts without authority or outside its authority, the principal may ratify the agent’s acts. (2) Upon ratification, the agent’s acts are considered as having been authorised, without prejudice to the rights of other persons. Article 3:208: Third Party’s Right with Respect to Confirmation of Authority Where the statements or conduct of the principal gave the third party reason to believe that an act performed by the agent was authorised, but the third party is in doubt about the authorisation, it may send a written confirmation to the principal or request ratification from it. If the principal does not object or answer the request without delay, the agent’s act is treated as having been authorised. Article 3:209: Duration of Authority (1) An agent’s authority continues until the third party knows or ought to know that: (a) the agent’s authority has been brought to an end by the principal, the agent, or both; or (b) the acts for which the authority had been granted have been completed, or the time for which it had been granted has expired; or

Principles of European Contract Law 1013 (c) the agent has become insolvent or, where a natural person, has died or become incapacitated; or (d) the principal has become insolvent. (2) The third party is considered to know that the agent’s authority has been brought to an end under paragraph (1)(a) above if this has been communicated or publicised in the same manner in which the authority was originally communicated or publicised. (3) However, the agent remains authorised for a reasonable time to perform those acts which are necessary to protect the interests of the principal or its successors. Section 3: Indirect Representation Article 3:301: Intermediaries not acting in the name of a Principal (1) Where an intermediary acts: (a) on instructions and on behalf, but not in the name, of a principal, or (b) on instructions from a principal but the third party does not know and has no reason to know this, the intermediary and the third party are bound to each other. (2) The principal and the third party are bound to each other only under the conditions set out in Articles 3:302 to 3:304. Article 3:302: Intermediary’s Insolvency or Fundamental Non-performance to Principal If the intermediary becomes insolvent, or if it commits a fundamental non-­ performance towards the principal, or if prior to the time for performance it is clear that there will be a fundamental non-performance: (a) on the principal’s demand, the intermediary shall communicate the name and address of the third party to the principal; and (b) the principal may exercise against the third party the rights acquired on the principal’s behalf by the intermediary, subject to any defences which the third party may set up against the intermediary. Article 3:303: Intermediary’s Insolvency or Fundamental Non-performance to Third Party If the intermediary becomes insolvent, or if it commits a fundamental non-performance towards the third party, or if prior to the time for performance it is clear that there will be a fundamental non-performance: (a) on the third party’s demand, the intermediary shall communicate the name and address of the principal to the third party; and (b) the third party may exercise against the principal the rights which the third party has against the intermediary, subject to any defences which the ­intermediary may set up against the third party and those which the principal may set up against the intermediary.

1014  Part III: Common Principles CHAPTER 4: VALIDITY Article 4:101: Matters not Covered This chapter does not deal with invalidity arising from illegality, immorality or lack of capacity. Article 4:102: Initial Impossibility A contract is not invalid merely because at the time it was concluded performance of the obligation assumed was impossible, or because a party was not entitled to dispose of the assets to which the contract relates. Article 4:103: Fundamental Mistake as to Facts or Law (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) (i) the mistake was caused by information given by the other party; or (ii) the other party knew or ought to have known of the mistake and it was contrary to good faith and fair dealing to leave the mistaken party in error; or (iii) the other party made the same mistake, and (b) the other party knew or ought to have known that the mistaken party, had it known the truth, would not have entered the contract or would have done so only on fundamentally different terms. (2) However a party may not avoid the contract if: (a) in the circumstances its mistake was inexcusable, or (b) the risk of the mistake was assumed, or in the circumstances should be borne, by it. Article 4:104: Inaccuracy in Communication An inaccuracy in the expression or transmission of a statement is to be treated as a mistake of the person which made or sent the statement and Article 4:103 applies. Article 4:105: Adaptation of Contract (1) If a party is entitled to avoid the contract for mistake but the other party indicates that it is willing to perform, or actually does perform, the contract as it was understood by the party entitled to avoid it, the contract is to be treated as if it had been concluded as that party understood it. The other party must indicate its willingness to perform, or render such performance, promptly after being informed of the manner in which the party entitled to avoid it understood the contract and before that party acts in reliance on any notice of avoidance. (2) After such indication or performance the right to avoid is lost and any earlier notice of avoidance is ineffective.

Principles of European Contract Law 1015 (3) Where both parties have made the same mistake, the court may at the request of either party bring the contract into accordance with what might reasonably have been agreed had the mistake not occurred. Article 4:106: Incorrect Information A party which has concluded a contract relying on incorrect information given it by the other party may recover damages in accordance with Article 4:117(2) and (3) even if the information does not give rise to a fundamental mistake under Article 4:103, unless the party which gave the information had reason to believe that the information was correct. Article 4:107: Fraud (1) A party may avoid a contract when it has been led to conclude it by the other party’s fraudulent representation, whether by words or conduct, or fraudulent non-disclosure of any information which in accordance with good faith and fair dealing it should have disclosed. (2) A party’s representation or non-disclosure is fraudulent if it was intended to deceive. (3) In determining whether good faith and fair dealing required that a party ­disclose particular information, regard should be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to it of acquiring the relevant information; (c) whether the other party could reasonably acquire the information for itself; and (d) the apparent importance of the information to the other party. Article 4:108: Threats A party may avoid a contract when it has been led to conclude it by the other party’s imminent and serious threat of an act: (a) which is wrongful in itself, or (b) which it is wrongful to use as a means to obtain the conclusion of the contract, unless in the circumstances the first party had a reasonable alternative. Article 4:109: Excessive Benefit or Unfair Advantage (1) A party may avoid a contract if, at the time of the conclusion of the contract: (a) it was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill, and (b) the other party knew or ought to have known of this and, given the circumstances and purpose of the contract, took advantage of the first party’s situation in a way which was grossly unfair or took an excessive benefit.

1016  Part III: Common Principles (2) Upon the request of the party entitled to avoidance, a court may if it is appropriate adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealing been followed. (3) A court may similarly adapt the contract upon the request of a party receiving notice of avoidance for excessive benefit or unfair advantage, provided that this party informs the party which gave the notice promptly after r­ eceiving it and before that party has acted in reliance on it. Article 4:110: Unfair Terms not Individually Negotiated (1) A party may avoid a term which has not been individually negotiated if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the parties’ rights and obligations arising under the contract to the detriment of that party, taking into account the nature of the performance to be rendered under the contract, all the other terms of the contract and the circumstances at the time the contract was concluded. (2) This Article does not apply to: (a) a term which defines the main subject matter of the contract, provided the term is in plain and intelligible language; or to (b) the adequacy in value of one party’s obligations compared to the value of the obligations of the other party. Article 4:111: Third Persons (1) Where a third person for whose acts a party is responsible, or who with a party’s assent is involved in the making of a contract: (a) causes a mistake by giving information, or knows of or ought to have known of a mistake, (b) gives incorrect information, (c) commits fraud, (d) makes a threat, or (e) takes excessive benefit or unfair advantage, remedies under this Chapter will be available under the same conditions as if the behaviour or knowledge had been that of the party itself. (2) Where any other third person: (a) gives incorrect information, (b) commits fraud, (c) makes a threat, or (d) takes excessive benefit or unfair advantage, remedies under this Chapter will be available if the party knew or ought to have known of the relevant facts, or at the time of avoidance it has not acted in reliance on the contract.

Principles of European Contract Law 1017 Article 4:112: Notice of Avoidance Avoidance must be by notice to the other party. Article 4:113: Time Limits (1) Notice of avoidance must be given within a reasonable time, with due regard to the circumstances, after the avoiding party knew or ought to have known of the relevant facts or became capable of acting freely. (2) However, a party may avoid an individual term under Article 4:110 if it gives notice of avoidance within a reasonable time after the other party has invoked the term. Article 4:114: Confirmation If the party who is entitled to avoid a contract confirms it, expressly or impliedly, after it knows of the ground for avoidance, or becomes capable of acting freely, avoidance of the contract is excluded. Article 4:115: Effect of Avoidance On avoidance either party may claim restitution of whatever it has supplied under the contract, provided it makes concurrent restitution of whatever it has received. If restitution cannot be made in kind for any reason, a reasonable sum must be paid for what has been received. Article 4:116: Partial Avoidance If a ground of avoidance affects only particular terms of a contract, the effect of an avoidance is limited to those terms unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold the remaining contract. Article 4:117: Damages (1) A party who avoids a contract under this Chapter may recover from the other party damages so as to put the avoiding party as nearly as possible into the same position as if it had not concluded the contract, provided that the other party knew or ought to have known of the mistake, fraud, threat or taking of excessive benefit or unfair advantage. (2) If a party has the right to avoid a contract under this Chapter, but does not exercise its right or has lost its right under the provisions of Articles 4:113 or 4:114, it may recover, subject to paragraph (1), damages limited to the loss caused to it by the mistake, fraud, threat or taking of excessive benefit or unfair advantage. The same measure of damages shall apply when the party was misled by incorrect information in the sense of Article 4:106. (3) In other respects, the damages shall be in accordance with the relevant provisions of Chapter 9, Section 5, with appropriate adaptations.

1018  Part III: Common Principles Article 4:118: Exclusion or Restriction of Remedies (1) Remedies for fraud, threats and excessive benefit or unfair advantage-taking, and the right to avoid an unfair term which has not been individually negotiated, cannot be excluded or restricted. (2) Remedies for mistake and incorrect information may be excluded or restricted unless the exclusion or restriction is contrary to good faith and fair dealing. Article 4:119: Remedies for Non-performance A party which is entitled to a remedy under this Chapter in circumstances which afford that party a remedy for non-performance may pursue either remedy. CHAPTER 5: INTERPRETATION Article 5:101: General Rules of Interpretation (1) A contract is to be interpreted according to the common intention of the ­parties even if this differs from the literal meaning of the words. (2) If it is established that one party intended the contract to have a particular meaning, and at the time of the conclusion of the contract the other party could not have been unaware of the first party’s intention, the contract is to be interpreted in the way intended by the first party. (3) If an intention cannot be established according to (1) or (2), the contract is to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Article 5:102: Relevant Circumstances In interpreting the contract, regard shall be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the nature and purpose of the contract; (d) the interpretation which has already been given to similar clauses by the parties and the practices they have established between themselves; (e) the meaning commonly given to terms and expressions in the branch of activity concerned and the interpretation similar clauses may already have received; (f) usages; and (g) good faith and fair dealing. Article 5:103: Contra Proferentem Rule Where there is doubt about the meaning of a contract term not individually negotiated, an interpretation of the term against the party which supplied it is to be preferred.

Principles of European Contract Law 1019 Article 5:104: Preference to Negotiated Terms Terms which have been individually negotiated take preference over those which have not. Article 5:105: Reference to Contract as a Whole Terms are to be interpreted in the light of the whole contract in which they appear. Article 5:106: Terms to Be Given Effect An interpretation which renders the terms of the contract lawful, or effective, is to be preferred to one which would not. Article 5:107: Linguistic Discrepancies Where a contract is drawn up in two or more language versions none of which is stated to be authoritative, there is, in case of discrepancy between the versions, a preference for the interpretation according to the version in which the contract was originally drawn up. CHAPTER 6: CONTENTS AND EFFECTS Article 6:101: Statements giving rise to Contractual Obligations (1) A statement made by one party before or when the contract is concluded is to be treated as giving rise to a contractual obligation if that is how the other party reasonably understood it in the circumstances, taking into account: (a) the apparent importance of the statement to the other party; (b) whether the party was making the statement in the course of business; and (c) the relative expertise of the parties. (2) If one of the parties is a professional supplier which gives information about the quality or use of services or goods or other property when marketing or advertising them or otherwise before the contract for them is concluded, the statement is to be treated as giving rise to a contractual obligation unless it is shown that the other party knew or could not have been unaware that the statement was incorrect. (3) Such information and other undertakings given by a person advertising or marketing services, goods or other property for the professional supplier, or by a person in earlier links of the business chain, are to be treated as ­giving rise to a contractual obligation on the part of the professional supplier unless it did not know and had no reason to know of the information or undertaking.

1020  Part III: Common Principles Article 6:102: Implied Terms In addition to the express terms, a contract may contain implied terms which stem from (a) the intention of the parties, (b) the nature and purpose of the contract, and (c) good faith and fair dealing. Article 6:103: Simulation When the parties have concluded an apparent contract which was not intended to reflect their true agreement, as between the parties the true agreement prevails. Article 6:104: Determination of Price Where the contract does not fix the price or the method of determining it, the parties are to be treated as having agreed on a reasonable price. Article 6:105: Unilateral Determination by a Party Where the price or any other contractual term is to be determined by one party and that party’s determination is grossly unreasonable, then notwithstanding any provision to the contrary, a reasonable price or other term shall be substituted. Article 6:106: Determination by a Third Person (1) Where the price or any other contractual term is to be determined by a third person, and it cannot or will not do so, the parties are presumed to have empowered the court to appoint another person to determine it. (2) If a price or other term fixed by a third person is grossly unreasonable, a reasonable price or term shall be substituted. Article 6:107: Reference to a Non-Existent Factor Where the price or any other contractual term is to be determined by reference to a factor which does not exist or has ceased to exist or to be accessible, the nearest equivalent factor shall be substituted. Article 6:108: Quality of Performance If the contract does not specify the quality, a party must tender performance of at least average quality. Article 6:109: Contract for an Indefinite Period A contract for an indefinite period may be ended by either party by giving notice of reasonable length.

Principles of European Contract Law 1021 Article 6:110: Stipulation in Favour of a Third Party (1) A third party may require performance of a contractual obligation when its right to do so has been expressly agreed upon between the promisor and the promisee, or when such agreement is to be inferred from the purpose of the contract or the circumstances of the case. The third party need not be identified at the time the agreement is concluded. (2) If the third party renounces the right to performance the right is treated as never having accrued to it. (3) The promisee may by notice to the promisor deprive the third party of the right to performance unless: (a) the third party has received notice from the promisee that the right has been made irrevocable, or (b) the promisor or the promisee has received notice from the third party that the latter accepts the right. Article 6:111: Change of Circumstances (1) A party is bound to fulfil its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of the performance it receives has diminished. (2) If, however, performance of the contract becomes excessively onerous because of a change of circumstances, the parties are bound to enter into negotiations with a view to adapting the contract or ending it, provided that: (a) the change of circumstances occurred after the time of conclusion of the contract, (b) the possibility of a change of circumstances was not one which could reasonably have been taken into account at the time of conclusion of the contract, and (c) the risk of the change of circumstances is not one which, according to the contract, the party affected should be required to bear. (3) If the parties fail to reach agreement within a reasonable period, the court may: (a) end the contract at a date and on terms to be determined by the court; or (b) adapt the contract in order to distribute between the parties in a just and equitable manner the losses and gains resulting from the change of circumstances. In either case, the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing.

1022  Part III: Common Principles CHAPTER 7: PERFORMANCE Article 7:101: Place of Performance (1) If the place of performance of a contractual obligation is not fixed by or determinable from the contract it shall be: (a) in the case of an obligation to pay money, the creditor’s place of business at the time of the conclusion of the contract; (b) in the case of an obligation other than to pay money, the debtor’s place of business at the time of conclusion of the contract. (2) If a party has more than one place of business, the place of business for the purpose of the preceding paragraph is that which has the closest relationship to the contract, having regard to the circumstances known to or contemplated by the parties at the time of conclusion of the contract. (3) If a party does not have a place of business its habitual residence is to be treated as its place of business. Article 7:102: Time of Performance A party has to effect its performance: (a) if a time is fixed by or determinable from the contract, at that time; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless the circumstances of the case indicate that the other party is to choose the time; (c) in any other case, within a reasonable time after the conclusion of the contract. Article 7:103: Early Performance (1) A party may decline a tender of performance made before it is due except where acceptance of the tender would not unreasonably prejudice its interests. (2) A party’s acceptance of early performance does not affect the time fixed for the performance of its own obligation. Article 7:104: Order of Performance To the extent that the performances of the parties can be rendered simultaneously, the parties are bound to render them simultaneously unless the circumstances i­ndicate otherwise. Article 7:105: Alternative Performance (1) Where an obligation may be discharged by one of alternative performances, the choice belongs to the party which is to perform, unless the circumstances indicate otherwise. (2) If the party which is to make the choice fails to do so by the time required by the contract, then:

Principles of European Contract Law 1023 (a) if the delay in choosing is fundamental, the right to choose passes to the other party; (b) if the delay is not fundamental, the other party may give a notice fixing an additional period of reasonable length in which the party to choose must do so. If the latter fails to do so, the right to choose passes to the other party. Article 7:106: Performance by a Third Person (1) Except where the contract requires personal performance the creditor cannot refuse performance by a third person if: (a) the third person acts with the assent of the debtor; or (b) the third person has a legitimate interest in performance and the debtor has failed to perform or it is clear that it will not perform at the time performance is due. (2) Performance by the third person in accordance with paragraph (1) discharges the debtor. Article 7:107: Form of Payment (1) Payment of money due may be made in any form used in the ordinary course of business. (2) A creditor which, pursuant to the contract or voluntarily, accepts a cheque or other order to pay or a promise to pay is presumed to do so only on condition that it will be honoured. The creditor may not enforce the original obligation to pay unless the order or promise is not honoured. Article 7:108: Currency of Payment (1) The parties may agree that payment shall be made only in a specified currency. (2) In the absence of such agreement, a sum of money expressed in a currency other than that of the place where payment is due may be paid in the currency of that place according to the rate of exchange prevailing there at the time when payment is due. (3) If, in a case falling within the preceding paragraph, the debtor has not paid at the time when payment is due, the creditor may require payment in the currency of the place where payment is due according to the rate of exchange prevailing there either at the time when payment is due or at the time of actual payment. Article 7:109: Appropriation of Performance (1) Where a party has to perform several obligations of the same nature and the performance tendered does not suffice to discharge all of the obligations, then subject to paragraph (4) the party may at the time of its performance declare to which obligation the performance is to be appropriated. (2) If the performing party does not make such a declaration, the other party may within a reasonable time appropriate the performance to such ­obligation as

1024  Part III: Common Principles it chooses. It shall inform the performing party of the choice. However, any such appropriation to an obligation which: (a) is not yet due, or (b) is illegal, or (c) is disputed, is invalid. (3) In the absence of an appropriation by either party, and subject to paragraph (4), the performance is appropriated to that obligation which satisfies one of the following criteria in the sequence indicated: (a) the obligation which is due or is the first to fall due; (b) the obligation for which the creditor has the least security; (c) the obligation which is the most burdensome for the debtor; (d) the obligation which has arisen first. if none of the preceding criteria applies, the performance is appropriated proportionately to all obligations. (4) In the case of a monetary obligation, a payment by the debtor is to be appropriated, first, to expenses, secondly, to interest, and thirdly, to principal, unless the creditor makes a different appropriation. Article 7:110: Property not Accepted (1) A party which is left in possession of tangible property other than money because of the other party’s failure to accept or retake the property must take reasonable steps to protect and preserve the property. (2) The party left in possession may discharge its duty to deliver or return: (a) by depositing the property on reasonable terms with a third person to be held to the order of the other party, and notifying the other party of this; or (b) by selling the property on reasonable terms after notice to the other party, and paying the net proceeds to that party. (3) Where, however, the property is liable to rapid deterioration or its preservation is unreasonably expensive, the party must take reasonable steps to dispose of it. It may discharge its duty to deliver or return by paying the net proceeds to the other party. (4) The party left in possession is entitled to be reimbursed or to retain out of the proceeds of sale any expenses reasonably incurred. Article 7:111: Money not Accepted Where a party fails to accept money properly tendered by the other party, that party may after notice to the first party discharge its obligation to pay by depositing the money to the order of the first party in accordance with the law of the place where payment is due. Article 7:112: Costs of Performance Each party shall bear the costs of performance of its obligations.

Principles of European Contract Law 1025 CHAPTER 8: NON-PERFORMANCE AND REMEDIES IN GENERAL Article 8:101: Remedies Available (1) Whenever a party does not perform an obligation under the contract and the non-performance is not excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9. (2) Where a party’s non-performance is excused under Article 8:108, the aggrieved party may resort to any of the remedies set out in Chapter 9 except claiming performance and damages. (3) A party may not resort to any of the remedies set out in Chapter 9 to the extent that its own act caused the other party’s non-performance. Article 8:102: Cumulation of Remedies Remedies which are not incompatible may be cumulated. In particular, a party is not deprived of its right to damages by exercising its right to any other remedy. Article 8:103: Fundamental Non-Performance A non-performance of an obligation is fundamental to the contract if: (a) strict compliance with the obligation is of the essence of the contract; or (b) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result; or (c) the non-performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance. Article 8:104: Cure by Non-Performing Party A party whose tender of performance is not accepted by the other party because it does not conform to the contract may make a new and conforming tender where the time for performance has not yet arrived or the delay would not be such as to constitute a fundamental non-performance. Article 8:105: Assurance of Performance (1) A party which reasonably believes that there will be a fundamental nonperformance by the other party may demand adequate assurance of due performance and meanwhile may withhold performance of its own obligations so long as such reasonable belief continues. (2) Where this assurance is not provided within a reasonable time, the party demanding it may terminate the contract if it still reasonably believes that there will be a fundamental non-performance by the other party and gives notice of termination without delay.

1026  Part III: Common Principles Article 8:106: Notice Fixing Additional Period for Performance (1) In any case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance. (2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages, but it may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under chapter 9. (3) If in a case of delay in performance which is not fundamental the aggrieved party has given a notice fixing an additional period of time of reasonable length, it may terminate the contract at the end of the period of notice. The aggrieved party may in its notice provide that if the other party does not perform within the period fixed by the notice the contract shall terminate automatically. If the period stated is too short, the aggrieved party may terminate, or, as the case may be, the contract shall terminate automatically, only after a reasonable period from the time of the notice. Article 8:107 Performance Entrusted to Another A party which entrusts performance of the contract to another person remains responsible for performance. Article 8:108: Excuse Due to an Impediment (1) A party’s non-performance is excused if it proves that it is due to an impediment beyond its control and that it could not reasonably have been expected to take the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences. (2) Where the impediment is only temporary the excuse provided by this Article has effect for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the creditor may treat it as such. (3) The non-performing party must ensure that notice of the impediment and of its effect on its ability to perform is received by the other party within a reasonable time after the non-performing party knew or ought to have known of these circumstances. The other party is entitled to damages for any loss resulting from the non-receipt of such notice. Article 8:109: Clause Excluding or Restricting Remedies Remedies for non-performance may be excluded or restricted unless it would be contrary to good faith and fair dealing to invoke the exclusion or restriction.

Principles of European Contract Law 1027 CHAPTER 9: PARTICULAR REMEDIES FOR NON-PERFORMANCE Section 1: Right to Performance Article 9:101: Monetary Obligations (1) The creditor is entitled to recover money which is due. (2) Where the creditor has not yet performed its obligation and it is clear that the debtor will be unwilling to receive performance, the creditor may nonetheless proceed with its performance and may recover any sum due under the contract unless: (a) it could have made a reasonable substitute transaction without significant effort or expense; or (b) performance would be unreasonable in the circumstances. Article 9:102: Non-monetary Obligations (1) The aggrieved party is entitled to specific performance of an obligation other than one to pay money, including the remedying of a defective performance. (2) Specific performance cannot, however, be obtained where: (a) performance would be unlawful or impossible; or (b) performance would cause the debtor unreasonable effort or expense; or (c) the performance consists in the provision of services or work of a personal character or depends upon a personal relationship, or (d) the aggrieved party may reasonably obtain performance from another source. (3) The aggrieved party will lose the right to specific performance if it fails to seek it within a reasonable time after it has or ought to have become aware of the non-performance. Article 9:103: Damages Not Precluded The fact that a right to performance is excluded under this Section does not preclude a claim for damages. Section 2: Withholding Performance Article 9:201: Right to Withhold Performance (1) A party which is to perform simultaneously with or after the other party may withhold performance until the other has tendered performance or has performed. The first party may withhold the whole of its performance or a part of it as may be reasonable in the circumstances. (2) A party may similarly withhold performance for as long as it is clear that there will be a non-performance by the other party when the other party’s performance becomes due.

1028  Part III: Common Principles Section 3: Termination of the Contract Article 9:301: Right to Terminate the Contract (1) A party may terminate the contract if the other party’s non-performance is fundamental. (2) In the case of delay the aggrieved party may also terminate the contract under Article 8:106(3). Article 9:302: Contract to be Performed in Parts If the contract is to be performed in separate parts and in relation to a part to which a counter-performance can be apportioned, there is a fundamental non-­performance, the aggrieved party may exercise its right to terminate under this Section in relation to the part concerned. It may terminate the contract as a whole only if the nonperformance is fundamental to the contract as a whole. Article 9:303: Notice of Termination (1) A party’s right to terminate the contract is to be exercised by notice to the other party. (2) The aggrieved party loses its right to terminate the contract unless it gives notice within a reasonable time after it has or ought to have become aware of the non-performance. (3) (a) When performance has not been tendered by the time it was due, the aggrieved party need not give notice of termination before a tender has been made. If a tender is later after it has or ought to have become aware of the tender. (b) If, however, the aggrieved party knows or has reason to know that the other party still intends to tender within a reasonable time, and the aggrieved party unreasonably fails to notify the other party that it will not accept performance, it loses its right to terminate if the other party in fact tenders within a reasonable time. (4) If a party is excused under Article 8:108 through an impediment which is total and permanent, the contract is terminated automatically and without notice at the time the impediment arises. Article 9:304: Anticipatory Non-Performance Where prior to the time for performance by a party it is clear that there will be a fundamental non-performance by it, the other party may terminate the contract. Article 9:305: Effects of Termination in General (1) Termination of the contract releases both parties from their obligation to effect and to receive future performance, but, subject to Articles 9:306 to 9:308, does not affect the rights and liabilities that have accrued up to the time of termination.

Principles of European Contract Law 1029 (2) Termination does not affect any provision of the contract for the settlement of disputes or any other provision which is to operate even after termination. Article 9:306: Property Reduced in Value A party which terminates the contract may reject property previously received from the other party if its value to the first party has been fundamentally reduced as a result of the other party’s non-performance. Article 9:307: Recovery of Money Paid On termination of the contract a party may recover money paid for a performance which it did not receive or which it properly rejected. Article 9:308: Recovery of Property On termination of the contract a party which has supplied property which can be returned and for which it has not received payment or other counter-performance may recover the property. Article 9:309: Recovery for Performance that Cannot be Returned On termination of the contract a party which has rendered a performance which cannot be returned and for which it has not received payment or other counterperformance may recover a reasonable amount for the value of the performance to the other party. Section 4: Price Reduction Article 9:401: Right to Reduce Price (1) A party which accepts a tender of performance not conforming to the contract may reduce the price. This reduction shall be proportionate to the decrease in the value of the performance at the time this was tendered compared to the value which a conforming tender would have had at that time. (2) A party which is entitled to reduce the price under the preceding paragraph and which has already paid a sum exceeding the reduced price may recover the excess from the other party. (3) A party which reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under Section 5 of this Chapter. Section 5: Damages and Interest Article 9:501: Right to Damages (1) The aggrieved party is entitled to damages for loss caused by the other party’s non-performance which is not excused under Article 8:108.

1030  Part III: Common Principles (2) The loss for which damages are recoverable includes: (a) non-pecuniary loss; and (b) future loss which is reasonably likely to occur. Article 9:502: General Measure of Damages The general measure of damages is such sum as will put the aggrieved party as nearly as possible into the position in which it would have been if the contract had been duly performed. Such damages cover the loss which the aggrieved party has suffered and the gain of which it has been deprived. Article 9:503: Foreseeability The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent. Article 9:504: Loss Attributable to Aggrieved Party The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party contributed to the non-performance or its effects. Article 9:505: Reduction of Loss (1) The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party could have reduced the loss by taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. Article 9:506: Substitute Transaction Where the aggrieved party has terminated the contract and has made a substitute transaction within a reasonable time and in a reasonable manner, it may recover the difference between the contract price and the price of the substitute transaction as well as damages for any further loss so far as these are recoverable under this Section. Article 9:507: Current Price Where the aggrieved party has terminated the contract and has not made a substitute transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further loss so far as these are recoverable under this Section.

Principles of European Contract Law 1031 Article 9:508: Delay in Payment of Money (1) If payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due. (2) The aggrieved party may in addition recover damages for any further loss so far as these are recoverable under this Section. Article 9:509: Agreed Payment for Non-performance (1) Where the contract provides that a party which fails to perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party shall be awarded that sum irrespective of its actual loss. (2) However, despite any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances. Article 9:510: Currency by which Damages to be Measured Damages are to be measured by the currency which most appropriately reflects the aggrieved party’s loss.

Principles of European Contract Law* The Commission for European Contract Law Part III (2003) CHAPTER 10 Plurality of parties Section 1: Plurality of debtors Article 10:101: Solidary, Separate and Communal Obligations (1) Obligations are solidary when all the debtors are bound to render one and the same performance and the creditor may require it from any one of them until full performance has been received. (2) Obligations are separate when each debtor is bound to render only part of the performance and the creditor may require from each debtor only that debtor’s part. (3) An obligation is communal when all the debtors are bound to render the performance together and the creditor may require it only from all of them. Article 10:102: When Solidary Obligations Arise (1) If several debtors are bound to render one and the same performance to a creditor under the same contract, they are solidarily liable, unless the contract or the law provides otherwise. (2) Solidary obligations also arise where several persons are liable for the same damage. (3) The fact that the debtors are not liable on the same terms does not prevent their obligations from being solidary. Article 10:103: Liability under Separate Obligations Debtors bound by separate obligations are liable in equal shares unless the contract or the law provides otherwise. *  Published in Principles of European Contract Law Part III (ed. O. Lando, E. Clive, A. Prüm and R. Zimmermann) (Kluwer 2003).

Principles of European Contract Law 1033 Article 10:104: Communal Obligations: Special Rule when Money Claimed for Non-Performance Notwithstanding Article 10:101(3), when money is claimed for non-performance of a communal obligation, the debtors are solidarily liable for payment to the creditor. Article 10:105: Apportionment Between Solidary Debtors (1) As between themselves, solidary debtors are liable in equal shares unless the contract or the law provides otherwise. (2) If two or more debtors are liable for the same damage under Article 10:102(2), their share of liability as between themselves is determined according to the law governing the event which gave rise to the liability. Article 10:106: Recourse Between Solidary Debtors (1) A solidary debtor who has performed more than that debtor’s share may claim the excess from any of the other debtors to the extent of each debtor’s unperformed share, together with a share of any costs reasonably incurred. (2) A solidary debtor to whom paragraph (1) applies may also, subject to any prior right and interest of the creditor, exercise the rights and actions of the creditor, including accessory securities, to recover the excess from any of the other debtors to the extent of each debtor’s unperformed share. (3) If a solidary debtor who has performed more than that debtor’s share is ­unable, despite all reasonable efforts, to recover contribution from another solidary debtor, the share of the others, including the one who has performed, is increased proportionally. Article 10:107: Performance, Set-off and Merger in Solidary Obligations (1) Performance or set-off by a solidary debtor or set-off by the creditor against one solidary debtor discharges the other debtors in relation to the creditor to the extent of the performance or set-off. (2) Merger of debts between a solidary debtor and the creditor discharges the other debtors only for the share of the debtor concerned. Article 10:108: Release or Settlement in Solidary Obligations (1) When the creditor releases, or reaches a settlement with, one solidary debtor, the other debtors are discharged of liability for the share of that debtor. (2) The debtors are totally discharged by the release or settlement if it so provides. (3) As between solidary debtors, the debtor who is discharged from that debtor’s share is discharged only to the extent of the share at the time of the discharge and not from any supplementary share for which that debtor may ­subsequently become liable under Article 10:106(3).

1034  Part III: Common Principles Article 10:109: Effect of Judgment in Solidary Obligations A decision by a court as to the liability to the creditor of one solidary debtor does not affect: (a) the liability to the creditor of the other solidary debtors; or (b) the rights of recourse between the solidary debtors under Article 10:106. Article 10:110: Prescription in Solidary Obligations Prescription of the creditor’s right to performance (“claim”) against one solidary debtor does not affect: (a) the liability to the creditor of the other solidary debtors; or (b) the rights of recourse between the solidary debtors under Article 10:106. Article 10:111: Opposability of other Defences in Solidary Obligations (1) A solidary debtor may invoke against the creditor any defence which another solidary debtor can invoke, other than a defence personal to that other debtor. Invoking the defence has no effect with regard to the other solidary debtors. (2) A debtor from whom contribution is claimed may invoke against the claimant any personal defence that debtor could have invoked against the creditor. Section 2: Plurality of creditors Article 10:201: Solidary, Separate and Communal Claims (1) Claims are solidary when any of the creditors may require full performance from the debtor and when the debtor may render performance to any of the creditors. (2) Claims are separate when the debtor owes each creditor only that creditor’s share of the claim and each creditor may require performance only of that creditor’s share. (3) A claim is communal when the debtor must perform to all the creditors and any creditor may require performance only for the benefit of all. Article 10:202: Apportionment of Separate Claims Separate creditors are entitled to equal shares unless the contract or the law provides otherwise. Article 10:203: Difficulties of Executing a Communal Claim If one of the creditors in a communal claim refuses, or is unable to receive, the performance, the debtor may discharge the obligation to perform by depositing the property or money with a third party according to Articles 7:110 or 7:111 of the Principles.

Principles of European Contract Law 1035 Article 10:204: Apportionment of Solidary Claims (1) Solidary creditors are entitled to equal shares unless the contract or the law provides otherwise. (2) A creditor who has received more than that creditor’s share must transfer the excess to the other creditors to the extent of their respective shares. Article 10:205: Regime of Solidary Claims (1) A release granted to the debtor by one of the solidary creditors has no effect on the other solidary creditors (2) The rules of Articles 10:107, 10:109, 10:110 and 10:111(1) apply, with appropriate adaptations, to solidary claims. CHAPTER 11 Assignment of Claims Section 1: General Principles Article 11:101: Scope of Chapter (1) This Chapter applies to the assignment by agreement of a right to performance (“claim”) under an existing or future contract. (2) Except where otherwise stated or the context otherwise requires, this C ­ hapter also applies to the assignment by agreement of other transferable claims. (3) This Chapter does not apply: (a) to the transfer of a financial instrument or investment security where, under the law otherwise applicable, such transfer must be by entry in a register maintained by or for the issuer; or (b) to the transfer of a bill of exchange or other negotiable instrument or of a negotiable security or a document of title to goods where, under the law otherwise applicable, such transfer must be by delivery (with any necessary endorsement). (4) In this Chapter “assignment” includes an assignment by way of security. (5) This Chapter also applies, with appropriate adaptations, to the granting by agreement of a right in security over a claim otherwise than by assignment. Article 11:102: Contractual Claims Generally Assignable (1) Subject to Articles 11:301 and 11:302, a party to a contract may assign a claim under it. (2) A future claim arising under an existing or future contract may be assigned if at the time when it comes into existence, or at such other time as the parties agree, it can be identified as the claim to which the assignment relates.

1036  Part III: Common Principles Article 11:103: Partial Assignment A claim which is divisible may be assigned in part, but the assignor is liable to the debtor for any increased costs which the debtor thereby incurs. Article 11:104: Form of Assignment An assignment need not be in writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Section 2: Effects of Assignment as Between Assignor and Assignee Article 11:201: Rights Transferred to Assignee (1) The assignment of a claim transfers to the assignee: (a) all the assignor’s rights to performance in respect of the claim assigned; and (b) all accessory rights securing such performance. (2) Where the assignment of a claim under a contract is associated with the substitution of the assignee as debtor in respect of any obligation owed by the assignor under the same contract, this Article takes effect subject to Article 12:201. Article 11:202: When Assignment Takes Effect (1) An assignment of an existing claim takes effect at the time of the agreement to assign or such later time as the assignor and assignee agree. (2) An assignment of a future claim is dependent upon the assigned claim ­coming into existence but thereupon takes effect from the time of the agreement to assign or such later time as the assignor and assignee agree. Article 11:203: Preservation of Assignee’s Rights Against Assignor An assignment is effective as between the assignor and assignee, and entitles the assignee to whatever the assignor receives from the debtor, even if it is ineffective against the debtor under Article 11:301 or 11:302. Article 11:204: Undertakings by Assignor By assigning or purporting to assign a claim the assignor undertakes to the assignee that: (a) at the time when the assignment is to take effect the following conditions will be satisfied except as otherwise disclosed to the assignee: (i) the assignor has the right to assign the claim; (ii) the claim exists and the assignee’s rights are not affected by any defences or rights (including any right of set-off) which the debtor might have against the assignor; and (iii) the claim is not subject to any prior assignment or right in security in favour of any other party or to any other incumbrance;

Principles of European Contract Law 1037 (b) the claim and any contract under which it arises will not be modified without the consent of the assignee unless the modification is provided for in the assignment agreement or is one which is made in good faith and is of a nature to which the assignee could not reasonably object; and (c) the assignor will transfer to the assignee all transferable rights intended to secure performance which are not accessory rights. Section 3: Effects of Assignment As Between Assignee and Debtor Article 11:301: Contractual Prohibition of Assignment (1) An assignment which is prohibited by or is otherwise not in conformity with the contract under which the assigned claim arises is not effective against the debtor unless: (a) the debtor has consented to it; or (b) the assignee neither knew nor ought to have known of the n ­ onconformity; or (c) the assignment is made under a contract for the assignment of future rights to payment of money. (2) Nothing in the preceding paragraph affects the assignor’s liability for the nonconformity. Article 11:302: Other Ineffective Assignments An assignment to which the debtor has not consented is ineffective against the debtor so far as it relates to a performance which the debtor, by reason of the nature of the performance or the relationship of the debtor and the assignor, could not reasonably be required to render to anyone except the assignor. Article 11:303: Effect on Debtor’s Obligation (1) Subject to Articles 11:301, 11:302, 11:307 and 11:308, the debtor is bound to perform in favour of the assignee if and only if the debtor has received a notice in writing from the assignor or the assignee which reasonably identifies the claim which has been assigned and requires the debtor to give performance to the assignee. (2) However, if such notice is given by the assignee, the debtor may within a reasonable time request the assignee to provide reliable evidence of the assignment, pending which the debtor may withhold performance. (3) Where the debtor has acquired knowledge of the assignment otherwise than by a notice conforming to paragraph (1), the debtor may either withhold performance from or give performance to the assignee. (4) Where the debtor gives performance to the assignor, the debtor is discharged if and only if the performance is given without knowledge of the assignment.

1038  Part III: Common Principles Article 11:304: Protection of Debtor A debtor who performs in favour of a person identified as assignee in a notice of assignment under Article 11:303 is discharged unless the debtor could not have been unaware that such person was not the person entitled to performance. Article 11:305: Competing Demands A debtor who has received notice of two or more competing demands for performance may discharge liability by conforming to the law of the due place of performance, or, if the performances are due in different places, the law applicable to the claim. Article 11:306: Place of Performance (1) Where the assigned claim relates to an obligation to pay money at a particular place, the assignee may require payment at any place within the same country or, if that country is a Member State of the European Union, at any place within the European Union, but the assignor is liable to the debtor for any increased costs which the debtor incurs by reason of any change in the place of performance. (2) Where the assigned claim relates to a non-monetary obligation to be performed at a particular place, the assignee may not require performance at any other place. Article 11:307: Defences and Rights of Set-Off (1) The debtor may set up against the assignee all substantive and procedural defences to the assigned claim which the debtor could have used against the assignor. (2) The debtor may also assert against the assignee all rights of set-off which would have been available against the assignor under Chapter 13 in respect of any claim against the assignor: (a) existing at the time when a notice of assignment, whether or not conforming to Article 11:303(1), reaches the debtor; or (b) closely connected with the assigned claim. Article 11:308: Unauthorised Modification not Binding on Assignee A modification of the claim made by agreement between the assignor and the debtor, without the consent of the assignee, after a notice of assignment, whether or not conforming to Article 11:303(1), reaches the debtor does not affect the rights of the assignee against the debtor unless the modification is provided for in the assignment agreement or is one which is made in good faith and is of a nature to which the assignee could not reasonably object.

Principles of European Contract Law 1039 Section 4: Order of Priority Between Assignee and Competing Claimants Article 11:401: Priorities (1) Where there are successive assignments of the same claim, the assignee whose assignment is first notified to the debtor has priority over any earlier assignee if at the time of the later assignment the assignee under that assignment ­neither knew nor ought to have known of the earlier assignment. (2) Subject to paragraph (1), the priority of successive assignments, whether of existing or future claims, is determined by the order in which they are made. (3) The assignee’s interest in the assigned claim has priority over the interest of a creditor of the assignor who attaches that claim, whether by judicial process or otherwise, after the time the assignment has taken effect under Article 11:202. (4) In the event of the assignor’s bankruptcy, the assignee’s interest in the assigned claim has priority over the interest of the assignor’s insolvency administrator and creditors, subject to any rules of the law applicable to the bankruptcy relating to: (a) publicity required as a condition of such priority; (b) the ranking of claims; or (c) the avoidance or ineffectiveness of transactions in the bankruptcy proceedings. CHAPTER 12 Substitution of New Debtor: Transfer of Contract Section 1: Substitution of New Debtor Article 12:101: Substitution: General Rules (1) A third person may undertake with the agreement of the debtor and the creditor to be substituted as debtor, with the effect that the original debtor is discharged. (2) A creditor may agree in advance to a future substitution. In such a case the substitution takes effect only when the creditor is given notice by the new debtor of the agreement between the new and the original debtor. Article 12:102: Effects of Substitution on Defences and Securities (1) The new debtor cannot invoke against the creditor any rights or defences arising from the relationship between the new debtor and the original debtor. (2) The discharge of the original debtor also extends to any security of the ­original debtor given to the creditor for the performance of the obligation, unless the security is over an asset which is transferred to the new debtor as part of a transaction between the original and the new debtor. (3) Upon discharge of the original debtor, a security granted by any person other than the new debtor for the performance of the obligation is released, unless that other person agrees that it should continue to be available to the creditor.

1040  Part III: Common Principles (4) The new debtor may invoke against the creditor all defences which the ­original debtor could have invoked against the creditor. Section 2: Transfer of Contract Article 12:201: Transfer of Contract (1) A party to a contract may agree with a third person that that person is to be substituted as the contracting party. In such a case the substitution takes effect only where, as a result of the other party’s assent, the first party is discharged. (2) To the extent that the substitution of the third person as a contracting party involves a transfer of rights to performance (“claims”), the provisions of Chapter 11 apply; to the extent that obligations are transferred, the provisions of Section 1 of this Chapter apply. CHAPTER 13 Set-Off Article 13:101: Requirements for Set-Off If two parties owe each other obligations of the same kind, either party may set off that party’s right to performance (“claim”) against the other party’s claim, if and to the extent that, at the time of set-off, the first party: (a) is entitled to effect performance; and (b) may demand the other party’s performance. Article 13:102: Unascertained Claims (1) A debtor may not set off a claim which is unascertained as to its existence or value unless the set-off will not prejudice the interests of the other party. (2) Where the claims of both parties arise from the same legal relationship it is presumed that the other party’s interests will not be prejudiced. Article 13:103: Foreign Currency Set-Off Where parties owe each other money in different currencies, each party may set off that party’s claim against the other party’s claim, unless the parties have agreed that the party declaring set-off is to pay exclusively in a specified currency. Article 13:104: Notice of Set-Off The right of set-off is exercised by notice to the other party. Article 13:105: Plurality of Claims and Obligations (1) Where the party giving notice of set-off has two or more claims against the other party, the notice is effective only if it identifies the claim to which it relates.

Principles of European Contract Law 1041 (2) Where the party giving notice of set-off has to perform two or more ­obligations towards the other party, the rules in Article 7:109 apply with ­appropriate adaptations. Article 13:106: Effect of Set-Off Set-off discharges the obligations, as far as they are coextensive, as from the time of notice. Article 13:107: Exclusion of Right of Set-Off Set-off cannot be effected: (a) where it is excluded by agreement; (b) against a claim to the extent that claim is not capable of attachment; and (c) against a claim arising from a deliberate wrongful act. CHAPTER 14 Prescription Section 1: General Provision Article 14:101: Claims Subject to Prescription A right to performance of an obligation (“claim”) is subject to prescription by the expiry of a period of time in accordance with these Principles. Section 2: Periods of Prescription and their Commencement Article 14:201: General Period The general period of prescription is three years. Article 14:202: Period for a Claim Established by Legal Proceedings (1) The period of prescription for a claim established by judgment is ten years. (2) The same applies to a claim established by an arbitral award or other instrument which is enforceable as if it were a judgment. Article 14:203: Commencement (1) The general period of prescription begins to run from the time when the debtor has to effect performance or, in the case of a right to damages, from the time of the act which gives rise to the claim. (2) Where the debtor is under a continuing obligation to do or refrain from doing something, the general period of prescription begins to run with each breach of the obligation. (3) The period of prescription set out in Article 14:202 begins to run from the time when the judgment or arbitral award obtains the effect of res judicata, or the other instrument becomes enforceable, though not before the debtor has to effect performance.

1042  Part III: Common Principles Section 3: Extension of Period Article 14:301: Suspension in Case of Ignorance The running of the period of prescription is suspended as long as the creditor does not know of, and could not reasonably know of: (a) the identity of the debtor; or (b) the facts giving rise to the claim including, in the case of a right to damages, the type of damage. Article 14:302: Suspension in Case of Judicial and Other Proceedings (1) The running of the period of prescription is suspended from the time when judicial proceedings on the claim are begun. (2) Suspension lasts until a decision has been made which has the effect of res judicata, or until the case has been otherwise disposed of. (3) These provisions apply, with appropriate adaptations, to arbitration proceedings and to all other proceedings initiated with the aim of obtaining an instrument which is enforceable as if it were a judgment. Article 14:303: Suspension in Case of Impediment beyond Creditor’s Control (1) The running of the period of prescription is suspended as long as the creditor is prevented from pursuing the claim by an impediment which is beyond the creditor’s control and which the creditor could not reasonably have been expected to avoid or overcome. (2) Paragraph (1) applies only if the impediment arises, or subsists, within the last six months of the prescription period. Article 14:304: Postponement of Expiry in Case of Negotiations If the parties negotiate about the claim, or about circumstances from which a claim might arise, the period of prescription does not expire before one year has passed since the last communication made in the negotiations. Article 14:305: Postponement of Expiry in Case of Incapacity (1) If a person subject to an incapacity is without a representative, the period of prescription of a claim held by or against that person does not expire before one year has passed after either the incapacity has ended or a representative has been appointed. (2) The period of prescription of claims between a person subject to an incapacity and that person’s representative does not expire before one year has passed after either the incapacity has ended or a new representative has been appointed.

Principles of European Contract Law 1043 Article 14:306: Postponement of Expiry: Deceased’s Estate Where the creditor or debtor has died, the period of prescription of a claim held by or against the deceased’s estate does not expire before one year has passed after the claim can be enforced by or against an heir, or by or against a representative of the estate. Article 14:307: Maximum Length of Period The period of prescription cannot be extended, by suspension of its running or postponement of its expiry under these Principles, to more than ten years or, in case of claims for personal injuries, to more than thirty years. This does not apply to suspension under Article 14:302. Section 4: Renewal of Periods Article 14:401: Renewal by Acknowledgement (1) If the debtor acknowledges the claim, vis-à-vis the creditor, by part payment, payment of interest, giving of security, or in any other manner, a new period of prescription begins to run. (2) The new period is the general period of prescription, regardless of whether the claim was originally subject to the general period of prescription or the ten year period under Article 14:202. In the latter case, however, this Article does not operate so as to shorten the ten year period. Article 14:402: Renewal by Attempted Execution The ten year period of prescription laid down in Article 14:202 begins to run again with each reasonable attempt at execution undertaken by the creditor. Section 5: Effects of Prescription Article 14:501: General Effect (1) After expiry of the period of prescription the debtor is entitled to refuse performance. (2) Whatever has been performed in order to discharge a claim may not be reclaimed merely because the period of prescription had expired. Article 14:502: Effect on Ancillary Claims The period of prescription for a right to payment of interest, and other claims of an ancillary nature, expires not later than the period for the principal claim. Article 14:503: Effect on Set-Off A claim in relation to which the period of prescription has expired may nonetheless be set off, unless the debtor has invoked prescription previously or does so within two months of notification of set-off.

1044  Part III: Common Principles Section 6: Modification by Agreement Article 14:601: Agreements Concerning Prescription (1) The requirements for prescription may be modified by agreement between the parties, in particular by either shortening or lengthening the periods of prescription. (2) The period of prescription may not, however, be reduced to less than one year or extended to more than thirty years after the time of commencement set out in Article 14:203. CHAPTER 15 Illegality Article 15:101: Contracts Contrary to Fundamental Principles A contract is of no effect to the extent that it is contrary to principles recognised as fundamental in the laws of the Member States of the European Union. Article 15:102: Contracts Infringing Mandatory Rules (1) Where a contract infringes a mandatory rule of law applicable under Article 1:103 of these Principles, the effects of that infringement upon the contract are the effects, if any, expressly prescribed by that mandatory rule. (2) Where the mandatory rule does not expressly prescribe the effects of an infringement upon a contract, the contract may be declared to have full effect, to have some effect, to have no effect, or to be subject to modification. (3) A decision reached under paragraph (2) must be an appropriate and proportional response to the infringement, having regard to all relevant circumstances, including: (a) the purpose of the rule which has been infringed; (b) the category of persons for whose protection the rule exists; (c) any sanction that may be imposed under the rule infringed; (d) the seriousness of the infringement; (e) whether the infringement was intentional; and (f) the closeness of the relationship between the infringement and the contract. Article 15:103: Partial Ineffectiveness (1) If only part of a contract is rendered ineffective under Articles 15:101 or 15:102, the remaining part continues in effect unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold it. (2) Articles 15:104 and 15:105 apply, with appropriate adaptations, to a case of partial ineffectiveness.

Principles of European Contract Law 1045 Article 15:104: Restitution (1) When a contract is rendered ineffective under Articles 15:101 or 15:102, either party may claim restitution of whatever that party has supplied under the contract, provided that, where appropriate, concurrent restitution is made of whatever has been received. (2) When considering whether to grant restitution under paragraph (1), and what concurrent restitution, if any, would be appropriate, regard must be had to the factors referred to in Article 15:102(3). (3) An award of restitution may be refused to a party who knew or ought to have known of the reason for the ineffectiveness. (4) If restitution cannot be made in kind for any reason, a reasonable sum must be paid for what has been received. Article 15:105: Damages (1) A party to a contract which is rendered ineffective under Articles 15:101 or 15:102 may recover from the other party damages putting the first party as nearly as possible into the same position as if the contract had not been concluded, provided that the other party knew or ought to have known of the reason for the ineffectiveness. (2) When considering whether to award damages under paragraph (1), regard must be had to the factors referred to in Article 15:102(3). (3) An award of damages may be refused where the first party knew or ought to have known of the reason for the ineffectiveness. CHAPTER 16 Conditions Article 16:101: Types of Condition A contractual obligation may be made conditional upon the occurrence of an uncertain future event, so that the obligation takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition). Article 16:102: Interference with Conditions (1) If fulfilment of a condition is prevented by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfilment would have operated to that party’s disadvantage, the condition is deemed to be fulfilled. (2) If fulfilment of a condition is brought about by a party, contrary to duties of good faith and fair dealing or co-operation, and if fulfilment operates to that party’s advantage, the condition is deemed not to be fulfilled.

1046  Part III: Common Principles Article 16:103: Effect of Conditions (1) Upon fulfilment of a suspensive condition, the relevant obligation takes effect unless the parties otherwise agree. (2) Upon fulfilment of a resolutive condition, the relevant obligation comes to an end unless the parties otherwise agree. CHAPTER 17 Capitalisation of Interest Article 17:101: When Interest to be Added to Capital (1) Interest payable according to Article 9:508(1) is added to the outstanding capital every 12 months. (2) Paragraph (1) of this Article does not apply if the parties have provided for interest upon delay in payment.

Principles of the Existing EC Contract Law* Text of the Acquis Principles Chapter 1: Introductory Provisions Section 1: Scope Article 1:101: Scope and purpose of these Principles (1) The following principles and rules are formulated on the basis of the existing law of the European Community in the field of contract law. (2) These principles and rules serve as a source for the drafting, the transposition and the interpretation of European Community law. (3) They are not formulated to apply in the areas of labour law, company law, family law or inheritance law. Section 2: Consumer and business Article 1:201: Consumer Consumer means any natural person who is mainly acting for purposes which are outside this person’s business activity. Article 1:202: Business Business means any natural or legal person, irrespective of whether publicly or privately owned, who is acting for purposes relating to this person’s self-employed trade, work or profession, even if this person does not intend to make profit in the course of this activity.

*  Source: Research Group on the Existing EC Private Law (Acquis Group), Principles of the Existing EC Contract Law (Acquis Principles)—Contract II, Munich 2009, pp. 1-48; on the purposes and the underlying methods see the contributions of Hans Schulte-Nölke/Fryderyk Zoll (pp. xxiii-xxxv) and Gerhard Dannemann (pp. xxxvi-xlix) in this volume.

1048  Part III: Common Principles Article 1:203: Mandatory nature of consumer rules (1) Unless provided otherwise, contract terms which are prejudicial to the consumer and which deviate from rules applicable specifically to relations between businesses and consumers are not binding on the consumer. This does not apply to contracts which settle an existing dispute. (2) Paragraph (1) applies accordingly to unilateral promises. Section 3: Notice and form Article 1:301: Means of notice(1) Notice may be given by any means appropriate to the circumstances. Article 1:302: Effectiveness of notice(2) (1) The notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. (2) The notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee’s place of business, or, where there is no such place of business or the notice does not relate to a business matter, to the addressee’s habitual residence; (c) when it is otherwise made available to the addressee at such a place and in such away that the addressee could reasonably be expected to obtain access to it without undue delay. Article 1:303: Electronic notice A notice transmitted by electronic means reaches the addressee when it can be accessed by this person. This rule is mandatory in the sense of Article 1:203 ­(Mandatory nature of consumer rules) in relations between businesses and consumers. Article 1:304: Freedom of form Unless provided otherwise, no form needs to be observed in legal dealings. Article 1:305: Textual form ‘Textual form’ means a text which is expressed in alphabetical or other intelligible characters by means of any support that permits reading, recording of the information contained therein and its reproduction in tangible form. Article 1:306: Durable medium ‘Durable medium’ means any support which stores information so that it is accessible for future reference for a period of time adequate to the purposes of the information, and which allows the unchanged reproduction of this information.

Principles of the Existing EC Contract Law 1049 Article 1:307: In writing A statement is ‘in writing’ if it is in textual form and in characters which are directly legible from paper or another durable medium on which the statement is stored. Article 1:308: Signatures (1) ‘Hand written signature’ means the name of, or sign representing, a person written by that person’s own hand for the purpose of authentication; (2) ‘Electronic signature’ means data in electronic form which are attached to or logically associated with other electronic data, and which serve as a method of authentication; (3) ‘Electronic’ means relating to technology with electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities; (4) ‘Advanced electronic signature’ means an electronic signature which meets the following requirements: (a) it is uniquely linked to the signatory; (b) it is capable of identifying the signatory; (c) it is created using means which can be maintained under the signatory’s sole control; and (d) it is linked to the data to which it relates in such a manner that any subsequent change of the data is detectable. Chapter 2: Pre-contractual Duties General Provisions Section 1: General duties Article 2:101: Good faith In pre-contractual dealings, parties must act in accordance with good faith. Article 2:102: Legitimate expectations In pre-contractual dealings, a business must act with the special skill and care that may reasonably be expected to be used with regard, in particular, to the legitimate expectations of consumers. Article 2:103: Negotiations contrary to good faith (1) A party is free to negotiate and is not liable for failing to reach an agreement. (2) However, a party who has conducted or discontinued negotiations contrary to good faith is liable for loss caused to the other party. (3) In particular, a party acts contrary to good faith if it enters into or continues negotiations with no real intention of reaching an agreement.

1050  Part III: Common Principles Section 2: Pre-contractual information duties Article 2:201: Duty to inform about goods or services Before the conclusion of a contract, a party has a duty to give to the other party such information concerning the goods or services to be provided as the other party can reasonably expect, taking into account the standards of quality and performance which would be normal under the circumstances. Article 2:202: Information duties in marketing towards consumers (1) Where a business is marketing goods or services to a consumer, the business must, with due regard to the limitations of the communication medium employed, provide such material information as the average consumer can reasonably expect in the given context for a decision on any steps to take towards concluding a contract for those goods or services. (2) Where a business uses a commercial communication which gives the impression to consumers that it contains all the relevant information necessary to make a decision about concluding a contract, it must in fact contain all the relevant information. All the relevant information must be provided in the same language. Where it is not already apparent from the context of the commercial communication, the information to be provided comprises: (a) the main characteristics of the goods or services, the identity and address, if relevant, of the business, the price, and any available right of withdrawal; (b) peculiarities related to payment, delivery, performance and complaint handling, if they depart from the requirements of professional diligence; (c) the language used for communications between parties after the conclusion of the contract, if this differs from the language of the commercial communication. Article 2:203: Information duties towards disadvantaged consumers (1) In the case of transactions that place the consumer at a significant informational disadvantage because of the technical medium used for contracting, the physical distance between business and consumer, or the nature of the transaction, the business must, as appropriate in the circumstances, provide clear information about the main characteristics of the goods or services, the price including delivery charges, taxes and other costs, the address and identity of the business with whom the consumer is transacting, the terms of the contract, the rights and obligations of both contracting parties, and any available redress procedures. This information must be provided at the latest at the time of conclusion of the contract. (2) Where more specific information duties are provided for specific situations, these take precedence over general information duties under paragraph (1).

Principles of the Existing EC Contract Law 1051 Article 2:204: Clarity and form of information (1) A duty to provide information imposed on a business is not fulfilled unless the information is clear and precise, and expressed in plain and intelligible language. (2) In the case of contracts between a business and a consumer concluded at a distance, information about the main characteristics of the goods or services, the price, the address and identity of the business with whom the consumer is transacting, the terms of the contract, the rights and obligations of both contracting parties, and any available redress procedures, as may be appropriate in the particular case, needs to be confirmed in writing at the time of conclusion of the contract. (3) Where more specific formal requirements for the provision of information are provided for specific situations, these take precedence over general requirements under paragraphs (1) and (2). Unless stated otherwise, writing may be replaced by another textual form on a durable medium, provided this is reasonably accessible to the recipient. (4) Failure to observe a particular form will have the same consequences as breach of information duties. Article 2:205: Information about address and identity (1) For the purposes of this chapter, the address and identity of the business include: (a) the name of the business; (b) any trading names relevant to the contract in question; (c) the registration number in any official register, and name of that register; (d) its geographical address; (e) contact details; (f) where the business has a representative in the consumer’s country of residence and this is a Member state, the address and identity of that representative; (g) where the activity of the business is subject to an authorisation scheme, the particulars of the relevant supervisory authority; and (h) where the business exercises an activity which is subject to VAT, the relevant identification number. (2) For the purpose of Article 2:202 (Information duties in marketing towards consumers) paragraph 2, the address and identity of the business include only the information indicated in paragraph (1) subparagraphs (a), (c), (d) and (e). Article 2:206: Information about price (1) For the purposes of this chapter, the ‘price’ includes: (a) the remuneration for the goods or services; (b) any deposits payable; (c) any additional taxes and duties where these may be indicated separately; and

1052  Part III: Common Principles (d) any additional charges, including those made for (i) delivery; or (ii) the use of distance communication where this exceeds the basic rate. (2) When an exact price cannot be indicated, the consumer must be given such information on the basis for the calculation which enables the consumer to verify the price. (3) Where the price is not payable in one sum, the consumer must be informed of the payment schedule. Article 2:207: Burden of proof The business bears the burden of proof that it has provided information as required by Article 2:203 (Information duties towards disadvantaged consumers) and by the Specific Provisions of this Chapter. Article 2:208: Remedies for breach of information duties (1) If a business is required under Articles 2:203 (Information duties towards disadvantaged consumers) and 2:204 (Clarity and form of information) above to provide information to a consumer before the conclusion of a contract from which the consumer has the right to withdraw, the withdrawal period commences when all this information has been provided. However, this rule does not postpone the end of the withdrawal period beyond one year counted from the time of the conclusion of the contract. (2) If a party has failed to comply with its duties under Articles 2:201 (Duty to inform about goods or services) to 2:204 (Clarity and form of information), and a contract has been concluded, this contract contains the obligations which the other party could reasonably expect as a consequence of the absence or incorrectness of the information. (3) Whether or not a contract is concluded, a business which has failed to comply with any duty imposed by the preceding Articles of this section is liable to the other party for reliance damages. The rules on damages for non-­performance of a contractual obligation apply accordingly.

Principles of the Existing EC Contract Law 1053 Specific Provisions Part A: Contracts Negotiated Away from Business Premises Article 2:A-01: Specific pre-contractual information duties for distance selling of financial servicesPlaceholder Part B: Contracts for the Delivery of Goods Article 2:B-01: Pre-contractual information on consumer guaranteesPlaceholder Part C: Timeshare Contracts Article 2:C-01: Specific pre-contractual Information duties for timeshare contractsPlaceholder Part D: Service Contracts Article 2:D-01: Specific pre-contractual Information duties for service contractsPlaceholder Part E: Package Travel Contracts Article 2:E-01: Specific pre-contractual duties for package travel contracts (1) In the case of a package travel contract, as defined in Article 7:E-02 (Definition of package travel contract) paragraph (1), a business is presumed to have complied with the information duties imposed by Articles 2:202 (Information duties in marketing towards consumers) and 2:203 (Information duties towards disadvantaged consumers) if it makes a brochure available to the customer with the information specified in paragraph (2). (2) Where the business makes available a brochure to a customer, this brochure must specify: (a) the main characteristics of the goods or services: (i) the destination(s) and the means, characteristics and categories of transport used; (ii) the type of accommodation, its location, category or degree of comfort and its main features; its approval and tourist classification; (iii) the meal plan; (iv) the itinerary; and (v) whether the package is offered only if a minimum number of bookings is reached, and the deadline for informing the consumer in the event of termination; (b) the address and identity of the organiser; (c) the price and (d) other relevant information about: (i) passport and visa requirements; and (ii) health formalities required for the journey and stay. (3) At a reasonable time before conclusion of the package travel contract, the customer must be given information about:

1054  Part III: Common Principles (a) passport and visa requirements; and (b) health formalities required for the journey and stay. (4) The contract must specify at least: (a) the main characteristics of the goods or services, including: (i) the destination(s), including the dates of the periods of stay where multiple stays are involved; (ii) the means, characteristics and categories of transport used; (iii) dates, times and points of departure and return; (iv) the itinerary (times and places of any intermediate stops and transport connections); (v) visits, excursions or other services which are included in the total price agreed for the package; and (vi) the type of accommodation, its location, category or degree of comfort and its main features; its approval and tourist classification; (b) the price, including any possibility of price revision as provided in Article 7:E-03; (c) the address and identity of the organiser and, where applicable, the retailer; (d) the terms of the contract, including any agreed special requirements of the customer; (e) the rights and obligations of both contracting parties, including (i) whether a minimum number of persons is required for the package to take place and, if so, the deadline for informing the customer in the event of termination; and (ii) the duty to communicate any failure in the performance which the traveller perceives on the spot to the supplier of the services concerned and to the business in writing or any other appropriate form at the earliest opportunity; and (f) any available redress procedures, including periods during which the customer must make any complaint concerning the performance of the contract. Part F: Consumer Credit Contracts Article 2:F-01: Specific pre-contractual Information duties for consumer credit contractsPlaceholder Part G: Payment Services Article 2:G-01: Specific pre-contractual information duties for single payment transactionsRules only (1) In the case of single payment transactions as defined in Article 7:G-02 (Definitions) subparagraph (c), a business which provides the following items of information is presumed to have complied with the information duties imposed by Articles 2:201 (Duty to inform about goods or services) to 2:203 (Information duties towards disadvantaged consumers):

Principles of the Existing EC Contract Law 1055 (a) a specification of the unique identifier or other information which the service user must provide in order for a payment order to be properly executed; (b) the time within which the payment service is to be provided; (c) the price, including a breakdown of any separate charges; (d) where applicable, the actual or reference exchange rate to be applied to the payment transaction. (2) Unless agreed otherwise by the parties, the information to be provided under paragraph (1) must be given in a language which is an official language at the place where the payment service is offered. (3) On request of the payment service user, the payment service provider must provide the information in textual form on a durable medium. Article 2:G-02: Specific pre-contractual information duties in framework contracts for payment transactionsRules only (1) In the case of a framework contract for payment transactions, as defined in Article 7:G-02 (Definitions), a business which provides the following items of information is presumed to have complied with the information duties imposed by Articles 2:201 (Duty to inform about goods or services) to 2:203 (Information duties towards disadvantaged consumers): (a) the main characteristics of the payment service, including (i) a specification of the unique identifier or other information which the service user must provide in order for a payment order to be properly executed; (ii) the form of and procedure for authorising a payment transaction and revoking authorisation in accordance with Articles 7:G-06 (Authorisation of payment transactions) and 7:G-09 (Irrevocability of a payment order); (iii) a reference to the time of receipt of a payment order as defined in Article 7:G-10 (Receipt of a payment order) and the cut-off time, if any, established by the payment service provider; (iv) the maximum execution time for the payment services to be provided; and (v) any spending limits which the service provider requires or is willing to accept for the use of the payment instrument in accordance with Article 7:G-06 (Authorisation of payment transactions); (b) the price, including, if agreed, the immediate application of changes in reference interest exchange rate and information requirements related to the changes in accordance with Article 7:G-04 (Changes to the framework contract); (c) where applicable, the reference exchange rate to be applied to payment transactions; (d) address and identity of the business; (e) the terms of the contract, including

1056  Part III: Common Principles (i)

where applicable, the means of communication, including the technical requirements for the service user’s equipment, agreed between the parties for the transmission of information or notifications; (ii) the manner in and frequency with which information under Article 7:G-21 (Information due to payee on individual payment transactions within framework contract) is to be provided; (iii) the language or languages in which the framework contract will be concluded and communication during this contractual relationship undertaken; and (iv) the service user’s right to receive a copy of the framework contract and information and conditions in accordance with Article 7:G03 (Copy of framework contract); (v) if agreed, information that the service user will be bound by changes in the conditions in accordance with Article 7:G-04 (Changes to the framework contract), and how the service user can avoid this binding effect; (vi) the duration of the contract; and (vii) the right of the service user to terminate the framework contract and any agreements relating to termination in accordance with Article 7:G-05 (Termination); (f) the rights and obligations of both contracting parties: (i) where applicable, a description of steps which the service user must take in order to keep safe a payment instrument and how to notify the service provider of any loss, theft or misappropriation of the payment instrument or of its unauthorised use in accordance with Article 7:G-08 (Notification of loss, theft or misappropriation of the payment instrument or of its unauthorised use); (ii) if agreed, the conditions under which the service provider reserves the right to block a payment instrument in accordance with Article 7:G-07 (Service provider’s right to block the payment instrument); (iii) the liability of the payer in accordance with Article 8:G-05 (Payer’s liability for unauthorised payment transactions), including information on the relevant amount; (iv) how and within which time the service user may claim rectification by notifying the payment service provider of any unauthorised or incorrectly executed payment transaction in accordance with ­Article 8:G-02 (Rectification), as well as the service ­provider’s liability for unauthorised payment transactions in accordance with Article 8:G-04 (Payment service provider’s liability for unauthorised payment transactions); (v) the liability of the service provider for the execution of payment transactions in accordance with Articles 8:G-08 (Liability for non-performance of a payment order) and 8:G-09 (Liability for transmission of the payment order); and

Principles of the Existing EC Contract Law 1057 (vi) the conditions for refund in accordance with Articles 8:G-04 (Payment service provider’s liability for unauthorised payment transactions), 8:G-06 (Refunds for payment transactions initiated by or through a payee) and 8:G-07 (Requests for refunds for payment transactions initiated by or through a payee); (g) any clause on jurisdiction or on the law applicable to the framework contract; and (h) the out-of-court complaint and redress procedures available to the payment service user in accordance with Article 8:G-07 (Requests for refunds for payment transactions initiated by or through a payee). (2) Unless agreed otherwise by the parties, the information to be provided under paragraph (1) must be given in a language which is an official language at the place where the payment service is offered. (3) The payment service provider must provide the information in textual form on a durable medium. Article 2:G-03: Specific pre-contractual information duties in payment contracts concluded by distance communication framework contracts for payment transactionsRules only (1) Where a single payment service contract or framework contract has been concluded using means of distance communication, a business which provides the following items of information is presumed to have complied with the information duties imposed by Articles 2:201 (Duty to inform about goods or services) to 2:203 (Information duties towards disadvantaged consumers): (a) the main characteristics of the services; (b) the price, including a breakdown of any additional charges in case of single payment service contracts; (c) the rights and obligations of both contracting parties, including the existence or absence of a right of withdrawal in accordance with Chapter 5; (d) the existence of guarantee funds or other compensation arrangements not covered by legislation on investor compensation schemes; and (e) on the basis of the laws of which country the business establishes precontractual relations with the consumer. (2) If a single payment service contract or framework contract has been concluded at the request of the service user using a means of distance communication which does not enable the service provider to comply with the requirements set out in this Article, the service provider must fulfil these duties immediately after the conclusion of the contract.

1058  Part III: Common Principles Chapter 3: Non-Discrimination Section 1: General Rules/Definitions Article 3:101: Principle of non-discrimination in contract law Any discrimination based on sex, racial or ethnic origin is prohibited. Article 3:102: Discrimination (1) “Discrimination” means: (a) a situation where one person is treated less favourably than another person is, has been or would be treated in a comparable situation; (b) a situation where an apparently neutral provision, criterion or practice would place persons with a particular feature at a particular disadvantage when compared with other persons; (2) Discrimination also includes (a) unwanted conduct which violates the dignity of a person and which creates an intimidating, hostile, degrading, humiliating or offensive environment, or which aims to do so (harassment); or (b) any form of unwanted physical, verbal, non-verbal, or psychical conduct of a sexual nature that violates the dignity of a person, or which aims to do so, in particular when such conduct creates an intimidating, hostile, degrading, humiliating or offensive environment (sexual harassment). (3) Any instruction to discriminate also amounts to discrimination. Article 3:103: Exception Unequal treatment which is justified by a legitimate aim does not amount to discrimination if the means used to achieve that aim are appropriate and necessary. Section 2: Remedies Article 3:201: Remedies (1) A person who is discriminated against on the grounds of sex, ethnic or racial origin in relation to contracts that provide access to, or supply goods or services which are available to the public, including housing, is entitled to compensation. (2) Where appropriate, the discriminated person is entitled to other remedies which are suitable to undo the consequences of the discriminating act, or to prevent further discrimination.

Principles of the Existing EC Contract Law 1059 Article 3:202: Content of the remedies (1) Compensation under Article 3:201 (Remedies) paragraph (1) may include damages for pecuniary and non-pecuniary losses. (2) The amount of any damages for non-pecuniary losses, and remedies granted under Article 3:201 (Remedies) paragraph (2), must be proportionate to the injury; the deterrent effect of remedies may be taken into account. Article 3:203: Burden of proof (1) If a person who considers himself or herself discriminated against on one of the grounds mentioned in Article 3:201 (Remedies) paragraph (1) establishes, before a court or another competent authority, facts from which it may be presumed that there has been such discrimination, it falls on the other party to prove that there has been no breach of the principle of non-discrimination. (2) Paragraph (1) does not apply to proceedings in which it is for the court or another competent authority to investigate the facts of the case. Chapter 4: Formation General Provisions Article 4:101: Agreement between the parties A contract is concluded if the parties intend to be legally bound, and they reach a sufficient agreement. Article 4:102: Conclusion of contract (1) A contract can be concluded by the acceptance of an offer in accordance with the following provisions. (2) The rules in this chapter apply accordingly when the process of conclusion of a contract cannot be analysed into offer and acceptance. Article 4:103: Offer; public statements(3) (1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it, and (b) it contains sufficiently definite terms to form a contract. (2) An offer may be made to one or more specific persons or to the public. (3) A proposal to supply goods or services at stated prices made by a business in a public advertisement or a catalogue, or by a display of goods, is treated, unless the circumstances indicate otherwise, as an offer to sell or supply at that price until the stock of goods, or the business’s capacity to supply the service, is exhausted.

1060  Part III: Common Principles Article 4:104: Information duties in real time communication (1) When initiating real time distance communication with a consumer, a business must provide at the outset explicit information on its name and the commercial purpose of the contact. (2) Real time distance communication includes telephone and electronic means such as voice over internet protocol and internet related chat. (3) The business bears the burden of proof that the consumer has received the information required under paragraph (1). (4) If a business has failed to comply with the duty under paragraph (1), the other party has the right to withdraw from the contract. The right of withdrawal must be exercised no later than one year after the conclusion of the contract, and not after the contract has been fully performed by both parties. The other party may also claim damages caused by the failure to comply. Article 4:105: Formation by electronic means (1) If a contract is to be concluded by electronic means, a business, before the other party makes or accepts an offer, must provide reference to any contract terms used, which must be available in textual form. This rule is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers. (2) A business which offers the facility to conclude contracts by electronic means and without individual communication must make available to the other party appropriate, effective and accessible technical means for identifying and correcting input errors before the other party makes or accepts an offer. This rule is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers. (3) If a contract is to be concluded by electronic means and without individual communication, a business must provide the following information before the other party makes or accepts an offer: (a) which technical steps must be followed in order to conclude the contract; (b) the languages offered for the conclusion of the contract (c) the technical means for identifying and correcting input errors; (d) whether or not the concluded contract will be filed by the business and whether it will be accessible. This paragraph is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers. (4) If a business has failed to comply with the duties under paragraphs (2) and (3), the other party has the right to withdraw from the contract. The right of withdrawal must be exercised no later than one year after the conclusion of the contract, and not after the contract has been fully performed by both parties. The other party may also claim damages caused by the failure to comply.

Principles of the Existing EC Contract Law 1061 Article 4:106: Unsolicited goods or services If a business delivers unsolicited goods or services to a consumer, no obligation arises from the consumer’s failure to respond. Article 4:107: Pre-contractual statements by a contract party (1) Any public statement which a business, prior to the conclusion of the contract, makes about the specific characteristics of the goods or services which it supplies is binding under the contract unless: (a) when the contract was concluded, the other party was aware, or should have reasonably been aware that the statement was incorrect, or (b) the other party’s decision to conclude the contract could not have been influenced by the statement, or (c) the statement had been corrected by the time of the conclusion of the contract. (2) Paragraph (1) is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers. Article 4:108: Pre-contractual statements by third parties (1) Article 4:107 (Pre-contractual statements by a contract party) also applies to public statements made by the producer, another person within the business chain between producer and ultimate customer, or any person advertising or marketing services or goods for the business, unless the business was not, and could not reasonably have been, aware of the statement. (2) Paragraph (1) is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers. Article 4:109: Binding force of unilateral promises(4) (1) A valid unilateral promise or undertaking is binding on the person giving it, if it is intended to be legally binding without acceptance. (2) If a unilateral promise is binding, provisions of contract law which protect one particular party apply in its favour. Article 4:110: Acknowledgment of receipt (1) A business which offers the facility to conclude a contract by electronic means and without individual communication must acknowledge by electronic means the receipt of an offer or an acceptance by the other party. Article 1:303 (Electronic notice) applies. (2) If the other party does not receive such an acknowledgment or an acceptance without undue delay, that other party may withdraw its offer or acceptance and may also claim damages. (3) Paragraphs (1) and (2) are mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules) in relations between businesses and consumers.

1062  Part III: Common Principles Specific Provisions Part C: Timeshare Contracts Article 4:C-01: Timeshare contracts (1) Timeshare contracts with consumers must be made in writing and must include all information required under Article 2:C-01 (Specific pre-contractual­ ­Information duties for timeshare contracts). The consumer must be given a copy of the contract. (2) They must be formulated at least in an official language of the European Union which is either an official language at the place of residence of the consumer, or of the state of which the consumer is a national, at the consumer’s choice. This rule applies only to consumers who are nationals or residents of a Member State. (3) The consumer is entitled to a certified translation of the contract into an official language of the European Union which is the official language or one of the official languages of the Member State in which the immovable property is situated. (4) Articles 2:204 (Clarity and form of information) paragraph (4) and 2:207 (Burden of proof) apply. Part E: Package Travel Contracts Article 4:E-01: Package travel contracts (1) Package travel contracts must be made in writing and include all information required under Article 2:E-01 (Specific pre-contractual duties for package travel contracts) paragraph (4). Writing may be replaced by another textual form on a durable medium, provided this is reasonably accessible to the customer. The customer must be given a copy of the contract. (2) Articles 2:204 (Clarity and form of information) paragraph (4) and 2:207 (Burden of proof) apply. Part F: Consumer Credit Contracts Article 4:F-01: Consumer credit contractsPlaceholder Chapter 5: Withdrawal General Provisions Article 5:101: Mandatory nature Where a party has a statutory right of withdrawal from a contract, the provisions in this section apply as mandatory rules.

Principles of the Existing EC Contract Law 1063 Article 5:102: Exercise of a right of withdrawal A right of withdrawal is exercised by notice to the other party. No reasons need to be given. Returning the subject matter of the contract is considered a notice of ­withdrawal unless the circumstances indicate otherwise. Article 5:103: Withdrawal period (1) Unless provided otherwise, the right of withdrawal must be exercised within fourteen days after both the contract has been concluded and notice of the right pursuant to Article 5:104 (Information on the right of withdrawal) has been given, and no later than one year after the conclusion of the contract. If the subject matter of the contract is the delivery of goods, the period lapses not earlier than fourteen days after the goods have been received. (2) The notice of withdrawal is timely if dispatched within this period. Article 5:104: Information on the right of withdrawal The entitled party must receive adequate information of the right of withdrawal from the other party. Such information must be brought appropriately to the e­ ntitled party’s attention, and provide in textual form on a durable medium and in plain and intelligible language information about the right of withdrawal, the withdrawal period, and the name and address of the person to whom the withdrawal must be communicated. Article 5:105: Effects of withdrawal (1) Withdrawal from a contract terminates the obligations to perform the contract. Each party has to return at its own expense to the other what it received under the contract, unless the contract provides otherwise in favour of the entitled party. The withdrawing party is not liable to pay any other costs and does not incur any other liability through the exercise of its rights of withdrawal. The other party must return any payment received from the party that has withdrawn free of charge and as soon as possible, and in any case not later than thirty days after the withdrawal becomes effective. (2) The party withdrawing from the contract is not liable for damage to the received goods, provided that it exercised reasonable care. The same party is not liable for diminished value of the received goods caused by inspecting and testing. It is liable for the diminished value that results from their normal use, unless the party had not received adequate information of its right of withdrawal. Article 5:106: Linked contracts (1) If a consumer exercises a right of withdrawal from a contract for the supply of goods or services by a business, the effects of withdrawal extend to any linked contract. (2) Contracts are linked if they objectively form an economic unit.

1064  Part III: Common Principles (3) If a contract is partially or exclusively financed by a credit contract, they form an economic unit in particular: (a) if the business supplying goods or services finances the consumer’s ­performance or (b) if the supplier of credit uses the supplier of goods or services for the formation of the credit contract or (c) if the credit contract refers to specific goods or services to be financed with this credit, and if this link between both contracts was suggested by the supplier of goods or services, or by the supplier of credit, unless other circumstances indicate that these two contracts do not form an economic unit. (4) Article 5:105 (Effects of withdrawal) applies accordingly to the linked contract. (5) Paragraph (1) does not extend the effect of withdrawal from a credit contract to a contract for goods or services whose price depends on fluctuations in the financial market outside the control of the business, and which may occur during the withdrawal period. Specific Provisions Part A: Contracts Negotiated Away from Business Premises Article 5:A-01: Right to withdraw from contracts negotiated away from business premises (1) A consumer has the right to withdraw from the contract under which a ­business supplies goods or services, including financial services, if the consumer’s offer or acceptance was expressed away from the business premises. (2) Unless the business has exclusively used means of distance communication for concluding the contract, paragraph (1) applies only to contracts under which a consumer has to pay at least a statutory minimum amount. (3) Paragraph (1) does not apply to (a) contracts concluded by means of automatic vending machines or automated commercial premises, (b) contracts concluded with telecommunications operators through the use of public payphones, (c) contracts concluded for the construction and sale of immovable property or relating to other immovable property rights, excluding tenancy contracts, (d) contracts for foods, beverages or other goods intended for everyday consumption supplied by regular roundsmen to the home, residence or workplace of the consumer, (e) contracts concluded by means of distance communication, but outside of an organized distance sales or service-provision scheme run by the business, (f) contracts for goods or services whose price depends on fluctuations in the financial market which may occur during the withdrawal period and which are outside the control of the business,

Principles of the Existing EC Contract Law 1065 (g) contracts concluded at an auction, (h) travel and baggage or similar short-term insurance policies of less than one month’s duration. (4) If the business has exclusively used means of distance communication for concluding the contract, paragraph (1) does also not apply to contracts (a) for accommodation, transport, catering or leisure services, where the business undertakes at the time of conclusion of the contract to supply these services on a specific date or within a specific period, (b) for the supply of services other than financial services if performance has begun, at the consumer’s express and informed request, before the end of the withdrawal period referred to in Article 5:103 (Withdrawal period) paragraph (1), (c) for goods made to the consumer’s specifications or which are clearly personalised or which, by reason of their nature, cannot be returned or are liable to deteriorate or expire rapidly, (d) for audio or video recordings or computer software (i) which were unsealed by the consumer, or (ii) which can be downloaded or reproduced for permanent use, in case of supply by electronic means. (e) for newspapers, periodicals and magazines, (f) for gaming and lottery services. (5) With regard to financial services, paragraph (1) does also not apply to ­contracts that have been fully performed by both parties, at the consumer’s express and informed request, before the consumer purports to exercise a right of withdrawal. Article 5:A-02: Effects of withdrawal in case of supply of equivalent goods or services If a consumer exercises a right of withdrawal from a contract after a business has made use of a contractual right to supply goods or services of equivalent quality and price (Article 7:A-01 (Goods or services of equivalent quality)), Article 5:105 (Effects of withdrawal) applies with the modification that the business must bear the cost of returning what the consumer has received under the contract. Article 5:A-03: Effects of withdrawal from financial services contractsPlaceholder Part C: Timeshare Contracts Article 5:C-01: Right to withdraw from timeshare contracts (1) A consumer who acquires a right which allows him or her to use immovable property under a timeshare contract with a business has the right to withdraw from this contract. (2) The business must not demand or accept any advance payment by the consumer during the period in which the latter may exercise the right of withdrawal.

1066  Part III: Common Principles Article 5:C-02: Effects of withdrawal from timeshare contracts Where a consumer exercises the right of withdrawal under Article 5:C-01 (Right to withdraw from timeshare contracts), Article 5:105 (Effects of withdrawal) applies with the modification that the contract may require the consumer to reimburse those expenses which: (a) have been incurred as a result of the conclusion of and withdrawal from the contract, and (b) correspond to legal formalities which must be completed before the end of the period referred to in Article 5:103 (Withdrawal period) paragraph (1), and (c) are reasonable and appropriate, and (d) are expressly mentioned in the contract, and (e) are in conformity with any applicable rules on such expenses. The consumer is not obliged to reimburse any expenses when exercising the right of withdrawal under Article 2:208 (Remedies for breach of information duties) ­paragraph (1). Chapter 6: Non-Negotiated Terms Section 1: Scope of application Article 6:101: Subject matter (1) The following provisions apply to contract terms which have not been individually negotiated, including standard terms. (2) A term supplied by one party (the user) is not individually negotiated if the other party has not been able to influence its content because it has been drafted in advance, in particular as part of a pre-formulated standard contract. In contracts between a business and a consumer, if terms have been drafted by a third person, the business is considered to be the user, unless the consumer introduced those terms to the contract. (3) A “standard term” is a term which has been formulated in advance for several transactions involving different parties and which has not been individually negotiated by the parties. (4) If it is disputed whether a term supplied as part of standard terms has been individually negotiated, the user bears the burden of proving that it has been individually negotiated. Section 2: Inclusion and interpretation of terms Article 6:201: Acquaintance with terms not individually negotiated (1) Contract terms which have not been individually negotiated bind a party who was unaware of them only if the user took reasonable steps to

Principles of the Existing EC Contract Law 1067 draw the other party’s attention to them before or when the contract was concluded. (2) Terms are not brought appropriately to the other party’s attention by a mere reference to them in a contract document, even if that party signs the document. (3) If a contract is to be concluded by electronic means, contract terms are not binding on the other party unless the user makes them available to the other party in textual form. (4) Consumers are not bound to terms to which they had no real opportunity to become acquainted before the conclusion of the contract. Article 6:202: Preference to negotiated terms Terms which have been individually negotiated take preference over those which have not. Article 6:203: Interpretation of terms (1) Where the meaning of a term is unclear, that term is to be interpreted against the party who supplied it. (2) Paragraph (1) does not apply to collective proceedings for injunctions against the use of particular terms. Article 6:204: Conflicting standard terms(5) (1) If the parties have reached agreement except that the offer and acceptance refer to conflicting standard terms, a contract is nonetheless formed. The standard terms form part of the contract to the extent that they are common in substance. (2) However, no contract is formed if one party: (a) has indicated in advance, explicitly, and not by way of standard terms, an intention not to be bound by a contract on the basis of paragraph (1); or (b) without undue delay, informs the other party of such an intention. Section 3: Validity of terms Article 6:301: Unfairness of terms (1) A contract term which has not been individually negotiated is considered unfair if it disadvantages the other party, contrary to the requirement of good faith, by creating a significant imbalance in the rights and obligations of the parties under the contract. Without prejudice to provisions on collective proceedings, when assessing the unfairness of a contractual term, regard is to be given to the nature of the goods or services to be provided under the contract, to all circumstances prevailing during the conclusion of the contract, to all

1068  Part III: Common Principles other terms of the contract, and to all terms of any other contract on which the contract depends. (2) A term in a contract between businesses which has not been individually negotiated is considered unfair only if using that term would grossly deviate from good commercial practice. Article 6:302: Transparency of terms Not individually negotiated terms must be drafted and communicated in plain, ­intelligible language. Article 6:303: Scope of the unfairness test (1) Contract terms which are based on statutory provisions or on international conventions to which the Member States are parties, or to which the ­European Union is a party, particularly in the transport area, are not subject to an unfairness test. (2) For contract terms which are drafted in plain and intelligible language, the unfairness test extends neither to the definition of the main subject matter of the contract, nor to the adequacy of the price to be paid. Article 6:304: List of unfair terms The following is a non-exhaustive list of terms which are unfair in contracts between a business and a consumer if they have not been individually negotiated: —— terms conferring exclusive jurisdiction for all disputes arising under the ­contract on the court for the place where the business is domiciled. Article 6:305: Indicative list of unfair terms (1) The following is an indicative and non-exhaustive list of terms which may be regarded as unfair in contracts between a business and a consumer if they have not been individually negotiated. This list comprises terms which would: (a) exclude or limit the liability of a business for death or personal injury caused to a consumer through an act or omission of that business; (b) inappropriately exclude or limit the remedies, including any right to setoff, available to the consumer against the business or a third party for non-performance by the business; (c) make a contract binding on a consumer which is subject to a condition whose realization depends solely on the intention of the business; (d) permit a business to keep money paid by a consumer if the latter decides not to conclude or perform the contract, without providing for the ­consumer to receive compensation of an equivalent amount from the business in the reverse situation; (e) require a consumer who fails to fulfil his or her obligations to pay a disproportionately high amount of damages;

Principles of the Existing EC Contract Law 1069 (f)

entitle a business to withdraw from, or terminate the contract on a discretionary basis without giving the same right to the consumer, or terms which entitle a business to keep money paid for services not yet supplied in the case that the business withdraws from, or terminates the contract; (g) enable a business to terminate a contract of indeterminate duration without reasonable notice, except where there are serious grounds for doing so; this does not affect terms in financial services contracts where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties there of immediately; (h) automatically extend a contract of fixed duration unless the consumer indicates otherwise, in cases where such terms provide for an unreasonably early deadline; (i) enable a business to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; this does not affect terms under which a supplier of financial services reserves the right to change without notice the rate of interest to be paid by, or to, the consumer, or the amount of other charges for financial services where there is a valid reason, provided that the supplier is required to inform the consumer at the earliest opportunity and that the consumer is free to terminate the contract with immediate effect; neither does it affect terms under which a business reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that the business is required to inform the consumer with reasonable notice, and that the consumer is free to terminate the contract; (j) enable a business to alter unilaterally without a valid reason any characteristics of the goods or services to be provided; (k) provide that the price of goods is to be determined at the time of delivery, or which allow a business to increase the price without giving the consumer the right to withdraw from the contract if the increased price is too high in relation to the price agreed at the conclusion of the contract; this does not affect price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described; (l) give a business the right to determine whether the goods or services supplied are in conformity with the contract, or which give the business the exclusive right to interpret any term of the contract; (m) limit the obligation of a business to respect commitments undertaken by its agents, or which make its commitments subject to compliance with a particular formality; (n) oblige a consumer to fulfil all his or her obligations where the business fails to fulfil its own; (o) allow a business to transfer its rights and obligations under the contract without the consumer’s consent, if this could reduce the guarantees available to the consumer; (p) exclude or impede a consumer’s right to take legal action or to exercise any other remedy, in particular by referring the consumer to arbitration proceedings which are not covered by legal provisions, by unduly

1070  Part III: Common Principles restricting the evidence available to the consumer, or by shifting a burden of proof on to the consumer. (2) Subparagraphs (g), (i) and (k) do not apply to: (a) transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate beyond the control of the business; (b) contracts for the sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency. Article 6:306: Effects of unfair terms (1) Unfair terms are not binding on a party who did not supply them. (2) If the contract can be maintained without the unfair terms, it remains otherwise binding on the parties. Chapter 7: Content and Performance of Obligations General Provisions Section 1: General duties Article 7:101: Duty to perform (1) The debtor must perform its obligations in accordance with good faith. (2) A business must perform its obligations with the special skill and care that may reasonably be expected to be used with regard, in particular, to the legitimate expectations of consumers. Article 7:102: Good faith in the exercise of rights The creditor must exercise its rights to performance and remedies for non-­ performance in accordance with good faith. Article 7:103: Duty of loyalty If an obligation by its nature requires the debtor to manage the creditor’s affairs, the debtor must give due regard to the creditor’s interests related to those affairs. Article 7:104: Duty to co-operate The debtor and the creditor must co-operate with each other to the extent that this can reasonably be expected for the performance of an obligation. Article 7:105: Language of communications Unless provided otherwise, parties can expect to communicate with each other in the language used for conclusion of the contract.

Principles of the Existing EC Contract Law 1071 Section 2: Modalities of Performance Article 7:201: Time of performance(6) (1) If the contract does not fix the time of performance, the debtor must perform without undue delay. (2) Unless the parties have agreed otherwise, a business must execute the obligations incurred under contracts concluded at a distance no later than 30 days after the contract was concluded. (3) If a business must reimburse money received from a consumer, such reimbursement must be carried out as soon as possible and in any case no later than 30 days after the reimbursement obligation arose. (4) If the order of performance of reciprocal obligations cannot be otherwise determined from the terms regulating the obligations then, to the extent that the obligations can be performed simultaneously, the parties are bound to perform simultaneously unless the circumstances indicate otherwise. Article 7:202: Place of performance(7) (1) If the place of performance of an obligation cannot be otherwise determined from the terms regulating the obligation it is: (a) in the case of a monetary obligation, the creditor’s place of business; (b) in the case of any other obligation, the debtor’s place of business. (2) For the purposes of the preceding paragraph (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the obligation; and (b) if a party does not have a place of business, or the obligation does not relate to a business matter, the habitual residence is substituted. (3) If, in a case to which paragraph (1) applies, a party causes any increase in the expenses incidental to performance by a change in place of business or habitual residence subsequent to the time when the obligation was incurred, that party must bear the increase. Specific Provisions Part A: Contracts Negotiated Away from Business Premises Article 7:A-01: Goods or services of equivalent quality A contract term whereby the business may supply goods or services of equivalent quality and price is invalid if the consumer has not been informed, in accordance with Article 2:204 (Clarity and form of information), of this possibility and of the fact that the business must bear the expense of returning what the consumer has received under the contract if the consumer exercises a right of withdrawal under Article 5:A-01 (Right to withdraw from contracts negotiated away from business premises).

1072  Part III: Common Principles Part B: Contracts for the Delivery of Goods Article 7:B-01: Conformity of goods to the contract (1) When determining whether goods conform to the contract, regard is to be given in particular to whether the goods: (a) comply with the description given by the debtor and possess the qualities of the goods which the debtor has held out to the other party as a sample or model; (b) are fit for any particular purpose for which the creditor requires them, which the creditor made known to the debtor at the time of conclusion of the contract and which the debtor has accepted; and (c) are fit for the purposes for which goods of the same type are normally used. (2) Where the goods are to be installed by the debtor, the goods conform to the contract only if they are installed correctly. (3) Where the installation of goods is left to the creditor, the goods conform to the contract only if the installation instructions are sufficient. Article 7:B-02: Mandatory nature for consumer contracts In a contract under which a business sells goods, including goods to be manufactured or produced, to a consumer, Articles 7:101 (Duty to perform) and 7:B-01 (Conformity of goods to the contract) are mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules). Part E: Package Travel Contracts Article 7:E-01: Mandatory nature Contract terms which are prejudicial to the customer and which deviate from the provisions of this Part are not binding on the customer. Article 7:E-02: Definition of package travel contract (1) “Package travel contract” means a contract under which a business is to provide a pre-arranged combination of travel services such as transport or accommodation or other related services. (2) A contract term according to which the business acts only as an intermediary for contracts concluded between the customer and other suppliers is not binding on the customer if the customer can reasonably expect, having regard to the circumstances of the conclusion of the contract, that the business itself is obliged to provide the travel services. Article 7:E-03: Revision of price (1) Revision of price in a package travel contract requires an express contractual term which must also state precisely how the revised price is to be calculated. The reasons for revision must be limited to variations in: (a) transportation costs, including the cost of fuel;

Principles of the Existing EC Contract Law 1073 (b) dues, taxes or fees chargeable for certain services, such as landing taxes or embarkation or disembarkation fees at ports and airports; or (c) the exchange rates applied to this package. (2) The price may be increased only until the twenty-first day before departure. (3) The customer may (a) terminate the contract; or (b) accept the revised price. (4) If the customer does not notify the business of its decision without undue delay, an appropriate price revision is considered as accepted. Article 7:E-04: Duty to notify of proposed modifications (1) If, before departure, it becomes impossible or excessively burdensome for the business to perform the contract without significant modifications, the business must immediately notify this to the customer, indicating proposed modifications. (2) The customer may (a) terminate the contract and claim damages for non-performance under Chapter 8; or (b) accept the proposed modifications. (3) If the customer does not notify the business of its decision without undue delay, proposed appropriate modifications are considered as accepted. Article 7:E-05: Business’s right of termination (1) The business may terminate the package travel contract without incurring liability if the number of persons enrolled is less than the required minimum number set out in the contract in accordance with Article 2:E-01 (Specific pre-contractual duties for package travel contracts) paragraph (4)(e). The notice of termination must be made in writing and communicated to the customer within the period specified in the contract. Writing may be replaced by another textual form on a durable medium, provided this is reasonably accessible to the customer. (2) Article 8:303 (Effects of termination) applies accordingly. Article 7:E-06: Information before departure Before departure, the business must inform the customer about: (a) times and places of intermediate stops and transport connections and travel accommodation details, e.g., cabin or berth on ship, or sleeper compartment on train; (b) the address and identity of the organiser and of the organiser’s and/or retailer’s local representative; or the address of local agencies on whose assistance a traveller in difficulty could call; (c) where the representatives or local agencies referred to in (b) above do not exist, the customer must be provided with an emergency telephone number or other contact information that enables the traveller to contact the business;

1074  Part III: Common Principles (d) if minors are travelling on their own, the address or contact details to reach them or the person responsible for them; and (e) the optional conclusion of a travel insurance policy. Part G: Payment ServicesRules only Article 7:G-01: Mandatory nature of the provisions of this Part(8) The provisions of this sub-section are mandatory. Article 7:G-02: Definitions For the purposes of this Part, the following definitions apply: (a) “payment order” means any instruction by a payer or payee to its payment service provider requesting the execution of a payment transaction; (b) “payment transaction” means an act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee; (c) “single payment transaction” means a payment transaction not covered by a framework contract; (d) “individual payment transaction” means a payment transaction covered by a framework contract; (e) “framework contract” means a payment service contract which governs the future execution of individual and successive payment transactions and which may contain the obligation and conditions for setting up a payment account. (f) “payer” means a person who holds a payment account and allows a payment order from that payment account, or, where there is no payment account, a person who gives a payment order; (g) “payee” means a person who is the intended recipient of funds which have been the subject of a payment transaction; (h) “payment service user” means a person making use of a payment service in the capacity of either payer or payee, or both; (i) “payment service provider” means credit institutions, electronic money institutions, post office giro institutions or other persons that are entitled under EC law or national law to provide payment services. (j) “payment instrument” means any personalised devices such as banking cards or set of procedures, e. g. for online banking, agreed between the payment service user and the payment service provider and used by the payment service user in order to initiate a payment order; (k) “value date” means a reference time used by a payment service provider for the calculation of interest on the funds debited or credited to a payment account. Article 7:G-03: Copy of framework contract The payment service user is entitled to receive on request a copy of the framework contract in textual form on a durable medium.

Principles of the Existing EC Contract Law 1075 Article 7:G-04: Changes to the framework contract (1) A term in the framework contract whereby the payment service provider may change particular terms of the framework contract is effective only if it allows the payment service user to object to such changes by notice to the payment provider before the date of their proposed entry into force. (2) Changes proposed by the payment service provider under paragraph (1) become effective only if (a) the payment service user does not object as specified in paragraph (1), and; (b) the changes are proposed to the payment service user in textual form on a durable medium and no later than two months before their proposed date of application, together with the information that (i) the changes become effective unless the payment service user objects in accordance with paragraph (1); (ii) the payment service user may terminate the framework contract before the date of the proposed application of the changes without notice and free of any charge. (3) A term in the framework contract where by the payment service provider may change the interest or exchange rates to the disadvantage of the payment service user immediately and without notice is effective only if such changes are to be based on a reference interest or exchange rate specified in the framework contract. (4) Changes made under paragraph (3) are effective only if they are implemented and calculated consistently for all payment service users who have the same type of framework contract with the payment service provider. (5) The payment service provider must inform the payment service user of any change made under paragraph (3) in textual form on a durable medium and at the earliest opportunity, unless the parties have agreed on a specific ­frequency or manner in which the payment service user is to be informed. Article 7:G-05: Termination (1) The payment service user may terminate the framework contract at any time, unless the parties have agreed on a period of notice not exceeding one month. (2) If a framework contract concluded for a fixed period exceeding 12 months or for an indefinite period is terminated by the payment service user after the expiry of 12 months, the payment service user is not required to bear any charges. In all other cases, any charges for the termination must be appropriate and may not exceed the costs typically associated with such a termination. (3) If the framework contract allows the payment service provider to terminate a framework contract concluded for an indefinite period, notice must be given at least two months in advance in textual form on a durable medium. Articles 7:G-25 (language of information) and 2:204 (Clarity and form of information) apply accordingly.

1076  Part III: Common Principles (4) If the payment service provider proposes changes to the framework contract, the payment service user is entitled to terminate the framework contract immediately and without charge. (5) Charges for payment services levied on a regular basis are payable by the payment service user proportionally up to the time when termination becomes effective. Article 8:303 (Effects of termination) paragraph (2), sentence 2 applies to charges made in advance. Article 7:G-06: Authorisation of payment transactions (1) A payment transaction may be executed only if the payer has authorised the transaction in advance. The payer and its service provider can also agree that authorisation may be given after the execution of the transaction. (2) Unless agreed otherwise for an individual payment transaction, the framework contract between a payer and its service provider regulates the requirements for giving authorisation, including those relating to form and to the potential limits of the transactions if a specific payment instrument is used for the purposes of giving authorisation to execute a payment transaction. (3) Failure to observe the agreed form renders the authorisation ineffective. Article 7:G-07: Service provider’s right to block the payment instrument (1) The framework contract may give the service provider the right to block the payment instrument only for objectively justified reasons related to the security of the payment instrument, the suspicion of its unauthorised or fraudulent use or, in the case of a payment instrument with a credit line, a significantly increased risk that the payer may be unable to fulfil its liability to pay. (2) The service provider must inform the payer of any blocking of a payment instrument and of the reasons for doing so. Information must be provided before the block is applied or, if this is not possible, immediately afterwards, unless this information would compromise the security reasons which justify the block, or such information is prohibited by statute. (3) The service provider must unblock the payment instrument or replace it with a new instrument once the reasons for blocking it no longer exist. Article 7:G-08: Notification of loss, theft or misappropriation of the payment instrument or of its unauthorised use (1) The service user must notify the service provider, or the entity specified by the latter, without undue delay on becoming aware of loss, theft or misappropriation of the payment instrument or of its unauthorised use. (2) A service provider who issues a payment instrument must make appropriate means available at all times which enable the service user to make a notification under paragraph (1) or request unblocking under Article 7:G-07 (Service provider’s right to block the payment instrument) paragraph (2). On request, the service provider must make appropriate means available to the service

Principles of the Existing EC Contract Law 1077 user to prove, for 18 months after notification, that the payer made such a notification. The service provider must prevent all use of the payment instrument once notification under paragraph (1) has been made. Article 7:G-09: Irrevocability of a payment order (1) The payer may revoke a payment order only before it has been received by the payer’s service provider. (2) Where the payment transaction is initiated by or through the payee, the payer may not revoke the payment order after transmission of the order providing authorisation to execute the payment transaction to the payee. (3) However, in the case of a direct debit and without prejudice to refund rights, the payer may revoke the payment order at the latest by the end of the business day preceding the day agreed for debiting the funds. (4) In the case referred to in Article 7:G-10 (Receipt of a payment order) paragraph (2), the service user may revoke a payment order at the latest by the end of the business day preceding the agreed day. (5) After the time limits specified in paragraphs (2) to (4) have elapsed, the payment order may be revoked only if agreed between the service user and this party’s service provider. In cases covered by paragraphs (2) and (3), the payee’s agreement is also required. If agreed in the framework contract, the service provider may charge for the revocation. Article 7:G-10: Receipt of a payment order (1) Receipt of a payment order occurs when the order reaches the payer’s service provider if this is a business day for this party, and otherwise on the following business day. The service provider may establish a cut-off time near the end of a business day beyond which any payment order received is to be considered as received on the following business day. (2) If the service user initiating a payment order and its service provider agree that execution of the payment order starts on a specific day or at the end of a certain period or on the day on which the payer has set funds at the service provider’s disposal, the payment order is received on the agreed day if this is a business day for the service provider, and otherwise the following business day. Article 7:G-11: Refusal of payment orders (1) If all requirements set out in the payer’s framework contract are met, the payer’s service provider may not refuse to execute an authorised payment order irrespective of whether the payment order is initiated by the payer or by or through a payee. (2) A service provider who refuses to execute a payment order must notify the refusal to the service user immediately and at any rate no later than within the time specified in Article 7:G-12 (Time of execution of a payment order). If possible, the service provider must also state the reasons for the refusal and the procedure for correcting any factual mistakes that led to the refusal.

1078  Part III: Common Principles (3) The framework contract may entitle the service provider to charge for a ­notification only if the refusal is objectively justified. Article 7:G-12: Time of execution of a payment order (1) The payer’s service provider must credit the amount of the payment transaction to the payee’s service provider’s account at the latest by the end of the business day which follows the date of receipt under Article 7:G-10 (Receipt of a payment order). The framework contract may provide for an extension by one additional business day for paper-initiated payment transactions. (2) The service provider of the payee must make available the amount of the payment transaction to the payee’s payment account after this service provider has received the funds. (3) If the payee does not have a payment account with the service provider, the funds must be made available to the payee by the service provider who receives the funds for the payee within the period specified in paragraph (1). Article 7:G-13: Value date and availability of funds (1) The credit value date for the payee’s payment account is no later than the business day on which the amount of the payment transaction is credited to the account of the payee’s service provider. The amount of the payment must be at the payee’s disposal immediately after it is credited to the payee’s service provider’s account. (2) The debit value date for the payer’s payment account is no earlier than the time at which the payment transaction is debited to that payment account. Article 7:G-14: Cash placed on a payment account Where a consumer places cash on a payment account with that service provider in the currency of that payment account, the amount must be made available and value dated immediately after receipt of the funds. If the service user is not a consumer, the amount must be made available and value dated at the latest on the next business day after the receipt of the funds. Article 7:G-15: Prohibition of deducting charges from the amount transferred (1) Service providers and their intermediaries may not deduct charges from the amount transferred. (2) The payee and its service provider may agree that the service provider is allowed to deduct its charges from the amount transferred before crediting it to the payee. In this case, the service provider must inform the payee of both the full amount of the payment transaction and of the charges. (3) If any charges other than those referred to in paragraph (2) are deducted from the amount transferred, the service provider of the payer must ensure that the payee receives the full amount of the payment transaction initiated by the payer. For transactions initiated by or through the payee, the payee’s service provider owes the same duty.

Principles of the Existing EC Contract Law 1079 Article 7:G-16: Currency of payment A payment order must be made in the currency agreed between the service user and the service provider. Article 7:G-17: Unique identifier (1) Unless agreed otherwise, if a payment order is executed in accordance with the unique identifier provided by the service user, the payment order is considered to have been executed to the right payee. (2) If the payment has been executed in accordance with paragraph (1), but not to the intended payee, the payer’s service provider must make reasonable efforts to recover the funds involved in the payment transaction. The framework contract may entitle the service provider to charge for the recovery. Article 7:G-18: Information due to payer in single payment transaction (1) In a single payment transaction, immediately after receipt of the payment order, the payer’s service provider must inform the payer about: (a) the reference which enables the payer to identify the payment transaction and, where appropriate, details relating to the payee; (b) the amount of the payment transaction in the currency used in the payment order; (c) the amount of any charges for the payment transaction payable by the payer and, where applicable, a breakdown of those amounts; (d) where applicable, the exchange rate used in the payment transaction by the payer’s service provider and the amount of the payment transaction after that currency conversion; and (e) the date of receipt of the payment order. (2) At the payer’s request, this information must be provided in textual form on a durable medium. Article 7:G-19: Information due to payee in single payment transaction (1) In a single payment transaction, immediately after the execution of the payment order, the payee’s service provider must inform the payee about: (a) the reference which enables the payee to identify the payment transaction and, where appropriate, the payer and any information transferred with the payment transaction; (b) the amount of the payment transaction in the currency in which the funds are at the payee’s disposal; (c) the amount of any charges for the payment transaction payable by the payee and, where applicable, a breakdown of those amounts; (d) where applicable, the exchange rate used in the payment transaction by the payee’s payment service provider, and the amount of the payment transaction before that currency conversion; and (e) the credit value date.

1080  Part III: Common Principles (2) At the payee’s request, this information must be provided in textual form on a durable medium. Article 7:G-20: Information due to payer on individual payment transactions within framework contract When under a framework contract an individual payment transaction is debited from the payer’s account or, where the payer does not use a payment account, when the payment order has been received, the payer’s service provider must inform the payer without undue delay in textual form on a durable medium about: (a) the reference which enables the payer to identify each payment transaction and, where appropriate, the payee; (b) the amount of the payment transaction in the currency in which the payer’s payment account is debited or in the currency used for the payment order; (c) the amount of any charges for the payment transaction and, where a­ pplicable, a break down of those amounts, or the interest payable by the payer; (d) where applicable, the exchange rate used in the payment transaction by the payer’s service provider, and the amount of the payment transaction after that currency conversion; and (e) the debit value date or the date of receipt of the payment order. Article 7:G-21: Information due to payee on individual payment transactions within framework contract When an individual payment transaction is executed within a framework contract, the payee’s service provider must inform the payee without undue delay in textual form on a durable medium about: (a) the reference which enables the payee to identify the payment transaction and, where appropriate, the payer, and any information transferred with the payment transaction; (b) the amount of the payment transaction in the currency in which the payee’s payment account is credited; (c) the amount of any charges for the payment transaction and, where applicable, a breakdown of those amounts, or the interest payable by the payee; (d) where applicable, the exchange rate used in the payment transaction by the payee’s service provider, and the amount of the payment transaction before that currency conversion; and (e) the credit value date. Article 7:G-22: Modification of information duty in framework contract The parties may agree that the information referred to in Articles 7:G-20 (Information due to payer on individual payment transactions within framework contract) and 7:G-21 (Information due to payee on individual payment transactions within framework contract) is to be provided periodically, at least once a month, in textual form on a durable medium.

Principles of the Existing EC Contract Law 1081 Article 7:G-23: Limitation of information duties for low value payment instruments and electronic money For payment instruments which, according to the framework contract, concern only individual payment transactions that do not exceed J30 or that either have a spending limit of J150 or store funds that do not exceed J150 at any time, parties may agree that after the execution of a payment transaction: (a) the payment service provider must provide only a reference which enables the service user to identify the payment transaction, its amount and any charges. If several payment transactions of the same kind are made to the same payee, the reference must enable to identify the total amount and charges for those payment transactions; (b) the payment service provider cannot be required to provide information referred to in subparagraph (a) if the payment instrument is used anonymously or if this is technically impossible for another reason. The service provider must nevertheless enable the payer to verify the amount of funds stored. Article 7:G-24: Derogations for low value payment instruments and electronic money For payment instruments which, according to the framework contract, concern only individual payment transactions not exceeding J30 or which either have a spending limit of J150 or store funds which do not exceed J150 at any time, service providers may agree with their service users that: (a) the service provider is not required to notify the service user of the refusal of a payment order, if the non-execution is apparent from the context; (b) the payer cannot revoke the payment order after it is transmitted or after giving his consent to execute the payment transaction to the payee; (c) other execution periods apply. Article 7:G-25: Language of communications Unless agreed otherwise by the parties, information to be provided under this part must be given in an official language of the country where the payment service is offered. Part H: Commercial Agency ContractsRules only Article 7:H-01: Definition of commercial agency contract (1) Commercial agency is a contract under which one party, the commercial agent, is to act on a continuing basis as a self-employed intermediary to negotiate or conclude contracts on behalf of another party, the principal, and the principal is to remunerate the agent for those activities. (2) Commercial agency does not include: (a) a commercial agent who operates on a commodity exchange, or (b) a partner who has authority to bind the other partners.

1082  Part III: Common Principles Article 7:H-02: Mandatory nature (1) Contract terms which are prejudicial to the commercial agent and which deviate from the rules in this part are not binding on the commercial agent. (2) The parties may derogate from Articles 7:H-15 (Additional remuneration) and 7:H-16 after the commercial agency contract has ended. Article 7:H-03: Agent’s obligations (1) A commercial agent is in particular obliged to: (a) make appropriate efforts to negotiate or conclude the contracts on behalf of the principal which the agent was instructed to conclude; (b) communicate to the principal all the necessary information available to the agent and (c) follow the principal’s reasonable instructions. (2) Paragraph (1) is mandatory. Article 7:H-04: Principal’s obligations (1) A principal is in particular obliged to: (a) pay the commercial agent’s remuneration as laid down in Articles 7:H-05 (Commercial agent’s remuneration) to 7:H-11 (Information on commission); (b) provide the commercial agent with the necessary documentation relating to the goods and services concerned; and (c) warn the commercial agent within a reasonable time when the principal foresees that the volume of contracts will be significantly lower than the commercial agent could have expected. (2) A principal must, in addition, inform the commercial agent within a reasonable time of: (a) the principal’s acceptance or rejection of a contract which the commercial agent has negotiated on the principal’s behalf; or (b) any non-performance of obligations under a contract which the commercial agent has negotiated or concluded on the principal’s behalf. Article 7:H-05: Commercial agent’s remuneration (1) If the remuneration of the commercial agent is not specified in the commercial agency contract, the commercial agent is entitled to the remuneration that commercial agents appointed for the goods or services forming the subject of the commercial agency contract are customarily allowed at the place where the commercial agent performs the contract. If there is no such custom, a commercial agent is entitled to reasonable remuneration, taking into account all circumstances. (2) Any remuneration which wholly or partially depends upon the number or value of contracts is commission within the meaning of this Part. (3) Articles 7:H-06 (Commission during the commercial agency contract) to 7:H-11 (Information on commission) do not apply if the commercial agent is not remunerated wholly or partially by commission.

Principles of the Existing EC Contract Law 1083 Article 7:H-06: Commission during the commercial agency contract (1) A commercial agent is entitled to commission on any contract concluded with a client of the principal during the period covered by the commercial agency contract if the contract has been concluded: (a) as a result of commercial agent’s efforts; or (b) with a third party whom the commercial agent has previously acquired as a client for contracts of the same kind. (2) A commercial agent is also entitled to commission on contracts concluded with a client of the principal during the period covered by the agency contract if the commercial agent is entrusted with a specific geographical area or group of clients and the contract has been concluded with a client belonging to that area or group. (3) The principal and the commercial agent may agree that commission under paragraph (2) is due only to the extent that the commercial agent has an exclusive right to a specific geographical area or group of clients. Article 7:H-07: Commission after the commercial agency contract has ended A commercial agent is entitled to commission on any contract concluded [with a client] after the commercial agency contract has ended if: (a) in accordance with the requirements of Article 7:H-06 (Commission during the commercial agency contract), the order of the client reached the principal or the commercial agent before the commercial agency contract ended; or (b) the contract is mainly the result of the commercial agent’s efforts during the period covered by the commercial agency contract. When deciding whether the contract is mainly the result of the commercial agent’s efforts, regard may be given to the period which has elapsed between the ending of the commercial agency contract and the time of the conclusion of the contract with the client. Article 7:H-08: Conflicting entitlements to the commission (1) A commercial agent is not entitled to the commission referred to in Article 7:H-06 (Commission during the commercial agency contract) if a previous commercial agent is entitled to that commission under Article 7:H-07 (Commission after the commercial agency contract has ended), unless it is reasonable that the commission is shared between the two commercial agents. (2) Paragraph (1) is mandatory. Article 7:H-09: Due time for commission payment (1) The commission becomes due as soon as and to the extent that: (a) the principal has or should have performed the contract concluded with the client; or (b) the client has performed the contract. (2) The commission becomes due at the latest when the client has performed the contract, or when the client should have performed the contract if the principal had duly performed the contract.

1084  Part III: Common Principles (3) If the contract with the client is concluded by the commercial agent on behalf but not in the name of the principal, commission becomes due when the principal acquires the economic benefit of this contract. (4) The commission is to be paid not later than on the last day of the month following the quarter in which the commercial agent became entitled to the commission. Article 7:H-10: Extinguishing of entitlement to commission (1) A contract term whereby the commercial agent’s entitlement to commission on a contract concluded with a client is extinguished is valid only if and to the extent that it provides for extinction on the basis that the client’s contractual obligations are not performed for a reason for which the principal is not accountable. (2) Upon the extinguishing of the commercial agent’s entitlement to commission, the commercial agent must refund any commission already received. Article 7:H-11: Information on commission (1) The principal is obliged to supply the commercial agent with a statement of the commercial agent’s commission not later than the last day of the month following the quarter in which the commercial agent became entitled to commission. This statement must set out how the commission has been calculated. (2) The principal must provide the commercial agent upon request with all the information available, in particular an extract from the books, which is necessary for verifying the amount of commission due. Article 7:H-12: Statement of commercial agency contract (1) Both parties are obliged to provide to the other, on request, a signed statement of the terms of the commercial agency contract including any terms which were subsequently agreed. (2) Paragraph (1) is mandatory. Article 7:H-13: Conversion of definite period contract Where both parties continue the performance of a commercial agency contract after a definite contract period has expired, parties are presumed to have entered into a contract for an indefinite period. Article 7:H-14: Termination by notice (1) Either party to a commercial agency contract for an indefinite period may terminate the contract by giving notice to the other. (2) The minimum period of notice is one month for the first year of the commercial agency contract, two months for the second year commenced, and three months for the third year commenced and subsequent years.

Principles of the Existing EC Contract Law 1085 (3) The period of notice for subsequent years is one month for each year during which the contract has lasted, with a maximum period of six months. (4) If the parties agree on longer periods than those laid down in paragraphs 2 and 3, the period of notice to be observed by the principal must not be shorter than that to be observed by the commercial agent. (5) Unless otherwise agreed in the contract, the period of notice is extended to the next end of a calendar month. (6) Paragraphs (1) to (5) apply to a commercial agency contract which has become a contract for an indefinite period in accordance with Article 7:H-13 (Conversion of definite period contract). The earlier definite period is to be taken into account for the calculation of the period of notice. (7) Paragraphs (1) to (4) and (6) are mandatory. Article 7:H-15: Additional remuneration (1) Further to the remuneration due under Arts. 7:H-05 (Commercial agent’s remuneration) to 7:H-08 (Conflicting entitlements to the commission), the commercial agent is entitled to an additional remuneration on termination of the contract if and to the extent that (a) the commercial agent has brought the principal new customers or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers, and the commercial agent would without termination have obtained commission on such contracts; or (b) termination prevents the commercial agent from amortizing the costs and expenses which the commercial agent has incurred for the performance of the agency contract on the principal’s advice. (2) Unless the parties have agreed a higher figure, the amount of the remuneration under paragraph (1)(a) does not exceed one year’s remuneration calculated from the commercial agent’s average annual remuneration over the preceding five years, or if the commercial agency contract has lasted less than five years, from the average during the period in question. (3) Remedies under Chapter 8 remain unaffected. Article 7:H-16: Additional remuneration in case of commercial agent’s death (1) An entitlement to an additional remuneration under Article 7:H-15 (Additional remuneration) also arises where the commercial agency contract is terminated as a result of the commercial agent’s death. In this case, the limitations of Article 7:H-15 (Additional remuneration) paragraph (2) apply to all entitlements under Article 7:H-15 (Additional remuneration) paragraph (1). (2) The entitlement lapses if the commercial agents’ heir or heirs fail to notify the principal within one year following the termination of the commercial agency contract of their intention to rely on the entitlement. (3) Paragraphs (1) and (2) are mandatory.

1086  Part III: Common Principles Chapter 8: Remedies General Provisions Section 1: General rules Article 8:101: Definition of non-performance Non-performance is any failure to perform an obligation, including delayed performance, defective performance and failure to co-operate in order to give full effect to the obligation. Article 8:102: Exclusion or restriction of remedies The creditor is precluded from exercising remedies against the debtor to the extent that non-performance is attributable to the creditor. Section 2: Performance and cure of non-performance Article 8:201: Monetary obligations(9) (1) The creditor is entitled to recover money payment of which is due. (2) Where the creditor has not yet performed the reciprocal obligation for which payment will be due and it is clear that the debtor in the monetary obligation will be unwilling to receive performance, the creditor may nonetheless proceed with performance and may recover payment unless: (a) the creditor could have made a reasonable substitute transaction w ­ ithout significant effort or expense; or (b) performance would be unreasonable in the circumstances. Article 8:202: Non-monetary obligations(10) (1) The creditor is entitled to enforce specific performance of an obligation other than one to pay money. (2) Specific performance includes the remedying free of charge of a performance which is not in conformity with the terms regulating the obligation. (3) Specific performance cannot, however, be enforced where: (a) performance would be unlawful or impossible; (b) performance would be unreasonably burdensome or expensive; or (c) performance would be of such a personal character that it would be unreasonable to enforce it. (4) The creditor cannot recover damages for loss or a stipulated payment for non-performance to the extent that the creditor has increased the loss or the amount of the payment by insisting unreasonably on specific performance in circumstances where the creditor could have made a reasonable substitute transaction without significant effort or expense.

Principles of the Existing EC Contract Law 1087 Section 3: Termination and reduction of performance Article 8:301: Grounds for termination and reduction (1) The creditor may reduce its own performance appropriately, or terminate the contract: (a) if the creditor has no right to performance or cure under Section 2 above or (b) if the debtor has not provided the remedy under Section 2 above within a reasonable time. The creditor is not entitled to terminate the contract if the debtor’s failure to perform amounts to a minor non-performance. (2) Regardless of paragraph (1), the creditor is entitled to terminate the contract for non-performance if the creditor cannot be reasonably expected to be bound by the contract, in particular because of the kind of non-performance or because of the nature of the obligation. (3) The creditor can terminate the contract under paragraph (1) only with respect to that part which is affected by non-performance, unless partial performance is of no utility to the creditor. Paragraph (2) applies correspondingly. (4) The creditor is entitled to reduce its own performance if the cure under ­Section 2 above has not restored the original value of performance. (5) The remedies provided for in the preceding paragraphs do not prejudice the creditor’s right to damages. Article 8:302: Notice of termination(11) A right to terminate under this Section is exercised by notice to the debtor. Article 8:303: Effects of termination (1) Termination of the entire contract releases both parties from their obligations to perform as from the time when termination becomes effective. In case of partial termination, both parties are released from their obligations which relate to the terminated part. (2) On termination, each party is obliged to return to the other what has been performed under the contract. In case of partial termination, both parties are obliged to return to the other what has been performed under the terminated part of the contract. Article 8:304: Right to withhold performance of reciprocal obligation(12) (1) A creditor who is to perform a reciprocal obligation at the same time as, or after, the debtor performs has a right to withhold performance of the reciprocal obligation until the debtor has tendered performance or has performed. (2) A creditor who is to perform a reciprocal obligation before the debtor ­performs and who reasonably believes that there will be non-performance by the debtor when the debtor’s performance becomes due may withhold

1088  Part III: Common Principles performance of the reciprocal obligation for as long as the reasonable belief continues. However, the right to withhold performance is lost if the debtor gives an adequate assurance of due performance. (3) A creditor who withholds performance in the situation mentioned in paragraph (2) has a duty to give notice of that fact to the debtor as soon as is reasonably practicable and is liable for any loss caused to the debtor by a breach of that duty. (4) The performance which may be withheld under this Article is the whole or part of the performance as may be reasonable in the circumstances. Section 4: Damages Article 8:401: Right to damages (1) The creditor is entitled to damages for loss caused by non-performance of an obligation, unless such non-performance is excused. (2) Non-performance is excused if it is due to circumstances beyond the control of the debtor and of any persons engaged by the debtor for performing this obligation, provided that the consequences of those circumstances could not have been avoided even if all due care had been exercised. Article 8:402: Measure of damages (1) Damages are a money payment of the amount necessary to put the creditor into the position in which it would have been if the obligation had been duly performed. (2) Damages cover the loss suffered by the creditor, including the loss of profits. (3) Without prejudice to rules on recovery of costs in judicial proceedings, damages include reasonable costs for the enforcement of an obligation. (4) Damages cover non-pecuniary losses only to the extent that the purpose of the obligation includes the protection or satisfaction of non-pecuniary interests. Article 8:403: Contributory negligence and mitigation Damages are reduced or excluded to the extent that the creditor wilfully or negligently contributed to the effects of the non-performance or could have reduced the loss by taking reasonable steps. Article 8:404: Interest on delayed payment(13) (1) If payment of a sum of money is delayed, whether or not the non-­performance is excused, the creditor is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank shortterm lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due. (2) The creditor may in addition recover damages for any further loss.

Principles of the Existing EC Contract Law 1089 Article 8:405: Interest in case of creditor’s non-performance The creditor is not entitled to interest to the extent that there has been non-performance of the creditor’s reciprocal obligation. Article 8:406: Interest in commercial contracts (1) If a business delays the payment of a price for goods or services owed to a business without being excused under Article 8:401 (Right to damages), interest is due at the rate specified in paragraph (4), unless a higher interest rate is applicable. (2) Interest at the rate specified in paragraph (4) starts to run (a) on the day which follows the date or the end of the period for payment provided in the contract, and otherwise (b) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or (c) 30 days after the date of receipt of the goods or services, if the date under (b) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment. (3) If conformity of goods or services to the contract is to be ascertained by way of acceptance or verification, the 30 day period under paragraph (2)(c) starts to run on the date of acceptance or verification. (4) The interest rate for delayed payment (“the statutory rate”) is the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question (“the reference rate”), plus seven percentage points (“the margin”), unless otherwise specified in the contract. For the currency of a Member State which is not participating in the third stage of economic and monetary union, the reference rate is the equivalent rate set by its national central bank. (5) The creditor may in addition recover damages for any further loss. Article 8:407: Unfair terms relating to interest (1) A term whereby a business pays to another business interest on a price for goods or services from a date later than that specified in the preceding Article paragraph (2)(b) and (c) and paragraph (3), or at a rate lower than that specified in paragraph (4), is not binding to the extent that the term is unfair. (2) A term whereby a business is allowed to pay to another business the price for goods or services later than the time when interest starts to run under the preceding Article paragraph (2)(b) and (c) and paragraph (3) does not deprive the creditor of interest to the extent that the term is unfair. (3) A term is unfair for the purposes of this Article if it grossly deviates from good commercial practice.

1090  Part III: Common Principles Specific Provisions Part A: Contracts Negotiated Away from Business Premises Article 8:A-01: Goods or services ordered are unavailable (1) Where a business is unable to perform its obligations under a contract concluded by means of distance communication because the goods or services ordered are unavailable, it must inform the consumer immediately and refund any sums paid by the consumer without undue delay and in any case within 30 days. The consumer’s remedies for non-performance remain unaffected. (2) Paragraph (1) is mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules). Part B: Contracts for the Delivery of Goods Article 8:B-01: Mandatory nature for consumer contracts In a contract under which a business sells goods, including goods to be manufactured or produced, to a consumer, Articles 8:101 (Definition of non-performance), 8:301 (Grounds for termination and reduction) to 8:303 (Effects of termination), 8:B-02 (Time of conformity) to 8:B-05 (Return of replaced goods) are mandatory in the sense of Article 1:203 (Mandatory nature of consumer rules). Article 8:B-02: Time of conformity (1) For goods sold, including goods to be manufactured or produced, any lack of conformity in the sense of Article 7:B-01 (Conformity of goods to the contract) which exists at the time when the goods are delivered amounts to non-performance. (2) Paragraph (1) applies accordingly to other contracts under which goods are to be delivered. Article 8:B-03: Presumption In a contract under which a business sells goods to a consumer, including goods to be manufactured or produced any lack of conformity which becomes apparent within six months of delivery of the goods is presumed to have existed at the time of delivery, unless such a presumption is incompatible with the nature of the goods or the nature of the lack of conformity. Article 8:B-04: Choice of cure In a contract under which a business sells goods to a consumer, including goods to be manufactured or produced, the consumer may choose between repair and replacement as cure of nonperformance in the sense of Art. 8:202 (Non-monetary obligations) paragraphs (2) and (3).

Principles of the Existing EC Contract Law 1091 Article 8:B-05: Return of replaced goods (1) Where the supplier has replaced non-conforming goods, the supplier has both the right and the obligation to take back the replaced goods at the supplier’s expense. (2) If the supplier is a business and the recipient a consumer, the recipient is not liable to pay for any use made of the replaced goods prior to the replacement. Article 8:B-06: Right of redressPlaceholder Article 8:B-07: Time limitPlaceholder Part E: Package Travel Contracts Article 8:E-01: Mandatory nature (1) Contract terms which are prejudicial to the customer and which deviate from the provisions of Chapter 8 are not binding on the customer. (2) The contract can reasonably limit damages for non-performance, except for damages due for personal injuries. Article 8:E-02: Alternative arrangements in case of partial non-performance (1) After departure, if non-performance of a significant proportion of the obligations of the business has occurred, or if the business realises that such non-performance will occur, the business must make suitable alternative arrangements for the continuation of the package which are to be provided at no extra costs. Where appropriate, the business must compensate the customer for the difference in value between the services owed and those supplied. The customer or the traveller may reject the alternative arrangements for good reasons. (2) If alternative arrangements are impossible, or are rejected for good reasons, the organiser must, where appropriate, provide the traveller with an equivalent return transport to the place of departure, or to another return point agreed with the traveller, at no extra cost. This does not affect the customer’s right to claim damages. Article 8:E-03: Duty of assistance If it becomes apparent that the package travel contract will not be performed properly, the business must provide prompt assistance to a traveller in difficulty. Article 8:E-04: Duty to inform about non-performance Any non-performance which the traveller perceives on the spot must be communicated at the earliest opportunity to the supplier of the services concerned or to the business.

1092  Part III: Common Principles Part G: Payment Services Article 8:G-01: Mandatory nature of the provisions of this Part Contract terms which are prejudicial to service users and which deviate from the provisions of this Part are not binding on service users regardless of whether they are consumers. Article 8:G-02: Rectification The service user is entitled to obtain rectification from the service provider only if the service user has notified the service provider on becoming aware of any unauthorised or incorrectly executed payment transactions giving rise to an obligation, including that under Article 8:G-09 (Liability for transmission of the payment order). ­Notification must be made without undue delay, and no later than 13 months after the debit date, unless the service provider has failed to provide the information on that payment transaction in accordance with Article 7:G-20 (Information due to payer on individual payment transactions within framework contract) to 7:G-21 (Information due to payee on individual payment transactions within framework contract). Article 8:G-03: Burden of proof (1) Where a service user denies having authorised an executed payment transaction or claims that the payment transaction was not correctly executed, it is for this user’s service provider to prove that the payment transaction was authenticated, accurately recorded, entered in the accounts and not affected by a technical breakdown or some other deficiency. (2) Where a service user denies having authorised an executed payment transaction, the use of a payment instrument recorded by the service provider is not necessarily sufficient proof that the payer (a) authorised the transaction; (b) acted fraudulently; (c) failed with intent or gross negligence to fulfil its obligations to keep safe the personalised security features of the payment instrument, or (d) failed to notify the service provider of the loss, theft or misappropriation of the payment instrument or of its unauthorised use. Article 8:G-04: Payment service provider’s liability for unauthorised payment transactions (1) In the case of an unauthorised payment transaction, the payer’s service provider must immediately refund to the payer the amount of the unauthorised payment transaction and, where applicable, must restore the debited ­payment account to the state in which it would have been had the unauthorised payment transaction not taken place. (2) The remedy provided for in paragraph (1) does not prejudice the payer’s right to damages.

Principles of the Existing EC Contract Law 1093 Article 8:G-05: Payer’s liability for unauthorised payment transactions (1) The payer is liable up to a maximum of J150 for the loss caused by an unauthorised payment transaction which results from the use of a lost or stolen payment instrument or, if the payer has failed to keep the personalised security features safe, from the misappropriation of a payment instrument. (2) The payer is liable for the loss caused by an unauthorised payment transaction which results from the payer acting fraudulently or failing to fulfil its obligations under the contract or under Article 7:G-08 (Notification of loss, theft or misappropriation of the payment instrument or of its unauthorised use) paragraph (1) with intent or gross negligence. In such cases, the maximum amount referred to in paragraph (1) does not apply. (3) The payer is not liable for any financial consequences resulting from use of the lost, stolen or misappropriated payment instrument after notification in accordance with Article 7:G-08 (Notification of loss, theft or misappropriation of the payment instrument or of its unauthorised use) paragraph (1), except where the payer has acted fraudulently. (4) If the payment service provider does not provide appropriate means for the notification as required under Article 7:G-08 (Notification of loss, theft or misappropriation of the payment instrument or of its unauthorised use) ­paragraph (2), the payer is not liable for the loss resulting from the use of that payment instrument, except where the payer has acted fraudulently. Article 8:G-06: Refunds for payment transactions initiated by or through a payee If an authorised payment transaction initiated by or through a payee has been ­executed, the payer is entitled to a refund from its service provider if: (a) the authorisation did not specify the exact amount of the payment transaction when the authorisation was made; and (b) the amount of the payment transaction exceeded the amount the payer could reasonably have expected, taking into account the payer’s previous spending pattern, the terms of the framework contract and other relevant circumstances. At the service provider’s request, the payer must present facts which relate to the circumstances specified in (a) and (b). The refund consists of the full amount of the executed payment transaction. Article 8:G-07: Requests for refunds for payment transactions initiated by or through a payee (1) A request for a refund under Article 8:G-06 (Refunds for payment transactions initiated by or through a payee) of an authorised payment transaction initiated by or through a payee must be made within eight weeks from the date on which the funds were debited. (2) Within ten business days from receiving a request for a refund, the service provider must either refund the full amount of the transaction or provide

1094  Part III: Common Principles justification for its refusal. In the case of refusal, the service provider must indicate the out-of-court complaint and redress procedures for the settlement of disputes between service users and their service providers and the bodies to which the payer may refer the matter if it does not accept the justification provided. Article 8:G-08: Liability for non-performance of a payment order (1) The payer’s service provider is liable to the payer for any non-performance of a payment transaction initiated by the payer, unless the payee’s service provider received the payment in accordance with Article 7:G-12 (Time of execution of a payment order) paragraph (1). The payer’s service provider bears the burden of proof for this receipt. If the payee’s service provider has received the payment, it is liable to the payee for any non-performance of the payment transaction. (2) Where the payer’s service provider is liable under paragraph (1), it must without undue delay refund to the payer the amount of the affected payment transaction and, where applicable, restore the debited payment account to the state in which it would have been had that payment transaction not taken place. (3) Where the payee’s service provider is liable under paragraph (1), it must immediately place the amount of the payment at the payee’s disposal and, where applicable, credit the corresponding amount to the payee’s payment account. (4) In case of non-performance of a payment transaction initiated by the payer, its service provider must, on request, make immediate efforts to trace the payment transaction and notify the payer of the outcome, even if this nonperformance is not attributable to this service provider. Article 8:G-09: Liability for transmission of the payment order (1) Where a payment order is initiated by or through the payee, its service provider is liable to the payee for any non-performance relating to the transmission of the payment order to the service provider of the payer and, in case of such non-performance, must immediately retransmit the payment order in question to the service provider of the payer. (2) In addition, the service provider of the payee is liable to the payee for any non-performance relating to the handling of the payment transaction in accordance with its obligations under Article 7:G-13 (Value date and availability of funds). The service provider must ensure that the amount of the payment transaction is at the payee’s disposal immediately after it is credited to the payee’s service provider’s account. (3) The payer’s service provider is liable to the payer for any non-performance of a payment transaction for which the payee’s service provider is not liable under paragraphs (1) and (2). In this case, the payer’s service provider must, as appropriate and without undue delay, refund to the payer the amount

Principles of the Existing EC Contract Law 1095 of that transaction and restore the debited payment account to the state in which it would have been had that payment transaction not taken place. (4) In the case of non-performance of a payment transaction initiated by or through the payee, its service provider must, on request, make immediate efforts to trace that payment transaction and notify the payee of the outcome, even if this non-performance is not attributable to this service provider. Article 8:G-10: Content of damages (1) A payment service provider is liable under Article 8:G-08 (Liability for nonperformance of a payment order) or Article 8:G-09 (Liability for transmission of the payment order) to its payment service user for any charges and any interest which the payment service user must pay and which have been caused by the non-performance of its payment service provider. (2) The payment service user may be entitled to further damages under Chapter 8 Section 4. Article 8:G-11: Right of recourse (1) Where the liability of a service provider under Articles 8:G-08 (Liability for non-performance of a payment order) or 8:G-09 (Liability for transmission of the payment order) is attributable to another service provider or to an intermediary, that service provider or intermediary must compensate the first service provider for any loss incurred under Articles 8:G-08 (Liability for non-performance of a payment order) or 8:G-09 (Liability for transmission of the payment order). (2) This provision is mandatory. Article 8:G-12: Derogation for low value payment instruments and electronic money (1) In the case of payment instruments which, according to the framework contract, solely concern individual payment transactions not exceeding J30, or have a spending limit of J150, or store funds which do not exceed J150 at any time, service providers may agree with their service users that: (a) Article 8:G-05 (Payer’s liability for unauthorised payment transactions) paragraphs (3) and (4) do not apply if the payment instrument cannot be blocked or its further use cannot be prevented; (b) Articles 8:G-03 (Burden of proof), 8:G-04 (Payment service provider’s liability for unauthorised payment transactions) and 8:G-05 (Payer’s liability for unauthorised payment transactions) paragraphs (1) and (2) do not apply if the payment instrument is used anonymously or the service provider is not in the position to prove that a payment transaction was authorised for other reasons which are intrinsic to the payment instrument. (2) Articles 8:G-04 (Payment service provider’s liability for unauthorised payment transactions) and 8:G-05 (Payer’s liability for unauthorised payment

1096  Part III: Common Principles transactions) do not apply to electronic money, where the payer’s service provider does not have the ability to freeze the payment account or block the payment instrument. Part H: Commercial Agency Contracts Article 8:H-01: Immediate termination of agency contractPlaceholder

(1)

Grey rule from Art. II.—1:109(2) DCFR. Grey rule from Art. I.—1:109(3) and (4) DCFR. (3) Grey rule from Art. II.—4:201 DCFR. (4) Partial grey rule from Art. II.—1:103 DCFR. (5) Grey rule from Art. II.—4:209 DCFR. (6) Partially grey rule from Art. III.—2:104 DCFR. (7) Grey rule from Art. III.—2:101 DCFR. (8) The mandatory character set out by this rule will be revisited on an article by article approach. (9) Grey rule from Art. III.—3:301 DCFR. (10) Grey rule from Art. III.—3:302 DCFR. Paragraph (4) of that provision was not adopted as grey rule for the reasons indicated below; paragraph (5) of that provision has become Art. 8:202(4) ACQP. (11) Grey rule from Art. III.—3:507(1) DCFR. (12) Grey rule from Art. III.—3:401 DCFR. (13) Grey rule from Art. III.—3:708 DCFR. (2)

Draft Common Frame of Reference (Outline Edition, 2009) Table of Contents Model Rules Book I General provisions Book II Contracts and other juridical acts Chapter 1: General provisions�������������������������������������������������������������������������� 1106 Chapter 2: Non-discrimination������������������������������������������������������������������������ 1108 Chapter 3: Marketing and pre-contractual duties��������������������������������������������� 1110 Section 1: Information duties������������������������������������������������������������������������ 1110 Section 2: Duty to prevent input errors and acknowledge receipt����������������� 1114 Section 3: Negotiation and confidentiality duties������������������������������������������ 1104 Section 4: Unsolicited goods or services�������������������������������������������������������� 1115 Section 5: Damages for breach of duty under this Chapter��������������������������� 1115 Chapter 4: Formation��������������������������������������������������������������������������������������� 1116 Section 1: General provisions����������������������������������������������������������������������� 1116 Section 2: Offer and acceptance�������������������������������������������������������������������� 1117 Section 3: Other juridical acts����������������������������������������������������������������������� 1119 Chapter 5: Right of withdrawal����������������������������������������������������������������������� 1120 Section 1: Exercise and effect������������������������������������������������������������������������ 1120 Section 2: Particular rights of withdrawal����������������������������������������������������� 1122 Chapter 6: Representation�������������������������������������������������������������������������������� 1123 Chapter 7: Grounds of invalidity���������������������������������������������������������������������� 1126 Section 1: General provisions����������������������������������������������������������������������� 1126 Section 2: Vitiated consent or intention�������������������������������������������������������� 1127 Section 3: Infringement of fundamental principles or mandatory rules��������� 1131 Chapter 8: Interpretation��������������������������������������������������������������������������������� 1132 Section 1: Interpretation of contracts������������������������������������������������������������ 1132 Section 2: Interpretation of other juridical acts��������������������������������������������� 1133 Chapter 9: Contents and effects of contracts���������������������������������������������������� 1134 Section 1: Contents��������������������������������������������������������������������������������������� 1134 Section 2: Simulation������������������������������������������������������������������������������������ 1136

1098  Part III: Common Principles Section 3: Effect of stipulation in favour of a third party������������������������������ 1137 Section 4: Unfair terms��������������������������������������������������������������������������������� 1138 Book III Obligations and corresponding rights Chapter 1: General������������������������������������������������������������������������������������������� 1141 Chapter 2: Performance����������������������������������������������������������������������������������� 1143 Chapter 3: Remedies for non-performance������������������������������������������������������� 1149 Section 1: General���������������������������������������������������������������������������������������� 1149 Section 2: Cure by debtor of non-conforming performance�������������������������� 1151 Section 3: Right to enforce performance������������������������������������������������������� 1152 Section 4: Withholding performance������������������������������������������������������������ 1153 Section 5: Termination��������������������������������������������������������������������������������� 1153 Section 6: Price reduction����������������������������������������������������������������������������� 1157 Section 7: Damages and interest������������������������������������������������������������������� 1158 Chapter 4: Plurality of debtors and creditors���������������������������������������������������� 1161 Section 1: Plurality of debtors����������������������������������������������������������������������� 1161 Section 2: Plurality of creditors��������������������������������������������������������������������� 1163 Chapter 5: Change of parties���������������������������������������������������������������������������� 1164 Section 1: Assignment of rights��������������������������������������������������������������������� 1164 Section 2: Substitution and addition of debtors�������������������������������������������� 1171 Section 3: Transfer of contractual position��������������������������������������������������� 1173 Section 4: Transfer of rights and obligations on agent’s insolvency��������������� 1173 Chapter 6: Set-off and merger�������������������������������������������������������������������������� 1174 Section 1: Set-off������������������������������������������������������������������������������������������ 1174 Section 2: Merger of debts���������������������������������������������������������������������������� 1174 Chapter 7: Prescription������������������������������������������������������������������������������������ 1175 Section 1: General provision������������������������������������������������������������������������� 1175 Section 2: Periods of prescription and their commencement������������������������� 1175 Section 3: Extension of period���������������������������������������������������������������������� 1176 Section 4: Renewal of period������������������������������������������������������������������������ 1177 Section 5: Effects of prescription������������������������������������������������������������������ 1178 Section 6: Modification by agreement����������������������������������������������������������� 1178 Book IV Specific contracts and the rights and obligations arising from them Part A. Sales Chapter 1: Scope and definitions���������������������������������������������������������������������� 1179 Section 1: Scope�������������������������������������������������������������������������������������������� 1179 Section 2: Definitions������������������������������������������������������������������������������������ 1179 Chapter 2: Obligations of the seller������������������������������������������������������������������ 1180 Section 1: Overview�������������������������������������������������������������������������������������� 1180 Section 2: Delivery of the goods������������������������������������������������������������������� 1182 Section 3: Conformity of the goods�������������������������������������������������������������� 1184 Chapter 3: Obligations of the buyer����������������������������������������������������������������� 1185 Chapter 4: Remedies���������������������������������������������������������������������������������������� 1185

Draft Common Frame of Reference 1099 Section 1: Limits on derogation�������������������������������������������������������������������� 1185 Section 2: Modifications of buyer’s remedies for lack of conformity������������� 1185 Section 3: Requirements of examination and notification����������������������������� 1186 Chapter 5: Passing of risk��������������������������������������������������������������������������������� 1187 Section 1: General provisions����������������������������������������������������������������������� 1187 Section 2: Special rules��������������������������������������������������������������������������������� 1187 Chapter 6: Consumer goods guarantees����������������������������������������������������������� 1188 [Part B (Lease of goods) omitted] Part C. Services Chapter 1: General provisions�������������������������������������������������������������������������� 1191 Chapter 2: Rules applying to service contracts in general��������������������������������� 1191 Chapter 3: Construction����������������������������������������������������������������������������������� 1197 Chapter 4: Processing��������������������������������������������������������������������������������������� 1200 Chapter 5: Storage������������������������������������������������������������������������������������������� 1202 Chapter 6: Design�������������������������������������������������������������������������������������������� 1206 Chapter 7: Information and advice������������������������������������������������������������������� 1207 Chapter 8: Treatment��������������������������������������������������������������������������������������� 1210 [Parts D (Mandate contracts), E (Commercial agency, franchise and distributorship), F (Loan contracts), G (Personal security) and H (Donation) omitted] Book V Benevolent intervention in another’s affairs Chapter 1: Scope of application����������������������������������������������������������������������� 1214 Chapter 2: Duties of intervener������������������������������������������������������������������������ 1214 Chapter 3: Rights and authority of intervener�������������������������������������������������� 1215 Book VI Non-contractual liability arising out of damage caused to another Chapter 1: Fundamental provisions������������������������������������������������������������������ 1216 Chapter 2: Legally relevant damage����������������������������������������������������������������� 1217 Section 1: General���������������������������������������������������������������������������������������� 1217 Section 2: Particular instances of legally relevant damage����������������������������� 1218 Chapter 3: Accountability�������������������������������������������������������������������������������� 1220 Section 1: Intention and negligence��������������������������������������������������������������� 1220 Section 2: Accountability without intention or negligence���������������������������� 1221 Chapter 4: Causation��������������������������������������������������������������������������������������� 1225 Chapter 5: Defences����������������������������������������������������������������������������������������� 1225 Section 1: Consent or conduct of the person suffering the damage��������������� 1225 Section 2: Interests of accountable persons or third parties��������������������������� 1226 Section 3: Inability to control����������������������������������������������������������������������� 1227 Section 4: Contractual exclusion and restriction of liability�������������������������� 1227 Section 5: Loss within VI.–2:202������������������������������������������������������������������ 1228 Chapter 6: Remedies���������������������������������������������������������������������������������������� 1228 Section 1: Reparation in general������������������������������������������������������������������� 1228 Section 2: Compensation������������������������������������������������������������������������������ 1229

1100  Part III: Common Principles Section 3: Prevention������������������������������������������������������������������������������������ 1230 Chapter 7: Ancillary rules�������������������������������������������������������������������������������� 1230 Book VII Unjustified enrichment Chapter 1: General������������������������������������������������������������������������������������������� 1231 Chapter 2: When enrichment unjustified���������������������������������������������������������� 1231 Chapter 3: Enrichment and disadvantage��������������������������������������������������������� 1232 Chapter 4: Attribution������������������������������������������������������������������������������������� 1232 Chapter 5: Reversal of enrichment������������������������������������������������������������������� 1234 Chapter 6: Defences����������������������������������������������������������������������������������������� 1235 Chapter 7: Relation to other legal rules������������������������������������������������������������ 1236 [Book VIII (Acquisition and loss of ownership of goods) omitted] Book IX Proprietary security in movable assets Chapter 1: General rules���������������������������������������������������������������������������������� 1237 Section 1: Scope�������������������������������������������������������������������������������������������� 1237 Section 2: Definitions������������������������������������������������������������������������������������ 1239 Chapter 2: Creation and coverage�������������������������������������������������������������������� 1241 Section 1: Creation of security rights������������������������������������������������������������ 1241 Section 2: Creation of retention of ownership devices���������������������������������� 1244 Section 3: Creation of security rights in specific types of assets��������������������� 1245 Section 4: Coverage of security��������������������������������������������������������������������� 1248 Chapter 3: Effectiveness as against third persons���������������������������������������������� 1248 Section 1: General rules�������������������������������������������������������������������������������� 1248 Section 2: Possession or control by creditor�������������������������������������������������� 1250 Section 3: Registration���������������������������������������������������������������������������������� 1251 Chapter 4: Priority������������������������������������������������������������������������������������������� 1262 Chapter 5: Pre-default rules������������������������������������������������������������������������������ 1264 Section 1: General principles������������������������������������������������������������������������ 1264 Section 2: Encumbered assets����������������������������������������������������������������������� 1265 Section 3: Change of parties������������������������������������������������������������������������� 1266 Section 4: Secured creditor’s obligation to give information about secured right����������������������������������������������������������������������� 1268 Chapter 6: Termination������������������������������������������������������������������������������������ 1268 Chapter 7: Default and enforcement���������������������������������������������������������������� 1270 Section 1: General rules�������������������������������������������������������������������������������� 1270 Section 2: Enforcement of security rights������������������������������������������������������ 1273 Section 3: Rules for retention of ownership devices�������������������������������������� 1279 Book X Trusts Chapter 1: Fundamental provisions������������������������������������������������������������������ 1279 Section 1: Scope and relation to other rules�������������������������������������������������� 1279 Section 2: Definition, special legal effects and parties����������������������������������� 1280

Draft Common Frame of Reference 1101 Section 3: Modifications of and additions to general rules���������������������������� 1282 Chapter 2: Constitution of trusts���������������������������������������������������������������������� 1282 Section 1: Basic rules on constitution by juridical act����������������������������������� 1282 Section 2: Declaration���������������������������������������������������������������������������������� 1283 Section 3: Refusal of trust and rejection of right to benefit��������������������������� 1284 Section 4: Additional rules for particular instances��������������������������������������� 1285 Chapter 3: Trust fund��������������������������������������������������������������������������������������� 1286 Section 1: Requirements for the initial trust fund����������������������������������������� 1286 Section 2: Changes to the trust fund������������������������������������������������������������� 1287 Chapter 4: Trust terms and invalidity��������������������������������������������������������������� 1288 Section 1: Trust terms����������������������������������������������������������������������������������� 1288 Section 2: Invalidity�������������������������������������������������������������������������������������� 1289 Chapter 5: Trustee decision-making and powers���������������������������������������������� 1290 Section 1: Trustee decision–making�������������������������������������������������������������� 1290 Section 2: Powers of a trustee����������������������������������������������������������������������� 1291 Chapter 6: Obligations and rights of trustees and trust auxiliaries������������������� 1293 Section 1: Obligations of a trustee���������������������������������������������������������������� 1293 Section 2: Rights of a trustee������������������������������������������������������������������������ 1297 Section 3: Obligations of a trust auxiliary���������������������������������������������������� 1298 Chapter 7: Remedies for non-performance������������������������������������������������������� 1299 Section 1: Specific performance, judicial review and ancillary remedies�������� 1299 Section 2: Reparation and disgorgement of unauthorised enrichment����������� 1300 Section 3: Defences��������������������������������������������������������������������������������������� 1301 Section 4: Solidary liability and forfeiture����������������������������������������������������� 1302 Chapter 8: Change of trustees or trust auxiliary����������������������������������������������� 1302 Section 1: General rules on change of trustees���������������������������������������������� 1302 Section 2: Appointment of trustees��������������������������������������������������������������� 1303 Section 3: Resignation of trustees����������������������������������������������������������������� 1304 Section 4: Removal of trustees���������������������������������������������������������������������� 1304 Section 5: Effect of change of trustees����������������������������������������������������������� 1305 Section 6: Death or dissolution of trust auxiliary������������������������������������������ 1306 Chapter 9: Termination and variation of trusts and transfer of rights to benefit������������������������������������������������������������������������������������������������ 1306 Section 1: Termination��������������������������������������������������������������������������������� 1306 Section 2: Variation�������������������������������������������������������������������������������������� 1309 Section 3: Transfer of right to benefit����������������������������������������������������������� 1310 Chapter 10: Relations to third parties�������������������������������������������������������������� 1311 Section 1: General provisions on creditors���������������������������������������������������� 1311 Section 2: Trust creditors������������������������������������������������������������������������������ 1311 Section 3: Trust debtors�������������������������������������������������������������������������������� 1312 Section 4: Acquirers of trust assets and rights encumbering trust assets�������� 1312 Section 5: Other rules on liability and protection of third parties����������������� 1313 Annex of definitions

1102  Part III: Common Principles Model Rules Book I General provisions I.–1:101: Intended field of application (1) These rules are intended to be used primarily in relation to contracts and other juridical acts, contractual and non-contractual rights and obligations and related property matters. (2) They are not intended to be used, or used without modification or supplementation, in relation to rights and obligations of a public law nature or, except where otherwise provided, in relation to: (a) the status or legal capacity of natural persons; (b) wills and succession; (c) family relationships, including matrimonial and similar relationships; (d) bills of exchange, cheques and promissory notes and other negotiable instruments; (e) employment relationships; (f) the ownership of, or rights in security over, immovable property; (g) the creation, capacity, internal organisation, regulation or dissolution of companies and other bodies corporate or unincorporated; (h) matters relating primarily to procedure or enforcement. (3) Further restrictions on intended fields of application are contained in later Books. I.–1:102: Interpretation and development (1) These rules are to be interpreted and developed autonomously and in accordance with their objectives and the principles underlying them. (2) They are to be read in the light of any applicable instruments guaranteeing human rights and fundamental freedoms and any applicable constitut­ ional laws. (3) In their interpretation and development regard should be had to the need to promote: (a) uniformity of application; (b) good faith and fair dealing; and (c) legal certainty. (4) Issues within the scope of the rules but not expressly settled by them are so far as possible to be settled in accordance with the principles underlying them. (5) Where there is a general rule and a special rule applying to a particular situation within the scope of the general rule, the special rule prevails in any case of conflict.

Draft Common Frame of Reference 1103 I.–1:103: Good faith and fair dealing (1) The expression “good faith and fair dealing” refers to a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question. (2) It is, in particular, contrary to good faith and fair dealing for a party to act inconsistently with that party’s prior statements or conduct when the other party has reasonably relied on them to that other party’s detriment. I.–1:104: Reasonableness Reasonableness is to be objectively ascertained, having regard to the nature and purpose of what is being done, to the circumstances of the case and to any relevant usages and practices. I.–1:105: “Consumer” and “business” (1) A “consumer” means any natural person who is acting primarily for purposes which are not related to his or her trade, business or profession. (2) A “business” means any natural or legal person, irrespective of whether publicly or privately owned, who is acting for purposes relating to the person’s self-employed trade, work or profession, even if the person does not intend to make a profit in the course of the activity. (3) A person who is within both of the preceding paragraphs is regarded as falling exclusively within paragraph (1) in relation to a rule which would provide protection for that person if that person were a consumer, and otherwise as falling exclusively within paragraph (2). I.–1:106: “In writing” and similar expressions (1) For the purposes of these rules, a statement is “in writing” if it is in textual form and in characters which are directly legible from paper or another tangible durable medium. (2) “Textual form” means a text which is expressed in alphabetical or other intelligible characters by means of any support which permits reading, ­ recording of the information contained in the text and its reproduction in tangible form. (3) “Durable medium” means any material on which information is stored so that it is accessible for future reference for a period of time adequate to the purposes of the information, and which allows the unchanged reproduction of this information. I.–1:107: “Signature” and similar expressions (1) A reference to a person’s signature includes a reference to that person’s handwritten signature, electronic signature or advanced electronic signature, and references to anything being signed by a person are to be construed accordingly.

1104  Part III: Common Principles (2) A “handwritten signature” means the name of, or sign representing, a person written by that person’s own hand for the purpose of authentication. (3) An “electronic signature” means data in electronic form which are attached to or logically associated with other electronic data, and which serve as a method of authentication. (4) An “advanced electronic signature” means an electronic signature which is: (a) uniquely linked to the signatory; (b) capable of identifying the signatory; (c) created using means which can be maintained under the signatory’s sole control; and (d) linked to the data to which it relates in such a manner that any subsequent change of the data is detectable. (5) In this Article, “electronic” means relating to technology with electrical, ­digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. I.–1:108: Definitions in Annex (1) The definitions in the Annex apply for all the purposes of these rules unless the context otherwise requires. (2) Where a word is defined, other grammatical forms of the word have a corresponding meaning. I.–1:109: Notice (1) This Article applies in relation to the giving of notice for any purpose under these rules. “Notice” includes the communication of information or of a juridical act. (2) The notice may be given by any means appropriate to the circumstances. (3) The notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. (4) The notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee’s place of business or, where there is no such place of business or the notice does not relate to a business matter, to the addressee’s habitual residence; (c) in the case of a notice transmitted by electronic means, when it can be accessed by the addressee; or (d) when it is otherwise made available to the addressee at such a place and in such a way that the addressee could reasonably be expected to obtain access to it without undue delay. (5) The notice has no effect if a revocation of it reaches the addressee before or at the same time as the notice. (6) Any reference in these rules to a notice given by or to a person includes a notice given by or to an agent of that person who has authority to give or receive it. (7) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the rule in paragraph (4)(c) or derogate from or vary its effects.

Draft Common Frame of Reference 1105 I.–1:110: Computation of time (1) The provisions of this Article apply in relation to the computation of time for any purpose under these rules. (2) Subject to the following provisions of this Article: (a) a period expressed in hours starts at the beginning of the first hour and ends with the expiry of the last hour of the period; (b) a period expressed in days starts at the beginning of the first hour of the first day and ends with the expiry of the last hour of the last day of the period; (c) a period expressed in weeks, months or years starts at the beginning of the first hour of the first day of the period, and ends with the expiry of the last hour of whichever day in the last week, month or year is the same day of the week, or falls on the same date, as the day from which the period runs; with the qualification that if, in a period expressed in months or in years, the day on which the period should expire does not occur in the last month, it ends with the expiry of the last hour of the last day of that month; (d) if a period includes part of a month, the month is considered to have thirty days for the purpose of calculating the length of the part. (3) Where a period is to be calculated from a specified event or action, then: (a) if the period is expressed in hours, the hour during which the event occurs or the action takes place is not considered to fall within the period in question; and (b) if the period is expressed in days, weeks, months or years, the day during which the event occurs or the action takes place is not considered to fall within the period in question. (4) Where a period is to be calculated from a specified time, then: (a) if the period is expressed in hours, the first hour of the period is considered to begin at the specified time; and (b) if the period is expressed in days, weeks, months or years, the day during which the specified time arrives is not considered to fall within the period in question. (5) The periods concerned include Saturdays, Sundays and public holidays, save where these are expressly excepted or where the periods are expressed in working days. (6) Where the last day of a period expressed otherwise than in hours is a Saturday, Sunday or public holiday at the place where a prescribed act is to be done, the period ends with the expiry of the last hour of the following working day. This provision does not apply to periods calculated retroactively from a given date or event. (7) Any period of two days or more is regarded as including at least two working days. (8) Where a person sends another person a document which sets a period of time within which the addressee has to reply or take other action but does not state when the period is to begin, then, in the absence of indications to the contrary, the period is calculated from the date stated as the date of the document or, if no date is stated, from the moment the document reaches the addressee.

1106  Part III: Common Principles (9) In this Article: (a) “public holiday” with reference to a member state, or part of a member state, of the European Union means any day designated as such for that state or part in a list published in the official journal; and (b) “working days” means all days other than Saturdays, Sundays and ­public holidays. Book II Contracts and other juridical acts Chapter 1 General provisions II.–1:101: Meaning of “contract” and “juridical act” (1) A contract is an agreement which is intended to give rise to a binding legal relationship or to have some other legal effect. It is a bilateral or multilateral juridical act. (2) A juridical act is any statement or agreement, whether express or implied from conduct, which is intended to have legal effect as such. It may be unilateral, bilateral or multilateral. II.–1:102: Party autonomy (1) Parties are free to make a contract or other juridical act and to determine its contents, subject to any applicable mandatory rules. (2) Parties may exclude the application of any of the following rules relating to contracts or other juridical acts, or the rights and obligations arising from them, or derogate from or vary their effects, except as otherwise provided. (3) A provision to the effect that parties may not exclude the application of a rule or derogate from or vary its effects does not prevent a party from waiving a right which has already arisen and of which that party is aware. II.–1:103: Binding effect (1) A valid contract is binding on the parties. (2) A valid unilateral undertaking is binding on the person giving it if it is intended to be legally binding without acceptance. (3) This Article does not prevent modification or termination of any resulting right or obligation by agreement between the debtor and creditor or as provided by law. II.–1:104: Usages and practices (1) The parties to a contract are bound by any usage to which they have agreed and by any practice they have established between themselves.

Draft Common Frame of Reference 1107 (2) The parties are bound by a usage which would be considered generally applicable by persons in the same situation as the parties, except where the application of such usage would be unreasonable. (3) This Article applies to other juridical acts with any necessary adaptations. II.–1:105: Imputed knowledge etc. If a person who with a party’s assent was involved in making a contract or other juridical act or in exercising a right or performing an obligation under it: (a) knew or foresaw a fact, or is treated as having knowledge or foresight of a fact; or (b) acted intentionally or with any other relevant state of mind this knowledge, foresight or state of mind is imputed to the party. II.–1:106: Form (1) A contract or other juridical act need not be concluded, made or evidenced in writing nor is it subject to any other requirement as to form. (2) Where a contract or other juridical act is invalid only by reason of noncompliance with a particular requirement as to form, one party (the first party) is liable for any loss suffered by the other (the second party) by acting in the mistaken, but reasonable, belief that it was valid if the first party: (a) knew it was invalid; (b) knew or could reasonably be expected to know that the second party was acting to that party’s potential prejudice in the mistaken belief that it was valid; and (c) contrary to good faith and fair dealing, allowed the second party to continue so acting. II.–1:107: Mixed contracts (1) For the purposes of this Article a mixed contract is a contract which contains: (a) parts falling within two or more of the categories of contracts regulated specifically in these rules; or (b) a part falling within one such category and another part falling within the category of contracts governed only by the rules applicable to contracts generally. (2) Where a contract is a mixed contract then, unless this is contrary to the nature and purpose of the contract, the rules applicable to each relevant category apply, with any appropriate adaptations, to the corresponding part of the contract and the rights and obligations arising from it. (3) Paragraph (2) does not apply where: (a) a rule provides that a mixed contract is to be regarded as falling primarily within one category; or (b) in a case not covered by the preceding sub-paragraph, one part of a mixed contract is in fact so predominant that it would be unreasonable not to regard the contract as falling primarily within one category.

1108  Part III: Common Principles (4) In cases covered by paragraph (3) the rules applicable to the category into which the contract primarily falls (the primary category) apply to the contract and the rights and obligations arising from it. However, rules applicable to any elements of the contract falling within another category apply with any appropriate adaptations so far as is necessary to regulate those elements and provided that they do not conflict with the rules applicable to the primary category. (5) Nothing in this Article prevents the application of any mandatory rules. II.–1:108: Partial invalidity or ineffectiveness Where only part of a contract or other juridical act is invalid or ineffective, the remaining part continues in effect if it can reasonably be maintained without the invalid or ineffective part. II.–1:109: Standard terms A “standard term” is a term which has been formulated in advance for several transactions involving different parties and which has not been individually negotiated by the parties. II.–1:110: Terms “not individually negotiated” (1) A term supplied by one party is not individually negotiated if the other party has not been able to influence its content, in particular because it has been drafted in advance, whether or not as part of standard terms. (2) If one party supplies a selection of terms to the other party, a term will not be regarded as individually negotiated merely because the other party chooses that term from that selection. (3) If it is disputed whether a term supplied by one party as part of standard terms has since been individually negotiated, that party bears the burden of proving that it has been. (4) In a contract between a business and a consumer, the business bears the burden of proving that a term supplied by the business has been individually negotiated. (5) In contracts between a business and a consumer, terms drafted by a third person are considered to have been supplied by the business, unless the consumer introduced them to the contract. Chapter 2 Non-discrimination II.–2:101: Right not to be discriminated against A person has a right not to be discriminated against on the grounds of sex or ethnic or racial origin in relation to a contract or other juridical act the object of which is

Draft Common Frame of Reference 1109 to provide access to, or supply, goods, other assets or services which are available to the public. II.–2:102: Meaning of discrimination (1) “Discrimination” means any conduct whereby, or situation where, on grounds such as those mentioned in the preceding Article: (a) one person is treated less favourably than another person is, has been or would be treated in a comparable situation; or (b) an apparently neutral provision, criterion or practice would place one group of persons at a particular disadvantage when compared to a ­different group of persons. (2) Discrimination also includes harassment on grounds such as those mentioned in the preceding Article. “Harassment” means unwanted conduct (including conduct of a sexual nature) which violates a person’s dignity, particularly when such conduct creates an intimidating, hostile, degrading, humiliating or offensive environment, or which aims to do so. (3) Any instruction to discriminate also amounts to discrimination. II.–2:103: Exception Unequal treatment which is justified by a legitimate aim does not amount to discrimination if the means used to achieve that aim are appropriate and necessary. II.–2:104: Remedies (1) If a person is discriminated against contrary to II.–2:101 (Right not to be discriminated against) then, without prejudice to any remedy which may be available under Book VI (Non-contractual liability for damage caused to another), the remedies for non-performance of an obligation under Book III, Chapter 3 (including damages for economic and non-economic loss) are available. (2) Any remedy granted should be proportionate to the injury or anticipated injury; the dissuasive effect of remedies may be taken into account. II.–2:105: Burden of proof (1) If a person who considers himself or herself discriminated against on one of the grounds mentioned in II.–2:101 (Right not to be discriminated against) establishes, before a court or another competent authority, facts from which it may be presumed that there has been such discrimination, it falls on the other party to prove that there has been no such discrimination. (2) Paragraph (1) does not apply to proceedings in which it is for the court or another competent authority to investigate the facts of the case.

1110  Part III: Common Principles Chapter 3 Marketing and pre-contractual duties Section 1 Information duties II.–3:101: Duty to disclose information about goods, other assets and services (1) Before the conclusion of a contract for the supply of goods, other assets or services by a business to another person, the business has a duty to disclose to the other person such information concerning the goods, other assets or services to be supplied as the other person can reasonably expect, taking into account the standards of quality and performance which would be normal under the circumstances. (2) In assessing what information the other person can reasonably expect to be disclosed, the test to be applied, if the other person is also a business, is whether the failure to provide the information would deviate from good commercial practice. II.–3:102: Specific duties for businesses marketing to consumers (1) Where a business is marketing goods, other assets or services to a consumer, the business has a duty not to give misleading information. Information is misleading if it misrepresents or omits material facts which the average ­consumer could expect to be given for an informed decision on whether to take steps towards the conclusion of a contract. In assessing what an average consumer could expect to be given, account is to be taken of all the circumstances and of the limitations of the communication medium employed. (2) Where a business uses a commercial communication which gives the impression to consumers that it contains all the relevant information necessary to make a decision about concluding a contract, the business has a duty to ensure that the communication in fact contains all the relevant information. Where it is not already apparent from the context of the commercial communication, the information to be provided comprises: (a) the main characteristics of the goods, other assets or services, the identity and address, if relevant, of the business, the price, and any available right of withdrawal; (b) peculiarities related to payment, delivery, performance and complaint handling, if they depart from the requirements of professional diligence; and (c) the language to be used for communications between the parties after the conclusion of the contract, if this differs from the language of the commercial communication. (3) A duty to provide information under this Article is not fulfilled unless all the information to be provided is provided in the same language.

Draft Common Frame of Reference 1111 II.–3:103: Duty to provide information when concluding contract with a consumer who is at a particular disadvantage (1) In the case of transactions that place the consumer at a significant informational disadvantage because of the technical medium used for contracting, the physical distance between business and consumer, or the nature of the transaction, the business has a duty, as appropriate in the circumstances, to provide clear information about the main characteristics of any goods, other assets or services to be supplied, the price, the address and identity of the business with which the consumer is transacting, the terms of the contract, the rights and obligations of both contracting parties, and any available right of withdrawal or redress procedures. This information must be provided a reasonable time before the conclusion of the contract. The information on the right of withdrawal must, as appropriate in the circumstances, also be adequate in the sense of II.–5:104 (Adequate information on the right to withdraw). (2) Where more specific information duties are provided for specific situations, these take precedence over the general information duty under paragraph (1). (3) The business bears the burden of proof that it has provided the information required by this Article. II.–3:104: Information duties in real time distance communication (1) When initiating real time distance communication with a consumer, a business has a duty to provide at the outset explicit information on its name and the commercial purpose of the contact. (2) Real time distance communication means direct and immediate distance communication of such a type that one party can interrupt the other in the course of the communication. It includes telephone and electronic means such as voice over internet protocol and internet related chat, but does not include communication by electronic mail. (3) The business bears the burden of proof that the consumer has received the information required under paragraph (1). (4) If a business has failed to comply with the duty under paragraph (1) and a contract has been concluded as a result of the communication, the other party has a right to withdraw from the contract by giving notice to the business within the period specified in II.–5:103 (Withdrawal period). (5) A business is liable to the consumer for any loss caused by a breach of the duty under paragraph (1). II.–3:105: Formation by electronic means (1) If a contract is to be concluded by electronic means and without individual communication, a business has a duty to provide information about the following matters before the other party makes or accepts an offer: (a) the technical steps to be taken in order to conclude the contract;

1112  Part III: Common Principles (b) whether or not a contract document will be filed by the business and whether it will be accessible; (c) the technical means for identifying and correcting input errors before the other party makes or accepts an offer; (d) the languages offered for the conclusion of the contract; (e) any contract terms used. (2) The business has a duty to ensure that the contract terms referred to in paragraph (1)(e) are available in textual form. (3) If a business has failed to comply with the duty under paragraph (1) and a contract has been concluded in the circumstances there stated, the other party has a right to withdraw from the contract by giving notice to the business within the period specified in II.–5:103 (Withdrawal period). (4) A business is liable to the consumer for any loss caused by a breach of the duty under paragraph (1). II.–3:106: Clarity and form of information (1) A duty to provide information imposed on a business under this Chapter is not fulfilled unless the requirements of this Article are satisfied. (2) The information must be clear and precise, and expressed in plain and intelligible language. (3) Where rules for specific contracts require information to be provided on a durable medium or in another particular form it must be provided in that way. (4) In the case of contracts between a business and a consumer concluded at a distance, information about the main characteristics of any goods, other assets or services to be supplied, the price, the address and identity of the business with which the consumer is transacting, the terms of the contract, the rights and obligations of both contracting parties, and any available redress procedures, as may be appropriate in the particular case, must be confirmed in textual form on a durable medium at the time of conclusion of the contract. The information on the right of withdrawal must also be adequate in the sense of II.–5:104 (Adequate information on the right to withdraw). II.–3:107: Information about price and additional charges Where under this Chapter a business has a duty to provide information about price, the duty is not fulfilled unless what is provided: (a) includes information about any deposits payable, delivery charges and any additional taxes and duties where these may be indicated separately; (b) if an exact price cannot be indicated, gives such information on the basis for the calculation as will enable the consumer to verify the price; and (c) if the price is not payable in one sum, includes information about the payment schedule.

Draft Common Frame of Reference 1113 II.–3:108: Information about address and identity of business (1) Where under this Chapter a business has a duty to provide information about its address and identity, the duty is not fulfilled unless the information includes: (a) the name of the business; (b) any trading names relevant to the contract in question; (c) the registration number in any official register, and the name of that register; (d) the geographical address of the business; (e) contact details; (f) where the business has a representative in the consumer’s state of residence, the address and identity of that representative; (g) where the activity of the business is subject to an authorisation scheme, the particulars of the relevant supervisory authority; and (h) where the business exercises an activity which is subject to VAT, the relevant VAT identification number. (2) For the purpose of II.–3:103 (Duty to provide information when concluding contract with a consumer who is at a particular disadvantage), the address and identity of the business include only the information indicated in paragraph (1)(a), (c), (d) and (e). II.–3:109: Remedies for breach of information duties (1) If a business has a duty under II.–3:103 (Duty to provide information when concluding contract with a consumer who is at a particular disadvantage) to provide information to a consumer before the conclusion of a contract from which the consumer has the right to withdraw, the withdrawal period does not commence until all this information has been provided. Regardless of this, the right of withdrawal lapses after one year from the time of the conclusion of the contract. (2) If a business has failed to comply with any duty imposed by the preceding Articles of this Section and a contract has been concluded, the business has such obligations under the contract as the other party has reasonably expected as a consequence of the absence or incorrectness of the information. Remedies provided under Book III, Chapter 3 apply to non-performance of these obligations. (3) Whether or not a contract is concluded, a business which has failed to comply with any duty imposed by the preceding Articles of this Section is liable for any loss caused to the other party to the transaction by such failure. This paragraph does not apply to the extent that a remedy is available for nonperformance of a contractual obligation under the preceding paragraph. (4) The remedies provided under this Article are without prejudice to any remedy which may be available under II.–7:201 (Mistake). (5) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.

1114  Part III: Common Principles Section 2 Duty to prevent input errors and acknowledge receipt II.–3:201: Correction of input errors (1) A business which intends to conclude a contract by making available electronic means without individual communication for concluding it has a duty to make available to the other party appropriate, effective and accessible technical means for identifying and correcting input errors before the other party makes or accepts an offer. (2) Where a person concludes a contract in error because of a failure by a business to comply with the duty under paragraph (1) the business is liable for any loss caused to that person by such failure. This is without prejudice to any remedy which may be available under II.–7:201 (Mistake). (3) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. II.–3:202: Acknowledgement of receipt (1) A business which offers the facility to conclude a contract by electronic means and without individual communication has a duty to acknowledge by electronic means the receipt of an offer or an acceptance by the other party. (2) If the other party does not receive the acknowledgement without undue delay, that other party may revoke the offer or withdraw from the contract. (3) The business is liable for any loss caused to the other party by a breach of the duty under paragraph (1). (4) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 3 Negotiation and confidentiality duties II.–3:301: Negotiations contrary to good faith and fair dealing (1) A person is free to negotiate and is not liable for failure to reach an agreement. (2) A person who is engaged in negotiations has a duty to negotiate in accordance with good faith and fair dealing and not to break off negotiations contrary to good faith and fair dealing. This duty may not be excluded or limited by contract. (3) A person who is in breach of the duty is liable for any loss caused to the other party by the breach. (4) It is contrary to good faith and fair dealing, in particular, for a person to enter into or continue negotiations with no real intention of reaching an agreement with the other party.

Draft Common Frame of Reference 1115 II.–3:302: Breach of confidentiality (1) If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for that party’s own purposes whether or not a contract is subsequently concluded. (2) In this Article, “confidential information” means information which, either from its nature or the circumstances in which it was obtained, the party receiving the information knows or could reasonably be expected to know is confidential to the other party. (3) A party who reasonably anticipates a breach of the duty may obtain a court order prohibiting it. (4) A party who is in breach of the duty is liable for any loss caused to the other party by the breach and may be ordered to pay over to the other party any benefit obtained by the breach. Section 4 Unsolicited goods or services II.–3:401: No obligation arising from failure to respond (1) If a business delivers unsolicited goods to, or performs unsolicited services for, a consumer: (a) no contract arises from the consumer’s failure to respond or from any other action or inaction by the consumer in relation to the goods and services; and (b) no non-contractual obligation arises from the consumer’s acquisition, retention, rejection or use of the goods or receipt of benefit from the services. (2) Sub-paragraph (b) of the preceding paragraph does not apply if the goods or services were supplied: (a) by way of benevolent intervention in another’s affairs; or (b) in error or in such other circumstances that there is a right to reversal of an unjustified enrichment. (3) This Article is subject to the rules on delivery of excess quantity under a contract for the sale of goods. (4) For the purposes of paragraph (1) delivery occurs when the consumer obtains physical control over the goods. Section 5 Damages for breach of duty under this Chapter II.–3:501: Liability for damages (1) Where any rule in this Chapter makes a person liable for loss caused to another person by a breach of a duty, the other person has a right to damages for that loss.

1116  Part III: Common Principles (2) The rules on III.–3:704 (Loss attributable to creditor) and III.–3:705 (Reduction of loss) apply with the adaptation that the reference to non-performance of the obligation is to be taken as a reference to breach of the duty. Chapter 4 Formation Section 1 General provisions II.–4:101: Requirements for the conclusion of a contract A contract is concluded, without any further requirement, if the parties: (a) intend to enter into a binding legal relationship or bring about some other legal effect; and (b) reach a sufficient agreement. II.–4:102: How intention is determined The intention of a party to enter into a binding legal relationship or bring about some other legal effect is to be determined from the party’s statements or conduct as they were reasonably understood by the other party. II.–4:103: Sufficient agreement (1) Agreement is sufficient if: (a) the terms of the contract have been sufficiently defined by the parties for the contract to be given effect; or (b) the terms of the contract, or the rights and obligations of the parties under it, can be otherwise sufficiently determined for the contract to be given effect. (2) If one of the parties refuses to conclude a contract unless the parties have agreed on some specific matter, there is no contract unless agreement on that matter has been reached. II.–4:104: Merger clause (1) If a contract document contains an individually negotiated term stating that the document embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the document do not form part of the contract. (2) If the merger clause is not individually negotiated it establishes only a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted. (3) The parties’ prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated term.

Draft Common Frame of Reference 1117 (4) A party may by statements or conduct be precluded from asserting a merger clause to the extent that the other party has reasonably relied on such statements or conduct. II.–4:105: Modification in certain form only (1) A term in a contract requiring any agreement to modify its terms, or to terminate the relationship resulting from it, to be in a certain form establishes only a presumption that any such agreement is not intended to be legally binding unless it is in that form. (2) A party may by statements or conduct be precluded from asserting such a term to the extent that the other party has reasonably relied on such statements or conduct. Section 2 Offer and acceptance II.–4:201: Offer (1) A proposal amounts to an offer if: (a) it is intended to result in a contract if the other party accepts it; and (b) it contains sufficiently definite terms to form a contract. (2) An offer may be made to one or more specific persons or to the public. (3) A proposal to supply goods from stock, or a service, at a stated price made by a business in a public advertisement or a catalogue, or by a display of goods, is treated, unless the circumstances indicate otherwise, as an offer to supply at that price until the stock of goods, or the business’s capacity to supply the service, is exhausted. II.–4:202: Revocation of offer (1) An offer may be revoked if the revocation reaches the offeree before the offeree has dispatched an acceptance or, in cases of acceptance by conduct, before the contract has been concluded. (2) An offer made to the public can be revoked by the same means as were used to make the offer. (3) However, a revocation of an offer is ineffective if: (a) the offer indicates that it is irrevocable; (b) the offer states a fixed time for its acceptance; or (c) it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. (4) Paragraph (3) does not apply to an offer if the offeror would have a right under any rule in Books II to IV to withdraw from a contract resulting from its acceptance. The parties may not, to the detriment of the offeror, exclude the application of this rule or derogate from or vary its effects.

1118  Part III: Common Principles II.–4:203: Rejection of offer When a rejection of an offer reaches the offeror, the offer lapses. II.–4:204: Acceptance (1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. (2) Silence or inactivity does not in itself amount to acceptance. II.–4:205: Time of conclusion of the contract (1) If an acceptance has been dispatched by the offeree the contract is concluded when the acceptance reaches the offeror. (2) In the case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror. (3) If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by doing an act without notice to the offeror, the contract is concluded when the offeree begins to do the act. II.–4:206: Time limit for acceptance (1) An acceptance of an offer is effective only if it reaches the offeror within the time fixed by the offeror. (2) If no time has been fixed by the offeror the acceptance is effective only if it reaches the offeror within a reasonable time. (3) Where an offer may be accepted by performing an act without notice to the offeror, the acceptance is effective only if the act is performed within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time. II.–4:207: Late acceptance (1) A late acceptance is nonetheless effective as an acceptance if without undue delay the offeror informs the offeree that it is treated as an effective acceptance. (2) If a letter or other communication containing a late acceptance shows that it has been dispatched in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that the offer is considered to have lapsed. II.–4:208: Modified acceptance (1) A reply by the offeree which states or implies additional or different terms which materially alter the terms of the offer is a rejection and a new offer. (2) A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies additional or different terms, provided these do not

Draft Common Frame of Reference 1119 materially alter the terms of the offer. The additional or different terms then become part of the contract. (3) However, such a reply is treated as a rejection of the offer if: (a) the offer expressly limits acceptance to the terms of the offer; (b) the offeror objects to the additional or different terms without undue delay; or (c) the offeree makes the acceptance conditional upon the offeror’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time. II.–4:209: Conflicting standard terms (1) If the parties have reached agreement except that the offer and acceptance refer to conflicting standard terms, a contract is nonetheless formed. The standard terms form part of the contract to the extent that they are common in substance. (2) However, no contract is formed if one party: (a) has indicated in advance, explicitly, and not by way of standard terms, an intention not to be bound by a contract on the basis of paragraph (1); or (b) without undue delay, informs the other party of such an intention. II.–4:210: Formal confirmation of contract between businesses If businesses have concluded a contract but have not embodied it in a final document, and one without undue delay sends the other a notice in textual form on a durable medium which purports to be a confirmation of the contract but which contains additional or different terms, such terms become part of the contract unless: (a) the terms materially alter the terms of the contract; or (b) the addressee objects to them without undue delay. II.–4:211: Contracts not concluded through offer and acceptance The rules in this Section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed into offer and acceptance. Section 3 Other juridical acts II.–4:301: Requirements for a unilateral juridical act The requirements for a unilateral juridical act are: (a) that the party doing the act intends to be legally bound or to achieve the relevant legal effect; (b) that the act is sufficiently certain; and (c) that notice of the act reaches the person to whom it is addressed or, if the act is addressed to the public, the act is made public by advertisement, public notice or otherwise.

1120  Part III: Common Principles II.–4:302: How intention is determined The intention of a party to be legally bound or to achieve the relevant legal effect is to be determined from the party’s statements or conduct as they were reasonably understood by the person to whom the act is addressed. II.–4:303: Right or benefit may be rejected Where a unilateral juridical act confers a right or benefit on the person to whom it is addressed, that person may reject it by notice to the maker of the act, provided that is done without undue delay and before the right or benefit has been expressly or impliedly accepted. On such rejection, the right or benefit is treated as never having accrued. Chapter 5 Right of withdrawal Section 1 Exercise and effect II.–5:101: Scope and mandatory nature (1) The provisions in this Section apply where under any rule in Books II to IV a party has a right to withdraw from a contract within a certain period. (2) The parties may not, to the detriment of the entitled party, exclude the application of the rules in this Chapter or derogate from or vary their effects. II.–5:102: Exercise of right to withdraw (1) A right to withdraw is exercised by notice to the other party. No reasons need to be given. (2) Returning the subject matter of the contract is considered a notice of withdrawal unless the circumstances indicate otherwise. II.–5:103: Withdrawal period (1) A right to withdraw may be exercised at any time after the conclusion of the contract and before the end of the withdrawal period. (2) The withdrawal period ends fourteen days after the latest of the following times; (a) the time of conclusion of the contract; (b) the time when the entitled party receives from the other party adequate information on the right to withdraw; or (c) if the subject matter of the contract is the delivery of goods, the time when the goods are received. (3) The withdrawal period ends no later than one year after the time of conclusion of the contract. (4) A notice of withdrawal is timely if dispatched before the end of the withdrawal period.

Draft Common Frame of Reference 1121 II.–5:104: Adequate information on the right to withdraw Adequate information on the right to withdraw requires that the right is appropriately brought to the entitled party’s attention, and that the information provides, in textual form on a durable medium and in clear and comprehensible language, information about how the right may be exercised, the withdrawal period, and the name and address of the person to whom the withdrawal is to be communicated. II.–5:105: Effects of withdrawal (1) Withdrawal terminates the contractual relationship and the obligations of both parties under the contract. (2) The restitutionary effects of such termination are governed by the rules in Book III, Chapter 3, Section 5, Sub-section 4 (Restitution) as modified by this Article, unless the contract provides otherwise in favour of the withdrawing party. (3) Where the withdrawing party has made a payment under the contract, the business has an obligation to return the payment without undue delay, and in any case not later than thirty days after the withdrawal becomes effective. (4) The withdrawing party is not liable to pay: (a) for any diminution in the value of anything received under the contract caused by inspection and testing; (b) for any destruction or loss of, or damage to, anything received under the contract, provided the withdrawing party used reasonable care to prevent such destruction, loss or damage. (5) The withdrawing party is liable for any diminution in value caused by normal use, unless that party had not received adequate notice of the right of withdrawal. (6) Except as provided in this Article, the withdrawing party does not incur any liability through the exercise of the right of withdrawal. (7) If a consumer exercises a right to withdraw from a contract after a business has made use of a contractual right to supply something of equivalent quality and price in case what was ordered is unavailable, the business must bear the cost of returning what the consumer has received under the contract. II.–5:106: Linked contracts (1) If a consumer exercises a right of withdrawal from a contract for the supply of goods, other assets or services by a business, the effects of withdrawal extend to any linked contract. (2) Where a contract is partially or exclusively financed by a credit contract, they form linked contracts, in particular: (a) if the business supplying goods, other assets or services finances the consumer’s performance; (b) if a third party which finances the consumer’s performance uses the services of the business for preparing or concluding the credit contract; (c) if the credit contract refers to specific goods, assets or services to be financed with this credit, and if this link between both contracts was

1122  Part III: Common Principles suggested by the supplier of the goods, other assets or services, or by the supplier of credit; or (d) if there is a similar economic link. (3) The provisions of II.–5:105 (Effects of withdrawal) apply accordingly to the linked contract. (4) Paragraph (1) does not apply to credit contracts financing the contracts mentioned in paragraph (2)(f) of the following Article. Section 2 Particular rights of withdrawal II.–5:201: Contracts negotiated away from business premises (1) A consumer is entitled to withdraw from a contract under which a business supplies goods, other assets or services, including financial services, to the consumer, or is granted a personal security by the consumer, if the consumer’s offer or acceptance was expressed away from the business premises. (2) Paragraph (1) does not apply to: (a) a contract concluded by means of an automatic vending machine or automated commercial premises; (b) a contract concluded with telecommunications operators through the use of public payphones; (c) a contract for the construction and sale of immovable property or relating to other immovable property rights, except for rental; (d) a contract for the supply of foodstuffs, beverages or other goods intended for everyday consumption supplied to the home, residence or workplace of the consumer by regular roundsmen; (e) a contract concluded by means of distance communication, but outside of an organised distance sales or service-provision scheme run by the supplier; (f) a contract for the supply of goods, other assets or services whose price depends on fluctuations in the financial market outside the supplier’s control, which may occur during the withdrawal period; (g) a contract concluded at an auction; (h) travel and baggage insurance policies or similar short-term insurance policies of less than one month’s duration. (3) If the business has exclusively used means of distance communication for concluding the contract, paragraph (1) also does not apply if the contract is for: (a) the supply of accommodation, transport, catering or leisure services, where the business undertakes, when the contract is concluded, to supply these services on a specific date or within a specific period; (b) the supply of services other than financial services if performance has begun, at the consumer’s express and informed request, before the end of the withdrawal period referred to in II.–5:103 (Withdrawal period) paragraph (1);

Draft Common Frame of Reference 1123 (c) the supply of goods made to the consumer’s specifications or clearly personalised or which, by reason of their nature, cannot be returned or are liable to deteriorate or expire rapidly; (d) the supply of audio or video recordings or computer software (i) which were unsealed by the consumer, or (ii) which can be downloaded or reproduced for permanent use, in case of supply by electronic means; (e) the supply of newspapers, periodicals and magazines; (f) gaming and lottery services. (4) With regard to financial services, paragraph (1) also does not apply to contracts that have been fully performed by both parties, at the consumer’s express request, before the consumer exercises his or her right of withdrawal. II.–5:202: Timeshare contracts (1) A consumer who acquires a right to use immovable property under a timeshare contract with a business is entitled to withdraw from the contract. (2) Where a consumer exercises the right of withdrawal under paragraph (1), the contract may require the consumer to reimburse those expenses which: (a) have been incurred as a result of the conclusion of and withdrawal from the contract; (b) correspond to legal formalities which must be completed before the end of the period referred to in II.–5:103 (Withdrawal period) paragraph (1); (c) are reasonable and appropriate; (d) are expressly mentioned in the contract; and (e) are in conformity with any applicable rules on such expenses. The consumer is not obliged to reimburse any expenses when exercising the right of withdrawal in the situation covered by paragraph (1) of II.–3:109 (Remedies for breach of information duties. (3) The business must not demand or accept any advance payment by the ­consumer during the period in which the latter may exercise the right of withdrawal. The business is obliged to return any such payment received. Chapter 6 Representation II.–6:101: Scope (1) This Chapter applies to the external relationships created by acts of ­representation—that is to say, the relationships between: (a) the principal and the third party; and (b) the representative and the third party. (2) It applies also to situations where a person purports to be a representative without actually being a representative. (3) It does not apply to the internal relationship between the representative and the principal.

1124  Part III: Common Principles II.–6:102: Definitions (1) A “representative” is a person who has authority to affect directly the legal position of another person, the principal, in relation to a third party by acting on behalf of the principal. (2) The “authority” of a representative is the power to affect the principal’s legal position. (3) The “authorisation” of the representative is the granting or maintaining of the authority. (4) “Acting without authority” includes acting beyond the scope of the authority granted. (5) A “third party”, in this Chapter, includes the representative who, when acting for the principal, also acts in a personal capacity as the other party to the transaction. II.–6:103: Authorisation (1) The authority of a representative may be granted by the principal or by the law. (2) The principal’s authorisation may be express or implied. (3) If a person causes a third party reasonably and in good faith to believe that the person has authorised a representative to perform certain acts, the person is treated as a principal who has so authorised the apparent representative. II.–6:104: Scope of authority (1) The scope of the representative’s authority is determined by the grant. (2) The representative has authority to perform all incidental acts necessary to achieve the purposes for which the authority was granted. (3) A representative has authority to delegate authority to another person (the delegate) to do acts on behalf of the principal which it is not reasonable to expect the representative to do personally. The rules of this Chapter apply to acts done by the delegate. II.–6:105: When representative’s act affects principal’s legal position When the representative acts: (a) in the name of a principal or otherwise in such a way as to indicate to the third party an intention to affect the legal position of a principal; and (b) within the scope of the representative’s authority, the act affects the legal position of the principal in relation to the third party as if it had been done by the principal. It does not as such give rise to any legal relation between the representative and the third party. II.–6:106: Representative acting in own name When the representative, despite having authority, does an act in the representative’s own name or otherwise in such a way as not to indicate to the third party an

Draft Common Frame of Reference 1125 intention to affect the legal position of a principal, the act affects the legal position of the representative in relation to the third party as if done by the representative in a personal capacity. It does not as such affect the legal position of the principal in relation to the third party unless this is specifically provided for by any rule of law. II.–6:107: Person purporting to act as representative but not having authority (1) When a person acts in the name of a principal or otherwise in such a way as to indicate to the third party an intention to affect the legal position of a principal but acts without authority, the act does not affect the legal position of the purported principal or, save as provided in paragraph (2), give rise to legal relations between the unauthorised person and the third party. (2) Failing ratification by the purported principal, the person is liable to pay the third party such damages as will place the third party in the same position as if the person had acted with authority. (3) Paragraph (2) does not apply if the third party knew or could reasonably be expected to have known of the lack of authority. II.–6:108: Unidentified principal If a representative acts for a principal whose identity is to be revealed later, but fails to reveal that identity within a reasonable time after a request by the third party, the representative is treated as having acted in a personal capacity. II.–6:109: Conflict of interest (1) If an act done by a representative involves the representative in a conflict of interest of which the third party knew or could reasonably be expected to have known, the principal may avoid the act according to the provisions of II.–7:209 (Notice of avoidance) to II.–7:213 (Partial avoidance). (2) There is presumed to be a conflict of interest where: (a) the representative also acted as representative for the third party; or (b) the transaction was with the representative in a personal capacity. (3) However, the principal may not avoid the act: (a) if the representative acted with the principal’s prior consent; or (b) if the representative had disclosed the conflict of interest to the principal and the principal did not object within a reasonable time; (c) if the principal otherwise knew, or could reasonably be expected to have known, of the representative’s involvement in the conflict of interest and did not object within a reasonable time; or (d) if, for any other reason, the representative was entitled as against the principal to do the act by virtue of IV. D.–5:101 (Self-contracting) or IV. D.–5:102 (Double mandate). II.–6:110: Several representatives Where several representatives have authority to act for the same principal, each of them may act separately.

1126  Part III: Common Principles II.–6:111: Ratification (1) Where a person purports to act as a representative but acts without authority, the purported principal may ratify the act. (2) Upon ratification, the act is considered as having been done with authority, without prejudice to the rights of other persons. (3) The third party who knows that an act was done without authority may by notice to the purported principal specify a reasonable period of time for ratification. If the act is not ratified within that period ratification is no longer possible. II.–6:112: Effect of ending or restriction of authorisation (1) The authority of a representative continues in relation to a third party who knew of the authority notwithstanding the ending or restriction of the representative’s authorisation until the third party knows or can reasonably be expected to know of the ending or restriction. (2) Where the principal is under an obligation to the third party not to end or restrict the representative’s authorisation, the authority of a representative continues notwithstanding an ending or restriction of the authorisation even if the third party knows of the ending or restriction. (3) The third party can reasonably be expected to know of the ending or restriction if, in particular, it has been communicated or publicised in the same way as the granting of the authority was originally communicated or publicised. (4) Notwithstanding the ending of authorisation, the representative continues to have authority for a reasonable time to perform those acts which are necessary to protect the interests of the principal or the principal’s successors. Chapter 7 Grounds of invalidity Section 1 General provisions II.–7:101: Scope (1) This Chapter deals with the effects of: (a) mistake, fraud, threats, or unfair exploitation; and (b) infringement of fundamental principles or mandatory rules. (2) It does not deal with lack of capacity. (3) It applies in relation to contracts and, with any necessary adaptations, other juridical acts. II.–7:102: Initial impossibility or lack of right or authority to dispose A contract is not invalid, in whole or in part, merely because at the time it is concluded performance of any obligation assumed is impossible, or because a party has no right or authority to dispose of any assets to which the contract relates.

Draft Common Frame of Reference 1127 Section 2 Vitiated consent or intention II.–7:201: Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) the party, but for the mistake, would not have concluded the contract or would have done so only on fundamentally different terms and the other party knew or could reasonably be expected to have known this; and (b) the other party; (i) caused the mistake; (ii) caused the contract to be concluded in mistake by leaving the mistaken party in error, contrary to good faith and fair dealing, when the other party knew or could reasonably be expected to have known of the mistake; (iii) caused the contract to be concluded in mistake by failing to comply with a pre-contractual information duty or a duty to make available a means of correcting input errors; or (iv) made the same mistake. (2) However a party may not avoid the contract for mistake if: (a) the mistake was inexcusable in the circumstances; or (b) the risk of the mistake was assumed, or in the circumstances should be borne, by that party. II.–7:202: Inaccuracy in communication may be treated as mistake An inaccuracy in the expression or transmission of a statement is treated as a mistake of the person who made or sent the statement. II.–7:203: Adaptation of contract in case of mistake (1) If a party is entitled to avoid the contract for mistake but the other party performs, or indicates a willingness to perform, the obligations under the contract as it was understood by the party entitled to avoid it, the contract is treated as having been concluded as that party understood it. This applies only if the other party performs, or indicates a willingness to perform, without undue delay after being informed of the manner in which the party entitled to avoid it understood the contract and before that party acts in reliance on any notice of avoidance. (2) After such performance or indication the right to avoid is lost and any earlier notice of avoidance is ineffective. (3) Where both parties have made the same mistake, the court may at the request of either party bring the contract into accordance with what might reasonably have been agreed had the mistake not occurred.

1128  Part III: Common Principles II.–7:204: Liability for loss caused by reliance on incorrect information (1) A party who has concluded a contract in reasonable reliance on incorrect information given by the other party in the course of negotiations has a right to damages for loss suffered as a result if the provider of the information: (a) believed the information to be incorrect or had no reasonable grounds for believing it to be correct; and (b) knew or could reasonably be expected to have known that the recipient would rely on the information in deciding whether or not to conclude the contract on the agreed terms. (2) This Article applies even if there is no right to avoid the contract. II.–7:205: Fraud (1) A party may avoid a contract when the other party has induced the conclusion of the contract by fraudulent misrepresentation, whether by words or conduct, or fraudulent non-disclosure of any information which good faith and fair dealing, or any pre-contractual information duty, required that party to disclose. (2) A misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false and is intended to induce the recipient to make a mistake. A non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake. (3) In determining whether good faith and fair dealing required a party to disclose particular information, regard should be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) whether the other party could reasonably acquire the information by other means; and (d) the apparent importance of the information to the other party. II.–7:206: Coercion or threats (1) A party may avoid a contract when the other party has induced the conclusion of the contract by coercion or by the threat of an imminent and serious harm which it is wrongful to inflict, or wrongful to use as a means to obtain the conclusion of the contract. (2) A threat is not regarded as inducing the contract if in the circumstances the threatened party had a reasonable alternative. II.–7:207: Unfair exploitation (1) A party may avoid a contract if, at the time of the conclusion of the contract: (a) the party was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill; and

Draft Common Frame of Reference 1129 (b) the other party knew or could reasonably be expected to have known this and, given the circumstances and purpose of the contract, exploited the first party’s situation by taking an excessive benefit or grossly unfair advantage. (2) Upon the request of the party entitled to avoidance, a court may if it is appropriate adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealing been observed. (3) A court may similarly adapt the contract upon the request of a party receiving notice of avoidance for unfair exploitation, provided that this party informs the party who gave the notice without undue delay after receiving it and before that party has acted in reliance on it. II.–7:208: Third persons (1) Where a third person for whose acts a party is responsible or who with a party’s assent is involved in the making of a contract: (a) causes a mistake, or knows of or could reasonably be expected to know of a mistake; or (b) is guilty of fraud, coercion, threats or unfair exploitation, remedies under this Section are available as if the behaviour or ­knowledge had been that of the party. (2) Where a third person for whose acts a party is not responsible and who does not have the party’s assent to be involved in the making of a contract is guilty of fraud, coercion, threats or unfair exploitation, remedies under this Section are available if the party knew or could reasonably be expected to have known of the relevant facts, or at the time of avoidance has not acted in reliance on the contract. II.–7:209: Notice of avoidance Avoidance under this Section is effected by notice to the other party. II.–7:210: Time A notice of avoidance under this Section is ineffective unless given within a reasonable time, with due regard to the circumstances, after the avoiding party knew or could reasonably be expected to have known of the relevant facts or became capable of acting freely. II.–7:211: Confirmation If a party who is entitled to avoid a contract under this Section confirms it, expressly or impliedly, after the period of time for giving notice of avoidance has begun to run, avoidance is excluded.

1130  Part III: Common Principles II.–7:212: Effects of avoidance (1) A contract which may be avoided under this Section is valid until avoided but, once avoided, is retrospectively invalid from the beginning. (2) The question whether either party has a right to the return of whatever has been transferred or supplied under a contract which has been avoided under this Section, or a monetary equivalent, is regulated by the rules on unjustified enrichment. (3) The effect of avoidance under this Section on the ownership of property which has been transferred under the avoided contract is governed by the rules on the transfer of property. II.–7:213: Partial avoidance If a ground of avoidance under this Section affects only particular terms of a contract, the effect of an avoidance is limited to those terms unless, giving due consideration to all the circumstances of the case, it is unreasonable to uphold the remaining contract. II.–7:214: Damages for loss (1) A party who has the right to avoid a contract under this Section (or who had such a right before it was lost by the effect of time limits or confirmation) is entitled, whether or not the contract is avoided, to damages from the other party for any loss suffered as a result of the mistake, fraud, coercion, threats or unfair exploitation, provided that the other party knew or could reasonably be expected to have known of the ground for avoidance. (2) The damages recoverable are such as to place the aggrieved party as nearly as possible in the position in which that party would have been if the contract had not been concluded, with the further limitation that, if the party does not avoid the contract, the damages are not to exceed the loss caused by the mistake, fraud, coercion, threats or unfair exploitation. (3) In other respects the rules on damages for non-performance of a contractual obligation apply with any appropriate adaptation. II.–7:215: Exclusion or restriction of remedies (1) Remedies for fraud, coercion, threats and unfair exploitation cannot be excluded or restricted. (2) Remedies for mistake may be excluded or restricted unless the exclusion or restriction is contrary to good faith and fair dealing. II.–7:216: Overlapping remedies A party who is entitled to a remedy under this Section in circumstances which afford that party a remedy for non-performance may pursue either remedy.

Draft Common Frame of Reference 1131 Section 3 Infringement of fundamental principles or mandatory rules II.–7:301: Contracts infringing fundamental principles A contract is void to the extent that: (a) it infringes a principle recognised as fundamental in the laws of the Member States of the European Union; and (b) nullity is required to give effect to that principle. II.–7:302: Contracts infringing mandatory rules (1) Where a contract is not void under the preceding Article but infringes a mandatory rule of law, the effects of that infringement on the validity of the contract are the effects, if any, expressly prescribed by that mandatory rule. (2) Where the mandatory rule does not expressly prescribe the effects of an infringement on the validity of a contract, a court may: (a) declare the contract to be valid; (b) avoid the contract, with retrospective effect, in whole or in part; or (c) modify the contract or its effects. (3) A decision reached under paragraph (2) should be an appropriate and proportional response to the infringement, having regard to all relevant circumstances, including: (a) the purpose of the rule which has been infringed; (b) the category of persons for whose protection the rule exists; (c) any sanction that may be imposed under the rule infringed; (d) the seriousness of the infringement; (e) whether the infringement was intentional; and (f) the closeness of the relationship between the infringement and the contract. II.–7:303: Effects of nullity or avoidance (1) The question whether either party has a right to the return of whatever has been transferred or supplied under a contract, or part of a contract, which is void or has been avoided under this Section, or a monetary equivalent, is regulated by the rules on unjustified enrichment. (2) The effect of nullity or avoidance under this Section on the ownership of property which has been transferred under the void or avoided contract, or part of a contract, is governed by the rules on the transfer of property. (3) This Article is subject to the powers of the court to modify the contract or its effects. II.–7:304: Damages for loss (1) A party to a contract which is void or avoided, in whole or in part, under this Section is entitled to damages from the other party for any loss suffered

1132  Part III: Common Principles as a result of the invalidity, provided that the first party did not know and could not reasonably be expected to have known, and the other party knew or could reasonably be expected to have known, of the infringement. (2) The damages recoverable are such as to place the aggrieved party as nearly as possible in the position in which that party would have been if the contract had not been concluded or the infringing term had not been included. Chapter 8 Interpretation Section 1 Interpretation of contracts II.–8:101: General rules (1) A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words. (2) If one party intended the contract, or a term or expression used in it, to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could reasonably be expected to have been aware, of the first party’s intention, the contract is to be interpreted in the way intended by the first party. (3) The contract is, however, to be interpreted according to the meaning which a reasonable person would give to it: (a) if an intention cannot be established under the preceding paragraphs; or (b) if the question arises with a person, not being a party to the contract or a person who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract’s apparent meaning. II.–8:102: Relevant matters (1) In interpreting the contract, regard may be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the interpretation which has already been given by the parties to terms or expressions which are the same as, or similar to, those used in the contract and the practices they have established between themselves; (d) the meaning commonly given to such terms or expressions in the branch of activity concerned and the interpretation such terms or expressions may already have received; (e) the nature and purpose of the contract; (f) usages; and (g) good faith and fair dealing.

Draft Common Frame of Reference 1133 (2) In a question with a person, not being a party to the contract or a person such as an assignee who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract’s apparent meaning, regard may be had to the circumstances mentioned in sub-paragraphs (a) to (c) above only to the extent that those circumstances were known to, or could reasonably be expected to have been known to, that person. II.–8:103: Interpretation against supplier of term or dominant party (1) Where there is doubt about the meaning of a term not individually negotiated, an interpretation of the term against the party who supplied it is to be preferred. (2) Where there is doubt about the meaning of any other term, and that term has been established under the dominant influence of one party, an interpretation of the term against that party is to be preferred. II.–8:104: Preference for negotiated terms Terms which have been individually negotiated take preference over those which have not. II.–8:105: Reference to contract as a whole Terms and expressions are to be interpreted in the light of the whole contract in which they appear. II.–8:106: Preference for interpretation which gives terms effect An interpretation which renders the terms of the contract lawful, or effective, is to be preferred to one which would not. II.–8:107: Linguistic discrepancies Where a contract document is in two or more language versions none of which is stated to be authoritative, there is, in case of discrepancy between the versions, a preference for the interpretation according to the version in which the contract was originally drawn up. Section 2 Interpretation of other juridical acts II.–8:201: General rules (1) A unilateral juridical act is to be interpreted in the way in which it could reasonably be expected to be understood by the person to whom it is addressed. (2) If the person making the juridical act intended the act, or a term or expression used in it, to have a particular meaning, and at the time of the act the person to whom it was addressed was aware, or could reasonably be

1134  Part III: Common Principles expected to have been aware, of the first person’s intention, the act is to be interpreted in the way intended by the first person. (3) The act is, however, to be interpreted according to the meaning which a reasonable person would give to it: (a) if neither paragraph (1) nor paragraph (2) applies; or (b) if the question arises with a person, not being the addressee or a person who by law has no better rights than the addressee, who has reasonably and in good faith relied on the contract’s apparent meaning. II.–8:202: Application of other rules by analogy The provisions of Section 1, apart from its first Article, apply with appropriate adaptations to the interpretation of a juridical act other than a contract. Chapter 9 Contents and effects of contracts Section 1 Contents II.–9:101: Terms of a contract (1) The terms of a contract may be derived from the express or tacit agreement of the parties, from rules of law or from practices established between the parties or usages. (2) Where it is necessary to provide for a matter which the parties have not foreseen or provided for, a court may imply an additional term, having regard in particular to: (a) the nature and purpose of the contract; (b) the circumstances in which the contract was concluded; and (c) the requirements of good faith and fair dealing. (3) Any term implied under paragraph (2) should, where possible, be such as to give effect to what the parties, had they provided for the matter, would probably have agreed. (4) Paragraph (2) does not apply if the parties have deliberately left a matter unprovided for, accepting the consequences of so doing. II.–9:102: Certain pre-contractual statements regarded as contract terms (1) A statement made by one party before a contract is concluded is regarded as a term of the contract if the other party reasonably understood it as being made on the basis that it would form part of the contract terms if a contract were concluded. In assessing whether the other party was reasonable in understanding the statement in that way account may be taken of: (a) the apparent importance of the statement to the other party; (b) whether the party was making the statement in the course of business; and

Draft Common Frame of Reference 1135 (c) the relative expertise of the parties. (2) If one of the parties to a contract is a business and before the contract is concluded makes a statement, either to the other party or publicly, about the specific characteristics of what is to be supplied by that business under the contract, the statement is regarded as a term of the contract unless: (a) the other party was aware when the contract was concluded, or could reasonably be expected to have been so aware, that the statement was incorrect or could not otherwise be relied on as such a term; or (b) the other party’s decision to conclude the contract was not influenced by the statement. (3) For the purposes of paragraph (2), a statement made by a person engaged in advertising or marketing on behalf of the business is treated as being made by the business. (4) Where the other party is a consumer then, for the purposes of paragraph (2), a public statement made by or on behalf of a producer or other person in earlier links of the business chain between the producer and the consumer is treated as being made by the business unless the business, at the time of conclusion of the contract, did not know and could not reasonably be expected to have known of it. (5) In the circumstances covered by paragraph (4) a business which at the time of conclusion of the contract did not know and could not reasonably be expected to have known that the statement was incorrect has a right to be indemnified by the person making the statement for any liability incurred as a result of that paragraph. (6) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. II.–9:103: Terms not individually negotiated (1) Terms supplied by one party and not individually negotiated may be invoked against the other party only if the other party was aware of them, or if the party supplying the terms took reasonable steps to draw the other party’s attention to them, before or when the contract was concluded. (2) If a contract is to be concluded by electronic means, the party supplying any terms which have not been individually negotiated may invoke them against the other party only if they are made available to the other party in textual form. (3) For the purposes of this Article (a) “not individually negotiated” has the meaning given by II.–1:110 (Terms “not individually negotiated”); and (b) terms are not sufficiently brought to the other party’s attention by a mere reference to them in a contract document, even if that party signs the document.

1136  Part III: Common Principles II.–9:104: Determination of price Where the amount of the price payable under a contract cannot be determined from the terms agreed by the parties, from any other applicable rule of law or from usages or practices, the price payable is the price normally charged in comparable circumstances at the time of the conclusion of the contract or, if no such price is available, a reasonable price. II.–9:105: Unilateral determination by a party Where the price or any other contractual term is to be determined by one party and that party’s determination is grossly unreasonable then, notwithstanding any provision in the contract to the contrary, a reasonable price or other term is substituted. II.–9:106: Determination by a third person (1) Where a third person is to determine the price or any other contractual term and cannot or will not do so, a court may, unless this is inconsistent with the terms of the contract, appoint another person to determine it. (2) If a price or other term determined by a third person is grossly unreasonable, a reasonable price or term is substituted. II.–9:107: Reference to a non-existent factor Where the price or any other contractual term is to be determined by reference to a factor which does not exist or has ceased to exist or to be accessible, the nearest equivalent factor is substituted unless this would be unreasonable in the circumstances, in which case a reasonable price or other term is substituted. II.–9:108: Quality Where the quality of anything to be supplied or provided under the contract cannot be determined from the terms agreed by the parties, from any other applicable rule of law or from usages or practices, the quality required is the quality which the recipient could reasonably expect in the circumstances. II.–9:109: Language Where the language to be used for communications relating to the contract or the rights or obligations arising from it cannot be determined from the terms agreed by the parties, from any other applicable rule of law or from usages or practices, the language to be used is that used for the conclusion of the contract. Section 2 Simulation II.–9:201: Effect of simulation (1) When the parties have concluded a contract or an apparent contract and have deliberately done so in such a way that it has an apparent effect ­different

Draft Common Frame of Reference 1137 from the effect which the parties intend it to have, the parties’ true intention prevails. (2) However, the apparent effect prevails in relation to a person, not being a party to the contract or apparent contract or a person who by law has no better rights than such a party, who has reasonably and in good faith relied on the apparent effect. Section 3 Effect of stipulation in favour of a third party II.–9:301: Basic rules (1) The parties to a contract may, by the contract, confer a right or other benefit on a third party. The third party need not be in existence or identified at the time the contract is concluded. (2) The nature and content of the third party’s right or benefit are determined by the contract and are subject to any conditions or other limitations under the contract. (3) The benefit conferred may take the form of an exclusion or limitation of the third party’s liability to one of the contracting parties. II.–9:302: Rights, remedies and defences Where one of the contracting parties is bound to render a performance to the third party under the contract, then, in the absence of provision to the contrary in the contract: (a) the third party has the same rights to performance and remedies for nonperformance as if the contracting party was bound to render the performance under a binding unilateral undertaking in favour of the third party; and (b) the contracting party may assert against the third party all defences which the contracting party could assert against the other party to the contract. II.–9:303: Rejection or revocation of benefit (1) The third party may reject the right or benefit by notice to either of the contracting parties, if that is done without undue delay after being notified of the right or benefit and before it has been expressly or impliedly accepted. On such rejection, the right or benefit is treated as never having accrued to the third party. (2) The contracting parties may remove or modify the contractual term conferring the right or benefit if this is done before either of them has given the third party notice that the right or benefit has been conferred. The contract determines whether and by whom and in what circumstances the right or benefit can be revoked or modified after that time. (3) Even if the right or benefit conferred is by virtue of the contract revocable or subject to modification, the right to revoke or modify is lost if the parties have, or the party having the right to revoke or modify has, led the third

1138  Part III: Common Principles party to believe that it is not revocable or subject to modification and if the third party has reasonably acted in reliance on it. Section 4 Unfair terms II.–9:401: Mandatory nature of following provisions The parties may not exclude the application of the provisions in this Section or ­derogate from or vary their effects. II.–9:402: Duty of transparency in terms not individually negotiated (1) A person who supplies terms which have not been individually negotiated has a duty to ensure that they are drafted and communicated in plain, intelligible language. (2) In a contract between a business and a consumer a term which has been supplied by the business in breach of the duty of transparency imposed by paragraph (1) may on that ground alone be considered unfair. II.–9:403: Meaning of “unfair” in contracts between a business and a consumer In a contract between a business and a consumer, a term [which has not been individually negotiated] is unfair for the purposes of this Section if it is supplied by the business and if it significantly disadvantages the consumer, contrary to good faith and fair dealing. II.–9:404: Meaning of “unfair” in contracts between non-business parties In a contract between parties neither of whom is a business, a term is unfair for the purposes of this Section only if it is a term forming part of standard terms supplied by one party and significantly disadvantages the other party, contrary to good faith and fair dealing. II.–9:405: Meaning of “unfair” in contracts between businesses A term in a contract between businesses is unfair for the purposes of this Section only if it is a term forming part of standard terms supplied by one party and of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing. II.–9:406: Exclusions from unfairness test (1) Contract terms are not subjected to an unfairness test under this Section if they are based on: (a) provisions of the applicable law;

Draft Common Frame of Reference 1139 (b) international conventions to which the Member States are parties, or to which the European Union is a party; or (c) these rules. (2) For contract terms which are drafted in plain and intelligible language, the unfairness test extends neither to the definition of the main subject matter of the contract, nor to the adequacy of the price to be paid. II.–9:407: Factors to be taken into account in assessing unfairness (1) When assessing the unfairness of a contractual term for the purposes of this Section, regard is to be had to the duty of transparency under II.–9:402 (Duty of transparency in terms not individually negotiated), to the nature of what is to be provided under the contract, to the circumstances prevailing during the conclusion of the contract, to the other terms of the contract and to the terms of any other contract on which the contract depends. (2) For the purposes of II.–9:403 (Meaning of “unfair” in contracts between a business and a consumer) the circumstances prevailing during the conclusion of the contract include the extent to which the consumer was given a real opportunity to become acquainted with the term before the conclusion of the contract. II.–9:408: Effects of unfair terms (1) A term which is unfair under this Section is not binding on the party who did not supply it. (2) If the contract can reasonably be maintained without the unfair term, the other terms remain binding on the parties. II.–9:409: Exclusive jurisdiction clauses (1) A term in a contract between a business and a consumer is unfair for the purposes of this Section if it is supplied by the business and if it confers exclusive jurisdiction for all disputes arising under the contract on the court for the place where the business is domiciled. (2) Paragraph (1) does not apply if the chosen court is also the court for the place where the consumer is domiciled. II.–9:410: Terms which are presumed to be unfair in contracts between a business and a consumer (1) A term in a contract between a business and a consumer is presumed to be unfair for the purposes of this Section if it is supplied by the business and if it: (a) excludes or limits the liability of a business for death or personal injury caused to a consumer through an act or omission of that business; (b) inappropriately excludes or limits the remedies, including any right to set-off, available to the consumer against the business or a third party for non-performance by the business of obligations under the contract;

1140  Part III: Common Principles (c) makes binding on a consumer an obligation which is subject to a condition the fulfilment of which depends solely on the intention of the business; (d) permits a business to keep money paid by a consumer if the latter decides not to conclude the contract, or perform obligations under it, without providing for the consumer to receive compensation of an equivalent amount from the business in the reverse situation; (e) requires a consumer who fails to perform his or her obligations to pay a disproportionately high amount of damages; (f) entitles a business to withdraw from or terminate the contractual relationship on a discretionary basis without giving the same right to the consumer, or entitles a business to keep money paid for services not yet supplied in the case where the business withdraws from or terminates the contractual relationship; (g) enables a business to terminate a contractual relationship of indeterminate duration without reasonable notice, except where there are serious grounds for doing so; this does not affect terms in financial services contracts where there is a valid reason, provided that the supplier is required to inform the other contracting party thereof immediately; (h) automatically extends a contract of fixed duration unless the consumer indicates otherwise, in cases where such terms provide for an unreasonably early deadline; (i) enables a business to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; this does not affect terms under which a supplier of financial services reserves the right to change the rate of interest to be paid by, or to, the consumer, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the consumer at the earliest opportunity and that the consumer is free to terminate the contractual relationship with immediate effect; neither does it affect terms under which a business reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that the business is required to inform the consumer with reasonable notice, and that the consumer is free to terminate the contractual relationship; (j) enables a business to alter unilaterally without a valid reason any characteristics of the goods, other assets or services to be provided; (k) provides that the price of goods or other assets is to be determined at the time of delivery or supply, or allows a business to increase the price without giving the consumer the right to withdraw if the increased price is too high in relation to the price agreed at the conclusion of the contract; this does not affect price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described; (l) gives a business the right to determine whether the goods, other assets or services supplied are in conformity with the contract, or gives the business the exclusive right to interpret any term of the contract;

Draft Common Frame of Reference 1141 (m) limits the obligation of a business to respect commitments undertaken by its agents, or makes its commitments subject to compliance with a particular formality; (n) obliges a consumer to fulfil all his or her obligations where the business fails to fulfil its own; (o) allows a business to transfer its rights and obligations under the contract without the consumer’s consent, if this could reduce the guarantees available to the consumer; (p) excludes or restricts a consumer’s right to take legal action or to exercise any other remedy, in particular by referring the consumer to arbitration proceedings which are not covered by legal provisions, by unduly restricting the evidence available to the consumer, or by shifting a burden of proof on to the consumer; (q) allows a business, where what has been ordered is unavailable, to supply an equivalent without having expressly informed the consumer of this possibility and of the fact that the business must bear the cost of returning what the consumer has received under the contract if the consumer exercises a right to withdraw. (2) Subparagraphs (g), (i) and (k) do not apply to: (a) transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate beyond the control of the business; (b) contracts for the purchase or sale of foreign currency, traveller’s cheques or international money orders denominated in foreign currency. Book III Obligations and corresponding rights Chapter 1 General III.–1:101: Scope of Book This Book applies, except as otherwise provided, to all obligations within the scope of these rules, whether they are contractual or not, and to corresponding rights to performance. III.–1:102: Definitions (1) An obligation is a duty to perform which one party to a legal relationship, the debtor, owes to another party, the creditor. (2) Performance of an obligation is the doing by the debtor of what is to be done under the obligation or the not doing by the debtor of what is not to be done. (3) Non-performance of an obligation is any failure to perform the obligation, whether or not excused, and includes delayed performance and any

1142  Part III: Common Principles other performance which is not in accordance with the terms regulating the obligation. (4) An obligation is reciprocal in relation to another obligation if: (a) performance of the obligation is due in exchange for performance of the other obligation; (b) it is an obligation to facilitate or accept performance of the other obligation; or (c) it is so clearly connected to the other obligation or its subject matter that performance of the one can reasonably be regarded as dependent on performance of the other. (5) The terms regulating an obligation may be derived from a contract or other juridical act, the law or a legally binding usage or practice, or a court order; and similarly for the terms regulating a right. III.–1:103: Good faith and fair dealing (1) A person has a duty to act in accordance with good faith and fair dealing in performing an obligation, in exercising a right to performance, in pursuing or defending a remedy for non-performance, or in exercising a right to terminate an obligation or contractual relationship. (2) The duty may not be excluded or limited by contract or other juridical act. (3) Breach of the duty does not give rise directly to the remedies for non-­ performance of an obligation but may preclude the person in breach from exercising or relying on a right, remedy or defence which that person would otherwise have. III.–1:104: Co-operation The debtor and creditor are obliged to co-operate with each other when and to the extent that this can reasonably be expected for the performance of the debtor’s obligation. III.–1:105: Non-discrimination Chapter 2 (Non-discrimination) of Book II applies with appropriate adaptations to: (a) the performance of any obligation to provide access to, or supply, goods, other assets or services which are available to members of the public; (b) the exercise of a right to performance of any such obligation or the pursuing or defending of any remedy for non-performance of any such obligation; and (c) the exercise of a right to terminate any such obligation. III.–1:106: Conditional rights and obligations (1) The terms regulating a right, obligation or contractual relationship may provide that it is conditional upon the occurrence of an uncertain future event, so that it takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition).

Draft Common Frame of Reference 1143 (2) Upon fulfilment of a suspensive condition, the relevant right, obligation or relationship takes effect. (3) Upon fulfilment of a resolutive condition, the relevant right, obligation or relationship comes to an end. (4) When a party, contrary to the duty of good faith and fair dealing or the obligation to co-operate, interferes with events so as to bring about the fulfilment or non-fulfilment of a condition to that party’s advantage, the other party may treat the condition as not having been fulfilled or as having been fulfilled as the case may be. (5) When a contractual obligation or relationship comes to an end on the fulfilment of a resolutive condition any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. III.–1:107: Time-limited rights and obligations (1) The terms regulating a right, obligation or contractual relationship may ­provide that it is to take effect from or end at a specified time, after a specified period of time or on the occurrence of an event which is certain to occur. (2) It will take effect or come to an end at the time or on the event without ­further steps having to be taken. (3) When a contractual obligation or relationship comes to an end under this Article any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. III.–1:108: Variation or termination by agreement (1) A right, obligation or contractual relationship may be varied or terminated by agreement at any time. (2) Where the parties do not regulate the effects of termination, then: (a) it has prospective effect only and does not affect any right to damages, or a stipulated payment, for non-performance of any obligation performance of which was due before termination; (b) it does not affect any provision for the settlement of disputes or any other provision which is to operate even after termination; and (c) in the case of a contractual obligation or relationship any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. III.–1:109: Variation or termination by notice (1) A right, obligation or contractual relationship may be varied or terminated by notice by either party where this is provided for by the terms regulating it. (2) Where, in a case involving continuous or periodic performance of a contractual obligation, the terms of the contract do not say when the contractual relationship is to end or say that it will never end, it may be terminated by either party by giving a reasonable period of notice. In assessing whether a

1144  Part III: Common Principles period of notice is reasonable, regard may be had to the interval between performances or counter-performances. (3) Where the parties do not regulate the effects of termination, then: (a) it has prospective effect only and does not affect any right to damages, or a stipulated payment, for non-performance of any obligation performance of which was due before termination; (b) it does not affect any provision for the settlement of disputes or any other provision which is to operate even after termination; and (c) in the case of a contractual obligation or relationship any restitutionary effects are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. III.–1:110: Variation or termination by court on a change of circumstances (1) An obligation must be performed even if performance has become more onerous, whether because the cost of performance has increased or because the value of what is to be received in return has diminished. (2) If, however, performance of a contractual obligation or of an obligation arising from a unilateral juridical act becomes so onerous because of an exceptional change of circumstances that it would be manifestly unjust to hold the debtor to the obligation a court may: (a) vary the obligation in order to make it reasonable and equitable in the new circumstances; or (b) terminate the obligation at a date and on terms to be determined by the court. (3) Paragraph (2) applies only if: (a) the change of circumstances occurred after the time when the obligation was incurred; (b) the debtor did not at that time take into account, and could not reasonably be expected to have taken into account, the possibility or scale of that change of circumstances; (c) the debtor did not assume, and cannot reasonably be regarded as having assumed, the risk of that change of circumstances; and (d) the debtor has attempted, reasonably and in good faith, to achieve by negotiation a reasonable and equitable adjustment of the terms regulating the obligation. III.–1:111: Tacit prolongation Where a contract provides for continuous or repeated performance of obligations for a definite period and the obligations continue to be performed by both parties after that period has expired, the contract becomes a contract for an indefinite period, unless the circumstances are inconsistent with the tacit consent of the parties to such prolongation.

Draft Common Frame of Reference 1145 Chapter 2 Performance III.–2:101: Place of performance (1) If the place of performance of an obligation cannot be otherwise determined from the terms regulating the obligation it is: (a) in the case of a monetary obligation, the creditor’s place of business; (b) in the case of any other obligation, the debtor’s place of business. (2) For the purposes of the preceding paragraph: (a) if a party has more than one place of business, the place of business is that which has the closest relationship to the obligation; and (b) if a party does not have a place of business, or the obligation does not relate to a business matter, the habitual residence is substituted. (3) If, in a case to which paragraph (1) applies, a party causes any increase in the expenses incidental to performance by a change in place of business or habitual residence subsequent to the time when the obligation was incurred, that party is obliged to bear the increase. III.–2:102: Time of performance (1) If the time at which, or a period of time within which, an obligation is to be performed cannot otherwise be determined from the terms regulating the obligation it must be performed within a reasonable time after it arises. (2) If a period of time within which the obligation is to be performed can be determined from the terms regulating the obligation, the obligation may be performed at any time within that period chosen by the debtor unless the circumstances of the case indicate that the creditor is to choose the time. (3) Unless the parties have agreed otherwise, a business must perform the obligations incurred under a contract concluded at a distance for the supply of goods, other assets or services to a consumer no later than 30 days after the contract was concluded. (4) If a business has an obligation to reimburse money received from a consumer for goods, other assets or services supplied, the reimbursement must be made as soon as possible and in any case no later than 30 days after the obligation arose. III.–2:103: Early performance (1) A creditor may reject an offer to perform before performance is due unless the early performance would not cause the creditor unreasonable prejudice. (2) A creditor’s acceptance of early performance does not affect the time fixed for the performance by the creditor of any reciprocal obligation.

1146  Part III: Common Principles III.–2:104: Order of performance If the order of performance of reciprocal obligations cannot be otherwise determined from the terms regulating the obligations then, to the extent that the obligations can be performed simultaneously, the parties are bound to perform simultaneously unless the circumstances indicate otherwise. III.–2:105: Alternative obligations or methods of performance (1) Where a debtor is bound to perform one of two or more obligations, or to perform an obligation in one of two or more ways, the choice belongs to the debtor, unless the terms regulating the obligations or obligation provide otherwise. (2) If the party who is to make the choice fails to choose by the time when performance is due, then: (a) if the delay amounts to a fundamental non-performance, the right to choose passes to the other party; (b) if the delay does not amount to a fundamental non-performance, the other party may give a notice fixing an additional period of reasonable length within which the party to choose is required to do so. If the latter still fails to do so, the right to choose passes to the other party. III.–2:106: Performance entrusted to another A debtor who entrusts performance of an obligation to another person remains responsible for performance. III.–2:107: Performance by a third person (1) Where personal performance by the debtor is not required by the terms regulating the obligation, the creditor cannot refuse performance by a third person if: (a) the third person acts with the assent of the debtor; or (b) the third person has a legitimate interest in performing and the debtor has failed to perform or it is clear that the debtor will not perform at the time performance is due. (2) Performance by a third person in accordance with paragraph (1) discharges the debtor except to the extent that the third person takes over the creditor’s right by assignment or subrogation. (3) Where personal performance by the debtor is not required and the creditor accepts performance of the debtor’s obligation by a third party in circumstances not covered by paragraph (1) the debtor is discharged but the creditor is liable to the debtor for any loss caused by that acceptance. III.–2:108: Method of payment (1) Payment of money due may be made by any method used in the ordinary course of business.

Draft Common Frame of Reference 1147 (2) A creditor who accepts a cheque or other order to pay or a promise to pay is presumed to do so only on condition that it will be honoured. The creditor may not enforce the original obligation to pay unless the order or promise is not honoured. III.–2:109: Currency of payment (1) The debtor and the creditor may agree that payment is to be made only in a specified currency. (2) In the absence of such agreement, a sum of money expressed in a currency other than that of the place where payment is due may be paid in the currency of that place according to the rate of exchange prevailing there at the time when payment is due. (3) If, in a case falling within the preceding paragraph, the debtor has not paid at the time when payment is due, the creditor may require payment in the currency of the place where payment is due according to the rate of exchange prevailing there either at the time when payment is due or at the time of actual payment. (4) Where a monetary obligation is not expressed in a particular currency, payment must be made in the currency of the place where payment is to be made. III.–2:110: Imputation of performance (1) Where a debtor has to perform several obligations of the same nature and makes a performance which does not suffice to extinguish all of the obligations, then subject to paragraph (5), the debtor may at the time of performance notify the creditor of the obligation to which the performance is to be imputed. (2) If the debtor does not make such a notification the creditor may, within a reasonable time and by notifying the debtor, impute the performance to one of the obligations. (3) An imputation under paragraph (2) is not effective if it is to an obligation which is not yet due, or is illegal, or is disputed. (4) In the absence of an effective imputation by either party, and subject to the following paragraph, the performance is imputed to that obligation which satisfies one of the following criteria in the sequence indicated: (a) the obligation which is due or is the first to fall due; (b) the obligation for which the creditor has the least security; (c) the obligation which is the most burdensome for the debtor; (d) the obligation which has arisen first. If none of the preceding criteria applies, the performance is imputed ­proportionately to all the obligations. (5) In the case of a monetary obligation, a payment by the debtor is to be imputed, first, to expenses, secondly, to interest, and thirdly, to principal, unless the creditor makes a different imputation.

1148  Part III: Common Principles III.–2:111: Property not accepted (1) A person who has an obligation to deliver or return corporeal property other than money and who is left in possession of the property because of the creditor’s failure to accept or retake the property, has an ancillary obligation to take reasonable steps to protect and preserve it. (2) The debtor may obtain discharge from the obligation to deliver or return and from the ancillary obligation mentioned in the preceding paragraph: (a) by depositing the property on reasonable terms with a third person to be held to the order of the creditor, and notifying the creditor of this; or (b) by selling the property on reasonable terms after notice to the creditor, and paying the net proceeds to the creditor. (3) Where, however, the property is liable to rapid deterioration or its preservation is unreasonably expensive, the debtor has an obligation to take reasonable steps to dispose of it. The debtor may obtain discharge from the obligation to deliver or return by paying the net proceeds to the creditor. (4) The debtor left in possession is entitled to be reimbursed or to retain out of the proceeds of sale any costs reasonably incurred. III.–2:112: Money not accepted (1) Where a creditor fails to accept money properly tendered by the debtor, the debtor may after notice to the creditor obtain discharge from the obligation to pay by depositing the money to the order of the creditor in accordance with the law of the place where payment is due. (2) Paragraph (1) applies, with appropriate adaptations, to money properly tendered by a third party in circumstances where the creditor is not entitled to refuse such performance. III.–2:113: Costs and formalities of performance (1) The costs of performing an obligation are borne by the debtor. (2) In the case of a monetary obligation the debtor’s obligation to pay includes taking such steps and complying with such formalities as may be necessary to enable payment to be made. III.–2:114: Extinctive effect of performance Full performance extinguishes the obligation if it is: (a) in accordance with the terms regulating the obligation; or (b) of such a type as by law to afford the debtor a good discharge.

Draft Common Frame of Reference 1149 Chapter 3 Remedies for non-performance Section 1 General III.–3:101: Remedies available (1) If an obligation is not performed by the debtor and the non-performance is not excused, the creditor may resort to any of the remedies set out in this Chapter. (2) If the debtor’s non-performance is excused, the creditor may resort to any of those remedies except enforcing specific performance and damages. (3) The creditor may not resort to any of those remedies to the extent that the creditor caused the debtor’s non-performance. III.–3:102: Cumulation of remedies Remedies which are not incompatible may be cumulated. In particular, a creditor is not deprived of the right to damages by resorting to any other remedy. III.–3:103: Notice fixing additional period for performance (1) In any case of non-performance of an obligation the creditor may by notice to the debtor allow an additional period of time for performance. (2) During the additional period the creditor may withhold performance of the creditor’s reciprocal obligations and may claim damages, but may not resort to any other remedy. (3) If the creditor receives notice from the debtor that the debtor will not perform within that period, or if upon expiry of that period due performance has not been made, the creditor may resort to any available remedy. III.–3:104: Excuse due to an impediment (1) A debtor’s non-performance of an obligation is excused if it is due to an impediment beyond the debtor’s control and if the debtor could not reasonably be expected to have avoided or overcome the impediment or its consequences. (2) Where the obligation arose out of a contract or other juridical act, nonperformance is not excused if the debtor could reasonably be expected to have taken the impediment into account at the time when the obligation was incurred. (3) Where the excusing impediment is only temporary the excuse has effect for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the creditor may treat it as such.

1150  Part III: Common Principles (4) Where the excusing impediment is permanent the obligation is extinguished. Any reciprocal obligation is also extinguished. In the case of contractual obligations any restitutionary effects of extinction are regulated by the rules in Chapter 3, Section 5, Sub-section 4 (Restitution) with appropriate adaptations. (5) The debtor has a duty to ensure that notice of the impediment and of its effect on the ability to perform reaches the creditor within a reasonable time after the debtor knew or could reasonably be expected to have known of these circumstances. The creditor is entitled to damages for any loss resulting from the non-receipt of such notice. III.–3:105: Term excluding or restricting remedies (1) A term of a contract or other juridical act which purports to exclude or restrict liability to pay damages for personal injury (including fatal injury) caused intentionally or by gross negligence is void. (2) A term excluding or restricting a remedy for non-performance of an obligation, even if valid and otherwise effective, having regard in particular to the rules on unfair contract terms in Book II, Chapter 9, Section 4, may nevertheless not be invoked if it would be contrary to good faith and fair dealing to do so. III.–3:106: Notices relating to non-performance (1) If the creditor gives notice to the debtor because of the debtor’s non-­ performance of an obligation or because such non-performance is anticipated, and the notice is properly dispatched or given, a delay or inaccuracy in the transmission of the notice or its failure to arrive does not prevent it from having effect. (2) The notice has effect from the time at which it would have arrived in normal circumstances. III.–3:107: Failure to notify non-conformity (1) If, in the case of an obligation to supply goods, other assets or services, the debtor supplies goods, other assets or services which are not in conformity with the terms regulating the obligation, the creditor may not rely on the lack of conformity unless the creditor gives notice to the debtor within a reasonable time specifying the nature of the lack of conformity. (2) The reasonable time runs from the time when the goods or other assets are supplied or the service is completed or from the time, if it is later, when the creditor discovered or could reasonably be expected to have discovered the non-conformity. (3) The debtor is not entitled to rely on paragraph (1) if the failure relates to facts which the debtor knew or could reasonably be expected to have known and which the debtor did not disclose to the creditor. (4) This Article does not apply where the creditor is a consumer.

Draft Common Frame of Reference 1151 III.–3:108: Business unable to fulfil consumer’s order by distance communication (1) Where a business is unable to perform its obligations under a contract concluded with a consumer by means of distance communication, it is obliged to inform the consumer immediately and refund any sums paid by the consumer without undue delay and in any case within 30 days. The consumer’s remedies for non-performance remain unaffected. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 2 Cure by debtor of non-conforming performance III.–3:201: Scope This Section applies where a debtor’s performance does not conform to the terms regulating the obligation. III.–3:202: Cure by debtor: general rules (1) The debtor may make a new and conforming tender if that can be done within the time allowed for performance. (2) If the debtor cannot make a new and conforming tender within the time allowed for performance but, promptly after being notified of the lack of conformity, offers to cure it within a reasonable time and at the debtor’s own expense, the creditor may not pursue any remedy for non-performance, other than withholding performance, before allowing the debtor a reasonable period in which to attempt to cure the non-conformity. (3) Paragraph (2) is subject to the provisions of the following Article. III.–3:203: When creditor need not allow debtor an opportunity to cure The creditor need not, under paragraph (2) of the preceding Article, allow the debtor a period in which to attempt cure if: (a) failure to perform a contractual obligation within the time allowed for performance amounts to a fundamental non-performance; (b) the creditor has reason to believe that the debtor’s performance was made with knowledge of the non-conformity and was not in accordance with good faith and fair dealing; (c) the creditor has reason to believe that the debtor will be unable to effect the cure within a reasonable time and without significant inconvenience to the creditor or other prejudice to the creditor’s legitimate interests; or (d) cure would be inappropriate in the circumstances. III.–3:204: Consequences of allowing debtor opportunity to cure (1) During the period allowed for cure the creditor may withhold performance of the creditor’s reciprocal obligations, but may not resort to any other remedy.

1152  Part III: Common Principles (2) If the debtor fails to effect cure within the time allowed, the creditor may resort to any available remedy. (3) Notwithstanding cure, the creditor retains the right to damages for any loss caused by the debtor’s initial or subsequent non-performance or by the process of effecting cure. III.–3:205: Return of replaced item (1) Where the debtor has, whether voluntarily or in compliance with an order under III.–3:302 (Enforcement of non-monetary obligations), remedied a non-conforming performance by replacement, the debtor has a right and an obligation to take back the replaced item at the debtor’s expense. (2) The creditor is not liable to pay for any use made of the replaced item in the period prior to the replacement. Section 3 Right to enforce performance III.–3:301: Enforcement of monetary obligations (1) The creditor is entitled to recover money payment of which is due. (2) Where the creditor has not yet performed the reciprocal obligation for which payment will be due and it is clear that the debtor in the monetary obligation will be unwilling to receive performance, the creditor may nonetheless proceed with performance and may recover payment unless: (a) the creditor could have made a reasonable substitute transaction without significant effort or expense; or (b) performance would be unreasonable in the circumstances. III.–3:302: Enforcement of non-monetary obligations (1) The creditor is entitled to enforce specific performance of an obligation other than one to pay money. (2) Specific performance includes the remedying free of charge of a performance which is not in conformity with the terms regulating the obligation. (3) Specific performance cannot, however, be enforced where: (a) performance would be unlawful or impossible; (b) performance would be unreasonably burdensome or expensive; or (c) performance would be of such a personal character that it would be unreasonable to enforce it. (4) The creditor loses the right to enforce specific performance if performance is not requested within a reasonable time after the creditor has become, or could reasonably be expected to have become, aware of the non-performance. (5) The creditor cannot recover damages for loss or a stipulated payment for non-performance to the extent that the creditor has increased the loss or the amount of the payment by insisting unreasonably on specific performance in

Draft Common Frame of Reference 1153 circumstances where the creditor could have made a reasonable substitute transaction without significant effort or expense. III.–3:303: Damages not precluded The fact that a right to enforce specific performance is excluded under the preceding Article does not preclude a claim for damages. Section 4 Withholding performance III.–3:401: Right to withhold performance of reciprocal obligation (1) A creditor who is to perform a reciprocal obligation at the same time as, or after, the debtor performs has a right to withhold performance of the reciprocal obligation until the debtor has tendered performance or has performed. (2) A creditor who is to perform a reciprocal obligation before the debtor performs and who reasonably believes that there will be non-performance by the debtor when the debtor’s performance becomes due may withhold performance of the reciprocal obligation for as long as the reasonable belief continues. However, the right to withhold performance is lost if the debtor gives an adequate assurance of due performance. (3) A creditor who withholds performance in the situation mentioned in ­paragraph (2) has a duty to give notice of that fact to the debtor as soon as is reasonably practicable and is liable for any loss caused to the debtor by a breach of that duty. (4) The performance which may be withheld under this Article is the whole or part of the performance as may be reasonable in the circumstances. Section 5 Termination III.–3:501: Scope and definition (1) This Section applies only to contractual obligations and contractual relationships. (2) In this Section “termination” means the termination of the contractual relationship in whole or in part and “terminate” has a corresponding meaning. Sub-section 1 Grounds for termination III.–3:502: Termination for fundamental non-performance (1) A creditor may terminate if the debtor’s non-performance of a contractual obligation is fundamental.

1154  Part III: Common Principles (2) A non-performance of a contractual obligation is fundamental if: (a) it substantially deprives the creditor of what the creditor was entitled to expect under the contract, as applied to the whole or relevant part of the performance, unless at the time of conclusion of the contract the debtor did not foresee and could not reasonably be expected to have foreseen that result; or (b) it is intentional or reckless and gives the creditor reason to believe that the debtor’s future performance cannot be relied on. III.–3:503: Termination after notice fixing additional time for performance (1) A creditor may terminate in a case of delay in performance of a contractual obligation which is not in itself fundamental if the creditor gives a notice fixing an additional period of time of reasonable length for performance and the debtor does not perform within that period. (2) If the period fixed is unreasonably short, the creditor may terminate only after a reasonable period from the time of the notice. III.–3:504: Termination for anticipated non-performance A creditor may terminate before performance of a contractual obligation is due if the debtor has declared that there will be a non-performance of the obligation, or it is otherwise clear that there will be such a non-performance, and if the non-­ performance would have been fundamental. III.–3:505: Termination for inadequate assurance of performance A creditor who reasonably believes that there will be a fundamental non-performance of a contractual obligation by the debtor may terminate if the creditor demands an adequate assurance of due performance and no such assurance is provided within a reasonable time. Sub-section 2 Scope, exercise and loss of right to terminate III.–3:506: Scope of right to terminate (1) Where the debtor’s obligations under the contract are not divisible the creditor may only terminate the contractual relationship as a whole. (2) Where the debtor’s obligations under the contract are to be performed in separate parts or are otherwise divisible, then: (a) if there is a ground for termination under this Section of a part to which a counter-performance can be apportioned, the creditor may terminate the contractual relationship so far as it relates to that part; (b) the creditor may terminate the contractual relationship as a whole only if the creditor cannot reasonably be expected to accept performance of the other parts or there is a ground for termination in relation to the contractual relationship as a whole.

Draft Common Frame of Reference 1155 III.–3:507: Notice of termination (1) A right to terminate under this Section is exercised by notice to the debtor. (2) Where a notice under III.–3:503 (Termination after notice fixing additional time for performance) provides for automatic termination if the debtor does not perform within the period fixed by the notice, termination takes effect after that period or a reasonable length of time from the giving of notice (whichever is longer) without further notice. III.–3:508: Loss of right to terminate (1) If performance has been tendered late or a tendered performance otherwise does not conform to the contract the creditor loses the right to terminate under this Section unless notice of termination is given within a reasonable time. (2) Where the creditor has given the debtor a period of time to cure the nonperformance under III.–3:202 (Cure by debtor: general rules) the time mentioned in paragraph (1) begins to run from the expiry of that period. In other cases that time begins to run from the time when the creditor has become, or could reasonably be expected to have become, aware of the tender or the non-conformity. (3) A creditor loses a right to terminate by notice under III.–3:503 (Termination after notice fixing additional time for performance), III.–3:504 (Termination for anticipated non-performance) or III.–3:505 (Termination for inadequate assurance of performance) unless the creditor gives notice of termination within a reasonable time after the right has arisen. Sub-section 3 Effects of termination III.–3:509: Effect on obligations under the contract (1) On termination under this Section, the outstanding obligations or relevant part of the outstanding obligations of the parties under the contract come to an end. (2) Termination does not, however, affect any provision of the contract for the settlement of disputes or other provision which is to operate even after termination. (3) A creditor who terminates under this Section retains existing rights to damages or a stipulated payment for non-performance and in addition has the same right to damages or a stipulated payment for non-performance as the creditor would have had if there had been non-performance of the now extinguished obligations of the debtor. In relation to such extinguished obligations the creditor is not regarded as having caused or contributed to the loss merely by exercising the right to terminate.

1156  Part III: Common Principles Sub-section 4 Restitution III.–3:510: Restitution of benefits received by performance (1) On termination under this Section a party (the recipient) who has received any benefit by the other’s performance of obligations under the terminated contractual relationship or terminated part of the contractual relationship is obliged to return it. Where both parties have obligations to return, the obligations are reciprocal. (2) If the performance was a payment of money, the amount received is to be repaid. (3) To the extent that the benefit (not being money) is transferable, it is to be returned by transferring it. However, if a transfer would cause unreasonable effort or expense, the benefit may be returned by paying its value. (4) To the extent that the benefit is not transferable it is to be returned by paying its value in accordance with III.–3:512 (Payment of value of benefit). (5) The obligation to return a benefit extends to any natural or legal fruits received from the benefit. III.–3:511: When restitution not required (1) There is no obligation to make restitution under this Sub-section to the extent that conforming performance by one party has been met by conforming performance by the other. (2) The terminating party may elect to treat performance as non-conforming if what was received by that party is of no, or fundamentally reduced, value to that party because of the other party’s non-performance. (3) Restitution under this Sub-section is not required where the contract was gratuitous. III.–3:512: Payment of value of benefit (1) The recipient is obliged to: (a) pay the value (at the time of performance) of a benefit which is not transferable or which ceases to be transferable before the time when it is to be returned; and (b) pay recompense for any reduction in the value of a returnable benefit as a result of a change in the condition of the benefit between the time of receipt and the time when it is to be returned. (2) Where there was an agreed price the value of the benefit is that proportion of the price which the value of the actual performance bears to the value of the promised performance. Where no price was agreed the value of the benefit is the sum of money which a willing and capable provider and a willing and capable recipient, knowing of any non-conformity, would lawfully have agreed.

Draft Common Frame of Reference 1157 (3) The recipient’s liability to pay the value of a benefit is reduced to the extent that as a result of a non-performance of an obligation owed by the other party to the recipient: (a) the benefit cannot be returned in essentially the same condition as when it was received; or (b) the recipient is compelled without compensation either to dispose of it or to sustain a disadvantage in order to preserve it. (4) The recipient’s liability to pay the value of a benefit is likewise reduced to the extent that it cannot be returned in the same condition as when it was received as a result of conduct of the recipient in the reasonable, but mistaken, belief that there was no non-conformity. III.–3:513: Use and improvements (1) The recipient is obliged to pay a reasonable amount for any use which the recipient makes of the benefit except in so far as the recipient is liable under III.–3:512 (Payment of value of benefit) paragraph (1) in respect of that use. (2) A recipient who has improved a benefit which the recipient is obliged under this Section to return has a right to payment of the value of improvements if the other party can readily obtain that value by dealing with the benefit unless: (a) the improvement was a non-performance of an obligation owed by the recipient to the other party; or (b) the recipient made the improvement when the recipient knew or could reasonably be expected to know that the benefit would have to be returned. III.–3:514: Liabilities arising after time when return due (1) The recipient is obliged to: (a) pay the value (at the time of performance) of a benefit which ceases to be transferable after the time when its return was due; and (b) pay recompense for any reduction in the value of a returnable benefit as a result of a change in the condition of the benefit after the time when its return was due. (2) If the benefit is disposed of after the time when return was due, the value to be paid is the value of any proceeds, if this is greater. (3) Other liabilities arising from non-performance of an obligation to return a benefit are unaffected. Section 6 Price reduction III.–3:601: Right to reduce price (1) A creditor who accepts a performance not conforming to the terms regulating the obligation may reduce the price. The reduction is to be proportionate

1158  Part III: Common Principles to the decrease in the value of what was received by virtue of the performance at the time it was made compared to the value of what would have been received by virtue of a conforming performance. (2) A creditor who is entitled to reduce the price under the preceding paragraph and who has already paid a sum exceeding the reduced price may recover the excess from the debtor. (3) A creditor who reduces the price cannot also recover damages for the loss thereby compensated but remains entitled to damages for any further loss suffered. (4) This Article applies with appropriate adaptations to a reciprocal obligation of the creditor other than an obligation to pay a price. Section 7 Damages and interest III.–3:701: Right to damages (1) The creditor is entitled to damages for loss caused by the debtor’s non-­ performance of an obligation, unless the non-performance is excused. (2) The loss for which damages are recoverable includes future loss which is reasonably likely to occur. (3) “Loss” includes economic and non-economic loss. “Economic loss” includes loss of income or profit, burdens incurred and a reduction in the value of property. “Non-economic loss” includes pain and suffering and impairment of the quality of life. III.–3:702: General measure of damages The general measure of damages for loss caused by non-performance of an obligation is such sum as will put the creditor as nearly as possible into the position in which the creditor would have been if the obligation had been duly performed. Such damages cover loss which the creditor has suffered and gain of which the creditor has been deprived. III.–3:703: Foreseeability The debtor in an obligation which arises from a contract or other juridical act is liable only for loss which the debtor foresaw or could reasonably be expected to have foreseen at the time when the obligation was incurred as a likely result of the non-performance, unless the non-performance was intentional, reckless or grossly negligent. III.–3:704: Loss attributable to creditor The debtor is not liable for loss suffered by the creditor to the extent that the creditor contributed to the non-performance or its effects.

Draft Common Frame of Reference 1159 III.–3:705: Reduction of loss (1) The debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps. (2) The creditor is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. III.–3:706: Substitute transaction A creditor who has terminated a contractual relationship in whole or in part under Section 5 and has made a substitute transaction within a reasonable time and in a reasonable manner may, in so far as entitled to damages, recover the difference between the value of what would have been payable under the terminated relationship and the value of what is payable under the substitute transaction, as well as damages for any further loss. III.–3:707: Current price Where the creditor has terminated a contractual relationship in whole or in part under Section 5 and has not made a substitute transaction but there is a current price for the performance, the creditor may, in so far as entitled to damages, recover the difference between the contract price and the price current at the time of termination as well as damages for any further loss. III.–3:708: Interest on late payments (1) If payment of a sum of money is delayed, whether or not the non-­performance is excused, the creditor is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank shortterm lending rate to prime borrowers prevailing for the currency of payment at the place where payment is due. (2) The creditor may in addition recover damages for any further loss. III.–3:709: When interest to be added to capital (1) Interest payable according to the preceding Article is added to the outstanding capital every 12 months. (2) Paragraph (1) of this Article does not apply if the parties have provided for interest upon delay in payment. III.–3:710: Interest in commercial contracts (1) If a business delays the payment of a price due under a contract for the supply of goods, other assets or services without being excused under III.–3:104 (Excuse due to an impediment), interest is due at the rate specified in ­paragraph (4), unless a higher interest rate is applicable. (2) Interest at the rate specified in paragraph (4) starts to run on the day which follows the date or the end of the period for payment provided in the contract. If there is no such date or period, interest at that rate starts to run:

1160  Part III: Common Principles (a) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or (b) 30 days after the date of receipt of the goods or services, if the date under (a) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment. (3) If conformity of goods or services to the contract is to be ascertained by way of acceptance or verification, the 30 day period under paragraph (2)(b) starts to run on the date of acceptance or verification. (4) The interest rate for delayed payment is the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question (“the reference rate”), plus seven percentage points. For the currency of a Member State which is not participating in the third stage of economic and monetary union, the reference rate is the equivalent rate set by its national central bank. (5) The creditor may in addition recover damages for any further loss. III.–3:711: Unfair terms relating to interest (1) A term whereby a business pays interest from a date later than that specified in the preceding Article paragraph (2)(a) and (b) and paragraph (3), or at a rate lower than that specified in paragraph (4), is not binding to the extent that this would be unfair. (2) A term whereby a debtor is allowed to pay the price for goods, other assets or services later than the time when interest starts to run under the preceding Article paragraph (2)(a) and (b) and paragraph (3) does not deprive the creditor of interest to the extent that this would be unfair. (3) Something is unfair for the purposes of this Article if it grossly deviates from good commercial practice, contrary to good faith and fair dealing. III.–3:712: Stipulated payment for non-performance (1) Where the terms regulating an obligation provide that a debtor who fails to perform the obligation is to pay a specified sum to the creditor for such non-performance, the creditor is entitled to that sum irrespective of the actual loss. (2) However, despite any provision to the contrary, the sum so specified in a contract or other juridical act may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances. III.–3:713: Currency by which damages to be measured Damages are to be measured by the currency which most appropriately reflects the creditor’s loss.

Draft Common Frame of Reference 1161 Chapter 4 Plurality of debtors and creditors Section 1 Plurality of debtors III.–4:101: Scope of Section This Section applies where two or more debtors are bound to perform one obligation. III.–4:102: Solidary, divided and joint obligations (1) An obligation is solidary when each debtor is bound to perform the obligation in full and the creditor may require performance from any of them until full performance has been received. (2) An obligation is divided when each debtor is bound to perform only part of the obligation and the creditor may claim from each debtor only performance of that debtor’s part. (3) An obligation is joint when the debtors are bound to perform the obligation together and the creditor may require performance only from all of them together. III.–4:103: When different types of obligation arise (1) Whether an obligation is solidary, divided or joint depends on the terms regulating the obligation. (2) If the terms do not determine the question, the liability of two or more debtors to perform the same obligation is solidary. Liability is solidary in particular where two or more persons are liable for the same damage. (3) The fact that the debtors are not liable on the same terms or grounds does not prevent solidarity. III.–4:104: Liability under divided obligations Debtors bound by a divided obligation are liable in equal shares. III.–4:105: Joint obligations: special rule when money claimed for non-performance Notwithstanding III.–4:102 (Solidary, divided and joint obligations) paragraph (3), when money is claimed for non-performance of a joint obligation, the debtors have solidary liability for payment to the creditor. III.–4:106: Apportionment between solidary debtors (1) As between themselves, solidary debtors are liable in equal shares. (2) If two or more debtors have solidary liability for the same damage, their share of liability as between themselves is equal unless different shares of liability are more appropriate having regard to all the circumstances of the

1162  Part III: Common Principles case and in particular to fault or to the extent to which a source of danger for which one of them was responsible contributed to the occurrence or extent of the damage. III.–4:107: Recourse between solidary debtors (1) A solidary debtor who has performed more than that debtor’s share has a right to recover the excess from any of the other debtors to the extent of each debtor’s unperformed share, together with a share of any costs reasonably incurred. (2) A solidary debtor to whom paragraph (1) applies may also, subject to any prior right and interest of the creditor, exercise the rights and actions of the creditor, including any supporting security rights, to recover the excess from any of the other debtors to the extent of each debtor’s unperformed share. (3) If a solidary debtor who has performed more than that debtor’s share is unable, despite all reasonable efforts, to recover contribution from another solidary debtor, the share of the others, including the one who has performed, is increased proportionally. III.–4:108: Performance, set-off and merger in solidary obligations (1) Performance or set-off by a solidary debtor or set-off by the creditor against one solidary debtor discharges the other debtors in relation to the creditor to the extent of the performance or set-off. (2) Merger of debts between a solidary debtor and the creditor discharges the other debtors only for the share of the debtor concerned. III.–4:109: Release or settlement in solidary obligations (1) When the creditor releases, or reaches a settlement with, one solidary debtor, the other debtors are discharged of liability for the share of that debtor. (2) As between solidary debtors, the debtor who is discharged from that debtor’s share is discharged only to the extent of the share at the time of the discharge and not from any supplementary share for which that debtor may subsequently become liable under III.–4:107 (Recourse between solidary debtors) paragraph (3). (3) When the debtors have solidary liability for the same damage the discharge under paragraph (1) extends only so far as is necessary to prevent the creditor from recovering more than full reparation and the other debtors retain their rights of recourse against the released or settling debtor to the extent of that debtor’s unperformed share. III.–4:110: Effect of judgment in solidary obligations A decision by a court as to the liability to the creditor of one solidary debtor does not affect: (a) the liability to the creditor of the other solidary debtors; or

Draft Common Frame of Reference 1163 (b) the rights of recourse between the solidary debtors under III.–4:107 (Recourse between solidary debtors). III.–4:111: Prescription in solidary obligations Prescription of the creditor’s right to performance against one solidary debtor does not affect: (a) the liability to the creditor of the other solidary debtors; or (b) the rights of recourse between the solidary debtors under III.–4:107 (Recourse between solidary debtors). III.–4:112: Opposability of other defences in solidary obligations (1) A solidary debtor may invoke against the creditor any defence which another solidary debtor can invoke, other than a defence personal to that other debtor. Invoking the defence has no effect with regard to the other solidary debtors. (2) A debtor from whom contribution is claimed may invoke against the claimant any personal defence that that debtor could have invoked against the creditor. Section 2 Plurality of creditors III.–4:201: Scope of section This Section applies where two or more creditors have a right to performance under one obligation. III.–4:202: Solidary, divided and joint rights (1) A right to performance is solidary when any of the creditors may require full performance from the debtor and the debtor may perform to any of the creditors. (2) A right to performance is divided when each creditor may require performance only of that creditor’s share and the debtor owes each creditor only that creditor’s share. (3) A right to performance is joint when any creditor may require performance only for the benefit of all the creditors and the debtor must perform to all the creditors. III.–4:203: When different types of right arise (1) Whether a right to performance is solidary, divided or communal depends on the terms regulating the right. (2) If the terms do not determine the question, the right of co-creditors is divided.

1164  Part III: Common Principles III.–4:204: Apportionment in cases of divided rights In the case of divided rights the creditors have equal shares. III.–4:205: Difficulties of performing in cases of joint rights If one of the creditors who have joint rights to performance refuses to accept, or is unable to receive, the performance, the debtor may obtain discharge from the obligation by depositing the property or money with a third party according to III.–2:111 (Property not accepted) or III.–2:112 (Money not accepted). III.–4:206: Apportionment in cases of solidary rights (1) In the case of solidary rights the creditors have equal shares. (2) A creditor who has received more than that creditor’s share has an obligation to transfer the excess to the other creditors to the extent of their respective shares. III.–4:207: Regime of solidary rights (1) A release granted to the debtor by one of the solidary creditors has no effect on the other solidary creditors. (2) The rules of III.–4:108 (Performance, set-off and merger in solidary obligations), III.–4:110 (Effect of judgment in solidary obligations), III.–4:111 (Prescription in solidary obligations) and III.–4:112 (Opposability of other defences in solidary obligations) paragraph (1) apply, with appropriate adaptations, to solidary rights to performance. Chapter 5 Change of parties Section 1 Assignment of rights Sub-section 1 General III.–5:101: Scope of Section (1) This Section applies to the assignment, by a contract or other juridical act, of a right to performance of an obligation. (2) It does not apply to the transfer of a financial instrument or investment security where such transfer is required to be by entry in a register maintained by or for the issuer or where there are other requirements for transfer or restrictions on transfer.

Draft Common Frame of Reference 1165 III.–5:102: Definitions (1) An “assignment” of a right is the transfer of the right from one person (the “assignor”) to another person (the “assignee”). (2) An “act of assignment” is a contract or other juridical act which is intended to effect a transfer of the right. (3) Where part of a right is assigned, any reference in this Section to a right includes a reference to the assigned part of the right. III.–5:103: Priority of provisions on proprietary securities and trusts (1) In relation to assignments for purposes of security, the provisions of Book IX apply and have priority over the provisions in this Chapter. (2) In relation to assignments for purposes of a trust, or to or from a trust, the provisions of Book X apply and have priority over the provisions in this Chapter. Sub-section 2 Requirements for assignment III.–5:104: Basic requirements (1) The requirements for an assignment of a right to performance are that: (a) the right exists; (b) the right is assignable; (c) the person purporting to assign the right has the right or authority to transfer it; (d) the assignee is entitled as against the assignor to the transfer by virtue of a contract or other juridical act, a court order or a rule of law; and (e) there is a valid act of assignment of the right. (2) The entitlement referred to in paragraph (1)(d) need not precede the act of assignment. (3) The same contract or other juridical act may operate as the conferment of an entitlement and as the act of assignment. (4) Neither notice to the debtor nor the consent of the debtor to the assignment is required. III.–5:105: Assignability: general rule (1) All rights to performance are assignable except where otherwise provided by law. (2) A right to performance which is by law accessory to another right is not assignable separately from that right. III.–5:106: Future and unspecified rights (1) A future right to performance may be the subject of an act of assignment but the transfer of the right depends on its coming into existence and being identifiable as the right to which the act of assignment relates.

1166  Part III: Common Principles (2) A number of rights to performance may be assigned without individual specification if, at the time when the assignment is to take place in relation to them, they are identifiable as rights to which the act of assignment relates. III.–5:107: Assignability in part (1) A right to performance of a monetary obligation may be assigned in part. (2) A right to performance of a non-monetary obligation may be assigned in part only if: (a) the debtor consents to the assignment; or (b) the right is divisible and the assignment does not render the obligation significantly more burdensome. (3) Where a right is assigned in part the assignor is liable to the debtor for any increased costs which the debtor thereby incurs. III.–5:108: Assignability: effect of contractual prohibition (1) A contractual prohibition of, or restriction on, the assignment of a right does not affect the assignability of the right. (2) However, where a right is assigned in breach of such a prohibition or restriction: (a) the debtor may perform in favour of the assignor and is discharged by so doing; and (b) the debtor retains all rights of set-off against the assignor as if the right had not been assigned. (3) Paragraph (2) does not apply if: (a) the debtor has consented to the assignment; (b) the debtor has caused the assignee to believe on reasonable grounds that there was no such prohibition or restriction; or (c) the assigned right is a right to payment for the provision of goods or services. (4) The fact that a right is assignable notwithstanding a contractual prohibition or restriction does not affect the assignor’s liability to the debtor for any breach of the prohibition or restriction. III.–5:109: Assignability: rights personal to the creditor (1) A right is not assignable if it is a right to a performance which the debtor, by reason of the nature of the performance or the relationship between the debtor and the creditor, could not reasonably be required to render to anyone except that creditor. (2) Paragraph (1) does not apply if the debtor has consented to the assignment. III.–5:110: Act of assignment: formation and validity (1) Subject to paragraphs (2) and (3), the rules of Book II on the formation and validity of contracts and other juridical acts apply to acts of assignment.

Draft Common Frame of Reference 1167 (2) The rules of Book IV.H on the formation and validity of contracts of donation apply to gratuitous acts of assignment. (3) The rules of Book IX on the formation and validity of security agreements apply to acts of assignment for purposes of security. III.–5:111: Right or authority to assign The requirement of right or authority in III.–5:104 (Basic requirements) paragraph (1)(c) need not be satisfied at the time of the act of assignment but has to be satisfied at the time the assignment is to take place. Sub-section 3 Undertakings by assignor III.–5:112: Undertakings by assignor (1) The undertakings in paragraphs (2) to (6) are included in the act of assignment unless the act of assignment or the circumstances indicate otherwise. (2) The assignor undertakes that: (a) the assigned right exists or will exist at the time when the assignment is to take effect; (b) the assignor is entitled to assign the right or will be so entitled at the time when the assignment is to take effect. (c) the debtor has no defences against an assertion of the right; (d) the right will not be affected by any right of set-off available as between the assignor and the debtor; and (e) the right has not been the subject of a prior assignment to another assignee and is not subject to any right in security in favour of any other person or to any other incumbrance. (3) The assignor undertakes that any terms of a contract or other juridical act which have been disclosed to the assignee as terms regulating the right have not been modified and are not affected by any undisclosed agreement as to their meaning or effect which would be prejudicial to the assignee. (4) The assignor undertakes that the terms of any contract or other juridical act from which the right arises will not be modified without the consent of the assignee unless the modification is provided for in the act of assignment or is one which is made in good faith and is of a nature to which the assignee could not reasonably object. (5) The assignor undertakes not to conclude or grant any subsequent act of assignment of the same right which could lead to another person obtaining priority over the assignee. (6) The assignor undertakes to transfer to the assignee, or to take such steps as are necessary to complete the transfer of, all transferable rights intended to secure the performance which are not already transferred by the assignment, and to transfer the proceeds of any non-transferable rights intended to secure the performance.

1168  Part III: Common Principles (7) The assignor does not represent that the debtor has, or will have, the ability to pay. Sub-section 4 Effects of assignment III.–5:113: New creditor As soon as the assignment takes place the assignor ceases to be the creditor and the assignee becomes the creditor in relation to the right assigned. III.–5:114: When assignment takes place (1) An assignment takes place when the requirements of III.–5:104 (Basic requirements) are satisfied, or at such later time as the act of assignment may provide. (2) However, an assignment of a right which was a future right at the time of the act of assignment is regarded as having taken place when all requirements other than those dependent on the existence of the right were satisfied. (3) Where the requirements of III.–5:104 (Basic requirements) are satisfied in relation to successive acts of assignment at the same time, the earliest act of assignment takes effect unless it provides otherwise. III.–5:115: Rights transferred to assignee (1) The assignment of a right to performance transfers to the assignee not only the primary right but also all accessory rights and transferable supporting security rights. (2) Where the assignment of a right to performance of a contractual obligation is associated with the substitution of the assignee as debtor in respect of any obligation owed by the assignor under the same contract, this Article takes effect subject to III.–5:302 (Transfer of contractual position). III.–5:116: Effect on defences and rights of set-off (1) The debtor may invoke against the assignee all substantive and procedural defences to a claim based on the assigned right which the debtor could have invoked against the assignor. (2) The debtor may not, however, invoke a defence against the assignee: (a) if the debtor has caused the assignee to believe that there was no such defence; or (b) if the defence is based on breach by the assignor of a prohibition or restriction on assignment.

Draft Common Frame of Reference 1169 (3) The debtor may invoke against the assignee all rights of set-off which would have been available against the assignor in respect of rights against the assignor: (a) existing at the time when the debtor could no longer obtain a discharge by performing to the assignor; or (b) closely connected with the assigned right. III.–5:117: Effect on place of performance (1) Where the assigned right relates to an obligation to pay money at a particular place, the assignee may require payment at any place within the same country or, if that country is a Member State of the European Union, at any place within the European Union, but the assignor is liable to the debtor for any increased costs which the debtor incurs by reason of any change in the place of performance. (2) Where the assigned right relates to a non-monetary obligation to be performed at a particular place, the assignee may not require performance at any other place. III.–5:118: Effect of initial invalidity, subsequent avoidance, withdrawal, termination and revocation (1) This Article applies where the assignee’s entitlement for the purposes of III.–5:104 (Basic requirements) paragraph (1)(d) arises from a contract or other juridical act (the underlying contract or other juridical act) whether or not it is followed by a separate act of assignment for the purposes of ­paragraph (1)(e) of that Article. (2) Where the underlying contract or other juridical act is void from the beginning, no assignment takes place. (3) Where, after an assignment has taken place, the underlying contract or other juridical act is avoided under Book II, Chapter 7, the right is treated as never having passed to the assignee (retroactive effect on assignment). (4) Where, after an assignment has taken place, the underlying contract or other juridical act is withdrawn in the sense of Book II, Chapter 5, or the contractual relationship is terminated under any rule of Book III, or a donation is revoked in the sense of Book IV. H Chapter 4, there is no retroactive effect on the assignment. (5) This Article does not affect any right to recover based on other provisions of these model rules. Sub-section 5 Protection of debtor III.–5:119: Performance to person who is not the creditor (1) The debtor is discharged by performing to the assignor so long as the debtor has not received a notice of assignment from either the assignor or the

1170  Part III: Common Principles assignee and does not know that the assignor is no longer entitled to receive performance. (2) Notwithstanding that the person identified as the assignee in a notice of assignment received from the assignor is not the creditor, the debtor is discharged by performing in good faith to that person. (3) Notwithstanding that the person identified as the assignee in a notice of assignment received from a person claiming to be the assignee is not the creditor, the debtor is discharged by performing to that person if the creditor has caused the debtor reasonably and in good faith to believe that the right has been assigned to that person. III.–5:120: Adequate proof of assignment (1) A debtor who believes on reasonable grounds that the right has been assigned but who has not received a notice of assignment, may request the person who is believed to have assigned the right to provide a notice of assignment or a confirmation that the right has not been assigned or that the assignor is still entitled to receive payment. (2) A debtor who has received a notice of assignment which is not in textual form on a durable medium or which does not give adequate information about the assigned right or the name and address of the assignee may request the person giving the notice to provide a new notice which satisfies these requirements. (3) A debtor who has received a notice of assignment from the assignee but not from the assignor may request the assignee to provide reliable evidence of the assignment. Reliable evidence includes, but is not limited to, any statement in textual form on a durable medium emanating from the assignor indicating that the right has been assigned. (4) A debtor who has made a request under this Article may withhold performance until the request is met. Sub-section 6 Priority rules III.–5:121: Competition between successive assignees (1) Where there are successive purported assignments by the same person of the same right to performance the purported assignee whose assignment is first notified to the debtor has priority over any earlier assignee if at the time of the later assignment the assignee under that assignment neither knew nor could reasonably be expected to have known of the earlier assignment. (2) The debtor is discharged by paying the first to notify even if aware of competing demands.

Draft Common Frame of Reference 1171 III.–5:122: Competition between assignee and assignor receiving proceeds Where the debtor is discharged under III.–5:108 (Assignability: effect of contractual prohibition) paragraph (2)(a) or III.–5:119 (Performance to person who is not the creditor) paragraph (1), the assignee’s right against the assignor to the proceeds has priority over the right of a competing claimant so long as the proceeds are held by the assignor and are reasonably identifiable from the other assets of the assignor. Section 2 Substitution and addition of debtors III.–5:201: Scope This Section applies only to the substitution or addition of a new debtor by agreement. III.–5:202: Types of substitution or addition (1) A new debtor may be substituted or added: (a) in such a way that the original debtor is discharged (complete substitution of new debtor); (b) in such a way that the original debtor is retained as a debtor in case the new debtor does not perform properly (incomplete substitution of new debtor); or (c) in such a way that the original debtor and the new debtor have solidary liability (addition of new debtor). (2) If it is clear that there is a new debtor but not clear what type of substitution or addition was intended, the original debtor and the new debtor have solidary liability. III.–5:203: Consent of creditor (1) The consent of the creditor is required for the substitution of a new debtor, whether complete or incomplete. (2) The consent of the creditor to the substitution of a new debtor may be given in advance. In such a case the substitution takes effect only when the creditor is given notice by the new debtor of the agreement between the new and the original debtor. (3) The consent of the creditor is not required for the addition of a new debtor but the creditor, by notice to the new debtor, can reject the right conferred against the new debtor if that is done without undue delay after being informed of the right and before it has been expressly or impliedly accepted. On such rejection the right is treated as never having been conferred. III.–5:204: Complete substitution A third person may undertake with the agreement of the creditor and the original debtor to be completely substituted as debtor, with the effect that the original debtor is discharged.

1172  Part III: Common Principles III.–5:205: Effects of complete substitution on defences, set-off and security rights (1) The new debtor may invoke against the creditor all defences which the ­original debtor could have invoked against the creditor. (2) The new debtor may not exercise against the creditor any right of set-off available to the original debtor against the creditor. (3) The new debtor cannot invoke against the creditor any rights or defences arising from the relationship between the new debtor and the original debtor. (4) The discharge of the original debtor also extends to any personal or proprietary security provided by the original debtor to the creditor for the performance of the obligation, unless the security is over an asset which is transferred to the new debtor as part of a transaction between the original and the new debtor. (5) Upon discharge of the original debtor, a security granted by any person other than the new debtor for the performance of the obligation is released, unless that other person agrees that it should continue to be available to the creditor. III.–5:206: Incomplete substitution A third person may agree with the creditor and with the original debtor to be incompletely substituted as debtor, with the effect that the original debtor is retained as a debtor in case the original debtor does not perform properly. III.–5:207: Effects of incomplete substitution (1) The effects of an incomplete substitution on defences and set-off are the same as the effects of a complete substitution. (2) To the extent that the original debtor is not discharged, any personal or proprietary security provided for the performance of that debtor’s obligations is unaffected by the substitution. (3) So far as not inconsistent with paragraphs (1) and (2) the liability of the original debtor is governed by the rules on the liability of a provider of dependent personal security with subsidiary liability. III.–5:208: Addition of new debtor A third person may agree with the debtor to be added as a debtor, with the effect that the original debtor and the new debtor have solidary liability. III.–5:209: Effects of addition of new debtor (1) Where there is a contract between the new debtor and the creditor, or a separate unilateral juridical act by the new debtor in favour of the creditor, whereby the new debtor is added as a debtor, the new debtor cannot invoke against the creditor any rights or defences arising from the relationship between the new debtor and the original debtor. Where there is no such contract or unilateral juridical act the new debtor can invoke against the creditor any ground of invalidity affecting the agreement with the original debtor.

Draft Common Frame of Reference 1173 (2) So far as not inconsistent with paragraph (1), the rules of Book III, Chapter 4, Section 1 (Plurality of debtors) apply. Section 3 Transfer of contractual position III.–5:301: Scope This Section applies only to transfers by agreement. III.–5:302: Transfer of contractual position (1) A party to a contractual relationship may agree with a third person, with the consent of the other party to the contractual relationship, that that person is to be substituted as a party to the relationship. (2) The consent of the other party may be given in advance. In such a case the transfer takes effect only when that party is given notice of it. (3) To the extent that the substitution of the third person involves a transfer of rights, the provisions of Section 1 of this Chapter on the assignment of rights apply; to the extent that obligations are transferred, the provisions of Section 2 of this Chapter on the substitution of a new debtor apply. Section 4 Transfer of rights and obligations on agent’s insolvency III.–5:401: Principal’s option to take over rights in case of agent’s insolvency (1) This Article applies where an agent has concluded a contract with a third party on the instructions of and on behalf of a principal but has done so in such a way that the agent, and not the principal, is a party to the contract. (2) If the agent becomes insolvent the principal may by notice to the third party and to the agent take over the rights of the agent under the contract in relation to the third party. (3) The third party may invoke against the principal any defence which the third party could have invoked against the agent and has all the other protections which would be available if the rights had been voluntarily assigned by the agent to the principal. III.–5:402: Third party’s counter-option Where the principal has taken over the rights of the agent under the preceding Article, the third party may by notice to the principal and the agent opt to exercise against the principal the rights which the third party has against the agent, subject to any defences which the agent has against the third party.

1174  Part III: Common Principles Chapter 6 Set-off and merger Section 1 Set-off III.–6:101: Definition and scope (1) “Set-off” is the process by which a person may use a right to performance held against another person to extinguish in whole or in part an obligation owed to that person. (2) This Chapter does not apply to set-off in insolvency. III.–6:102: Requirements for set-off If two parties owe each other obligations of the same kind, either party may set off that party’s right against the other party’s right, if and to the extent that, at the time of set-off: (a) the performance of the first party is due or, even if it is not due, the first party can oblige the other party to accept performance; (b) the performance of the other party is due; and (c) each party has authority to dispose of that party’s right for the purpose of the set-off. III.–6:103: Unascertained rights (1) A debtor may not set off a right which is unascertained as to its existence or value unless the set-off will not prejudice the interests of the creditor. (2) Where the rights of both parties arise from the same legal relationship it is presumed that the creditor’s interests will not be prejudiced. III.–6:104: Foreign currency set-off Where parties owe each other money in different currencies, each party may set off that party’s right against the other party’s right, unless the parties have agreed that the party declaring set-off is to pay exclusively in a specified currency. III.–6:105: Set-off by notice Set-off is effected by notice to the other party. III.–6:106: Two or more rights and obligations (1) Where the party giving notice of set-off has two or more rights against the other party, the notice is effective only if it identifies the right to which it relates. (2) Where the party giving notice of set-off has to perform two or more obligations towards the other party, the rules on imputation of performance apply with appropriate adaptations.

Draft Common Frame of Reference 1175 III.–6:107: Effect of set-off Set-off extinguishes the obligations, as far as they are coextensive, as from the time of notice. III.–6:108: Exclusion of right of set-off Set-off cannot be effected: (a) where it is excluded by agreement; (b) against a right to the extent that that right is not capable of attachment; and (c) against a right arising from an intentional wrongful act. Section 2 Merger of debts III.–6:201: Extinction of obligations by merger (1) An obligation is extinguished if the same person becomes debtor and creditor in the same capacity. (2) Paragraph (1) does not, however, apply if the effect would be to deprive a third person of a right. Chapter 7 Prescription Section 1 General provision III.–7:101: Rights subject to prescription A right to performance of an obligation is subject to prescription by the expiry of a period of time in accordance with the rules in this Chapter. Section 2 Periods of prescription and their commencement III.–7:201: General period The general period of prescription is three years. III.–7:202: Period for a right established by legal proceedings (1) The period of prescription for a right established by judgment is ten years. (2) The same applies to a right established by an arbitral award or other instrument which is enforceable as if it were a judgment.

1176  Part III: Common Principles III.–7:203: Commencement (1) The general period of prescription begins to run from the time when the debtor has to effect performance or, in the case of a right to damages, from the time of the act which gives rise to the right. (2) Where the debtor is under a continuing obligation to do or refrain from doing something, the general period of prescription begins to run with each breach of the obligation. (3) The period of prescription set out in III.–7:202 (Period for a right established by legal proceedings) begins to run from the time when the judgment or arbitral award obtains the effect of res judicata, or the other instrument becomes enforceable, though not before the debtor has to effect performance. Section 3 Extension of period III.–7:301: Suspension in case of ignorance The running of the period of prescription is suspended as long as the creditor does not know of, and could not reasonably be expected to know of: (a) the identity of the debtor; or (b) the facts giving rise to the right including, in the case of a right to damages, the type of damage. III.–7:302: Suspension in case of judicial and other proceedings (1) The running of the period of prescription is suspended from the time when judicial proceedings to assert the right are begun. (2) Suspension lasts until a decision has been made which has the effect of res judicata, or until the case has been otherwise disposed of. Where the proceedings end within the last six months of the prescription period without a decision on the merits, the period of prescription does not expire before six months have passed after the time when the proceedings ended. (3) These provisions apply, with appropriate adaptations, to arbitration proceedings, to mediation proceedings, to proceedings whereby an issue between two parties is referred to a third party for a binding decision and to all other proceedings initiated with the aim of obtaining a decision relating to the right. (4) Mediation proceedings mean structured proceedings whereby two or more parties to a dispute attempt to reach an agreement on the settlement of their dispute with the assistance of a mediator. III.–7:303: Suspension in case of impediment beyond creditor’s control (1) The running of the period of prescription is suspended as long as the creditor is prevented from pursuing proceedings to assert the right by an impediment which is beyond the creditor’s control and which the creditor could not reasonably have been expected to avoid or overcome.

Draft Common Frame of Reference 1177 (2) Paragraph (1) applies only if the impediment arises, or subsists, within the last six months of the prescription period. (3) Where the duration or nature of the impediment is such that it would be unreasonable to expect the creditor to take proceedings to assert the right within the part of the period of prescription which has still to run after the suspension comes to an end, the period of prescription does not expire before six months have passed after the time when the impediment was removed. (4) In this Article an impediment includes a psychological impediment. III.–7:304: Postponement of expiry in case of negotiations If the parties negotiate about the right, or about circumstances from which a claim relating to the right might arise, the period of prescription does not expire before one year has passed since the last communication made in the negotiations. III.–7:305: Postponement of expiry in case of incapacity (1) If a person subject to an incapacity is without a representative, the period of prescription of a right held by or against that person does not expire before one year has passed after either the incapacity has ended or a representative has been appointed. (2) The period of prescription of rights between a person subject to an incapacity and that person’s representative does not expire before one year has passed after either the incapacity has ended or a new representative has been appointed. III.–7:306: Postponement of expiry: deceased’s estate Where the creditor or debtor has died, the period of prescription of a right held by or against the deceased’s estate does not expire before one year has passed after the right can be enforced by or against an heir, or by or against a representative of the estate. III.–7:307: Maximum length of period The period of prescription cannot be extended, by suspension of its running or postponement of its expiry under this Chapter, to more than ten years or, in case of rights to damages for personal injuries, to more than thirty years. This does not apply to suspension under III.–7:302 (Suspension in case of judicial and other proceedings). Section 4 Renewal of period III.–7:401: Renewal by acknowledgement (1) If the debtor acknowledges the right, vis-à-vis the creditor, by part payment, payment of interest, giving of security, or in any other manner, a new period of prescription begins to run.

1178  Part III: Common Principles (2) The new period is the general period of prescription, regardless of whether the right was originally subject to the general period of prescription or the ten year period under III.–7:202 (Period for a right established by legal proceedings). In the latter case, however, this Article does not operate so as to shorten the ten year period. III.–7:402: Renewal by attempted execution The ten year period of prescription laid down in III.–7:202 (Period for a right established by legal proceedings) begins to run again with each reasonable attempt at execution undertaken by the creditor. Section 5 Effects of prescription III.–7:501: General effect (1) After expiry of the period of prescription the debtor is entitled to refuse performance. (2) Whatever has been paid or transferred by the debtor in performance of the obligation may not be reclaimed merely because the period of prescription had expired. III.–7:502: Effect on ancillary rights The period of prescription for a right to payment of interest, and other rights of an ancillary nature, expires not later than the period for the principal right. III.–7:503: Effect on set-off A right in relation to which the period of prescription has expired may nonetheless be set off, unless the debtor has invoked prescription previously or does so within two months of notification of set-off. Section 6 Modification by agreement III.–7:601: Agreements concerning prescription (1) The requirements for prescription may be modified by agreement between the parties, in particular by either shortening or lengthening the periods of prescription. (2) The period of prescription may not, however, be reduced to less than one year or extended to more than thirty years after the time of commencement set out in III.–7:203 (Commencement).

Draft Common Frame of Reference 1179 Book IV Specific contracts and the rights and obligations arising from them Part A Sales Chapter 1 Scope and definitions Section 1 Scope IV. A.–1:101: Contracts covered (1) This Part of Book IV applies to contracts for the sale of goods and associated consumer guarantees. (2) It applies with appropriate adaptations to: (a) contracts for the sale of electricity; (b) contracts for the sale of stocks, shares, investment securities and negotiable instruments; (c) contracts for the sale of other forms of incorporeal property, including rights to the performance of obligations, industrial and intellectual property rights and other transferable rights; (d) contracts conferring, in exchange for a price, rights in information or data, including software and databases; (e) contracts for the barter of goods or any of the other assets mentioned above. (3) It does not apply to contracts for the sale or barter of immovable property or rights in immovable property. IV. A.–1:102: Goods to be manufactured or produced A contract under which one party undertakes, for a price, to manufacture or produce goods for the other party and to transfer their ownership to the other party is to be considered as primarily a contract for the sale of the goods. Section 2 Definitions IV. A.–1:201: Goods In this Part of Book IV: (a) the word “goods” includes goods which at the time of the conclusion of the contract do not yet exist; and

1180  Part III: Common Principles (b) references to goods, other than in IV. A.–1:101 (Contracts covered) itself, are to be taken as referring also to the other assets mentioned in paragraph (2) of that Article. IV. A.–1:202: Contract for sale A contract for the “sale” of goods is a contract under which one party, the seller, undertakes to another party, the buyer, to transfer the ownership of the goods to the buyer, or to a third person, either immediately on conclusion of the contract or at some future time, and the buyer undertakes to pay the price. IV. A.–1:203: Contract for barter (1) A contract for the “barter” of goods is a contract under which each party undertakes to transfer the ownership of goods, either immediately on conclusion of the contract or at some future time, in return for the transfer of ownership of other goods. (2) Each party is considered to be the buyer with respect to the goods to be received and the seller with respect to the goods or assets to be transferred. IV. A.–1:204: Consumer contract for sale For the purpose of this Part of Book IV, a consumer contract for sale is a contract for sale in which the seller is a business and the buyer is a consumer. Chapter 2 Obligations of the seller Section 1 Overview IV. A.–2:101: Overview of obligations of the seller The seller must: (a) transfer the ownership of the goods; (b) deliver the goods; (c) transfer such documents representing or relating to the goods as may be required by the contract; and (d) ensure that the goods conform to the contract. Section 2 Delivery of the goods IV. A.–2:201: Delivery (1) The seller fulfils the obligation to deliver by making the goods, or where it is agreed that the seller need only deliver documents representing the goods, the documents, available to the buyer.

Draft Common Frame of Reference 1181 (2) If the contract involves carriage of the goods by a carrier or series of carriers, the seller fulfils the obligation to deliver by handing over the goods to the first carrier for transmission to the buyer and by transferring to the buyer any document necessary to enable the buyer to take over the goods from the carrier holding the goods. (3) In this Article, any reference to the buyer includes a third person to whom delivery is to be made in accordance with the contract. IV. A.–2:202: Place and time for delivery (1) The place and time for delivery are determined by III.–2:101 (Place of performance) and III.–2:102 (Time of performance) as modified by this Article. (2) If the performance of the obligation to deliver requires the transfer of documents representing the goods, the seller must transfer them at such a time and place and in such a form as is required by the contract. (3) If in a consumer contract for sale the contract involves carriage of goods by a carrier or a series of carriers and the consumer is given a time for delivery, the goods must be received from the last carrier or made available for collection from that carrier by that time. IV. A.–2:203: Cure in case of early delivery (1) If the seller has delivered goods before the time for delivery, the seller may, up to that time, deliver any missing part or make up any deficiency in the quantity of the goods delivered, or deliver goods in replacement of any nonconforming goods delivered or otherwise remedy any lack of conformity in the goods delivered, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. (2) If the seller has transferred documents before the time required by the contract, the seller may, up to that time, cure any lack of conformity in the documents, provided that the exercise of this right does not cause the buyer unreasonable inconvenience or unreasonable expense. (3) This Article does not preclude the buyer from claiming damages, in accordance with Book III, Chapter 3, Section 7 (Damages and interest), for any loss not remedied by the seller’s cure. IV. A.–2:204: Carriage of the goods (1) If the contract requires the seller to arrange for carriage of the goods, the seller must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (2) If the seller, in accordance with the contract, hands over the goods to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods.

1182  Part III: Common Principles (3) If the contract does not require the seller to effect insurance in respect of the carriage of the goods, the seller must, at the buyer’s request, provide the buyer with all available information necessary to enable the buyer to effect such insurance. Section 3 Conformity of the goods IV. A.–2:301: Conformity with the contract The goods do not conform with the contract unless they: (a) are of the quantity, quality and description required by the contract; (b) are contained or packaged in the manner required by the contract; (c) are supplied along with any accessories, installation instructions or other instructions required by the contract; and (d) comply with the remaining Articles of this Section. IV. A.–2:302: Fitness for purpose, qualities, packaging The goods must: (a) be fit for any particular purpose made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for the buyer to rely, on the seller’s skill and judgement; (b) be fit for the purposes for which goods of the same description would ordinarily be used; (c) possess the qualities of goods which the seller held out to the buyer as a sample or model; (d) be contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods; (e) be supplied along with such accessories, installation instructions or other instructions as the buyer may reasonably expect to receive; and (f) possess such qualities and performance capabilities as the buyer may reasonably expect. IV. A.–2:303: Statements by third persons The goods must possess the qualities and performance capabilities held out in any statement on the specific characteristics of the goods made about them by a person in earlier links of the business chain, the producer or the producer’s representative which forms part of the terms of the contract by virtue of II.–9:102 (Certain precontractual statements regarded as contract terms). IV. A.–2:304: Incorrect installation under a consumer contract for sale Where goods supplied under a consumer contract for sale are incorrectly installed, any lack of conformity resulting from the incorrect installation is regarded as a lack of conformity of the goods if:

Draft Common Frame of Reference 1183 (a) the goods were installed by the seller or under the seller’s responsibility; or (b) the goods were intended to be installed by the consumer and the incorrect installation was due to a shortcoming in the installation instructions. IV. A.–2:305: Third party rights or claims in general The goods must be free from any right or reasonably well founded claim of a third party. However, if such a right or claim is based on industrial property or other intellectual property, the seller’s obligation is governed by the following Article. IV. A.–2:306: Third party rights or claims based on industrial property or other intellectual property (1) The goods must be free from any right or claim of a third party which is based on industrial property or other intellectual property and of which at the time of the conclusion of the contract the seller knew or could reasonably be expected to have known. (2) However, paragraph (1) does not apply where the right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer. IV. A.–2:307: Buyer’s knowledge of lack of conformity (1) The seller is not liable under IV. A.–2:302 (Fitness for purpose, qualities, packaging), IV. A.–2:305 (Third party rights or claims in general) or IV. A.–2:306 (Third party rights or claims based on industrial property or other intellectual property) if, at the time of the conclusion of the contract, the buyer knew or could reasonably be assumed to have known of the lack of conformity. (2) The seller is not liable under IV. A.–2:304 (Incorrect installation under a consumer contract for sale) sub-paragraph (b) if, at the time of the conclusion of the contract, the buyer knew or could reasonably be assumed to have known of the shortcoming in the installation instructions. IV. A.–2:308: Relevant time for establishing conformity (1) The seller is liable for any lack of conformity which exists at the time when the risk passes to the buyer, even if the lack of conformity becomes apparent only after that time. (2) In a consumer contract for sale, any lack of conformity which becomes apparent within six months of the time when risk passes to the buyer is presumed to have existed at that time unless this is incompatible with the nature of the goods or the nature of the lack of conformity. (3) In a case governed by IV. A.–2:304 (Incorrect installation under a consumer contract for sale) any reference in paragraphs (1) or (2) to the time when risk passes to the buyer is to be read as a reference to the time when the installation is complete.

1184  Part III: Common Principles IV. A.–2:309: Limits on derogation from conformity rights in a consumer contract for sale In a consumer contract for sale, any contractual term or agreement concluded with the seller before a lack of conformity is brought to the seller’s attention which directly or indirectly waives or restricts the rights resulting from the seller’s obligation to ensure that the goods conform to the contract is not binding on the consumer. Chapter 3 Obligations of the buyer IV. A.–3:101: Main obligations of the buyer The buyer must: (a) pay the price; (b) take delivery of the goods; and (c) take over documents representing or relating to the goods as may be required by the contract. IV. A.–3:102: Determination of form, measurement or other features (1) If under the contract the buyer is to specify the form, measurement or other features of the goods, or the time or manner of their delivery, and fails to make such specification either within the time agreed upon or within a reasonable time after receipt of a request from the seller, the seller may, without prejudice to any other rights, make the specification in accordance with any requirements of the buyer that may be known to the seller. (2) A seller who makes such a specification must inform the buyer of the details of the specification and must fix a reasonable time within which the buyer may make a different specification. If, after receipt of such a communication, the buyer fails to do so within the time so fixed, the specification made by the seller is binding. IV. A.–3:103: Price fixed by weight If the price is fixed according to the weight of the goods, in case of doubt it is to be determined by the net weight. IV. A.–3:104: Taking delivery The buyer fulfils the obligation to take delivery by: (a) doing all the acts which could reasonably be expected in order to enable the seller to perform the obligation to deliver; and (b) taking over the goods, or the documents representing the goods, as required by the contract.

Draft Common Frame of Reference 1185 IV. A.–3:105: Early delivery and delivery of excess quantity (1) If the seller delivers all or part of the goods before the time fixed, the buyer may take delivery or, except where acceptance of the tender would not unreasonably prejudice the buyer’s interests, refuse to take delivery. (2) If the seller delivers a quantity of goods greater than that provided for by the contract, the buyer may retain or refuse the excess quantity. (3) If the buyer retains the excess quantity it is regarded as having been supplied under the contract and must be paid for at the contractual rate. (4) In a consumer contract for sale paragraph (3) does not apply if the buyer believes on reasonable grounds that the seller has delivered the excess quantity intentionally and without error, knowing that it had not been ordered. In such a case the rules on unsolicited goods apply. Chapter 4 Remedies Section 1 Limits on derogation IV. A.–4:101: Limits on derogation from remedies for non-conformity in a consumer contract for sale In a consumer contract for sale, any contractual term or agreement concluded with the seller before a lack of conformity is brought to the seller’s attention which directly or indirectly waives or restricts the remedies of the buyer provided in Book III, Chapter 3 (Remedies for Non-performance), as modified in this Chapter, in respect of the lack of conformity is not binding on the consumer. Section 2 Modifications of buyer’s remedies for lack of conformity IV. A.–4:201: Termination by consumer for lack of conformity In a consumer contract for sale, the buyer may terminate the contractual relationship for non-performance under Book III, Chapter 3, Section 5 (Termination) in the case of any lack of conformity, unless the lack of conformity is minor. IV. A.–4:202: Limitation of liability for damages of non-business sellers (1) If the seller is a natural person acting for purposes not related to that person’s trade, business or profession, the buyer is not entitled to damages for lack of conformity exceeding the contract price. (2) The seller is not entitled to rely on paragraph (1) if the lack of conformity relates to facts of which the seller, at the time when the risk passed to the buyer, knew or could reasonably be expected to have known and which the seller did not disclose to the buyer before that time.

1186  Part III: Common Principles Section 3 Requirements of examination and notification IV. A.–4:301: Examination of the goods (1) The buyer should examine the goods, or cause them to be examined, within as short a period as is reasonable in the circumstances. Failure to do so may result in the buyer losing, under III.–3:107 (Failure to notify non-conformity) as supplemented by IV. A.–4:302 (Notification of lack of conformity), the right to rely on the lack of conformity. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit, or redispatched by the buyer before the buyer has had a reasonable opportunity to examine them, and at the time of the conclusion of the contract the seller knew or could reasonably be expected to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. (4) This Article does not apply to a consumer contract for sale. IV. A.–4:302: Notification of lack of conformity (1) In a contract between two businesses the rule in III.–3:107 (Failure to notify non-conformity) requiring notification of a lack of conformity within a reasonable time is supplemented by the following rules. (2) The buyer in any event loses the right to rely on a lack of conformity if the buyer does not give the seller notice of the lack of conformity at the latest within two years from the time at which the goods were actually handed over to the buyer in accordance with the contract. (3) If the parties have agreed that the goods must remain fit for a particular purpose or for their ordinary purpose during a fixed period of time, the period for giving notice under paragraph (2) does not expire before the end of the agreed period. (4) Paragraph (2) does not apply in respect of third party claims or rights pursuant to IV. A.–2:305 (Third party rights or claims in general) and IV. A.–2:306 (Third party rights or claims based on industrial property or other intellectual property). IV. A.–4:303: Notification of partial delivery The buyer does not have to notify the seller that not all the goods have been delivered, if the buyer has reason to believe that the remaining goods will be delivered. IV. A.–4:304: Seller’s knowledge of lack of conformity The seller is not entitled to rely on the provisions of IV. A.–4:301 (Examination of the goods) or IV. A.–4:302 (Notification of lack of conformity) if the lack of

Draft Common Frame of Reference 1187 c­ onformity relates to facts of which the seller knew or could reasonably be expected to have known and which the seller did not disclose to the buyer. Chapter 5 Passing of risk Section 1 General provisions IV. A.–5:101: Effect of passing of risk Loss of, or damage to, the goods after the risk has passed to the buyer does not discharge the buyer from the obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. IV. A.–5:102: Time when risk passes (1) The risk passes when the buyer takes over the goods or the documents representing them. (2) However, if the contract relates to goods not then identified, the risk does not pass to the buyer until the goods are clearly identified to the contract, whether by markings on the goods, by shipping documents, by notice given to the buyer or otherwise. (3) The rule in paragraph (1) is subject to the Articles in Section 2 of this Chapter. IV. A.–5:103: Passing of risk in a consumer contract for sale (1) In a consumer contract for sale, the risk does not pass until the buyer takes over the goods. (2) Paragraph (1) does not apply if the buyer has failed to perform the obligation to take over the goods and the non-performance is not excused under III.–3:104 (Excuse due to an impediment) in which case IV. A.–5:201 (Goods placed at buyer’s disposal) applies. (3) Except in so far as provided in the preceding paragraph, Section 2 of this Chapter does not apply to a consumer contract for sale. (4) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 2 Special rules IV. A.–5:201: Goods placed at buyer’s disposal (1) If the goods are placed at the buyer’s disposal and the buyer is aware of this, the risk passes to the buyer from the time when the goods should have been taken over, unless the buyer was entitled to withhold taking of delivery under III.–3:401 (Right to withhold performance of reciprocal obligation).

1188  Part III: Common Principles (2) If the goods are placed at the buyer’s disposal at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at the buyer’s disposal at that place. IV. A.–5:202: Carriage of the goods (1) This Article applies to any contract of sale which involves carriage of goods. (2) If the seller is not bound to hand over the goods at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract. (3) If the seller is bound to hand over the goods to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. (4) The fact that the seller is authorised to retain documents controlling the disposition of the goods does not affect the passing of the risk. IV. A.–5:203: Goods sold in transit (1) This Article applies to any contract of sale which involves goods sold in transit. (2) The risk passes to the buyer at the time the goods are handed over to the first carrier. However, if the circumstances so indicate, the risk passes to the buyer as from the time of the conclusion of the contract. (3) If at the time of the conclusion of the contract the seller knew or could reasonably be expected to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Chapter 6 Consumer goods guarantees IV. A.–6:101: Definition of a consumer goods guarantee (1) A consumer goods guarantee means any undertaking of a type mentioned in the following paragraph given to a consumer in connection with a consumer contract for the sale of goods: (a) by a producer or a person in later links of the business chain; or (b) by the seller in addition to the seller’s obligations as seller of the goods. (2) The undertaking may be that: (a) apart from misuse, mistreatment or accident the goods will remain fit for their ordinary purpose for a specified period of time, or otherwise; (b) the goods will meet the specifications set out in the guarantee document or in associated advertising; or (c) subject to any conditions stated in the guarantee, (i)  the goods will be repaired or replaced;

Draft Common Frame of Reference 1189 (ii) the price paid for the goods will be reimbursed in whole or in part; or (iii) some other remedy will be provided. IV. A.–6:102: Binding nature of the guarantee (1) A consumer goods guarantee, whether contractual or in the form of a unilateral undertaking, is binding in favour of the first buyer, and in the case of a unilateral undertaking is so binding without acceptance notwithstanding any provision to the contrary in the guarantee document or the associated advertising. (2) If not otherwise provided in the guarantee document, the guarantee is also binding without acceptance in favour of every owner of the goods within the duration of the guarantee. (3) Any requirement in the guarantee whereby it is conditional on the fulfilment by the guarantee holder of any formal requirement, such as registration or notification of purchase, is not binding on the consumer. IV. A.–6:103: Guarantee document (1) A person who gives a consumer goods guarantee must (unless such a document has already been provided to the buyer) provide the buyer with a guarantee document which: (a) states that the buyer has legal rights which are not affected by the guarantee; (b) points out the advantages of the guarantee for the buyer in comparison with the conformity rules; (c) lists all the essential particulars necessary for making claims under the guarantee, notably: —— the name and address of the guarantor; —— the name and address of the person to whom any notification is to be made and the procedure by which the notification is to be made; —— any territorial limitations to the guarantee; (d) is drafted in plain, intelligible language; and (e) is drafted in the same language as that in which the goods were offered. (2) The guarantee document must be in textual form on a durable medium and be available and accessible to the buyer. (3) The validity of the guarantee is not affected by any failure to comply with paragraphs (1) and (2), and accordingly the guarantee holder can still rely on the guarantee and require it to be honoured. (4) If the obligations under paragraphs (1) and (2) are not observed the guarantee holder may, without prejudice to any right to damages which may be available, require the guarantor to provide a guarantee document which conforms to those requirements. (5) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.

1190  Part III: Common Principles IV. A.–6:104: Coverage of the guarantee If the guarantee document does not specify otherwise: (a) the period of the guarantee is 5 years or the estimated life-span of the goods, whichever is shorter; (b) the guarantor’s obligations become effective if, for a reason other than misuse, mistreatment or accident, the goods at any time during the period of the guarantee become unfit for their ordinary purpose or cease to possess such qualities and performance capabilities as the guarantee holder may reasonably expect; (c) the guarantor is obliged, if the conditions of the guarantee are satisfied, to repair or replace the goods; and (d) all costs involved in invoking and performing the guarantee are to be borne by the guarantor. IV. A.–6:105: Guarantee limited to specific parts A consumer goods guarantee relating only to a specific part or specific parts of the goods must clearly indicate this limitation in the guarantee document; otherwise the limitation is not binding on the consumer. IV. A.–6:106: Exclusion or limitation of the guarantor’s liability The guarantee may exclude or limit the guarantor’s liability under the guarantee for any failure of or damage to the goods caused by failure to maintain the goods in accordance with instructions, provided that the exclusion or limitation is clearly set out in the guarantee document. IV. A.–6:107: Burden of proof (1) Where the guarantee holder invokes a consumer goods guarantee within the period covered by the guarantee the burden of proof is on the guarantor that: (a) the goods met the specifications set out in the guarantee document or in associated advertisements; and (b) any failure of or damage to the goods is due to misuse, mistreatment, accident, failure to maintain, or other cause for which the guarantor is not responsible. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. IV. A.–6:108: Prolongation of the guarantee period (1) If any defect or failure in the goods is remedied under the guarantee then the guarantee is prolonged for a period equal to the period during which the guarantee holder could not use the goods due to the defect or failure. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.

Draft Common Frame of Reference 1191 Part C Services Chapter 1 General provisions IV. C.–1:101: Scope (1) This Part of Book IV applies: (a) to contracts under which one party, the service provider, undertakes to supply a service to the other party, the client, in exchange for a price; and (b) with appropriate adaptations, to contracts under which the service provider undertakes to supply a service to the client otherwise than in exchange for a price. (2) It applies in particular to contracts for construction, processing, storage, design, information or advice, and treatment. IV. C.–1:102: Exclusions This Part does not apply to contracts in so far as they are for transport, insurance, the provision of a security or the supply of a financial product or a financial service. IV. C.–1:103: Priority rules In the case of any conflict: (a) the rules in Part IV. D. (Mandate) and Part IV. E. (Commercial agency, ­franchise and distributorship) prevail over the rules in this Part; and (b) the rules in Chapters 3 to 8 of this Part prevail over the rules in Chapter 2 of this Part. Chapter 2 Rules applying to service contracts in general IV. C.–2:101: Price Where the service provider is a business, a price is payable unless the circumstances indicate otherwise. IV. C.–2:102: Pre-contractual duties to warn (1) The service provider is under a pre-contractual duty to warn the client if the service provider becomes aware of a risk that the service requested: (a) may not achieve the result stated or envisaged by the client; (b) may damage other interests of the client; or (c) may become more expensive or take more time than reasonably expected by the client.

1192  Part III: Common Principles (2) The duty to warn in paragraph (1) does not apply if the client: (a) already knows of the risks referred to in paragraph (1); or (b) could reasonably be expected to know of them. (3) If a risk referred to in paragraph (1) materialises and the service provider was in breach of the duty to warn of it, a subsequent change of the service by the service provider under IV. C.–2:109 (Unilateral variation of the service contract) which is based on the materialisation of the risk is of no effect unless the service provider proves that the client, if duly warned, would have entered into a contract anyway. This is without prejudice to any other remedies, including remedies for mistake, which the client may have. (4) The client is under a pre-contractual duty to warn the service provider if the client becomes aware of unusual facts which are likely to cause the service to become more expensive or time-consuming than expected by the service provider or to cause any danger to the service provider or others when performing the service. (5) If the facts referred to under paragraph (4) occur and the service provider was not duly warned, the service provider is entitled to: (a) damages for the loss the service provider sustained as a consequence of the failure to warn; and (b) an adjustment of the time allowed for performance of the service. (6) For the purpose of paragraph (1), the service provider is presumed to be aware of the risks mentioned if they should be obvious from all the facts and circumstances known to the service provider, considering the information which the service provider must collect about the result stated or envisaged by the client and the circumstances in which the service is to be carried out. (7) For the purpose of paragraph (2)(b) the client cannot reasonably be expected to know of a risk merely because the client was competent, or was advised by others who were competent, in the relevant field, unless such other person acted as the agent of the client, in which case II.–1:105 (Imputed knowledge etc.) applies. (8) For the purpose of paragraph (4), the client is presumed to be aware of the facts mentioned if they should be obvious from all the facts and circumstances known to the client without investigation. IV. C.–2:103: Obligation to co-operate (1) The obligation of co-operation requires in particular: (a) the client to answer reasonable requests by the service provider for information in so far as this may reasonably be considered necessary to enable the service provider to perform the obligations under the contract; (b) the client to give directions regarding the performance of the service in so far as this may reasonably be considered necessary to enable the service provider to perform the obligations under the contract; (c) the client, in so far as the client is to obtain permits or licences, to obtain these at such time as may reasonably be considered necessary to enable the service provider to perform the obligations under the contract;

Draft Common Frame of Reference 1193 (d) the service provider to give the client a reasonable opportunity to determine whether the service provider is performing the obligations under the contract; and (e) the parties to co-ordinate their respective efforts in so far as this may reasonably be considered necessary to perform their respective obligations under the contract. (2) If the client fails to perform the obligations under paragraph (1)(a) or (b), the service provider may either withhold performance or base performance on the expectations, preferences and priorities the client could reasonably be expected to have, given the information and directions which have been gathered, provided that the client is warned in accordance with IV. C.–2:108 (Contractual obligation of the service provider to warn). (3) If the client fails to perform the obligations under paragraph (1) causing the service to become more expensive or to take more time than agreed on in the contract, the service provider is entitled to: (a) damages for the loss the service provider sustained as a consequence of the non-performance; and (b) an adjustment of the time allowed for supplying the service. IV. C.–2:104: Subcontractors, tools and materials (1) The service provider may subcontract the performance of the service in whole or in part without the client’s consent, unless personal performance is required by the contract. (2) Any subcontractor so engaged by the service provider must be of adequate competence. (3) The service provider must ensure that any tools and materials used for the performance of the service are in conformity with the contract and the applicable statutory rules, and fit to achieve the particular purpose for which they are to be used. (4) In so far as subcontractors are nominated by the client or tools and materials are provided by the client, the responsibility of the service provider is ­governed by IV. C.–2:107 (Directions of the client) and IV. C.–2:108 (Contractual obligation of the service provider to warn). IV. C.–2:105: Obligation of skill and care (1) The service provider must perform the service: (a) with the care and skill which a reasonable service provider would exercise under the circumstances; and (b) in conformity with any statutory or other binding legal rules which are applicable to the service. (2) If the service provider professes a higher standard of care and skill the provider must exercise that care and skill. (3) If the service provider is, or purports to be, a member of a group of professional service providers for which standards have been set by a relevant authority or by that group itself, the service provider must exercise the care and skill expressed in those standards.

1194  Part III: Common Principles (4) In determining the care and skill the client is entitled to expect, regard is to be had, among other things, to: (a) the nature, the magnitude, the frequency and the foreseeability of the risks involved in the performance of the service for the client; (b) if damage has occurred, the costs of any precautions which would have prevented that damage or similar damage from occurring; (c) whether the service provider is a business; (d) whether a price is payable and, if one is payable, its amount; and (e) the time reasonably available for the performance of the service. (5) The obligations under this Article require in particular the service provider to take reasonable precautions in order to prevent the occurrence of damage as a consequence of the performance of the service. IV. C.–2:106: Obligation to achieve result (1) The supplier of a service must achieve the specific result stated or envisaged by the client at the time of the conclusion of the contract, provided that in the case of a result envisaged but not stated: (a) the result envisaged was one which the client could reasonably be expected to have envisaged; and (b) the client had no reason to believe that there was a substantial risk that the result would not be achieved by the service. (2) In so far as ownership of anything is transferred to the client under the service contract, it must be transferred free from any right or reasonably based claim of a third party. IV. A.–2:305 (Third party rights or claims in general) and IV. A.–2:306 (Third party rights or claims based on industrial property or other intellectual property) apply with any appropriate adaptations. IV. C.–2:107: Directions of the client (1) The service provider must follow all timely directions of the client regarding the performance of the service, provided that the directions: (a) are part of the contract itself or are specified in any document to which the contract refers; or (b) result from the realisation of choices left to the client by the contract; or (c) result from the realisation of choices initially left open by the parties. (2) If non-performance of one or more of the obligations of the service provider under IV. C.–2:105 (Obligation of skill and care) or IV. C.–2:106 (Obligation to achieve result) is the consequence of following a direction which the service provider is obliged to follow under paragraph (1), the service provider is not liable under those Articles, provided that the client was duly warned under IV. C.–2:108 (Contractual obligation of the service provider to warn). (3) If the service provider perceives a direction falling under paragraph (1) to be a variation of the contract under IV. C.–2:109 (Unilateral variation of the service contract) the service provider must warn the client accordingly. Unless the client then revokes the direction without undue delay, the service

Draft Common Frame of Reference 1195 provider must follow the direction and the direction has effect as a variation of the contract. IV. C.–2:108: Contractual obligation of the service provider to warn (1) The service provider must warn the client if the service provider becomes aware of a risk that the service requested: (a) may not achieve the result stated or envisaged by the client at the time of conclusion of the contract; (b) may damage other interests of the client; or (c) may become more expensive or take more time than agreed on in the contract either as a result of following information or directions given by the client or collected in preparation for performance, or as a result of the occurrence of any other risk. (2) The service provider must take reasonable measures to ensure that the client understands the content of the warning. (3) The obligation to warn in paragraph (1) does not apply if the client: (a) already knows of the risks referred to in paragraph (1); or (b) could reasonably be expected to know of them. (4) If a risk referred to in paragraph (1) materialises and the service provider did not perform the obligation to warn the client of it, a notice of variation by the service provider under IV. C.–2:109 (Unilateral variation of the service contract) based on the materialisation of that risk is without effect. (5) For the purpose of paragraph (1), the service provider is presumed to be aware of the risks mentioned if they should be obvious from all the facts and circumstances known to the service provider without investigation. (6) For the purpose of paragraph (3)(b), the client cannot reasonably be expected to know of a risk merely because the client was competent, or was advised by others who were competent, in the relevant field, unless such other person acted as the agent of the client, in which case II.–1:105 (Imputed knowledge etc.) applies. IV. C.–2:109: Unilateral variation of the service contract (1) Without prejudice to the client’s right to terminate under IV. C.–2:111 (Client’s right to terminate), either party may, by notice to the other party, change the service to be provided, if such a change is reasonable taking into account: (a) the result to be achieved; (b) the interests of the client; (c) the interests of the service provider; and (d) the circumstances at the time of the change. (2) A change is regarded as reasonable only if it is: (a) necessary in order to enable the service provider to act in accordance with IV. C.–2:105 (Obligation of skill and care) or, as the case may be, IV. C.–2:106 (Obligation to achieve result);

1196  Part III: Common Principles (b) the consequence of a direction given in accordance with paragraph (1) of IV. C.–2:107 (Directions of the client) and not revoked without undue delay after receipt of a warning in accordance with paragraph (3) of that Article; (c) a reasonable response to a warning from the service provider under IV. C.–2:108 (Contractual obligation of the service provider to warn); or (d) required by a change of circumstances which would justify a variation of the service provider’s obligations under III.–1:110 (Variation or ­termination by court on a change of circumstances). (3) Any additional price due as a result of the change has to be reasonable and is to be determined using the same methods of calculation as were used to establish the original price for the service. (4) In so far as the service is reduced, the loss of profit, the expenses saved and any possibility that the service provider may be able to use the released capacity for other purposes are to be taken into account in the calculation of the price due as a result of the change. (5) A change of the service may lead to an adjustment of the time of performance proportionate to the extra work required in relation to the work originally required for the performance of the service and the time span determined for performance of the service. IV. C.–2:110: Client’s obligation to notify anticipated non-conformity (1) The client must notify the service provider if the client becomes aware during the period for performance of the service that the service provider will fail to perform the obligation under IV. C.–2:106 (Obligation to achieve result). (2) The client is presumed to be so aware if from all the facts and circumstances known to the client without investigation the client has reason to be so aware. (3) If a non-performance of the obligation under paragraph (1) causes the service to become more expensive or to take more time than agreed on in the contract, the service provider is entitled to: (a) damages for the loss the service provider sustains as a consequence of that failure; and (b) an adjustment of the time allowed for performance of the service. IV. C.–2:111: Client’s right to terminate (1) The client may terminate the contractual relationship at any time by giving notice to the service provider. (2) The effects of termination are governed by III.–1:109 (Variation or termination by notice) paragraph (3). (3) When the client was justified in terminating the relationship no damages are payable for so doing. (4) When the client was not justified in terminating the relationship, the termination is nevertheless effective but, the service provider has a right to damages in accordance with the rules in Book III.

Draft Common Frame of Reference 1197 (5) For the purposes of this Article, the client is justified in terminating the relationship if the client: (a) was entitled to terminate the relationship under the express terms of the contract and observed any requirements laid down in the contract for doing so; (b) was entitled to terminate the relationship under Book III, Chapter 3, Section 5 (Termination); or (c) was entitled to terminate the relationship under III.–1:109 (Variation or termination by notice) paragraph (2) and gave a reasonable period of notice as required by that provision. Chapter 3 Construction IV. C.–3:101: Scope (1) This Chapter applies to contracts under which one party, the constructor, undertakes to construct a building or other immovable structure, or to materially alter an existing building or other immovable structure, following a design provided by the client. (2) It applies with appropriate adaptations to contracts under which the constructor undertakes: (a) to construct a movable or incorporeal thing, following a design provided by the client; or (b) to construct a building or other immovable structure, to materially alter an existing building or other immovable structure, or to construct a movable or incorporeal thing, following a design provided by the constructor. IV. C.–3:102: Obligation of client to co-operate The obligation of co-operation requires in particular the client to: (a) provide access to the site where the construction has to take place in so far as this may reasonably be considered necessary to enable the constructor to perform the obligations under the contract; and (b) provide the components, materials and tools, in so far as they must be provided by the client, at such time as may reasonably be considered necessary to enable the constructor to perform the obligations under the contract. IV. C.–3:103: Obligation to prevent damage to structure The constructor must take reasonable precautions in order to prevent any damage to the structure.

1198  Part III: Common Principles IV. C.–3:104: Conformity (1) The constructor must ensure that the structure is of the quality and description required by the contract. Where more than one structure is to be made, the quantity also must be in conformity with the contract. (2) The structure does not conform to the contract unless it is: (a) fit for any particular purpose expressly or impliedly made known to the constructor at the time of the conclusion of the contract or at the time of any variation in accordance with IV. C.–2:109 (Unilateral variation of the service contract) pertaining to the issue in question; and (b) fit for the particular purpose or purposes for which a structure of the same description would ordinarily be used. (3) The client is not entitled to invoke a remedy for non-conformity if a direction provided by the client under IV. C.–2:107 (Directions of the client) is the cause of the non-conformity and the constructor performed the obligation to warn pursuant to IV. C.–2:108 (Contractual obligation of the service provider to warn). IV. C.–3:105: Inspection, supervision and acceptance (1) The client may inspect or supervise the tools and materials used in the construction process, the process of construction and the resulting structure in a reasonable manner and at any reasonable time, but is not bound to do so. (2) If the parties agree that the constructor has to present certain elements of the tools and materials used, the process or the resulting structure to the client for acceptance, the constructor may not proceed with the construction before having been allowed by the client to do so. (3) Absence of, or inadequate, inspection, supervision or acceptance does not relieve the constructor wholly or partially from liability. This rule also applies when the client is under a contractual obligation to inspect, supervise or accept the structure or the construction of it. IV. C.–3:106: Handing-over of the structure (1) If the constructor regards the structure, or any part of it which is fit for independent use, as sufficiently completed and wishes to transfer control over it to the client, the client must accept such control within a reasonable time after being notified. The client may refuse to accept the control when the structure, or the relevant part of it, does not conform to the contract and such non-conformity makes it unfit for use. (2) Acceptance by the client of the control over the structure does not relieve the constructor wholly or partially from liability. This rule also applies when the client is under a contractual obligation to inspect, supervise or accept the structure or the construction of it. (3) This Article does not apply if, under the contract, control is not to be transferred to the client.

Draft Common Frame of Reference 1199 IV. C.–3:107: Payment of the price (1) The price or a proportionate part of it is payable when the constructor transfers the control of the structure or a part of it to the client in accordance with the preceding Article. (2) However, where work remains to be done under the contract on the structure or relevant part of it after such transfer the client may withhold such part of the price as is reasonable until the work is completed. (3) If, under the contract, control is not to be transferred to the client, the price is payable when the work has been completed, the constructor has so informed the client and the client has had a chance to inspect the structure. IV. C.–3:108: Risks (1) This Article applies if the structure is destroyed or damaged due to an event which the constructor could not have avoided or overcome and the constructor cannot be held accountable for the destruction or damage. (2) In this Article the “relevant time” is: (a) where the control of the structure is to be transferred to the client, the time when such control has been, or should have been, transferred in accordance with IV. C.–3:106 (Handing-over of the structure); (b) in other cases, the time when the work has been completed and the constructor has so informed the client. (3) When the situation mentioned in paragraph (1) has been caused by an event occurring before the relevant time and it is still possible to perform: (a) the constructor still has to perform or, as the case may be, perform again; (b) the client is only obliged to pay for the constructor’s performance under (a); (c) the time for performance is extended in accordance with paragraph (6) of IV. C.–2:109 (Unilateral variation of the service contract); (d) the rules of III.–3:104 (Excuse due to an impediment) may apply to the constructor’s original performance; and (e) the constructor is not obliged to compensate the client for losses to materials provided by the client. (4) When the situation mentioned in paragraph (1) has been caused by an event occurring before the relevant time, and it is no longer possible to perform: (a) the client does not have to pay for the service rendered; (b) the rules of III.–3:104 (Excuse due to an impediment) may apply to the constructor’s performance; and (c) the constructor is not obliged to compensate the client for losses to materials provided by the client, but is obliged to return the structure or what remains of it to the client. (5) When the situation mentioned in paragraph (1) has been caused by an event occurring after the relevant time: (a) the constructor does not have to perform again; and (b) the client remains obliged to pay the price.

1200  Part III: Common Principles Chapter 4 Processing IV. C.–4:101: Scope (1) This Chapter applies to contracts under which one party, the processor, undertakes to perform a service on an existing movable or incorporeal thing or to an immovable structure for another party, the client. It does not, however, apply to construction work on an existing building or other immovable structure. (2) This Chapter applies in particular to contracts under which the processor undertakes to repair, maintain or clean an existing movable or incorporeal thing or immovable structure. IV. C.–4:102: Obligation of client to co-operate The obligation to co-operate requires in particular the client to: (a) hand over the thing or to give the control of it to the processor, or to give access to the site where the service is to be performed in so far as may reasonably be considered necessary to enable the processor to perform the obligations under the contract; and (b) in so far as they must be provided by the client, provide the components, materials and tools in time to enable the processor to perform the obligations under the contract. IV. C.–4:103: Obligation to prevent damage to thing being processed The processor must take reasonable precautions in order to prevent any damage to the thing being processed. IV. C.–4:104: Inspection and supervision (1) If the service is to be performed at a site provided by the client, the client may inspect or supervise the tools and material used, the performance of the service and the thing on which the service is performed in a reasonable manner and at any reasonable time, but is not bound to do so. (2) Absence of, or inadequate inspection or supervision does not relieve the processor wholly or partially from liability. This rule also applies when the client is under a contractual obligation to accept, inspect or supervise the processing of the thing. IV. C.–4:105: Return of the thing processed (1) If the processor regards the service as sufficiently completed and wishes to return the thing or the control of it to the client, the client must accept such return or control within a reasonable time after being notified. The client may refuse to accept the return or control when the thing is not fit for use in accordance with the particular purpose for which the client had the service

Draft Common Frame of Reference 1201 performed, provided that such purpose was made known to the processor or that the processor otherwise has reason to know of it. (2) The processor must return the thing or the control of it within a reasonable time after being so requested by the client. (3) Acceptance by the client of the return of the thing or the control of it does not relieve the processor wholly or partially from liability for non-performance. (4) If, by virtue of the rules on the acquisition of property, the processor has become the owner of the thing, or a share in it, as a consequence of the performance of the obligations under the contract, the processor must transfer ownership of the thing or share when the thing is returned. IV. C.–4:106: Payment of the price (1) The price is payable when the processor transfers the thing or the control of it to the client in accordance with IV. C.–4:105 (Return of the thing processed) or the client, without being entitled to do so, refuses to accept the return of the thing. (2) However, where work remains to be done under the contract on the thing after such transfer or refusal the client may withhold such part of the price as is reasonable until the work is completed. (3) If, under the contract, the thing or the control of it is not to be transferred to the client, the price is payable when the work has been completed and the processor has so informed the client. IV. C.–4:107: Risks (1) This Article applies if the thing is destroyed or damaged due to an event which the processor could not have avoided or overcome and the processor cannot be held accountable for the destruction or damage. (2) If, prior to the event mentioned in paragraph (1), the processor had indicated that the processor regarded the service as sufficiently completed and that the processor wished to return the thing or the control of it to the client: (a) the processor is not required to perform again; and (b) the client must pay the price. The price is due when the processor returns the remains of the thing, if any, or the client indicates that the client does not want the remains. In the latter case, the processor may dispose of the remains at the client’s expense. This provision does not apply if the client was entitled to refuse the return of the thing under paragraph (1) of IV. C.–4:105 (Return of the thing processed). (3) If the parties had agreed that the processor would be paid for each period which has elapsed, the client is obliged to pay the price for each period which has elapsed before the event mentioned in paragraph (1) occurred. (4) If, after the event mentioned in paragraph (1), performance of the obligations under the contract is still possible for the processor: (a) the processor still has to perform or, as the case may be, perform again;

1202  Part III: Common Principles (b) the client is only obliged to pay for the processor’s performance under (a); the processor’s entitlement to a price under paragraph (3) is not affected by this provision; (c) the client is obliged to compensate the processor for the costs the processor has to incur in order to acquire materials replacing the materials supplied by the client, unless the client on being so requested by the processor supplies these materials; and (d) if need be, the time for performance is extended in accordance with ­paragraph (6) of IV. C.–2:109 (Unilateral variation of the service contract). This paragraph is without prejudice to the client’s right to terminate the contractual relationship under IV. C.–2:111 (Client’s right to terminate). (5) If, in the situation mentioned in paragraph (1), performance of the obligations under the contract is no longer possible for the processor: (a) the client does not have to pay for the service rendered; the processor’s entitlement to a price under paragraph (3) is not affected by this ­provision; and (b) the processor is obliged to return to the client the thing and the materials supplied by the client or what remains of them, unless the client indicates that the client does not want the remains. In the latter case, the processor may dispose of the remains at the client’s expense. IV. C.–4:108: Limitation of liability In a contract between two businesses, a term restricting the processor’s liability for non-performance to the value of the thing, had the service been performed correctly, is presumed to be fair for the purposes of II.–9:405 (Meaning of “unfair” in contracts between businesses) except to the extent that it restricts liability for damage caused intentionally or by way of grossly negligent behaviour on the part of the processor or any person for whose actions the processor is responsible. Chapter 5 Storage IV. C.–5:101: Scope (1) This Chapter applies to contracts under which one party, the storer, undertakes to store a movable or incorporeal thing for another party, the client. (2) This Chapter does not apply to the storage of: (a) immovable structures; (b) movable or incorporeal things during transportation; and (c) money or securities (except in the circumstances mentioned in paragraph (7) of IV. C.–5:110 (Liability of the hotel-keeper)) or rights. IV. C.–5:102: Storage place and subcontractors (1) The storer, in so far as the storer provides the storage place, must provide a place fit for storing the thing in such a manner that the thing can be returned in the condition the client may expect.

Draft Common Frame of Reference 1203 (2) The storer may not subcontract the performance of the service without the client’s consent. IV. C.–5:103: Protection and use of the thing stored (1) The storer must take reasonable precautions in order to prevent unnecessary deterioration, decay or depreciation of the thing stored. (2) The storer may use the thing handed over for storage only if the client has agreed to such use. IV. C.–5:104: Return of the thing stored (1) Without prejudice to any other obligation to return the thing, the storer must return the thing at the agreed time or, where the contractual relationship is terminated before the agreed time, within a reasonable time after being so requested by the client. (2) The client must accept the return of the thing when the storage obligation comes to an end and when acceptance of return is properly requested by the storer. (3) Acceptance by the client of the return of the thing does not relieve the storer wholly or partially from liability for non-performance. (4) If the client fails to accept the return of the thing at the time provided under paragraph (2), the storer has the right to sell the thing in accordance with III.–2:111 (Property not accepted), provided that the storer has given the client reasonable warning of the storer’s intention to do so. (5) If, during storage, the thing bears fruit, the storer must hand this fruit over when the thing is returned to the client. (6) If, by virtue of the rules on the acquisition of ownership, the storer has become the owner of the thing, the storer must return a thing of the same kind and the same quality and quantity and transfer ownership of that thing. This Article applies with appropriate adaptations to the substituted thing. (7) This Article applies with appropriate adaptations if a third party who has the right or authority to receive the thing requests its return. IV. C.–5:105: Conformity (1) The storage of the thing does not conform with the contract unless the thing is returned in the same condition as it was in when handed over to the storer. (2) If, given the nature of the thing or the contract, it cannot reasonably be expected that the thing is returned in the same condition, the storage of the thing does not conform with the contract if the thing is not returned in such condition as the client could reasonably expect. (3) If, given the nature of the thing or the contract, it cannot reasonably be expected that the same thing is returned, the storage of the thing does not conform with the contract if the thing which is returned is not in the same condition as the thing which was handed over for storage, or if it is not of the same kind, quality and quantity, or if ownership of the thing is not

1204  Part III: Common Principles t­ ransferred in accordance with paragraph (6) of IV. C.–5:104 (Return of the thing stored). IV. C.–5:106: Payment of the price (1) The price is payable at the time when the thing is returned to the client in accordance with IV. C.–5:104 (Return of the thing stored) or the client, without being entitled to do so, refuses to accept the return of the thing. (2) The storer may withhold the thing until the client pays the price. III.–3:401 (Right to withhold performance of reciprocal obligation) applies accordingly. IV. C.–5:107: Post-storage obligation to inform After the ending of the storage, the storer must inform the client of: (a) any damage which has occurred to the thing during storage; and (b) the necessary precautions which the client must take before using or transporting the thing, unless the client could reasonably be expected to be aware of the need for such precautions. IV. C.–5:108: Risks (1) This Article applies if the thing is destroyed or damaged due to an event which the storer could not have avoided or overcome and if the storer cannot be held accountable for the destruction or damage. (2) If, prior to the event, the storer had notified the client that the client was required to accept the return of the thing, the client must pay the price. The price is due when the storer returns the remains of the thing, if any, or the client indicates to the storer that the client does not want those remains. (3) If, prior to the event, the storer had not notified the client that the client was required to accept the return of the thing: (a) if the parties had agreed that the storer would be paid for each period of time which has elapsed, the client must pay the price for each period which has elapsed before the event occurred; (b) if further performance of the obligations under the contract is still possible for the storer, the storer is required to continue performance, without prejudice to the client’s right to terminate the contractual relationship under IV. C.–2:111 (Client’s right to terminate); (c) if performance of the obligations under the contract is no longer possible for the storer the client does not have to pay for the service rendered except to the extent that the storer is entitled to a price under subparagraph (a); and the storer must return to the client the remains of the thing unless the client indicates that the client does not want those remains. (4) If the client indicates to the storer that the client does not want the remains of the thing, the storer may dispose of the remains at the client’s expense.

Draft Common Frame of Reference 1205 IV. C.–5:109: Limitation of liability In a contract between two businesses, a term restricting the storer’s liability for non-performance to the value of the thing is presumed to be fair for the purposes of II.–9:405 (Meaning of “unfair” in contracts between businesses), except to the extent that it restricts liability for damage caused intentionally or by way of grossly negligent conduct on the part of the storer or any person for whose actions the storer is responsible. IV. C.–5:110: Liability of the hotel-keeper (1) A hotel-keeper is liable as a storer for any damage to, or destruction or loss of, a thing brought to the hotel by any guest who stays at the hotel and has sleeping accommodation there. (2) For the purposes of paragraph (1) a thing is regarded as brought to the hotel: (a) if it is at the hotel during the time when the guest has the use of sleeping accommodation there; (b) if the hotel-keeper or a person for whose actions the hotel-keeper is responsible takes charge of it outside the hotel during the period for which the guest has the use of the sleeping accommodation at the hotel; or (c) if the hotel-keeper or a person for whose actions the hotel-keeper is responsible takes charge of it whether at the hotel or outside it during a reasonable period preceding or following the time when the guest has the use of sleeping accommodation at the hotel. (3) The hotel-keeper is not liable in so far as the damage, destruction or loss is caused by: (a) a guest or any person accompanying, employed by or visiting the guest; (b) an impediment beyond the hotel-keeper’s control; or (c) the nature of the thing. (4) A term excluding or limiting the liability of the hotel-keeper is unfair for the purposes of Book II, Chapter 9, Section 4 if it excludes or limits liability in a case where the hotel-keeper, or a person for whose actions the hotel-keeper is responsible, causes the damage, destruction or loss intentionally or by way of grossly negligent conduct. (5) Except where the damage, destruction or loss is caused intentionally or by way of grossly negligent conduct of the hotel-keeper or a person for whose actions the hotel-keeper is responsible, the guest is required to inform the hotel-keeper of the damage, destruction or loss without undue delay. If the guest fails to inform the hotel-keeper without undue delay, the hotel-keeper is not liable. (6) The hotel-keeper has the right to withhold any thing referred to in ­paragraph (1) until the guest has satisfied any right the hotel-keeper has against the guest with respect to accommodation, food, drink and solicited services performed for the guest in the hotel-keeper’s professional capacity. (7) This Article does not apply if and to the extent that a separate storage contract is concluded between the hotel-keeper and any guest for any thing

1206  Part III: Common Principles brought to the hotel. A separate storage contract is concluded if a thing is handed over for storage to, and accepted for storage by, the hotel-keeper. Chapter 6 Design IV. C.–6:101: Scope (1) This Chapter applies to contracts under which one party, the designer, undertakes to design for another party, the client: (a) an immovable structure which is to be constructed by or on behalf of the client; or (b) a movable or incorporeal thing or service which is to be constructed or performed by or on behalf of the client. (2) A contract under which one party undertakes to design and to supply a service which consists of carrying out the design is to be considered as primarily a contract for the supply of the subsequent service. IV. C.–6:102: Pre-contractual duty to warn The designer’s pre-contractual duty to warn requires in particular the designer to warn the client in so far as the designer lacks special expertise in specific problems which require the involvement of specialists. IV. C.–6:103: Obligation of skill and care The designer’s obligation of skill and care requires in particular the designer to: (a) attune the design work to the work of other designers who contracted with the client, to enable there to be an efficient performance of all services involved; (b) integrate the work of other designers which is necessary to ensure that the design will conform to the contract; (c) include any information for the interpretation of the design which is necessary for a user of the design of average competence (or a specific user made known to the designer at the conclusion of the contract) to give effect to the design; (d) enable the user of the design to give effect to the design without violation of public law rules or interference based on justified third-party rights of which the designer knows or could reasonably be expected to know; and (e) provide a design which allows economic and technically efficient realisation. IV. C.–6:104: Conformity (1) The design does not conform to the contract unless it enables the user of the design to achieve a specific result by carrying out the design with the skill and care which could reasonably be expected.

Draft Common Frame of Reference 1207 (2) The client is not entitled to invoke a remedy for non-conformity if a direction provided by the client under IV. C.–2:107 (Directions of the client) is the cause of the non-conformity and the designer performed the obligation to warn under IV. C.–2:108 (Contractual obligation of the service provider to warn). IV. C.–6:105: Handing over of the design (1) In so far as the designer regards the design, or a part of it which is fit for carrying out independently from the completion of the rest of the design, as sufficiently completed and wishes to transfer the design to the client, the client must accept it within a reasonable time after being notified. (2) The client may refuse to accept the design when it, or the relevant part of it, does not conform to the contract and such non-conformity amounts to a fundamental non-performance. IV. C.–6:106: Records (1) After performance of both parties’ other contractual obligations, the designer must, on request by the client, hand over all relevant documents or copies of them. (2) The designer must store, for a reasonable time, relevant documents which are not handed over. Before destroying the documents, the designer must offer them again to the client. IV. C.–6:107: Limitation of liability In contracts between two businesses, a term restricting the designer’s liability for non-performance to the value of the structure, thing or service which is to be constructed or performed by or on behalf of the client following the design, is presumed to be fair for the purposes of II.–9:405 (Meaning of “unfair” in contracts between businesses) except to the extent that it restricts liability for damage caused intentionally or by grossly negligent conduct on the part of the designer or any person for whose actions the designer is responsible. Chapter 7 Information and advice IV. C.–7:101: Scope (1) This Chapter applies to contracts under which one party, the provider, undertakes to provide information or advice to another party, the client. (2) This Chapter does not apply in relation to treatment in so far as Chapter 8 (Treatment) contains more specific rules on the obligation to inform. (3) In the remainder of this Chapter any reference to information includes a ­reference to advice.

1208  Part III: Common Principles IV. C.–7:102: Obligation to collect preliminary data (1) The provider must, in so far as this may reasonably be considered necessary for the performance of the service, collect data about: (a) the particular purpose for which the client requires the information; (b) the client’s preferences and priorities in relation to the information; (c) the decision the client can be expected to make on the basis of the information; and (d) the personal situation of the client. (2) In case the information is intended to be passed on to a group of persons, the data to be collected must relate to the purposes, preferences, priorities and personal situations that can reasonably be expected from individuals within such a group. (3) In so far as the provider must obtain data from the client, the provider must explain what the client is required to supply. IV. C.–7:103: Obligation to acquire and use expert knowledge The provider must acquire and use the expert knowledge to which the provider has or should have access as a professional information provider or adviser, in so far as this may reasonably be considered necessary for the performance of the service. IV. C.–7:104: Obligation of skill and care (1) The provider’s obligation of skill and care requires in particular the provider to: (a) take reasonable measures to ensure that the client understands the content of the information; (b) act with the care and skill that a reasonable information provider would demonstrate under the circumstances when providing evaluative information; and (c) in any case where the client is expected to make a decision on the basis of the information, inform the client of the risks involved, in so far as such risks could reasonably be expected to influence the client’s decision. (2) When the provider expressly or impliedly undertakes to provide the client with a recommendation to enable the client to make a subsequent decision, the provider must: (a) base the recommendation on a skilful analysis of the expert knowledge to be collected in relation to the purposes, priorities, preferences and personal situation of the client; (b) inform the client of alternatives the provider can personally provide relating to the subsequent decision and of their advantages and risks, as compared with those of the recommended decision; and (c) inform the client of other alternatives the provider cannot personally provide, unless the provider expressly informs the client that only a limited range of alternatives is offered or this is apparent from the situation.

Draft Common Frame of Reference 1209 IV. C.–7:105: Conformity (1) The provider must provide information which is of the quantity, quality and description required by the contract. (2) The factual information provided by the information provider to the client must be a correct description of the actual situation described. IV. C.–7:106: Records In so far as this may reasonably be considered necessary, having regard to the interest of the client, the provider must keep records regarding the information provided in accordance with this Chapter and make such records or excerpts from them available to the client on reasonable request. IV. C.–7:107: Conflict of interest (1) When the provider expressly or impliedly undertakes to provide the client with a recommendation to enable the client to make a subsequent decision, the provider must disclose any possible conflict of interest which might influence the performance of the provider’s obligations. (2) So long as the contractual obligations have not been completely performed, the provider may not enter into a relationship with another party which may give rise to a possible conflict with the interests of the client, without full disclosure to the client and the client’s explicit or implicit consent. IV. C.–7:108: Influence of ability of the client (1) The involvement in the supply of the service of other persons on the client’s behalf or the mere competence of the client does not relieve the provider of any obligation under this Chapter. (2) The provider is relieved of those obligations if the client already has knowledge of the information or if the client has reason to know of the information. (3) For the purpose of paragraph (2), the client has reason to know if the information should be obvious to the client without investigation. IV. C.–7:109: Causation If the provider knows or could reasonably be expected to know that a subsequent decision will be based on the information to be provided, and if the client makes such a decision and suffers loss as a result, any non-performance of an obligation under the contract by the provider is presumed to have caused the loss if the client proves that, if the provider had provided all information required, it would have been reasonable for the client to have seriously considered making an alternative decision.

1210  Part III: Common Principles Chapter 8 Treatment IV. C.–8:101: Scope (1) This Chapter applies to contracts under which one party, the treatment provider, undertakes to provide medical treatment for another party, the patient. (2) It applies with appropriate adaptations to contracts under which the treatment provider undertakes to provide any other service in order to change the physical or mental condition of a person. (3) Where the patient is not the contracting party, the patient is regarded as a third party on whom the contract confers rights corresponding to the obligations of the treatment provider imposed by this Chapter. IV. C.–8:102: Preliminary assessment The treatment provider must, in so far as this may reasonably be considered necessary for the performance of the service: (a) interview the patient about the patient’s health condition, symptoms, previous illnesses, allergies, previous or other current treatment and the patient’s preferences and priorities in relation to the treatment; (b) carry out the examinations necessary to diagnose the health condition of the patient; and (c) consult with any other treatment providers involved in the treatment of the patient. IV. C.–8:103: Obligations regarding instruments, medicines, materials, installations and premises (1) The treatment provider must use instruments, medicines, materials, installations and premises which are of at least the quality demanded by accepted and sound professional practice, which conform to applicable statutory rules, and which are fit to achieve the particular purpose for which they are to be used. (2) The parties may not, to the detriment of the patient, exclude the application of this Article or derogate from or vary its effects. IV. C.–8:104: Obligation of skill and care (1) The treatment provider’s obligation of skill and care requires in particular the treatment provider to provide the patient with the care and skill which a reasonable treatment provider exercising and professing care and skill would demonstrate under the given circumstances. (2) If the treatment provider lacks the experience or skill to treat the patient with the required degree of skill and care, the treatment provider must refer the patient to a treatment provider who can.

Draft Common Frame of Reference 1211 (3) The parties may not, to the detriment of the patient, exclude the application of this Article or derogate from or vary its effects. IV. C.–8:105: Obligation to inform (1) The treatment provider must, in order to give the patient a free choice regarding treatment, inform the patient about, in particular: (a) the patient’s existing state of health; (b) the nature of the proposed treatment; (c) the advantages of the proposed treatment; (d) the risks of the proposed treatment; (e) the alternatives to the proposed treatment, and their advantages and risks as compared to those of the proposed treatment; and (f) the consequences of not having treatment. (2) The treatment provider must, in any case, inform the patient about any risk or alternative which might reasonably influence the patient’s decision on whether to give consent to the proposed treatment or not. It is presumed that a risk might reasonably influence that decision if its materialisation would lead to serious detriment to the patient. Unless otherwise provided, the obligation to inform is subject to the provisions of Chapter 7 (Information and Advice). (3) The information must be provided in a way understandable to the patient. IV. C.–8:106: Obligation to inform in case of unnecessary or experimental treatment (1) If the treatment is not necessary for the preservation or improvement of the patient’s health, the treatment provider must disclose all known risks. (2) If the treatment is experimental, the treatment provider must disclose all information regarding the objectives of the experiment, the nature of the treatment, its advantages and risks and the alternatives, even if only potential. (3) The parties may not, to the detriment of the patient, exclude the application of this Article or derogate from or vary its effects. IV. C.–8:107: Exceptions to the obligation to inform (1) Information which would normally have to be provided by virtue of the obligation to inform may be withheld from the patient: (a) if there are objective reasons to believe that it would seriously and negatively influence the patient’s health or life; or (b) if the patient expressly states a wish not to be informed, provided that the non-disclosure of the information does not endanger the health or safety of third parties. (2) The obligation to inform need not be performed where treatment must be provided in an emergency. In such a case the treatment provider must, so far as possible, provide the information later.

1212  Part III: Common Principles IV. C.–8:108: Obligation not to treat without consent (1) The treatment provider must not carry out treatment unless the patient has given prior informed consent to it. (2) The patient may revoke consent at any time. (3) In so far as the patient is incapable of giving consent, the treatment provider must not carry out treatment unless: (a) informed consent has been obtained from a person or institution legally entitled to take decisions regarding the treatment on behalf of the patient; or (b) any rules or procedures enabling treatment to be lawfully given without such consent have been complied with; or (c) the treatment must be provided in an emergency. (4) In the situation described in paragraph (3), the treatment provider must not carry out treatment without considering, so far as possible, the opinion of the incapable patient with regard to the treatment and any such opinion expressed by the patient before becoming incapable. (5) In the situation described in paragraph (3), the treatment provider may carry out only such treatment as is intended to improve the health condition of the patient. (6) In the situation described in paragraph (2) of IV. C.–8:106 (Obligation to inform in case of unnecessary or experimental treatment), consent must be given in an express and specific way. (7) The parties may not, to the detriment of the patient, exclude the application of this Article or derogate from or vary its effects. IV. C.–8:109: Records (1) The treatment provider must create adequate records of the treatment. Such records must include, in particular, information collected in any preliminary interviews, examinations or consultations, information regarding the consent of the patient and information regarding the treatment performed. (2) The treatment provider must, on reasonable request: (a) give the patient, or if the patient is incapable of giving consent, the person or institution legally entitled to take decisions on behalf of the patient, access to the records; and (b) answer, in so far as reasonable, questions regarding the interpretation of the records. (3) If the patient has suffered injury and claims that it is a result of non-­ performance by the treatment provider of the obligation of skill and care and the treatment provider fails to comply with paragraph (2), non-­performance of the obligation of skill and care and a causal link between such non-­ performance and the injury are presumed. (4) The treatment provider must keep the records, and give information about their interpretation, during a reasonable time of at least 10 years after the

Draft Common Frame of Reference 1213 treatment has ended, depending on the usefulness of these records for the patient or the patient’s heirs or representatives and for future treatments. Records which can reasonably be expected to be important after the reasonable time must be kept by the treatment provider after that time. If for any reason the treatment provider ceases activity, the records must be deposited or delivered to the patient for future consultation. (5) The parties may not, to the detriment of the patient, exclude the application of paragraphs (1) to (4) or derogate from or vary their effects. (6) The treatment provider may not disclose information about the patient or other persons involved in the patient’s treatment to third parties unless disclosure is necessary in order to protect third parties or the public interest. The treatment provider may use the records in an anonymous way for statistical, educational or scientific purposes. IV. C.–8:110: Remedies for non-performance With regard to any non-performance of an obligation under a contract for treatment, Book III, Chapter 3 (Remedies for Non-performance) and IV. C.–2:111 (Client’s right to terminate) apply with the following adaptations: (a) the treatment provider may not withhold performance or terminate the contractual relationship under that Chapter if this would seriously endanger the health of the patient; and (b) in so far as the treatment provider has the right to withhold performance or to terminate the contractual relationship and is planning to exercise that right, the treatment provider must refer the patient to another treatment provider. IV. C.–8:111: Obligations of treatment-providing organisations (1) If, in the process of performance of the obligations under the treatment contract, activities take place in a hospital or on the premises of another treatment-providing organisation, and the hospital or that other treatmentproviding organisation is not a party to the treatment contract, it must make clear to the patient that it is not the contracting party. (2) Where the treatment provider cannot be identified, the hospital or treatmentproviding organisation in which the treatment took place is treated as the treatment provider unless the hospital or treatment-providing organisation informs the patient, within a reasonable time, of the identity of the treatment provider. (3) The parties may not, to the detriment of the patient, exclude the application of this Article or derogate from or vary its effects.

1214  Part III: Common Principles Book V Benevolent intervention in another’s affairs Chapter 1 Scope of application V.–1:101: Intervention to benefit another (1) This Book applies where a person, the intervener, acts with the predominant intention of benefiting another, the principal, and: (a) the intervener has a reasonable ground for acting; or (b) the principal approves the act without such undue delay as would adversely affect the intervener. (2) The intervener does not have a reasonable ground for acting if the intervener: (a) has a reasonable opportunity to discover the principal’s wishes but does not do so; or (b) knows or can reasonably be expected to know that the intervention is against the principal’s wishes. V.–1:102: Intervention to perform another’s duty Where an intervener acts to perform another person’s duty, the performance of which is due and urgently required as a matter of overriding public interest, and the intervener acts with the predominant intention of benefiting the recipient of the performance, the person whose duty the intervener acts to perform is a principal to whom this Book applies. V.–1:103: Exclusions This Book does not apply where the intervener: (a) is authorised to act under a contractual or other obligation to the principal; (b) is authorised, other than under this Book, to act independently of the principal’s consent; or (c) is under an obligation to a third party to act. Chapter 2 Duties of intervener V.–2:101: Duties during intervention (1) During the intervention, the intervener must: (a) act with reasonable care; (b) except in relation to a principal within V.–1:102 (Intervention to perform another’s duty), act in a manner which the intervener knows or can reasonably be expected to assume accords with the principal’s wishes; and

Draft Common Frame of Reference 1215 (c) so far as possible and reasonable, inform the principal about the intervention and seek the principal’s consent to further acts. (2) The intervention may not be discontinued without good reason. V.–2:102: Reparation for damage caused by breach of duty (1) The intervener is liable to make reparation to the principal for damage caused by breach of a duty set out in this Chapter if the damage resulted from a risk which the intervener created, increased or intentionally perpetuated. (2) The intervener’s liability is reduced or excluded in so far as this is fair and reasonable, having regard to, among other things, the intervener’s reasons for acting. (3) An intervener who at the time of intervening lacks full legal capacity is liable to make reparation only in so far as that intervener is also liable to make reparation under Book VI (Non-contractual liability arising out of damage caused to another). V.–2:103: Obligations after intervention (1) After intervening the intervener must without undue delay report and account to the principal and hand over anything obtained as a result of the intervention. (2) If at the time of intervening the intervener lacks full legal capacity, the obligation to hand over is subject to the defence which would be available under VII.–6:101 (Disenrichment). (3) The remedies for non-performance in Book III, Chapter 3 apply but with the modification that any liability to pay damages or interest is subject to the qualifications in paragraphs (2) and (3) of the preceding Article. Chapter 3 Rights and authority of intervener V.–3:101: Right to indemnification or reimbursement The intervener has a right against the principal for indemnification or, as the case may be, reimbursement in respect of an obligation or expenditure (whether of money or other assets) in so far as reasonably incurred for the purposes of the intervention. V.–3:102: Right to remuneration (1) The intervener has a right to remuneration in so far as the intervention is reasonable and undertaken in the course of the intervener’s profession or trade. (2) The remuneration due is the amount, so far as reasonable, which is ordinarily paid at the time and place of intervention in order to obtain a performance of the kind undertaken. If there is no such amount a reasonable remuneration is due.

1216  Part III: Common Principles V.–3:103: Right to reparation An intervener who acts to protect the principal, or the principal’s property or interests, against danger has a right against the principal for reparation for loss caused as a result of personal injury or property damage suffered in acting, if: (a) the intervention created or significantly increased the risk of such injury or damage; and (b) that risk, so far as foreseeable, was in reasonable proportion to the risk to the principal. V.–3:104: Reduction or exclusion of intervener’s rights (1) The intervener’s rights are reduced or excluded in so far as the intervener at the time of acting did not want to demand indemnification, reimbursement, remuneration or reparation, as the case may be. (2) These rights are also reduced or excluded in so far as this is fair and reasonable, having regard among other things to whether the intervener acted to protect the principal in a situation of joint danger, whether the liability of the principal would be excessive and whether the intervener could reasonably be expected to obtain appropriate redress from another. V.–3:105: Obligation of third person to indemnify or reimburse the principal If the intervener acts to protect the principal from damage, a person who would be accountable under Book VI (Non-contractual liability arising out of damage caused to another) for the causation of such damage to the principal is obliged to indemnify or, as the case may be, reimburse the principal’s liability to the intervener. V.–3:106: Authority of intervener to act as representative of the principal (1) The intervener may conclude legal transactions or perform other juridical acts as a representative of the principal in so far as this may reasonably be expected to benefit the principal. (2) However, a unilateral juridical act by the intervener as a representative of the principal has no effect if the person to whom it is addressed rejects the act without undue delay. Book VI Non-contractual liability arising out of damage caused to another Chapter 1 Fundamental provisions VI.–1:101: Basic rule (1) A person who suffers legally relevant damage has a right to reparation from a person who caused the damage intentionally or negligently or is otherwise accountable for the causation of the damage.

Draft Common Frame of Reference 1217 (2) Where a person has not caused legally relevant damage intentionally or negligently that person is accountable for the causation of legally relevant damage only if Chapter 3 so provides. VI.–1:102: Prevention Where legally relevant damage is impending, this Book confers on a person who would suffer the damage a right to prevent it. This right is against a person who would be accountable for the causation of the damage if it occurred. VI.–1:103: Scope of application VI.–1:101 (Basic rule) and VI.–1:102 (Prevention): (a) apply only in accordance with the following provisions of this Book; (b) apply to both legal and natural persons, unless otherwise stated; (c) do not apply in so far as their application would contradict the purpose of other private law rules; and (d) do not affect remedies available on other legal grounds. Chapter 2 Legally relevant damage Section 1 General VI.–2:101: Meaning of legally relevant damage (1) Loss, whether economic or non-economic, or injury is legally relevant damage if: (a) one of the following rules of this Chapter so provides; (b) the loss or injury results from a violation of a right otherwise conferred by the law; or (c) the loss or injury results from a violation of an interest worthy of legal protection. (2) In any case covered only by sub-paragraphs (b) or (c) of paragraph (1) loss or injury constitutes legally relevant damage only if it would be fair and reasonable for there to be a right to reparation or prevention, as the case may be, under VI.–1:101 (Basic rule) or VI.–1:102 (Prevention). (3) In considering whether it would be fair and reasonable for there to be a right to reparation or prevention regard is to be had to the ground of accountability, to the nature and proximity of the damage or impending damage, to the reasonable expectations of the person who suffers or would suffer the damage, and to considerations of public policy. (4) In this Book: (a) economic loss includes loss of income or profit, burdens incurred and a reduction in the value of property;

1218  Part III: Common Principles (b) non-economic loss includes pain and suffering and impairment of the quality of life. Section 2 Particular instances of legally relevant damage VI.–2:201: Personal injury and consequential loss (1) Loss caused to a natural person as a result of injury to his or her body or health and the injury as such are legally relevant damage. (2) In this Book: (a) such loss includes the costs of health care including expenses reasonably incurred for the care of the injured person by those close to him or her; and (b) personal injury includes injury to mental health only if it amounts to a medical condition. VI.–2:202: Loss suffered by third persons as a result of another’s personal injury or death (1) Non-economic loss caused to a natural person as a result of another’s personal injury or death is legally relevant damage if at the time of injury that person is in a particularly close personal relationship to the injured person. (2) Where a person has been fatally injured: (a) legally relevant damage caused to the deceased on account of the injury to the time of death becomes legally relevant damage to the deceased’s successors; (b) reasonable funeral expenses are legally relevant damage to the person incurring them; and (c) loss of maintenance is legally relevant damage to a natural person whom the deceased maintained or, had death not occurred, would have maintained under statutory provisions or to whom the deceased provided care and financial support. VI.–2:203: Infringement of dignity, liberty and privacy (1) Loss caused to a natural person as a result of infringement of his or her right to respect for his or her dignity, such as the rights to liberty and privacy, and the injury as such are legally relevant damage. (2) Loss caused to a person as a result of injury to that person’s reputation and the injury as such are also legally relevant damage if national law so provides. VI.–2:204: Loss upon communication of incorrect information about another Loss caused to a person as a result of the communication of information about that person which the person communicating the information knows or could reasonably be expected to know is incorrect is legally relevant damage.

Draft Common Frame of Reference 1219 VI.–2:205: Loss upon breach of confidence Loss caused to a person as a result of the communication of information which, either from its nature or the circumstances in which it was obtained, the person communicating the information knows or could reasonably be expected to know is confidential to the person suffering the loss is legally relevant damage. VI.–2:206: Loss upon infringement of property or lawful possession (1) Loss caused to a person as a result of an infringement of that person’s property right or lawful possession of a movable or immovable thing is legally relevant damage. (2) In this Article: (a) loss includes being deprived of the use of property; (b) infringement of a property right includes destruction of or physical damage to the subject-matter of the right (property damage), disposition of the right, interference with its use and other disturbance of the exercise of the right. VI.–2:207: Loss upon reliance on incorrect advice or information Loss caused to a person as a result of making a decision in reasonable reliance on incorrect advice or information is legally relevant damage if: (a) the advice or information is provided by a person in pursuit of a profession or in the course of trade; and (b) the provider knew or could reasonably be expected to have known that the recipient would rely on the advice or information in making a decision of the kind made. VI.–2:208: Loss upon unlawful impairment of business (1) Loss caused to a person as a result of an unlawful impairment of that person’s exercise of a profession or conduct of a trade is legally relevant damage. (2) Loss caused to a consumer as a result of unfair competition is also legally relevant damage if Community or national law so provides. VI.–2:209: Burdens incurred by the state upon environmental impairment Burdens incurred by the State or designated competent authorities in restoring substantially impaired natural elements constituting the environment, such as air, water, soil, flora and fauna, are legally relevant damage to the State or the authorities concerned. VI.–2:210: Loss upon fraudulent misrepresentation (1) Without prejudice to the other provisions of this Section loss caused to a person as a result of another’s fraudulent misrepresentation, whether by words or conduct, is legally relevant damage.

1220  Part III: Common Principles (2) A misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false and it is intended to induce the recipient to make a mistake. VI.–2:211: Loss upon inducement of non-performance of obligation Without prejudice to the other provisions of this Section, loss caused to a person as a result of another’s inducement of the non-performance of an obligation by a third person is legally relevant damage only if: (a) the obligation was owed to the person sustaining the loss; and (b) the person inducing the non-performance: (i) intended the third person to fail to perform the obligation, and (ii) did not act in legitimate protection of the inducing person’s own interest. Chapter 3 Accountability Section 1 Intention and negligence VI.–3:101: Intention A person causes legally relevant damage intentionally when that person causes such damage either: (a) meaning to cause damage of the type caused; or (b) by conduct which that person means to do, knowing that such damage, or damage of that type, will or will almost certainly be caused. VI.–3:102: Negligence A person causes legally relevant damage negligently when that person causes the damage by conduct which either: (a) does not meet the particular standard of care provided by a statutory provision whose purpose is the protection of the person suffering the damage from that damage; or (b) does not otherwise amount to such care as could be expected from a reasonably careful person in the circumstances of the case. VI.–3:103: Persons under eighteen (1) A person under eighteen years of age is accountable for causing legally relevant damage according to VI.–3:102 (Negligence) sub-paragraph (b) only in so far as that person does not exercise such care as could be expected from a reasonably careful person of the same age in the circumstances of the case.

Draft Common Frame of Reference 1221 (2) A person under seven years of age is not accountable for causing damage intentionally or negligently. (3) However, paragraphs (1) and (2) do not apply to the extent that: (a) the person suffering the damage cannot obtain reparation under this Book from another; and (b) liability to make reparation would be equitable having regard to the financial means of the parties and all other circumstances of the case. VI.–3:104: Accountability for damage caused by children or supervised persons (1) Parents or other persons obliged by law to provide parental care for a person under fourteen years of age are accountable for the causation of legally relevant damage where that person under age caused the damage by conduct that would constitute intentional or negligent conduct if it were the conduct of an adult. (2) An institution or other body obliged to supervise a person is accountable for the causation of legally relevant damage suffered by a third party when: (a) the damage is personal injury, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death) or property damage; (b) the person whom the institution or other body is obliged to supervise caused that damage intentionally or negligently or, in the case of a person under eighteen, by conduct that would constitute intention or negligence if it were the conduct of an adult; and (c) the person whom the institution or other body is obliged to supervise is a person likely to cause damage of that type. (3) However, a person is not accountable under this Article for the causation of damage if that person shows that there was no defective supervision of the person causing the damage. Section 2 Accountability without intention or negligence VI.–3:201: Accountability for damage caused by employees and representatives (1) A person who employs or similarly engages another is accountable for the causation of legally relevant damage suffered by a third person when the person employed or engaged: (a) caused the damage in the course of the employment or engagement; and (b) caused the damage intentionally or negligently, or is otherwise accountable for the causation of the damage. (2) Paragraph (1) applies correspondingly to a legal person in relation to a representative causing damage in the course of their engagement. A representative is a person who is authorised to effect juridical acts on behalf of the legal person by its constitution.

1222  Part III: Common Principles VI.–3:202: Accountability for damage caused by the unsafe state of an immovable (1) A person who independently exercises control over an immovable is accountable for the causation of personal injury and consequential loss, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death), and loss resulting from property damage (other than to the immovable itself) by a state of the immovable which does not ensure such safety as a person in or near the immovable is entitled to expect having regard to the circumstances including: (a) the nature of the immovable; (b) the access to the immovable; and (c) the cost of avoiding the immovable being in that state. (2) A person exercises independent control over an immovable if that person exercises such control that it is reasonable to impose a duty on that person to prevent legally relevant damage within the scope of this Article. (3) The owner of the immovable is to be regarded as independently exercising control, unless the owner shows that another independently exercises control. VI.–3:203: Accountability for damage caused by animals A keeper of an animal is accountable for the causation by the animal of personal injury and consequential loss, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death), and loss resulting from property damage. VI.–3:204: Accountability for damage caused by defective products (1) The producer of a product is accountable for the causation of personal injury and consequential loss, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death), and, in relation to consumers, loss resulting from property damage (other than to the product itself) by a defect in the product. (2) A person who imported the product into the European Economic Area for sale, hire, leasing or distribution in the course of that person’s business is accountable correspondingly. (3) A supplier of the product is accountable correspondingly if: (a) the producer cannot be identified; or (b) in the case of an imported product, the product does not indicate the identity of the importer (whether or not the producer’s name is indicated), unless the supplier informs the person suffering the damage, within a reasonable time, of the identity of the producer or the person who supplied that supplier with the product. (4) A person is not accountable under this Article for the causation of damage if that person shows that: (a) that person did not put the product into circulation; (b) it is probable that the defect which caused the damage did not exist at the time when that person put the product into circulation;

Draft Common Frame of Reference 1223 (c) that person neither manufactured the product for sale or distribution for economic purpose nor manufactured or distributed it in the course of business; (d) the defect is due to the product’s compliance with mandatory regulations issued by public authorities; (e) the state of scientific and technical knowledge at the time that person put the product into circulation did not enable the existence of the defect to be discovered; or (f) in the case of a manufacturer of a component, the defect is attribut­ able to: (i) the design of the product into which the component has been fitted; or (ii) instructions given by the manufacturer of the product. (5) “Producer” means: (a) in the case of a finished product or a component, the manufacturer; (b) in the case of raw material, the person who abstracts or wins it; and (c) any person who, by putting a name, trade mark or other distinguishing feature on the product, gives the impression of being its producer. (6) “Product” means a movable, even if incorporated into another movable or an immovable, or electricity. (7) A product is defective if it does not provide the safety which a person is entitled to expect, having regard to the circumstances including: (a) the presentation of the product; (b) the use to which it could reasonably be expected that the product would be put; and (c) the time when the product was put into circulation, but a product is not defective merely because a better product is subsequently put into circulation. VI.–3:205: Accountability for damage caused by motor vehicles (1) A keeper of a motor vehicle is accountable for the causation of personal injury and consequential loss, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death), and loss resulting from property damage (other than to the vehicle and its freight) in a traffic accident which results from the use of the vehicle. (2) “Motor vehicle” means any vehicle intended for travel on land and propelled by mechanical power, but not running on rails, and any trailer, whether or not coupled. VI.–3:206: Accountability for damage caused by dangerous substances or emissions (1) A keeper of a substance or an operator of an installation is accountable for the causation by that substance or by emissions from that installation of personal injury and consequential loss, loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death), loss resulting

1224  Part III: Common Principles

(2) (3)

(4) (5)

from property damage, and burdens within VI.–2:209 (Burdens incurred by the State upon environmental impairment), if: (a) having regard to their quantity and attributes, at the time of the emission, or, failing an emission, at the time of contact with the substance it is very likely that the substance or emission will cause such damage unless adequately controlled; and (b) the damage results from the realisation of that danger. “Substance” includes chemicals (whether solid, liquid or gaseous). Microorganisms are to be treated like substances. “Emission” includes: (a) the release or escape of substances; (b) the conduction of electricity; (c) heat, light and other radiation; (d) noise and other vibrations; and (e) other incorporeal impact on the environment. “Installation” includes a mobile installation and an installation under construction or not in use. However, a person is not accountable for the causation of damage under this Article if that person: (a) does not keep the substance or operate the installation for purposes related to that person’s trade, business or profession; or (b) shows that there was no failure to comply with statutory standards of control of the substance or management of the installation.

VI.–3:207: Other accountability for the causation of legally relevant damage A person is also accountable for the causation of legally relevant damage if national law so provides where it: (a) relates to a source of danger which is not within VI.–3:104 (Accountability for damage caused by children or supervised persons) to VI.–3:205 (Accountability for damage caused by motor vehicles); (b) relates to substances or emissions; or (c) disapplies VI.–3:204 (Accountability for damage caused by defective products) paragraph (4)(e). VI.–3:208: Abandonment For the purposes of this section, a person remains accountable for an immovable, vehicle, substance or installation which that person abandons until another exercises independent control over it or becomes its keeper or operator. This applies correspondingly, so far as reasonable, in respect of a keeper of an animal.

Draft Common Frame of Reference 1225 Chapter 4 Causation VI.–4:101: General rule (1) A person causes legally relevant damage to another if the damage is to be regarded as a consequence of that person’s conduct or the source of danger for which that person is responsible. (2) In cases of personal injury or death the injured person’s predisposition with respect to the type or extent of the injury sustained is to be disregarded. VI.–4:102: Collaboration A person who participates with, instigates or materially assists another in causing legally relevant damage is to be regarded as causing that damage. VI.–4:103: Alternative causes Where legally relevant damage may have been caused by any one or more of a number of occurrences for which different persons are accountable and it is established that the damage was caused by one of these occurrences but not which one, each person who is accountable for any of the occurrences is rebuttably presumed to have caused that damage. Chapter 5 Defences Section 1 Consent or conduct of the person suffering the damage VI.–5:101: Consent and acting at own risk (1) A person has a defence if the person suffering the damage validly consents to the legally relevant damage and is aware or could reasonably be expected to be aware of the consequences of that consent. (2) The same applies if the person suffering the damage, knowing the risk of damage of the type caused, voluntarily takes that risk and is to be regarded as accepting it. VI.–5:102: Contributory fault and accountability (1) Where the fault of the person suffering the damage contributes to the occurrence or extent of legally relevant damage, reparation is to be reduced according to the degree of such fault. (2) However, no regard is to be had to: (a) an insubstantial fault of the person suffering the damage;

1226  Part III: Common Principles (b) fault or accountability whose contribution to the causation of the damage is insubstantial; (c) the injured person’s want of care contributing to that person’s personal injury caused by a motor vehicle in a traffic accident, unless that want of care constitutes profound failure to take such care as is manifestly required in the circumstances. (3) Paragraphs (1) and (2) apply correspondingly where the fault of a person for whom the person suffering the damage is responsible within the scope of VI.–3:201 (Accountability for damage caused by employees and representatives) contributes to the occurrence or extent of the damage. (4) Compensation is to be reduced likewise if and in so far as any other source of danger for which the person suffering the damage is responsible under ­Chapter 3 (Accountability) contributes to the occurrence or extent of the damage. VI.–5:103: Damage caused by a criminal to a collaborator Legally relevant damage caused unintentionally in the course of committing a criminal offence to another person participating or otherwise collaborating in the offence does not give rise to a right to reparation if this would be contrary to public policy. Section 2 Interests of accountable persons or third parties VI.–5:201: Authority conferred by law A person has a defence if legally relevant damage is caused with authority conferred by law. VI.–5:202: Self-defence, benevolent intervention and necessity (1) A person has a defence if that person causes legally relevant damage in reasonable protection of a right or of an interest worthy of legal protection of that person or a third person if the person suffering the legally relevant damage is accountable for endangering the right or interest protected. For the purposes of this paragraph VI.–3:103 (Persons under eighteen) is to be disregarded. (2) The same applies to legally relevant damage caused by a benevolent intervener to a principal without breach of the intervener’s duties. (3) Where a person causes legally relevant damage to the patrimony of another in a situation of imminent danger to life, body, health or liberty in order to save the person causing the damage or a third person from that danger and the danger could not be eliminated without causing the damage, the person causing the damage is not liable to make reparation beyond providing reasonable recompense.

Draft Common Frame of Reference 1227 VI.–5:203: Protection of public interest A person has a defence if legally relevant damage is caused in necessary protection of values fundamental to a democratic society, in particular where damage is caused by dissemination of information in the media. Section 3 Inability to control VI.–5:301: Mental incompetence (1) A person who is mentally incompetent at the time of conduct causing legally relevant damage is liable only if this is equitable, having regard to the mentally incompetent person’s financial means and all the other circumstances of the case. Liability is limited to reasonable recompense. (2) A person is to be regarded as mentally incompetent if that person lacks sufficient insight into the nature of his or her conduct, unless the lack of sufficient insight is the temporary result of his or her own misconduct. VI.–5:302: Event beyond control A person has a defence if legally relevant damage is caused by an abnormal event which cannot be averted by any reasonable measure and which is not to be regarded as that person’s risk. Section 4 Contractual exclusion and restriction of liability VI.–5:401: Contractual exclusion and restriction of liability (1) Liability for causing legally relevant damage intentionally cannot be excluded or restricted. (2) Liability for causing legally relevant damage as a result of a profound failure to take such care as is manifestly required in the circumstances cannot be excluded or restricted: (a) in respect of personal injury (including fatal injury); or (b) if the exclusion or restriction is otherwise illegal or contrary to good faith and fair dealing. (3) Liability for damage for the causation of which a person is accountable under VI.–3:204 (Accountability for damage caused by defective products) cannot be restricted or excluded. (4) Other liability under this Book can be excluded or restricted unless statute provides otherwise.

1228  Part III: Common Principles Section 5 Loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death) VI.–5:501: Extension of defences against the injured person to third persons A defence which may be asserted against a person’s right of reparation in respect of that person’s personal injury or, if death had not occurred, could have been asserted, may also be asserted against a person suffering loss within VI.–2:202 (Loss suffered by third persons as a result of another’s personal injury or death). Chapter 6 Remedies Section 1 Reparation in general VI.–6:101: Aim and forms of reparation (1) Reparation is to reinstate the person suffering the legally relevant damage in the position that person would have been in had the legally relevant damage not occurred. (2) Reparation may be in money (compensation) or otherwise, as is most appropriate, having regard to the kind and extent of damage suffered and all the other circumstances of the case. (3) Where a tangible object is damaged, compensation equal to its depreciation of value is to be awarded instead of the cost of its repair if the cost of repair unreasonably exceeds the depreciation of value. This rule applies to animals only if appropriate, having regard to the purpose for which the animal was kept. (4) As an alternative to reinstatement under paragraph (1), but only where this is reasonable, reparation may take the form of recovery from the person accountable for the causation of the legally relevant damage of any advantage obtained by the latter in connection with causing the damage. VI.–6:102: De minimis rule Trivial damage is to be disregarded. VI.–6:103: Equalisation of benefits (1) Benefits arising to the person suffering legally relevant damage as a result of the damaging event are to be disregarded unless it would be fair and reasonable to take them into account. (2) In deciding whether it would be fair and reasonable to take the benefits into account, regard shall be had to the kind of damage sustained, the nature of

Draft Common Frame of Reference 1229 the accountability of the person causing the damage and, where the benefits are conferred by a third person, the purpose of conferring those benefits. VI.–6:104: Multiple persons suffering damage Where multiple persons suffer legally relevant damage and reparation to one person will also make reparation to another, Book III, Chapter 4, Section 2 (Plurality of creditors) applies with appropriate adaptation to their rights to reparation. VI.–6:105: Solidary liability Where several persons are liable for the same legally relevant damage, they are liable solidarily. VI.–6:106: Assignment of right to reparation The person suffering the damage may assign a right to reparation, including a right to reparation for non-economic loss. Section 2 Compensation VI.–6:201: Right of election The person suffering the damage may choose whether or not to spend compensation on the reinstatement of the damaged interest. VI.–6:202: Reduction of liability Where it is fair and reasonable to do so, a person may be relieved of liability to compensate, either wholly or in part, if, where the damage is not caused intentionally, liability in full would be disproportionate to the accountability of the person causing the damage or the extent of the damage or the means to prevent it. VI.–6:203: Capitalisation and quantification (1) Compensation is to be awarded as a lump sum unless a good reason requires periodical payment. (2) National law determines how compensation for personal injury and noneconomic loss is to be quantified. VI.–6:204: Compensation for injury as such Injury as such is to be compensated independent of compensation for economic or non-economic loss.

1230  Part III: Common Principles Section 3 Prevention VI.–6:301: Right to prevention (1) The right to prevention exists only in so far as: (a) reparation would not be an adequate alternative remedy; and (b) it is reasonable for the person who would be accountable for the causation of the damage to prevent it from occurring. (2) Where the source of danger is an object or an animal and it is not reasonably possible for the endangered person to avoid the danger the right to prevention includes a right to have the source of danger removed. VI.–6:302: Liability for loss in preventing damage A person who has reasonably incurred expenditure or sustained other loss in order to prevent that person from suffering an impending damage, or in order to limit the extent or severity of damage suffered, has a right to compensation from the person who would have been accountable for the causation of the damage. Chapter 7 Ancillary rules VI.–7:101: National constitutional laws The provisions of this Book are to be interpreted and applied in a manner compatible with the constitutional law of the court. VI.–7:102: Statutory provisions National law determines what legal provisions are statutory provisions. VI.–7:103: Public law functions and court proceedings This Book does not govern the liability of a person or body arising from the exercise or omission to exercise public law functions or from performing duties during court proceedings. VI.–7:104: Liability of employees, employers, trade unions and employers’ associations This Book does not govern the liability of: (a) employees (whether to co-employees, employers or third parties) arising in the course of employment; (b) employers to employees arising in the course of employment; and (c) trade unions and employers’ associations arising in the course of an industrial dispute.

Draft Common Frame of Reference 1231 VI.–7:105: Reduction or exclusion of liability to indemnified persons If a person is entitled from another source to reparation, whether in full or in part, for that person’s damage, in particular from an insurer, fund or other body, national law determines whether or not by virtue of that entitlement liability under this Book is limited or excluded. Book VII Unjustified enrichment Chapter 1 General VII.–1:101: Basic rule (1) A person who obtains an unjustified enrichment which is attributable to another’s disadvantage is obliged to that other to reverse the enrichment. (2) This rule applies only in accordance with the following provisions of this Book. Chapter 2 When enrichment unjustified VII.–2:101: Circumstances in which an enrichment is unjustified (1) An enrichment is unjustified unless: (a) the enriched person is entitled as against the disadvantaged person to the enrichment by virtue of a contract or other juridical act, a court order or a rule of law; or (b) the disadvantaged person consented freely and without error to the disadvantage. (2) If the contract or other juridical act, court order or rule of law referred to in paragraph (1)(a) is void or avoided or otherwise rendered ineffective retrospectively, the enriched person is not entitled to the enrichment on that basis. (3) However, the enriched person is to be regarded as entitled to an enrichment by virtue of a rule of law only if the policy of that rule is that the enriched person is to retain the value of the enrichment. (4) An enrichment is also unjustified if: (a) the disadvantaged person conferred it: (i) for a purpose which is not achieved; or (ii) with an expectation which is not realised; (b) the enriched person knew of, or could reasonably be expected to know of, the purpose or expectation; and (c) the enriched person accepted or could reasonably be assumed to have accepted that the enrichment must be reversed in such circumstances.

1232  Part III: Common Principles VII.–2:102: Performance of obligation to third person Where the enriched person obtains the enrichment as a result of the disadvantaged person performing an obligation or a supposed obligation owed by the disadvantaged person to a third person, the enrichment is justified if: (a) the disadvantaged person performed freely; or (b) the enrichment was merely the incidental result of performance of the obligation. VII.–2:103: Consenting or performing freely (1) If the disadvantaged person’s consent is affected by incapacity, fraud, coercion, threats or unfair exploitation, the disadvantaged person does not consent freely. (2) If the obligation which is performed is ineffective because of incapacity, fraud, coercion threats or unfair exploitation, the disadvantaged person does not perform freely. Chapter 3 Enrichment and disadvantage VII.–3:101: Enrichment (1) A person is enriched by: (a) an increase in assets or a decrease in liabilities; (b) receiving a service or having work done; or (c) use of another’s assets. (2) In determining whether and to what extent a person obtains an enrichment, no regard is to be had to any disadvantage which that person sustains in exchange for or after the enrichment. VII.–3:102: Disadvantage (1) A person is disadvantaged by: (a) a decrease in assets or an increase in liabilities; (b) rendering a service or doing work; or (c) another’s use of that person’s assets. (2) In determining whether and to what extent a person sustains a disadvantage, no regard is to be had to any enrichment which that person obtains in exchange for or after the disadvantage. Chapter 4 Attribution VII.–4:101: Instances of attribution An enrichment is attributable to another’s disadvantage in particular where: (a) an asset of that other is transferred to the enriched person by that other; (b) a service is rendered to or work is done for the enriched person by that other;

Draft Common Frame of Reference 1233 (c) the enriched person uses that other’s asset, especially where the enriched person infringes the disadvantaged person’s rights or legally protected interests; (d) an asset of the enriched person is improved by that other; or (e) the enriched person is discharged from a liability by that other. VII.–4:102: Intermediaries Where one party to a juridical act is an authorised intermediary indirectly representing a principal, any enrichment or disadvantage of the principal which results from the juridical act, or from a performance of obligations under it, is to be regarded as an enrichment or disadvantage of the intermediary. VII.–4:103: Debtor’s performance to a non-creditor; onward transfer in good faith (1) An enrichment is also attributable to another’s disadvantage where a debtor confers the enrichment on the enriched person and as a result the disadvantaged person loses a right against the debtor to the same or a like enrichment. (2) Paragraph (1) applies in particular where a person who is obliged to the disadvantaged person to reverse an unjustified enrichment transfers it to a third person in circumstances in which the debtor has a defence under VII.–6:101 (Disenrichment). VII.–4:104: Ratification of debtor’s performance to a non-creditor (1) Where a debtor purports to discharge a debt by paying a third person, the creditor may ratify that act. (2) Ratification extinguishes the creditor’s right against the debtor to the extent of the payment with the effect that the third person’s enrichment is attributable to the creditor’s loss of the claim against the debtor. (3) As between the creditor and the third person, ratification does not amount to consent to the loss of the creditor’s right against the debtor. (4) This Article applies correspondingly to performances of non-monetary obligations. (5) Other rules may exclude the application of this Article if an insolvency or equivalent proceeding has been opened against the debtor before the creditor ratifies. VII.–4:105: Attribution resulting from an act of an intervener (1) An enrichment is also attributable to another’s disadvantage where a third person uses an asset of the disadvantaged person without authority so that the disadvantaged person is deprived of the asset and it accrues to the enriched person. (2) Paragraph (1) applies in particular where, as a result of an intervener’s interference with or disposition of goods, the disadvantaged person ceases to be owner of the goods and the enriched person becomes owner, whether by juridical act or rule of law.

1234  Part III: Common Principles VII.–4:106: Ratification of intervener’s acts (1) A person entitled to an asset may ratify the act of an intervener who purports to dispose of or otherwise uses that asset in a juridical act with a third person. (2) The ratified act has the same effect as a juridical act by an authorised intermediary. As between the person ratifying and the intervener, ratification does not amount to consent to the intervener’s use of the asset. VII.–4:107: Where type or value not identical An enrichment may be attributable to another’s disadvantage even though the enrichment and disadvantage are not of the same type or value. Chapter 5 Reversal of enrichment VII.–5:101: Transferable enrichment (1) Where the enrichment consists of a transferable asset, the enriched person reverses the enrichment by transferring the asset to the disadvantaged person. (2) Instead of transferring the asset, the enriched person may choose to reverse the enrichment by paying its monetary value to the disadvantaged person if a transfer would cause the enriched person unreasonable effort or expense. (3) If the enriched person is no longer able to transfer the asset, the enriched person reverses the enrichment by paying its monetary value to the disadvantaged person. (4) However, to the extent that the enriched person has obtained a substitute in exchange, the substitute is the enrichment to be reversed if: (a) the enriched person is in good faith at the time of disposal or loss and the enriched person so chooses; or (b) the enriched person is not in good faith at the time of disposal or loss, the disadvantaged person so chooses and the choice is not inequitable. (5) The enriched person is in good faith if that person neither knew nor could reasonably be expected to know that the enrichment was or was likely to become unjustified. VII.–5:102: Non-transferable enrichment (1) Where the enrichment does not consist of a transferable asset, the enriched person reverses the enrichment by paying its monetary value to the disadvantaged person. (2) The enriched person is not liable to pay more than any saving if the enriched person: (a) did not consent to the enrichment; or (b) was in good faith.

Draft Common Frame of Reference 1235 (3) However, where the enrichment was obtained under an agreement which fixed a price or value for the enrichment, the enriched person is at least liable to pay that sum if the agreement was void or voidable for reasons which were not material to the fixing of the price. (4) Paragraph (3) does not apply so as to increase liability beyond the monetary value of the enrichment. VII.–5:103: Monetary value of an enrichment; saving (1) The monetary value of an enrichment is the sum of money which a provider and a recipient with a real intention of reaching an agreement would lawfully have agreed as its price. Expenditure of a service provider which the agreement would require the recipient to reimburse is to be regarded as part of the price. (2) A saving is the decrease in assets or increase in liabilities which the enriched person would have sustained if the enrichment had not been obtained. VII.–5:104: Fruits and use of an enrichment (1) Reversal of the enrichment extends to the fruits and use of the enrichment or, if less, any saving resulting from the fruits or use. (2) However, if the enriched person obtains the fruits or use in bad faith, reversal of the enrichment extends to the fruits and use even if the saving is less than the value of the fruits or use. Chapter 6 Defences VII.–6:101: Disenrichment (1) The enriched person is not liable to reverse the enrichment to the extent that the enriched person has sustained a disadvantage by disposing of the enrichment or otherwise (disenrichment), unless the enriched person would have been disenriched even if the enrichment had not been obtained. (2) However, a disenrichment is to be disregarded to the extent that: (a) the enriched person has obtained a substitute; (b) the enriched person was not in good faith at the time of disenrichment, unless: (i) the disadvantaged person would also have been disenriched even if the enrichment had been reversed; or (ii) the enriched person was in good faith at the time of enrichment, the disenrichment was sustained before performance of the obligation to reverse the enrichment was due and the disenrichment resulted from the realisation of a risk for which the enriched person is not to be regarded as responsible; or (c) paragraph (3) of VII.–5:102 (Non-transferable enrichment) applies.

1236  Part III: Common Principles (3) Where the enriched person has a defence under this Article as against the disadvantaged person as a result of a disposal to a third person, any right of the disadvantaged person against that third person is unaffected. VII.–6:102: Juridical acts in good faith with third parties The enriched person is also not liable to reverse the enrichment if: (a) in exchange for that enrichment the enriched person confers another enrichment on a third person; and (b) the enriched person is still in good faith at that time. VII.–6:103: Illegality Where a contract or other juridical act under which an enrichment is obtained is void or avoided because of an infringement of a fundamental principle (II.–7:301 (Contracts infringing fundamental principles)) or mandatory rule of law, the enriched person is not liable to reverse the enrichment to the extent that the reversal would contravene the policy underlying the principle or rule. Chapter 7 Relation to other legal rules VII.–7:101: Other private law rights to recover (1) The legal consequences of an enrichment which is obtained by virtue of a contract or other juridical act are governed by other rules if those rules grant or exclude a right to reversal of an enrichment, whether on withdrawal, termination, price reduction or otherwise. (2) This Book does not address the proprietary effect of a right to reversal of an enrichment. (3) This Book does not affect any other right to recover arising under contractual or other rules of private law. VII.–7:102: Concurrent obligations (1) Where the disadvantaged person has both: (a) a claim under this Book for reversal of an unjustified enrichment; and (b) (i) a claim for reparation for the disadvantage (whether against the enriched person or a third party); or (ii) a right to recover under other rules of private law as a result of the unjustified enrichment, the satisfaction of one of the claims reduces the other claim by the same amount. (2) The same applies where a person uses an asset of the disadvantaged person so that it accrues to another and under this Book: (a) the user is liable to the disadvantaged person in respect of the use of the asset; and

Draft Common Frame of Reference 1237 (b) the recipient is liable to the disadvantaged person in respect of the increase in assets. VII.–7:103: Public law claims This Book does not determine whether it applies to enrichments which a person or body obtains or confers in the exercise of public law functions. Book IX Proprietary security in movable assets Chapter 1 General rules Section 1 Scope IX.–1:101: General rule (1) This Book applies to the following rights in movable property based upon contracts for proprietary security: (a) security rights; and (b) ownership retained under retention of ownership devices. (2) The rules of this Book on security rights apply with appropriate adaptations to: (a) rights under a trust for security purposes; (b) security rights in movable assets created by unilateral juridical acts; and (c) security rights in movable assets implied by patrimonial law, if and in so far as this is compatible with the purpose of the law. IX.–1:102: Security right in movable asset (1) A security right in a movable asset is any limited proprietary right in the asset which entitles the secured creditor to preferential satisfaction of the secured right from the encumbered asset. (2) The term security right includes: (a) limited proprietary rights of a type which is generally recognised as designed to serve as proprietary security, especially the pledge; (b) limited proprietary rights, however named, that are based upon a ­contract for proprietary security and that are either intended by the parties to entitle the secured creditor to preferential satisfaction of the secured right from the encumbered asset or have this effect under the contract; and (c) other rights which are regarded as security rights under the rules of this Book, such as the right referred to in IX.–2:114 (Right of retention of possession) and the rights covered by paragraph (3).

1238  Part III: Common Principles (3) A transfer or purported transfer of ownership of a movable asset which is made, on the basis of a contract for proprietary security, with the intention or the effect of securing satisfaction of a secured right can create only a security right in the asset for the transferee. (4) Paragraph (3) applies in particular to: (a) a security transfer of ownership of corporeal assets; (b) a security assignment; (c) a sale and lease-back; and (d) a sale and resale. IX.–1:103: Retention of ownership devices: scope (1) There is a “retention of ownership device” when ownership is retained by the owner of supplied assets in order to secure a right to performance of an obligation. (2) The term retention of ownership device includes: (a) retention of ownership by a seller under a contract of sale; (b) ownership of the supplier under a contract of hire-purchase; (c) ownership of the leased assets under a contract of leasing, provided that according to the terms of the contract the lessee at the expiration of the lease period has an option to acquire ownership of, or a right to continue to use, the leased asset without payment or for merely nominal payment (financial leasing); and (d) ownership of the supplier under a contract of consignment with the intention or the effect of fulfilling a security purpose. IX.–1:104: Retention of ownership devices: applicable rules (1) Retention of ownership devices are subject to the following rules on security rights, unless specifically provided otherwise: (a) IX.–2:104 (Specific issues of transferability, existence and specification) paragraphs (2) to (4); (b) Chapter 2, Sections 3 and 4; (c) Chapters 3 to 6; and (d) Chapter 7, Section 1. (2) When applying rules on security rights to retention of ownership devices, the following adaptations apply: (a) references to the encumbered assets refer to the assets supplied under a contract of sale, hire-purchase, leasing or consignment, respectively; (b) in retention of ownership under contracts of sale, references to the secured creditor are to be understood as referring to the seller, and references to the security provider as referring to the buyer; (c) in retention of ownership devices under contracts of hire-purchase, references to the secured creditor are to be understood as referring to the supplier, and references to the security provider as referring to the hire-purchaser;

Draft Common Frame of Reference 1239 (d) in retention of ownership devices under contracts of financial leasing, references to the secured creditor are to be understood as referring to the lessor, and references to the security provider as referring to the lessee; and (e) in retention of ownership devices under contracts of consignment, references to the secured creditor are to be understood as referring to the supplier, and references to the security provider as referring to the consignee. IX.–1:105: Exclusions (1) This Book does not apply to security rights for micro-credits, if and in so far as national legislation of the place where the security provider’s business or residence is located contains specific protective rules for the security provider. (2) The rules of an international Convention dealing with a subject-matter regulated in this Book and binding upon a member state are presumed to have for that member state precedence over the rules of this Book. Section 2 Definitions IX.–1:201: Definitions (1) For the purposes of this Book the following definitions apply. (2) An “accessory” is a corporeal asset that is or becomes closely connected with or part of a movable or an immovable, provided it is possible and economically reasonable to separate the accessory without damage from the movable or immovable. (3) “Acquisition finance devices” cover: (a) retention of ownership devices; (b) where ownership of the sold assets has been transferred to the buyer, those security rights in the sold asset which secure the right: (i) of the seller to payment of the purchase price for the encumbered asset under a contract of sale; (ii) of a lender to repayment of a loan granted to the buyer for payment of the purchase price for the encumbered asset, if and in so far as this payment is actually made to the seller; and (c) rights of third persons to whom any of the rights under sub-paragraph (a) or (b) has been transferred as security for a credit covered by sub-paragraphs (a) or (b). (4) A “contract for proprietary security” is a contract under which: (a) a security provider undertakes to grant a security right to the secured creditor; (b) a secured creditor is entitled to retain a security right when transferring ownership to the transferee who is regarded as security provider; or

1240  Part III: Common Principles (5) (6) (7) (8) (9) (10) (11)

(12) (13)

(c) a seller, lessor or other supplier of assets is entitled to retain ownership of the supplied assets in order to secure its rights to performance. “Default” means: (a) any non-performance by the debtor of the obligation covered by the security; and (b) any other event or set of circumstances agreed by the secured creditor and the security provider as entitling the secured creditor to have recourse to the security. “Financial assets” are financial instruments and rights to the payment of money. “Financial instruments” are: (a) share certificates and equivalent securities as well as bonds and equivalent debt instruments, if these are negotiable; (b) any other securities which are dealt in and which give the right to acquire any such financial instruments or which give rise to cash settlements, except instruments of payment; (c) share rights in collective investment undertakings; (d) money market instruments; and (e) rights in or relating to the instruments covered by sub-paragraphs (a) to (d). “Intangibles” means incorporeal assets and includes uncertificated and indirectly held securities and the undivided share of a co-owner in corporeal assets or in a bulk or a fund. “Ownership” for the purposes of these rules covers ownership of movable corporeal assets and of intangible assets. A “possessory security right” is a security right that requires possession of the encumbered corporeal asset by the secured creditor or another person (except the debtor) holding for the secured creditor. “Proceeds” is every value derived from an encumbered asset, such as: (a) value realised by sale or other disposition or by collection; (b) damages or insurance payments in respect of defects, damage or loss; (c) civil and natural fruits, including distributions; and (d) proceeds of proceeds. The “secured creditor” may be the creditor of the secured right or a third person who may hold the security right in that person’s own name for the creditor, especially as a trustee. The “security provider” may be the debtor of the obligation to be covered by the security right or a third person.

Draft Common Frame of Reference 1241 Chapter 2 Creation and coverage Section 1 Creation of security rights Subsection 1 General provisions IX.–2:101: Methods of creation of security rights A security right in a movable asset may be created: (a) by the security provider granting the security right to the secured creditor; (b) by the secured creditor retaining the security right when transferring ownership of the asset to the security provider; or (c) by the secured creditor relying on a right of retention of possession. IX.–2:102: Requirements for creation of security rights in general The creation of a security right in a movable asset requires that: (a) (b) (c) (d)

the asset exists; the asset is transferable; the secured right exists; and the additional requirements for the creation of a security right by granting, by retention or on the basis of a right of retention of possession are fulfilled.

IX.–2:103: Possessory and non-possessory security rights Unless otherwise agreed by the parties, the creation of a security right by contract does not require possession of the encumbered asset by the secured creditor. IX.–2:104: Specific issues of transferability, existence and specification (1) A security right can be created in a right to performance other than a right to the payment of money, even if this right is not transferable, provided that it can be transformed into a right to the payment of money. (2) A security right can be created in an asset, even if its owner had agreed not to transfer or to encumber the asset. This rule applies also to a right to performance, whether contractual or not, unless it is non-assignable by virtue of III.–5:109 (Assignability: rights personal to the creditor) paragraph (1)). (3) If the parties purport to create a security right in a future, generic or untransferable asset, the security right arises only if and when the asset comes into existence, is specified or becomes transferable. Paragraph (2) remains unaffected.

1242  Part III: Common Principles (4) Paragraph (3) sentence 1 applies with appropriate adaptations to the creation of security rights in a conditional right, including the rights covered by that paragraph. A security right may be created in a present conditional right, especially in the right of a transferee under a conditional transfer of ownership. (5) Paragraph (3) sentence 1 applies with appropriate adaptations to the creation of security rights for secured rights which are future or only conditional. Subsection 2 Granting of security right IX.–2:105: Requirements for granting of security right In addition to the requirements under Subsection 1, the creation of a security right in a movable asset by granting requires that: (a) the asset to be encumbered is specified by the parties; (b) the security provider has the right or authority to grant a security right in the asset; (c) the secured creditor is entitled as against the security provider to the granting of a security right on the basis of the contract for proprietary security; and (d) the secured creditor and the security provider agree on the granting of a security right to the secured creditor. IX.–2:106: Time when security right is created by granting Subject to IX.–2:110 (Delayed creation), the security right is created by granting at the time when the requirements set out in the preceding Article are fulfilled, unless the parties have agreed on another time of creation. IX.–2:107: Granting of security right by consumer (1) The creation of a security right by a consumer security provider by granting is only valid within the following limits: (a) the assets to be encumbered must be identified individually; and (b) an asset not yet owned by the consumer upon conclusion of the contract for proprietary security (apart from the rights to payment covered by paragraph (2)) can only be encumbered as security for a credit to be used for the acquisition of the asset by the consumer. (2) Rights to payment of future salary, pensions or equivalent income cannot be encumbered in so far as they serve the satisfaction of the living expenses of the consumer security provider and his or her family. IX.–2:108: Good faith acquisition of security right (1) Even where the security provider has no right or authority to dispose of a corporeal asset, the secured creditor nevertheless acquires a security right in it, provided that:

Draft Common Frame of Reference 1243 (a) the asset or a negotiable document to bearer on the asset is in the security provider’s possession or, if so required, the asset is registered in an international or national register of ownership as owned by the security provider at the time the security right is to be created; and (b) the secured creditor does not know and cannot reasonably be expected to know that the security provider has no right or authority to grant a security right in the asset at the time the security right is to be created. (2) For the purposes of paragraph (1)(b), a secured creditor acquiring a security right in an asset that is subject to a retention of ownership device which is registered under Chapter 3 Section 3 against the security provider is regarded as knowing that the latter has no right or authority to grant a security right in the asset. (3) Good faith acquisition of a security right is excluded for an asset that was stolen from the owner or the person holding for the owner. IX.–2:109: Good faith acquisition of security right in encumbered corporeal asset (1) Where a corporeal asset is encumbered with a security right or another ­limited proprietary right and the security provider has no right or authority to dispose of the asset free from the third person’s limited proprietary right, a secured creditor nevertheless acquires a security right free from that other right, provided that: (a) the requirements of paragraph (1)(a) of the preceding Article are met; and (b) the secured creditor does not know nor can reasonably be expected to know that the security provider has no right or authority to grant a security right in disregard of the third person’s limited proprietary right at the time the security right is to be created. (2) For the purposes of paragraph (1)(b), a secured creditor acquiring a security right in the encumbered asset is regarded as knowing that the security provider has no right or authority to grant a security right in the asset in disregard of the existing security right if this right is registered under Chapter 3, Section 3 against the security provider. (3) Where the requirements of paragraph (1) are not met but the requirements of the preceding Article are met, the secured creditor obtains a security right in the encumbered assets. The priority between this security right and the prior encumbrance is determined according to the general provisions. IX.–2:110: Delayed creation In assets for which at the time when the security right would have been created according to IX.–2:106 (Time when security right is created by granting) the requirements of IX.–2:107 (Granting of security right by consumer) and IX.–2:108 (Good faith acquisition of security right) have not yet been met, a security right automatically arises as soon as the events indicated in the preceding provisions have occurred.

1244  Part III: Common Principles IX.–2:111: Security right in cash, negotiable instruments and documents A security right in cash, negotiable instruments and documents to bearer may be created free from any earlier rights, even if the requirements of IX.–2:105 (Requirements for granting of security right) sub-paragraph (b), IX.–2:108 (Good faith acquisition of security right) and IX.–2:109 (Good faith acquisition of security right in an encumbered corporeal asset) are not met, provided that direct possession of these assets is transferred to the secured creditor. IX.–2:112: General matters of property law Rules on general matters of property law in Book VIII, Chapter 2 apply for the purposes of this Book with appropriate adaptations. Subsection 3 Retention of security right IX.–2:113: Requirements for retention of security right (1) In addition to the requirements under Subsection 1, the creation of a security right in a movable asset by retention requires that: (a) the secured creditor is entitled as against the transferee to the retention of a security right by virtue of the contract for proprietary security; and (b) the secured creditor transfers its ownership in the asset to be encumbered by the retained security right to the transferee. (2) The security right is created by retention at the time when all the requirements set out in the preceding paragraph are fulfilled. (3) The transferee is regarded as the security provider for the purposes of the application of the rules of this Book. Subsection 4 Right of retention of possession IX.–2:114: Right of retention of possession Where under a contract or rule of law a person is entitled as against the owner of an asset to retain possession of the asset as security for a right to performance, this right of retention of possession gives rise to a possessory security right. Section 2 Creation of retention of ownership devices IX.–2:201: Retention of ownership devices (1) A retention of ownership device arises in the cases set out in IX.–1:103 (Retention of ownership devices: scope) paragraph (2) if:

Draft Common Frame of Reference 1245 (a) the seller, supplier or lessor is the owner of the supplied asset or acts with authority in relation to this asset; (b) the asset is specified in the contract for proprietary security; (c) the secured right exists; and (d) the seller, supplier or lessor retains ownership. (2) Ownership is also retained for the purposes of paragraph (1)(d) where there is a transfer subject to the suspensive condition that the obligation covered is performed. Section 3 Creation of security rights in specific types of assets IX.–2:301: Encumbrance of right to payment of money (1) The encumbrance of a right to payment of money is also subject to the following special rules. (2) The provisions of Book III, Chapter 5 apply with appropriate adaptations, except III.–5:108 (Assignability: effect of contractual prohibition) paragraphs (2) and (3) and III.–5:121 (Competition between successive assignees). (3) A right to payment held by the security provider against the secured creditor may be encumbered by the security provider also in favour of the secured creditor. (4) A security right encumbering a right to payment extends to any personal or proprietary security right securing this right to payment. IX.–2:302: Security rights in shares of a company (1) Possession of negotiable certificates of shares of a company which are directly held is regarded as possession of the shares. (2) Shares of companies which do not meet the requirements of paragraph (1), whether or not they are registered, cannot be subject to a possessory security right. (3) Security rights in shares of companies extend to dividends, bonus shares and other assets which the shareholder derives from the shares but are limited to the financial value of the shares and such assets. IX.–2:303: Security rights in bonds Paragraphs (1) and (2) of the preceding Article apply also to bonds. IX.–2:304: Negotiable documents of title and negotiable instruments (1) If and as long as a negotiable document of title covers goods, a security right in the document covers also the goods. (2) For negotiable instruments, a security right in the instrument covers also the right embodied in the instrument.

1246  Part III: Common Principles (3) Possession of a negotiable document of title or a negotiable instrument is regarded as possession of the goods covered by the document of title or the right embodied in the instrument. IX.–2:305: Security right in an accessory (1) A security right may be created in an asset that, at the time of creation, is an accessory to a movable or an immovable. If the rules applicable to immovable property so provide, the security right may also be created according to the rules governing immovable property. (2) A security right in goods continues even if the encumbered asset subsequently becomes an accessory to a movable or an immovable. IX.–2:306: Proceeds of the originally encumbered assets (1) A security right extends to rights to payment due to a defect in, damage to, or loss of the originally encumbered asset, including insurance proceeds. (2) A possessory security right extends to civil and natural fruits of the originally encumbered assets unless the parties agree otherwise. (3) Other proceeds of the originally encumbered assets are covered only if the parties so agree. IX.–2:307: Use of encumbered goods for production or combination (1) Where encumbered materials owned by the security provider are used for the production of new goods, the secured creditor’s security right may be extended by party agreement: (a) to the products; and (b) to the right to payment to which the security provider as former owner of the material is entitled by virtue of the production against the producer according to VIII.–5:201 (Production). (2) The preceding paragraph applies accordingly if goods are combined in such a way that separation would be impossible or economically unreasonable for the purposes of VIII.–5:203 (Combination). (3) The issue whether a former owner of material other than the holder of a retention of ownership device acquires a security right by operation of law as the result of production or combination involving the material, and the effectiveness and priority of this security right are governed by Book VIII, Chapter 5. If these security rights are created by party agreement, they are subject to the provisions of Book IX, but enjoy superpriority according to VIII.–5:204 (Additional provisions as to proprietary security rights) ­paragraph (3). (4) In the case of paragraph (1)(b), the right of the secured creditor, as the former holder of an encumbrance in the material, extends to the security rights mentioned in paragraph (3).

Draft Common Frame of Reference 1247 IX.–2:308: Use of goods subject to a retention of ownership device for production or combination (1) The rules of Book VIII, Chapter 5 (Production, combination and commingling) apply to the consequences of production or combination of goods subject to a retention of ownership device; references to the owner of these goods are to be understood as references to the buyer, hire-purchaser, lessee or consignee. (2) Where materials subject to a retention of ownership device are used for the production of new goods, the seller, supplier or lessor may acquire a security right by party agreement: (a) in the products; and (b) in the right to payment to which the buyer, hire-purchaser, lessee or consignee is entitled against the producer according to VIII.–5:201 (Production) on the basis of being regarded as the former owner of the material according to paragraph (1). (3) The preceding paragraph applies accordingly if the goods are combined. (4) In the case of paragraph (2)(b), the right of the seller, supplier or lessor extends to the security rights in the products or combined goods acquired by the buyer, hire-purchaser, lessee or consignee as a result of the production or combination. IX.–2:309: Commingling of assets subject to proprietary security (1) Where encumbered goods are commingled in such a way that it is impossible or economically unreasonable to separate the resulting mass or mixture into its original constituents, but it is possible and economically reasonable to separate the mass or mixture into proportionate quantities, the security rights that had encumbered the goods continue as encumbrances of the rights which the former owners of the goods have in the resulting mass or mixture by virtue of VIII.–5:202 (Commingling) paragraph (1)); this encumbrance is limited to a share proportionate to the value of the respective goods at the moment of commingling. (2) Where the goods that are commingled as set out in the preceding paragraph were subject to a retention of ownership device, VIII.–5:202 (Commingling) paragraph (1) applies with the proviso that the rights of the holder of the retention of ownership device are continued in a share of the resulting mass or mixture proportionate to the value of the respective goods at the moment of commingling. (3) Any secured creditor is entitled to exercise the security provider’s right to separate a quantity equivalent to that co-owner’s undivided share out of the mass or mixture (VIII.–5:202 (Commingling) paragraph (2)). (4) If encumbered financial assets held by the secured creditor are commingled by the latter in a fund, the security provider is entitled to a share in the fund. Paragraph (1) applies with appropriate adaptations.

1248  Part III: Common Principles (5) If in the cases covered by paragraphs (1), (2) and (4) the assets of the mass or fund do not suffice to satisfy all co-owners, VIII.–2:305 (Transfer of goods forming part of a bulk) paragraphs (4) and (5) apply accordingly. Section 4 Coverage of security IX.–2:401: Secured rights (1) The security covers, within its maximum amount, if any, not only the principal secured right, but also the ancillary rights of the creditor against the debtor, especially rights to payment of: (a) contractual and default interest; (b) damages, a penalty or an agreed sum for non-performance by the debtor; and (c) the reasonable costs of extra-judicial recovery of those items. (2) The right to payment of the reasonable costs of legal proceedings and enforcement proceedings against the security provider and against the debtor, if different from the security provider, is covered, provided the security provider had been informed about the creditor’s intention to undertake such proceedings in sufficient time to enable the security provider to avert those costs. (3) A global security covers only rights which originated in contracts between the debtor and the creditor. Chapter 3 Effectiveness as against third persons Section 1 General rules IX.–3:101: Effectiveness as against third persons (1) A security right created according to Chapter 2 has no effects against the following classes of third persons: (a) holders of proprietary rights, including effective security rights, in the encumbered asset; (b) a creditor who has started to bring execution against those assets and who, under the applicable law, has obtained a position providing protection against a subsequent execution; and (c) the insolvency administrator of the security provider, unless, subject to exceptions, the requirements of this Chapter are met. (2) Where a security right that is effective against third persons according to the provisions of this Chapter is extended by virtue of the provisions of this Book without a need for an agreement to this effect to assets other than the assets that were originally encumbered, the extension of the security right is not subject to the requirements of this Chapter.

Draft Common Frame of Reference 1249 (3) A security right that had been acquired by a good faith acquisition in disregard of a retention of ownership device or an earlier security right in the asset to be encumbered is effective against the holder of the retention of ownership device or the holder of the earlier security right even if the requirements of this Chapter are not met. The effectiveness of the security right that had been acquired by a good faith acquisition against other third persons remains subject to the other rules of this Chapter. IX.–3:102: Methods of achieving effectiveness (1) For security rights in all types of assets, effectiveness may be achieved by registration of the security right pursuant to Section 3. (2) Effectiveness can also be achieved pursuant to Section 2: (a) in the case of corporeal assets, by the secured creditor holding possession of the encumbered assets; or (b) in the case of certain intangible assets, by the secured creditor exercising control over the encumbered assets. IX.–3:103: Security right made effective by several methods (1) If a security right has been made effective by registration, possession or control, it may be made effective also by any of the other methods. Where the effects diverge, the stronger effects of a chosen method prevail. (2) The preceding rules also apply if a security right that is exempted from the requirements of this Chapter is also made effective by registration, possession or control. IX.–3:104: Change of method If the method for achieving effectiveness is changed, effectiveness is continuous, provided the requirements of the new method are met immediately upon termination of the preceding method. IX.–3:105: Security right in an accessory to an immovable A security right in an accessory to an immovable may upon accession also be made effective by registration or annotation in a land register, provided this is authorised by the law governing the land register. IX.–3:106: Security right in commingled assets (1) Where a corporeal asset, which is encumbered with an effective security right, is commingled, the security right in the corresponding share of the bulk according to IX.–2:309 (Commingling of assets subject to proprietary security) remains effective. (2) The preceding paragraph applies with appropriate adaptations if financial assets are commingled in a fund.

1250  Part III: Common Principles IX.–3:107: Registration of acquisition finance devices (1) An acquisition finance device is effective only if registered. (2) If registration is effected within 35 days after delivery of the supplied asset, the acquisition finance device is effective from the date of creation. (3) If registration takes place later than 35 days after delivery, the acquisition finance device becomes effective only at the time of registration and does not enjoy superpriority under IX.–4:102 (Superpriority). (4) Where a credit for assets supplied to a consumer is secured by an acquisition finance device, this proprietary security is effective without registration. This exception does not apply to security rights in proceeds and other assets different from the supplied asset. IX.–3:108: Importation of encumbered asset If an encumbered asset is brought from a country outside the European Union into this area, any pre-existing security right which is effective remains effective if the requirements laid down in this Chapter are fulfilled within three months. Section 2 Possession or control by creditor IX.–3:201: Possession Security rights in encumbered corporeal assets can be made effective by the secured creditor holding possession: (a) if the secured creditor or an agent (other than the security provider) acting for the secured creditor exercises direct physical control over the encumbered assets; (b) where the encumbered assets are held by a third person (other than the security provider), if the third person has agreed with the secured creditor to hold the encumbered assets only for the latter; or (c) where the encumbered assets are jointly held by the secured creditor and the security provider or where a third person holds the encumbered assets for both parties, if in either case the security provider has no access to the encumbered assets without the secured creditor’s express consent. IX.–3:202: Negotiable documents of title and negotiable instruments (1) Possession of a negotiable document of title or negotiable instrument is also sufficient for the effectiveness of a security right in the goods covered by the document of title or in the right embodied in the instrument. (2) The security right in the goods covered by the document of title according to paragraph (1) is not affected if the covered assets are relinquished to the security provider or another person for a period of up to ten days against a duly dated formal trust receipt and for the purpose of loading or unloading, sale or exchange or other dealing with the goods except the creation of a competing security right.

Draft Common Frame of Reference 1251 IX.–3:203: Certificated shares and bonds Paragraph (1) of the preceding Article applies with appropriate adaptations to possession of directly held certificates of shares of companies, if negotiable, and directly held bond certificates. IX.–3:204: Control over financial assets (1) Security rights can be made effective by the secured creditor exercising control over: (a) financial assets which are entered into book accounts held by a financial institution (intermediated financial assets); and (b) non-intermediated financial instruments registered in a register maintained by or for the issuer or which under national law is determinative of title. (2) The secured creditor exercises control over the assets mentioned in paragraph (1)(a), if: (a) the secured creditor with the assent of the security provider has instructed the financial institution administering the book account not to admit dispositions by the security provider without the secured creditor’s consent; (b) the assets are held by the financial institution for the secured creditor in a special account; or (c) the financial institution is the secured creditor. (3) The preceding paragraph applies with appropriate adaptations to the ­exercise of control by the secured creditor over the assets mentioned in paragraph (1)(b). (4) The satisfaction of the requirements of paragraphs (2) and (3) must be ­evidenced in writing or recording by electronic means or any other durable medium. Section 3 Registration Subsection 1 Operation of the register of proprietary security IX.–3:301: European register of proprietary security; other systems of registration or notation (1) A registration that is required or allowed for any security right or retention of ownership device under the rules of this Book is to be effected in a ­European register of proprietary security, subject to paragraph (2). (2) Where systems of registration or notation on title certificates for security rights in specific types of assets exist, the effectiveness of a security right to be registered or noted in these systems depends upon compliance with any mandatory rules applicable for these systems. For systems established under the

1252  Part III: Common Principles national law of a member state, this rule is subject to IX.–3:312 (Transitional provision in relation to entries in other systems of registration or notation under national law). (3) An entry of security rights in financial instruments into a register maintained by or for the issuer of financial instruments or which under national law is determinative of title is not regarded as registration for the purposes of this Section but may constitute control if the requirements of IX.–3:204 (Control over financial assets) paragraph (3) are complied with. IX.–3:302: Structure and operation of the register (1) The European register of proprietary security is to operate as a personal folio system, allowing entries concerning security rights to be filed against identified security providers. (2) The register is to operate electronically and to be directly accessible for its users in an online format. IX.–3:303: Retention of ownership devices and security rights (1) For the purposes of the European register of proprietary security no distinction is made between retention of ownership devices and security rights. (2) Any reference in this Section to security rights includes retention of ownership devices. IX.–3:304: Authentication as requirement for declarations to the register (1) Any declaration to the online register, such as filing, amending or deleting an entry in the register or a declaration of consent, requires authentication by the person making the declaration. (2) Authentication requires: (a) the use of log-in information which is issued to individual users of the online register after an initial enrolment in the register during which the identity and the contact details of the user are verified; or (b) the use of secure online identity verification systems of general application, if such systems are brought into operation at a European or member state level. Subsection 2 Entries in the register IX.–3:305: Entries to be made by secured creditor and advance filing (1) Entries in the register can be made directly by the secured creditor. (2) Entries can be made before or after the security right referred to has been created or the contract for proprietary security has been concluded.

Draft Common Frame of Reference 1253 IX.–3:306: Minimum content of the entry in the register (1) An entry can be entered into the register only if: (a) it is made in respect of an identified security provider; (b) it contains a minimum declaration as to the encumbered assets; (c) it is indicated by one or several references to a list of categories of assets to which category the encumbered assets belong; (d) the requirements of consent are fulfilled; and (e) it is accompanied by a declaration of the creditor that the latter assumes liability for damage caused to the security provider or third persons by a wrongful registration. (2) For the purposes of paragraph (1)(b) a declaration that the creditor is to take security over the security provider’s assets or is to retain ownership as security is sufficient. IX.–3:307: Additional content of the entry An entry in the register may include the following additional content: (a) additional information provided by the creditor in relation to the encumbered assets or the content of the security right; (b) a date at which the entry is to expire provided that it is before the end of the regular period of expiry of five years; and (c) a maximum amount of the security. IX.–3:308: Information appearing on the register In respect of each entry the following information appears on the register and is accessible to any user: (a) (b) (c) (d)

the name and contact details of the security provider; the name and contact details of the creditor; the time the entry was made; the minimum content of the entry under IX.–3:306 (Minimum content of the entry in the register) paragraph (1)(b) and (c); and (e) any additional content of the entry under IX.–3:307 (Additional content of the entry) sub-paragraphs (a) to (c). IX.–3:309: Required consent of the security provider (1) An entry in the register can be made only if the security provider has consented to it by declaration to the register. Any such consent can be freely terminated by the security provider by declaration to the register. A termination of consent does not affect entries that have been entered before the termination of the consent is declared to the register. (2) The secured creditor may demand from the security provider a declaration of consent to an entry to the extent that such a consent is necessary to cover the security rights created in the contract for proprietary security.

1254  Part III: Common Principles (3) This Article does not affect the validity, terms and effects of any of the security provider’s agreements with the secured creditor other than the declaration of consent to the register. IX.–3:310: Identity of security provider, description of encumbered assets and effectiveness of registration (1) If under the rules in this Book the effectiveness or priority of a security right encumbering assets of a certain security provider depends upon registration, an entry in the register according to this Subsection suffices only if: (a) the entry is filed against the correct security provider; (b) the creditor’s declaration as to the encumbered assets as appearing on the register covers the assets encumbered by the security right; (c) the encumbered assets actually belong to the category or categories of assets indicated in the entry; and (d) the creditor’s declaration is in an official language of the European Union. The creditor may add translations. (2) For the purposes of paragraph (1)(b): (a) the entry is effective in respect of fruits, products, proceeds and any other assets different from the original assets serving as security only if these assets are also covered by the creditor’s declaration as to the encumbered assets; and (b) a description identifying individual assets is not necessary. (3) The creditor making the entry bears the risk that: (a) the description of the encumbered assets, the translation of this description or the indication of the category or categories of encumbered assets is wrong; and (b) the entry is filed against a wrong person. IX.–3:311: Amendments of entries (1) The creditor may amend any of the creditor’s entries after filing. (2) An amendment to an entry can only be entered into the register if: (a) it is made in respect of a specific entry; (b) it contains a declaration as to the content of the amendment; and (c) it is accompanied by a declaration of the creditor that the latter assumes liability for damage caused to the security provider or third persons by a wrongful amendment to the original entry. (3) In case of an amendment, the register preserves and shows both the original text and the amendment as such, including the time the amendment was made. (4) An amendment to an entry is effective only if it does not extend the creditor’s rights. In particular, an amendment can have the effect of limiting the creditor’s rights, especially by subordinating the creditor’s rights to another creditor’s rights, by indicating a transfer of the security right to another creditor, by limiting the scope of assets covered according to the content of the

Draft Common Frame of Reference 1255 c­ reditor’s declaration as to the encumbered assets or by setting or predating a date of expiry of the entry. (5) An extension of the creditor’s rights is effective only if contained in a new entry. IX.–3:312: Transitional provision in relation to entries in other systems of registration or notation under national law (1) Where a security right is registered or noted in another system of registration or notation on title certificates under the national law of a member state, as long as such systems are still in operation for security rights in specific types of assets, an entry reiterating the content of that registration or notation, including the time of the registration or notation, is to be entered into the European register of proprietary security against the security provider by the body operating the other system. An entry in the European register of proprietary security is required for the effectiveness of the registration or notation under this Book. (2) For purposes of priority according to Chapter 4, the time of registration or notation in the national system is decisive. IX.–3:313: Automated certification of entry to creditor and security provider After an entry or an amendment to an entry has been filed, a certificate to that effect is to be communicated automatically to the creditor and the security provider. IX.–3:314: Third person acting as agent of the creditor (1) As an additional content of the entry made by the secured creditor, the latter may identify a third person acting as agent of the creditor, whose name and contact details will appear on the register instead of those of the creditor. In such a situation, the entry can be entered into the register only if in addition to the requirements of the preceding Articles being satisfied this third person has also consented to it according to IX.–3:309 (Required consent of the security provider) paragraphs (1) and (3), applied with appropriate adaptations. (2) By a declaration to the register that is subject to IX.–3:309 (Required consent of the security provider) paragraphs (1) and (3), applied with appropriate adaptations, a secured creditor may authorise a third person to make declarations to the register on the secured creditor’s behalf. (3) Where a third person acting as agent for the secured creditor is identified in the entry, the secured creditor and the third person are liable as solidary debtors for all obligations of secured creditors under this Section.

1256  Part III: Common Principles Subsection 3 Protection of the security provider IX.–3:315: Security provider’s right to deletion or amendment of entry The security provider is entitled against the secured creditor to deletion or amendment of an entry if and in so far as no corresponding security right exists. IX.–3:316: Review of contested entries by registration office (1) The security provider may apply for the assistance of the registration office in the assertion of the right to demand deletion or amendment of an entry from the secured creditor. (2) On the security provider’s application, the registration office asks the secured creditor whether the latter agrees to the security provider’s demand. (3) If the secured creditor does not object within two months of being asked by the registration office according to paragraph (2), the entry is deleted or amended according to the security provider’s demand. (4) If the secured creditor objects within the time limit of paragraph (3), the entry is marked as contested to the extent of the security provider’s demand. (5) The entry remains marked as contested until: (a) the security provider withdraws the application by declaration to the registration office; (b) the secured creditor agrees to the security provider’s demand by declaration made to the registration office; (c) the secured creditor deletes the entry; or (d) a final decision is rendered on the security provider’s demand by a competent court. Subsection 4 Accessing and searching the register IX.–3:317: Access to the register for searching purposes Access to the register for searching purposes is open to anyone, subject to the payment of fees; it does not depend upon a consent by the security provider or the secured creditor. IX.–3:318: Searching the register The register can be searched for entries filed against individual security providers or for entries containing specified descriptions of the encumbered assets.

Draft Common Frame of Reference 1257 Subsection 5 Registered creditors’ duty to answer requests for information IX.–3:319: Duty to give information (1) Any registered secured creditor has a duty to answer requests for information by inquirers concerning the security right covered by the entry and the encumbered assets if these requests are made with the security provider’s approval. (2) The request must be in an official language of the member state of the ­European Union where the place of business or incorporation or the residence of the secured creditor is situated or in English. (3) The request must be answered within fourteen days after the request, including the security provider’s approval, has been received by the secured creditor. (4) The secured creditor’s duty to answer requests for information by inquirers according to the preceding paragraphs is owed both to the inquirer and to the security provider. To both parties, the secured creditor is liable in damages for any loss caused by breach of the duty. IX.–3:320: Content of the information (1) Requests for information under the preceding Article must be answered by the secured creditor giving information concerning the existence of a security right in specific assets at the time when the information is given. (2) The information may be given by: (a) stating specifically whether the assets concerned are encumbered in favour of the secured creditor; or (b) forwarding the relevant parts of the agreements between security provider and secured creditor covering the providing or retention of proprietary security. (3) Where the security right has been transferred, the person registered as the secured creditor must disclose the name and contact details of the transferee. (4) The information must be given in an official language of the member state of the European Union where the place of business or incorporation or the residence of the secured creditor is situated or in English. (5) No information needs to be given: (a) if it is apparent directly from the entry that the asset concerned is not encumbered, provided that the entry complies with the requirements of paragraph (4); or (b) if the secured creditor had already answered a request for information by the same inquirer in relation to the same asset within the past three months and the information given is still correct. (6) These provisions do not affect the secured creditor’s obligation to give information concerning the obligation covered by the security under IX.–5:401 (Secured creditor’s obligation to give information about secured right) or any

1258  Part III: Common Principles equivalent obligation owed to the debtor of the obligation covered by the security and the consequences of a non-performance of these obligations. IX.–3:321: Consequences of correct information given by secured creditor (1) If the secured creditor correctly informs the inquirer under this Subsection that the assets concerned are not encumbered, a security right in these assets which is subsequently created in favour of the secured creditor cannot enjoy priority conferred by the original entry over security rights of the inquirer. This rule applies only if the security rights of the inquirer are acquired by the latter within three months after the request for information had been made. (2) If the secured creditor correctly informs the inquirer under this Subsection that the assets concerned are encumbered, the inquirer cannot acquire a proprietary right in the encumbered assets free of the encumbrance in favour of the secured creditor even if that would otherwise be possible under the principles of good faith acquisition. IX.–3:322: Consequences of incorrect information given by secured creditor (1) If the secured creditor incorrectly informs the inquirer under this Subsection that the assets concerned are not encumbered, the inquirer may within three months acquire a proprietary right in these assets free of any encumbrance in favour of the secured creditor on the basis of a good faith acquisition in spite of the entry in the register covering the secured creditor’s rights. (2) If the secured creditor incorrectly informs the inquirer under this S­ ubsection that the assets concerned are encumbered, and the inquirer nevertheless acquires a proprietary security right in the assets concerned from the security provider, IX.–3:321 (Consequences of correct information given by secured creditor) paragraph (1) first sentence applies with appropriate adaptations. IX.–3:323: Consequences of failure to give information (1) If the secured creditor fails to answer the request for information under IX.– 3:319 (Duty to give information) and IX.–3:320 (Content of the information) or incorrectly answers that its security rights in the assets concerned have been transferred, the inquirer is to be treated as if the secured creditor had given the information that the assets concerned are not encumbered. IX.–3:321 (Consequences of correct information given by secured creditor) paragraph (1) or IX.–3:322 (Consequences of incorrect information given by secured creditor) paragraph (1), respectively, apply with appropriate adaptations. (2) If the secured creditor delays in answering the request for information under IX.–3:319 (Duty to give information) and IX.–3:320 (Content of the information), the preceding paragraph applies if a proprietary right is created in favour of or acquired by the inquirer before the secured creditor answers the request for information.

Draft Common Frame of Reference 1259 IX.–3:324: Form of requests and information The request for information under this Subsection and the answer must be in textual form. Both may be made via an electronic means of communication provided by the register, in which case a certification of the inquiry or the answer is to be communicated by the register to the inquirer or the secured creditor, respectively, serving as proof of receipt of the inquiry or of the answer by the other party. Subsection 6 Duration, renewal and deletion of entries IX.–3:325: Duration (1) An entry expires five years after it has been entered into the register or at the date of expiry indicated in the entry. (2) Once an entry expires, it no longer appears on the register and is no longer directly accessible for any user. It ceases to have any effect under this Section. The content of the entry is kept for reference purposes in the archives of the registration office. IX.–3:326: Renewal (1) Unless a date of expiry has been included in the entry, an entry may be renewed before the end of the regular period of expiry for an additional period of five years. (2) The renewal of an entry is effected by a declaration of the secured creditor to the register. IX.–3:327: Deletion (1) The secured creditor may at any time delete the entry by declaration to the register. (2) For the consequences of a declaration according to the preceding paragraph, IX.–3:325 (Duration) paragraph (2) is applicable with appropriate adaptations. Subsection 7 Transfer of the security right or of the encumbered asset IX.–3:328: Transfer of the security right: general rules (1) Where the security right is transferred, it remains effective by virtue of the original entry. (2) Even if there is no declaration indicating the transfer under IX.–3:329 (Transfer of the security right: declaration indicating the transfer), the transferee is bound under Subsection 5 in the same way as a secured creditor from the moment of the transfer.

1260  Part III: Common Principles (3) The transferor is liable towards the transferee for any damage caused by its conduct in relation to the entry, as well as to amendments and deletions thereof from the moment of the transfer of the security right until a declaration indicating the transfer is filed or until the transferor declares its consent to such a declaration under IX.–3:329 (Transfer of the security right: declaration indicating the transfer) paragraph (4)). IX.–3:329: Transfer of the security right: declaration indicating the transfer (1) Where the security right is transferred, the original entry may be amended by a declaration indicating the transfer. (2) The declaration indicating the transfer is subject to IX.–3:311 (Amendments of entries) and any additional rules as laid down in this Article. (3) The declaration indicating the transfer can be entered into the register only if: (a) it is made in respect of a specific entry; (b) it indicates the security rights to be transferred; (c) it identifies the transferee; and (d) it is accompanied by a declaration of the person making the amendment that the latter assumes liability for damage caused to the secured creditor or third persons by a wrongful entry. (4) The declaration indicating the transfer may be filed by the transferor or, with the transferor’s consent, by the transferee. (5) On the basis and to the extent of the transfer of the security right, the security provider is entitled as against the transferor to the filing of a declaration indicating the transfer and the transferee is entitled to a declaration of consent by the transferor according to the preceding paragraph. IX.–3:316 (Review of contested entries by registration office) applies with appropriate adaptations to the assertion of these rights. (6) Once the declaration indicating the transfer is filed, the original entry is amended accordingly and is no longer regarded as covering the security rights indicated as having been transferred. (7) Once the declaration indicating the transfer is filed, a new entry is automatically filed against the security provider reiterating the content of the original entry and stating that the security rights indicated are transferred to the transferee. (8) The transferee assumes the position of the secured creditor in respect of the new entry for all purposes under this Section. In respect of the security rights indicated as transferred, the new entry preserves the priority conferred by the original entry. IX.–3:330: Transfer of the encumbered asset: general rules (1) Ownership of the encumbered asset may be transferred subject to the existing security right without a new entry being filed in the register.

Draft Common Frame of Reference 1261 (2) The continuation of effectiveness and the priority of the security right in the encumbered asset by virtue of the original entry in the register are governed by IX.–5:303 (Transfer of encumbered asset). (3) For the purposes of this Section, the transferee assumes the position of the security provider in respect of the security right in the transferred assets from the moment of the transfer. (4) The preceding paragraphs apply with appropriate adaptations where the rights of a buyer, hire-purchaser, lessee or consignee in or relating to the supplied assets are transferred subject to an existing retention of ownership device. IX.–3:331: Transfer of the encumbered asset: declaration of transfer (1) A transferee acquiring ownership of an encumbered asset subject to an existing security right has a duty to enter in the register an entry against itself indicating the transfer, unless such a declaration has already been entered by the secured creditor. (2) The transferee is liable towards the secured creditor holding a security right in the transferred asset for damage resulting from a breach of the duty under the preceding paragraph. (3) The declaration of transfer can be entered by the transferee or the secured creditor if: (a) it is made in respect of an identified security provider as transferee; (b) it indicates the identity of an identified security provider as transferor; (c) it contains a minimum declaration as to the transferred asset; (d) it is indicated by one or several references to a list of categories of assets to which category the transferred asset belongs; and (e) it is accompanied by a declaration of the person making the declaration of transfer that the latter assumes liability for any damage caused to the transferee, the secured creditor or third persons by a wrongful entry. (4) The preceding paragraphs apply with appropriate adaptations where the rights of a buyer, hire-purchaser, lessee or consignee in or relating to the supplied assets are transferred subject to an existing retention of ownership device. Subsection 8 Costs IX.–3:332: Distribution of costs (1) As between the parties: (a) each party has to bear the costs of its enrolment or admission to a secure online identity verification system; and (b) the security provider has to bear any other costs reasonably incurred by the secured creditor in connection with the registration.

1262  Part III: Common Principles (2) The costs of inquiries and of answers to such inquires are to be borne by the inquirer. Subsection 9 Security rights created before establishment of register IX.–3:333: Security rights created before establishment of register (1) Security rights that were effective before the European register of proprietary security started to operate do not require registration under this Section in order to remain effective thereafter. (2) If the security rights were registered or noted in any system of registration or notation on title certificates under the national law of a member state, an entry reiterating the content of that registration or notation, including the date of registration or notation, is to be entered in the European register of proprietary security against the security provider by the body operating the other register once this register is established. Chapter 4 Priority IX.–4:101: Priority: general rules (1) Subject to exceptions, the priority between several security rights and between a security right and other limited proprietary rights in the same asset is determined according to the order of the relevant time. (2) The relevant time is: (a) for security rights, the time of registration according to Chapter 3, Section 3, if any, or the time at which the security right has otherwise become effective according to the other rules of Chapter 3, whichever is earlier; (b) for other limited proprietary rights, the time of creation. (3) An effective security right has priority over an ineffective security right, even if the latter was created earlier. (4) The ranking of two or more security rights which are ineffective is determined by the time of their creation. (5) Subject to IX.–4:108 (Change of ranking), a security right that had been acquired by a good faith acquisition in an asset subject to a retention of ownership device or in disregard of an earlier encumbrance in the same asset always has priority over the retention of ownership device or earlier security right. IX.–4:102: Superpriority (1) An acquisition finance device that is effective against third persons according to the rules of Chapter 3 takes priority over any security right or other limited proprietary right created by the security provider.

Draft Common Frame of Reference 1263 (2) A security right in financial assets made effective by control according to IX.–3:204 (Control over financial assets) or by possession takes priority over any other security right or other limited proprietary right in the same asset. If control is created for different secured creditors, IX.–4:101 (Priority: general rules) paragraphs (1) and (2)(a) apply. (3) A security right based upon a right of retention of possession according to IX.–2:114 (Right of retention of possession) takes priority over any other right in the retained asset. (4) The preceding paragraphs are subject to IX.–4:101 (Priority: general rules) paragraph (5) and IX.–4:108 (Change of ranking). IX.–4:103: Continuation of priority (1) Priority is not affected if the encumbered asset: (a) becomes an accessory to a movable asset; or (b) is used for the production of new goods, or is commingled or combined with other assets, provided that the security right extends to the security provider’s rights in the asset resulting from the production, commingling or combination. (2) Paragraph (1)(a) also applies if a movable asset becomes an accessory to an immovable, unless the law governing the immovable determines otherwise. IX.–4:104: Fruits and proceeds: general rules (1) Security rights in fruits and proceeds of the following types of assets preserve the priority of the security right in the encumbered original assets: (a) fruits and proceeds of the same kind as the assets that were originally encumbered; (b) rights to payment due to defects in, damage to, or loss of the assets that were originally encumbered, including insurance proceeds; and (c) fruits and proceeds that are covered by the registration of the security right in the assets that were originally encumbered. (2) In cases not covered by paragraph (1), the priority of security rights in fruits and proceeds is determined according to the general rules laid down in IX.–4:101 (Priority: general rules) and IX.–4:102 (Superpriority). IX.–4:105: Fruits and proceeds: exceptions (1) Security rights in fruits and proceeds of assets that are subject to an acquisition finance device or are covered by VIII.–5:204 (Additional provisions as to proprietary security rights) paragraph (3) do not enjoy the superpriority of the security right in the assets that were originally encumbered. (2) The preceding paragraph does not affect the superpriority of security rights in: (a) rights to payment due to defects in, damage to, or loss of the assets that were originally encumbered, including insurance proceeds; and (b) proceeds of the sale of the assets that were originally encumbered.

1264  Part III: Common Principles IX.–4:106: Importation of encumbered asset If an encumbered asset is brought from a country outside the European Union into this area, the priority of a security right which was effective before removal of the encumbered asset into the European Union and which fulfils the conditions of IX.–3:108 (Importation of encumbered asset) is preserved. IX.–4:107: Priority of execution creditor For the purpose of determining priority, an execution creditor is regarded as holding an effective security right as from the moment of bringing an execution against specific assets if all preconditions for execution proceedings against these assets according to the procedural rules of the place of execution are fulfilled. IX.–4:108: Change of ranking (1) The priority between a security right and other security rights as well as other limited proprietary rights in the same asset may be changed by an agreement in textual form between the holders of all rights that would be affected by the change of ranking. (2) A third person acquiring a security right or a limited proprietary right that has been negatively affected by a change of ranking is bound only if the entry for the security right in the European register of proprietary security has been amended accordingly or if the third person at the time of the transfer knew or had reason to know of the change of ranking. Chapter 5 Predefault rules Section 1 General principles IX.–5:101: General principles (1) The security provider and the secured creditor are free to determine their mutual relationship with respect to the encumbered asset, except as otherwise provided in these rules. (2) Any agreement concluded before default and providing for the appropriation of the encumbered assets by the secured creditor or having this effect, is void, unless expressly provided otherwise. This paragraph does not apply to retention of ownership devices.

Draft Common Frame of Reference 1265 Section 2 Encumbered assets IX.–5:201: Care and insurance of the encumbered assets (1) The party who is in possession of the encumbered assets has an obligation to keep them identifiable from assets owned by others and must preserve and maintain them with reasonable care. (2) The other party is entitled to inspect the encumbered assets at any reasonable time. (3) The security provider has an obligation to insure the encumbered assets against such risks as are usually insured against by a prudent owner at the location of the assets. Upon request of the secured creditor, the security provider must furnish proof of the insurance coverage. If there is no or only insufficient insurance coverage or no proof of it, the secured creditor is entitled to take out sufficient insurance and to add any expenses to the obligation covered by the security. Subsection 1 Security provider’s rights and obligations IX.–5:202: Rights in general If and as long as the security provider is entitled to possession of the encumbered assets, the security provider is entitled to make use of them in a reasonable manner. IX.–5:203: Use of encumbered industrial material A security provider in possession of encumbered industrial material, such as raw material or semi-finished products, may apply such material for production, unless expressly prohibited. IX.–5:204: Dispositions of encumbered assets by traders and manufacturers (1) A security provider acting in the ordinary course of its business as a trader or manufacturer may dispose of the following types of encumbered assets free of any security right if they are in the security provider’s possession: (a) assets designated for sale and lease and industrial material (inventory); and (b) products of industrial material. (2) A trader or manufacturer may not dispose of items of its encumbered equipment, unless expressly so authorised by the secured creditor.

1266  Part III: Common Principles IX.–5:205: Unauthorised use or disposition (1) A security provider in possession of the encumbered assets has an obligation to the secured creditor not to use or dispose of them in breach of the limits imposed by the preceding Articles of this Subsection. (2) In addition to liability for damages for non-performance of the obligation referred to in paragraph (1), the security provider who is in breach of those limits is obliged to account to the secured creditor for the value derived from the use or the proceeds of the disposition and to pay the resulting amount, but only up to the amount of the secured right that would otherwise remain unsatisfied. Subsection 2 Secured creditor’s rights and obligations IX.–5:206: Limited right of use A secured creditor who is in possession or control of the encumbered assets is not entitled to use the assets, unless and in so far as proper use is indispensable for their up-keep and preservation. IX.–5:207: Banks entitled to dispose of financial assets (1) Banks and equivalent financial institutions holding financial assets as secured creditors are entitled to use, appropriate and dispose of the encumbered assets, provided this is expressly agreed. (2) Upon satisfaction of the secured right, the secured creditor is only obliged to transfer financial assets of the same kind, quality and value to the security provider. IX.–5:208: Appropriation of civil fruits If the security right extends to civil fruits of the assets that were originally encumbered, the secured creditor is entitled to collect and to apply money received as civil fruits to reduce the secured right even before it has become due. Section 3 Change of parties IX.–5:301: Transfer of the secured right (1) If a secured right is transferred to another creditor, the security right also passes to that creditor. (2) The transferor is obliged to inform the transferee of any security right securing the transferred right. (3) Effectiveness of the security right against third persons is achieved:

Draft Common Frame of Reference 1267 (a) by virtue of the original registration according to IX.–3:328 (Transfer of the security right: general rules) paragraph (1); (b) if either possession or control of the encumbered asset is transferred to the transferee; (c) if the transferor agrees to hold possession or control for the transferee; or (d) if the security right had been effective without observation of any requirements under Chapter 3. (4) If the security right remains effective, its priority is not affected by the transfer. IX.–5:302: Partial transfer of the secured right If the secured right is divided into parts held by different persons as the result of a transfer of a part of the secured right or of a transfer of the whole secured right to different transferees each acquiring a part only: (a) each holder of a part of the secured right is entitled to a part of the security right in proportion to the nominal amount of its part of the secured right; and (b) the effectiveness of the security rights of each holder of a part of the secured right is to be determined individually; possession or control of the encumbered asset may be held by one holder of a part of the secured right for the others also. IX.–5:303: Transfer of encumbered asset (1) Where ownership of an encumbered asset is transferred to another person, neither the existence nor the effectiveness against third persons of a security right in the asset is affected. As of the time of the transfer, the transferee is regarded as the security provider. (2) The preceding paragraph does not apply if the transferor acted with authority to dispose of the encumbered asset free of the encumbrance or if the transferee acquires the asset free of the encumbrance on the basis of a good faith acquisition. (3) Security rights which before transfer of ownership of the encumbered asset had been created for secured creditors in future assets of the new owner do not have priority over security rights encumbering the transferred asset at the time of the transfer. (4) The preceding paragraphs apply with appropriate adaptations where there is a transfer of the rights of a buyer, hire-purchaser, lessee or consignee in or relating to the supplied assets subject to an existing retention of ownership device.

1268  Part III: Common Principles Section 4 Secured creditor’s obligation to give information about secured right IX.–5:401: Secured creditor’s obligation to give information about secured right (1) The security provider has a right to, and the secured creditor has an obligation to provide on request by the security provider, information concerning the amount of the obligation covered by the security. The security provider can require this information to be given to a third person. (2) If the security provider is not the debtor of the obligation covered by the security, the security provider’s right under the preceding Article depends upon the debtor’s approval. Chapter 6 Termination IX.–6:101: Instances of termination of proprietary security (1) A security right is terminated if, and in so far as: (a) the security provider and secured creditor so agree; (b) the secured creditor waives the security right, such a waiver being presumed where the secured creditor returns possession of the encumbered asset to the security provider; (c) the encumbered asset ceases to exist; (d) ownership of the encumbered asset is acquired by the secured creditor; (e) ownership in the encumbered asset is acquired by a third person free from the security right; or (f) any other provision so provides or this consequence is implied, such as where the debtor and creditor of the secured right become identical, especially by inheritance or merger. (2) A security right is also terminated if the secured right ceases to exist entirely, especially if a right to payment is fully satisfied by payment to the secured creditor, unless the security right with the secured right passes to another person who has made payment to the secured creditor. (3) Paragraph (1)(a) to (c), (e) and (f) and paragraph (2) apply with appropriate adaptations to the termination of a retention of ownership device. A retention of ownership device is also terminated if the rights of the buyer, hire-purchaser, lessee or consignee in or relating to the supplied assets under the contract of sale, hire-purchase, financial leasing or consignment cease to exist. IX.–6:102: Loss of proprietary security due to good faith acquisition of ownership (1) Whether a security right is lost due to good faith acquisition of ownership of the encumbered asset by a third person free from a security right is

Draft Common Frame of Reference 1269 determined by VIII.–3:102 (Good faith acquisition of ownership free of limited proprietary rights). (2) For the purposes of VIII.–3:102 (Good faith acquisition of ownership free of limited proprietary rights) paragraph (1)(d) sentence 1, a transferee is regarded as knowing that the transferor has no right or authority to transfer ownership free from the security right if this right is registered under Chapter 3, Section 3 unless: (a) the transferor acts in the ordinary course of its business; or (b) the entry is filed against a security provider different from the transferor. (3) Whether a retention of ownership device is lost due to good faith acquisition of ownership of the supplied asset by a third person is determined by VIII.–3:101 (Good faith acquisition through a person without right or authority to transfer ownership). Paragraph (2) above applies with appropriate adaptations. IX.–6:103: Prescription of the secured right A security right can be enforced even if the secured right is prescribed and up to two years after the debtor of the secured right has invoked this prescription as against its creditor. IX.–6:104: Consequences of termination (1) The full or partial termination of a security right implies the corresponding termination of the encumbrance of the asset concerned. (2) If and in so far as a security right is terminated, the secured creditor is no longer entitled to possession or control of the asset that was encumbered as against its owner. For the right to deletion of an entry in the European register of proprietary security, IX.–3:315 (Security provider’s right to have entry deleted or amended) applies. (3) The secured creditor is obliged to inform any third person holding the encumbered assets of the removal of the encumbrance and, if the third person holds the assets for the secured creditor’s account, to ask the security provider for instructions. (4) Where in the case of an encumbered right to payment notice of the encumbrance had been given to the third party debtor, the secured creditor is obliged to notify the debtor of the removal of the encumbrance. (5) If and in so far as a retention of ownership device is terminated, the seller’s, supplier’s or lessor’s ownership of the supplied assets is no longer subject to the rules of this Book. An acquisition of ownership of the supplied assets by the buyer, hire-purchaser, lessee or consignee or the latter’s right to use the supplied assets is subject to an agreement of the parties. For the right to deletion of an entry in the European register of proprietary security, paragraph (2) second sentence applies.

1270  Part III: Common Principles IX.–6:105: Secured creditor liable to account for proceeds Upon termination of the security right, the secured creditor is liable to account for any proceeds from the encumbered assets, whether or not it has received, used or consumed them, and to transfer them to the security provider. IX.–6:106: Recourse of third party security provider (1) If a security provider who is not the debtor of the secured right (a third party security provider), pays the outstanding amount of the obligation covered by the security, IV. G.–2:113 (Security provider’s rights after performance), IV. G.–1:106 (Several security providers: internal recourse) and IV. G.–1:107 (Several security providers: recourse against debtor) apply with appropriate adaptations. (2) A security provider other than the debtor has as against the debtor the same position as a person who has provided dependent personal security. Chapter 7 Default and enforcement Section 1 General rules IX.–7:101: Secured creditor’s rights after default (1) After an event of default, and provided that any additional conditions agreed by the parties are fulfilled, a secured creditor may exercise the rights under this Chapter. (2) If a third person listed in IX.–3:101 (Effectiveness as against third persons) paragraph (1) and fulfilling the requirements of that provision is involved, a secured creditor may exercise the rights under this Chapter only if the security right is effective according to the rules of Book IX Chapter 3. If no such third person is involved, it is sufficient that the security right has been validly created. The provisions on priority remain unaffected. IX.–7:102: Mandatory rules As between the enforcing secured creditor and the security provider, the rules of this Chapter are mandatory, unless otherwise provided. IX.–7:103: Extra-judicial and judicial enforcement (1) Unless otherwise agreed, the secured creditor may carry out extra-judicial enforcement of the security right. (2) A security right in an asset of a consumer can only be enforced by a court or other competent authority, unless after default the consumer security provider has agreed to extra-judicial enforcement.

Draft Common Frame of Reference 1271 (3) In the case of retention of ownership devices the parties may not agree to exclude extra-judicial enforcement and paragraph (2) does not apply. (4) Enforcement is to be undertaken by the secured creditor in a commercially reasonable way and as far as possible in cooperation with the security provider and, where applicable, any third person involved. IX.–7:104: Right to seek court assistance and damages Any party or third person whose rights are violated by enforcement measures or by resistance to justified enforcement measures may: (a) call upon a competent court or other authority, which must decide expeditiously, to order the party responsible to act in accordance with the provisions of this Chapter; and (b) claim damages from the party responsible. IX.–7:105: Predefault agreement on appropriation of encumbered assets (1) Any agreement concluded before default providing for the transfer of ownership of the encumbered assets to the secured creditor after default, or having this effect, is void. (2) Paragraph (1) does not apply: (a) if the encumbered asset is a fungible asset that is traded on a recognised market with published prices; or (b) if the parties agree in advance on some other method which allows a ready determination of a reasonable market price. (3) Paragraph (2)(b) does not apply to a consumer security provider. (4) Where appropriation is allowed, the secured creditor is entitled to appropriate encumbered assets only for the value of their recognised or agreed market price at the date of appropriation. The security provider is entitled to any surplus over the obligations covered by the security right. The debtor remains liable for any deficit. (5) This Article does not apply to retention of ownership devices. IX.–7:106: Security provider’s right of redemption (1) Even after default, if the outstanding amount of the obligation covered by the security right is paid, the security provider may require the secured creditor to terminate the exercise of the rights under this Chapter and to return possession of the encumbered asset. (2) The security provider’s rights under paragraph (1) may no longer be exercised if: (a) in the case of an enforcement under Section 2, the encumbered asset has been appropriated or sold or the secured creditor has concluded a binding contract to sell the asset to a third person; or (b) in the case of exercising the rights under Section 3, the holder of the retention of ownership device has terminated the relationship arising under the contract of sale, hire-purchase, financial leasing or consignment.

1272  Part III: Common Principles IX.–7:107: Enforcement notice to consumer (1) A secured creditor may exercise the rights under this Chapter against a consumer security provider only if the secured creditor delivers at least ten days before enforcement is to begin an enforcement notice in textual form to the security provider and, if the latter is not the debtor, also to the debtor, if the debtor also is a consumer. (2) The enforcement notice must: (a) unequivocally designate the obligation covered by the security right and state the amount that is due by the end of the day before the notice is sent; (b) state that any other condition for enforcement agreed by the parties has been fulfilled; (c) state that the secured creditor intends to enforce the security and identify those encumbered assets against which the secured creditor intends to enforce it; and (d) be signed by or on behalf of the secured creditor. (3) The notice must be in an official language of the consumer’s place of residence. IX.–7:108: Solidary liability of several security providers (1) To the extent that several proprietary security rights have been created covering the same obligation or the same part of an obligation, the creditor may seek satisfaction from any, several or all of these security rights. IV. G.–1:105 (Several security providers: solidary liability towards creditor) applies accordingly. (2) Paragraph (1) applies with appropriate adaptations if, in addition to one or more proprietary security rights, personal security has been granted by one or more persons. IX.–7:109: Rights of recourse of third party security provider If the obligation covered by the security right is satisfied by enforcement against the assets of a security provider who is not the debtor, the rights of recourse between several providers of proprietary security or between providers of proprietary security and personal security as well as recourse against the debtor are governed by IV. G.–2:113 (Security provider’s rights after performance), IV. G.–1:106 (Several security providers: internal recourse) and IV. G.–1:107 (Several security providers: recourse against debtor), applied with appropriate adaptations.

Draft Common Frame of Reference 1273 Section 2 Enforcement of security rights Subsection 1 Extra-judicial enforcement: rules preparatory to realisation IX.–7:201: Creditor’s right to possession of corporeal asset (1) The secured creditor is not entitled to take possession of an encumbered corporeal asset, unless: (a) the security provider consents at the time when the secured creditor exercises this right; or (b) the security provider had agreed to the secured creditor’s right to take possession and neither the security provider nor the actual holder objects at the time when the secured creditor exercises this right. (2) In enforcements against a consumer, the right to take possession according to paragraph (1) does not arise until ten days have elapsed since an enforcement notice has been served. (3) Unless it indicates otherwise, a consent or agreement to the taking of possession according to paragraph (1) covers the right to enter the security provider’s or other holder’s premises for the purpose of exercising the right to take possession. IX.–7:202: Creditor’s right to immobilise and to preserve encumbered asset (1) The secured creditor is entitled to take any steps necessary to immobilise the encumbered asset, to prevent unauthorised use or disposition of it, and to protect it physically. Paragraphs (1) to (3) of the preceding Article apply with appropriate adaptations. (2) The secured creditor is entitled: (a) to take reasonable steps to preserve, maintain and insure the encumbered asset and to obtain reimbursement for such actions from the security provider; (b) to lease the encumbered asset to a third party for the purpose of preserving its value; or (c) to take any other protective measures agreed with the security provider. IX.–7:203: Intervention of court or other authority (1) The secured creditor may apply to the competent court or other authority for an order to obtain possession of or access to the encumbered asset, if the security provider or a third person in possession of the asset refuses delivery to or access by the secured creditor. (2) Upon application by either party, a court or other authority may order the taking of any of the protective measures mentioned in the preceding Article.

1274  Part III: Common Principles IX.–7:204: Encumbrance of a right to payment (1) Where the encumbered asset is a right entitling the security provider to payment from a third party debtor, the secured creditor may exercise the rights under this Chapter only if the secured creditor: (a) sends to the third party debtor: (i) where the security provider is a consumer, a copy of an enforcement notice complying with all the requirements of IX.–7:107 (Enforcement notice to consumer); and (ii) in other cases, an enforcement notice complying with paragraph (2)(a) and (d) of that Article; and (b) informs the third party debtor as precisely as possible in the circumstances of the nature, amount and maturity of the security provider’s right to payment against the third party debtor. (2) The third party debtor is obliged to inform the enforcing secured creditor about the amount and maturity of competing rights of other secured creditors known to the third party debtor. IX.–7:205: Negotiable instrument (1) IX.–7:201 (Creditor’s right to possession of corporeal asset), IX.–7:202 (Creditor’s right to immobilise and to preserve encumbered asset) and IX.–7:203 (Intervention of court or other authority) apply to the taking of possession of a negotiable instrument as such. (2) IX.–7:204 (Encumbrance of a right to payment) does not apply to negotiable instruments. IX.–7:206: Negotiable document of title The preceding Article applies also to the taking of possession of a negotiable document of title. Subsection 2 Extra-judicial enforcement: realisation of encumbered asset IX.–7:207: General rule on realisation (1) The secured creditor is entitled to realise the encumbered asset in order to apply the proceeds towards satisfaction of the secured right: (a) by sale of the encumbered asset according to IX.–7:211 (Sale by public or private auction or by private sale), unless agreed otherwise by the parties; (b) by leasing the encumbered asset to a third person and collecting the fruits; (c) by appropriation according to IX.–7:216 (Appropriation of encumbered asset by secured creditor); or

Draft Common Frame of Reference 1275 (d) by exercising the methods of realisation (collection, sale or appropriation) for rights to payment and negotiable instruments according to IX.–7:214 (Realisation of security in right to payment or in negotiable instrument). (2) Where an enforcement notice is required under IX.–7:107 (Enforcement notice to consumer), paragraph (1) applies only if ten days have elapsed since the delivery of that notice. (3) The secured creditor may appoint a private agent or apply to a competent court officer to undertake all or some of the steps for realisation of the encumbered assets. IX.–7:208: Notice of extra-judicial disposition (1) A secured creditor may exercise its right to dispose of the encumbered asset only if the secured creditor gives notice of its intention to do so. (2) Paragraph (1) does not apply if the encumbered asset is perishable or may otherwise speedily decline in value or is a fungible asset that is traded on a recognised market with published prices. IX.–7:209: Addressees of the notice The notice required by the preceding Article must be given: (a) to the security provider, the debtor (if different from the security provider) and other persons who, to the knowledge of the secured creditor, are liable for the obligation covered by the security; and (b) to the following persons with rights in the encumbered asset: (i) other secured creditors who have registered such rights; (ii) persons who were in possession or control of the encumbered asset when enforcement commenced; and (iii) other persons who were actually known to the secured creditor to have a right in the encumbered asset. IX.–7:210: Time and contents of notice (1) The notice required by IX.–7:208 (Notice of extra-judicial disposition) must be given in due time. A notice that reaches its addressees at least ten days before the disposition is regarded as given in due time. (2) The notice must indicate: (a) the place and time of the planned disposition; (b) a reasonable description of the encumbered asset to be disposed of; (c) any minimum price for the disposition of the encumbered asset and payment terms; and (d) the right of the security provider, of the debtor and of other interested persons to avert disposition of the encumbered asset by payment of the outstanding amount of the obligation covered by the security. (3) The notice must be in a language that can be expected to inform its addressees.

1276  Part III: Common Principles IX.–7:211: Sale by public or private auction or by private sale (1) Realisation of all or parts of the encumbered assets by sale may be by an officially supervised auction (public auction) or by an auction to which the public is invited (private auction). (2) Realisation of all or parts of the encumbered assets by sale may be by private sale, if so agreed by the parties or if there is a published market price for the encumbered asset. (3) The details of the arrangements to be made under the preceding paragraphs can be fixed by the secured creditor. (4) If the transfer is subject to pre-existing prior rights and upon demand, the secured creditor must disclose to the purchaser the relevant details. (5) If the secured creditor acquires the encumbered asset in a sale by public or private auction, the sale may be set aside by the security provider within a period of ten days after the auction. (6) Where the owner of the encumbered asset participates as buyer in a realisation of the encumbered asset according to this Article, the sale operates as an agreement to release encumbrances of the asset. IX.–7:212: Commercially reasonable price (1) The secured creditor must realise a commercially reasonable price for the encumbered asset. (2) If there is a recognised market which is easily accessible for the secured creditor, a price is commercially reasonable if it corresponds to the market price at the time of the sale, having due regard to any special features of the encumbered asset. (3) If the preceding paragraph does not apply, a price is commercially reasonable if the secured creditor took such steps as could be expected to be taken in the circumstances. (4) If the sale is by private sale, the security provider may demand that the creditor communicates to the security provider the expected price or price range. If the security provider can show that it is likely that this price range is significantly below what might reasonably be achieved at a private or public auction, the security provider may demand that the secured creditor arrange for a private or a public auction. Subject to paragraph (5) of the preceding Article, a price achieved in this way is binding upon the parties. IX.–7:213: Buyer’s rights in the assets after realisation by sale (1) The buyer acquires rights in the sold assets free of the rights of: (a) the security provider; (b) the enforcing secured creditor; (c) junior secured creditors, whether holders of security rights or retention of ownership devices; and (d) holders of other limited proprietary rights with lower priority than the enforcing secured creditor’s rights.

Draft Common Frame of Reference 1277 (2) The following rights in the sold assets remain in existence after the transfer, unless the enforcing secured creditor acted with authority to dispose of the encumbered assets free of these rights or the buyer acquires in good faith according to IX.–6:102 (Loss of proprietary security due to good faith acquisition of ownership): (a) rights of senior secured creditors, whether holders of security rights or retention of ownership devices; and (b) other limited proprietary rights with higher priority. (3) The buyer’s position is not affected by any failure to comply with notice requirements under this Chapter or by any other violation of procedural provisions under this Chapter for the auction or private sale. (4) If the secured creditor or the security provider participates in the realisation by sale as buyer, the preceding paragraphs apply with appropriate adaptations with respect to the effects of the sale. IX.–7:214: Realisation of security in right to payment or in negotiable instrument (1) Where the encumbered asset is a right to payment or a negotiable instrument, the secured creditor may collect the outstanding performance from the third party debtor or may sell and assign or appropriate the right to payment or the negotiable instrument. (2) If there are other security rights in the encumbered right to payment or the negotiable instrument which enjoy priority, the secured creditor is not entitled as against these senior secured creditors to collect the encumbered right to payment or to the negotiable instrument. (3) The third party debtor, except a debtor under a negotiable instrument, may refuse to pay unless the secured creditor sends a notice indicating the amount duet, supported by adequate proof. (4) The secured creditor may also collect or otherwise enforce any personal or proprietary security right to which the security in the right to payment extends according to IX.–2:301 (Encumbrance of right to payment of money) paragraph (4). IX.–7:215: Distribution of proceeds (1) The proceeds of any extra-judicial enforcement of an encumbered asset according to the preceding provisions are to be distributed by the secured creditor in the following order. (2) First, the secured creditor who has enforced may apply the proceeds for the satisfaction of the secured right including the expenses incurred for enforcement. (3) Second, any secured creditor whose proprietary security has a lower priority than the enforcing secured creditor’s right is entitled to receive any remaining proceeds after any deductions according to paragraph (2) up to the amount of the obligation covered by this secured creditor’s security. If there are several junior secured creditors, the remaining proceeds are distributed in accordance with the order of priority between their rights. The preceding

1278  Part III: Common Principles sentences apply with appropriate adaptations to holders of other limited proprietary rights with lower priority than the enforcing secured creditor’s rights; instead of an obligation covered by the security, the value of these limited proprietary rights is decisive. (4) Third, any remaining proceeds after any deductions according to paragraphs (2) and (3) must be repaid to the security provider. (5) No secured creditor may receive more than any maximum amount that has been agreed or registered for that creditor’s security right. This limit does not apply to reasonable expenses incurred for enforcement. IX.–7:216: Appropriation of encumbered asset by secured creditor The secured creditor may accept the encumbered assets in total or partial satisfaction of the secured right under the following conditions: (a) the secured creditor must give advance notice of the intention to acquire all or parts of the encumbered assets in total or partial satisfaction of the secured right, specifying the relevant details; (b) the proposal must be sent to the persons specified in IX.–7:209 (Addressees of the notice); (c) the conditions of IX.–7:210 (Time and contents of notice) paragraphs (1), (2) (b) and (d) and (3) and IX.–7:212 (Commercially reasonable price) paragraph (1), applied with appropriate adaptations, must be fulfilled; (d) the proposal must indicate the secured amount owed as of the end of business on the day before the proposal is sent and the amount of the right that is proposed to be satisfied by accepting the encumbered asset; and (e) no addressee objects to this proposal in writing within ten days after the proposal has been received by every addressee. Subsection 3 Judicial enforcement IX.–7:217: Applicable rules (1) Judicial enforcement is to be undertaken according to the procedural rules of the member state where enforcement by a court or other competent authority is sought by the secured creditor. (2) The secured creditor may apply to the court or other competent authority to exercise any of the rights under the preceding Subsections. These rights may be exercised by the court or other competent authority regardless of whether they are under the preceding Subsections dependent upon or excluded by a party agreement or a consent or the absence of an objection of the security provider or other persons.

Draft Common Frame of Reference 1279 Section 3 Rules for retention of ownership devices IX.–7:301: Consequences of default under retention of ownership devices (1) The holder of a retention of ownership device exercises the rights under the retention of ownership device by termination of the contractual relationship under a contract of sale, hire-purchase, financial leasing or consignment according to the general rules of Book III, Chapter 3, Section 5. (2) Any rights in the supplied asset that were transferred or created by the buyer, hire-purchaser, lessee or consignee will terminate, unless: (a) the latter had been authorised to create or transfer such rights; (b) the transferee is protected by IX.–2:108 (Good faith acquisition of security right) to IX.–2:111 (Security right in cash, negotiable instruments and documents) or IX.–6:102 (Loss of proprietary security due to good faith acquisition of ownership); or (c) the rights of the transferee exceptionally enjoy priority over the rights of the holder of the retention of ownership device. (3) On resale or re-leasing, the holder of the retention of ownership device is entitled to any surplus over the original price for the supplied assets which may be realised. (4) A third party to whom the retention of ownership device has been transferred by agreement or by law is entitled to the rights under paragraphs (1) to (3). IX.–7:302: Possession, immobilisation and preservation IX.–7:201 (Creditor’s right to possession of corporeal asset), IX.–7:202 (Creditor’s right to immobilise and to preserve encumbered asset) and IX.–7:203 (Intervention of court or other authority) apply in relation to retention of ownership devices with the adaptations set out in IX.–1:104 (Retention of ownership devices: applicable rules) paragraph (2). Book X Trusts Chapter 1 Fundamental provisions Section 1 Scope and relation to other rules X.–1:101: Trusts to which this Book applies (1) This Book applies to trusts created under Chapter 2 (Constitution of trusts). (2) With appropriate modifications this Book also applies to trusts:

1280  Part III: Common Principles (a) constituted by: (i) a declaration to that effect set out in an enactment; or (ii) a court order with prospective effect; or (b) arising by operation of law set out in an enactment relating to a matter not determined by these rules. (3) In this Book, “court” includes a public officer or body, if authorised to act under the applicable national law, but does not include an arbitral tribunal. X.–1:102: Priority of the law of proprietary securities In relation to trusts for security purposes, this Book is subject to the application of the rules in Book IX (Proprietary security in movable assets). Section 2 Definition, special legal effects and parties X.–1:201: Definition of a trust A trust is a legal relationship in which a trustee is obliged to administer or dispose of one or more assets (the trust fund) in accordance with the terms governing the relationship (trust terms) to benefit a beneficiary or advance public benefit purposes. X.–1:202: Special legal effects of a trust (1) A trust takes effect in accordance with the rules in Chapter 10 (Relations to third parties) with the effect that the trust fund is to be regarded as a patrimony distinct from the personal patrimony of the trustee and any other patrimonies vested in or managed by the trustee. (2) In particular (and except for some reason other than merely that the trust fund is vested in the trustee): (a) the personal creditors of the trustee may not have recourse to the trust fund, whether by execution or by means of insolvency proceedings; (b) the trust fund is not subject to rules allocating property rights on the basis of matrimonial or family relationships; and (c) the trustee’s successors are not entitled to benefit from the trust fund on the trustee’s death. X.–1:203: Parties to a trust (1) The truster is a person who constitutes or intends to constitute a trust by juridical act. (2) The trustee is the person in whom the trust fund becomes or remains vested when the trust is created or subsequently on or after appointment and who has the obligation set out in X.–1:201 (Definition of a trust). (3) A beneficiary is a person who, according to the trust terms, has either a right to benefit or an eligibility for benefit from the trust fund.

Draft Common Frame of Reference 1281 (4) A trust auxiliary is a person who, according to the trust terms, has a power to appoint or remove a trustee or to consent to a trustee’s resignation. (5) Except as otherwise provided for by this Book: (a) a truster may also be a trustee or a beneficiary; (b) a trustee may also be a beneficiary; and (c) any of those parties to a trust may also be a trust auxiliary. (6) In this Book a person’s “successor” is the heir or representative who under the law of succession becomes entitled to that person’s personal patrimony on that person’s death. Where the context permits, a reference to a party (or former party) to a trust is a reference to that person’s successor if that person has died. X.–1:204: Plurality of trustees (1) Where there are several trustees, the trust is solidary. (2) Where trust assets are vested in several trustees together, their co-ownership is joint. X.–1:205: Persons entitled to enforce performance of trustee’s obligations (1) A beneficiary has a right to performance of the trustee’s obligations so far as they relate to that beneficiary’s right to benefit or eligibility for benefit. (2) The persons who may enforce performance of the trustee’s obligations under a trust to advance public benefit purposes are: (a) any public officer or body having that function; and (b) any other person having sufficient interest in the performance of the obligations. (3) A trustee may enforce performance of the obligations of a co-trustee. X.–1:206: Right to benefit and eligibility for benefit (1) A person has a right to benefit if the trust terms require the trustee in given circumstances to dispose of all or part of the trust fund so as to confer a benefit on that person. (2) A person has an eligibility for benefit if the trust terms permit the trustee in given circumstances to dispose of all or part of the trust fund so as to confer a benefit on that person, but whether or not that person is to obtain a benefit depends on an exercise of discretion by the trustee or another. (3) A beneficiary’s eligibility for benefit becomes a right to benefit if the trustee gives the beneficiary notice of a decision to confer benefit on that beneficiary in accordance with the trust terms governing that eligibility. (4) In this Book “benefit” does not include the exercise by a trustee of a right of recourse to the trust fund.

1282  Part III: Common Principles Section 3 Modifications of and additions to general rules X.–1:301: Extended meaning of gratuitous (1) In this Book “gratuitous” means done or provided without reward. (2) A juridical act or a benefit is also regarded as gratuitous in this Book if, considering the value of the rights created by the juridical act or the benefit provided, the value of the reward is so trivial that fairness requires it to be disregarded. X.–1:302: Notice (1) Where this Book requires notice to be given to a person, but it is not reasonably practical to do so, notice may be given instead to the court. (2) Where there are several trustees, a requirement to give notice to the trustees is satisfied by giving notice to any one of them, but a notice relating to a change in trustees must be given to a trustee who will continue to be a trustee after the change takes effect. X.–1:303: Mandatory nature of rules The rules of this Book are mandatory, except as otherwise provided. Chapter 2 Constitution of trusts Section 1 Basic rules on constitution by juridical act X.–2:101: Requirements for constitution A trust is constituted in relation to a fund vested in the truster, without any further requirement, if: (a) the truster declares an intention to constitute a trust in relation to that fund; (b) the declaration satisfies the requirements set out in X.–2:201 (Requirements for a declaration); and (c) either X.–2:102 (Constitution by transfer) or X.–2:103 (Constitution without transfer) applies. X.–2:102: Constitution by transfer (1) If the other requirements for constitution are satisfied, a trust is constituted when in implementation of the declaration the fund is transferred to a person who agrees to be a trustee or is identified in the declaration as a person who is or is to be a trustee.

Draft Common Frame of Reference 1283 (2) The rules on contracts for donation apply analogously to an agreement between truster and intended trustee for the transfer of the fund in the truster’s lifetime. (3) Where the truster has made a binding unilateral undertaking to constitute a trust to a person who is intended to be a trustee of the fund, that person is a trustee of the right to performance of the obligation created by the undertaking, unless that right is rejected. X.–2:103: Constitution without transfer (1) If the other requirements for constitution are satisfied, a trust is constituted by the declaration alone, without a transfer, if: (a) the declaration indicates that the truster is to be a sole trustee; (b) the declaration is testamentary and does not provide for a trustee; or (c) (i) the truster does all of the acts required of the truster to transfer the fund to the intended trustee, (ii) the intended trustee does not or cannot accept the fund, and (iii)  the declaration does not provide otherwise. (2) When a trust is constituted under paragraph (1), the truster becomes a trustee. Section 2 Declaration X.–2:201: Requirements for a declaration (1) The requirements referred to in Section 1 (Basic rules on constitution by juridical act) for a declaration of an intention to constitute a trust are that: (a) the declaration is made by the truster or a person who has authority to make it on the truster’s behalf; and (b) the declaration complies with any requirement as to form set out in X.–2:203 (Formal requirements for declaration). (2) No notice or publication of the declaration to any party is required. X.–2:202: Mode of declaration (1) A person declares an intention to constitute a trust when that person by statements or conduct indicates an intention that the person in whom the fund is or is to be vested is to be legally bound as a trustee. (2) In determining whether one or more statements contained in a testamentary or other instrument determining rights over an asset amount to a declaration of an intention to constitute a trust in relation to that asset, an interpretation of those statements which gives effect to their entirety is to be preferred.

1284  Part III: Common Principles X.–2:203: Formal requirements for declaration (1) Where the transfer of a fund requires the making of an instrument by the transferor, the declaration of an intention to constitute a trust is of no effect unless contained in the instrument of transfer or made in the same or an equivalent form. (2) A declaration that the truster is to be the sole trustee is of no effect unless made in the same form as a unilateral undertaking to donate. (3) Where the trust is to be created on the death of the maker of the declaration, the declaration is of no effect unless made by testamentary instrument. X.–2:204: Revocation or variation of declaration (1) The maker of a declaration may revoke or vary the declaration or a term of the declaration at any time before the trust is constituted. (2) A revocation or variation is of no effect unless it satisfies the formality requirements, if any, which applied to the declaration. (3) However, a declaration or term set out in an instrument may be revoked by substantially destroying or defacing that instrument, so far as it relates to that declaration or term, if the applicable national rules permit a statement intended to have legal effect contained in such an instrument to be revoked by that means. X.–2:205: Effects when declaration does not satisfy requirements If the fund is transferred to the intended trustee in implementation of a declaration which does not satisfy the requirements of X.–2:201 (Requirements for a declaration), the transferee takes the fund on the terms of a trust to re-transfer the fund to the truster. Section 3 Refusal of trust and rejection of right to benefit X.–2:301: Right of trustee to refuse the trust (1) If a person has become a trustee without agreeing to act when a trust is constituted, that person may refuse to act as a trustee by notice to: (a) the truster; or (b) any co-trustee who has full legal capacity and agrees to act as a trustee. (2) Refusal may take the form of either a rejection of all the rights which have vested or a disclaimer of the whole trust, but operates as both a rejection and a disclaimer. (3) A refusal may not be revoked. (4) Where a person reasonably incurs costs in order to refuse, that person has a right to be reimbursed by any co-trustees who accept the trust fund and agree to act or, if there are no such co-trustees, the truster.

Draft Common Frame of Reference 1285 (5) Where a sole trustee refuses or there is no co-trustee who accepts the trust fund and agrees to act, the truster becomes a trustee of the fund in accordance with X.–2:103 (Constitution without transfer) paragraph (1)(c), unless the declaration of the intention to constitute a trust provides otherwise. (6) Subject to the previous paragraphs of this Article, the requirements for a refusal and its effects are determined by the application or analogous application of II.–4:303 (Right or benefit may be rejected). X.–2:302: Rejection of right to benefit or eligibility for benefit A beneficiary’s right under II.–4:303 (Right or benefit may be rejected) to reject a right to benefit or an eligibility for benefit is exercised by giving notice to the trustees. Section 4 Additional rules for particular instances X.–2:401: Whether donation or trust (1) Where a person transfers an asset to another gratuitously and it is uncertain whether or to what extent the transferor intends to donate the asset or to constitute a trust in respect of it for the benefit of the transferor, it is presumed that the transferor intends: (a) to donate to the transferee, if this would be consistent with the relationship between the parties and past or concurrent dealings of the transferor; (b) in any other case, that the transferee be a trustee for the benefit of the transferor. (2) A presumption in paragraph (1) may be rebutted (and the alternative intention in paragraph (1) established) by showing that at the time of transfer the transferor did not or, as the case may be, did intend to dispose of the asset for the exclusive benefit of the transferee. (3) Paragraphs (1) and (2) apply correspondingly where the transfer is to several transferees (including where the transfer is to the transferor and another). (4) Where it is shown or presumed that the transferor intends to dispose of the fund for the benefit of a transferee only in part, or for the benefit of one transferee, but not a co–transferee, the transferor is to be regarded as intending to constitute a trust for the benefit of the transferee to that extent. X.–2:402: Priority of rules of succession law Where the trust is to take effect on the truster’s death, the trust is subject to the prior application of those rules of succession law which determine: (a) how the deceased’s estate is to be disposed of in satisfaction of the funeral costs and debts of the deceased; and (b) (i) whether the truster was free to dispose of any part of the fund, (ii) whether any person has a claim in respect of any part of the fund by reason of a family or other connection to the deceased, and (iii)  how such claims are to be satisfied.

1286  Part III: Common Principles X.–2:403: Trust in respect of right to legacy pending transfer of legacy Where a truster declares that a legatee is to be a trustee in relation to a legacy from the truster and that declaration satisfies the requirements set out in X.–2:201 (Requirements for a declaration), but the legacy has not yet been transferred, the legatee is a trustee of the right against the truster’s successor which arises in respect of the legacy on the truster’s death. Chapter 3 Trust fund Section 1 Requirements for the initial trust fund X.–3:101: Trust fund (1) Trust assets, whether or not of the same kind, form a single trust fund if they are vested in the same trustees and either: (a) the trust terms relating to the assets indicate that they form a single fund or require them to be administered together; or (b) separate trusts relating to the assets are merged in performance of the obligations under those trusts. (2) Where trusts are constituted at the same time, on the same terms, and with the same trustees, the trust assets form a single trust fund unless the trust terms provide otherwise. (3) In this Book “part of the trust fund” means a share of the trust fund, a specific asset or share of an asset in the fund, or a specific amount to be provided out of the fund. X.–3:102: Permissible trust assets Trust assets may consist of proprietary or other rights, so far as these are transferable. X.–3:103: Ascertainability and segregation of the trust fund (1) A trust is only created in relation to a fund in so far as, at the time the trust is to come into effect, (a) the fund is sufficiently defined in the trust terms or the assets forming the fund are otherwise ascertainable; and (b) the fund is segregated from other assets. (2) A declaration of intention to create a trust in relation to an unsegregated fund is to be regarded, so far as the other terms of the declaration permit, as a declaration of an intention to create a trust of the entire mixture containing the fund on the terms that: (a) the trustee is obliged to segregate the intended trust fund; and

Draft Common Frame of Reference 1287 (b) until the fund is segregated, the rights and obligations envisaged by the terms of the declaration apply in relation to a corresponding part of the mixture. Section 2 Changes to the trust fund X.–3:201: Additions to the trust fund (1) After a trust is created, an asset which is capable of being a trust asset becomes part of the trust fund if it is acquired by a trustee: (a) in performance of the obligations under the trust; (b) as an addition to or by making use of the trust fund; (c) by making use of information or an opportunity obtained in the capacity of trustee, if the use is not in accordance with the terms of the trust; or (d) when or after the trustee disposed of that asset otherwise than in accordance with the terms of the trust. (2) Where there are several trustees, an asset may become part of the trust fund in accordance with this Article without being acquired by all of them. X.–3:202: Subtractions from the trust fund (1) An asset ceases to be part of the trust fund when it ceases to be vested in a person who is under the obligation set out in X.–1:201 (Definition of a trust). (2) Where there are several trustees, an asset remains part of the trust fund so long as it is vested in at least one of the trustees in that capacity. X.–3:203: Mixing of the trust fund with other assets (1) If trust assets are mixed with other assets vested in the trustee in such a way that the trust assets cease to be identifiable, a trust arises in respect of the mixture and VIII.–5:202 (Commingling) applies analogously, as if each patrimony had a different owner, so as to determine the share of the mixture which is to be administered and disposed of in accordance with the original trust. (2) If the other assets are the personal patrimony of the trustee, any diminution in the mixture is to be allocated to the trustee’s personal share. X.–3:204: Loss or exhaustion of trust fund (1) A trust ends when the trust fund has been completely disposed of in performance of the obligations under the trust or for any other reason there ceases to be a trust fund. (2) Where the trustee is liable to reinstate the trust fund as a result of non-­ performance of obligations under the trust, the trust revives if the trust fund is reinstated.

1288  Part III: Common Principles Chapter 4 Trust terms and invalidity Section 1 Trust terms X.–4:101: Interpretation Without prejudice to the other rules on the interpretation of unilateral juridical acts, if the meaning of a trust term cannot otherwise be established, interpretations to be preferred are those which: (a) give effect to the entirety of the words and expressions used; (b) prevent reasonable conduct of a trustee from amounting to a non-performance; (c) prevent or best reduce any incompleteness in provision for disposal of the trust fund; and (d) confer on the truster a right to benefit or enlarge such right, if the trust is constituted gratuitously in the truster’s lifetime and the truster has or may have reserved such a right. X.–4:102: Incomplete disposal of the trust fund (1) To the extent that the trust terms and the rules of this Book do not otherwise dispose of the trust fund in circumstances which have arisen, the trust fund is to be disposed of for the benefit of the truster. (2) However, if the incomplete disposal of the trust fund arises because effect cannot be given to a trust for advancement of a public benefit purpose or because performance of the obligations under such a trust does not exhaust the trust fund, the trust fund is to be disposed of for the advancement of the public benefit purpose which most closely resembles the original purpose. X.–4:103: Ascertainability of beneficiaries (1) A trust term which purports to confer a right to benefit is valid only if the beneficiary is sufficiently identified by the truster or is otherwise ascertainable at the time the benefit is due. (2) A trust term which permits a trustee to benefit those members of a class of persons which the trustee or a third person selects is valid only if, at the time the selection is permitted, it can be determined with reasonable certainty whether any given person is a member of that class. (3) A person may be a beneficiary notwithstanding that that person comes into existence only after the trust is created. X.–4:104: Ascertainability of right to benefit or eligibility for benefit (1) A right to benefit or eligibility for benefit is valid only in so far as the benefit is sufficiently defined in the trust terms or is otherwise ascertainable at the time the benefit is due or to be conferred.

Draft Common Frame of Reference 1289 (2) If the benefit to be conferred is not ascertainable only because a third party cannot or does not make a choice, the trustees may make that choice unless the trust terms provide otherwise. X.–4:105: Trusts to pay creditors A trust for the purpose of paying a debt, or for the benefit of a creditor as such, takes effect as a trust to benefit the debtor by a performance of the debtor’s obligation discharging the debtor. Section 2 Invalidity X.–4:201: Avoidance by the truster Without prejudice to other necessary adaptations, Book II Chapter 7 (Grounds of invalidity) is modified as follows in its application to trusts constituted gratuitously in the truster’s lifetime: (a) the truster may avoid the trust or a trust term if the trust was constituted or the term included because of a mistake of fact or law, regardless of whether the requirements of II.–7:201 (Mistake) paragraph (1)(b) are satisfied; (b) a truster who was dependent on, or was the more vulnerable party in a relationship of trust with, a beneficiary may avoid the trust or a trust term in so far as it provides for benefit to that beneficiary unless that beneficiary proves that the beneficiary did not exploit the truster’s situation by taking an excessive benefit or grossly unfair advantage; (c) the reasonable time for giving notice of avoidance (II.–7:210 (Time)) does not commence so long as: (i) the truster exercises an exclusive right to benefit from the income; or (ii) the trust fund consists of one or more rights to benefit which are not yet due; and (d) where sub-paragraph (c)(i) applies, acceptance of benefit is not to be regarded as an implied confirmation of the trust. X.–4:202: Protection of trustees and third parties after avoidance (1) The trustee’s title to the trust fund is unaffected by avoidance. (2) Unless the trustee knew or could reasonably be expected to know that the trust or trust term might be avoided: (a) a trustee is not liable in respect of any administration or disposition of the trust fund which was in accordance with the terms of the trust before the trust was avoided; (b) a trustee may invoke against the person entitled to benefit as a result of avoidance defences which the trustee could have invoked against the beneficiary who had a right to that benefit before avoidance; and (c) a trustee retains any right of recourse to the trust fund which arose before avoidance.

1290  Part III: Common Principles (3) Avoidance of the trust does not affect the rights of a third party who before avoidance acquired a beneficiary’s right to benefit, or a security right or other limited right in that right to benefit, if: (a) the third party neither knew nor had reason to know that the trust or trust term could be avoided; and (b) the disposition is not gratuitous. X.–4:203: Unenforceable trust purposes (1) A trust which is for a purpose other than to benefit beneficiaries or to advance public benefit purposes takes effect as a trust for the truster. (2) The trustee has a revocable authority to dispose of the trust fund in accordance with the original trust for the advancement of the unenforceable purpose in so far as: (a) advancement of that purpose does not infringe a fundamental principle or mandatory rule and is not contrary to the public interest; (b) it can be determined with reasonable certainty whether any given disposal of the trust fund is or is not for its advancement; and (c) the disposal is not manifestly disproportionate to any likely benefit from that disposal. Chapter 5 Trustee decision-making and powers Section 1 Trustee decision-making X.–5:101: Trustee discretion (1) Subject to the obligations of a trustee under this Book and exceptions provided for by other rules, the trustees are free to determine whether, when and how the exercise of their powers and discretions is best suited to performing their obligations under the trust. (2) Except in so far as the trust terms or other rules provide otherwise, the trustees are not bound by, and are not to regard themselves as bound by, any directions or wishes of any of the parties to the trust or other persons. (3) The trustees are not obliged to disclose the reasons for the exercise of their discretion unless the trust is for the advancement of a public benefit purpose or the trust terms provide otherwise. X.–5:102: Decision-making by several trustees If there are several trustees, their powers and discretions are exercised by simple majority decision unless the trust terms or other rules of this Book provide otherwise.

Draft Common Frame of Reference 1291 X.–5:103: Conflict of interest in exercise of power or discretion Unless the trust terms provide otherwise, a trustee may not participate in a decision to exercise or not to exercise a power or discretion if the effect of the decision is to confer, confirm, or enlarge a right to benefit or eligibility for benefit in favour of the trustee. Section 2 Powers of a trustee Sub-section 1 General rules X.–5:201: Powers in general (1) Except where restricted by the trust terms or other rules of this Book, a trustee may do any act in performance of the obligations under the trust which: (a) an owner of the fund might lawfully do; or (b) a person might be authorised to do on behalf of another. (2) Subject to restrictions or modifications in the trust terms, the other Articles of this Section provide for the powers of a trustee in particular cases. X.–5:202: Restriction in case of minimum number of trustees (1) Where there are fewer trustees than a minimum required by the trust terms or these rules, the trustees may only exercise: (a) a power to appoint trustees; (b) the right to apply to court for assistance; (c) a right under X.–6:201 (Right of reimbursement and indemnification out of the trust fund); and (d) any other right or power of a trustee to the extent that its exercise is: (i) expressly provided for in the circumstances by the trust terms; (ii) necessary for the preservation of the trust fund; or (iii) necessary for the satisfaction of trust debts whose performance is due or impending. (2) If the trust is constituted by a transfer to at least two trustees the minimum number of trustees is two, unless the trust terms provide otherwise. Sub-section 2 Particular powers of a trustee X.–5:203: Power to authorise agent (1) The trustees may authorise an agent to act on behalf of the trustees and, subject to the restrictions set out in the following Articles of this Section, may entrust to another performance of obligations under the trust. (2) Several trustees may authorise one of them to act on their behalf.

1292  Part III: Common Principles (3) However, personal performance by a trustee is required for decisions as to whether or how to exercise: (a) a discretion to confer benefit on a beneficiary or to choose a public benefit purpose to be advanced or its manner of advancement; (b) a power to change the trustees; or (c) a power to delegate performance of obligations under the trust. (4) A person to whom performance of an obligation is entrusted has the same obligations as a trustee, so far as they relate to that performance. (5) A trustee is obliged not to conclude, without good reason, a contract of mandate which is not in writing or which includes the following terms: (a) a term conferring an irrevocable mandate; (b) terms excluding the obligations of an agent set out in Book IV. D., Chapter 3, Section 1 (Main obligations of agent) or modifying them to the detriment of the principal; (c) a term permitting the agent to subcontract; (d) terms permitting a conflict of interest on the part of the agent; (e) a term excluding or restricting the agent’s liability to the principal for non-performance. (6) The trustees are obliged to keep the performance of the agent under review and, if required in the circumstances, give a direction to the agent or terminate the mandate relationship. X.–5:204: Power to transfer title to person undertaking to be a trustee (1) The trustees may transfer trust assets to a person who undertakes to be a trustee in relation to the assets and to dispose of them as the original trustees direct and in default of any such direction to transfer them back to the original trustees on demand. (2) The recipient must be: (a) a person who gives such undertakings in the course of business; (b) a legal person controlled by the trustees; or (c) a legal person designated in an enactment as eligible to carry out such a trust obligation or satisfying requirements set out therein for this purpose. (3) X.–5:203 (Power to authorise agent) paragraphs (5) and (6) apply correspondingly. X.–5:205: Power to transfer physical control to a storer (1) The trustees may place trust assets and documents relating to those assets in the physical control of a person who undertakes to keep the trust assets safe and to deliver them back to the trustees on demand. (2) X.–5:204 (Power to transfer title to person undertaking to be a trustee) paragraphs (2) and (3) apply correspondingly.

Draft Common Frame of Reference 1293 X.–5:206: Power to delegate A trustee may entrust to another the performance of any of the trustee’s obligations under the trust and the exercise of any of the trustee’s powers, including the exercise of a discretion, authority to dispose of trust assets and the power to delegate, but remains responsible for performance in accordance with III.–2:106 (Performance entrusted to another). X.–5:207: Power to select investments In so far as the trustees are obliged to invest the trust fund, the trustees may invest in any form of investment and determine the particular manner of investment which is best suited to fulfil that obligation. X.–5:208: Power to submit trust accounts for audit Where appropriate, a trustee may submit the trust accounts for an audit by an independent and competent auditor. Chapter 6 Obligations and rights of trustees and trust auxiliaries Section 1 Obligations of a trustee Sub-section 1 General rules X.–6:101: General obligation of a trustee (1) A trustee is obliged to administer the trust fund and exercise any power to dispose of the fund as a prudent manager of another’s affairs for the benefit of the beneficiaries or the advancement of the public benefit purposes, in accordance with the law and the trust terms. (2) In particular, a trustee is obliged to act with the required care and skill, fairly and in good faith. (3) Except in so far as the trust terms provide otherwise: (a) these obligations include the particular obligations set out in X.–6:102 (Required care and skill) and the following sub-section; and (b) an administration or disposal of the trust fund is of benefit to a beneficiary only if it is for that person’s economic benefit. X.–6:102: Required care and skill (1) A trustee is required to act with the care and skill which can be expected of a reasonably competent and careful person managing another’s affairs, having regard to whether the trustee has a right to remuneration.

1294  Part III: Common Principles (2) If the trustee is acting in the course of a profession, the trustee must act with the care and skill that is expected of a member of that profession. Sub-section 2 Particular obligations of a trustee X.–6:103: Obligations to segregate, safeguard and insure (1) A trustee is obliged to keep the trust fund segregated from other patrimony and to keep the trust assets safe. (2) In particular, a trustee may not invest in assets which are especially at risk of misappropriation unless particular care is taken for their safekeeping. Where the asset is a document embodying a right to a performance which is owed to whoever is the holder of the document, such care is taken if the document is placed in a storer’s safekeeping in accordance with X.–5:205 (Power to transfer physical control to a storer). (3) So far as it is possible and appropriate to do so, the trustee is obliged to insure the trust assets against loss. X.–6:104: Obligation to inform and report (1) A trustee is obliged to inform a beneficiary who has a right to benefit of the existence of the trust and that beneficiary’s right. (2) A trustee is obliged to make reasonable efforts to inform a beneficiary who has an eligibility for benefit of the existence of the trust and that beneficiary’s eligibility. (3) In determining what efforts are reasonable for the purposes of paragraph (2), regard is to be had to: (a) whether the expense required is proportionate to the value of the benefit which might be conferred on that beneficiary; (b) whether the beneficiary is a member of a class whose members the trustee is required to benefit; and (c) the practicalities of identifying and communicating with the beneficiary. (4) So far as appropriate, a trustee is obliged to make available information about the state and investment of the trust fund, trust debts, and disposals of trust assets and their proceeds. X.–6:105: Obligation to keep trust accounts A trustee is obliged to keep accounts in respect of the trust funds (trust accounts). X.–6:106: Obligation to permit inspection and copying of trust documents (1) A trustee must permit a beneficiary or other person entitled to enforce performance of the obligations under the trust to inspect the trust documents and to make copies of them at that person’s own expense. (2) Paragraph (1) does not apply to:

Draft Common Frame of Reference 1295

(3)

(4)

(5) (6)

(a) the opinions of a legal adviser relating to actual or contemplated legal proceedings by the trustees in that capacity against the person seeking inspection; and evidence gathered for such proceedings; (b) communications between the trustees and other beneficiaries and any other communications whose disclosure would result in a breach of confidence owed by the trustees in that capacity to another. The trustees may refuse inspection and copying of trust documents so far as these relate to information which is confidential to the trustees in that capacity if the beneficiary does not provide adequate assurance that the confidentiality will be maintained. Unless the trust is for the advancement of public benefit purposes, the trustees may also refuse inspection and copying of documents so far as the documents disclose the reasons for the trustees’ decision to exercise or not to exercise a discretion, the deliberations of the trustees which preceded that decision, and material relevant to the deliberations. The trust terms may enlarge the rights of inspection and copying which are provided for by this Article. In this Book “trust documents” are: (a) any documents containing the truster’s declaration of intentions relating to the trust (whether or not intended to be binding) and any juridical act or court order varying the trust terms; (b) minutes of meetings of the trustees; (c) records made and notices and other communications in writing received by a trustee in that capacity, including the opinions of a legal adviser engaged by a trustee at the trust fund’s expense; (d) any documents containing juridical acts concluded or made by the trustees; (e) receipts for disposal of trust assets; and (f) the trust accounts.

X.–6:107: Obligation to invest (1) A trustee is obliged to invest the trust fund, so far as available for investment, and in particular: (a) to dispose of assets which ordinarily neither produce income nor increase in value and to invest the proceeds; (b) to take professional advice on investment of the fund, if the trustees lack the expertise required for the efficient and prudent investment of funds of the size and nature of the trust fund; (c) to make a spread of investments in which overall: (i) the risks of failure or loss of particular investments are diver­sified; and (ii) the expected gain significantly outweighs the potential failure or loss; unless the trust fund is so small that a spread of investments is inappropriate; and

1296  Part III: Common Principles (d) to review at appropriate intervals the suitableness of retaining or changing the investments. (2) A trustee is not obliged to invest assets: (a) which are imminently required for transfer to or use by a beneficiary or for satisfaction of a trust debt; or (b) whose investment would otherwise impede the trustees in carrying out their other obligations under this Book. (3) The obligation to invest does not authorise a trustee to dispose of trust assets which according to the trust terms are to be retained by the trustees or transferred in kind to a beneficiary. X.–6:108: Obligation not to acquire trust assets or trust creditors’ rights (1) A trustee is obliged not to purchase a trust asset or the right of a trust creditor against the trustees, whether personally or by means of an agent. (2) A contract for the sale of a trust asset which is concluded as a result of nonperformance of this obligation may be avoided by any other party to the trust or any person entitled to enforce performance of the obligations under the trust. (3) The right to avoid is in addition to any remedy for non-performance. (4) This Article applies with appropriate modifications to other contracts for the acquisition or use of a trust asset or a right corresponding to a trust debt. X.–6:109: Obligation not to obtain unauthorised enrichment or advantage (1) A trustee is obliged not to make use of the trust fund, or information or an opportunity obtained in the capacity of trustee, to obtain an enrichment unless that use is authorised by the trust terms. (2) A trustee may not set off a right to performance from a beneficiary, which is owed to the trustee in a personal capacity, against that beneficiary’s right to benefit. X.–6:110: Obligations regarding co-trustees A trustee is obliged to: (a) cooperate with co-trustees in performing the obligations under the trust; and (b) take appropriate action if a trustee knows or has reason to suspect that: (i) a co-trustee has failed to perform any obligation under, or arising out of, the trust, or such non-performance is impending; and (ii) the non-performance is likely to result or have resulted in loss to the trust fund.

Draft Common Frame of Reference 1297 Section 2 Rights of a trustee X.–6:201: Right to reimbursement and indemnification out of the trust fund A trustee has a right to reimbursement or indemnification out of the trust fund in respect of expenditure and trust debts which the trustee incurs in performance of the obligations under the trust. X.–6:202: Right to remuneration out of the trust fund (1) A trustee has a right to such remuneration out of the trust fund as is provided for by the trust terms. (2) Unless this is inconsistent with the trust terms, a trustee who acts as a trustee in the course of a profession has a right to reasonable remuneration out of the trust fund for work done in performance of the obligations under the trust. (3) Paragraph (2) does not apply if: (a) the trustee, in the capacity of beneficiary, is entitled to significant benefit from the trust fund; or (b) the trust was created as a result of a contract between the trustee and the truster; or (c) the trust is for the advancement of public benefit purposes. X.–6:203: Rights in respect of unauthorised acquisitions (1) This Article applies where: (a) a trustee acquires an asset or other enrichment as a result of a nonperformance of an obligation under the trust; and (b) the asset becomes part of the trust fund or the enrichment is added to the trust fund in performance of an obligation to disgorge. (2) The trustee has a right to reimbursement or indemnification for any expenditure or obligation which it was necessary to incur to make the acquisition. If the trustee previously satisfied in full or in part a liability under X.–7:201 (Liability of trustee to reinstate the trust fund), the trustee has a right to reimbursement from the trust fund to the extent that after the acquisition the trust fund is more than reinstated. (3) The trustee also has a right to reasonable remuneration if: (a) the acquisition was made in good faith to increase the trust fund; and (b) the trustee would be entitled to remuneration under X.–6:202 (Right to remuneration out of the trust fund) paragraph (2)(b) if the acquisition had been in performance of an obligation under the trust.

1298  Part III: Common Principles (4) If the acquisition resulted from a non-performance of the obligation under X.–6:109 (Obligation not to obtain unauthorised enrichment or advantage) to which a beneficiary validly consented, the trustee may waive the rights under paragraphs (2) and (3) and take over the consenting beneficiary’s right to benefit from the acquisition. (5) A trustee is not entitled under this Article to more than the value of the acquisition. X.–6:204: Corresponding rights against beneficiaries (1) Where the right of a trustee under X.–6:201 (Right to reimbursement and indemnification out of the trust fund) exceeds the trust fund, the trustee may recover the excess from the beneficiaries. (2) The liability of a beneficiary under paragraph (1) is: (a) limited to the enrichment which that beneficiary has obtained in accordance with the trust terms; and (b) subject to the defence of disenrichment, VII.–6:101 (Disenrichment) applying with appropriate adaptations. (3) The right to recover under paragraph (1) ends six months after the right to reimbursement or indemnification has arisen. X.–6:205: Right to insure against personal liability at trust fund’s expense (1) A trustee has a right to reimbursement or indemnification out of the trust fund in respect of expenditure or a debt which the trustee reasonably incurs to obtain insurance against liability under X.–7:201 (Liability of trustee to reinstate the trust fund). (2) Paragraph (1) does not apply in so far as: (a) the trustee has a right to remuneration for performing the obligations under the trust; or (b) the insurance is against liability arising out of a non-performance which is intentional or grossly negligent. Section 3 Obligations of a trust auxiliary X.–6:301: Obligations of a trust auxiliary (1) A trust auxiliary is obliged to disclose the identity of the trustees if this information is known to the trust auxiliary and is not otherwise apparent. (2) In deciding whether to exercise a power a trust auxiliary is obliged: (a) to act in good faith; and (b) not to obtain an enrichment which is not authorised by the trust terms.

Draft Common Frame of Reference 1299 Chapter 7 Remedies for non-performance Section 1 Specific performance, judicial review and ancillary remedies X.–7:101: Specific performance (1) The enforcement of specific performance of an obligation under the trust includes the prevention of a trustee from disposing of or otherwise dealing with a trust asset otherwise than in accordance with the terms of the trust. (2) Specific performance cannot be enforced if performance requires a trustee to exercise a discretion. X.–7:102: Judicial review (1) On the application of a party to the trust or a person entitled to enforce performance of an obligation under the trust, a court may review a decision of the trustees or a trust auxiliary whether or how to exercise a power or discretion conferred on them by the trust terms or this Book. (2) A former trustee who has been removed by the trustees or a trust auxiliary without the trustee’s consent has a corresponding right to judicial review of that decision. (3) A court may avoid a decision of the trustees or a trust auxiliary which is irrational or grossly unreasonable, motivated by irrelevant or improper considerations, or otherwise an abuse of power or outside the powers of the trustees or the trust auxiliary. X.–7:103: Further remedies Other rules may provide for: (a) accounts and inquiries concerning the trust fund and its administration and disposal, as directed by court order; (b) payment or transfer into court of money or other assets in the trust fund; (c) the appointment by court order of a receiver to administer a trust fund; (d) the exercise of rights and powers of a trustee by a public officer or body, in particular in relation to trusts to advance public benefit purposes; (e) suspension of the rights and powers of the trustees to administer and dispose of the fund; in cases of actual or suspected non-performance of the obligations under the trust.

1300  Part III: Common Principles Section 2 Reparation and disgorgement of unauthorised enrichment X.–7:201: Liability of trustee to reinstate the trust fund (1) A trustee is liable to reinstate the trust fund in respect of loss caused to the trust fund by non-performance of any obligation under, or arising out of, the trust, if the non-performance: (a) is not excused; and (b) results from the trustee’s failure to exercise the required care and skill. (2) However, a person is liable under paragraph (1) only if that person knew, or it was manifest, that that person was a trustee. (3) A trustee is not liable merely because a co-trustee, an agent or other person entrusted with performance, or an authorised recipient of trust assets has caused loss to the trust fund. (4) Paragraph (3) does not prejudice any liability of the trustee arising: (a) under paragraph (1) out of the trustee’s own non-performance of an obligation under the trust, in particular: (i) an obligation to act with the required care and skill when choosing to appoint or engage that person and agreeing the terms of the engagement; or (ii) the obligation to keep the performance of that person under review and, if required in the circumstances, to take measures to protect the trust fund; or (b) out of delegation of performance (X.–5:206 (Power to delegate)); (c) under VI.–3:201 (Accountability for damage caused by employees and representatives); or (d) because the trustee induced, assisted or collaborated in that person’s non-performance. (5) III.–3:702 (General measure of damages) applies with appropriate adaptations to determine the measure of reinstatement. (6) The following rights of a trustee are suspended until the trustee has completely reinstated the trust fund: (a) any right of recourse to the trust fund; and (b) any right to benefit which the trustee has in the capacity of beneficiary. (7) This Article is subject to the trust terms. X.–7:202: Liability of trustee to compensate a beneficiary (1) A trustee who is liable under X.–7:201 (Liability of trustee to reinstate the trust fund) is also obliged to compensate a beneficiary who, despite reinstatement of the trust fund, does not obtain a benefit to which that beneficiary was entitled or, if there had been no failure of performance, would have been entitled under the trust terms. (2) The beneficiary has the same right to compensation as arises from non-­ performance of a contractual obligation. (3) This Article is subject to the trust terms.

Draft Common Frame of Reference 1301 X.–7:203: Disgorgement of unauthorised enrichment Where a trustee obtains an enrichment as a result of non-performance of the obligation under X.–6:109 (Obligation not to obtain unauthorised enrichment or advantage) and that enrichment does not become part of the trust fund under X.–3:201 (Additions to the trust fund), the trustee is obliged to add the enrichment to the trust fund or, if that is not possible, to add its monetary value. Section 3 Defences X.–7:301: Consent of beneficiary to non-performance (1) A trustee has a defence to liability to the extent that reinstatement, compensation or disgorgement would benefit a beneficiary who validly consented to the non-performance. (2) A beneficiary consents to a non-performance when that beneficiary agrees to conduct of the trustee which amounts to a non-performance and either: (a) the beneficiary knew that such conduct would amount to a non-­ performance; or (b) it was manifest that such conduct would amount to a non-performance. (3) Paragraph (1) applies whether or not the non-performance enriched or disadvantaged the beneficiary who consented. (4) Where a beneficiary participates in the non-performance in the capacity of trustee, paragraph (1) applies in relation to any co-trustees who are liable. A right of recourse between the solidary debtors as regards any residual liability to reinstate the trust fund or compensate a beneficiary is unaffected. (5) A consent is not valid if it results from a mistake which was caused by false information given by the trustee or the trustee’s non-performance of an obligation to inform. X.–7:302: Prescription The general period of prescription for a right to performance of an obligation under a trust does not begin to run against a beneficiary until benefit to that beneficiary is due. X.–7:303 Protection of the trustee (1) A trustee is discharged by performing to a person who, after reasonable inquiry, appears to be entitled to the benefit conferred. (2) The right of the beneficiary who was entitled to the benefit against the recipient of the benefit arising under Book VII (Unjustified enrichment) is unaffected.

1302  Part III: Common Principles Section 4 Solidary liability and forfeiture X.–7:401: Solidary liability (1) Where several trustees are liable in respect of the same non-performance, their liability is solidary. (2) As between the solidary debtors themselves, the shares of liability are in proportion to each debtor’s relative responsibility for the non-performance, having regard to each debtor’s skills and experience as a trustee. (3) A debtor’s relative responsibility for a non-performance to which that debtor consented is not reduced merely because that debtor took no active part in bringing it about. X.–7:402: Forfeiture of collaborating beneficiary’s right to benefit (1) Where a beneficiary collaborated in a trustee’s non-performance, a court may order on the application of that trustee or another beneficiary that the right to benefit of the beneficiary who collaborated be forfeited. (2) The right to benefit of a beneficiary who validly consented to the non-­ performance, but did not collaborate in it, may be forfeited only to the extent that the beneficiary has been enriched by the non-performance. (3) To the extent that a beneficiary’s right to benefit is forfeited under this A ­ rticle, benefit which is otherwise due to that beneficiary is to be applied so as to satisfy the trustee’s liability until either the liability is extinguished or the right to benefit is exhausted. Chapter 8 Change of trustees or trust auxiliary Section 1 General rules on change of trustees X.–8:101: Powers to change trustees in general (1) After the creation of a trust, a person may be appointed a trustee and a trustee may resign or be removed: (a) in accordance with a power: (i) under the trust terms or (ii) conferred on the trustees by this Section; or (b) by court order under this Section. (2) The exercise of a power within paragraph (1)(a) is of no effect unless it is in writing. The same applies to a binding direction to trustees regarding the exercise of such a power. (3) An exercise of a power under the trust terms by a person who is not also a continuing trustee does not take effect until notice is given to the continuing trustees.

Draft Common Frame of Reference 1303 (4) The resignation or removal of a sole trustee is effective only if a substitute trustee is appointed at the same time. X.–8:102: Powers to change trustees conferred on trustees (1) The powers conferred by this Section on trustees may only be exercised: (a) by unanimous decision; and (b) if in the circumstances a trust auxiliary does not have a corresponding power or the trust auxiliary cannot or does not exercise such a power within a reasonable period after a request to do so by the trustees. (2) Subject to paragraph (1), the trustees are obliged to exercise their powers under this Section in accordance with any joint direction by the beneficiaries if the beneficiaries have a joint right to terminate the trust in respect of the whole fund. (3) The trust terms may modify or exclude the powers conferred by this Section on trustees. Section 2 Appointment of trustees X.–8:201: General restrictions on appointments (1) An appointment of a person as trustee is of no effect if: (a) it is manifest that the co-trustees would have power to remove that person, if appointed, on grounds of that person’s inability, refusal to act, or unsuitability; (b) the person appointed does not agree to act as trustee; or (c) the appointment exceeds a maximum number of trustees provided for by the trust terms. (2) A provision in the trust terms that there is to be only one trustee takes effect as a maximum of two. X.–8:202: Appointment by trust auxiliary or trustees (1) The trustees may appoint one or more additional trustees. (2) The continuing trustees may appoint a substitute trustee for a person who has ceased to be a trustee. (3) Unless the trust terms provide otherwise, a self-appointment by a trust auxiliary is of no effect. X.–8:203: Appointment by court order On the application of any party to the trust or any person entitled to enforce performance of an obligation under the trust, a court may appoint: (a) a substitute trustee for a person who has ceased to be a trustee, or (b) one or more additional trustees, if in the circumstances: (i) no one else is able and willing to exercise a power to appoint; and

1304  Part III: Common Principles (ii) the appointment is likely to promote the efficient and prudent administration and disposal of the trust fund in accordance with the trust terms. Section 3 Resignation of trustees X.–8:301: Resignation with consent of trust auxiliary or co-trustees (1) A trust auxiliary who may appoint a substitute trustee in the event of the trustee’s resignation may consent to a resignation. (2) A trust auxiliary may consent to a resignation without the consent of the continuing trustees only if a substitute trustee is appointed at the same time. (3) The continuing trustees may consent to a resignation. (4) A trustee may only resign with the consent of a trust auxiliary or co-trustees if after resignation there will be at least two continuing trustees or a special trustee. (5) Special trustees, for the purposes of this Book, are: (a) any public officer or body having the function of acting as a trustee; and (b) any legal persons designated as such in an enactment or satisfying requirements set out in an enactment for this purpose. X.–8:302: Resignation with approval of court A court may approve the resignation of a trustee who cannot otherwise resign if it is fair to release the trustee from obligations under the trust, having regard in particular to whether after resignation an efficient and prudent administration and disposal of the trust fund in accordance with the trust terms can be secured. Section 4 Removal of trustees X.–8:401: Removal by trust auxiliary or co-trustees (1) Where a court might remove a trustee on grounds of inability, refusal to act, or unsuitability, the continuing trustees may remove that trustee. (2) The removal of a trustee by a trust auxiliary or the trustees does not take effect until notice of the removal is given to the trustee who is to be removed. X.–8:402: Removal by court order (1) On the application of any party to the trust, a court may remove a trustee without that trustee’s consent and regardless of the trust terms if it is inappropriate for the trustee to remain a trustee, in particular on grounds of the trustee’s: (a) inability; (b) actual or anticipated material non-performance of any obligation under, or arising out of, the trust;

Draft Common Frame of Reference 1305 (c) unsuitability; (d) permanent or recurrent fundamental disagreement with co-trustees on a matter requiring a unanimous decision of the trustees; or (e) other interests which substantially conflict with performance of the obligations under, or arising out of, the trust. Section 5 Effect of change of trustees X.–8:501: Effect on trustees’ obligations and rights (1) A person who is appointed a trustee becomes bound by the trust and acquires the corresponding rights and powers. Subject to the following paragraphs of this Article, a trustee who resigns or is removed is released from the trust and loses those rights and powers. (2) The obligation to cooperate with co-trustees does not end until the expiry of a reasonable period after resignation or removal. (3) A former trustee’s right of recourse to the trust fund takes effect as a right against the continuing trustees. A right to reimbursement, indemnification or remuneration by a beneficiary is unaffected. (4) A former trustee remains bound by: (a) the obligation in X.–6:109 (Obligation not to obtain unauthorised enrichment or advantage); (b) trust debts; and (c) obligations arising from non-performance. X.–8:502: Vesting and divesting of trust assets (1) Title to a trust asset vests in a person on appointment as a trustee, without a court order to that effect, if that title is: (a) capable of transfer by agreement between a transferor and a transferee without the necessity for any further act of transfer or formality; or (b) regarded under the applicable national law as vested in the trustees as a body. (2) The vesting of an asset in a person who is appointed a trustee does not divest any continuing trustees. (3) A person who resigns or is removed as a trustee is divested correspondingly. X.–8:503: Transmission of trust documents A continuing or substitute trustee is entitled to the delivery up of trust documents in the possession of a former trustee. The person in possession has the right to make and retain copies at that person’s own expense.

1306  Part III: Common Principles X.–8:504: Effect of death or dissolution of trustee (1) Where one of several trustees dies or a corporate trustee is dissolved, the trust fund remains vested in the continuing trustees. This applies to the exclusion of any person succeeding to a deceased or dissolved trustee’s other patrimony. (2) Where a sole trustee dies, the deceased trustee’s successors become trustees and accordingly: (a) the trustee’s successors become subject to the trust and acquire the corresponding rights and powers; (b) the trustee’s successors become liable for trust debts incurred by the deceased trustee to the extent of the deceased trustee’s estate; and (c) the trust fund vests in the trustee’s successors, but the trustee’s successors may only exercise the powers set out in X.–5:202 (Restriction in case of minimum number of trustees) paragraph (1), regardless of the number of successors. (3) A trustee’s testamentary disposition of the trust fund is of no effect, but the trust terms may confer a testamentary power to appoint a trustee. (4) Obligations arising from non-performance devolve on the deceased trustee’s successor. Section 6 Death or dissolution of trust auxiliary X.–8:601: Effect of death or dissolution of trust auxiliary A power of a trust auxiliary ends when the trust auxiliary dies or is dissolved, but the trust terms may permit a testamentary exercise of the power. Chapter 9 Termination and variation of trusts and transfer of rights to benefit Section 1 Termination Sub-section 1 General rules on termination X.–9:101: Modes of termination A trust in respect of a fund or part of a fund may be terminated: (a) by a truster or beneficiaries in accordance with a right provided for by the trust terms; (b) by a truster in accordance with X.–9:103 (Right of truster to terminate a gratuitous trust); (c) by a beneficiary in accordance with X.–9:104 (Right of beneficiaries to terminate);

Draft Common Frame of Reference 1307 (d) by a trustee under X.–9:108 (Termination by trustee); (e) by merger of rights and obligations under X.–9:109 (Merger of right and obligation). X.–9:102: Effect of termination on trustee’s liabilities (1) To the extent that the trust is terminated the trustee is discharged. (2) Unless the parties concerned agree otherwise, termination of the trust does not release a trustee from liability: (a) to a beneficiary arising out of the trustee’s non-performance of any obligation under, or arising out of, the trust; or (b) to a trust creditor. Sub-section 2 Termination by truster or beneficiaries X.–9:103: Right of truster to terminate a gratuitous trust (1) Except as provided for by paragraphs (2) and (3), a truster has no implied right to terminate a trust or a trust term merely because the trust was constituted gratuitously, irrespective of whether: (a) the trust was constituted without a transfer by the truster; (b) the truster reserved a right to benefit during the truster’s lifetime. (2) A truster may terminate a gratuitously constituted trust, or a term of such a trust, which is for the benefit of a person who does not yet exist. (3) A truster may terminate a gratuitously constituted trust for the benefit of another to the same extent that the truster might have revoked a donation to that beneficiary if the benefit had been conferred by way of donation. X.–9:104: Right of beneficiaries to terminate (1) A beneficiary of full legal capacity may terminate the trust in respect of a fund or part of the fund which is for that beneficiary’s exclusive benefit. (2) If each is of full legal capacity, several beneficiaries have a corresponding joint right to terminate the trust in respect of a fund or part of the fund which is for the exclusive benefit of those beneficiaries. (3) A trust may not be terminated in respect of part of the fund if this would adversely affect the trust in respect of the rest of the fund for the benefit of other beneficiaries or for the advancement of public benefit purposes. X.–9:105: Meaning of “exclusive benefit” (1) A fund or part of a fund is to be regarded as for a beneficiary’s exclusive benefit if all of that capital and all of the future income from that capital can only be disposed of in accordance with the trust terms for the benefit of that beneficiary or that beneficiary’s estate.

1308  Part III: Common Principles (2) For the purposes of paragraph (1) the possibility that the beneficiary might give a consent, or might fail to exercise a right adverse to that beneficiary’s own benefit, is to be disregarded. X.–9:106: Notice of termination and its effects (1) A truster or beneficiary exercises a right to terminate by giving notice in writing to the trustees. (2) A trust or part of a trust which is terminated by the truster takes effect from that time as a trust for the benefit of the truster. (3) Where a beneficiary, exercising a right to terminate, instructs the trustee to transfer to someone other than the beneficiary, notice of termination vests in that person the right to benefit from the fund or part of the fund which is to be transferred. (4) Unless the transfer is impossible or unlawful, the trustee is obliged to transfer the fund or part of the fund in accordance with the notice of termination and without delay. The obligation to transfer supersedes the obligation to administer and dispose of the fund or part in accordance with the trust terms. (5) If a transfer is impossible because it would require the grant of an undivided share in an asset for which undivided shares are not allowed, the trustee is obliged: (a) to divide the asset and transfer the divided share, so far as this is possible and reasonable; and otherwise (b) to sell the asset, if this is possible, and transfer the corresponding share of the proceeds. (5) The trust is terminated when and to the extent that the required transfer is made. X.–9:107: Trustee’s right to withhold (1) A trustee may withhold such part of the fund which is to be transferred as is needed to satisfy: (a) trust debts; (b) the trustee’s accrued rights of recourse to the fund; and (c) the costs of transfer and of any required division or sale of an asset, so far as those debts, rights and costs are allocated to the part of the fund which is to be transferred. (2) The right to withhold ends if the person exercising the right to terminate pays compensation for the debts, rights and costs allocated to the part of the fund which is to be transferred.

Draft Common Frame of Reference 1309 Sub-section 3 Other modes of termination X.–9:108: Termination by trustee (1) Where a beneficiary has a right to terminate a trust under X.–9:104 (Right of beneficiaries to terminate) paragraph (1), a trustee may give a notice to that beneficiary requiring that beneficiary to exercise that right within a period of reasonable length fixed by the notice. If the beneficiary fails to do so within that period, the trustee may terminate the trust by a transfer to that beneficiary. The beneficiary is obliged to accept the transfer. (2) A trustee may also terminate the trust by payment of money or transfer of other assets of the trust fund into court where other rules so provide. X.–9:109: Merger of right and obligation (1) A trust ends when the sole trustee is also the sole beneficiary and the trust fund is for that beneficiary’s exclusive benefit. (2) Where there are several trustees, paragraph (1) applies correspondingly only if they have a joint right to benefit. (3) If a trust subsists in relation to the beneficiary’s right to benefit or the right to benefit is encumbered with a security right or other limited right, the trustee remains bound by that trust or encumbrance. Section 2 Variation X.–9:201: Variation by truster or beneficiary (1) The trust terms may be varied by a truster or beneficiary in accordance with: (a) a right provided for by the trust terms; (b) the right provided for by paragraph (2). (2) A truster or beneficiary who has a right to terminate a trust has a corresponding right to vary the trust terms so far as they relate to the fund or part of the fund in respect of which the trust might be terminated. (3) The exercise by several beneficiaries of a joint right to vary the trust terms requires their agreement to that effect. (4) A variation which is to take effect from the death of the person exercising the right to vary is of no effect unless it is made by testamentary instrument. (5) A variation does not take effect until notice in writing is given to the trustees. X.–9:202: Variation by court order of administrative trust terms (1) On the application of any party to the trust or any person entitled to enforce performance of obligations under the trust, a court may vary a trust term relating to the administration of the trust fund if the variation is likely to promote a more efficient and prudent administration of the fund.

1310  Part III: Common Principles (2) A variation under paragraph (1) may not significantly affect the operation of the trust terms governing its disposal unless the court also has power to vary those terms under one of the following Articles. X.–9:203: Variation by court order of trusts for beneficiaries (1) On the application of any party to the trust or any person who would benefit if the term to be varied were removed, a court may vary a trust term which confers a right to benefit or eligibility for benefit on a person who: (a) does not yet exist; or (b) does not presently conform to a description, such as membership of a class, on which the right depends. (2) The same applies where the trust term confers a right to benefit or eligibility for benefit at a remote time in the future or which is conditional on the occurrence of an improbable event. X.–9:204: Variation by court order of trusts for public benefit purposes (1) On the application of any party to the trust or any person entitled to enforce performance of obligations under the trust, a court may vary a trust term which provides for the advancement of a public benefit purpose if, as a result of a change of circumstances, the advancement of the particular purpose provided for by the trust term cannot be regarded as a suitable and effective use of resources. (2) A variation under paragraph (2) must be in favour of such general or particular public benefit purposes as the truster would probably have chosen if the truster had constituted the trust after the change in circumstances. Section 3 Transfer of right to benefit X.–9:301: Transfer by juridical act of right to benefit (1) Subject to the other paragraphs of this Article, the transfer by juridical act of a right to benefit is governed by Book III Chapter 5 Section 1 (Assignment of rights). (2) A gratuitous transfer is of no effect unless it is made in writing. (3) A transfer which is to take effect on the death of the transferor takes effect only in accordance with the applicable law of succession.

Draft Common Frame of Reference 1311 Chapter 10 Relations to third parties Section 1 General provisions on creditors X.–10:101: Basic rule on creditors (1) A person to whom a trustee owes a trust debt (a trust creditor) may satisfy that person’s right out of the trust fund (in accordance with X.–10:202 (Rights of trust creditors in relation to the trust fund)), but other creditors may not except in so far as these rules provide otherwise. (2) Paragraph (1) does not affect any right of a creditor of a party to a trust to invoke a right of that party relating to the trust fund. X.–10:102: Definition of trust debt (1) An obligation is a trust debt if it is incurred by the trustee: (a) as the owner for the time being of a trust asset; (b) for the purposes of, and in accordance with the terms of, the trust; (c) in the capacity of trustee and by a contract or other juridical act which is not gratuitous, unless the creditor knew or could reasonably be expected to know that the obligation was not incurred in accordance with the terms of the trust; (d) as a result of an act or omission in the administration or disposition of the trust fund or the performance of a trust debt; or (e) otherwise materially in connection with the trust patrimony. (2) The obligations of trustees to reimburse, indemnify or remunerate a former trustee or an intended trustee who has exercised a right of refusal are also trust debts. (3) Other obligations of a trustee are not trust debts. Section 2 Trust creditors X.–10:201: Rights of trust creditors against the trustee (1) A trustee is personally liable to satisfy trust debts. (2) Unless the trustee and the trust creditor agree otherwise: (a) liability is not limited to the value of the trust fund at the time the trust creditor’s right to performance is enforced; and (b) subject to the rules on change of trustees, liability does not end if the trust fund ceases to be vested in the trustee. (3) A party to a contract is not to be treated as agreeing to exclude or limit liability merely because the other party discloses that that other party is concluding the contract in the capacity of trustee.

1312  Part III: Common Principles X.–10:202: Rights of trust creditors in relation to the trust fund A trust creditor may satisfy a right out of the trust fund: (a) to enforce performance of a trustee’s personal liability under X.–10:201 (Rights of trust creditors against the trustee); or (b) in the exercise of a security right in trust assets. X.–10:203: Protection of the truster and beneficiaries A truster or beneficiary is not in that capacity liable to a trust creditor. Section 3 Trust debtors X.–10:301: Right to enforce performance of trust debtor’s obligation (1) Where a trustee has a right to performance and that right is a trust asset, the right to enforce performance of the obligation of the debtor (the trust debtor) accrues to the trustee. (2) Paragraph (1) does not affect: (a) a beneficiary’s right to performance by the trustee of obligations under the trust in respect of the right against the trust debtor; or (b) procedural rules which allow a beneficiary to be a party to legal proceedings against the trust debtor to which the trustee is also a party. X.–10:302: Set-off A trustee’s right against a trust debtor may only be set off against: (a) a right corresponding to a trust debt; or (b) a beneficiary’s right to benefit out of the trust fund. X.–10:303: Discharge of trust debtor The discharge of a trust debtor by a trustee is of no effect if: (a) the discharge is not in performance of the trustee’s obligations under the trust; and (b) (i) the discharge is gratuitous; or (ii) the debtor knows or has reason to know that the discharge is not in performance of the trustee’s obligations under the trust. Section 4 Acquirers of trust assets and rights encumbering trust assets X.–10:401: Liability of donees and bad faith acquirers (1) Where a trustee transfers a trust asset to another and the transfer is not in accordance with the terms of the trust, the transferee takes the asset subject to the trust if:

Draft Common Frame of Reference 1313

(2) (3)

(4)

(5)

(a) the transfer is gratuitous; or (b) the transferee knows or could reasonably be expected to know that the transfer is by a trustee and is not in accordance with the terms of the trust. A transferee on whom a trust is imposed under paragraph (1) has a corresponding right to a return of any benefit conferred in exchange. The trust imposed under paragraph (1) is extinguished if: (a) benefit which was provided by the transferee in exchange is disposed of in performance of an obligation under the trust; or (b) the trustee or a third party satisfies an obligation to reinstate the trust fund. A transferee can reasonably be expected to know a matter if: (a) it would have been apparent from a reasonably careful investigation; and (b) having regard to the nature and value of the asset, the nature and costs of such investigation, and commercial practice, it is fair and reasonable to expect a transferee in the circumstances to make that investigation. This Article applies correspondingly where a trustee creates a security right or other limited right in a trust asset in favour of another. Section 5 Other rules on liability and protection of third parties

X.–10:501: Liability for inducing or assisting misapplication of the trust fund (1) Non–contractual liability arising out of damage caused to another by virtue of VI.–2:211 (Loss upon inducement of non-performance of obligation) is modified as provided for by paragraph (2). (2) A person who intentionally induces a trustee’s non-performance of an obligation under the trust, or intentionally assists such non-performance, is solidarily liable with that trustee, if the trustee is liable to reinstate the trust fund. X.–10:502: Protection of third parties dealing with trustees (1) A contract which a trustee concludes as a result of a non-performance of an obligation under the trust with a person who is not a party to a trust is not void or avoidable for that reason. (2) In favour of a person who is not a party to the trust and as against a trustee, a person who has no knowledge of the true facts may rely on the apparent effect of a trust document and the truth of a statement contained in it.

1314  Part III: Common Principles Annex Definitions (General notes. These definitions are introduced by I.–1:108 (Definitions in Annex) which provides that they apply for all the purposes of these rules unless the context otherwise requires and that, where a word is defined, other grammatical forms of the word have a corresponding meaning. For the convenience of the user, where a definition is taken from or derived from a particular Article a reference to that Article is added in brackets after the definition. The list also includes some terms which are frequently used in the rules but which are not defined in any Article. It does not include definitions which do not contain any legal concept but which are only drafting devices for the purposes of a particular Article or group of Articles.) Accessory An “accessory”, in relation to proprietary security, is a corporeal asset that is or becomes closely connected with, or part of, a movable or an immovable, provided it is possible and economically reasonable to separate the accessory without damage from the movable or immovable. (IX.–1:201) Acquisition finance device An “acquisition finance device” is (a) a retention of ownership device; (b) where ownership of a sold asset has been transferred to the buyer, those security rights in the asset which secure the right (i) of the seller to payment of the purchase price or (ii) of a lender to repayment of a loan granted to the buyer for payment of the purchase price, if and in so far as this payment is actually made to the seller; and (c) a right of a third person to whom any of the rights under (a) or (b) has been transferred as security for a credit covered by (a) or (b). (IX.–1:201(3)) Advanced electronic signature An “advanced electronic signature” is an electronic signature which is (a) uniquely linked to the signatory (b) capable of identifying the signatory (c) created using means which can be maintained under the signatory’s sole control; and (d) linked to the data to which it relates in such a manner that any subsequent change of the data is detectable. (I.–1:108(4)) Act of assignment An “act of assignment” of a right is a contract or other juridical act which is intended to effect a transfer of the right. (III.–5:102(2)) Agent An “agent” is a person who is authorised to act for another.

Draft Common Frame of Reference 1315 Assets “Assets” means anything of economic value, including property; rights having a monetary value; and goodwill. Assignment “Assignment”, in relation to a right, means the transfer of the right by one person, the “assignor”, to another, “the assignee”. (III.–5:102(1)) Authorisation “Authorisation” is the granting or maintaining of authority. (II.–6:102(3)) Authority “Authority”, in relation to a representative acting for a principal, is the power to affect the principal’s legal position. (II.–6:102(2)) Avoidance “Avoidance” of a juridical act or legal relationship is the process whereby a party or, as the case may be, a court invokes a ground of invalidity so as to make the act or relationship, which has been valid until that point, retrospectively ineffective from the beginning. Barter, contract for A contract for the “barter” of goods is a contract under which each party undertakes to transfer the ownership of goods, either immediately on conclusion of the contract or at some future time, in return for the transfer of ownership of other goods. (IV. A.–1:203) Beneficiary A “beneficiary”, in relation to a trust, is a person who, according to the trust terms, has either a right to benefit or an eligibility for benefit from the trust fund. (X.–1:203(3)) Benevolent intervention in another’s affairs “Benevolent intervention in another’s affairs” is the process whereby a person, the intervener, acts with the predominant intention of benefiting another, the principal, but without being authorised or bound to do so. (V.–1:101) Business “Business” means any natural or legal person, irrespective of whether publicly or privately owned, who is acting for purposes relating to the person’s self-employed trade, work or profession, even if the person does not intend to make a profit in the course of the activity. (I.–1:106(2))

1316  Part III: Common Principles Claim A “claim” is a demand for something based on the assertion of a right. Claimant A “claimant” is a person who makes, or who has grounds for making, a claim. Co-debtorship for security purposes A “co-debtorship for security purposes” is an obligation owed by two or more debtors in which one of the debtors, the security provider, assumes the obligation primarily for purposes of security towards the creditor. (IV. G.–1:101(e)) Commercial agency A “commercial agency” is the legal relationship arising from a contract under which one party, the commercial agent, agrees to act on a continuing basis as a self-employed intermediary to negotiate or to conclude contracts on behalf of another party, the principal, and the principal agrees to remunerate the agent for those a­ctivities. (IV. E.–3:101) Compensation “Compensation” means reparation in money. (VI.–6:101(2)) Complete substitution of debtor There is complete substitution of a debtor when a third person is substituted as debtor with the effect that the original debtor is discharged. (III.–5:203) Condition A “condition” is a provision which makes a legal relationship or effect depend on the occurrence or non-occurrence of an uncertain future event. A condition may be suspensive or resolutive. (III.–1:106) Conduct “Conduct” means voluntary behaviour of any kind, verbal or non-verbal: it includes a single act or a number of acts, behaviour of a negative or passive nature (such as accepting something without protest or not doing something) and behaviour of a continuing or intermittent nature (such as exercising control over something). Confidential information “Confidential information” means information which, either from its nature or the circumstances in which it was obtained, the party receiving the information knows or could reasonably be expected to know is confidential to the other party. (II.–2:302(2))

Draft Common Frame of Reference 1317 Construction, contract for A contract for construction is a contract under which one party, the constructor, undertakes to construct something for another party, the client, or to materially alter an existing building or other immovable structure for a client. (IV.C–3:101) Consumer A “consumer” means any natural person who is acting primarily for purposes which are not related to his or her trade, business or profession. (I.–1:106(1)) Consumer contract for sale A “consumer contract for sale” is a contract for sale in which the seller is a business and the buyer is a consumer. (IV. A.–1:204) Contract A “contract” is an agreement which is intended to give rise to a binding legal relationship or to have some other legal effect. It is a bilateral or multilateral juridical act. (II.–1:101(1)) Contractual obligation A “contractual obligation” is an obligation which arises from a contract, whether from an express term or an implied term or by operation of a rule of law imposing an obligation on a contracting party as such. Contractual relationship A “contractual relationship” is a legal relationship resulting from a contract. Co-ownership “Co-ownership”, when created under Book VIII, means that two or more co-owners own undivided shares in the whole and each co-owner can dispose of that co-owner’s share by acting alone, unless otherwise provided by the parties. (Cf. VIII.–1:203) Corporeal “Corporeal”, in relation to property, means having a physical existence in solid, liquid or gaseous form. Costs “Costs” includes expenses. Counter-performance A “counter-performance” is a performance which is due in exchange for another performance.

1318  Part III: Common Principles Court “Court” includes an arbitral tribunal. Creditor A “creditor” is a person who has a right to performance of an obligation, whether monetary or non-monetary, by another person, the debtor. Damage “Damage” means any type of detrimental effect. Damages “Damages” means a sum of money to which a person may be entitled, or which a person may be awarded by a court, as compensation for some specified type of damage. Debtor A “debtor” is a person who has an obligation, whether monetary or non-monetary, to another person, the creditor. Default “Default”, in relation to proprietary security, means any non-performance by the debtor of the obligation covered by the security; and any other event or set of circumstances agreed by the secured creditor and the security provider as entitling the secured creditor to have recourse to the security. (IX.–1:201(5)) Defence A “defence” to a claim is a legal objection or a factual argument, other than a mere denial of an element which the claimant has to prove which, if well-founded, defeats the claim in whole or in part. Delivery “Delivery” to a person, for the purposes of any obligation to deliver goods, means transferring possession of the goods to that person or taking such steps to transfer possession as are required by the terms regulating the obligation. For the purposes of Book VIII (Acquisition and loss of ownership of goods) delivery of the goods takes place only when the transferor gives up and the transferee obtains possession of the goods: if the contract or other juridical act, court order or rule of law under which the transferee is entitled to the transfer of ownership involves carriage of the goods by a carrier or a series of carriers, delivery of the goods takes place when the transferor’s obligation to deliver is fulfilled and the carrier or the transferee obtains possession of the goods. (VIII.–2:104)

Draft Common Frame of Reference 1319 Dependent personal security A “dependent personal security” is an obligation by a security provider which is assumed in favour of a creditor in order to secure a present or future obligation of the debtor owed to the creditor and performance of which is due only if, and to the extent that, performance of the latter obligation is due. (IV. G.–1:101(a)) Design, contract for A contract for design is a contract under which one party, the designer, undertakes to design for another party, the client, an immovable structure which is to be constructed by or on behalf of the client or a movable or incorporeal thing or service which is to be constructed or performed by or on behalf of the client. (IV. C.–6:101) Direct physical control Direct physical control is physical control which is exercised by the possessor personally or through a possession-agent exercising such control on behalf of the possessor (direct possession). (VIII.–1:205) Discrimination “Discrimination” means any conduct whereby, or situation where, on grounds such as sex or ethnic or racial origin, (a) one person is treated less favourably than another person is, has been or would be treated in a comparable situation; or (b) an apparently neutral provision, criterion or practice would place one group of persons at a particular disadvantage when compared to a different group of persons. (II.–2:102(1)) Distribution contract A “distribution contract” is a contract under which one party, the supplier, agrees to supply the other party, the distributor, with products on a continuing basis and the distributor agrees to purchase them, or to take and pay for them, and to supply them to others in the distributor’s name and on the distributor’s behalf. (IV. E.–5:101(1)) Distributorship A “distributorship” is the legal relationship arising from a distribution contract. Divided obligation An obligation owed by two or more debtors is a “divided obligation” when each debtor is bound to render only part of the performance and the creditor may require from each debtor only that debtor’s part. (III.–4:102(2))

1320  Part III: Common Principles Divided right A right to performance held by two or more creditors is a “divided right” when the debtor owes each creditor only that creditor’s share and each creditor may require performance only of that creditor’s share. (III.–4:202(2)) Donation, contract for A contract for the donation of goods is a contract under which one party, the donor, gratuitously undertakes to transfer the ownership of goods to another party, the donee, and does so with an intention to benefit the donee. (IV. H.–1:101) Durable medium A “durable medium” means any material on which information is stored so that it is accessible for future reference for a period of time adequate to the purposes of the information, and which allows the unchanged reproduction of this information. (I.–1:107(3)) Duty A person has a “duty” to do something if the person is bound to do it or expected to do it according to an applicable normative standard of conduct. A duty may or may not be owed to a specific creditor. A duty is not necessarily an aspect of a legal relationship. There is not necessarily a sanction for breach of a duty. All obligations are duties, but not all duties are obligations. Economic loss See “Loss”. Electronic “Electronic” means relating to technology with electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. Electronic signature An “electronic signature” means data in electronic form which are attached to, or logically associated with, other data and which serve as a method of authentication. (I.–1:108(3)) Financial assets “Financial assets” are financial instruments and rights to the payment of money. (IX.–1:201(6)) Financial instruments “Financial instruments” are (a) share certificates and equivalent securities as well as bonds and equivalent debt instruments, if these are negotiable (b) any other s­ ecurities which are dealt in and which give the right to acquire any such financial instruments

Draft Common Frame of Reference 1321 or which give rise to cash settlements, except instruments of payment (c) share rights in collective investment undertakings (d) money market instruments and (e) rights in or relating to the foregoing instruments. (IX.–1:201(7)) Franchise A “franchise” is the legal relationship arising from a contract under which one party, the franchisor, grants the other party, the franchisee, in exchange for remuneration, the right to conduct a business (franchise business) within the franchisor’s network for the purposes of supplying certain products on the franchisee’s behalf and in the franchisee’s name, and whereby the franchisee has the right and the obligation to use the franchisor’s trade name or trademark or other intellectual property rights, knowhow and business method. (IV. E.–4:101) Fraudulent A misrepresentation is fraudulent if it is made with knowledge or belief that it is false and is intended to induce the recipient to make a mistake to the recipient’s prejudice. A non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake to that person’s prejudice. (II.–7:205(2)) Fundamental non-performance A non-performance of a contractual obligation is fundamental if (a) it substantially deprives the creditor of what the creditor was entitled to expect under the contract, as applied to the whole or relevant part of the performance, unless at the time of conclusion of the contract the debtor did not foresee and could not reasonably be expected to have foreseen that result or (b) it is intentional or reckless and gives the creditor reason to believe that the debtor’s future performance cannot be relied on. (III.–3:502(2)) Global security A “global security” is a security which is assumed in order to secure all the debtor’s obligations towards the creditor or the debit balance of a current account or a security of a similar extent. (IV. G.–1:101(f) Good faith “Good faith” is a mental attitude characterised by honesty and an absence of knowledge that an apparent situation is not the true situation. Good faith and fair dealing “Good faith and fair dealing” is a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question. (I.–1:103)

1322  Part III: Common Principles Goods “Goods” means corporeal movables. It includes ships, vessels, hovercraft or aircraft, space objects, animals, liquids and gases. See also “movables”. Gross negligence There is “gross negligence” if a person is guilty of a profound failure to take such care as is self-evidently required in the circumstances. Handwritten signature A “handwritten signature” means the name of, or sign representing, a person written by that person’s own hand for the purpose of authentication. (I.–1:108(2)) Harassment “Harassment” means unwanted conduct (including conduct of a sexual nature) which violates a person’s dignity, particularly when such conduct creates an intimidating, hostile, degrading, humiliating or offensive environment, or which aims to do so. (II.–2:102(2)) Immovable property “Immovable property” means land and anything so attached to land as not to be subject to change of place by usual human action. Incomplete substitution of debtor There is incomplete substitution of a debtor when a third person is substituted as debtor with the effect that the original debtor is retained as a debtor in case the original debtor does not perform properly. (III.–5:205) Incorporeal “Incorporeal”, in relation to property, means not having a physical existence in solid, liquid or gaseous form. Indemnify To “indemnify” means to make such payment to a person as will ensure that that person suffers no loss. Independent personal security An “independent personal security” is an obligation by a security provider which is assumed in favour of a creditor for the purposes of security and which is expressly or impliedly declared not to depend upon another person’s obligation owed to the creditor. (IV. G.–1:101(b))

Draft Common Frame of Reference 1323 Indirect physical control Indirect physical control is physical control which is exercised by means of another person, a limited-right-possessor (indirect possession). (VIII.–1:205) Individually negotiated See “not individually negotiated” and II.–1:110. Ineffective “Ineffective” in relation to a contract or other juridical act means having no effect, whether that state of affairs is temporary or permanent, general or restricted. Insolvency proceeding An “insolvency proceeding” means a collective judicial or administrative proceeding, including an interim proceeding, in which the assets and affairs of a person who is, or who is believed to be, insolvent are subject to control or supervision by a court or other competent authority for the purpose of reorganisation or liquidation. Intangibles “Intangibles”, in relation to proprietary security, means incorporeal assets and includes uncertificated and indirectly held securities and the undivided share of a co-owner in corporeal assets or in a bulk or a fund. (IX.–1:201(8)) Interest “Interest” means simple interest without any assumption that it will be capitalised from time to time. Invalid “Invalid” in relation to a juridical act or legal relationship means that the act or relationship is void or has been avoided. Joint obligation An obligation owed by two or more debtors is a “joint obligation” when all the debtors are bound to render the performance together and the creditor may require it only from all of them. (III.–4:102(3)) Joint right A right to performance held by two or more creditors is a “joint right” when the debtor must perform to all the creditors and any creditor may require performance only for the benefit of all. (III.–4:202(3))

1324  Part III: Common Principles Juridical act A “juridical act” is any statement or agreement, whether express or implied from conduct, which is intended to have legal effect as such. It may be unilateral, bilateral or multilateral. (II.–1:101(2)) Keeper A keeper, in relation to an animal, vehicle or substance, is the person who has the beneficial use or physical control of it for that person’s own benefit and who exercises the right to control it or its use. Lease A “lease” is the legal relationship arising from a contract under which one party, the lessor, undertakes to provide the other party, the lessee, with a temporary right of use in exchange for rent. (IV. B.–1:101) Limited proprietary rights Limited proprietary rights are such rights of the following character as are characterised or treated as proprietary rights by any provision of these model rules or by national law:– (a) security rights (b) rights to use (c) rights to acquire (including a right to acquire in the sense of VIII.–2:307 (Contingent right of transferee under retention of ownership)) and (d) trust-related rights. (VIII.–1:204) Limited-right-possessor A “limited-right-possessor”, in relation to goods, is a person who exercises physical control over the goods either (a) with the intention of doing so in that person’s own interest, and under a specific legal relationship with the owner-possessor which gives the limited-right-possessor the right to possess the goods or (b) with the intention of doing so to the order of the owner-possessor, and under a specific contractual relationship with the owner-possessor which gives the limited-right-possessor a right to retain the goods until any charges or costs have been paid by the owner-possessor. (VIII.–1:207) Loan contract A loan contract is a contract by which one party, the lender, is obliged to provide the other party, the borrower, with credit of any amount for a definite or indefinite period (the loan period), in the form of a monetary loan or of an overdraft facility and by which the borrower is obliged to repay the money obtained under the credit, whether or not the borrower is obliged to pay interest or any other kind of remuneration the parties have agreed upon. (IV. F.–1:101(2))

Draft Common Frame of Reference 1325 Loss “Loss” includes economic and non-economic loss. “Economic loss” includes loss of income or profit, burdens incurred and a reduction in the value of property. “Noneconomic loss” includes pain and suffering and impairment of the quality of life. (III.–3:701(3) and VI.–2:101(4)) Mandate The “mandate” of an agent is the authorisation and instruction given by the principal, as modified by any subsequent direction, in relation to the facilitation, negotiation or conclusion of a contract or other juridical act with a third party. (IV. D.–1:102(1)(a)) Mandate for direct representation A “mandate for direct representation” is a mandate under which the agent is to act in the name of the principal, or otherwise in such a way as to indicate an intention to affect the principal’s legal position directly. (IV. D.–1:102(1)(d)) Mandate for indirect representation A “mandate for indirect representation” is a mandate under which the agent is to act in the agent’s own name or otherwise in such a way as not to indicate an intention to affect the principal’s legal position directly. (IV. D.–1:102(1)(e)) Merger of debts A “merger of debts” means that the attributes of debtor and creditor are united in the same person in the same capacity. (III.–6:201) Merger clause A “merger clause” is a term in a contract document stating that the document embodies all the terms of the contract. (II.–4:104) Monetary loan A monetary loan is a fixed sum of money which is lent to the borrower and which the borrower agrees to repay either by fixed instalments or by paying the whole sum at the end of the loan period. (IV. F.–1:101(3)) Motor vehicle “Motor vehicle” means any vehicle intended for travel on land and propelled by mechanical power, but not running on rails, and any trailer, whether or not coupled. (VI.–3:205(2))

1326  Part III: Common Principles Movables “Movables” means corporeal and incorporeal property other than immovable property. Negligence There is “negligence” if a person does not meet the standard of care which could reasonably be expected in the circumstances. Non-economic loss See “Loss”. Non-performance “Non-performance”, in relation to an obligation, means any failure to perform the obligation, whether or not excused. It includes delayed performance and defective performance. (III.–1:101(3)) Notice “Notice” includes the communication of information or of a juridical act. (I.–1:105) Not individually negotiated A term supplied by one party is not individually negotiated if the other party has not been able to influence its content, in particular because it has been drafted in advance, whether or not as part of standard terms. (II.–1:110) Obligation An obligation is a duty to perform which one party to a legal relationship, the debtor, owes to another party, the creditor. (III.–1:101(1)) Overdraft facility An “overdraft facility” is an option for the borrower to withdraw funds on a fluctuating, limited basis from the borrower’s current account in excess of the current balance in the account. (IV. F.–1:101(4)) Owner-possessor An “owner-possessor”, in relation to goods, is a person who exercises physical control over the goods with the intention of doing so as, or as if, an owner. (VIII.–1:206) Ownership “Ownership” is the most comprehensive right a person, the owner, can have over property, including the exclusive right, so far as consistent with applicable laws or

Draft Common Frame of Reference 1327 rights granted by the owner, to use, enjoy, modify, destroy, dispose of and recover the property. (VIII.–1:202) Performance “Performance”, in relation to an obligation, is the doing by the debtor of what is to be done under the obligation or the not doing by the debtor of what is not to be done. (III.–1:101(2)) Person “Person” means a natural or legal person. Physical control “Physical control”, in relation to goods, means direct physical control or indirect physical control. (Cf. VIII.–1:205) Possession Possession, in relation to goods, means having physical control over the goods. (VIII.–1:205) Possession-agent A “possession-agent”, in relation to goods, is a person (such as an employee) who exercises direct physical control over the goods on behalf of an owner-possessor or limited-right-possessor (without the intention and specific legal relationship required for that person to be a limited-right-possessor); and to whom the owner-possessor or limited-right-possessor may give binding instructions as to the use of the goods in the interest of the owner-possessor or limited-right-possessor. A person is also a possession-agent where that person is accidentally in a position to exercise, and does exercise, direct physical control over the goods for an owner-possessor or limitedright-possessor. (VIII.–1:208) Possessory security right A “possessory security right” is a security right that requires possession of the encumbered corporeal asset by the secured creditor or another person (except the debtor) holding for the secured creditor. (IX.–1:201(10)) Prescription “Prescription”, in relation to the right to performance of an obligation, is the legal effect whereby the lapse of a prescribed period of time entitles the debtor to refuse performance.

1328  Part III: Common Principles Presumption A “presumption” means that the existence of a known fact or state of affairs allows the deduction that something else should be held true, until the contrary is demonstrated. Price The “price” is what is due by the debtor under a monetary obligation, in exchange for something supplied or provided, expressed in a currency which the law recognises as such. Proceeds “Proceeds”, in relation to proprietary security, is every value derived from an encumbered asset, such as value realised by sale, collection or other disposition; damages or insurance payments in respect of defects, damage or loss; civil and natural fruits, including distributions; and proceeds of proceeds. (IX.–1:201(11)) Processing, contract for A contract for processing is a contract under which one party, the processor, undertakes to perform a service on an existing movable or incorporeal thing or to an immovable structure for another party, the client (except where the service is construction work on an existing building or other immovable structure). (IV. C.–4:101) Producer “Producer” includes, in the case of something made, the maker or manufacturer; in the case of raw material, the person who abstracts or wins it; and in the case of something grown, bred or raised, the grower, breeder or raiser. A special definition applies for the purposes of VI.–3:204. Property “Property” means anything which can be owned: it may be movable or immovable, corporeal or incorporeal. Proprietary security A “proprietary security” covers security rights in all kinds of assets, whether movable or immovable, corporeal or incorporeal. (IV. G.–1:101(g)) Proprietary security, contract for A “contract for proprietary security” is a contract under which a security provider undertakes to grant a security right to the secured creditor; or a secured creditor is entitled to retain a security right when transferring ownership; or a seller, lessor or other supplier of assets is entitled to retain ownership of the supplied assets in order to secure its rights to performance. (IX.–1:201(4))

Draft Common Frame of Reference 1329 Public holiday A “public holiday” with reference to a member state, or part of a member state, of the European Union means any day designated as such for that state or part in a list published in the official journal. (I.–1:110(9)) Ratify “Ratify” means confirm with legal effect. Reasonable What is “reasonable” is to be objectively ascertained, having regard to the nature and purpose of what is being done, to the circumstances of the case and to any relevant usages and practices. (I.–1:104) Reciprocal An obligation is reciprocal in relation to another obligation if (a) performance of the obligation is due in exchange for performance of the other obligation; (b) it is an obligation to facilitate or accept performance of the other obligation; or (c) it is so clearly connected to the other obligation or its subject matter that performance of the one can reasonably be regarded as dependent on performance of the other. (III.–1:101(4)) Recklessness A person is “reckless” if the person knows of an obvious and serious risk of proceeding in a certain way but nonetheless voluntarily proceeds without caring whether or not the risk materialises. Rent “Rent” is the money or other value which is due in exchange for a temporary right of use. (IV. B.–1:101) Reparation “Reparation” means compensation or another appropriate measure to reinstate the person suffering damage in the position that person would have been in had the damage not occurred. (VI.–6:101) Representative A “representative” is a person who has authority to affect the legal position of another person, the principal, in relation to a third party by acting in the name of the principal or otherwise in such a way as to indicate an intention to affect the principal’s legal position directly. (II.–6:102(1))

1330  Part III: Common Principles Requirement A “requirement” is something which is needed before a particular result follows or a particular right can be exercised. Resolutive A condition is “resolutive” if it causes a legal relationship or effect to come to an end when the condition is satisfied. (III.–1:106) Retention of ownership device There is a retention of ownership device when ownership is retained by the owner of supplied assets in order to secure a right to performance of an obligation. (IX.–1:103) Revocation “Revocation”, means (a) in relation to a juridical act, its recall by a person or persons having the power to recall it, so that it no longer has effect and (b) in relation to something conferred or transferred, its recall, by a person or persons having power to recall it, so that it comes back or must be returned to the person who conferred it or transferred it. Right “Right”, depending on the context, may mean (a) the correlative of an obligation or liability (as in “a significant imbalance in the parties’ rights and obligations arising under the contract”); (b) a proprietary right (such as the right of ownership); (c) a personality right (as in a right to respect for dignity, or a right to liberty and privacy); (d) a legally conferred power to bring about a particular result (as in “the right to avoid” a contract); (e) an entitlement to a particular remedy (as in a right to have performance of a contractual obligation judicially ordered) or (f) an entitlement to do or not to do something affecting another person’s legal position without exposure to adverse consequences (as in a “right to withhold performance of the reciprocal obligation”). Sale, contract for A contract for the “sale” of goods or other assets is a contract under which one party, the seller, undertakes to another party, the buyer, to transfer the ownership of the goods or other assets to the buyer, or to a third person, either immediately on conclusion of the contract or at some future time, and the buyer undertakes to pay the price. (IV. A.–1:202) Security right in movable asset A security right in a movable asset is any limited proprietary right in the asset which entitles the secured creditor to preferential satisfaction of the secured right from the encumbered asset. (IX.–1:102(1))

Draft Common Frame of Reference 1331 Services, contract for A contract for services is a contract under which one party, the service provider, undertakes to supply a service to the other party, the client. (IV. C.–1:101) Set-off “Set-off” is the process by which a person may use a right to performance held against another person to extinguish in whole or in part an obligation owed to that person. (III.–6:101) Signature “Signature” includes a handwritten signature, an electronic signature or an advanced electronic signature. (I.–1:108(2)) Solidary obligation An obligation owed by two or more debtors is a “solidary obligation” when all the debtors are bound to render one and the same performance and the creditor may require it from any one of them until there has been full performance. (III.–4:102(1)) Solidary right A right to performance held by two or more creditors is a “solidary right” when any of the creditors may require full performance from the debtor and the debtor may render performance to any of the creditors. (III.–4:202(1)) Standard terms “Standard terms” are terms which have been formulated in advance for several transactions involving different parties, and which have not been individually negotiated by the parties. (II.–1:109) Storage, contract for A contract for storage is a contract under which one party, the storer, undertakes to store a movable or incorporeal thing for another party, the client. (IV. C.–5:101) Subrogation “Subrogation”, in relation to rights, is the process by which a person who has made a payment or other performance to another person acquires by operation of law that person’s rights against a third person. Substitution of debtor “Substitution” of a debtor is the process whereby, with the agreement of the creditor, a third party is substituted completely or incompletely for the debtor, the contract remaining in force. (III.–5:202) See also “complete substitution of debtor” and “incomplete substitution of debtor”.

1332  Part III: Common Principles Supply To “supply” goods or other assets means to make them available to another person, whether by sale, gift, barter, lease or other means: to “supply” services means to provide them to another person, whether or not for a price. Unless otherwise stated, “supply” covers the supply of goods, other assets and services. Suspensive A condition is “suspensive” if it prevents a legal relationship or effect from coming into existence until the condition is satisfied. (III.–1:106) Tacit prolongation “Tacit prolongation” is the process whereby, when a contract provides for continuous or repeated performance of obligations for a definite period and the obligations continue to be performed by both parties after that period has expired, the contract becomes a contract for an indefinite period, unless the circumstances are inconsistent with the tacit consent of the parties to such prolongation. (III.–1:111) Term “Term” means any provision, express or implied, of a contract or other juridical act, of a law, of a court order or of a legally binding usage or practice: it includes a condition. Termination “Termination”, in relation to an existing right, obligation or legal relationship, means bringing it to an end with prospective effect except in so far as otherwise provided. Textual form In “textual form”, in relation to a statement, means expressed in alphabetical or other intelligible characters by means of any support which permits reading, recording of the information contained in the statement and its reproduction in tangible form. (I.–1:107(2)) Transfer of contractual position “Transfer of contractual position” is the process whereby, with the agreement of all three parties, a new party replaces an existing party to a contract, taking over the rights, obligations and entire contractual position of that party. (III.–5:302) Treatment, contract for A contract for treatment is a contract under which one party, the treatment provider, undertakes to provide medical treatment for another party, the patient, or to provide any other service in order to change the physical or mental condition of a person. (IV. C.–8:101)

Draft Common Frame of Reference 1333 Trust A “trust” is a legal relationship in which a trustee is obliged to administer or dispose of one or more assets (the trust fund) in accordance with the terms governing the relationship (trust terms) to benefit a beneficiary or advance public benefit purposes. (X.–1:201) Trustee A “trustee” is a person in whom a trust fund becomes or remains vested when the trust is created or subsequently on or after appointment and who has the obligation set out in the definition of “trust” above. (X.–1:203(2)) Truster A “truster” is a person who constitutes or intends to constitute a trust by juridical act. (X.–1:203(1)) Unjustified enrichment An “unjustified enrichment” is an enrichment which is not legally justified. Valid “Valid”, in relation to a juridical act or legal relationship, means that the act or relationship is not void and has not been avoided. Void “Void”, in relation to a juridical act or legal relationship, means that the act or relationship is automatically of no effect from the beginning. Voidable “Voidable”, in relation to a juridical act or legal relationship, means that the act or relationship is subject to a defect which renders it liable to be avoided and hence rendered retrospectively of no effect. Withdraw A right to “withdraw” from a contract or other juridical act is a right, exercisable only within a limited period, to terminate the legal relationship arising from the contract or other juridical act, without having to give any reason for so doing and without incurring any liability for non-performance of the obligations arising from that contract or juridical act. (II.–5:101 to II.–5:105)

1334  Part III: Common Principles Withholding performance “Withholding performance”, as a remedy for non-performance of a contractual obligation, means that one party to a contract may decline to render due counter-­ performance until the other party has tendered performance or has performed. (III.–3:401) Working days “Working days” means all days other than Saturdays, Sundays and public holidays. (I.–1:110(9)(b)) Writing In “writing” means in textual form, on paper or another durable medium and in directly legible characters. (I.–1:107(1))

Guiding and Revised Principles of European Contract Law* Text of the Guiding Principles of European Contract Law Section I: Freedom of contract Article 0-101: Freedom of the parties to enter into a contract Each party is free to contract and to choose the other party. The parties are free to determine the content of the contract and the rules of form which apply to it. Freedom of contract operates subject to compliance with mandatory rules. Article 0-102: Respect for the freedom and rights of third parties Each party can only contract for themselves, unless otherwise provided. A contract can only produce an effect in as much as it does not result in an infringement of unlawful modification of third party rights. Article 0-103: Freedom of the parties to modify or put an end to the contract By their mutual agreement, the parties are free, at any moment, to terminate the contract or to modify it. Unilateral termination is only effective in respect of contracts for an indefinite period. Section II: Contractual Certainty Article 0-201: Principle of binding force A contract which is lawfully concluded has binding force between the parties. *  European Contract Law—Materials for a Common Frame of Reference: Terminology, Guiding Principles, Model Rules, produced by the Association Henri Capitant des Amis de la Culture Juridique ­Française and the Société de Législation Comparée (ed B Fauvarque-Cosson and D Mazeaud, prepared by J-B Racine, L Sautonie, A Tenenbaum and G Wicker) (Sellier, 2008).

1336  Part III: Common Principles In addition to the performance of the contractual obligations, each party is bound to comply with the duties which can be implied from the principle of contractual fairness. In the course of performance, the binding force of the contract can be called into question if an unforeseeable change of circumstances seriously compromises the usefulness of the contract for one of the parties. Article 0-202: Right to performance Each party can demand from the other party the performance of the other party’s obligation as provided in the contract. Article 0-203: Rights and duties of third parties A contract creates a situation which third parties must respect and upon which they may rely without being able to require performance. Article 0-204: Principle favouring the maintenance of the contract When a contract is subject to interpretation, or when its validity or performance is threatened, the effectiveness of the contract should be preferred if its destruction would harm the legitimate interests of one of the parties. Section III: Contractual Fairness Article 0-301: General duty of good faith and fair dealing Each party is bound to act in conformity with the requirements of good faith and fair dealing, from the negotiation of the contract until all of its provisions have been given effect. The parties may neither exclude this duty, nor limit it. Article 0-302: Performance in good faith Every contract must be performed in good faith. The parties may avail themselves of the contractual rights and terms only in accordance with the objective that justified their inclusion in the contract. Each party is required not to do anything that prevents the performance of the contract or that infringes the rights that the other party acquires from the contract. Where one of the parties, without compromising the performance of the contract, has acted in such a way as to reduce the benefit that the other party could legitimately expect from the contract, the party is required, at the request of the other party, to renegotiate the contents of the contract. Article 0-303: Duty to cooperate The parties are bound to cooperate with each other when necessary for the performance of their contract.

Guiding and Revised Principles of European Contract Law 1337 Article 0-304: Duty of consistency No party shall act inconsistently with any prior statements made by the party or behaviour on the part of the party, upon which the other party may legitimately have relied. Revised Principles of European Contract Law Chapter 2: Formation Section 1: Pre-contractual Negotiations (addition) Article 2:101: Duty to Negotiate in Good Faith and Fair Dealing (replacing article 2:301: Negotiations Contrary to Good Faith) (1) Parties are free to initiate, continue and break off pre-contractual negotiations, provided they act in accordance with the requirements of good faith and fair dealing. The failure of pre-contractual negotiations can only give rise to liability if it is the consequence of a fault or actions contrary to good faith and fair dealing of either party. (2) A party who enters into or pursues pre-contractual negotiations without the intention of concluding a contract, does not respect the requirement to negotiate in accordance with good faith and fair dealing. (3) A party who breaks off pre-contractual negotiations for no legitimate reason, while the other party could legitimately believe that a contract would be concluded, acts contrary to the requirements of good faith and fair dealing. Article 2:102: Duty of Information (addition) (1) In principle, each of the parties to a contract must inform itself of the conditions of the conclusion of the contract. (2) During pre-contractual negotiations, each of the parties is obliged to answer with loyalty any questions put to it, and to reveal any information that may influence the conclusion of the contract. (3) A party which has a particular technical competence regarding the subject matter of the contract bears a more onerous duty of information as regards the other party. (4) A party who fails to comply with its duty of information, as defined in the preceding paragraphs, or who supplies inaccurate information shall be held liable unless such party had legitimate reasons to believe such information was accurate. Article 2:103: Duty of Confidentiality (restatement of article 2:302: Breach of Confidentiality) If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for its own

1338  Part III: Common Principles ­ urposes whether or not a contract is subsequently concluded. The remedy for p breach of this duty may include compensation for losses suffered and restitution of the benefit received by the other party. Section 2: General Provisions Article 2:201: Conditions for the Conclusion of a Contract (partial restatement of article 2:101) (1) A contract is concluded if: (a) the parties have shown their intention to be legally bound, (b) and have reached an agreement on the fundamental elements of the contract. (2) Subject to the exceptions provided by the present principles or by the law applicable to the contract, a contract need not be concluded or evidenced in writing nor is it subject to any formal requirements. (3) The contract may then be evidenced by any means, including the use of witnesses. Article 2:202: Intention (modification of article 2:102) (1) A party must have shown its intention to be legally bound as regards the other contracting party, in order to be considered as legally bound by a contract, (2) The intention of a party to be legally bound may be determined from its statements or conduct as reasonably understood by the other party. Article 2:203: Agreement as to the Fundamental Elements of the Contract (replacing article 2:103: Sufficient Agreement) (1) A contract is concluded when the parties have reached an agreement as to its fundamental elements. The parties have the right to designate as fundamental any element which, otherwise, would be considered as accessory. (2) The fundamental elements of a contract are present when the purpose specially pursued by each of the parties is determined and can be achieved by the enforcement of the contract so envisaged, completed if necessary by the application of the present principles. (3) In the case of lack of agreement between the parties on a point that is accessory or declared as such, the contract can be completed by application of the present principles and, if necessary, by application to the courts. Article 2:204: Terms Not Individually Negotiated (restatement of article 2:104) (1) Contract terms which have not been individually negotiated may be invoked against a party who did not know of them only if the party invoking them took reasonable steps to bring them to the other party’s attention before or when the contract was concluded.

Guiding and Revised Principles of European Contract Law 1339 (2) Terms are not brought appropriately to a party’s attention by a mere reference to them in a contract document, even if that party signs the document. Article 2:205: Merger Clauses (partial rewording of article 2:105: Merger clause) (1) The parties may insert a merger clause into the contract stating that any prior statements or undertakings which are not embodied in the writing do not form part of the contract. (2) If the merger clause is not individually negotiated, it will only establish a presumption that the parties intended that their prior statements, undertakings or agreements were not to form part of the contract. This rule may not be excluded or restricted. (3) A party may, by its statements or conduct, be precluded from asserting a merger clause to the extent that the other party has reasonably relied on them. (4) The parties’ prior statements may be used to interpret the contract. This rule may not be excluded or restricted except by an individually negotiated clause. Article 2:206: Written Modification Only (restatement of article 2:106) (1) A clause in a written contract requiring any modification or ending by agreement to be made in writing, establishes only a presumption that an agreement to modify or end the contract is not intended to be legally binding unless it is in writing. (2) A party may by its statements or conduct be precluded from asserting such a clause to the extent that the other party has reasonably relied on them. Article 2:207: Promises Binding without Acceptance (modification of article 2:107 Promises Binding without Acceptance) A party may be legally bound in the absence of any acceptance by merely showing its intention to be bound. This promise is subject to the rules that govern contracts, as regards its validity and its effects, subject to any appropriate modifications. Section 3: Offer and Acceptance Article 2:301: General points (addition) In principle, a contract is formed by the meeting of an offer and an acceptance. Article 2:302: Offer (partial rewording of article 2: 201) (1) A proposal will amount to an offer if, (a) it is intended to result in a contract if the other party accepts, and (b) it contains the elements which are fundamental to form a contract.

1340  Part III: Common Principles (c) whether it is addressed to one or more specific persons or to the public at large. (2) A proposal made by a professional supplier in a public advertisement or a catalogue, or by a display of good to supply goods or services at stated prices constitutes an offer. It is binding on the supplier until the stock of goods, or the capacity to supply the service, is exhaus- ted. Article 2:303: Revocation of an Offer (modification of article 2: 202) (1) An offer may be freely revoked as long as it has not come to the attention of the offeree. If the offer has reached the offeree and contains no fixed time for its acceptance, it can be only be revoked after reasonable time. (2) Revocation of an offer is ineffective: (a) if the offer indicates that it is irrevocable; or (b) the offer states a fixed time for its acceptance; or (c) if the revocation, occurring before a reasonable time has elapsed, negatively affects the legitimate expectation of the offeree who acted in reliance on the offer. (3) The death or the incapacity of the offeror does not in itself result in the offer lapsing. (4) An offer made to the public at large can be revoked in the same way as it was made. Article 2:304: Extinction of the Offer (modification of article 2:203: Rejection) (1) An offer lapses at the expiration of the fixed time which was granted for its acceptance or, in the absence thereof, after reasonable time. (2) An offer also lapses when its rejection reaches the offeror, whatever the time period given for acceptance. Article 2:305: Acceptance (partial restatement and modification of article 2:204) (1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. (2) Silence or inaction does not amount to acceptance, except in the case where: (a) the parties have provided by contract for it; (b) the legal provisions or usages applicable to the contract contain provisions to this effect; (c) the offer has been made in the sole interests of the offeree. Article 2:306: Time of Conclusion of the Contract (restatement of article 2:205) (1) If an acceptance has been dispatched by the offeree, the contract is concluded when the acceptance reaches the offeror. (2) In the case of acceptance by conduct, the contract is concluded when notice of the conduct reaches the offeror.

Guiding and Revised Principles of European Contract Law 1341 (3) If by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by performing an act without notice to the offeror, the contract is concluded when the performance of the act begins. Article 2:307: Time Limit for Acceptance (restatement of article 2:206) (1) In order to be effective, acceptance of an offer must reach the offeror within the time fixed by it. (2) If no time has been fixed by the offeror, acceptance must reach it within a reasonable time. (3) In the case of an acceptance by an act of performance under art. 2:306 (3), the performance must be commenced within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time. Article 2:308: Late Acceptance (partial restatement and modification of article 2:207: Late Acceptance) (1) A late acceptance is treated as new offer, the contents of which are identical to that of the initial offer, and which must be accepted without delay by the initial offeror. (2) If the delay is not imputable to the offeree, the late acceptance of an offer is treated as new offer which is deemed to be accepted by the initial offeror, unless the initial offeror notifies the offeree of its refusal as soon as possible. Article 2:309: Modified Acceptance (partial restatement and modification of article 2:208: Modified Acceptance) (1) A reply by the offeree which states or implies additional or different terms which would materially alter the terms of the offer, is a rejection and a new offer. This is the case in particular where the offeree modifies a fundamental element of the contract or seeks to impose a new duty or burden on the other contracting party. (2) A reply which gives a definite assent to an offer operates as an acceptance even if it states or implies additional or different terms, provided these do not materially alter the terms of the offer. The additional or different terms are then incorporated into the contract. However the reply containing nonmaterial additional or different terms, will nonetheless be treated as a rejection of the offer if: (a) the offer limits acceptance to the terms of the offer; or (b) the offeror objects to the non-material additional or different terms without delay; or (c) the offeree makes its acceptance conditional upon the offeror’s assent to the non-material additional or different terms, and the assent does not reach the offeree within a reasonable time.

1342  Part III: Common Principles Article 2:310: A Professional’s Written Confirmation (restatement of article 2:210) If professionals have concluded a contract but have not embodied it in a final document, and one, without delay, sends the other a written document which purports to be a confirmation of the contract but which contains additional or different terms, such terms will become part of the contract unless: (a) the terms materially alter the terms of the contract, or (b) the addressee objects to them without delay. Article 2:311: Conflicting General Conditions (formal rewording of article 2:209 Conflicting General Conditions) (1) General conditions of a contract are terms which have been formulated in advance by one or other of the parties for an indefinite number of contracts of a certain nature, and which have not been individually negotiated between the parties. (2) If the parties have reached agreement except that the offer and acceptance refer to conflicting general conditions of contract, a contract is nonetheless formed, unless a party: (a) has, beforehand, opposed the conclusion of a contract in such a case, expressly and not by way of general conditions; (b) without delay, informs the other party that it does not intend to be bound by the contract; (3) The general conditions form part of the contract to the extent that they are common in substance. Article 2:312: Contracts not Concluded by Offer and Acceptance (restatement of article 2:211) The rules in this section apply with appropriate adaptations even though the process of conclusion of a contract cannot be analysed using the concepts of offer and acceptance. Chapter 3: Authority of Agents Section 1: General Provisions Article 3:101: Scope of the Chapter (modified) (1) This chapter governs the authority of an agent or other intermediary to bind its principal in relation to a contract with a third party. (2) This chapter does not govern an agent’s authority bestowed by law or the authority of an agent appointed by a public or judicial authority.

Guiding and Revised Principles of European Contract Law 1343 (3) This chapter governs the relations between an agent or intermediary and its principal. Article 3:102: Categories of Representation (restatement) (1) Where an agent acts in the name of a principal, the rules on direct representation apply (Section 2). It is irrelevant whether the principal’s identity is revealed at the time the agent acts or is to be revealed later. (2) Where an intermediary acts on instructions and on behalf of, but not in the name of, a principal, or where the third party neither knows nor has reason to know that the inter-mediary acts as an agent, the rules on indirect representation apply. (Section 3) Section 2: Direct Representation Article 3:201: Express, Implied and Apparent Authority (modified) (1) The principal’s grant of authority to an agent to act in its name may be express or may be implied from the circumstances. (2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted, subject to any express or implied limitation of its authority. (3) A person is to be treated as having granted authority to an apparent agent if the person’s statements or conduct induce the third party to believe, reasonably and in good faith, that the apparent agent has been granted authority for the act performed by it. Article 3:202: Agent acting in Exercise of its Authority (modified) Where an agent is acting within its authority as defined by article 3:201, its acts bind the principal and the third party who knew or ought to have known of the status of the agent, directly to each other. The agent itself is not bound as regards the third party. Article 3:203: Lack or Misuse of Authority (modified) (1) Where a person acting as an agent acts without authority or outside the scope of its authority, its acts are not binding upon the principal and the third party. (2) Failing ratification by the principal according to article 3:209, the agent is liable to pay the third party such damages as will place the third party in the same position as if the agent had acted with authority. This does not apply if the third party knew or could not have been unaware of the agent’s lack of authority.

1344  Part III: Common Principles Article 3:204: Misappropriation of Authority (addition) When an agent misappropriates the authority with which he was entrusted, the principal is not bound if the third party knew or should have known of this misappropriation. The misappro- priation of authority constitutes a fault for which the agent may be liable. Article 3:205: Unidentified Principal (renumbered) If an agent enters into a contract in the name of a principal whose identity is to be revealed later, but fails to reveal that identity within a reasonable time after a request by the third party, the agent itself is bound by the contract. Article 3:206: Conflict of Interest (modified) (1) If a contract, concluded by an agent, involves the agent in a conflict of interest of which the third party knew or could not have been unaware, the principal may avoid the contract according to the provisions of articles 4:401 to 4:507. (2) There is presumed to be a conflict of interest where: (a) the agent also acted as agent for the third party; or (b) the contract was with the agent itself in the agent’s personal capacity. (3) However, the principal may not avoid the contract: (a) if it had consented to, or could not have been unaware of, the agent so acting; or (b) if the agent had disclosed the conflict of interest to the principal and the principal did not object within a reasonable time. The present rule applies, subject to any special provisions. Article 3:207: Multiple Agents (addition) (1) Where several agents have been given the same authority by a principal, each one can act separately unless otherwise agreed. (2) Each of the agents can oppose the action of the other agents, before the formation of a contract with a third party, so as to render the third party “mala fides”. Article 3:208: Sub-Agency (modified) In the absence of contrary provisions, an agent has implied authority to appoint a sub-agent to carry out tasks which are not of a personal character and which it is not reasonable to expect to carry out itself. The rules of this section apply to the subagency; acts of the sub-agent which are within its authority and the authority of the agent, bind the principal and the third party directly to each other.

Guiding and Revised Principles of European Contract Law 1345 Article 3:209: Ratification by the Principal (modified) (1) Where a person acting as an agent, acts without authority or outside its authority, the principal may ratify the agent’s acts. (2) The ratification occurs either by the execution of the contract or by notification to the third party within a reasonable time. (3) When a third party did not know and could not reasonably have known of the lack of authority of the agent at the time the act was carried out, it may, at any time before ratification, indicate to principal, by way of notification, its refusal to be bound by the ratification. (4) Ratification has a retroactive effect, subject to the rights of any third party. Article 3:210: Third Party’s Right with Respect to Confirmation of Authority (modified) Where a third party is in doubt about the existence or scope of an agent’s authority, it may send a request for written confirmation to the principal or request ratification from it in accordance with the provisions of article 3:209. The principal must respond within the time period fixed by the third party or, if no period is specified, within a reasonable time. If the principal does not object to the confirmation or complies with the request for ratification without delay, the agent’s act is treated as having been authorised. Article 3:211: Extinction of Authority (modified) (1) An agent’s authority ends when: (a) the agent’s authority has been brought to an end by the principal, the agent, or both; or (b) the acts for which the authority had been granted have been completed, or the time for which the authority had been granted has expired; or (c) the principal or the agent has died, become incapacitated or insolvent; (2) However, for a reasonable time, the agent remains authorised to perform those acts which are necessary to protect the interests of the principal or its successors; (3) The extinction of authority affects a third party only as from the time when the third party becomes aware of the extinction or ought to have become aware of it. Article 3:212: Preservation of Principal’s Prerogatives (addition) Notwithstanding the authority entrusted to the agent, the principal retains the right to contract itself, although it may be necessary to indemnify the agent if it has been granted an exclusivity clause.

1346  Part III: Common Principles Section 3: Indirect Representation Article 3:301[(new)]: The Insolvency of an Agent or Non-performance of an Obligation Fundamental to the Principal Subject to any specific provisions, if an agent becomes insolvent, or fails to perform an obligation that is fundamental to the principal, or if prior to the time for performance it is clear that there will be a failure to perform such obligation: (a) on the principal’s demand, made by way of notification to the agent, the agent must communicate the name and address of the third party to the principal; and (b) the principal may exercise the rights acquired on the principal’s behalf by the agent, against the third party, subject to any defences which the third party may invoke against the agent. (c) the rights granted by the present article may be exercised only if the third party is given notice of the intention to exercise them. From the receipt of the notification, the third party is no longer entitled to perform into the hands of the agent. Chapter 4 Invalidity of Contract Section 1: General Provisions Article 4:101: Scope of Invalidity of Contract (modification of article 4:101: Matters not Covered) (1) This chapter deals with invalidity arising from: (a) mistake, fraud, threats or obviously excessive advantage, and; (b) violation of fundamental principles, mandatory rules and rights of the third parties. (2) It does not deal with the consequences of the lack of capacity of the parties. (3) It applies to contracts and, with the appropriate adaptations, to all juridical acts. Article 4:102: Initial Impossibility (modification of article 4:102) (1) A contract is not invalid merely because at the time it was concluded, performance of the obligation assumed was impossible, or because a party was not entitled to dispose of the assets to which the contract relates. (2) (addition) The persistence of the impossibility at the date at which the obligation must be performed or, in absence of a fixed time period, after a reasonable time has elapsed, puts an end to the contract when, because of

Guiding and Revised Principles of European Contract Law 1347 this impossibility, the purpose pursued by the parties cannot reasonably be attained. (3) (addition) However, the persistency of the impossibility gives rise to the payment of damages for non-performance by the contracting party who has assumed the risk of impossibility or, given the circumstances, should have borne such risk. Section 2: Invalidity caused by Vitiated Consent Article 4:201: Invalidity of a Vitiated Contract (partial addition) (1) (addition) A contract is invalid when the consent of a party has been vitiated. (2) (article 4:116, partially rewritten) If a ground for avoidance affects only particular terms of a contract, the effect of avoidance is limited to those terms unless, (a) the parties agree to render the whole contract invalid; (b) or, when such terms are determining regarding the consent of the parties or when the invalidity of such terms would prevent the parties from attaining, by reasonable means, the intended purpose. The party who invokes the determining nature of a term must prove it unless the term relates to a fundamental element of the contract. Article 4:202: Mistake (rewording and modification of article 4:103: Fundamental Mistake as to Facts or Law) (1) A mistake of fact or law existing when the contract was concluded may be invoked by a party only if: (a) the other party caused the mistake, (b) the other party knew or ought to have known of the mistake and it was contrary to the principles of good faith and fair dealing to leave the mistaken party in error; or (c) the other party made the same mistake. (2) However a party may not invoke the mistake if: (a) its own mistake was inexcusable in the circumstances, or (b) the risk of the mistake was assumed, or should have been borne by such party, having regard to the circumstances and the position of the parties, (c) or that, subject to the requirements of good faith and fair dealing, the mistake only affects the value of the property. (3) A party may only avoid a contract on the basis of mistake if the other party knew or ought to have known that the mistaken party, if it had known the truth, would not have contracted or only done so under fundamentally different conditions. (4) When the mistake does not concern a fundamental element of the contract, the mistaken party must prove that the other party knew or ought to have known of the mistake in question.

1348  Part III: Common Principles Article 4:203: Inaccuracy in Communication (restatement of article 4:104) An inaccuracy in the expression or transmission of a statement is to be treated as the mistake of the person who made or sent the statement and article 4:201 applies. Article 4:204: Adaptation of Contract (modification of article 4:105) (1) When a party indicates that it is willing to perform, or actually does perform the contract as it was understood by the mistaken party, the contract is to be treated as if it had been con- cluded as that party understood it. (2) The other party must indicate its willingness to perform, or render such performance, within a reasonable time, and in any event before the mistaken party gives notice of avoidance and acts, consequently, in such a way that it no longer has any interest in the contract. (3) Where both parties have made the same mistake, the court may, at the request of either party, bring the contract into accordance with what might reasonably have been agreed had the mistake not occurred, provided that the contract is still of benefit to each of the parties. Article 4:205: Fraud (modification of article 4:107) (1) A party may avoid a contract when it has been led to conclude it by the other party’s fraudulent representation, or deliberate non-disclosure of any information which, in accordance with the principle of good faith and fair dealing, it should have disclosed. (2) A mistake induced by fraud is always excusable. Article 4:206: Threats (modification of article 4:108) (1) A party may avoid a contract when it has been led to conclude it by fear due to the other party’s imminent and serious threat of injury to itself or its relatives or threat of damage to its assets or is relatives’ assets. (2) The threat may be an act which is wrongful in itself or which it is wrongful to use as a means to obtain the conclusion of the contract. Article 4:207: Obviously Excessive Advantage (rewording and modification of a­ rticle 4:109: Excessive Benefit or Unfair Advantage) (1) The avoidance or revision of a contract can be sought by the party suffering from an excessive contractual imbalance arising out of an abusive exploitation of a situation of dependency or weakness. (2) Upon the request of the party entitled to avoidance, a court may adapt the contract in order to bring it into accordance with what might have been agreed had the requirements of good faith and fair dealing been followed. (3) A court may also adapt the contract upon the request of a party receiving notice of avoidance for obviously excessive advantage, provided that this party informs the party who gave notice promptly after receiving it and before that party has acted in reliance on it so that it no longer has any interest in the contract.

Guiding and Revised Principles of European Contract Law 1349 Article 4:208: Unfair Terms (modification of Article 4:110: Unfair Terms not Individually Negotiated) (1) A term which creates an excessive contractual imbalance may be avoided or its revision may be sought at the request of the contracting party to whose detriment it operates when: (a) the party was in a situation of dependency or weakness (b) or if the law specially protects the contracting party, in particular, due to its status as a consumer. (2) This article does not apply to: (a) a term which defines the main subject matter of a contract, provided the term is in plain and intelligible language; or to (b) the adequacy in value of one party’s obligations compared to the value of the obligations of the other party. Article 4:209: Third Persons (rewording of article 4:111) (1) Where a third person for whose acts a party is responsible, or who with a party’s assent is involved in the making of a contract: (a) causes a mistake by giving information, or knows of or ought to have known of a mistake, (b) [sic] commits fraud, makes a threat, or takes unfair advantage from a contract, remedies under this chapter will be available under the same conditions as if the behaviour or knowledge had been that of the party itself. (2) Where another person commits fraud, makes a threat, or takes unfair advantage from the contract, remedies under this chapter will be available if the party knew or ought to have known of the relevant facts, or at the time of avoidance the party has not acted in reliance on the contract. Section 3: Invalidity for Illegality § 1 Violation of Fundamental Principles Article 4:301: Scope of Illegality (modification of article 15:101: Contracts Contrary to Fundamental Principles) Where the conclusion or performance of a contract is contrary to principles recognised as fundamental in the laws of the Member States of the European Union, that contract is illegal. Article 4:302: Ineffectiveness of Illegal Contracts (addition) (1) A contract that is illegal at the date of its conclusion is of no effect. (2) A contract, which becomes illegal after its conclusion, is of no effect as from the date that this illegality appeared. § 2 Violation of a Mandatory Rule

1350  Part III: Common Principles Article 4:303: Scope of Illegality (modification of article 15:102 (1): Contracts Infringing Mandatory Rules) Where the conclusion or performance of a contract is contrary to a mandatory rule, which applies in accordance with article 1:303 (2), that contract is illegal. Article 4:304: Identification of the Applicable Sanction (modification of article 15:102 (1) and (2): Contracts Infringing Mandatory Rules) (1) An illegal contract is, in principle, subject to the sanction provided for by the mandatory rule which has been infringed. (2) If the infringed mandatory rule does not provide for an applicable sanction, the contract may be rendered either totally or partially ineffective, or even be modified. The scope of the ineffectiveness must be proportional to what is required to make good the damaged interests. Article 4:305: Total Ineffectiveness of Illegal Contracts (addition) (1) The total ineffectiveness of a contract means that the contract is without effect from the date of its illegality. (2) This applies when: (a) the purpose of the contract is prohibited by mandatory rules, (b) the contract constitutes a fraudulent infringement of the law, (c) the illegality affects an essential element of the contract, (d) the illegal term was determining for the consent of the parties, or (e) partial effectiveness of the contract would deprive it of all usefulness for one of the parties or would substantially modify the balance of obligations. Article 4:306: Partial Ineffectiveness of Illegal Contracts (rewording of article 15:103: Partial Ineffectiveness) (1) In the case of partial ineffectiveness, only part of a contract or a term is rendered ineffective. (2) When there is partial ineffectiveness of the contract, the person protected by the mandatory rule may nevertheless claim total ineffectiveness. (3) When the illegality concerns an accessory (non fundamental) term of the contract, this term alone is rendered ineffective. However, the party who acted in good faith may ask for the total ineffectiveness of the contract if: (a) the illegal term was determining for its consent, (b) or if the mala fides of the other party compromises the successful outcome of the contract. Article 4:307: Modification of an Illegal Contract (addition) (1) A contract may be modified in order to remove the cause of illegality. (2) The modification may result from a regularization of the contract by the parties.

Guiding and Revised Principles of European Contract Law 1351 (3) The modification may also be ordered by the court at the request of one of the parties, as long as the ineffectiveness of the contract has not been ­established. The modification must in such case protect the initial will of the parties and the usefulness of the contract in the interests of both parties. § 3 Violation of the Rights of Third Parties Article 4:308: Scope of Illegality (addition) (1) A contract concluded in fraud of the rights of third parties is illegal. (2) Contracts which illegitimately infringe the actual or conditional rights of a third party, by compromising the performance of a contract or by decreasing the effectiveness of the contract, are fraudulent. Article 4:309: Ineffectiveness of a Fraudulent Contract (addition) (1) A fraudulent contract is only deprived of its effects as regards the third parties whose rights it infringes. (2) However, the contract can be held to be totally ineffective when such a measure is necessary to restore full effectiveness of the third party’s rights. (3) In all cases, the third party affected by fraud can seek restitution from one or other of the parties, in order to re-establish its rights, or from someone who, having full knowledge of the fraud, nevertheless acquired rights over goods that were the subject matter of the fraudulent contract. Section 4: The Operation of Invalidation § 1 General Provisions Article 4:401: Invalidation by Notice (partial addition) (1) (modification of article 4:112: Notice of Avoidance). The invalidation of a void or ineffective contract must take place by way of notice, except in the case of a violation of fundamental principles governed by articles 4:411 et seq. (2) (addition) With the exception of cases where the contract may be adapted, invalidity is complete when the party receiving notice fails to submit the matter to a court within a reasonable period of time under the circumstances. (3) (addition) The notice must: (a) specify the purpose and the scope of the invalidity of the contract, (b) and state, in a clear fashion, the provisions of paragraph (2), failing which it will be ineffective. Article 4:402: The Parties Entitled to Give Notice of Invalidity (addition) (1) The only party entitled to give notice of invalidity of a contract is the party who suffered from a mistake, fraud, threats or obviously excessive advantage by the other party.

1352  Part III: Common Principles (2) The ineffectiveness of a contract due to the violation of mandatory rules may be notified by any party who has an interest in the proceedings, except for the party who had contracted with the party protected by the rule infringed. (3) The ineffectiveness of a contract due to the violation of the rights of third parties, may only be notified by a person whose rights have been infringed by the fraudulent act. Article 4:403: Recipients of the Notice (addition) (1) When a party invokes invalidity, notice must be sent to the other party. (2) When a third party invokes invalidity, notice must be sent to each of the parties. Article 4:404: Judicial Invalidation (addition) In the absence of any notice by the parties and as long as the right to give notice is not prescribed, the invalidity of a contract may be judicially declared during legal proceedings if one of the parties or a third party raises such invalidity as a defence. Article 4:405: Time Limits (partial addition) (1) (Article 4:113 (1) modified) Notice of invalidity must be given within a reasonable time, with due regard to the circumstances, after the party giving notice knew or ought to have known of the relevant facts or became capable of acting freely. (2) The invalidity of a contract may not occur outside the prescription period fixed by legal provisions. (3) If the contract or the litigious term has not been performed: (a) notice of invalidity may still be given, a reasonable time after the performance of the contract or the term was requested by a party, (b) equally invalidity may be raised every time the contract is invoked before the courts to support a claim. Article 4:406: Interrogatory Action (addition) The party entitled to give notice of invalidity may be put on notice, by the other party or any third party which has an interest in the proceedings, to proceed with notification within a reasonable time, failing which such party may lose its right. Article 4:407: Confirmation (partial addition) (1) (modification of article 4:114) Except where a mandatory rule has been violated, the party who is entitled to give notice of the invalidity of a contract can confirm the contract, expressly or impliedly, once it knows of the ground for invalidity, or, where the party has suffered a threat, becomes capable of acting freely. (2) (addition) The confirmation operates only in respect of the ground of avoidance of which the contracting party was aware.

Guiding and Revised Principles of European Contract Law 1353 (3) (addition) The confirmation does not deprive the other parties entitled to give notice of invalidity to exercise such right. (4) (addition) Subject to the rights of the third parties, the confirmation gives legal effect to the contract from the moment of its conclusion. Article 4:408: Plurality of remedies (addition) Where an action is brought before a court concerning the validity of a contract, the parties to the proceedings may claim any of the remedies offered by the present ­chapter without being bound by the terms of the notice of invalidity sent by application of article 4:401. Article 4:409: Exclusion or Restriction of Remedies (article 4:118 modified) (1) The parties cannot exclude or restrict the remedies for fraud, threats, obviously excessive advantage or illegality of contract. (2) The parties may, subject to the principles of good faith and fair dealing, exclude or restrict the remedies for mistake and incorrect information. Article 4:410: Remedies for Non-performance (article 4:119 completed) (1) A party who is entitled to a remedy under this chapter in circumstances which afford that party a remedy for non-performance, may pursue either remedy. (2) (addition) The choice of a remedy based on the non-performance will bring about the confirmation of the contract. (3) (addition) The choice of a remedy set out in the present chapter will not affect the ability of a party to subsequently take advantage of a remedy based on non-performance. § 2 Special Provisions Concerning the Violation of Fundamental Principles Article 4:411: Procedure for Invalidation (addition) (1) A contract which infringes the principles recognised as fundamental in the laws of the Member States of the European Union is deprived of any effect. (2) If, however, one of the parties or a third party attempts to rely on such a contract, a court must declare its total ineffectiveness, ex officio or at the request of any third party which has an interest in the proceedings. (3) The total ineffectiveness of an illegal contract does not prevent the application of the rules concerning restitution or damages defined by section 5 of the present chapter. Article 4:412: Regularization of an Illegal Contract (addition) A contract that was initially illegal may take effect after the parties have modified it and removed the cause of the illegality.

1354  Part III: Common Principles Section 5: Consequences of Invalidation § 1 General Provisions Article 4:501: Principle (addition) In the conditions laid down in the present section, the invalidation of a contract obliges each of the parties to return what they received under the contract and if necessary to indemnify the other party. Article 4:502: Exclusion or Restriction of Remedies (addition) (1) The parties cannot exclude or restrict the remedies which sanction the avoidance of a con- tract for fraud, threats, obviously excessive advantage or illegality of contract. (2) The parties may, subject to the principle of good faith and fair dealing, exclude or restrict the remedies which sanction avoidance of a contract for mistake or incorrect information. § 2 Restitutions following the Invalidation Article 4:503: Right to Restitution (modification of articles 4:115 & 15:104) (1) (modification of article 4:115) As a consequence of invalidation, either party may claim restitution of whatever it has supplied under the contract or the invalid part of the contract, provided it makes concurrent restitution of whatever it has received. (2) (addition) When the cause of invalidity arises during the performance, there is restitution only if it seems unjust for the parties to keep what they have already received with due regard to the nature and purpose of the contract. (3) (addition) In all cases, the provisions of article 10:201 concerning the right to suspend performance, apply with appropriate adaptations. Article 4:504: Loss of Right to Restitution (addition) The party who contracted in full knowledge of the cause of the invalidity or ought to have known of such cause may be deprived of its right to restitution. Article 4:505: Restitution Regime (restatement of article 6:211 DCFR) The claim for restitution and its subject matter are subject to the rules of article 10:312. § 3 Damages Article 4:506: Damages payable in the Event of Invalidation (modification of articles 4:117 & 15:105) (1) (fusion of articles 4:117 & 15:105) When a contract is invalidated, the party who did not know of the cause of invalidity, whilst the other party knew or

Guiding and Revised Principles of European Contract Law 1355 ought to have known of such cause, may recover damages from the other party. These damages are awarded for the purpose of placing the party in the same position (insofar as possible) as it would have been in if the contract had not been concluded. (2) (article 4:117 (3) extended) For other matters, damages shall be awarded in accordance with the relevant provisions of chapter 9, section 5, with appropriate adaptations. Article 4:507 Damages without Invalidation of the Contract (modification of article 4:117 (2)) (1) (modification of article 4:117 (2)) If a party has the right to avoid a contract under this chapter, but does not exercise that right or has lost that right under the provisions of articles 4:405, 4:406, 4:407 or 4:410 (2), it may recover damages, from the other party, limited to the loss suffered as a result of the cause for the avoidance, if the other party knew or ought to have known of the cause for the avoidance. (2) (extension of article 4:117 (2)) In all other respects, the damages shall be awarded in accordance with the relevant provisions of chapter 9, section 5, with appropriate adapta- tions. Chapter 5: Interpretation Article 5:101: General Rules of Interpretation of Contract (restatement of article 5:101 (1) & (3)) (1) A contract is to be interpreted according to the common intention of the ­parties even if this differs from the literal meaning of the words. (2) If a common intention cannot be established, the contract is to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Article 5:102: Rules for Interpreting Declarations and Conduct (rewording of paragraph 2 of article 5:101) The declarations and the conduct of a party are to be interpreted according to the intention of their author when the other party knew or could not have been unaware of this intention. Article 5:103: Rules of Interpretation of Non-Contractual Acts (addition) (1) The rules of articles 5:101 and 5:102 apply to non-contractual acts, with the necessary adaptations. (2) In the interpretation of a unilateral act, the real intention of its author must prevail or, if that cannot be established, it should be interpreted in the most reasonable way.

1356  Part III: Common Principles (3) In the interpretation of a collective decision, the common intention of the authors of the decision must prevail or, if that cannot be established, it should be interpreted in the way which is closest to the common interest of all members of the group. Article 5:104: Relevant Circumstances (modification of article 5:102) When interpreting a contract, particular account shall be taken of: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even that subsequent to the conclusion of the contract; (c) the nature and purpose of the contract; (d) the interpretation which has already been given to similar clauses by the ­parties and to practices that the parties have established between themselves; (e) the meaning commonly given to such terms and expressions in the branch of activity concerned and the interpretation similar clauses may already have received; (f) usages. Article 5:105: Preferential Interpretation (modification of article 5:103) When a contractual rule has been established under the dominant influence of one party, if there is any doubt, the provision must be interpreted in favour of the other party. In particular, terms of the contract will be interpreted against the party which supplied them. Article 5:106: Preference to Negotiated Terms (restatement of article 5:104) Terms which have been individually negotiated take preference over those which have not been. Article 5:107: Reference to the Contract as a Whole (completion of article 5:105) Terms are to be interpreted in the light of the whole contract in which they appear. In a series of interdependent contracts, such contracts shall be interpreted by reference to the set of contracts of which they form part. Article 5:108: Terms to Be Given Effect (restatement of article 5:106) An interpretation which renders the terms of a contract lawful, or effective, is to be preferred to one which does not. Article 5:109: Linguistic Discrepancies (restatement of article 5:107) Where a contract is drawn up in two or more language versions, none of which is stated to be authoritative, there is, in case of discrepancy between the versions, a preference for the inter- pretation according to the language version in which the contract was originally drawn up.

Guiding and Revised Principles of European Contract Law 1357 Chapter 6: Contents and Effects (formerly articles 6:101 to 6:108 of PECL) Article 6:101: Determination of the Contents (addition) The contents of a contract are made up of express or implied obligations. The contents include the type of service provided, the time for execution, and the price. Article 6:102: Implied Terms (modification of articles 6:101 and 6:102) (1) (rewording of article 6:102) Implied terms are determined by reference to the intention of the parties and their usual relations. They are also determined by considering the nature and the purpose of the contract as read in the light of law, common practice and equity. (2) (rewording of article 6:101) In the absence of a merger clause, an implied term can be deduced from a statement made by a party before the conclusion of contract if the statement could reasonably have been understood as such by the contracting party in the circumstances. This will be the case depending on: (a) the apparent importance of the statement to the other party; (b) usual business practice; (c) market conditions; (d) the relative expertise of both parties. Article 6:103: Obligations to Use Best Efforts and Obligations to achieve a Particular Result (addition) (1) The debtor of an obligation to achieve a particular result undertakes to provide the promised result. The failure to fulfil this obligation is established by the sole fact that the result was not achieved, except in the case of an impediment within the meaning of article 9:107. (2) The debtor of an obligation to use best efforts undertakes to execute the obligation with the care and diligence of a reasonable person of the same position, placed in the same situation. The failure to fulfil this obligation must be proved. (3) In order to determine if an obligation is an obligation to use best efforts or to achieve a particular result, the following will be taken into account: (a) the intention of the parties, which can be established by reference to the quality of the service performed and how it relates to the agreed price (b) the degree of hazard normally encountered in the pursuit of the required result (c) the influence the debtor can have on the execution of the obligation (d) the nature and the purpose of the contract.

1358  Part III: Common Principles Article 6:104: Determination of the Quality of Performance (modification of article 6:108) Where this cannot be determined or ascertained according to the indications given by the parties, the quality of the service performed must be at least equal to the average performance with regard to the general economy of the contract. To determine this, the following are taken into consideration: (a) the practices of the profession and/or the type of operation (b) the amount of the consideration. Article 6:105: Determination of the Duration of a Contract (addition) In the absence of a fixed duration or where a duration cannot be ascertained from the indications of the parties, the agreement is considered to be entered into for a reasonable minimum duration taking into account the general economy of the contract. In particular, the investments required and the time necessary for their amortization will be taken into account. Article 6:106: Determination of the Price (modification of article 6:104) In the absence of a fixed price or where a price cannot be ascertained from the indications of the parties, the agreement is considered to relate to a reasonable price taking into account market prices at the time of the conclusion of the contract. Article 6:107: Unilateral Determination by a Party (completion of article 6:105) Where the price or any other contractual term is to be unilaterally determined by one party and the determination is grossly unreasonable, then, notwithstanding any provision to the contrary, a reasonable price or any other reasonable term shall be substituted. The same applies when a party who was to fix the price or any other term of the contract, fails to do so. Article 6:108: Determination by a Third Party (modification of article 6:106) Where the price or any other contractual term is to be determined by a third person, and the third party fails to do so, the parties are presumed to have empowered the court to appoint another person. If a price or any other term fixed by a third person is grossly unreasonable, a reasonable price or any other reasonable term shall be substituted. Article 6:109: Reference to a Non Existent Factor (restatement of article 6:107) Where the price or any other contractual term is to be determined by reference to a factor which does not exist or has ceased to exist or to be accessible, the nearest equivalent factor shall be substituted. Article 6:110: A Future Thing (addition) A contract may contain an obligation relating to a thing that does not yet exist.

Guiding and Revised Principles of European Contract Law 1359 Chapter 7: Effects of Contract (formerly articles 6:103; 6:109 to 6:111 of PECL) Article 7:101: Change of Circumstances (modification of article 6:111) (1) If a contract becomes deeply unbalanced during its execution due to a change of circumstances that could not reasonably be foreseen, the parties must renegotiate it in order to revise or terminate the contract. (2) If, in spite of the good faith of the contracting parties, the renegotiations do not succeed within a reasonable time, the parties can terminate the contract by common agreement; if this does not happen, a court can equitably revise the contract or deprive it of future effect. Article 7:102: Clauses relating to the Allocation of Risk (addition) A clause which allocates the major part of the risk of a change of circumstances to one of the parties is only valid where it does not bring about unreasonable consequences for that party. The clause cannot be applied when the change of circumstances is due, either completely or in part, to the party to whose benefit such a clause operates. Article 7:103: Contract for an Indefinite Duration (modification of article 6:109) When a contract is for an indefinite duration, each contracting party can terminate the contract unilaterally, by giving a period of notice that complies with the requirements of law, professional practices, contractual previsions or, failing that, a period of reasonable length. Article 7:104: Fixed-Term Contracts (addition) When the contract is of a fixed duration, each contracting party must perform its obligations until the term expires and no party can demand its renewal unless legal or conventional provisions provide otherwise. Article 7:105: Extension of Fixed-Term Contracts (addition) (1) When a fixed-term contract is extended according to the wishes of the parties, expressed before its expiry, the contents and effects of the contract are retained until the new expiry date. (2) The extension of the contract cannot adversely affect the rights of third parties, unless legal provisions provide otherwise. Article 7:106: Renewal of Fixed-Term Contracts (addition) (1) When the law allows for the renewal of a fixed-term contract or when such renewal is the result of a tacit agreement between the parties, in the initial contract, or following an express agreement at the expiry of the initial

1360  Part III: Common Principles c­ ontract, the renewed contract is, as regards its contents and effects, distinct from the expired contract, unless otherwise agreed. (2) When, at the expiry of a fixed-term contract, the contracting parties continue to execute their obligations, the tacitly renewed contract is for an indefinite period. Article 7:107: Stipulation in Favour of a Third Party (modification of article 6:110) The contracting parties may conclude a contract under which one of them undertakes to perform an obligation in favour of a third party which must be capable of being determined at the time of the execution of the promise. As long as the third party has not accepted the benefit of the stipulation made in its favour, the stipulation may be freely revoked by the party making the stipulation. The third party is the beneficiary of a direct right against the promisor and can invoke any defences arising out of the contract with the party making the stipulation. Article 7:108: Simulation (modification of article 6:103) (1) When the parties have concluded an apparent contract and a concealed contract, they are legally bound by the concealed contract, except in the case of fraud. (2) The concealed contract does not have any effect as regards third parties, but third parties may rely on it. Chapter 8: Performance (formerly chapters 7 and 16 of PECL) Section 1: Conditions and Time Limits affecting when the Contractual Obligations become Due Sub-section 1: Future Events Deferring Performance § 1 Condition Article 8:101: Suspensive and Resolutory Conditions (modification of article 16:101) (1) A contractual obligation may be made conditional upon the occurrence of an uncertain future event, so that the obligation takes effect only if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutory condition). (2) The condition may be legal, judicial or voluntary.

Guiding and Revised Principles of European Contract Law 1361 Article 8:102: Impossible or Illegal Conditions (addition) (1) A condition that is dependent on an impossible or illegal event is ineffective. (2) The ineffectiveness of a condition results in the ineffectiveness of the contract which de- pends thereon when this condition was determining in obtaining the consent of one of the parties, unless otherwise provided by law. Article 8:103: “Potestative” Condition (addition) (1) A condition which makes performance of the obligation dependent on an event, the occurrence of which is in the sole power of the debtor, so that there is no real commitment on the debtor’s part, is ineffective. (2) This ineffectiveness may no longer be invoked once the obligation contracted under such condition has been voluntarily executed. Article 8:104: Conditions in the Sole Interest of One of the Parties (addition) (1) When a condition is inserted into a contract in the sole interest of one of the parties, that party may, before the fulfilment or failure to fulfil such condition, waive the condition. The obligation then becomes unconditional. (2) The beneficiary of the condition may still waive it, after the event occurs or fails to occur: (a) if the other party did not act as a result of the occurrence or non-­ occurrence of the event, (b) and if the time fixed for fulfilment of the condition is not expired. Article 8:105: Conditions in the Interest of Both Parties (addition) When a condition is inserted into a contract in the interest of both parties, the parties can waive the condition by common agreement. However, if this waiver occurs after the performance or the failure to perform the condition, a new contract is formed. § 2 Specified Time Period for Performance Article 8:106: Suspensive and Extinctive Time Periods (addition) (1) A contractual obligation may be dependent on a definite future event, which either post- pones performance until the event occurs (suspensive time period) or ends performance when the event occurs (extinctive period). (2) The suspensive or extinctive time period may be legal, judicial or voluntary. Article 8:107: Determination of Specified Period for Performance (rewording of a­ rticle 7:102) An obligation must be performed: (a) at the time fixed by the contract or at a time determinable from the contents of the contract, usage, the circumstances in question or the previous relations between the parties.

1362  Part III: Common Principles (b) in all other cases, within a reasonable time after the conclusion of the contract unless the circumstances indicate that obligation must be performed immediately. Article 8:108: Waiving the Advantage of Suspensive Time Period (addition) (1) The party in whose sole interest the suspensive time period has been fixed may waive the benefit of the time period and perform its obligations at any time. (2) When the obligation involves a sum of money, it is presumed that the time of performance was fixed in the interest of the obligor. Article 8:109: Establishing the Specified Time Period for Performance (addition) The time when the contract must be performed is established according to the rule set out in article 1:304. Sub-section 2: The Effects of an Obligation before the Occurrence of an Event § 1 Conduct of the Parties Article 8:201: Duty of Good Faith (addition) From the formation of the contract, each party is bound to do nothing which compromises the performance of the future entitlement of the other party or which decreases its usefulness. Article 8:202: Care and Cooperation for the Fulfilment of a Condition (addition) (1) When the occurrence of a conditional event is dependent on one of the parties, that party must take appropriate care to promote such occurrence. (2) When the occurrence of the conditional event depends on both of the parties, they must cooperate to ensure such occurrence. Article 8:203: Interference with Conditions (modification of article 16:102) The condition is deemed to be fulfilled or not fulfilled when the inaction or fault of one of the parties caused the failure to fulfill or fulfilment of the condition to the detriment of the other party. Article 8:204: Forfeit of a Suspensive Time Period (addition) (1) The performing party may not take advantage of the benefit of a suspensive time period where: (a) it did not respect its duty of to act in good faith, or; (b) the party does not supply the securities promised to creditor or decreases the value of the securities it has given by its own action.

Guiding and Revised Principles of European Contract Law 1363 (2) The same applies if the performing party is insolvent or subject to liquidation proceedings. § 2 Prerogatives of a creditor Article 8:205: Preservation of the Right to Claim Performance of an Obligation (addition) (1) A creditor may take all steps to preserve its rights, even before the occurrence of an event on which an obligation is dependent. (2) In particular the creditor may act to render ineffective the acts of the performing party carried out in order to defraud its rights. Article 8:206: Transferability (addition) Before the occurrence of the event on which the performance of obligation depends (a) the right of the creditor is transferable either inter vivos or upon death; (b) the obligation of the performing party is transferable only to its heirs. § 3 Early performance Article 8:207: Early Performance of an Obligation Subject to a Suspensive Time Period (rewording of article 7:103) (1) Where the suspensive time period was inserted into the contract in the sole interest of one of the parties or in the interest of both parties, the creditor may decline an offer of performance made before it is due, unless the performing party can establish that this early performance would not unreasonably prejudice the interests of the creditor. (2) A party’s acceptance of early performance does not affect the time fixed for the performance of its own obligation, unless otherwise agreed. Article 8:208: Impossibility of Early Performance of a Conditional Obligation (addition) An obligation contracted under a suspensive condition cannot be performed until after the occurrence of the conditional event, unless the benefit of this condition has been waived. Sub-section 3: Effects of an Obligation upon the Occurrence of the Suspensive Event Article 8:301: Significance of the Occurrence of a Suspensive Event (rewording of article 16:103 (1)) (1) Where the performance of an obligation has been suspended, the obligation only takes effect from the date when the event, (whether certain or uncertain) occurs.

1364  Part III: Common Principles (2) However when liquidating their assets, the parties may agree on a retroactive effect. Article 8:302: Significance of the Occurrence of an Extinctive Event (addition) (1) (article 16:103 (2) rewritten) The obligation lapses upon the occurrence of an event (either certain or uncertain) on which the termination of the obligation depended, unless the parties otherwise agree. (2) When the termination gives rise to restitutions, the obligation to make restitutions is subject to the rules laid down for obligations subject to a suspensive condition. Article 8:303: Acts Carried Out in Violation of the Rights of the Creditor (addition) From the day of the conclusion of a contract, any act carried out by the performing party in violation of its obligation, which is subject to a suspensive time period or condition, has no effect as against the creditor, excluding rights acquired by third parties acting in good faith. Article 8:304: Consequences of Managerial Acts and Income (addition) (1) The occurrence of the certain or uncertain event does not undermine managerial acts carried out in good faith following the conclusion of the contract. (2) The income received is owed from the date the event occurred, unless otherwise agreed, with regard to liquidation of their rights. Article 8:305: Allocation of Risk (addition) (1) When an obligation has been contracted subject to a suspensive condition or a suspensive time period, the risk relating to the property that is the subject of the agreement is borne by the performing party, which is bound to deliver the property only when the condition is fulfilled. When the obligation was contracted subject to a resolutory condition, as long as this condition is not fulfilled, the risk relating to the property is borne by the creditor, which is also under a conditional obligation of restitution. (2) If the property is entirely destroyed, the obligation lapses, without prejudice to the liability of the debtor, if the loss is due to the debtor’s fault. (3) If the property is damaged, the creditor has the choice of terminating the obligation, or to demand the property in its current state, without a decrease in price; this occurs without prejudice to the liability of the debtor if the deterioration is due to its fault. (4) The parties can agree to modify the allocation of risk.

Guiding and Revised Principles of European Contract Law 1365 Section 2: Other Methods of Enforcement Article 8:401: Place of Performance (modification of article 7:101) (1) If the place of performance of an obligation is not determined by or determinable from the contract it shall be: (a) in the case of an obligation to pay money, the creditor’s place of business or if that cannot be established, the creditor’s habitual residence; (b) in the case of an obligation other than to pay money, the debtor’s place of business or if that cannot be established, the creditor’s habitual residence. (2) If a party has more than one place of business, the place of business is that which has the closest link with the main performance under the contract, having regard to the circumstances known to or contemplated by the parties at the time of conclusion of the contract. (3) The party which changes its place of business or place of residence after the conclusion of the contract will provide for the increase in expenses which may affect the performance of obligations. Article 8:402: Order of Performance (modification of article 7:104) The simultaneous performance of the obligations is the rule in every case where it is in the nature of the contract, unless the contract, expressly or impliedly, indicates otherwise. Article 8:403: Alternative Obligations (modification of article 7:105) (1) An obligation is alternative when it gives the debtor a choice of several different types of performance. By agreement to the contrary, the choice can fall to the creditor. (2) If there is no contractual time period, such choice must be made within a reasonable time. (3) If the party who is to make the choice fails to do so within the time period, the other party may either, (a) grant an additional period in which to make the choice, or; (b) after a notice to the other party remains without effect, make the choice itself. Article 8:404: Performance by a Third Person (modification of article 7:106) (1) Except where a contract requires personal performance, a third party (a) may be authorized by the debtor to perform the contract unless the creditor refuses such performance because it would cause loss or damage to the creditor, or

1366  Part III: Common Principles (b) a third party which has a legitimate interest in the performance of a contract may perform the contract in the place of the debtor when the latter has failed to perform or it is clear that the debtor will not perform at the time performance becomes due. (2) Performance by a third person in accordance with paragraph (1) discharges the debtor. In case of non-performance by the third party, the debtor remains legally bound. Article 8:405: Form of Payment (modification of article 7:107) Payment of money due may be made in any form used in the ordinary course of business. Article 8:406: Currency of Payment (modification of article 7:108) (1) The parties may agree that payment shall be made only in a specified currency. (2) When the currency of an obligation to pay a sum of money is not specified, the payment may be paid in the currency of the place where payment is due. Article 8:407: Appropriation of Payments (modification of article 7:109) (1) The debtor of an obligation which is subject to interest or carries arrears, cannot, without the assent of the creditor, appropriate to arrears or interest a payment which it makes in respect of the principal: a payment made in respect of the principal and interest, but which does not cover the whole amount is appropriated as a payment against the interest. (2) A party who owes several obligations has the right to declare, when it pays, which obligation it intends to discharge; (3) Where the debtor does not appropriate, the parties may contractually appropriate the pay- ment to an obligation. If the appropriation is recorded on a receipt delivered by the creditor, its mere receipt by the debtor does not lead to an assumption that it has been accepted; (4) If there is no appropriation under the preceding conditions, a payment must be appropriated according to the following provisions: 1° if the debtor is subject to obligations that are due and to others which are not yet due, the appropriation is made in priority to the obligations which are due; 2° if several obligations are due, the payment is appropriated to the obligation that the debtor has the most interest in discharging; 3° if the obligations due are of an equal nature, the payment is appropriated to the obligation that is first in time; if all the obligations are contemporary the appropriation is done proportionally; 4° If the appropriation of payment is made only in respect of obligations that have not yet fallen due, rules 2° and 3° must be followed; (5) In the event of multiple obligations, the appropriation of payment to any of them follows rule (1), if necessary.

Guiding and Revised Principles of European Contract Law 1367 Article 8:408: Property or Money Not Accepted (modification of articles 7:110 and 7:111) (1) A party who is left in possession of tangible property other than money because of the other party’s failure to accept or retake the property must take reasonable steps to protect and preserve the property. (2) The party left in possession may discharge its duty to deliver or return: (a) by consigning the property to a third party, on reasonable terms, to be held to the order of the other party, and notifying the other party of this at the time of consignment; or (b) by selling the property on reasonable terms after notice to the other party, and paying the net proceeds to that party. (3) However, in an emergency situation, such as when the property is liable to rapid deterioration or its preservation is unreasonably expensive, the party must take reasonable steps to dispose of it, without having to give preliminary notification to the other party. It may discharge its duty to deliver or return by paying the net proceeds to the other party. (4) The party left in possession of property is entitled to be reimbursed or to retain any expenses reasonably incurred out of the proceeds of sale. (5) Where a party fails to accept money properly tendered by the other party, that party may after notice to the first party discharge its obligation to pay by depositing the money to the order of the first party in accordance with the law of the place where payment is due. Article 8:409: Costs of Performance (article 7:112 renumbered) Each party shall bear the costs of performance of its obligations. Chapter 9: Non-performance and Remedies in General Article 9:101: Use of Remedies Available to the Creditor (modified) (1) Whenever a party fails to perform an obligation under the contract, the aggrieved party may resort to any of the remedies set out in chapter 10, subject to provisions of this article. (2) Where a party’s non-performance is excused under article 9:107, the aggrieved party may resort to any of the remedies set out in chapter 10 except claiming performance and damages. (3) Where a party’s non-performance is excused under article 9:108, the aggrieved party may not resort to any of the remedies set out in chapter 10. Article 9:102: Cumulation of Remedies (renumbered) Remedies which are not incompatible may be cumulated. In particular, a party is not deprived of its right to damages by exercising its right to any other remedy.

1368  Part III: Common Principles Article 9:103: Fundamental Non-Performance (renumbered) A non-performance of an obligation is fundamental to the contract if: (a) strict compliance with the obligation is of the essence of the contract; or (b) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract, unless the other party did not foresee and could not reasonably have foreseen that result; or (c) the non-performance is intentional and gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance. Article 9:104: Cure by the Performing Party (modified) (1) The performing party has the right to take any measure intended to correct performance that is not in compliance with the contract if the date for performance has not yet passed or if the delay would not constitute a fundamental non-performance. (2) The correction does not exclude a claim for damages by the aggrieved party. Article 9:105: Assurance regarding Performance (modified) A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurances regarding due performance and meanwhile may with- hold performance of its own obligations. The party demanding assurances may terminate the contract if these assurances are not provided within a reasonable time, provided it gives notice of such termination without delay. Article 9:106: Notice Fixing Additional Period for Performance (modified) (1) In any case of non-performance the aggrieved party may, by notice to the other party, grant an additional period of time for performance. (2) During the additional period, the aggrieved party may not resort to any other remedy. How- ever, when the non-performance is not minor, the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages. If it receives notice from the other party that the latter will not perform within the additional period, or if upon expiry of that period due performance has not been carried out, the aggrieved party may resort to any of the remedies that may be available under chapter 10. (3) If, in the case of a delay in performance which is not fundamental, the aggrieved party has given notice fixing an additional period of time of reasonable length such party may termi- nate the contract at the end of this period if the debtor has not performed. The aggrieved party may in its notice provide that if the other party does not perform within the period fixed by the notice the contract shall terminate automatically. If the additional period given is not reasonable, the aggrieved party may only terminate after a reasonable period from the date of notice.

Guiding and Revised Principles of European Contract Law 1369 (4) The preceding paragraph does not apply when the delay in the performance constitutes minor non-performance. (5) The additional period is determined according to circumstances and to the type of obligation. It can only be granted by the aggrieved party and not by the courts or an arbitrator. Article 9:107: Excuse Due to an Impediment (modified) (1) Subject to provisions of article 9:101 (2) a party’s non-performance is excused if the party proves that it is due to an event that is outside the party’s control and that the party could not reasonably have been expected to take the event into account at the time of the conclusion of the contract, or to have avoided or overcome the event or its consequences. (2) Where an impediment is only temporary the excuse provided by this article is only effective for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the aggrieved party may treat it as such. (3) The party who cannot perform must ensure that notice of the existence of the impediment and of its effect on the party’s ability to perform is received by the other party. If the notice does not arrive at destination within a reasonable time after the non-performing party knew or ought to have known of this impediment, the other party is entitled to damages for any loss resulting from the non-receipt of such notice. Article 9:108: Excuse Due to an Act of the Aggrieved Party (addition) The non-performing party is excused from the consequences of its non-performance to the extent that this non-performance was due to an act of the aggrieved party. Article 9:109: Clause Excluding or Restricting Remedies (modified) Remedies for non-performance may be excluded or restricted by a contractual clause. This clause is without effect if its implementation is contrary to good faith, for example in the case of non- performance which is deliberate or of particular gravity. Chapter 10: Particular Remedies for Non-performance Section 1: Right to Performance Article 10:101: Monetary Obligations (9:101 renumbered) (1) The creditor is entitled to recover money which is due. (2) Where the creditor has not yet performed its obligation and it is clear that the debtor will be unwilling to receive performance, the creditor may ­nonetheless

1370  Part III: Common Principles proceed with its performance and may recover any sum due under the contract unless: (a) it could have made a reasonable substitute transaction without significant effort or expense; or (b) performance would be unreasonable in the circumstances. Article 10:102: Non-Monetary Obligations (modified) (1) The aggrieved party is entitled to specific performance of a non-monetary obligation, including the remedying of defective performance. (2) Specific performance cannot, however, be obtained where: (a) performance would be unlawful or impossible; or (b) performance would cause the debtor unreasonable effort or expense; or (c) performance would affect the debtor in its personal capacity, or (d) the aggrieved party may reasonably obtain performance from another source. (3) The aggrieved party will lose the right to specific performance if it fails to seek it within a reasonable time after it has or ought to have become aware of the non-performance. Article 10:103: Damages Not Precluded (renumbered) The fact that a right to performance is excluded under this section does not preclude a claim for damages. Section 2: Withholding Performance Article 10:201: Right to Withhold Performance (renumbered) (1) A party who is to perform simultaneously with or after the other party may withhold per- formance until the other has tendered performance or has performed. The first party may withhold the whole of its performance or a part of it as may be reasonable in the circum- stances. (2) A party may similarly withhold performance for as long as it is clear that there will be a non- performance by the other party when the other party’s performance becomes due. Section 3: Termination Of The Contract Article 10:301: Right to Terminate the Contract (modified) (1) A party may terminate the contract if the other party’s non-performance is fundamental. (2) The termination must be effected by giving notice, as described in article 10:303.

Guiding and Revised Principles of European Contract Law 1371 (3) In the case of delay the aggrieved party may also terminate the contract under article 9:106 (3). Article 10:302: Contract to be Performed in Parts (modified) If the contract may be performed in separate parts by each of the parties, the fundamental non- performance of an obligation in relation to one part of the contract entails the termination of that part only. The contract may be terminated as a whole only if the non-performance is fundamental to the contract as a whole. Article 10:303: Notice of Termination (modified) (1) The termination of the contract occurs by the giving of notice. (2) With the exception of cases where adaptation of the contract is possible, termination is complete if the party who receives the notice does not bring the matter before a court within an reasonable time, with due regard to the circumstances. (3) The notice must: (a) specify the cause of the termination of the contract and the scope of the termination; (b) and stipulate, in a clear way, the provisions of the paragraph (2), failing which it will be ineffective. Article 10:304: Parties Entitled to give Notice of Termination (addition) Only the aggrieved party is entitled to give notice of the termination of the contract. Article 10:305: Recipients of the Notice (addition) When a party claims termination of contract, notice must be sent to the other ­contracting party. Article 10:306: Judicial Termination (addition) In the absence of any notice, and as long as the right to notify has not expired, the termination of the contract may be judicially pronounced in the course of legal proceedings if one of the parties claims termination as a defence. Article 10:307: Time Limits (addition) (1) Notice of termination must be given within a reasonable time (in the particular circumstances) from the moment that the party entitled to give notice was aware or ought to have become aware of the relevant facts, or was able to act freely. (2) The termination of the contract cannot take place after the expiry of the prescription period fixed by law. (3) The party entitled to give notice of termination may be put on notice by the other party or any third party which has an interest in the proceedings, to give notice within a reasonable time, failing which it loses its right.

1372  Part III: Common Principles Article 10:308: Anticipatory Non-Performance (modification) (1) Where, prior to the time when performance is due by a party, its statements or its conduct indicate that there will be a fundamental non-performance on its part, the other party may terminate the contract. (2) When the fundamental non-performance is not obvious, the aggrieved party merely has grounds to request an assurance of performance, in accordance with article 9:105. Article 10:309: Resolutory Clauses (addition) (1) Resolutory clauses must expressly indicate the obligations, the non-­ performance of which will result in the termination of the contract. (2) The termination is subject to the defaulting party being put on formal notice, if it has not been agreed that termination would result from the mere fact of non-performance. The formal notice is only effective if it restates in clear terms the resolutory clause. (3) In any event, termination becomes effective from the date of reception of the notice given to the performing party. Article 10:310: Effects of the Termination in General (modification) Under the terms provided in this section, the termination of the contract requires each of the parties to restore that which it received under the contract and, if necessary, to indemnify the other party. Article 10:311: Exclusion or Limitation of Remedies (addition) The parties cannot, subject to the requirements of good faith and fair dealing, exclude or restrict the remedies which sanction the consequences of the termination. Article 10:312: Right to Restitution (addition) (1) As a result of termination, each party is entitled to ask for the return of what it supplied under the contract, so long as it simultaneously returns what it received. (2) When the cause of termination arises in the course of performance, restitution will take place only if it seems unfair, having regard to the nature and the purpose of the contract, for the parties to keep what they have already received (3) The provisions of article 10:201 concerning the right to suspend performance apply to all cases. (4) The claim for restitution and its subject matter are subject to the rules of articles 10:303–10:307.

Guiding and Revised Principles of European Contract Law 1373 Article 10:313: Subject matter of Restitution (addition) (1) After breach of the contract, and insofar as it is possible, the principle is that of restitution in kind. (2) When restitution in kind is impossible, the party which supplied the performance without receiving any consideration may obtain a reasonable sum corresponding to the value to the other party of the performance. Article 10:314: Damages Owed in Case of Termination of the Contract (addition) In the case of termination, the aggrieved party may obtain damages from the other party. These damages are intended to place the aggrieved party, insofar as possible, in the situation it would have found itself had the contract been performed. Article 10:315: Damages in the Absence of Termination (addition) When a party is entitled to terminate a contract under the present chapter but does not exercise such right, or when the party had this right but lost it by application of the provisions of articles 10:303 and 10:307, it may obtain damages from the other party, limited to the damage incurred as a result of the cause for termination. Section 4: Price Reduction Article 10:401: Right to Reduce Price (renumbered) (1) A party who accepts a tender of performance not conforming to the contract may reduce the price. This reduction shall be proportionate to the decrease in the value of the performance at the time this was tendered compared to the value which a conforming tender would have had at that time. (2) A party who is entitled to reduce the price under the preceding paragraph and who has already paid a sum exceeding the reduced price may recover the excess from the other party. (3) A party who reduces the price cannot also recover damages for reduction in the value of the performance but remains entitled to damages for any further loss it has suffered so far as these are recoverable under section 5 of this Chapter. Section 5: Damages and Interest Article 10:501: Right to Damages (renumbered) (1) The aggrieved party is entitled to damages for loss caused by the other party’s non-perform- ance, which is not excused under Article 9:107.

1374  Part III: Common Principles (2) The loss for which damages are recoverable includes: (a) non-pecuniary loss; and (b) future loss which is reasonably likely to occur. Article 10:502: General Measure of Damages (renumbered) The general measure of damages is such sum as will put the aggrieved party, as nearly as possible, into the position in which it would have been if the contract had been duly performed. Such damages cover the loss which the aggrieved party has suffered and the gain of which it has been deprived. Article 10:503: Foreseeability of Damages (renumbered) The non-performing party is liable only for loss which it foresaw or could reasonably have foreseen at the time of conclusion of the contract as a likely result of its non-performance, unless the non-performance was intentional or grossly negligent. Article 10:504: Loss Attributable to Aggrieved Party (addition) The aggrieved party may not claim for compensation for the part of the damage imputable to its own actions. Article 10:505: Mitigation of Loss (renumbered) (1) The non-performing party is not liable for loss suffered by the aggrieved party to the extent that the aggrieved party could have reduced the loss by taking reasonable steps. (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. Article 10:506: Substitute Transaction (modified) (1) In the case of termination, where the aggrieved party has made a substitute transaction within a reasonable time period and under reasonable conditions, it may recover the difference between the contract price and the price of the substitute transaction. (2) The aggrieved party can also recover damages for any other loss. Article 10:507: Current Price (modified) (1) In the case of the termination of a speculative contract, the aggrieved party which does not make a substitute transaction, is entitled, if the performance contracted for has a current price, to recover the difference between the contract price and the current price at the time the contract is terminated. The current price is the general market price. (2) The aggrieved party can also recover damages for any other loss.

Guiding and Revised Principles of European Contract Law 1375 Article 10:508: Delay in Payment of Money (modified) (1) If payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time that payment fell due to the time of payment. (2) The interest rate is set with reference to the average commercial bank shortterm lending rate to prime borrowers prevailing for the contractual currency of the payment at the place where payment is due. Parties are free to agree on a contractual interest rate. (3) The aggrieved party can also recover damages for any other loss. Article 10:509: Agreed Payment for Non-performance (modified) (1) Where the contract provides that a party who fails to perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party shall be awarded that sum irrespective of the actual loss suffered. (2) However, in spite of any agreement to the contrary the specified sum may be reduced or increased to a reasonable amount where it is grossly excessive or derisory in relation to the loss resulting from non-performance and other circumstances. Article 10:510: Currency by which Damages to be measured (modified) Damages are to be evaluated in the currency of the contract except if the use of another currency will better place the aggrieved party in the situation in which it would have found itself had the contract not been performed. The parties are free to choose the currency which suits them. Chapter 11: Substitution of Parties (formerly chapters 11 & 12 of PECL) Section 1: Assignment of claims Sub-section 1: General principles Article 11:101: Scope of the chapter (renumbered) (1) This chapter applies to the assignment, by agreement, of a right to performance (“claim”) under an existing or future contract. (2) Except where otherwise stated or the context otherwise requires, this ­Chapter also applies to the assignment by agreement of other transferable claims.

1376  Part III: Common Principles (3) This chapter does not apply: (a) to the transfer of a financial instrument or investment security where, under the law otherwise applicable, such transfer must be by entry in a register maintained by or for the issuer; or (b) to the transfer of a bill of exchange or other negotiable instrument or of a negotiable security or a document of title to goods where, under the law otherwise applicable, such transfer must be by delivery (with any necessary endorsement). (4) In this chapter “assignment” includes an assignment by way of security. (5) This chapter also applies, with appropriate adaptations, to the granting by agreement of a right in security over a claim otherwise than by assignment. Article 11:102: Contractual Claims Generally Assignable (renumbered) (1) Subject to articles 11:109 and 11:110, a party to a contract may assign a claim under it. (2) A future claim arising under an existing or future contract may be assigned if at the time when it comes into existence, or at such other time as the parties agree, it can be identified as the claim to which the assignment relates. Article 11:103: Partial Assignment (renumbered) A claim which is divisible may be assigned in part, but the assignor is liable to the debtor for any increased costs which the debtor thereby incurs. Article 11:104: Form of Assignment (renumbered) An assignment need not be in writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses. Sub-section 2: Effects of Assignment as between Assignor and Assignee Article 11:105: Rights Transferred to Assignee (renumbered) (1) The assignment of a claim transfers to the assignee: (a) all the assignor’s rights to performance in respect of the claim assigned; and (b) all accessory rights securing such performance. (2) Where the assignment of a claim under a contract is associated with the substitution of the assignee as debtor in respect of any obligation owed by the assignor under the same con- tract, this article takes effect subject to section 3 of this chapter. Article 11:106: When Assignment Takes Effect (renumbered) (1) An assignment of an existing claim takes effect at the time of the agreement to assign or such later time as the assignor and assignee agree.

Guiding and Revised Principles of European Contract Law 1377 (2) An assignment of a future claim is dependent upon the assigned claim coming into existence but thereupon takes effect from the time of the agreement to assign or such later time as the assignor and assignee agree. Article 11:107: Preservation of Assignee’s Rights against Assignor (renumbered) An assignment is effective as between the assignor and assignee, and entitles the assignee to whatever the assignor receives from the debtor, even if it is ineffective against the debtor under article 11:109 or 11:110. Article 11:108: Undertakings by Assignor (renumbered) By assigning or purporting to assign a claim the assignor undertakes to the assignee that: (a) at the time when the assignment is to take effect the following conditions will be satisfied except as otherwise disclosed to the assignee: (i) the assignor has the right to assign the claim; (ii) the claim exists and the assignee’s rights are not affected by any defences or rights (including any right of set-off) which the debtor might have against the assignor; and (iii) the claim is not subject to any prior assignment or right in security in favour of any other party or to any other encumbrance; (b) the claim and any contract under which it arises will not be modified without the consent of the assignee unless the modification is provided for in the assignment agreement or is one which is made in good faith and is of a nature to which the assignee could not reasonably object; and (c) the assignor will transfer to the assignee all transferable rights intended to secure perform- ance which are not accessory rights. Sub-section 3: Effects of Assignment as between Assignee and Debtor Article 11:109: Contractual Prohibition of Assignment (renumbered) (1) An assignment which is prohibited by or is otherwise not in conformity with the contract which the assigned claim arises is not effective against the debtor unless: (a) the debtor has consented to it; or (b) the assignee neither knew nor ought to have known of the nonconformity­; or (c) the assignment is made under a contract for the assignment of future rights to payment of money. (2) Nothing in the preceding paragraph affects the assignor’s liability for the non-conformity.

1378  Part III: Common Principles Article 11:110: Other Ineffective Assignments (renumbered) An assignment to which the debtor has not consented is ineffective against the debtor so far as it relates to a performance which the debtor, by reason of the nature of the performance or the relationship of the debtor and the assignor, could not reasonably be required to render to anyone except the assignor. Article 11:111: Effect on Debtor’s Obligation (renumbered) (1) Subject to articles 11:109, 11:110, 11:115 and 11:116, the debtor is bound to perform in favour of the assignee if and only if the debtor has received a notice in writing from the assignor or the assignee which reasonably identifies the claim which has been assigned and requires the debtor to give performance to the assignee. (2) However, if such notice is given by the assignee, the debtor may within a reasonable time request the assignee to provide reliable evidence of the assignment, pending which the debtor may withhold performance. (3) Where the debtor has acquired knowledge of the assignment otherwise than by a notice conforming to paragraph (1), the debtor may either withhold performance from or give performance to the assignee. (4) Where the debtor gives performance to the assignor, the debtor is discharged if and only if the performance is given without knowledge of the assignment. Article 11:112: Protection of Debtor (renumbered) A debtor who performs in favour of a person identified as assignee in a notice of assignment under article 11:111 is discharged unless the debtor could not have been unaware that such person was not the person entitled to performance. Article 11:113: Competing Demands (renumbered) A debtor who has received notice of two or more competing demands for performance may discharge liability by conforming to the law of the due place of performance, or, if the performances are due in different places, the law applicable to the claim. Article 11:114: Place of Performance (renumbered) (1) Where the assigned claim relates to an obligation to pay money at a particular place, the assignee may require payment at any place within the same country or, if that country is a Member State of the European Union, at any place within the European Union, but the assignor is liable to the debtor for any increased costs which the debtor incurs by reason of any change in the place of performance. (2) Where the assigned claim relates to a non-monetary obligation to be performed at a particular place, the assignee may not require performance at any other place.

Guiding and Revised Principles of European Contract Law 1379 Article 11:115: Defences and Rights of Set-Off (renumbered) (1) The debtor may set up against the assignee all substantive and procedural defences to the assigned claim which the debtor could have used against the assignor. (2) The debtor may also assert against the assignee all rights of set-off which would have been available against the assignor under Chapter 13 in respect of any claim against the assig- nor: (a) existing at the time when a notice of assignment, whether or not conforming to article 11:111(1), reaches the debtor; or (b) closely connected with the assigned claim. Article 11:116: Unauthorised Modification not binding on Assignee (renumbered) A modification of the claim made by agreement between the assignor and the debtor, without the consent of the assignee, after a notice of assignment, whether or not conforming to article 11:111(1), reaches the debtor does not affect the rights of the assignee against the debtor unless the modification is provided for in the assignment agreement or is one which is made in good faith and is of a nature to which the assignee could not reasonably object. Sub-section 4: Order of Priority between Assignee and Competing Claimants Article 11:117: Priorities (renumbered) (1) Where there are successive assignments of the same claim, the assignee whose assignment is first notified to the debtor has priority over any earlier assignee if at the time of the later assignment the assignee under that assignment neither knew nor ought to have known of the earlier assignment. (2) Subject to paragraph (1), the priority of successive assignments, whether of existing or future claims, is determined by the order in which they are made. (3) The assignee’s interest in the assigned claim has priority over the interest of a creditor of the assignor who attaches that claim, whether by judicial process or otherwise, after the time the assignment has taken effect under article 11:106. (4) In the event of the assignor’s bankruptcy, the assignee’s interest in the assigned claim has priority over the interest of the assignor’s insolvency administrator and creditors, subject to any rules of the law applicable to the bankruptcy relating to: (a) publicity required as a condition of such priority; (b) the ranking of claims; or (c) the avoidance or ineffectiveness of transactions in the bankruptcy proceedings.

1380  Part III: Common Principles Section 2: Substitution of New Debtor (renumbered) Article 11:201: Substitution: General rules (modification of article 12:101) (1) A third person may undertake with the agreement of the debtor and the creditor to be substituted as debtor, with the effect that the original debtor is discharged. (2) A creditor may agree in advance to a future substitution. Provided there is no abuse of process, the substitution takes effect only when the creditor is given notice by the new debtor of the agreement between the new and the original debtor. Article 11:202: Effects of Substitution on Defences and Securities (re-organisation of article 12:102) (1) The new debtor cannot invoke, against the creditor, any rights or defences arising from the relationship between the new debtor and the original debtor. (2) The new debtor may invoke, against the creditor, all defences which the original debtor could have invoked against the creditor. (3) The discharge of the original debtor also extends to any securities the original debtor had given to the creditor for the performance of the obligation, unless the security is over an asset which is transferred to the new debtor as part of a transaction between the original and the new debtor. (4) Upon discharge of the original debtor, a security granted by any person other than the new debtor for the performance of the obligation is released, unless that other person agrees that it should continue to be available to the creditor. Section 3: Transfer of contract Article 11:301: Principle of Transfer of contract (modification of article 12:201 (1)) A party to a contract may agree with a third person that that person is to be substituted as the contracting party. Article 11:302 Acceptance by the Assigned Party (addition) (1) The assignment takes effect as against the assigned party when it is accepted by that person. (2) The assigned party may agree to a future assignment which will be effective as against it only after it has been given notice thereof. Article 11:303 Scope of the Acceptance (addition) (1) As a rule, acceptance of an assignment by the assigned party frees the assignor.

Guiding and Revised Principles of European Contract Law 1381 (2) Nevertheless, the assigned party may limit the scope of its acceptance. Notably, it may declare to keep the assignor as a debtor in case of non-­performance of the contract by the assignee. Article 11:304 Effect of Transfer in the Absence of Acceptance (addition) (1) In the absence of consent on the part of the assigned party and unless the contract requires a personal performance, the assignment is effective as ­ between the assignor and assignee. (2) The assigned party may then bring an action against both the assignee and the assignor for performance, the assignee and assignor being jointly liable for the consequences of the non- performance. Article 11:305 Reference to assignment of claim and debt (modification of article 12:201 (2)) Insofar as reasonable, regarding all claims and debts arising from or which may arise from a contract, to the extent that the substitution of a contracting party implies an assignment of rights of performance (claims), then the provisions of section 1 of this chapter apply; to the extent that there is an assignment of debt, the provisions of section 2 of the present chapter apply. Article 11:306 Exclusion (addition) The provisions of this section apply subject to mandatory rules applicable to the contract by reason of its nature or its particular purpose, or by reason of the operation in which the assignment of the contract finds its place.

Commission Expert Group on European Contract Law: Feasibility Study for a Future Instrument in European Contract Law of 3 May 2011 A European Contract Law for Consumers and Businesses: Publication of the Results of the Feasibility Study Carried Out by the Expert Group on European Contract Law for Stakeholders’ and Legal Practitioners’ Feedback Part I  Introductory provisions Chapter 1  General Section 1  Application of the instrument Article 1: Interpretation and development (1) This instrument is to be interpreted and developed autonomously and in accordance with its objectives and the principles underlying it. (2) Issues within the scope of the instrument but not expressly settled by it are to be settled in accordance with the principles underlying it without recourse to national laws. (3) Where there is a general rule and a special rule applying to a particular situation within the scope of the general rule, the special rule prevails in any case of conflict. Article 2: Definitions For the purpose of this instrument, the following definitions apply: (1) ‘business’ means any natural or legal person who is acting for purposes ­relating to that person’s trade, business, craft or profession; (2) ‘business premises’ means: (a) any immovable retail premises where a business carries on activity on a permanent basis, or (b) any movable retail premises where a business carries on activity on a usual basis;

Feasibility Study 1383 (3) ‘consumer’ means any natural person who is acting for purposes which are outside his or her trade, business, craft or profession; (4) ‘consumer sales contract’ means a sales contract where the seller is a business and the buyer is a consumer; (5) ‘contract’ means an agreement between two or more parties giving rise to obligations or other legal effects; (6) ‘court’ includes an arbitral tribunal; (7) ‘damages’ means a sum of money to which a person may be entitled as compensation for some loss, injury or damage; (8) ‘distance contract’ means any sales or service contract between a business and a consumer concluded without the simultaneous physical presence of the business and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded; (9) ‘durable medium’ means any medium which enables a party to store information addressed personally to that party in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; (10) ‘good faith and fair dealing’ means a standard of conduct characterised by honesty, loyalty and consideration for the interests of the other party to the transaction or relationship in question; (11) ‘goods’ means corporeal movables; (12) ‘loss’ means economic and non-economic loss; non-economic loss includes pain and suffering, impairment of the quality of life and loss of enjoyment; (13) ‘off-premises contract’ means any sales or services contract between a business and a consumer: (a) concluded in the simultaneous physical presence of the business, or anyone acting in the name or on behalf of the business, and the consumer in a place which is not the business’s premises, or concluded on the basis of an offer made by the consumer in the same circumstances; or (b) concluded on the business premises or through any means of distance communication after the consumer was personally and individually addressed in a place which is not the business’s premises in the simultaneous physical presence of the business, or anyone acting in the name or on behalf of the business, and the consumer; or (c) concluded during an excursion organised by the business or of anyone acting in the name or on behalf of the business with the aim or effect of promoting and selling goods or services to the consumer; (14) ‘person’ means a natural or legal person; (15) ‘sales contract’ means any contract under which a business transfers or undertakes to transfer the ownership of goods to another person (the buyer), and the buyer undertakes to pay the price; it includes a sales ­contract under which the seller is to manufacture or produce the goods for the buyer;

1384  Part III: Common Principles (16) ‘service contract’ means any contract under which a business supplies or undertakes to supply a service to a customer; (17) ‘standard terms’ means terms which have been formulated in advance for several transactions involving different parties, and which have not been individually negotiated by the parties. Article 3: Mixed-purpose contracts (1) Any reference to a sales contract in this instrument includes a reference to a sales contract under which the seller undertakes to perform a service for the buyer in relation to the goods. (2) Where a contract provides both for the sale of goods and for the provision of a service, the rules of Part IV apply to the obligations and remedies of the parties as seller and buyer and the rules of Part V apply to the obligations and remedies of the parties as service provider and customer. Article 4: Reasonableness (1) Reasonableness is to be objectively ascertained, having regard to the nature and purpose of what is being done, to the circumstances of the case and to any relevant usages and practices. (2) Any reference to what can be expected of or by a person, or in a particular situation, is a reference to what can reasonably be expected. Article 5: Terms “not individually negotiated” (1) A term supplied by one party is not individually negotiated if the other party has not been able to influence its content, in particular because it has been drafted in advance, whether or not as part of standard terms. (2) Where one party supplies a selection of terms to the other party, a term will not be regarded as individually negotiated merely because the other party chooses that term from that selection. (3) A party who claims that a term supplied as part of standard terms has since been individually negotiated bears the burden of proving that it has been. (4) In a contract between a business and a consumer, the business bears the burden of proving that a term supplied by the business has been individually negotiated. (5) In contracts between a business and a consumer, terms drafted by a third party are considered to have been supplied by the business, unless the consumer introduced them to the contract. Article 6: Meaning and effects of termination of a contract (1) To ‘terminate’ a contract means to bring to an end the rights and obligations of both parties under the contract with the exception of those arising under any term of the contract providing for the settlement of disputes or any other term which is to operate even after termination.

Feasibility Study 1385 (2) Payments due and damages for any non-performance before the time of termination remain payable. Where the termination is for non-performance, for anticipated non-performance or for inadequate assurance of performance, the terminating party is also entitled to damages in lieu of the other party’s future performance. (3) The effects of termination regarding the repayment of the price and the return of the goods, and other restitutionary effects, are governed by the rules on restitution in Chapter 18. (4) Where a sales contract is terminated any related services contract is also terminated. Section 2  General principles Article 7: Freedom of contract (1) Parties are free to conclude a contract and to determine its contents, subject to any applicable mandatory rules. (2) Parties may exclude the application of any of the following rules, or derogate from or vary their effects, except as otherwise provided. Article 8: Good faith and fair dealing (1) Each party has a duty to act in accordance with good faith and fair dealing. (2) Breach of the duty may preclude the party in breach from exercising or relying on a right, remedy or defence which that party would otherwise have, or may make the party liable for any loss thereby caused to the other party. (3) The duty may not be excluded or limited by contract. Article 9: No form required Unless otherwise stated in this instrument, a contract, statement or any other act which is governed by it need not be made in or evidenced by a particular form. Section 3  Other general rules Article 10: Notice (1) This Article applies in relation to the giving of notice for any purpose under these rules. “Notice” includes the communication of any statement which is intended to have legal effect or to convey information for a legal purpose. (2) A notice may be given by any means appropriate to the circumstances. (3) A notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. (4) A notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee’s place of business or, where there is no such place of business or the notice does not relate to a business matter, to the addressee’s habitual residence;

1386  Part III: Common Principles (c) in the case of a notice transmitted by electronic means, when it can be accessed by the addressee; or (d) when it is otherwise made available to the addressee at such a place and in such a way that the addressee could be expected to obtain access to it without undue delay. (5) A notice has no effect if a revocation of it reaches the addressee before or at the same time as the notice. (6) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the rule in paragraph (4) or derogate from or vary its effects. Article 11: Computation of time (1) The provisions of this Article apply in relation to the computation of time for any purpose under this instrument. (2) Subject to the following provisions of this Article: (a) a period expressed in days starts at the beginning of the first hour of the first day and ends with the expiry of the last hour of the last day of the period; (b) a period expressed in weeks, months or years starts at the beginning of the first hour of the first day of the period, and ends with the expiry of the last hour of whichever day in the last week, month or year is the same day of the week, or falls on the same date, as the day from which the period runs; with the qualification that if, in a period expressed in months or in years, the day on which the period should expire does not occur in the last month, it ends with the expiry of the last hour of the last day of that month; (c) if a period includes part of a month, the month is considered to have thirty days for the purpose of calculating the length of the part. (3) Where a period expressed in days, weeks, months or years is to be calculated from a specified event, action or time the day during which the event occurs, the action takes place or the specified time arrives is not considered to fall within the period in question. (4) The periods concerned include Saturdays, Sundays and public holidays, save where these are expressly excepted or where the periods are expressed in working days. (5) Where the last day of a period is a Saturday, Sunday or public holiday at the place where a prescribed act is to be done, the period ends with the expiry of the last hour of the following working day. This provision does not apply to periods calculated retroactively from a given date or event. (6) Any period of two days or more is regarded as including at least two working days. (7) Where a person sends another person a document which sets a period of time within which the addressee has to reply or take other action but does not state when the period is to begin, then, in the absence of indications to the

Feasibility Study 1387 contrary, the period is calculated from the moment the document reaches the addressee. (8) In this Article: (a) “public holiday” with reference to a member state, or part of a member state, of the European Union means any day designated as such for that state or part in a list published in the official journal; and (b) “working days” means all days other than Saturdays, Sundays and ­public holidays. Article 12: Unilateral statements or conduct (1) A unilateral statement indicating intention is to be interpreted in the way in which it could be expected to be understood by the person to whom it is addressed. (2) However, if the person making the statement intended an expression used in it to have a particular meaning and the other party was aware, or could be expected to have been aware, of this intention, the expression is to be interpreted in the way intended by the person making the statement. (3) Articles 57 to 63 apply with appropriate adaptations to the interpretation of unilateral statements indicating intention. (4) The rules on defects in consent in Chapter 5 apply with appropriate adaptations to unilateral statements indicating intention which are intended to have legal effect. (5) In this Article any reference to a statement includes a reference to conduct which can be regarded as the equivalent of a statement. Part II  Making a binding contract Chapter 2  Pre-contractual information and negotiation Section 1  Pre-contractual information to be given by a business dealing with a consumer Article 13: General duty to disclose information about goods and services in contracts with consumers (1) Before the conclusion of a contract for the supply of goods or services by a business to a consumer, the business has a duty to supply the following information to the consumer: (a) the main characteristics of any goods or services to be supplied, to an extent appropriate to the goods or services, so far as the characteristics are not evident from the display of the goods; (b) the price inclusive of taxes, or where the nature of the goods or services means that the price cannot be calculated in advance, the manner in which the price is to be calculated; (c) any additional charges the consumer must pay the business in order to obtain possession of the goods;

1388  Part III: Common Principles (d) the duration of the contract and the minimum duration of the c­ onsumer’s obligations where applicable or, if the contract is for an indefinite period, the conditions for terminating the contract; and (e) the address and identity of the business with which the consumer is transacting, in accordance with Article 16. (2) The information provided, other than the addresses required by ­paragraph (1)(e), forms an integral part of the contract. Article 14: Duty to provide information when concluding a distance or off-premises contract with a consumer (1) A business concluding a distance contract or off-premises contract with a consumer has a duty to provide the following information to the consumer, before the contract is made or the consumer is bound by any offer: (a) the main characteristics of any goods or services to be supplied, to an extent appropriate to the medium of communication and to the goods or services; (b) the price, in accordance with Article 15; (c) the address and identity of the business with which the consumer is transacting, in accordance with Article 16; (d) the terms of the contract, in accordance with Article 17; (e) any available right of withdrawal, in accordance with Article 18; (f) the existence and the conditions of after-sale customer assistance, aftersale services, commercial guarantees and complaints handling policy where applicable; and (g) the possibility for out-of-court dispute resolution, where applicable. (2) The information provided, other than the addresses required by ­paragraph (1)(c), forms an integral part of the contract. (3) This Article does not apply where the contract is: (a) for the supply of foodstuffs, beverages or other goods which are intended for current consumption in the household, and which are physically supplied by a business on frequent and regular rounds to the consumer’s home, residence or workplace; (b) a distance contract concluded by means of an automatic vending machine or automated commercial premises; (c) an off-premises contract if the price or, where multiple contracts were concluded at the same time, the total price of the contracts does not exceed EUR 15 or the equivalent sum in the currency agreed for the contract price. Article 15: Information about price and additional charges when concluding a distance or off-premises contract with a consumer (1) The information to be provided under Article 14 (1) (b) must include: (a) the price inclusive of taxes, or where the nature of the goods or services means that the price cannot be calculated in advance, the manner in which the price is calculated; and

Feasibility Study 1389 (b) any additional freight, delivery or postal charges and any other costs or, where these cannot reasonably be calculated in advance, the fact that such additional charges and costs may be payable. (2) In the case of a service contract requiring payment of a subscription, the information must include the total subscription costs per periodical time unit. Where the total subscription cost cannot be calculated in advance, the manner in which the price is calculated must be provided. (3) If the business has not complied with the information requirements on additional charges or other costs as referred to in paragraphs (1)(b) and (2), the consumer is not liable to pay the additional costs and charges. Article 16: Information about address and identity of business when concluding a distance or off-premises contract with a consumer The information to be provided under Articles 13 (1) (e) and 14 (1) (c) must include: (a) the identity of the business, such as its trading name, (b) the geographical address at which the business is established; (c) details enabling the consumer to contact the business rapidly and communicate with it directly and, as the case may be, by electronic means; (d) where applicable, the geographical address and identity of any other business on whose behalf the business is acting; and (e) if it is different from the business’s geographical address, the geographical address of the business (and where applicable that of the business on whose behalf it is acting) to which the consumer should address any complaints. Article 17: Information about the terms of the contract when concluding a distance or off-premises contract with a consumer (1) The information to be provided under Article 14 (1) (d) must include the terms or arrangements as to: (a) payment; (b) the time and methods of delivery of the goods or performance of the services; (c) where relevant, the duration of the contract and the minimum duration of the consumer’s obligations or, if the contract is for an indefinite period, the conditions for terminating the contract; and (d) deposits or other financial guarantees to be paid or provided by the consumer at the request of the business, where applicable. (2) The information must also include the existence of the consumer’s rights in respect of non-conformity. Article 18: Information about withdrawal rights when concluding a distance or off-premises contract with a consumer (1) Where the consumer has a right of withdrawal under Chapter 4, the information to be provided under Article 14 (1) (e) must include

1390  Part III: Common Principles (a) the conditions, time limit and procedures for exercising that right in accordance with Annex I(A), as well as the standard withdrawal form set out in Annex I(B); and (b) if the consumer can exercise the right of withdrawal after having made a request for the provision of services to begin during the withdrawal period, that the consumer would be liable to pay the business reasonable costs according to Article 43 (9). (2) The duty to provide the information required by paragraph (1) may be fulfilled by supplying to the consumer the Model Withdrawal Information Form set out in Annex I(A). (3) Where a right of withdrawal does not apply in accordance with Article 40 (2) (c) to (h) and (3), the information to be provided under Article 14 (1) (e) must include a statement that the consumer will not benefit from a right of withdrawal. Article 19: Off-premises contracts: further information requirements and confirmation For an off-premises contract, the business must provide the information to be provided under Article 14 and a confirmation of the contract, in plain, intelligible language and on a durable medium. The business must provide the information and the confirmation on paper if the consumer so requests. Article 20: Distance contracts: further information and other requirements (1) When a consumer contacts a business with a view to concluding a distance contract, the business must as soon as is feasible inform the consumer of the cost of using the means of distance communication where it is calculated other than at the basic rate. (2) When a business initiates a telephone call to a consumer, with a view to concluding a distance contract, the business must, at the beginning of the conversation with the consumer, disclose its identity and, where applicable, the identity of the person on whose behalf it is making the call and the commercial purpose of the call. (3) For a distance contract, the information required by Article 14 must: (a) be given in a way that is appropriate to the means of distance communication used; (b) be in plain and intelligible language; and (c) so far as it is provided on a durable medium, be legible. (4) If the distance contract is concluded through a medium which allows ­limited space or time to display the information, the business must provide the minimum information required by this paragraph on that particular medium prior to the conclusion of such a contract, and must also inform the consumer where all the information referred to in Article 14 is available. The minimum information required is: (a) the main characteristics of the goods or services, as required by Article 14 (1) (a)

Feasibility Study 1391 (b) the total price, including all items referred to in Article 14 (1) (b) and Article 15 (1) and (2); and (c) where relevant, the duration of the contract; and if the contract is for an indefinite period, the requirements for terminating the contract, referred to in Article 17 (1) (c). (5) Where a distance contract which would oblige the consumer to make a payment is to be concluded by electronic means, neither the contract nor any offer is binding on the consumer until the consumer has explicitly confirmed the information required by paragraph 1 and by Articles 15 (1) and (2) and 17 (1) (c). A consumer who elects to treat the contract or offer as not binding is entitled to recover any payments made. (6) When the business takes the initiative of contacting the consumer by tele­ phone with a view to concluding a distance contract, the consumer is not bound until the consumer has received a confirmation from the business and has signed the offer or has sent written consent. (7) The business must give the consumer a confirmation of the contract concluded and all the information referred to in Article 14 on a durable medium, in reasonable time after the conclusion of the distance contract, and at the latest at the time of the delivery of the goods or when the performance of the service begins, unless the information has already been given to the consumer prior to the conclusion of the distance contract on a durable medium. Article 21: Burden of proof The business bears the burden of proof that it has provided the information required by this Section. Article 22: Mandatory nature of rules In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of the Articles of this Section or derogate from or vary their effects. Section 2  Pre-contractual information to be given by a business dealing with another business Article 23: Duty to disclose information about goods and services in contracts between businesses (1) Before the conclusion of a contract for the supply of goods or services by a business to another business, the supplier has a duty to disclose to the other business any information concerning the main characteristics of any goods or services to be supplied which the supplier has or can be expected to have and which it would be contrary to good faith and fair dealing not to disclose to the other party.

1392  Part III: Common Principles (2) In determining whether paragraph (1) requires a party to disclose any information, regard is to be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) the ease with which the other party could have acquired the information by other means; (d) the nature of the information; (e) the apparent importance of the information to the other party; and (f) good commercial practice in the situation concerned. Section 3  Duty to ensure information correct Article 24: Duty to ensure information supplied is correct (1) A party who supplies information before or at the time a contract is made, whether in compliance with the duties imposed by the Articles of this Chapter or otherwise, has a duty to take reasonable care to ensure that the information supplied is correct and is not misleading. A party to whom incorrect or misleading information has been supplied in breach of this duty, and who reasonably relies on that information in concluding a contract with the party who supplied it, has the remedies set out in Article 25. (2) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 4  Remedies for breach of information duties Article 25: Remedies for breach of information duties (1) Where a business has failed to comply with any duty to provide information under the preceding Articles of this Chapter and a contract has been concluded, and as a result of the incorrect information or the absence of information the other party reasonably understood that the business was undertaking an obligation, the business will have that obligation. (2) In cases not falling within paragraph (1), where a party has failed to comply with any duty imposed by the preceding Articles of this Chapter and as a result a contract has been concluded which the other party would not have concluded, or would not have concluded on the same terms, the first party is liable for loss caused to the other party by the failure. Articles 165, 166 and 167 apply with appropriate adaptations. (3) The remedies provided under this Article are without prejudice to any ­remedy which may be available under Articles 42 (3), 45 or 46. (4) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.

Feasibility Study 1393 Section 5  Contracts to be concluded by electronic means Article 26: Duties where contract to be concluded by electronic means (1) This Article applies where a business provides the means for concluding a contract and where those means are electronic and do not involve any individual communication on the part of the business. (2) The business must make available to the other party appropriate, effective and accessible technical means for identifying and correcting input errors before the other party makes or accepts an offer. (3) The business must provide information about the following matters before the other party makes or accepts an offer: (a) the technical steps to be taken in order to conclude the contract; (b) whether or not a contract document will be filed by the business and whether it will be accessible; (c) the technical means for identifying and correcting input errors before the other party makes or accepts an offer; (d) the languages offered for the conclusion of the contract; (e) any contract terms used. (4) The business must ensure that the contract terms referred to in paragraph (3)(e) are made available in alphabetical or other intelligible characters by means of any support which permits reading, recording of the information contained in the text and its reproduction in tangible form. (5) The business must acknowledge by electronic means and without undue delay the receipt of an offer or an acceptance sent by the other party. (6) Where a business has failed to comply with a duty under paragraphs (2)–(5) and a contract has been concluded in the circumstances there stated, the other party has: (a) a right to damages in accordance with Article 25; and (b) a right to withdraw from the contract by giving notice to the business within the period specified in Article 42, even if the other party is not a consumer. (7) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 6  Duties to negotiate in good faith and to respect confidentiality Article 27: Negotiations contrary to good faith and fair dealing (1) A person is free to negotiate and is not liable for failure to reach an agreement. (2) A person who is engaged in negotiations has a duty to negotiate in accordance with good faith and fair dealing and not to break off negotiations contrary to good faith and fair dealing. This duty may not be excluded or limited by contract. (3) A person who is in breach of the duty is liable for any loss caused to the other party by the breach.

1394  Part III: Common Principles (4) It is contrary to good faith and fair dealing, in particular, for a person to enter into or continue negotiations with no real intention of reaching an agreement with the other party. Article 28: Breach of confidentiality (1) If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for that party’s own purposes. (2) A party who is in breach of the duty is liable for any loss caused to the other party by the breach and may be ordered to pay over to the other party any benefit obtained by the breach. Chapter 3  Conclusion of contract Article 29: Requirements for the conclusion of a contract (1) A contract is concluded if: (a) the parties reach an agreement; (b) they intend the agreement to have legal effect; and (c) the agreement, supplemented if necessary by rules of law, has sufficient content and certainty to be given legal effect. (2) Agreement may be reached by acceptance of an offer or by other statements or conduct. (3) The intention of the parties that the agreement will have legal effect is to be determined from their statements and conduct interpreted in accordance with the rules on interpretation in Article 12. (4) If one of the parties makes agreement on some specific matter a requirement for the conclusion of a contract, there is no contract unless agreement on that matter has been reached. Article 30: Offer (1) A proposal is an offer if: (a) it is intended to result in a contract if it is accepted; and (b) it has sufficient content and certainty for there to be a contract. (2) An offer may be made to one or more specific persons or to the public. (3) Unless the circumstances indicate otherwise, a proposal by a business to supply goods at a stated price, made by a display of goods or made in a public advertisement or a catalogue referring to an identified stock, is an offer to any person who may lawfully buy the goods to supply them at that price until the goods displayed or the stock is exhausted. Article 31: Revocation of offer (1) An offer may be revoked if the revocation reaches the offeree before the offeree has sent an acceptance or, in cases of acceptance by conduct, before the contract has been concluded.

Feasibility Study 1395 (2) An offer made to the public can be revoked by the same means as were used to make the offer. (3) A revocation of an offer is ineffective if: (a) the offer indicates that it is irrevocable; (b) the offer states a fixed time for its acceptance; or (c) it was otherwise reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. Article 32: Rejection of offer When a rejection of an offer reaches the offeror, the offer lapses. Article 33: Acceptance (1) Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. (2) Silence or inactivity is not in itself acceptance. Article 34: Time of conclusion of the contract (1) Where an acceptance is sent by the offeree the contract is concluded when the acceptance reaches the offeror. (2) Where an offer is accepted by conduct, the contract is concluded when notice of the conduct reaches the offeror. (3) Where by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by conduct without notice to the offeror, the contract is concluded when the offeree begins to act. Article 35: Time limit for acceptance (1) An acceptance of an offer is effective only if it reaches the offeror within any time limit fixed by the offeror. (2) Where no time limit has been fixed by the offeror the acceptance is effective only if it reaches the offeror within a reasonable time. (3) Where an offer may be accepted by doing an act without notice to the offeror, the acceptance is effective only if the act is done within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time. Article 36: Late acceptance (1) A late acceptance is effective as an acceptance if without undue delay the offeror informs the offeree that the offeror is treating it as an effective acceptance. (2) Where a letter or other communication containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that the offer has lapsed.

1396  Part III: Common Principles Article 37: Modified acceptance (1) A reply by the offeree which states or implies additional or different terms which materially alter the terms of the offer is a rejection and a new offer. (2) A reply which gives a definite assent to an offer is an acceptance even if it states or implies additional or different terms, provided that these do not materially alter the terms of the offer. The additional or different terms then become part of the contract. (3) A reply which states or implies additional or different terms is always a rejection of the offer if: (a) the offer expressly limits acceptance to the terms of the offer; (b) the offeror objects to the additional or different terms without undue delay; or (c) the offeree makes the acceptance conditional upon the offeror’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time. Article 38: Conflicting standard terms (1) Where the parties have reached agreement except that the offer and acceptance refer to conflicting standard terms, a contract is nonetheless concluded. The standard terms are part of the contract to the extent that they are common in substance. (2) No contract is concluded if one party: (a) has indicated in advance, explicitly, and not by way of standard terms, an intention not to be bound by a contract on the basis of paragraph (1); or (b) without undue delay, informs the other party of such an intention. Article 39: Unsolicited goods or services (1) Where a business supplies unsolicited goods or unsolicited services to a consumer no contract arises from the consumer’s failure to respond or from any other action or inaction by the consumer in relation to the goods or services, and the consumer is exempted from any other liability to pay. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Chapter 4 Rights to withdraw Article 40: Right of withdrawal (1) The consumer has a right to withdraw during the period provided in Article 42, without giving any reason, and at no cost to the consumer except as provided in Article 43, from: (a) a distance contract, or (b) an off-premises contract, provided that the price or, where multiple contracts were concluded at the same time, the total price of the contracts exceeds EUR 15 or the equivalent sum in the currency agreed for the contract price.

Feasibility Study 1397 (2) Paragraph (1) does not apply to: (a) a contract concluded by means of an automatic vending machine or automated commercial premises; (b) a contract for the supply of foodstuffs, beverages or other goods which are intended for current consumption in the household and which are physically supplied by the business on frequent and regular rounds to the consumer’s home, residence or workplace; (c) a contract for the supply of goods for which the price depends on ­fluctuations in the financial market which cannot be controlled by the business; (d) a contract for the supply of goods which are: (i) made to the consumer’s specifications, or (ii) clearly personalised; (e) a contract for the supply of goods which are liable to deteriorate or expire rapidly; (f) a contract for the supply of alcoholic beverages, the price of which has been agreed upon at the time of the conclusion of the sales contract, the delivery of which can only take place after a certain delay and the actual value of which is dependent on fluctuations in the market which cannot be controlled by the business; (g) a contract for the unit sale of a newspaper, periodical or magazine excluding any form of subscription; (h) a contract concerning catering or the provision of services related to leisure activities which provides for a specific date or period of performance. (3) Paragraph (1) does not apply in the following situations: (a) where the goods supplied were sealed, have been unsealed by the consumer and are not then suitable for return due to health protection or hygiene reasons; (b) where the goods supplied have, according to their nature, been inseparably mixed with other items after delivery; (c) where the goods supplied were sealed audio or video recordings or computer software and have been unsealed by the consumer. (4) Where the consumer has made an offer which, if accepted, would lead to the conclusion of a contract from which there would be a right to withdraw under this Chapter the consumer may withdraw the offer even if it would otherwise be irrevocable. Article 41: Exercise of right to withdraw (1) The consumer may exercise the right to withdraw within the period of withdrawal specified in Article 42. (2) The right to withdraw is exercised by notice to the business at the address indicated by the latter. The consumer may use the standard withdrawal form set out in Annex I(B) or any other unequivocal statement addressed to the business.

1398  Part III: Common Principles (3) Where the business gives the consumer the option of submitting the standard withdrawal form electronically on the business’s website, and the consumer does so, the business has a duty to communicate to the consumer an acknowledgement of receipt of such a withdrawal by email without delay. The business is liable for any loss caused to the other party by a breach of this duty. (4) The consumer has the burden of proving that the right of withdrawal has been exercised in accordance with this Article. Article 42: Withdrawal period (1) A right to withdraw may be exercised by the consumer at any time before the end of the withdrawal period specified in paragraphs (2) and (3). (2) The withdrawal period expires after fourteen days from: (a) in the case of a sales contract, including a sales contract under which the seller also agrees to provide related services: (i) the day when the consumer has taken delivery of the goods; or (ii) where the goods consist of multiple lots or pieces, the day when the consumer has taken delivery of the last lot or piece; or (iii) where the contract is for regular delivery of goods during a defined period of time, the day when the consumer has taken delivery of the first item; or (iv) where the contract is for the sale of multiple goods ordered by the consumer in one order and delivered separately, for each of the individual items ordered the day when the consumer has taken delivery of that item; (b) in the case of a contract for related services made after the goods have been delivered, the day of the conclusion of the contract. (3) If the business has not provided the consumer with the information referred to in Articles 14 (1) (a), 15, 16 (a)—(d) or 18 (1), or if the information given does not comply with Articles 19 or 20(7), the withdrawal period expires: (a) after six months from the day referred to in paragraph 2 (a)—(e); or (b) where the business provides the consumer with this information within those six months, after fourteen days from the day the consumer receives the information. (4) A notice of withdrawal is timely if dispatched before the end of the withdrawal period. Article 43: Effects of withdrawal (1) Withdrawal terminates: (a) the obligations of both parties under the contract; or (b) in the case of a withdrawal of an offer under Article 40 (4), the right of the business to conclude a contract by accepting the offer. (2) The business must reimburse all payments received from the consumer without undue delay and no later than fourteen days from the day on which the business receives the notice of withdrawal.

Feasibility Study 1399 (3) In the case of a contract for the sale of goods, the business may withhold the reimbursement until it has received the goods back, or the consumer has supplied evidence of having sent back the goods, whichever is the earlier, unless the business has offered to collect the goods. (4) The consumer must return the goods or hand them over to the business or its representative without undue delay and no later than fourteen days from the day on which the consumer informs the business of the withdrawal, unless the business has offered to collect the goods. This deadline is met if the goods are sent back by the consumer before the period of fourteen days has expired. (5) The consumer is liable for the direct cost of returning the goods, unless the business has agreed to bear that cost. The consumer is not liable for any ­further costs. (6) In the case of an off-premises contract where the goods have been delivered to the consumer’s home at the time of the conclusion of the contract, the business must collect the goods at its own cost if the goods by their nature cannot be normally returned by post. (7) The consumer is liable for any diminished value of the goods only where that results from handling them in any way other than what is necessary to ascertain the nature and functioning of the goods. The consumer is not liable for diminished value where the business has failed to provide information about the right to withdraw in accordance with Article 18 (1). (8) Without prejudice to paragraph 7, the consumer is not liable to pay any compensation for the use of the goods during the withdrawal period. (9) Where the provision of services has already begun during the withdrawal period, a consumer who exercises the right of withdrawal is liable to pay an amount which is in proportion to the extent of the services provided until the time the consumer has informed the business of the exercise of the right of withdrawal only if: (a) the consumer has made an express request for the provision of services to begin during the withdrawal period; and (b) in the case of an off-premises contract, the request was made on a durable medium. (10) The consumer is not liable to pay for services performed, in full or in part, during the withdrawal period where the business has failed to provide information about the right to withdraw in accordance with Article 18 (1). Article 44: Ancillary contracts (1) If a consumer exercises the right of withdrawal from a distance or an offpremises contract in accordance with Articles 41 to 43, any ancillary contracts are automatically terminated at no cost to the consumer except as provided in the rules applicable under paragraphs (2) and (3). For this purpose an ancillary contract means a contract by which a consumer acquires goods or services related to a distance contract or an off-premises contract with a business and these goods or services are provided by the business or a third party on the basis of an arrangement between that third party and the business.

1400  Part III: Common Principles (2) The provisions of Article 43 (2) to (10) apply accordingly to ancillary contracts in so far as those contracts are governed by this instrument. (3) For ancillary contracts which are not governed by this instrument the applicable law governs the obligations of the parties in the event of withdrawal. Chapter 5  Defects in consent Article 45: Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) the party, but for the mistake, would not have concluded the contract or would have done so only on fundamentally different terms and the other party knew or could be expected to have known this; and (b) the other party: (i) caused the mistake; (ii) knew or could be expected to have known of the mistake and caused the contract to be concluded under a mistake by not ­pointing out the relevant information, provided that good faith and fair dealing would have required a party aware of the mistake to point it out; (iii) caused the contract to be concluded in mistake by failing to comply with a pre-contractual information duty under Chapter 2, ­Sections 1-5; or (iv) made the same mistake. (2) A party may not avoid a contract for mistake if: (a) the mistake was inexcusable in the circumstances; or (b) the risk of the mistake was assumed, or in the circumstances should be borne, by that party. (3) In determining whether good faith and fair dealing required a party to point out that the other is mistaken about relevant information for the purposes of paragraph (1)(b)(ii), regard is to be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) the ease with which the other party could have acquired the information by other means; (d) the nature of the information; and (e) the apparent importance of the information to the other party. (4) A party may not avoid a contract for mistake under this Article on the ground that one or both parties made a mistake over the terms of the contract. Article 46: Fraud (1) A party may avoid a contract if the other party has induced the conclusion of the contract by fraudulent misrepresentation, whether by words or conduct, or fraudulent non-disclosure of any information which good faith and fair dealing, or any pre-contractual information duty, required that party to disclose.

Feasibility Study 1401 (2) Misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false, or recklessly as to whether it is true or false, and is intended to induce the recipient to make a mistake. Non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake. (3) In determining whether good faith and fair dealing require a party to disclose particular information, regard should be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) the ease with which the other party could have acquired the information by other means; (d) the nature of the information; (e) the apparent importance of the information to the other party; and (f) in contracts between businesses good commercial practice in the situation concerned Article 47: Threats A party may avoid a contract if the other party has induced the conclusion of the contract by the threat of an imminent and serious harm which it is wrongful to inflict, or of an act which it is wrongful to use as a means to obtain the conclusion of the contract. Article 48: Unfair exploitation (1) A party may avoid a contract if, at the time of the conclusion of the contract: (a) the party was dependent on or had a relationship of trust with the other party, was in economic distress or had urgent needs, was improvident, ignorant, inexperienced or lacking in bargaining skill; and (b) the other party knew or could be expected to have known this and, given the circumstances and purpose of the contract, exploited the first party’s situation by taking an excessive benefit or unfair advantage. (2) Upon the request of the party entitled to avoid the contract, a court may adapt the contract in order to bring it into accordance with what probably would have been agreed had the requirements of good faith and fair dealing been observed. (3) Upon the request of a party receiving notice of avoidance for unfair exploitation, a court may adapt the contract in order to bring it into accordance with what probably would have been agreed had the requirements of good faith and fair dealing been observed, provided that the party receiving notice informs the party who gave the notice without undue delay after receiving it and before the latter party has acted in reliance on it. Article 49: Acts by third parties Where a person for whose acts a party is not responsible is guilty of fraud, threats or unfair exploitation, remedies under this Chapter are available if the party knew

1402  Part III: Common Principles or could be expected to have known of the relevant circumstances, or at the time of avoidance has not acted in reliance on the contract. Article 50: Notice of avoidance (1) Avoidance is effected by notice to the other party. (2) A notice of avoidance is effective only if it is given within a reasonable time after the avoiding party becomes aware of the relevant circumstances or becomes capable of acting freely. Article 51: Confirmation If the party who is entitled to avoid a contract confirms it, expressly or impliedly, after becoming aware of the relevant circumstances, or becoming capable of acting freely, that party may no longer avoid the contract. Article 52: Effects of avoidance (1) A contract which may be avoided is valid until avoided but, once avoided, is retrospectively invalid from the beginning. (2) Where a ground of avoidance affects only certain terms of a contract, the effect of avoidance is limited to those terms unless it is unreasonable to uphold the remainder of the contract. (3) The question whether either party has a right to the return of whatever has been transferred or supplied under a contract which has been avoided, or to a monetary equivalent, is regulated by the rules on restitution in Chapter 18. Article 53: Damages for loss A party who has the right to avoid a contract under this Section (or who had such a right before it was lost by the effect of time limits or confirmation) is entitled, whether or not the contract is avoided, to damages from the other party for loss suffered as a result of the mistake, fraud, threats or unfair exploitation, provided that the other party knew or could be expected to have known of the relevant circumstances. Article 54: Exclusion or restriction of remedies (1) Remedies for fraud, threats and unfair exploitation cannot be excluded or restricted. (2) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude or restrict remedies for mistake. Article 55: Choice of remedy A party who is entitled to a remedy under this Chapter in circumstances which afford that party a remedy for non-performance may pursue either remedy.

Feasibility Study 1403 Part III  Assessing what is in the contract Chapter 6  Interpretation Article 56: General rules on interpretation of contracts (1) A contract is to be interpreted according to the common intention of the parties even if this differs from the normal meaning of the expressions used in it. (2) If one party intended an expression used in the contract to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could be expected to have been aware, of this intention, the expression is to be interpreted in the way intended by the first party. (3) Unless otherwise provided in the preceding paragraphs, the contract is to be interpreted according to the meaning which a reasonable person would give to it in the circumstances. Article 57: Relevant matters In interpreting a contract, regard may be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the interpretation which has already been given by the parties to expressions which are similar to those used in the contract; (d) practices which the parties have established between themselves; (e) the meaning commonly given to expressions in the branch of activity concerned; (f) the nature and purpose of the contract; (g) usages; and (h) good faith and fair dealing. Article 58: Reference to contract as a whole Expressions used in a contract are to be interpreted in the light of the contract as a whole. Article 59: Linguistic discrepancies Where a contract document is in two or more language versions none of which is stated to be authoritative and where there is a discrepancy between the versions, there is a preference for interpretation according to the version in which the contract was originally drawn up. Article 60: Preference for negotiated terms Terms which have been individually negotiated prevail over those which have not. Article 61: Preference for interpretation which gives terms effect An interpretation which renders the terms of the contract effective is to be preferred to one which would not.

1404  Part III: Common Principles Article 62: Interpretation in favour of consumers (1) Where there is doubt about the meaning of a term in a contract between a business and a consumer, the interpretation most favourable to the consumer prevails unless the term was supplied by the consumer. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 63: Interpretation against supplier of term Where, in a contract which does not fall under Article 62, there is doubt about the meaning of a term which has not been individually negotiated, an interpretation of the term against the party who supplied it is to be preferred. Chapter 7  Contents and effects Article 64: Terms of a contract The terms of a contract are derived from: (a) the agreement of the parties, subject to any mandatory rules of this instrument; (b) any usage or practice by which the parties are bound under Article 65; (c) any rule of this instrument which applies in the absence of an agreement of the parties to the contrary; (d) any term implied under Article 66. Article 65: Usages and practices (1) The parties to a contract are bound by any usage which they have agreed should be applicable and by any practice they have established between themselves. (2) The parties are bound by a usage which would be considered generally applicable by persons in the same situation as the parties, except where the application of such usage would be unreasonable. (3) Usages and practices do not bind the parties to the extent to which they conflict with the express terms of the contract or any mandatory rules of this instrument Article 66: Terms which may be implied when necessary to fill a gap (1) Where it is necessary to provide for a matter which is not regulated by the agreement of the parties, any usage or practice or any rule of law, an additional term may be implied, having regard in particular to: (a) the nature and purpose of the contract; (b) the circumstances in which the contract was concluded; and (c) the requirements of good faith and fair dealing. (2) Any term implied under paragraph (1) is, where possible, to be such as to give effect to what the parties, had they provided for the matter, would ­probably have agreed.

Feasibility Study 1405 (3) Paragraph (1) does not apply if the parties have deliberately left a matter unprovided for, accepting that one or other party would bear the risk. Article 67: Terms derived from certain pre-contractual statements (1) If one of the parties to a contract is a business and before the contract is concluded makes a statement, either to the other party or publicly, about the characteristics of what is to be supplied by that business under the contract, the statement becomes a term of the contract unless: (a) the other party was aware when the contract was concluded, or could be expected to have been so aware, that the statement was incorrect or could not otherwise be relied on as such a term; or (b) the other party’s decision to conclude the contract could not have been influenced by the statement. (2) For the purposes of paragraph (1), a statement made by a person engaged in advertising or marketing for the business is regarded as being made by the business. (3) Where the other party is a consumer then, for the purposes of paragraph (1), a public statement made by or on behalf of a producer or other person in earlier links of the chain of transactions leading to the contract is regarded as being made by the business unless the business, at the time of conclusion of the contract, did not know and could not be expected to have known of it. (4) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 68: Merger clauses (1) Where a contract document contains a clause stating that the document embodies all the terms of the contract (a merger clause), any prior statements, undertakings or agreements which are not embodied in the document do not form part of the contract. (2) Unless the contract otherwise provides, a merger clause does not prevent the parties’ prior statements from being used to interpret the contract. (3) In a contract between a business and a consumer, the consumer is not bound by a merger clause. Article 69: Modification in certain form only A term in a contract requiring any modification or termination by agreement to be in a certain form establishes only a presumption that any such agreement is not intended to be legally binding unless it is in that form. Article 70: Determination of price Where the amount of the price payable under a contract cannot be otherwise determined, the price payable is, in the absence of any indication to the contrary, the price

1406  Part III: Common Principles normally charged in comparable circumstances at the time of the conclusion of the contract or, if no such price is available, a reasonable price. Article 71: Unilateral determination by a party Where the price or any other term of the contract is to be determined by one party and that party’s determination is grossly unreasonable then, notwithstanding any provision in the contract to the contrary, a reasonable price or other term is substituted. Article 72: Determination by a third party (1) Where a third party is to determine the price or any other term of the contract and cannot or will not do so, a court may, unless this is inconsistent with the terms of the contract, appoint another person to determine it. (2) Where a price or other term determined by a third party is grossly unreasonable, a reasonable price or term is substituted. Article 73: Language Where the language to be used for communications relating to the contract or the rights or obligations arising from it cannot be otherwise determined, the language to be used is that used for the conclusion of the contract. Article 74: Contracts of indefinite or perpetual duration Where, in a case involving continuous or periodic performance of a contractual obligation, the terms of the contract do not say when the contractual relationship is to end or say that it will never end, it may be terminated by either party by giving a reasonable period of notice. Article 75: Tacit prolongation Where a contract provides for continuous or repeated performance of obligations for a definite period and the obligations continue to be performed by both parties after that period has expired, the contract becomes a contract for an indefinite period, unless the circumstances are inconsistent with the tacit consent of the parties to such prolongation. Article 76: Contract terms in favour of third parties (1) The parties to a contract may, by the contract, confer a right on a third party. The third party need not be in existence or identified at the time the contract is concluded. (2) The nature and content of the third party’s right are determined by the contract. The right may take the form of an exclusion or limitation of the third party’s liability to one of the contracting parties. (3) A contracting party who is bound under the contract to perform an ­obligation in favour of the third party may assert against the third party all

Feasibility Study 1407 defences which the contracting party could assert against the other party to the contract. (4) The third party may reject the right by notice to either of the contracting parties, if that is done without undue delay after being notified of the right and before it has been expressly or impliedly accepted. On such rejection, the right is treated as never having accrued to the third party. (5) The contracting parties may remove or modify the term of the contract conferring the right if this is done before either of them has given the third party notice that the right has been conferred. Chapter 8  Unfair contract terms and default options Section 1  General provisions un unfair terms Article 77: Effects of unfair terms (1) A contract term which is supplied by one party and which is unfair under Sections 2, 3 or 4 of this Chapter is not binding on the other party. (2) If the contract can reasonably be maintained without the unfair term, the other terms remain binding. Article 78: Exclusions from unfairness test (1) Contract terms are not subjected to an unfairness test under Sections 2 or 3 of this Chapter if they reflect provisions of the law which would apply if the terms did not regulate the matter. (2) The unfairness test under Section 2 of this Chapter does not apply to the definition of the main subject matter of the contract, or to the appropriateness of the price to be paid in so far as the relevant contract terms are presented in an accessible and comprehensible way. (3) The unfairness test under Section 3 of this Chapter does not extend to the definition of the main subject matter of the contract or to the appropriateness of the price to be paid. Article 79: Mandatory nature of following provisions The parties may not exclude the application of the provisions in this Chapter or derogate from or vary their effects. Section 2  Unfair terms in contracts between a business and a consumer Article 80: Duty of transparency in terms not individually negotiated Where a business supplies terms which have not been individually negotiated with the consumer, it has a duty to ensure that they are presented in an accessible and comprehensible way. Terms are not presented in an accessible way if they are in a place where the consumer cannot be expected to find them.

1408  Part III: Common Principles Article 81: Meaning of “unfair” (1) In a contract between a business and a consumer, a term supplied by the business is unfair for the purposes of this Section if it significantly disadvantages the consumer, contrary to good faith and fair dealing. (2) For this purpose a term is supplied by the business if a version of it was included in terms originally supplied by the business, even if it has subsequently been the subject of negotiations with the consumer. Article 82: Factors to be taken into account in assessing unfairness When assessing the unfairness of a term for the purposes of this Section, regard is to be had to whether it is accessible and comprehensible to the consumer, to the nature of what is to be provided under the contract, to the circumstances prevailing during the conclusion of the contract, to whether the term has been individually negotiated, to the other terms of the contract and to the terms of any other contract on which the contract depends. Article 83: Terms which are always unfair A term is always unfair for the purposes of this Section if its object or effect is to: (a) exclude or limit the liability of the business for death or personal injury caused to the consumer through an act or omission of the business or by someone acting on behalf of the business; (b) exclude or limit the liability of the business for any loss or damage to the consumer caused deliberately or as a result of gross negligence (c) limit the business’s obligation to be bound by commitments undertaken by its authorised agents or make its commitments subject to compliance with a particular condition the fulfilment of which depends exclusively on the business; (d) exclude or hinder the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to an arbitration system not foreseen generally in legal provisions that apply to contracts between a business and a consumer; (e) confer exclusive jurisdiction for all disputes arising under the contract to a court for the place where the business is domiciled unless the chosen court is also the court for the place where the consumer is domiciled; (f) give the business the exclusive right to determine whether the goods or services supplied are in conformity with the contract or gives the business the exclusive right to interpret any term of the contract; (g) provide that the consumer is bound by the contract when the business is not; (h) make the initial contract period, or any renewal period, of a contract for the protracted provision of goods or services longer than one year, unless the consumer may terminate at all times with a termination period of no more than one month; (i) require the consumer, if terminating the contract, to use a more formal method than that by which the contract was concluded;

Feasibility Study 1409 (j) grant the business a shorter notice period to terminate than the one required of the consumer; (k) oblige the consumer pay for goods or services not actually delivered or rendered at all; (l) determine that non-individually negotiated terms of the contract prevail or have preference over terms which have been individually negotiated. Article 84: Terms which are presumed to be unfair A term is presumed to be unfair for the purposes of this Section if its object or effect is to: (a) restrict the evidence available to the consumer or impose on the consumer a burden of proof which should legally lie with the business; (b) inappropriately exclude or limit the remedies available to the consumer against the business or a third party for non-performance by the business of obligations under the contract; (c) inappropriately exclude or limit the right to set-off claims that the consumer may have against the business against what the consumer may owe to the business; (d) permit a business to keep money paid by the consumer if the latter decides not to conclude the contract, or perform obligations under it, without providing for the consumer to receive compensation of an equivalent amount from the business in the reverse situation; (e) require a consumer who fails to perform his or her obligations to pay a disproportionately high amount by way of damages or a stipulated payment for non-performance; (f) entitle a business to withdraw from or terminate the contract on a ­discretionary basis without giving the same right to the consumer, or entitle a business to keep money paid for services not yet supplied in the case where the business withdraws from or terminates the contract; (g) enable a business to terminate a contract of indeterminate duration without reasonable notice, except where there are serious grounds for doing so; (h) automatically extend a contract of fixed duration unless the consumer indicates otherwise, in cases where the terms of the contract provide for an unreasonably early deadline for giving notice; (i) enable a business to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; this does not affect terms under which a business reserves the right to alter unilaterally the terms of a contract of indeterminate duration, provided that the business is required to inform the consumer with reasonable notice, and that the consumer is free to terminate the contract; (j) enables a business to alter unilaterally without a valid reason any characteristics of the goods or services to be provided or any other features of performance; (k) provide that the price of goods or services is to be determined at the time of delivery or supply, or allow a business to increase the price without giving

1410  Part III: Common Principles the consumer the right to withdraw if the increased price is too high in relation to the price agreed at the conclusion of the contract; this does not affect price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described; (l) oblige a consumer to perform all his or her obligations where the business fails to perform its own; (m) allow a business to transfer its rights and obligations under the contract without the consumer’s consent, unless it is to a subsidiary controlled by the business, or as a result of a merger or a similar lawful company transaction, and such transfer is not likely to negatively affect any right of the consumer; (n) allow a business, where what has been ordered is unavailable, to supply an equivalent without having expressly informed the consumer of this ­possibility and of the fact that the business must bear the cost of returning what the consumer has received under the contract if the consumer exercises a right to reject performance; (o) allow a business to reserve an unreasonably long or inadequately specified period to accept or refuse an offer; (p) allow a business to reserve an unreasonably long or inadequately specified period to perform the obligations under the contract; (q) inappropriately exclude or limit the remedies available to the consumer against the business or the defences available to the consumer against claims by the business; (r) subject performance of obligations under the contract by the business, or subject other beneficial effects of the contract for the consumer, to particular formalities that are not legally required and are unreasonable; (s) require from the consumer excessive advance payments or excessive guarantees of performance of obligations; (t) unjustifiably prevent the consumer from obtaining supplies or repairs from third party sources; (u) unjustifiably bundle the contract with another one with the business, a subsidiary of the business, or a third party, in a way that cannot reasonably be expected by the consumer; (v) impose an excessive burden on the consumer in order to terminate a contract of indeterminate duration. Section 3  Unfair terms in contracts between businesses Article 85: Meaning of “unfair” in contracts between businesses (1) A term in a contract between businesses is unfair for the purposes of this ­Section only if: (a) it is a term forming part of not individually negotiated terms supplied by one party; (b) it significantly disadvantages the other party; and (c) it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing.

Feasibility Study 1411 (2) When assessing the unfairness of a term for the purposes of this Section, regard is to be had to the nature of what is to be provided under the contract, to the circumstances prevailing during the conclusion of the contract, to the other terms of the contract and to the terms of any other contract on which the contract depends. Section 4  Terms which are unfair because of the way the other party’s agreement was obtained Article 86: Terms not sufficiently drawn to the other party’s attention (1) Terms supplied by one party and not individually negotiated are unfair for the purposes of this Section if the other party was not aware of them, or if the party supplying the terms did not take reasonable steps to draw the other party’s attention to them, before or when the contract was concluded. (2) In relations between a business and a consumer, terms are not sufficiently brought to the consumer’s attention by a mere reference to them in a contract document, even if the consumer signs the document. Article 87: Surprising terms included in standard terms A term contained in standard terms supplied by one party which is of such a surprising nature that the other party could not have expected it is unfair for the purposes of this Section unless it was expressly accepted. Section 5  Agreement obtained by use of default options Article 88: Agreement obtained by use of default options In a contract between a business and a consumer, a term which obliges the consumer to make any payment in addition to the remuneration stated for the business’s main contractual obligation, and which has been obtained by the use of default options which the consumer is required to reject in order to avoid the additional payment, is not binding on the consumer unless, before the consumer is bound by the contract, the consumer has expressly consented to the additional payment. If the consumer has made the additional payment, the consumer may recover it. Part IV  Obligations and remedies of the parties to a sales contract Chapter 9  General provisions Article 89: Co-operation The parties are obliged to co-operate with each other when and to the extent that this can be expected for the performance of their contractual obligations. Article 90: Non-performance and fundamental non-performance (1) Non-performance of an obligation is any failure to perform the obligation, whether or not excused, and includes non-delivery of the goods, delayed

1412  Part III: Common Principles delivery, delivery of goods which are not in conformity with the contract, non-payment of the price, late payment of the price and any other purported performance which is not in conformity with the contract. (2) Non-performance of an obligation by one party is fundamental if: (a) it substantially deprives the other party of what that party was entitled to expect under the contract, unless at the time of conclusion of the contract the non-performing party did not foresee and could not be expected to have foreseen that result; or (b) it is of such a nature as to make it clear that the non-performing party’s future performance cannot be relied on. Article 91: Excused non-performance (1) A party’s non-performance of an obligation is excused if it is due to an impediment beyond that party’s control and if that party could not be expected to have taken the impediment into account at the time when the obligation was incurred, or to have avoided or overcome the impediment or its consequences. (2) Where the excusing impediment is only temporary the excuse has effect for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the other party may treat it as such. (3) Where the excusing impediment is permanent the contract is terminated automatically. The rules on restitution after termination in Chapter 18 apply. (4) The party who is unable to perform has a duty to ensure that notice of the impediment and of its effect on the ability to perform reaches the other party within a reasonable time after the first party knew or could be expected to have known of these circumstances. The other party is entitled to damages for any loss resulting from the non-receipt of such notice. Article 92: Change of circumstances (1) A party is bound to perform its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of what is to be received in return has diminished. (2) If, however, performance becomes excessively onerous because of an exceptional change of circumstances which satisfies the requirements of ­paragraph (5), the parties have a duty to enter into negotiations in accordance with good faith and fair dealing with a view to adapting or terminating the contract. (3) If the parties fail to reach an agreement within a reasonable time, then, upon request by either party a court may: (a) adapt the contract in order to bring it into accordance with what the parties would reasonably have agreed at the time of contracting if they had taken the change of circumstances into account; or (b) terminate the contract at a date and on terms to be determined by the court.

Feasibility Study 1413 (4) Subject to paragraph (5), the court may award damages for the loss suffered through a party refusing to negotiate or breaking off negotiations contrary to good faith and fair dealing. (5) This Article applies only if: (a) the change of circumstances occurred after the time when the obligation was incurred; (b) the aggrieved party did not at that time take into account, and could not be expected to have taken into account, the possibility or scale of that change of circumstances; and (c) the aggrieved party did not assume, and cannot reasonably be regarded as having assumed, the risk of that change of circumstances. Article 93: Extended application of rules on payment and goods not accepted (1) Unless otherwise provided, the rules on payment of the price by the buyer in Chapter 12, Section 2, apply with appropriate adaptations to other payments. (2) Article 100 applies with appropriate adaptations to other cases where a person is left in possession of goods because of a failure by another person to take them when that person is bound to do so. Chapter 10  Obligations of the seller Section 1  General Article 94: Overview (1) The seller must: (a) deliver the goods; (b) transfer the ownership of the goods; and (c) deliver such documents representing or relating to the goods as may be required by the contract. (2) The goods must be in conformity with the contract. Article 95: Performance by a third party (1) A seller may entrust performance to another person, unless personal performance by the seller is required. (2) A seller who entrusts performance to another person remains responsible for performance. (3) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the rule in paragraph (2) or derogate from or vary its effects. Section 2  Delivery Article 96: Place of delivery (1) Where the place of delivery cannot be otherwise determined, it is: (a) in the case of a consumer sales contract which is a distance or offpremises­contract, or in which the seller has undertaken to arrange

1414  Part III: Common Principles c­ arriage to the buyer, the consumer’s place of residence at the time of the conclusion of the contract; (b) in any other case, (i) where the contract of sale involves carriage of the goods by a carrier or series of carriers, the nearest collection point of the first carrier; (ii) where the contract does not involve carriage, the seller’s place of business at the time of conclusion of the contract. (2) If the seller has more than one place of business, the place of business for the purposes of paragraph (1) (b) is that which has the closest relationship to the obligation. Article 97: Method of delivery Unless agreed otherwise, the seller fulfils the obligation to deliver: (a) in the case of a consumer sales contract which is a distance or off-premises contract or in which the seller has undertaken to arrange carriage to the buyer, by transferring the physical possession or control of the goods to the consumer; (b) in other cases in which the contract involves carriage of the goods by a carrier, by handing over the goods to the first carrier for transmission to the buyer and by handing over to the buyer any document necessary to enable the buyer to take over the goods from the carrier holding the goods; or (c) in cases that do not fall within (a) or (b) above, by making the goods, or where it is agreed that the seller need only deliver documents representing the goods, the documents, available to the buyer. Article 98: Time of delivery Where the time of delivery cannot be otherwise determined, the goods must be delivered without undue delay after the conclusion of the contract. Article 99: Seller’s obligations regarding carriage of the goods (1) If the contract requires the seller to arrange for carriage of the goods, the seller must make such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. (2) If the seller, in accordance with the contract, hands over the goods to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods. (3) If the contract does not require the seller to effect insurance in respect of the carriage of the goods, the seller must, at the buyer’s request, provide the buyer with all available information necessary to enable the buyer to effect such insurance.

Feasibility Study 1415 Article 100: Goods not accepted by buyer (1) A seller who is left in possession of the goods because the buyer, when bound to do so, has failed to take delivery must take reasonable steps to protect and preserve them. (2) The seller may obtain discharge from the obligation to deliver: (a) by depositing the goods on reasonable terms with a third party to be held to the order of the buyer, and notifying the buyer of this; or (b) by selling the goods on reasonable terms after notice to the buyer, and paying the net proceeds to the buyer. (3) The seller is entitled to be reimbursed or to retain out of the proceeds of sale any costs reasonably incurred. Article 101: Effect on passing of risk The effect of delivery on the passing of risk is regulated by Chapter 14. Section 3  Conformity of the goods Article 102: Conformity with the contract (1) The goods do not conform with the contract unless they: (a) are of the quantity, quality and description required by the contract; (b) are contained or packaged in the manner required by the contract; and (c) are supplied along with any accessories, installation instructions or other instructions required by the contract. (2) Where the parties have not agreed otherwise, the goods do not conform with the contract if the requirements of Articles 103, 104 and 105 are not met. (3) In a consumer sales contract, any agreement derogating from the requirements of Articles 103 and 105 is valid only if, at the time of the conclusion of the contract, the consumer knew of the specific condition of the goods and accepted the goods as being in conformity with the contract when concluding it. The parties may not, to the detriment of the consumer, exclude the application of this paragraph or derogate from or vary its effects. Article 103: Criteria for conformity of the goods The goods must: (a) be fit for any particular purpose made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for the buyer to rely, on the seller’s skill and judgement; (b) be fit for the purposes for which goods of the same description would ordinarily be used; (c) possess the qualities of goods which the seller held out to the buyer as a sample or model; (d) be contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods;

1416  Part III: Common Principles (e) be supplied along with such accessories, installation instructions or other instructions as the buyer may reasonably expect to receive; (f) possess the qualities and performance capabilities held out in any statement which forms part of the terms of the contract by virtue of Article 67; and (g) possess such qualities and performance capabilities as the buyer may reasonably expect. Article 104: Incorrect installation under a consumer sales contract (1) Where goods supplied under a consumer sales contract are incorrectly installed, any non-conformity resulting from the incorrect installation is regarded as a non-conformity of the goods if: (a) the goods were installed by the seller or under the seller’s responsibility; or (b) the goods were intended to be installed by the consumer and the incorrect installation was due to a shortcoming in the installation instructions. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 105: Third party rights or claims The goods must be free from any right or not obviously unfounded claim of a third party, including rights or claims based on intellectual property. Article 106: Buyer’s knowledge of non-conformity in a contract between businesses In a contract between businesses, the seller is not liable for any non-conformity of the goods if, at the time of the conclusion of the contract, the buyer knew or could not have been unaware of the non-conformity. Article 107: Relevant time for establishing conformity (1) The seller is liable for any non-conformity which exists at the time when the risk passes to the buyer under Chapter 14. (2) In a consumer sales contract, any non-conformity which becomes apparent within six months of the time when risk passes to the buyer is presumed to have existed at that time unless this is incompatible with the nature of the goods or the nature of the non-conformity. (3) In a case governed by Article 104 any reference in paragraphs (1) or (2) to the time when risk passes to the buyer is to be read as a reference to the time when the installation is complete.

Feasibility Study 1417 Chapter 11  Buyer’s remedies Section 1  General Article 108: Overview of buyer’s remedies (1) In the case of a non-performance of an obligation by the seller, the buyer may: (a) require performance under Section 3 of this Chapter; (b) withhold the buyer’s own performance under Section 4 of this Chapter; (c) terminate the contract under Section 5 of this Chapter and claim the return under Chapter 18 of any price already paid; (d) reduce the price under Section 6 of this Chapter; and (e) claim damages under Chapter 17. (2) If the buyer is a business: (a) the buyer’s rights to exercise any remedy except withholding of performance are subject to the seller’s right to cure set out in Section 2 of this Chapter; and (b) the buyer’s rights to rely on a non-conformity are subject to the requirements of examination and notification set out in Section 7 of this Chapter. (3) If the buyer is a consumer: (a) the buyer’s rights are not subject to the seller’s right to cure; and (b) the requirements of examination and notification set out in Section 7 of this Chapter do not apply. (4) Paragraph (3)(a) does not apply in relation to any obligation of the seller to provide a service and accordingly in such a case the buyer’s rights to exercise any remedy except withholding of performance are subject to the seller’s right to cure set out in Section 2 of this Chapter. (5) If the seller’s non-performance is excused, the buyer may resort to any of the remedies mentioned in paragraph (1) except requiring performance and damages. (6) The buyer may not resort to any of the remedies mentioned in paragraph (1) to the extent that the buyer caused the seller’s non-performance. (7) Remedies which are not incompatible may be cumulated. Article 109: Limits on derogation from consumer’s remedies for non-conformity In a contract between a business and a consumer, any agreement concluded before a non-conformity is brought to the business’ attention which directly or indirectly waives or restricts the remedies of the consumer in respect of the non-conformity is not binding on the consumer.

1418  Part III: Common Principles Section 2  Seller’s right to cure Article 110: Right to cure (1) A seller who has delivered goods early and who is notified that they are not in conformity with the contract may make a new and conforming tender if that can be done within the time allowed for performance. (2) In cases not covered by paragraph (1) a seller who has tendered a performance which is not in conformity with the contract may, on being notified of the non-conformity, offer to cure it at the seller’s own expense. (3) The buyer may refuse the offer of cure only if: (a) cure cannot be effected promptly and without significant inconvenience to the buyer; (b) the buyer has reason to believe that the seller’s future performance cannot be relied on; or (c) delay in performance would amount to a fundamental non-performance. (4) The right to cure is not precluded by notice of termination. (5) If the offer of cure is not refused by the buyer, the seller has a reasonable period of time to effect cure. (6) The buyer may withhold performance pending cure but rights of the buyer which are inconsistent with allowing the seller a period of time to effect cure are suspended until that period has expired. (7) Notwithstanding cure, the buyer retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure. (8) This Article does not apply to a consumer sales contract unless it includes a service element, in which case it applies only to that element. Section 3  Requiring performance Article 111: Requiring performance of seller’s obligations (1) The buyer is entitled to require performance of the seller’s obligations. (2) The performance which may be required includes the remedying free of charge of a performance which is not in conformity with the contract. (3) Performance cannot, however, be required where: (a) performance would be unlawful or impossible; or (b) the burden or expense of performance would be disproportionate to the benefit the buyer would obtain. Article 112: Consumer’s choice between repair and replacement (1) Where, in a consumer sales contract, the business must remedy a nonconformity­under Article 111 paragraph (2) the consumer may choose between repair and replacement unless the one chosen would be unlawful or impossible or, compared to the other, would impose a burden on the seller that would be disproportionate to the benefit the consumer would obtain. (2) If the consumer has required the remedying of the non-conformity by repair or replacement in accordance with paragraph (1), the consumer may resort

Feasibility Study 1419 to other remedies, except withholding performance, only if the business has not completed repair or replacement within a reasonable time, not exceeding one month. Article 113: Return of replaced item (1) Where the seller has, whether voluntarily or in compliance with an order under Article 111, remedied a non-conformity by replacement, the seller has a right and an obligation to take back the replaced item at the seller’s expense. (2) The buyer is not liable to pay for any use made of the replaced item in the period prior to the replacement. (3) In a contract between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 4  Withholding performance of buyer’s obligations Article 114: Right to withhold performance (1) A buyer who is to perform at the same time as, or after, the seller performs has a right to withhold performance until the seller has tendered performance or has performed. (2) A buyer who is to perform before the seller performs and who reasonably believes that there will be non-performance by the seller when the seller’s performance becomes due may withhold performance for as long as the reasonable belief continues. However, the right to withhold performance is lost if the seller gives an adequate assurance of due performance or provides adequate security. (3) The performance which may be withheld under this Article is the whole or part of the performance as may be reasonable in the circumstances. Section 5  Termination Article 115: Termination for non-performance (1) A buyer may terminate the contract if the seller’s non-performance under the contract is fundamental. (2) In a contract between a business and a consumer the consumer may t­ erminate for non-performance in the case of any non-conformity, unless the nonconformity­is insignificant. Article 116: Termination after notice fixing additional time for performance (1) A buyer may terminate the contract in a case of delay in performance which is not in itself fundamental if the buyer gives a notice fixing an additional period of time of reasonable length for performance and the seller does not perform within that period. A notice which fixes a period of time which is unreasonably short is ineffective.

1420  Part III: Common Principles (2) The period is taken to be of reasonable length if the seller does not object to it without undue delay. (3) Where the notice provides for automatic termination if the seller does not perform within the period fixed by the notice, termination takes effect after that period without further notice. (4) In a consumer sales contract, the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 117: Termination for anticipated non-performance A buyer may terminate before performance is due if the seller has declared, or it is otherwise clear, that there will be a non-performance, and if the non-performance would be such as to justify termination. Article 118: Termination for inadequate assurance of performance A buyer who reasonably believes that there will be a non-performance by the seller such as to justify termination may terminate if the buyer demands an adequate assurance of due performance or adequate security and no such assurance or security is provided within a reasonable time. Article 119: Scope of right to terminate (1) Where the seller’s obligations under the contract are to be performed in separate parts or are otherwise divisible, then if there is a ground for termination under this Section of a part to which a part of the price can be apportioned, the buyer may terminate only in relation to that part, unless the buyer cannot be expected to accept performance of the other parts or the non-performance is such as to justify termination of the contract as a whole. (2) Where the seller’s obligations under the contract are not divisible or a part of the price cannot be apportioned, the buyer may terminate only if the nonperformance is such as to justify termination of the contract as a whole. Article 120: Notice of termination A right to terminate under this Section is exercised by notice to the seller. Article 121: Loss of right to terminate (1) The buyer loses the right to terminate under this Section unless notice of termination is given within a reasonable time from when the right arose or the buyer became, or could be expected to have become, aware of the nonperformance, whichever is later. (2) This Article does not apply: (a) where the buyer is a consumer; or (b) where no performance at all has been tendered.

Feasibility Study 1421 (3) The parties may not, to the detriment of the consumer, exclude the application of paragraph (2) or derogate from or vary its effects. Section 6  Price reduction Article 122: Right to reduce price (1) A buyer who accepts a performance not conforming to the contract may reduce the price. The reduction is to be proportionate to the decrease in the value of what was received in performance at the time it was made compared to the value of what would have been received by a conforming performance. (2) A buyer who is entitled to reduce the price under paragraph (1) and who has already paid a sum exceeding the reduced price may recover the excess from the seller. (3) A buyer who reduces the price cannot also recover damages for the loss thereby compensated but remains entitled to damages for any further loss suffered. Section 7  Requirements of examination and notification in a contract between businesses Article 123: Examination of the goods in contracts between businesses (1) In a contract between businesses the buyer is expected to examine the goods, or cause them to be examined, within as short a period as is reasonable in the circumstances. Failure to do so may result in the buyer losing the right to rely on the non-conformity under Article 124. (2) If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. (3) If the goods are redirected in transit, or redispatched by the buyer before the buyer has had a reasonable opportunity to examine them, and at the time of the conclusion of the contract the seller knew or could be expected to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. Article 124: Requirement of notification of non- conformity in sales contracts between businesses (1) In a contract between businesses the buyer may not rely on a non-conformity unless the buyer gives notice to the seller within a reasonable time specifying the nature of the non-conformity. (2) The reasonable time runs from the time when the goods are supplied or from the time, if it is later, when the buyer discovered or could be expected to have discovered the non-conformity. (3) The buyer in any event loses the right to rely on a non-conformity if the buyer does not give the seller notice of the non-conformity at the latest within two years from the time at which the goods were actually handed over to the buyer in accordance with the contract.

1422  Part III: Common Principles (4) If the parties have agreed that the goods must remain fit for a particular purpose or for their ordinary purpose during a fixed period of time, the period for giving notice under paragraph (3) does not expire before the end of the agreed period. (5) Paragraph (3) does not apply in respect of third party claims or rights pursuant to Article 105. (6) The buyer does not have to notify the seller that not all the goods have been delivered if the buyer has reason to believe that the remaining goods will be delivered. (7) The seller is not entitled to rely on the provisions of this Article if the nonconformity relates to facts of which the seller knew or could be expected to have known and which the seller did not disclose to the buyer. Chapter 12  Obligations of the buyer Section 1  Overview Article 125: Main obligations of the buyer The buyer must: (a) pay the price; (b) take delivery of the goods; and (c) take over documents representing or relating to the goods as may be required by the contract. Section 2  Payment of the price Article 126: Method of payment (1) Payment may be made by any method used in the ordinary course of business at the place of payment taking into account the nature of the transaction. (2) A seller who accepts a cheque or other order to pay or a promise to pay is presumed to do so only on condition that it will be honoured. The seller may enforce the original obligation to pay only if the order or promise is not honoured. (3) The buyer’s original obligation is extinguished if the seller accepts a promise to pay from: (a) a third party with whom the seller has a pre-existing arrangement to accept the third party’s promise as a means of payment by debtors who are members of a scheme of which that third party is also a member; (b) a third party who the seller could be expected to know has already been paid by the buyer; or (c) a third party who the seller knows or could be expected to know will be entitled to payment by the buyer irrespective of whether that third party pays the seller.

Feasibility Study 1423 Article 127: Place of payment (1) Where the place of payment cannot otherwise be determined it is the seller’s place of business at the time of conclusion of the contract. (2) If the seller has more than one place of business, the place of business is that which has the closest relationship to the obligation to pay. Article 128: Time of payment (1) Payment of the price is due at the moment of delivery. (2) The seller may reject an offer to pay before payment is due if the seller has a legitimate interest in so doing. Article 129: Payment by a third party (1) A buyer may entrust payment to another person. A buyer who entrusts payment to another person remains responsible for payment. (2) The seller cannot refuse payment by a third party if: (a) the third party acts with the assent of the buyer; or (b) the third party has a legitimate interest in paying and the buyer has failed to pay or it is clear that the buyer will not pay at the time payment is due. (3) Payment by a third party in accordance with paragraphs (1) or (2) discharges the buyer from liability to the seller. (4) Where the seller accepts payment by a third party in circumstances not covered by paragraphs (1) or (2) the buyer is discharged from liability to the seller but the seller is liable to the buyer for any loss caused by that acceptance. Article 130: Imputation of payment (1) Where a buyer has to make several payments to the seller and the payment made does not suffice to cover all of them, the buyer may at the time of payment notify the seller of the obligation to which the payment is to be imputed. (2) If the buyer does not make a notification under paragraph (1) the seller may, by notifying the buyer within a reasonable time, impute the performance to one of the obligations. (3) An imputation under paragraph (2) is not effective if it is to an obligation which is not yet due or is disputed. (4) In the absence of an effective imputation by either party, the payment is imputed to that obligation which satisfies one of the following criteria in the sequence indicated: (a) the obligation which is due or is the first to fall due; (b) the obligation for which the seller has no or the least security; (c) the obligation which is the most burdensome for the buyer; or (d) the obligation which arose first. If none of the preceding criteria applies, the payment is imputed proportionately to all the obligations.

1424  Part III: Common Principles (5) The payment may be imputed under paragraph (2) or (4) to an obligation which is unenforceable as a result of prescription only if there is no other obligation to which the payment could be imputed in accordance with those paragraphs. (6) In relation to any one obligation a payment by the buyer is to be imputed, first, to expenses, secondly, to interest, and thirdly, to principal, unless the seller makes a different imputation. Section 3  Taking delivery Article 131: Taking delivery The buyer fulfils the obligation to take delivery by: (a) doing all the acts which could be expected in order to enable the seller to perform the obligation to deliver; and (b) taking over the goods, or the documents representing the goods, as required by the contract. Article 132: Early delivery and delivery of wrong quantity (1) If the seller delivers the goods before the time fixed, the buyer may take delivery or, if the buyer has a legitimate interest in so doing, refuse to take delivery. (2) If the seller delivers a quantity of goods less than that provided for in the contract the buyer may take delivery or, if the buyer has a legitimate interest in so doing, refuse to take delivery. (3) If the seller delivers a quantity of goods greater than that provided for by the contract, the buyer may retain or refuse the excess quantity. (4) If the buyer retains the excess quantity it is regarded as having been supplied under the contract and must be paid for at the contractual rate. (5) In a consumer sales contract paragraph (4) does not apply if the buyer believes on reasonable grounds that the seller has delivered the excess quantity intentionally and without error, knowing that it had not been ordered. In such a case Article 39 applies. Chapter 13  Seller’s remedies Section 1  General Article 133: Overview (1) In the case of a non-performance of an obligation by the buyer, the seller may: (a) require performance under Section 2 of this Chapter; (b) withhold the seller’s own performance under Section 3 of this Chapter; (c) terminate the contract under Section 4 of this Chapter; and (d) claim interest on the price or damages under Chapter 17. (2) If the buyer’s non-performance is excused, the seller may resort to any of those remedies except requiring performance and damages.

Feasibility Study 1425 (3) The seller may not resort to any of those remedies to the extent that the seller caused the buyer’s non-performance. (4) Remedies which are not incompatible may be cumulated. Section 2  Requiring performance Article 134: Requiring performance of buyer’s obligations (1) The seller is entitled to recover payment of the price when it is due, and to require performance of any other obligation undertaken by the buyer. (2) Where the buyer has not yet taken over the goods and it is clear that the buyer will be unwilling to receive performance, the seller may nonetheless require the buyer to take delivery, and may recover the price, unless: (a) the seller could have made a reasonable substitute transaction without significant effort or expense; or (b) performance would be unreasonable in the circumstances. Section 3  Withholding performance of seller’s obligations Article 135: Right to withhold performance (1) A seller who is to perform at the same time as, or after, the buyer performs has a right to withhold performance until the buyer has tendered performance or has performed. (2) A seller who is to perform before the buyer performs and who reasonably believes that there will be non-performance by the buyer when the seller’s performance becomes due may withhold performance for as long as the reasonable belief continues. However, the right to withhold performance is lost if the buyer gives an adequate assurance of due performance or provides adequate security. (3) The performance which may be withheld under this Article is the whole or part of the performance as may be reasonable in the circumstances. Section 4  Termination Article 136: Termination for fundamental non-performance A seller may terminate the contract if the buyer’s non-performance under the contract is fundamental. Article 137: Termination after notice fixing additional time for performance (1) A seller may terminate in a case of delay in performance which is not in itself fundamental if the seller gives a notice fixing an additional period of time of reasonable length for performance and the seller does not perform within that period. A notice which fixes a period of time which is unreasonably short is ineffective. (2) The period is taken to be of reasonable length if the buyer does not object to it without undue delay.

1426  Part III: Common Principles (3) Where the notice provides for automatic termination if the buyer does not perform within the period fixed by the notice, termination takes effect after that period without further notice. (4) In a consumer sales contract, the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 138: Termination for anticipated non-performance A seller may terminate before performance is due if the buyer has declared, or it is otherwise clear, that there will be a non-performance, and if the non-performance would be fundamental. Article 139: Termination for inadequate assurance of performance A seller who reasonably believes that there will be a fundamental non-performance by the buyer may terminate if the seller demands an adequate assurance of due performance or adequate security and no such assurance or security is provided within a reasonable time. Article 140: Scope of right to terminate (1) Where the buyer’s obligations under the contract are to be performed in separate parts, then if there is a ground for termination under this Section of a part which corresponds to a divisible part of the seller’s obligations, the seller may terminate only in relation to that part, unless the non-performance is fundamental in relation to the contract as a whole. (2) Where the buyer’s obligations under the contract are not to be performed in separate parts, the seller may terminate only if the non-performance is fundamental in relation to the contract as a whole Article 141: Notice of termination A right to terminate under this Section is exercised by notice to the buyer. Article 142: Loss of right to terminate (1) If performance has been tendered late or a tendered performance otherwise does not conform to the contract the seller loses the right to terminate under this Section unless notice of termination is given within a reasonable time from when the seller has become, or could be expected to have become, aware of the tender or the non-conformity. (2) A seller loses a right to terminate by notice under Articles 138 or 139 unless the seller gives notice of termination within a reasonable time after the right has arisen. (3) If the buyer has not paid the price or has not performed in some other way which is fundamental, the seller retains the right to terminate.

Feasibility Study 1427 Chapter 14  Passing of risk Section 1  General provisions Article 143: Effect of passing of risk Loss of, or damage to, the goods after the risk has passed to the buyer does not discharge the buyer from the obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. Article 144: Identification of goods to contract The risk does not pass to the buyer until the goods are clearly identified to the contract, whether by the initial agreement, by notice given to the buyer or otherwise. Section 2  Passing of risk in consumer sales contracts Article 145: Passing of risk in a consumer sales contract (1) In a consumer sales contract, the risk does not pass until the consumer or a third party, other than the carrier, designated by the consumer for this ­purpose has acquired the physical possession of the goods. (2) Except where the contract is a distance or off-premises contract, paragraph (1) does not apply where the consumer fails to perform the obligation to take over the goods and the non-performance is not excused under Article 91. In this case the risk passes at the time when the consumer, or the third party designated by the consumer, would have acquired the physical possession of the goods if the obligation to take them over had been performed. (3) Where the consumer arranges the carriage of the goods independently from the business, the risk passes when the goods are handed over to the carrier. (4) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 3  Passing of risk in contracts between businesses Article 146: Time when risk passes (1) In a contract between businesses the risk passes when the buyer takes over the goods or the documents representing them. (2) The rule in paragraph (1) is subject to the following Articles in this Section. Article 147: Goods placed at buyer’s disposal (1) If the goods are placed at the buyer’s disposal and the buyer is aware of this, the risk passes to the buyer from the time when the goods should have been taken over, unless the buyer was entitled to withhold taking of delivery under Article 114.

1428  Part III: Common Principles (2) If the goods are placed at the buyer’s disposal at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods are placed at the buyer’s disposal at that place. Article 148: Carriage of the goods (1) This Article applies to a contract of sale which involves carriage of goods. (2) If the seller is not bound to hand over the goods at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract. (3) If the seller is bound to hand over the goods to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. (4) The fact that the seller is authorised to retain documents controlling the disposition of the goods does not affect the passing of the risk. Article 149: Goods sold in transit (1) This Article applies to a contract of sale which involves goods sold in transit. (2) The risk passes to the buyer as from the time the goods were handed over to the first carrier. However, if the circumstances so indicate, the risk passes to the buyer as from the time of the conclusion of the contract. (3) If at the time of the conclusion of the contract the seller knew or could be expected to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Part V  Obligations and remedies of the parties to a related services contract Chapter 15  General provisions Article 150: Scope (1) This Part applies to contracts under which a seller of goods (in this Part called “the service provider”) undertakes to provide the buyer (in this Part called “the customer”) with services related to the goods, such as installation, maintenance or repair (“the service”), whether under the sales contract or under a separate service contract which was concluded at the same time as the sales contract or provided for, even if only as an option, in the sales contract. (2) This Part does not apply to transport services, training services, telecommunications support services, or financial services. (3) This Part applies whether or not a separate price was agreed for the service. Article 151: Application of certain general rules on sales contracts The rules in Part IV, Chapter 9, apply for the purposes of this Part.

Feasibility Study 1429 Chapter 16  Obligations and remedies of the parties Section 1  Obligations of the service provider Article 152: Obligation to achieve result and obligation of care and skill (1) The service provider must achieve any specific result required by the contract. (2) In the absence of any express or implied contractual obligation to achieve a specific result, the service provider must perform the service with the care and skill which a reasonable service provider would exercise under the circumstances and in conformity with any statutory or other binding legal rules which are applicable to the service. (3) In determining the reasonable care and skill required of the service provider, regard is to be had, among other things, to: (a) the nature, the magnitude, the frequency and the foreseeability of the risks involved in the performance of the service for the customer; (b) if damage has occurred, the costs of any precautions which would have prevented that damage or similar damage from occurring; and (c) the time available for the performance of the service. (4) Where in a contract between a business and a consumer the service includes installation of the goods, the installation must be such that the installed goods conform to the contract as required by Article 104. (5) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the rule in paragraph (2) or derogate from or vary its effects. Article 153: Obligation to prevent damage The service provider must take reasonable precautions in order to prevent any damage to the goods or physical injury or any other loss or damage in the course of or as a consequence of the performance of the service. Article 154: Performance by a third party (1) A service provider may entrust performance to another person, unless personal performance by the service provider is required. (2) A service provider who entrusts performance to another person remains responsible for performance. (3) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the rule in paragraph (2) or derogate from or vary its effects. Article 155: Obligation to provide invoice Where a separate price is payable for the service, and the price is not a lump sum agreed at the time of conclusion of the contract, the service provider must provide the customer with an invoice which explains, in a clear and intelligible way, how the price was calculated.

1430  Part III: Common Principles Article 156: Obligation to warn of unexpected or uneconomic cost (1) The service provider must warn the customer and seek the consent of the customer to proceed if: (a) the cost of the service would be greater than already indicated by the service provider to the customer; or (b) the service would cost more than the value of the goods after the service has been provided, so far as this is known to the service provider. (2) A service provider who fails to obtain the consent of the customer in accordance with paragraph (1) is not entitled to a price exceeding the cost already indicated or, as the case may be, the value of the goods after the service has been provided. Section 2  Obligations of the customer Article 157: Payment of the price (1) The customer must pay any price that is payable for the service in accordance with the contract. (2) The price is payable when the service is completed and the object of the service is made available to the customer. (3) If the goods are destroyed or lost, because of an event which was not due to an act or omission of the service provider, the price remains payable, even if the goods have not been returned to the customer. Article 158: Allowing access Where it is necessary for the service provider to obtain access to the customer’s premises in order to perform the service the customer must provide such access at reasonable hours. Section 3 Remedies Article 159: Remedies of the customer (1) In the case of a non-performance of an obligation by the service provider, the customer has, with the adaptations noted below, the same remedies as are provided for the buyer in Chapter 11, namely: (a) to require performance; (b) to withhold the customer’s own performance; (c) to terminate the contract; (d) to reduce the price; and (e) to claim damages. (2) The customer’s remedies are subject to a right of the service provider to cure whether or not the customer is a consumer. (3) The customer, if a consumer, has the right to terminate the contract for any non-conformity in the service provided unless the non-conformity is insignificant.

Feasibility Study 1431 (4) Chapter 11 therefore applies: (a) with the adaptation that Article 110 applies even if the customer is a consumer; (b) with the adaptation that in relation to the remedying of a nonconforming­performance Articles 112 and 113 do not apply; (c) with the adaptation that Article 124 is replaced by Article 160; and (d) with any other necessary adaptations. Article 160: Requirement of notification of non-conformity in service contracts between businesses (1) In a service contract between businesses, the customer may not rely on a nonconformity unless the customer gives notice to the service provider within a reasonable time specifying the nature of the non-conformity. (2) The reasonable time runs from the time when the service was completed or from the time, if it is later, when the customer discovered or could be expected to have discovered the non-conformity. (3) The service provider is not entitled to rely on the provisions of this Article if the non-conformity relates to facts of which the service provider knew or could be expected to have known and which the service provider did not disclose to the buyer. Article 161: Remedies of the service provider (1) In the case of a non-performance by the customer, the service provider has, with the adaptations noted below, the same remedies as are provided for the seller in Chapter 13, namely: (a) to require performance; (b) to withhold the service provider’s own performance; (c) to terminate the contract; and (d) to claim interest on the price or damages. (2) Chapter 13 therefore applies: (a) with the adaptation that Article 134 paragraph (2) is replaced by Article 162; and (b) with any other necessary adaptations. Article 162: Customer’s right to decline performance (1) The customer may at any time give notice to the service provider that performance, or further performance, of the service is no longer required. (2) Where notice is given under paragraph (1): (a) the service provider no longer has the right or obligation to provide the service; and (b) the customer, if there is no ground for termination under any other provision, remains liable to pay the price less the expenses that the service provider has saved or could be expected to have saved by not having to complete performance.

1432  Part III: Common Principles (3) In relations between a business and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Part VI  Damages, stipulated payments for non-performance and interest Chapter 17  Damages, stipulated payments for non-performance and interest Section 1  Damages Article 163: Right to damages (1) A party (in this Part, “the creditor”) is entitled to damages for loss caused by the non-performance of an obligation by the other party (in this Part, “the debtor”), unless the non-performance is excused. (2) The loss for which damages are recoverable includes future loss which is reasonably likely to occur. Article 164: General measure of damages The general measure of damages for loss caused by non-performance of an obligation is such sum as will put the creditor as nearly as possible into the position in which the creditor would have been if the obligation had been duly performed. Such damages cover loss which the creditor has suffered and gain of which the creditor has been deprived. Article 165: Foreseeability of loss The debtor is liable only for loss which the debtor foresaw or could be expected to have foreseen at the time when the contract was concluded as a likely result of the non-performance. Article 166: Loss attributable to creditor The debtor is not liable for loss suffered by the creditor to the extent that the creditor contributed to the non-performance or its effects. Article 167: Reduction of loss (1) The debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps. (2) The creditor is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. Article 168: Substitute transaction A creditor who has terminated a contract in whole or in part and has made a substitute transaction within a reasonable time and in a reasonable manner may, in so far as entitled to damages, recover the difference between the value of what would have

Feasibility Study 1433 been payable under the terminated contract and the value of what is payable under the substitute transaction, as well as damages for any further loss. Article 169: Current price Where the creditor has terminated the contract and has not made a substitute transaction but there is a current price for the performance, the creditor may, in so far as entitled to damages, recover the difference between the contract price and the price current at the time of termination as well as damages for any further loss. Section 2  Stipulated payment for non-performance Article 170: Stipulated payment for non-performance (1) Where the contract provides that a debtor who fails to perform the obligation is to pay a specified sum to the creditor for such non-performance, the creditor is entitled to that sum irrespective of the actual loss. (2) However, despite any provision to the contrary, the sum so specified in the contract may be reduced to a reasonable amount where it is grossly excessive in relation to the loss resulting from the non-performance and the other circumstances. Section 3  Interest on late payments: general rules Article 171: Interest on late payments (1) If payment of a sum of money is delayed, the creditor is entitled, without the need to give notice, to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place where payment is due. (2) The creditor may in addition recover damages for any further loss. Article 172: Special provisions on interest when the debtor is a consumer (1) When the debtor is a consumer, interest for delay in payment is due at the rate provided in Article 171 only when non-performance is not excused. (2) Interest does not start to run until 30 days after the creditor has given notice to the debtor specifying the obligation to pay interest and its rate. Notice may be given before the date when payment is due. (3) A term of the contract which fixes a rate of interest higher than the one provided in the preceding Article, or accrual earlier than the time provided in paragraph (2) is not binding to the extent that this would be unfair according to Article 81. (4) Interest for delay in payment cannot be added to capital in order to produce interest. (5) The parties may not, to the detriment of the consumer, exclude the a­ pplication of this Article or derogate from or vary its effects.

1434  Part III: Common Principles Section 4  Provisions combating late payments by commercial debtors Article 173: Rate of interest and accrual (1) If a business delays the payment of a price due under a contract for the supply of goods or services without being excused under Article 91, interest is due at the rate specified in paragraph (5). (2) Interest at the rate specified in paragraph (5) starts to run on the day which follows the date or the end of the period for payment provided in the contract. If there is no such date or period, interest at that rate starts to run: (a) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or (b) 30 days after the date of receipt of the goods or services, if the date under (a) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment. (3) If conformity of goods or services to the contract is to be ascertained by way of acceptance or verification, the 30 day period under paragraph (2) (b) starts to run on the date of acceptance or verification. The maximum duration of the verification procedure cannot exceed 30 calendar days from the date of receipt of the goods or services, unless the parties expressly agree otherwise and this agreement is not unfair according to Article 175. (4) The period for payment determined under (2) cannot exceed 60 days, unless the parties expressly agree otherwise and this agreement is not unfair according to Article 175. (5) The interest rate for delayed payment is the interest rate applied by the ­European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question, or the marginal interest rate resulting from variable-rate tender procedures for the most recent main refinancing operations of the European Central Bank (“the ­reference rate”), plus eight percentage points. For the currency of a Member State which is not participating in the third stage of economic and monetary union, the reference rate is the equivalent rate set by its national central bank. (6) The creditor may in addition recover damages for any further loss. Article 174: Compensation for recovery costs (1) Where interest is payable in accordance with Article 173, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of EUR 40 or the equivalent sum in the currency agreed for the contract price as compensation for the creditor’s recovery costs. (2) The creditor is entitled to obtain from the debtor reasonable compensation for any recovery costs exceeding the fixed sum referred to in paragraph (1) and incurred due to the debtor’s late payment.

Feasibility Study 1435 Article 175: Unfair terms relating to interest for late payment (1) A term providing for a time or period of payment or a rate of interest less favourable to the creditor than the time or rate specified in Article 173, or a term providing for an amount of compensation for recovery costs lower than the amount specified in Article 174 is not binding to the extent that this would be unfair. (2) A term whereby a debtor is allowed to pay the price for goods or services later than the time when interest starts to run under Article 173 does not deprive the creditor of interest to the extent that this would be unfair. (3) A term is unfair for the purposes of this Article if it grossly deviates from good commercial practice, contrary to good faith and fair dealing. (4) A term excluding interest for late payment or compensation for recovery costs is considered unfair under paragraph (1). Part VII  Restitution Chapter 18  Restitution Article 176: Restitution on avoidance or termination (1) In so far as a contract is avoided or terminated by either party, each party is obliged to return what that party (“the recipient”) has received from the other party. Where both parties are bound to return, the obligations are reciprocal. (2) The obligation to return extends to any natural and legal fruits derived from what was received. (3) On the termination of a contract for performance in instalments or parts, restitution is not required in relation to any instalment or part where the obligations on both sides have been fully performed, unless the nature of the contract is such that part performance is of no value to one of the parties. Article 177: Payment for monetary value (1) If what was received (including fruits where relevant) cannot be returned restitution is made by paying its monetary value. If return is possible but would cause unreasonable effort or expense, restitution may be made by paying the monetary value, provided that such conversion would not harm the other party’s proprietary interests. (2) The monetary value of goods is the value they would have had at the date when payment of the monetary value is to be made if they had been kept by the recipient without destruction or damage until that date. (3) If the recipient has obtained a substitute in exchange when it knew or could be expected to have known of the ground for avoidance or termination, the other party may choose to claim the substitute or the monetary value of the substitute. A recipient who has obtained a substitute in money or kind

1436  Part III: Common Principles in exchange for goods when the recipient did not know and could not be expected to have known of the ground for avoidance or termination may choose to return the monetary value of the substitute or, if the other party agrees, the substitute. (4) If a services contract is avoided or terminated by the customer after the service has been performed or partly performed, the customer’s obligation to compensate the provider in money is limited to the amount the customer saved by receiving the service. Article 178: Payment for use and interest on money received (1) A recipient who has made use of goods received must pay the other party the monetary value of that use for any period if, and only if: (a) the recipient caused the ground for avoidance or termination; (b) the recipient, prior to the start of that period, was aware of the ground for avoidance or termination; or (c) having regard to the nature of the goods, the nature and amount of the use and the availability of remedies other than termination, it would be inequitable to allow the recipient the free use of the goods for that period. (2) A recipient who is obliged to return money must pay interest, at the rate stipulated in Article 171, only if: (a) the other party is obliged to pay for use; or (b) it would otherwise be inequitable that interest is not paid, in particular when the recipient gave cause for the contract to be avoided. Article 179: Compensation for expenditure (1) If a recipient has incurred expenditure on goods, the recipient is entitled to compensation to the extent that the expenditure benefited the other party provided that the expenditure was made when the recipient did not know and could not be expected to know of the ground for avoidance or termination. (2) A recipient who knew or could be expected to know of the ground for avoidance or termination is entitled to compensation only for expenditure that was necessary to protect the goods from being lost or diminished in value, provided that the recipient had no opportunity to ask the other party for advice. Article 180: Equitable modification Any obligation to return or to pay under this Chapter may be modified to the extent that its performance would be grossly inequitable, taking into account in particular whether the obliged party did not cause, or lacked knowledge of, the ground for avoidance or termination.

Feasibility Study 1437 Part VIII  Prescription Chapter 19  Prescription Section 1  General provision Article 181: Rights subject to prescription A right to performance of an obligation, and any right ancillary to such a right, is subject to prescription by the expiry of a period of time in accordance with the rules in this Chapter. Section 2  Periods of prescription and their commencement Article 182: Short and long period There are two periods of prescription. The short period is three years. The long period is ten years or, in the case of a right to damages for personal injuries, thirty years. Article 183: Commencement (1) The short period of prescription begins to run from the time when the creditor knows or could be expected to know the facts as a result of which the right can be exercised. (2) The long period of prescription begins to run from the time when the debtor has to effect performance or, in the case of a right to damages, from the time of the act which gives rise to the right. (3) Where the debtor is under a continuing obligation to do or refrain from doing something, the creditor is regarded as having a separate right in relation to each non-performance of the obligation. Section 3  Extension of period Article 184: Suspension in case of judicial and other proceedings (1) The running of both periods of prescription is suspended from the time when judicial proceedings to assert the right are begun. (2) Suspension lasts until a decision has been made which has the effect of res judicata, or until the case has been otherwise disposed of. Where the proceedings end within the last six months of the prescription period without a decision on the merits, the period of prescription does not expire before six months have passed after the time when the proceedings ended. (3) These provisions apply, with appropriate adaptations, to arbitration proceedings, to mediation proceedings, to proceedings whereby an issue between two parties is referred to a third party for a binding decision and to all other proceedings initiated with the aim of obtaining a decision relating to the right or to avoid insolvency.

1438  Part III: Common Principles (4) Mediation means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a ­voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the national law. Mediation ends by an agreement of the parties or by declaration of the mediator or one of the parties. Article 185: Postponement of expiry in the case of negotiations If the parties negotiate about the right, or about circumstances from which a claim relating to the right might arise, neither period of prescription expires before one year has passed since the last communication made in the negotiations or since one of the parties communicated to the other that it does not wish to pursue the negotiations. Article 186: Postponement of expiry in case of incapacity If a person subject to an incapacity is without a representative, the short and long periods of prescription of a right held by that person do not expire before one year has passed after either the incapacity has ended or a representative has been appointed. Section 4  Renewal of period Article 187: Renewal by acknowledgement If the debtor acknowledges the right vis-à-vis the creditor, by part payment, payment of interest, giving of security, set-off or in any other manner, a new three-year period of prescription begins to run. Section 5  Effects of prescription Article 188: Effects of prescription (1) After expiry of the period of prescription the debtor is entitled to refuse performance and the creditor loses all remedies for non-performance except withholding performance. (2) The prescribed right may nonetheless be relied on as a defence or for purposes of set-off. (3) Whatever has been paid or transferred by the debtor in performance of the obligation may not be reclaimed merely because the period of prescription had expired. (4) The period of prescription for a right to payment of interest, and other rights of an ancillary nature, expires not later than the period for the principal right.

Feasibility Study 1439 Section 6  Modification by agreement Article 189: Agreements concerning prescription (1) The requirements for prescription may be modified by agreement between the parties, in particular by either shortening or lengthening the periods of prescription. (2) The short period of prescription may not, however, be reduced to less than one year or extended to more than ten years. (3) The long period of prescription may not be reduced to less than one year or extended to more than thirty years. (4) In a contract between a business and a consumer this Article may not be applied to the detriment of the consumer.

Annex I (A) INFORMATION CONCERNING THE EXERCISE OF THE RIGHT OF WITHDRAWAL Information notice to be provided with the withdrawal form Right of withdrawal The consumer shall have the right to withdraw from this contract within fourteen calendar days without giving any reason. The withdrawal period shall expire fourteen days from the day 1 To exercise the right of withdrawal, the consumer shall inform the business 2 of his decision to withdraw from the contract by giving notice (e.g. written letter sent by post, fax, email). The consumer may use the following model withdrawal form, but it is not obligatory or any other unequivocal statement addressed to the business. 3 To meet the withdrawal deadline, it shall be sufficient if the communication concerning the exercise of the right of withdrawal is sent by the consumer before the withdrawal period has expired. Consequences of withdrawal If the consumer exercises his right of withdrawal, the business shall reimburse all payments received from the consumer without undue delay and no later than f­ourteen days from the day on which he receives the communication of withdrawal. 4,5 Instructions for completion: 1 Here the following is to be inserted: a) in the case of a service contract: “of the conclusion of the contract.”; b) in the case of a sales contract: “when the consumer has taken delivery of goods.”;

1440  Part III: Common Principles

2 3

4

5

c) in the case of a contract relating to multiple goods ordered by the consumer in one order and delivered separately: “when the consumer has taken delivery of each of the goods ordered.”; d) in the case of a contract relating to delivery of a good consisting of multiple lots or pieces: “on which the consumer has taken delivery of the last lot or piece.”; e) in the case of a contract for regular delivery of goods during defined period of time: “on which the consumer has taken delivery of the first good.”. Here the name, geographical address and email address of the business are to be inserted. Here the following is to be inserted if the business gives the option to the consumer to electronically fill in and submit the model withdrawal form on the business’s website: “The consumer shall also have the option to electronically fill in and submit the model withdrawal form on the business’s website [insert internet address]. If the consumer uses this option, the business shall communicate to the consumer an acknowledgement of receipt of such a withdrawal by email without delay.” Here the following is to be inserted in the case of a contract for the sales of goods: “Unless the business has offered to collect the goods himself, he may withhold the reimbursement until he has received the goods back, or the consumer has supplied evidence of having sent back the goods, whichever is the earliest.” Here the following is to be inserted if the consumer has received goods in connection with the contract: “The consumer shall send back the goods or hand them over to the business or to a person authorised by the business to receive them, without undue delay and no later than fourteen days from the day on which he informs the business of the withdrawal, unless the business has offered to collect the goods himself. The deadline is met if the goods are sent back by the consumer before the period of fourteen days has expired. The consumer shall only bear the direct cost of returning the goods unless the business has agreed to bear that cost. The consumer shall only be liable for any diminished value of the goods resulting from the handling other than what is necessary to ascertain the nature and functioning of the goods.” In case of off-premises contracts where the goods have been delivered to the consumer’s home at the time of the conclusion of the contract the following is to be inserted: “The business shall collect the goods at his own cost if the goods by their nature cannot be normally returned by post.” In the case of a contract dealing with the provision of services the following is to be inserted: “If the consumer has requested to begin the provision of services during the withdrawal period, he shall pay to the business a reasonable amount which shall not exceed an amount which is in proportion to the extent of the services provided until the time the consumer has informed the business of the exercise of the right of withdrawal, in comparison with the full coverage of the contract.

Feasibility Study 1441

Annex I (B) STANDARD WITHDRAWAL FORM (complete and return this form only if you wish to withdraw from the contract) —— To: —— I/We* hereby give notice that I/We* withdraw from my/our* contract of sale of the following goods*/provision of the following service* —— Ordered on*/received on* —— Name of consumer(s) —— Address of consumer(s) —— Signature of consumer(s) (only if this form is notified in writing) —— Date * Delete as appropriate.

Proposal for a

Regulation of the European Parliament and of the Council on a Common European Sales Law COM/2011/0635 final—2011/0284 (COD) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national Parliaments, Having regard to the opinion of the European Economic and Social Committee,(1) Having regard to the opinion of the Committee of the Regions,(2) Acting in accordance with the ordinary legislative procedure,

Whereas: (1) There are still considerable bottlenecks to cross-border economic activity that prevent the internal market from exploiting its full potential for growth and job creation. Currently, only one in ten traders in the Union exports goods within the Union and the majority of those who do, only export to a small number of Member States. From the range of obstacles to crossborder trade including tax regulations, administrative requirements, difficulties in delivery, language and culture, traders consider the difficulty in finding out the provisions of a foreign contract law among the top barriers in business-to-consumer transactions and in business-to-business transactions. This also leads to disadvantages for consumers due to limited access to goods. Different national contract laws therefore deter the exercise of fundamental freedoms, such as the freedom to provide goods and services, and represent a barrier to the functioning and continuing establishment of the internal market. They also have the effect of limiting competition, particularly in the markets of smaller Member States. (2) Contracts are the indispensable legal tool for every economic transaction. However, the need for traders to identify or negotiate the applicable law, to find out about the provisions of a foreign applicable law often involving translation, to obtain legal advice to make themselves familiar with its

Proposal for a Regulation on a Common European Sales Law 1443 requirements and to adapt their contracts to different national laws that may apply in cross-border dealings makes cross-border trade more complex and costly compared to domestic trade. Contract-law-related barriers are thus a major contributing factor in dissuading a considerable number of export-oriented traders from entering cross-border trade or expanding their operations into more Member States. Their deterrent effect is particularly strong for small and medium-sized enterprises (SME) for which the costs of entering multiple foreign markets are often particularly high in relation to their turnover. As a consequence, traders miss out on cost savings they could achieve if it were possible to market goods and services on the basis of one uniform contract law for all their cross-border transactions and, in the online environment, one single web-site. (3) Contract law related transaction costs which have been shown to be of considerable proportions and legal obstacles stemming from the differences between national mandatory consumer protection rules have a direct effect on the functioning of the internal market in relation to business–to– consumer transactions. Pursuant to Article 6 of Regulation 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Regulation (EC) No 593/2008),(3) whenever a trader directs its activities to consumers in another Member State the consumer protection provisions of the Member State of the consumer’s habitual residence that provide a higher level of protection and cannot be derogated from by agreement by virtue of that law will apply, even where another applicable law has been chosen by the parties. Therefore, traders need to find out in advance whether the consumer’s law provides higher protection and ensure that their contract is in compliance with its requirements. In addition, in e-commerce, web-site adaptations which need to reflect mandatory requirements of applicable foreign consumer contract laws entail further costs. The existing harmonisation of consumer law at Union level has led to a certain approximation in some areas. However the differences between Member States’ laws remain substantial; existing harmonisation leaves Member States a broad range of options on how to comply with the requirements of Union legislation and where to set the level of consumer protection. (4) The contract-law-related barriers which prevent traders from fully exploiting the potential of the internal market also work to the detriment of consumers. Less cross-border trade results in fewer imports and less competition. Consumers may be disadvantaged by a limited choice of goods at higher prices both because fewer foreign traders offer their products and services directly to them and also indirectly as a result of restricted crossborder business-to-business trade at the wholesale level. While cross-border shopping could bring substantial economic advantages in terms of more and better offers, many consumers are also reluctant to engage in crossborder shopping, because of the uncertainty about their rights. Some of the main consumer concerns are related to contract law, for instance whether they would enjoy adequate protection in the event of purchasing defective

1444  Part III: Common Principles

(5)

(6)

(7)

(8)

(9)

products. As a consequence, a substantial number of consumers prefer to shop domestically even if this means they have less choice or pay higher prices. In addition, those consumers who want to benefit from price differences between Member States by purchasing from a trader from another Member State are often hindered due to a trader’s refusal to sell. While e-commerce has greatly facilitated the search for offers as well as the comparison of prices and other conditions irrespective of where a trader is established, orders by consumers from abroad are very frequently refused by traders which refrain from entering into cross-border transactions. Differences in national contract laws therefore constitute barriers which prevent consumers and traders from reaping the benefits of the internal market. Those contract-law-related barriers would be significantly reduced if contracts could be based on a single uniform set of contract law rules irrespective of where parties are established. Such a uniform set of contract law rules should cover the full life cycle of a contract and thus comprise the areas which are the most important when concluding contracts. It should also include fully harmonised provisions to protect consumers. The differences between national contract laws and their effect on crossborder trade also serve to limit competition. With a low level of crossborder trade, there is less competition, and thus less incentive for traders to become more innovative and to improve the quality of their products or to reduce prices. Particularly in smaller Member States with a limited number of domestic competitors, the decision of foreign traders to refrain from entering these markets due to costs and complexity may limit competition, resulting in an appreciable impact on choice and price levels for available products. In addition, the barriers to cross-border trade may jeo­ pardise competition between SME and larger companies. In view of the significant impact of the transaction costs in relation to turnover, an SME is much more likely to refrain from entering a foreign market than a larger competitor. To overcome these contract-law-related barriers, parties should have the possibility to agree that their contracts should be governed by a single ­uniform set of contract law rules with the same meaning and interpretation in all Member States, a Common Sales Law. The Common European Sales Law should represent an additional option increasing the choice available to parties and open to use whenever jointly considered to be helpful in order to facilitate cross-border trade and reduce transaction and opportunity costs as well as other contract-law-related obstacles to cross-border trade. It should become the basis of a contractual relationship only where parties jointly decide to use it. This Regulation establishes a Common European Sales Law. It harmonises the contract laws of the Member States not by requiring amendments to the pre-existing national contract law, but by creating within each Member State’s national law a second contract law regime for contracts within its scope. This second regime should be identical throughout the Union and

Proposal for a Regulation on a Common European Sales Law 1445

(10)

(11)

(12)

(13)

(14)

exist alongside the pre-existing rules of national contract law. The Common European Sales Law should apply on a voluntary basis, upon an express agreement of the parties, to a cross-border contract. The agreement to use the Common European Sales Law should be a choice exercised within the scope of the respective national law which is applicable pursuant to Regulation (EC) No 593/2008 or, in relation to pre-contractual information duties, pursuant to Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Regulation (EC) No 864/2007),(4) or any other relevant conflict of law rule. The agreement to use the Common European Sales Law should therefore not amount to, and not be confused with, a choice of the applicable law within the meaning of the conflict-of-law rules and should be without prejudice to them. This Regulation will therefore not affect any of the existing conflict of law rules. The Common European Sales Law should comprise of a complete set of fully harmonised mandatory consumer protection rules. In line with Article 114(3) of the Treaty, those rules should guarantee a high level of consumer protection with a view to enhancing consumer confidence in the Common European Sales Law and thus provide consumers with an incentive to enter into cross-border contracts on that basis. The rules should maintain or improve the level of protection that consumers enjoy under Union consumer law. Since the Common European Sales Law contains a complete set of fully harmonised mandatory consumer protection rules, there will be no disparities between the laws of the Member States in this area, where the parties have chosen to use the Common European Sales Law. Consequently, Article 6(2) Regulation (EC) No 593/2008, which is predicated on the existence of differing levels of consumer protection in the Member States, has no practical importance for the issues covered by the Common European Sales Law. The Common European Sales Law should be available for cross-border contracts, because it is in that context that the disparities between national laws lead to complexity and additional costs and dissuade parties from entering into contractual relationships. The cross-border nature of a contract should be assessed on the basis of the habitual residence of the parties in business-to-business contracts. In a business-to-consumer contract the cross-border requirement should be met where either the general address indicated by the consumer, the delivery address for the goods or the billing address indicated by the consumer are located in a Member State, but outside the State where the trader has its habitual residence. The use of the Common European Sales Law should not be limited to crossborder situations involving only Member States, but should also be available to facilitate trade between Member States and third countries. Where consumers from third countries are involved, the agreement to use the Common European Sales Law, which would imply the choice of a foreign law for them, should be subject to the applicable conflict-of-law rules.

1446  Part III: Common Principles (15) Traders engaging in purely domestic as well as in cross-border trade transactions may also find it useful to make use of a single uniform contract for all their transactions. Therefore Member States should be free to decide to make the Common European Sales Law available to parties for use in an entirely domestic setting. (16) The Common European Sales Law should be available in particular for the sale of movable goods, including the manufacture or production of such goods, as this is the economically single most important contract type which could present a particular potential for growth in cross-border trade, especially in e-commerce. (17) In order to reflect the increasing importance of the digital economy, the scope of the Common European Sales Law should also cover contracts for the supply of digital content. The transfer of digital content for storage, processing or access, and repeated use, such as a music download, has been growing rapidly and holds a great potential for further growth but is still surrounded by a considerable degree of legal diversity and uncertainty. The Common European Sales Law should therefore cover the supply of digital content irrespective of whether or not that content is supplied on a tangible medium. (18) Digital content is often supplied not in exchange for a price but in combination with separate paid goods or services, involving a non-monetary consideration such as giving access to personal data or free of charge in the context of a marketing strategy based on the expectation that the consumer will purchase additional or more sophisticated digital content products at a later stage. In view of this specific market structure and of the fact that defects of the digital content provided may harm the economic interests of consumers irrespective of the conditions under which it has been provided, the availability of the Common European Sales Law should not depend on whether a price is paid for the specific digital content in question. (19) With a view to maximising the added value of the Common European Sales Law its material scope should also include certain services provided by the seller that are directly and closely related to specific goods or digital ­content supplied on the basis of the Common European Sales Law, and in practice often combined in the same or a linked contract at the same time, most notably repair, maintenance or installation of the goods or the digital content. (20) The Common European Sales Law should not cover any related contracts by which the buyer acquires goods or is supplied with a service, from a third party. This would not be appropriate because the third party is not part of the agreement between the contracting parties to use the rules of the Common European Sales Law. A related contract with a third party should be governed by the respective national law which is applicable according pursuant to Regulations (EC) No 593/2008 and (EC) No 864/2007 or any other relevant conflict of law rule. (21) In order to tackle the existing internal market and competition problems in a targeted and proportionate fashion, the personal scope of the Common

Proposal for a Regulation on a Common European Sales Law 1447 European Sales Law should focus on parties who are currently dissuaded from doing business abroad by the divergence of national contract laws with the consequence of a significant adverse impact on cross-border trade. It should therefore cover all business-to consumer transactions and contracts between traders where at least one of the parties is an SME drawing upon Commission Recommendation 2003/361 of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises.(5) This should, however, be without prejudice to the possibility for Member States to enact legislation which makes the Common European Sales Law available for contracts between traders, neither of which is an SME. In any case, in business-to-business transactions, traders enjoy full freedom of contract and are encouraged to draw inspiration from the Common European Sales Law in the drafting of their contractual terms. (22) The agreement of the parties to a contract is indispensable for the application of the Common European Sales Law. That agreement should be subject to strict requirements in business-to-consumer transactions. Since, in practice, it will usually be the trader who proposes the use of the Common European Sales Law, consumers must be fully aware of the fact that they are agreeing to the use of rules which are different from those of their pre-­existing national law. Therefore, the consumer’s consent to use the Common European Sales Law should be admissible only in the form of an explicit statement separate from the statement indicating the agreement to the conclusion of the contract. It should therefore not be possible to offer the use of the Common European Sales Law as a term of the contract to be concluded, particularly as an element of the trader’s standard terms and conditions. The trader should provide the consumer with a confirmation of the agreement to use the Common European Sales Law on a durable medium. (23) In addition to being a conscious choice, the consent of a consumer to the use of the Common European Sales Law should be an informed choice. The trader should therefore not only draw the consumer’s attention to the intended use of the Common European Sales Law but should also provide information on its nature and its salient features. In order to facilitate this task for traders, thereby avoiding unnecessary administrative burdens, and to ensure consistency in the level and the quality of the information communicated to consumers, traders should supply consumers with the standard information notice provided for in this Regulation and thus readily available in all official languages in the Union. Where it is not possible to supply the consumer with the information notice, for example in the context of a telephone call, or where the trader has failed to provide the information notice, the agreement to use the Common European Sales Law should not be binding on the consumer until the consumer has received the information notice together with the confirmation of the agreement and has subsequently expressed consent. (24) In order to avoid a selective application of certain elements of the Common European Sales Law, which could disturb the balance between the rights

1448  Part III: Common Principles

(25)

(26)

(27)

(28)

(29)

and obligations of the parties and adversely affect the level of consumer protection, the choice should cover the Common European Sales Law as a whole and not only certain parts of it. Where the United Nations Convention on Contracts for the International Sale of Goods would otherwise apply to the contract in question, the choice of the Common European Sales Law should imply an agreement of the contractual parties to exclude that Convention. The rules of the Common European Sales Law should cover the matters of contract law that are of practical relevance during the life cycle of the types of contracts falling within the material and personal scope, particularly those entered into online. Apart from the rights and obligations of the parties and the remedies for non-performance, the Common European Sales Law should therefore govern pre-contractual information duties, the conclusion of a contract including formal requirements, the right of withdrawal and its consequences, avoidance of the contract resulting from a mistake, fraud, threats or unfair exploitation and the consequences of such avoidance, interpretation, the contents and effects of a contract, the assessment and consequences of unfairness of contract terms, restitution after avoidance and termination and the prescription and preclusion of rights. It should settle the sanctions available in case of the breach of all the obligations and duties arising under its application. All the matters of a contractual or non-contractual nature that are not addressed in the Common European Sales Law are governed by the preexisting rules of the national law outside the Common European Sales Law that is applicable under Regulations (EC) No 593/2008 and (EC) No 864/2007 or any other relevant conflict of law rule. These issues include legal personality, the invalidity of a contract arising from lack of c­ apacity, illegality or immorality, the determination of the language of the c­ ontract, matters of non-discrimination, representation, plurality of debtors and ­creditors, change of parties including assignment, set-off and merger, ­property law including the transfer of ownership, intellectual property law and the law of torts. Furthermore, the issue of whether concurrent contractual and noncontractual liability claims can be pursued together falls outside the scope of the Common European Sales Law. The Common European Sales Law should not govern any matters outside the remit of contract law. This Regulation should be without prejudice to the Union or national law in relation to any such matters. For example, information duties which are imposed for the protection of health and safety or environmental reasons should remain outside the scope of the Common European Sales Law. This Regulation should further be without prejudice to the information requirements of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market.(6) Once there is a valid agreement to use the Common European Sales Law, only the Common European Sales Law should govern the matters falling within its scope. The rules of the Common European Sales Law should be

Proposal for a Regulation on a Common European Sales Law 1449

(30)

(31)

(32) (33)

(34)

(35)

(36)

interpreted autonomously in accordance with the well-established principles on the interpretation of Union legislation. Questions concerning matters falling within the scope of the Common European Sales Law which are not expressly settled by it should be resolved only by interpretation of its rules without recourse to any other law. The rules of the Common European Sales Law should be interpreted on the basis of the underlying principles and objectives and all its provisions. Freedom of contract should be the guiding principle underlying the Common European Sales Law. Party autonomy should be restricted only where and to the extent that this is indispensable, in particular for reasons of consumer protection. Where such a necessity exists, the mandatory nature of the rules in question should be clearly indicated. The principle of good faith and fair dealing should provide guidance on the way parties have to cooperate. As some rules constitute specific manifestations of the general principle of good faith and fair dealing, they should take precedent over the general principle. The general principle should therefore not be used as a tool to amend the specific rights and obligations of parties as set out in the specific rules. The concrete requirements resulting from the principle of good faith and fair dealing should depend, amongst others, on the relative level of expertise of the parties and should therefore be different in business-to-consumer transactions and in business-to-business transactions. In transactions between traders, good commercial practice in the specific situation concerned should be a relevant factor in this context. The Common European Sales Law should aim at the preservation of a valid contract whenever possible and appropriate in view of the legitimate interests of the parties. The Common European Sales Law should identify well-balanced solutions taking account the legitimate interests of the parties in designating and exercising the remedies available in the case of non-performance of the contract. In business-to-consumer contracts the system of remedies should reflect the fact that the non-conformity of goods, digital content or services falls within the trader’s sphere of responsibility. In order to enhance legal certainty by making the case-law of the Court of Justice of the European Union and of national courts on the interpretation of the Common European Sales Law or any other provision of this Regulation accessible to the public, the Commission should create a database comprising the final relevant decisions. With a view to making that task possible, the Member States should ensure that such national judgments are quickly communicated to the Commission. It is also appropriate to review the functioning of the Common European Sales Law or any other provision of this Regulation after five years of operation. The review should take into account, amongst other things, the need to extend further the scope in relation to business-to-business contracts, ­market and technological developments in respect of digital content and future developments of the Union acquis. Since the objective of this Regulation, namely to contribute to the proper functioning of the internal market by making available a uniform set of

1450  Part III: Common Principles contract law rules that can be used for cross-border transactions throughout the Union, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (37) This Regulation respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the ­European Union and specifically Articles 16, 38 and 47 thereof, HAVE ADOPTED THIS REGULATION: Article 1 Objective and subject matter 1. The purpose of this Regulation is to improve the conditions for the establishment and the functioning of the internal market by making available a uniform set of contract law rules as set out in Annex I (‘the Common European Sales Law’). These rules can be used for cross-border transactions for the sale of goods, for the supply of digital content and for related services where the parties to a contract agree to do so. 2. This Regulation enables traders to rely on a common set of rules and use the same contract terms for all their cross-border transactions thereby reducing unnecessary costs while providing a high degree of legal certainty. 3. In relation to contracts between traders and consumers, this Regulation comprises a comprehensive set of consumer protection rules to ensure a high level of consumer protection, to enhance consumer confidence in the internal market and encourage consumers to shop across borders. Article 2 Definitions For the purpose of this Regulation, the following definitions shall apply: (a) ‘contract’ means an agreement intended to give rise to obligations or other legal effects; (b) ‘good faith and fair dealing’ means a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question; (c) ’loss’ means economic loss and non-economic loss in the form of pain and suffering, excluding other forms of non-economic loss such as impairment of the quality of life and loss of enjoyment; (d) ‘standard contract terms’ means contract terms which have been drafted in advance for several transactions involving different parties, and which have not been individually negotiated by the parties within the meaning of Article 7 of the Common European Sales Law;

Proposal for a Regulation on a Common European Sales Law 1451 (e) ‘trader’ means any natural or legal person who is acting for purposes relating to that person’s trade, business, craft, or profession; (f) ‘consumer’ means any natural person who is acting for purposes which are outside that person’s trade, business, craft, or profession; (g) ‘damages’ means a sum of money to which a person may be entitled as compensation for loss, injury or damage; (h) ‘goods’ means any tangible movable items; it excludes: (i) electricity and natural gas; and (ii) water and other types of gas unless they are put up for sale in a limited volume or set quantity; (i) ‘price’ means money that is due in exchange for goods sold, digital content supplied or a related service provided; (j) ‘digital content’ means data which are produced and supplied in digital form, whether or not according to the buyer’s specifications, including video, audio, picture or written digital content, digital games, software and digital content which makes it possible to personalise existing hardware or software; it excludes: (i) financial services, including online banking services; (ii) legal or financial advice provided in electronic form; (iii) electronic healthcare services; (iv) electronic communications services and networks, and associated facilities and services; (v) gambling; (vi) the creation of new digital content and the amendment of existing digital content by consumers or any other interaction with the creations of other users; (k) ‘sales contract’ means any contract under which the trader (‘the seller’) transfers or undertakes to transfer the ownership of the goods to another person (‘the buyer’), and the buyer pays or undertakes to pay the price thereof; it includes a contract for the supply of goods to be manufactured or produced and excludes contracts for sale on execution or otherwise involving the exercise of public authority; (l) ‘consumer sales contract’ means a sales contract where the seller is a trader and the buyer is a consumer; (m) ‘related service’ means any service related to goods or digital content, such as installation, maintenance, repair or any other processing, provided by the seller of the goods or the supplier of the digital content under the sales contract, the contract for the supply of digital content or a separate related service contract which was concluded at the same time as the sales contract or the contract for the supply of digital content; it excludes: (i) transport services, (ii) training services, (iii) telecommunications support services; and (iv) financial services; (n) ‘service provider’ means a seller of goods or supplier of digital content who undertakes to provide a customer with a service related to those goods or that digital content;

1452  Part III: Common Principles (o) (p)

(q)

(r)

(s)

(t)

(u)

(v)

‘customer’ means any person who purchases a related service; ‘distance contract’ means any contract between the trader and the consumer under an organised distance sales scheme concluded without the simultaneous physical presence of the trader or, in case the trader is a legal person, a natural person representing the trader and the consumer, with the exclusive use of one or more means of distance communication up to and including the time at which the contract is concluded; ‘off-premises contract’ means any contract between a trader and a consumer: (i) concluded in the simultaneous physical presence of the trader or, where the trader is a legal person, the natural person representing the trader and the consumer in a place which is not the trader’s business premises, or concluded on the basis of an offer made by the consumer in the same circumstances; or (ii) concluded on the trader’s business premises or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the trader’s business premises in the simultaneous physical presence of the trader or, where the trader is a legal person, a natural person representing the trader and the consumer; or (iii) concluded during an excursion organised by the trader or, where the trader is a legal person, the natural person representing the trader with the aim or effect of promoting and selling goods or supplying digital content or related services to the consumer; ‘business premises’ means: (i) any immovable retail premises where a trader carries out activity on a permanent basis, or (ii) any movable retail premises where a trader carries out activity on a usual basis; ‘commercial guarantee’ means any undertaking by the trader or a producer to the consumer, in addition to legal obligations under Article 106 in case of lack of conformity to reimburse the price paid or to replace or repair, or service goods or digital content in any way if they do not meet the specifications or any other requirements not related to conformity set out in the guarantee statement or in the relevant advertising available at the time of, or before the conclusion of the contract; ‘durable medium’ means any medium which enables a party to store information addressed personally to that party in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored; ‘public auction’ means a method of sale where goods or digital content are offered by the trader to the consumer who attends or is given the possibility to attend the auction in person, through a transparent, competitive bidding procedure run by an auctioneer and where the successful bidder is bound to purchase the goods or digital content; ‘mandatory rule’ means any provision the application of which the parties cannot exclude, or derogate from or the effect of which they cannot vary;

Proposal for a Regulation on a Common European Sales Law 1453 (w) ‘creditor’ means a person who has a right to performance of an obligation, whether monetary or non-monetary, by another person, the debtor; (x) ‘debtor’ means a person who has an obligation, whether monetary or nonmonetary, to another person, the creditor; (y) ‘obligation’ means a duty to perform which one party to a legal relationship owes to another party. Article 3 Optional nature of the Common European Sales Law The parties may agree that the Common European Sales Law governs their crossborder contracts for the sale of goods, for the supply of digital content and for the provision of related services within the territorial, material and personal scope as set out in Articles 4 to 7. Article 4 Cross-border contracts 1. The Common European Sales Law may be used for cross-border contracts. 2. For the purposes of this Regulation, a contract between traders is a cross-­ border contract if the parties have their habitual residence in different countries of which at least one is a Member State. 3. For the purposes of this Regulation, a contract between a trader and a consumer is a cross-border contract if: (a) either the address indicated by the consumer, the delivery address for goods or the billing address are located in a country other than the country of the trader’s habitual residence; and (b) at least one of these countries is a Member State. 4. For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration. The habitual residence of a trader who is a natural person shall be that person’s principal place of business. 5. Where the contract is concluded in the course of the operations of a branch, agency or any other establishment of a trader, the place where the branch, agency or any other establishment is located shall be treated as the place of the trader’s habitual residence. 6. For the purpose of determining whether a contract is a cross-border contract the relevant point in time is the time of the agreement on the use of the Common European Sales Law. Article 5 Contracts for which the Common European Sales Law can be used The Common European Sales Law may be used for: (a) sales contracts;

1454  Part III: Common Principles (b) contracts for the supply of digital content whether or not supplied on a tangible medium which can be stored, processed or accessed, and re-used by the user, irrespective of whether the digital content is supplied in exchange for the payment of a price. (c) related service contracts, irrespective of whether a separate price was agreed for the related service. Article 6 Exclusion of mixed-purpose contracts and contracts linked to a consumer credit 1.

2.

The Common European Sales Law may not be used for mixed-purpose contracts including any elements other than the sale of goods, the supply of digital content and the provision of related services within the meaning of Article 5. The Common European Sales Law may not be used for contracts between a trader and a consumer where the trader grants or promises to grant to the consumer credit in the form of a deferred payment, loan or other similar financial accommodation. The Common European Sales Law may be used for contracts between a trader and a consumer where goods, digital content or related services of the same kind are supplied on a continuing basis and the consumer pays for such goods, digital content or related services for the duration of the supply by means of instalments. Article 7 Parties to the contract

1. The Common European Sales Law may be used only if the seller of goods or the supplier of digital content is a trader. Where all the parties to a contract are traders, the Common European Sales Law may be used if at least one of those parties is a small or medium-sized enterprise (‘SME’). 2. For the purposes of this Regulation, an SME is a trader which (a) employs fewer than 250 persons; and (b) has an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million, or, for an SME which has its habitual residence in a Member State whose currency is not the euro or in a third country, the equivalent amounts in the currency of that Member State or third country. Article 8 Agreement on the use of the Common European Sales Law 1. The use of the Common European Sales Law requires an agreement of the parties to that effect. The existence of such an agreement and its validity shall be determined on the basis of paragraphs 2 and 3 of this Article and Article 9, as well as the relevant provisions in the Common European Sales Law.

Proposal for a Regulation on a Common European Sales Law 1455 2. In relations between a trader and a consumer the agreement on the use of the Common European Sales Law shall be valid only if the consumer’s consent is given by an explicit statement which is separate from the statement indicating the agreement to conclude a contract. The trader shall provide the consumer with a confirmation of that agreement on a durable medium. 3. In relations between a trader and a consumer the Common European Sales Law may not be chosen partially, but only in its entirety. Article 9 Standard Information Notice in contracts between a trader and a consumer 1. In addition to the pre-contractual information duties laid down in the Common European Sales Law, in relations between a trader and a consumer the trader shall draw the consumer’s attention to the intended application of the Common European Sales Law before the agreement by providing the consumer with the information notice in Annex II in a prominent manner. Where the agreement to use the Common European Sales Law is concluded by tele­ phone or by any other means that do not make it possible to provide the consumer with the information notice, or where the trader has failed to provide the information notice, the consumer shall not be bound by the agreement until the consumer has received the confirmation referred to in Article 8(2) accompanied by the information notice and has expressly consented subsequently to the use of the Common European Sales Law. 2. The information notice referred to in paragraph 1 shall, if given in electronic form, contain a hyperlink or, in all other circumstances, include the indication of a website through which the text of the Common European Sales Law can be obtained free of charge. Article 10 Penalties for breach of specific requirements Member States shall lay down penalties for breaches by traders in relations with consumers of the requirements set out in Articles 8 and 9 and shall take all the measures necessary to ensure that those penalties are applied. The penalties thus provided shall be effective, proportionate and dissuasive. Member States shall notify the relevant provisions to the Commission no later than [1 year after the date of application of this Regulation] and shall notify any subsequent changes as soon as possible. Article 11 Consequences of the use of the Common European Sales Law Where the parties have validly agreed to use the Common European Sales Law for a contract, only the Common European Sales Law shall govern the matters addressed in its rules. Provided that the contract was actually concluded, the Common European Sales Law shall also govern the compliance with and remedies for failure to comply with the pre-contractual information duties.

1456  Part III: Common Principles Article 12 Information requirements resulting from the Services Directive This Regulation is without prejudice to the information requirements laid down by national laws which transpose the provisions of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market and which complement the information requirements laid down in the Common European Sales Law. Article 13 Member States’ options A Member State may decide to make the Common European Sales Law available for: (a) contracts where the habitual residence of the traders or, in the case of a contract between a trader and a consumer, the habitual residence of the trader, the address indicated by the consumer, the delivery address for goods and the billing address, are located in that Member State; and/or (b) contracts where all the parties are traders but none of them is an SME within the meaning of Article 7(2). Article 14 Communication of judgments applying this Regulation 1. Member States shall ensure that final judgments of their courts applying the rules of this Regulation are communicated without undue delay to the Commission. 2. The Commission shall set up a system which allows the information concerning the judgments referred to in paragraph 1 and relevant judgements of the Court of Justice of the European Union to be consulted. That system shall be accessible to the public. Article 15 Review 1. By … [4 years after the date of application of this Regulation], Member States shall provide the Commission with information relating to the application of this Regulation, in particular on the level of acceptance of the Common European Sales Law, the extent to which its provisions have given rise to litigation and on the state of play concerning differences in the level of consumer protection between the Common European Sales Law and national law. That information shall include a comprehensive overview of the case law of the national courts interpreting the provisions of the Common European Sales Law. 2. By … [5 years after the date of application of this Regulation], the Commission shall present to the European Parliament, the Council and the Economic

Proposal for a Regulation on a Common European Sales Law 1457 and Social Committee a detailed report reviewing the operation of this Regulation, and taking account of, amongst others, the need to extend the scope in relation to business-to-business contracts, market and technological developments in respect of digital content and future developments of the Union acquis. Article 16 Entry into force and application 1. This Regulation shall enter into force on the 20th day following that of its publication in the Official Journal of the European Union. 2. It shall apply from [6 months after its the entry into force]. This Regulation shall be binding in its entirety and directly applicable in the Member States.

1458  Part III: Common Principles ANNEX I COMMON EUROPEAN SALES LAW TABLE OF CONTENTS Part I: Introductory provisions  Chapter 1: General principles and application   Section 1: General principles  Section 2: Application  Part II: Making a binding contract  Chapter 2: Pre-contractual information  Section 1: Pre-contractual information to be given by a trader dealing with a consumer  Section 2: Pre-contractual information to be given by a trader dealing with another trader  Section 3: Contracts to be concluded by electronic means  Section 4: Duty to ensure that information supplied is correct  Section 5: Remedies for breach of information duties  Chapter 3: Conclusion of contract  Chapter 4: Right to withdraw in distance and off-premises contracts between traders and consumers  Chapter 5: Defects in consent  Part III: Assessing what is in the contract  Chapter 6: Interpretation  Chapter 7: Contents and effects  Chapter 8: Unfair contract terms  Section 1: General provisions  Section 2: Unfair contract terms in contracts between a trader and a consumer  Section 3: Unfair contract terms in contracts between traders   art IV: Obligations and remedies of the parties to a sales contract or a contract P for the supply of digital content  Chapter 9: General provisions  Chapter 10: The seller’s obligations  Section 1: General provisions  Section 2: Delivery  Section 3: Conformity of the goods and digital content  Chapter 11: The buyer’s remedies  Section 1: General provisions  Section 2: Cure by the seller  Section 3: Requiring performance  Section 4: Withholding performance of buyer’s obligations 

Proposal for a Regulation on a Common European Sales Law 1459 Section 5: Termination  Section 6: Price reduction  Section 7: Requirements of examination and notification in a contract between traders  Chapter 12: The buyer’s obligations  Section 1: General provisions  Section 2: Payment of the price  Section 3: Taking delivery  Chapter 13: The seller’s remedies  Section 1: General provisions  Section 2: Requiring performance  Section 3: Withholding performance of seller’s obligations  Section 4: Termination  Chapter 14: Passing of risk  Section 1: General provisions  Section 2:Passing of risk in consumer sales contracts  Section 3:Passing of risk in contracts between traders  Part V: Obligations and remedies of the parties to a related service contract  Chapter 15: Obligations and remedies of the parties  Section 1: Application of certain general rules on sales contracts Section 2: Obligations of the service provider  Section 3: Obligations of the customer  Section 4: Remedies  Part VI: Damages and interest  Chapter 16: Damages and interest  Section 1: Damages  Section 2: Interest on late payments: general provisions  Section 3: Late payments by traders  Part VII: Restitution  Chapter 17: Restitution  Part VIII: Prescription  Chapter 18: Prescription  Section 1: General provision  Section 2: Periods of prescription and their commencement  Section 3: Extension of periods of prescription  Section 4: Renewal of periods of prescription  Section 5: Effects of prescription  Section 6: Modification by agreement  Appendix 1  Appendix 2 

1460  Part III: Common Principles Part I  Introductory provisions Chapter 1  General principles and application Section 1  General principles Article 1 Freedom of contract 1. Parties are free to conclude a contract and to determine its contents, subject to any applicable mandatory rules. 2. Parties may exclude the application of any of the provisions of the Common European Sales Law, or derogate from or vary their effects, unless otherwise stated in those provisions. Article 2 Good faith and fair dealing 1. Each party has a duty to act in accordance with good faith and fair dealing. 2. Breach of this duty may preclude the party in breach from exercising or relying on a right, remedy or defence which that party would otherwise have, or may make the party liable for any loss thereby caused to the other party. 3. The parties may not exclude the application of this Article or derogate from or vary its effects. Article 3 Co-operation The parties are obliged to co-operate with each other to the extent that this can be expected for the performance of their contractual obligations. Section 2 Application Article 4 Interpretation 1. The Common European Sales Law is to be interpreted autonomously and in accordance with its objectives and the principles underlying it. 2. Issues within the scope of the Common European Sales Law but not expressly settled by it are to be settled in accordance with the objectives and the principles underlying it and all its provisions, without recourse to the national law that would be applicable in the absence of an agreement to use the Common European Sales Law or to any other law. 3. Where there is a general rule and a special rule applying to a particular situation within the scope of the general rule, the special rule prevails in any case of conflict.

Proposal for a Regulation on a Common European Sales Law 1461 Article 5 Reasonableness 1. Reasonableness is to be objectively ascertained, having regard to the nature and purpose of the contract, to the circumstances of the case and to the usages and practices of the trades or professions involved. 2. Any reference to what can be expected of or by a person, or in a particular situation, is a reference to what can reasonably be expected. Article 6 No form required Unless otherwise stated in the Common European Sales Law, a contract, statement or any other act which is governed by it need not be made in or evidenced by a particular form. Article 7 Not individually negotiated contract terms 1. A contract term is not individually negotiated if it has been supplied by one party and the other party has not been able to influence its content. 2. Where one party supplies a selection of contract terms to the other party, a term will not be regarded as individually negotiated merely because the other party chooses that term from that selection. 3. A party who claims that a contract term supplied as part of standard contract terms has since been individually negotiated bears the burden of proving that it has been. 4. In a contract between a trader and a consumer, the trader bears the burden of proving that a contract term supplied by the trader has been individually negotiated. 5. In a contract between a trader and a consumer, contract terms drafted by a third party are considered to have been supplied by the trader, unless the consumer introduced them to the contract. Article 8 Termination of a contract 1. To ‘terminate a contract’ means to bring to an end the rights and obligations of the parties under the contract with the exception of those arising under any contract term providing for the settlement of disputes or any other contract term which is to operate even after termination. 2. Payments due and damages for any non-performance before the time of termination remain payable. Where the termination is for non-performance or for anticipated non-performance, the terminating party is also entitled to damages in lieu of the other party’s future performance.

1462  Part III: Common Principles 3. The effects of termination on the repayment of the price and the return of the goods or the digital content, and other restitutionary effects, are governed by the rules on restitution set out in Chapter 17. Article 9 Mixed-purpose contracts 1. Where a contract provides both for the sale of goods or the supply of digital content and for the provision of a related service, the rules of Part IV apply to the obligations and remedies of the parties as seller and buyer of goods or digital content and the rules of Part V apply to the obligations and remedies of the parties as service provider and customer. 2. Where, in a contract falling under paragraph 1, the obligations of the seller and the service provider under the contract are to be performed in separate parts or are otherwise divisible, then if there is a ground for termination for non-performance of a part to which a part of the price can be apportioned, the buyer and customer may terminate only in relation to that part. 3. Paragraph 2 does not apply where the buyer and customer cannot be expected to accept performance of the other parts or the non-performance is such as to justify termination of the contract as a whole. 4. Where the obligations of the seller and the service provider under the contract are not divisible or a part of the price cannot be apportioned, the buyer and the customer may terminate only if the non-performance is such as to justify termination of the contract as a whole. Article 10 Notice 1. This Article applies in relation to the giving of notice for any purpose under the rules of the Common European Sales Law and the contract. ‘Notice’ includes the communication of any statement which is intended to have legal effect or to convey information for a legal purpose. 2. A notice may be given by any means appropriate to the circumstances. 3. A notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. 4. A notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee’s place of business or, where there is no such place of business or the notice is addressed to a consumer, to the addressee’s habitual residence; (c) in the case of a notice transmitted by electronic mail or other individual communication, when it can be accessed by the addressee; or (d) when it is otherwise made available to the addressee at such a place and in such a way that the addressee could be expected to obtain access to it without undue delay. The notice has reached the addressee after one of the requirements in point (a), (b), (c) or (d) is fulfilled, whichever is the earliest.

Proposal for a Regulation on a Common European Sales Law 1463 5. A notice has no effect if a revocation of it reaches the addressee before or at the same time as the notice. 6. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of paragraphs 3 and 4 or derogate from or vary its effects. Article 11 Computation of time 1. The provisions of this Article apply in relation to the computation of time for any purpose under the Common European Sales Law. 2. Subject to paragraphs 3 to 7: (a) a period expressed in days starts at the beginning of the first hour of the first day and ends with the expiry of the last hour of the last day of the period; (b) a period expressed in weeks, months or years starts at the beginning of the first hour of the first day of the period, and ends with the expiry of the last hour of whichever day in the last week, month or year is the same day of the week, or falls on the same date, as the day from which the period runs; with the qualification that if, in a period expressed in months or in years, the day on which the period should expire does not occur in the last month, it ends with the expiry of the last hour of the last day of that month. 3. Where a period expressed in days, weeks, months or years is to be calculated from a specified event, action or time the day during which the event occurs, the action takes place or the specified time arrives does not fall within the period in question. 4. The periods concerned include Saturdays, Sundays and public holidays, save where these are expressly excepted or where the periods are expressed in working days. 5. Where the last day of a period is a Saturday, Sunday or public holiday at the place where a prescribed act is to be done, the period ends with the expiry of the last hour of the following working day. This provision does not apply to periods calculated retroactively from a given date or event. 6. Where a person sends another person a document which sets a period of time within which the addressee has to reply or take other action but does not state when the period is to begin, then, in the absence of indications to the contrary, the period is calculated from the moment the document reaches the addressee. 7. For the purposes of this Article: (a) “public holiday” with reference to a Member State, or part of a Member State, of the European Union means any day designated as such for that Member State or part in a list published in the Official Journal of the European Union; and (b) “working days” means all days other than Saturdays, Sundays and public holidays.

1464  Part III: Common Principles Article 12 Unilateral statements or conduct 1. A unilateral statement indicating intention is to be interpreted in the way in which the person to whom it is addressed could be expected to understand it. 2. Where the person making the statement intended an expression used in it to have a particular meaning and the other party was aware, or could be expected to have been aware, of that intention, the expression is to be interpreted in the way intended by the person making the statement. 3. Articles 59 to 65 apply with appropriate adaptations to the interpretation of unilateral statements indicating intention. 4. The rules on defects in consent in Chapter 5 apply with appropriate adaptations to unilateral statements indicating intention. 5. Any reference to a statement referred to in this Article includes a reference to conduct which can be regarded as the equivalent of a statement. Part II  Making a binding contract Chapter 2  Pre-contractual information Section 1  Pre-contractual information to be given by a trader dealing with a consumer

Article 13 Duty to provide information when concluding a distance or off-premises contract 1. A trader concluding a distance contract or off-premises contract has a duty to provide the following information to the consumer, in a clear and comprehensible manner before the contract is concluded or the consumer is bound by any offer: (a) the main characteristics of the goods, digital content or related services to be supplied, to an extent appropriate to the medium of communication and to the goods, digital content or related services; (b) the total price and additional charges and costs, in accordance with Article 14; (c) the identity and address of the trader, in accordance with Article 15; (d) the contract terms, in accordance with Article 16; (e) the rights of withdrawal, in accordance with Article 17; (f) where applicable, the existence and the conditions of the trader’s aftersale customer assistance, after-sale services, commercial guarantees and complaints handling policy; (g) where applicable, the possibility of having recourse to an Alternative Dispute Resolution mechanism to which the trader is subject and the methods for having access to it;

Proposal for a Regulation on a Common European Sales Law 1465

2. 3.

4.

5.

(h) where applicable, the functionality, including applicable technical protection measures, of digital content; and (i) where applicable, any relevant interoperability of digital content with hardware and software which the trader is aware of or can be expected to have been aware of. The information provided, except for the addresses required by point (c) of paragraph 1, forms an integral part of the contract and shall not be altered unless the parties expressly agree otherwise. For a distance contract, the information required by this Article must: (a) be given or made available to the consumer in a way that is appropriate to the means of distance communication used; (b) be in plain and intelligible language; and (c) insofar as it is provided on a durable medium, be legible. For an off-premises contract, the information required by this Article must: (a) be given on paper or, if the consumer agrees, on another durable medium; and (b) be legible and in plain, intelligible language. This Article does not apply where the contract is: (a) for the supply of foodstuffs, beverages or other goods which are intended for current consumption in the household, and which are physically supplied by a trader on frequent and regular rounds to the consumer’s home, residence or workplace; (b) concluded by means of an automatic vending machine or automated commercial premises; (c) an off-premises contract if the price or, where multiple contracts were concluded at the same time, the total price of the contracts does not exceed EUR 50 or the equivalent sum in the currency agreed for the contract price. Article 14 Information about price and additional charges and costs

1. The information to be provided under point (b) of Article 13 (1) must include: (a) the total price of the goods, digital content or related services, inclusive of taxes, or where the nature of the goods, digital content or related services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated; and (b) where applicable, any additional freight, delivery or postal charges and any other costs or, where these cannot reasonably be calculated in advance, the fact that such additional charges and costs may be payable. 2. In the case of a contract of indeterminate duration or a contract containing a subscription, the total price must include the total price per billing period. Where such contracts are charged at a fixed rate, the total price must include the total monthly price. Where the total price cannot be reasonably calculated in advance, the manner in which the price is to be calculated must be provided.

1466  Part III: Common Principles 3. Where applicable, the trader must inform the consumer of the cost of using the means of distance communication for the conclusion of the contract where that cost is calculated other than at the basic rate. Article 15 Information about the identity and address of the trader The information to be provided under point (c) of Article 13 (1) must include: (a) the identity of the trader, such as its trading name; (b) the geographical address at which the trader is established; (c) the telephone number, fax number and e-mail address of the trader, where available, to enable the consumer to contact the trader quickly and communicate with the trader efficiently; (d) where applicable, the identity and geographical address of any other trader on whose behalf the trader is acting; and (e) where different from the address given pursuant to points (b) and (d) of this Article, the geographical address of the trader, and where applicable that of the trader on whose behalf it is acting, where the consumer can address any complaints. Article 16 Information about the contract terms The information to be provided under point (d) of Article 13 (1) must include: (a) the arrangements for payment, delivery of the goods, supply of the digital content or performance of the related services and the time by which the trader undertakes to deliver the goods, to supply the digital content or to perform the related services; (b) where applicable, the duration of the contract, the minimum duration of the consumer’s obligations or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract; and (c) where applicable, the existence and conditions for deposits or other financial guarantees to be paid or provided by the consumer at the request of the trader; (d) where applicable, the existence of relevant codes of conduct and how copies of them can be obtained. Article 17 Information about rights of withdrawal when concluding a distance or off-premises contract 1. Where the consumer has a right of withdrawal under Chapter 4, the information to be provided under point (e) of Article 13 (1) must include the conditions, time limit and procedures for exercising that right in accordance with Appendix 1, as well as the model withdrawal form set out in Appendix 2.

Proposal for a Regulation on a Common European Sales Law 1467 2. Where applicable, the information to be provided under point (e) of Article 13(1) must include the fact that the consumer will have to bear the cost of returning the goods in case of withdrawal and, for distance contracts, that the consumer will have to bear the cost of returning the goods in the event of withdrawal if the goods by their nature cannot be normally returned by post. 3. Where the consumer can exercise the right of withdrawal after having made a request for the provision of related services to begin during the withdrawal period, the information to be provided under point (e) of Article 13(1) must include the fact that the consumer would be liable to pay the trader the amount referred to in Article 45 (5). 4. The duty to provide the information required by paragraphs 1, 2 and 3 may be fulfilled by supplying the Model instructions on withdrawal set out in Appendix 1 to the consumer. The trader will be deemed to have fulfilled these information requirements if he has supplied these instructions to the consumer correctly filled in. 5. Where a right of withdrawal is not provided for in accordance with points (c) to (i) of Article 40 (2) and paragraph 3 of that Article, the information to be provided under point (e) of Article 13 (1) must include a statement that the consumer will not benefit from a right of withdrawal or, where applicable, the circumstances under which the consumer loses the right of withdrawal. Article 18 Off-premises contracts: additional information requirements and confirmation 1. The trader must provide the consumer with a copy of the signed contract or the confirmation of the contract, including where applicable, the confirmation of the consumer’s consent and acknowledgment as provided for in point (d) of Article 40(3) on paper or, if the consumer agrees, on a different durable medium. 2. Where the consumer wants the provision of related services to begin during the withdrawal period provided for in Article 42(2), the trader must require that the consumer makes such an express request on a durable medium. Article 19 Distance contracts: additional information and other requirements 1. When a trader makes a telephone call to a consumer, with a view to concluding a distance contract, the trader must, at the beginning of the conversation with the consumer, disclose its identity and, where applicable, the identity of the person on whose behalf it is making the call and the commercial purpose of the call. 2. If the distance contract is concluded through a means of distance communication which allows limited space or time to display the information, the trader must provide at least the information referred to in paragraph 3 of this Article on that particular means prior to the conclusion of such a contract. The other

1468  Part III: Common Principles

3.

4.

5.

6.

information referred to in Article 13 shall be provided by the trader to the consumer in an appropriate way in accordance with Article 13(3). The information required under paragraph 2 is: (a) the main characteristics of the goods, digital content or related services, as required by point (a) of Article 13 (1); (b) the identity of the trader, as required by point (a) of Article 15; (c) the total price, including all items referred to in point (b) of Article 13 (1) and Article 14(1) and (2); (d) the right of withdrawal; and (e) where relevant, the duration of the contract, and if the contract is for an indefinite period, the requirements for terminating the contract, referred to in point (b) of Article 16. A distance contract concluded by telephone is valid only if the consumer has signed the offer or has sent his written consent indicating the agreement to conclude a contract. The trader must provide the consumer with a confirmation of that agreement on a durable medium. The trader must give the consumer a confirmation of the contract concluded, including where applicable, of the consent and acknowledgement of the consumer referred to in point (d) of Article 40(3), and all the information referred to in Article 13 on a durable medium. The trader must give that information in reasonable time after the conclusion of the distance contract, and at the latest at the time of the delivery of the goods or before the supply of digital content or the provision of the related service begins, unless the information has already been given to the consumer prior to the conclusion of the distance contract on a durable medium. Where the consumer wants the provision of related services to begin during the withdrawal period provided for in Article 42(2), the trader must require that the consumer makes an express request to that effect on a durable medium. Article 20 Duty to provide information when concluding contracts other than distance and off-premises contracts

1. In contracts other than distance and off-premises contracts, a trader has a duty to provide the following information to the consumer, in a clear and comprehensible manner before the contract is concluded or the consumer is bound by any offer, if that information is not already apparent from the context: (a) the main characteristics of the goods, digital content or related services to be supplied, to an extent appropriate to the medium of communication and to the goods, digital content or related services; (b) the total price and additional charges and costs, in accordance with Article 14(1); (c) the identity of the trader, such as the trader’s trading name, the geographical address at which it is established and its telephone number; (d) the contract terms in accordance with points (a) and (b) of Article 16;

Proposal for a Regulation on a Common European Sales Law 1469 (e) where applicable, the existence and the conditions of the trader’s aftersale services, commercial guarantees and complaints handling policy; (f) where applicable, the functionality, including applicable technical protection measures of digital content; and (g) where applicable, any relevant interoperability of digital content with hardware and software which the trader is aware of or can be expected to have been aware of. 2. This Article does not apply where the contract involves a day-to-day transaction and is performed immediately at the time of its conclusion. Article 21 Burden of proof The trader bears the burden of proof that it has provided the information required by this Section. Article 22 Mandatory nature The parties may not, to the detriment of the consumer, exclude the application of this Section or derogate from or vary its effects. Section 2  Pre-contractual information to be given by a trader dealing with another trader

Article 23 Duty to disclose information about goods and related services 1. Before the conclusion of a contract for the sale of goods, supply of digital content or provision of related services by a trader to another trader, the supplier has a duty to disclose by any appropriate means to the other trader any information concerning the main characteristics of the goods, digital content or related services to be supplied which the supplier has or can be expected to have and which it would be contrary to good faith and fair dealing not to disclose to the other party. 2. In determining whether paragraph 1 requires the supplier to disclose any information, regard is to be had to all the circumstances, including: (a) whether the supplier had special expertise; (b) the cost to the supplier of acquiring the relevant information; (c) the ease with which the other trader could have acquired the information by other means; (d) the nature of the information; (e) the likely importance of the information to the other trader; and (f) good commercial practice in the situation concerned.

1470  Part III: Common Principles Section 3:  Contracts concluded by electronic means Article 24 Additional duties to provide information in distance contracts concluded by electronic means 1. This Article applies where a trader provides the means for concluding a contract and where those means are electronic and do not involve the exclusive exchange of electronic mail or other individual communication. 2. The trader must make available to the other party appropriate, effective and accessible technical means for identifying and correcting input errors before the other party makes or accepts an offer. 3. The trader must provide information about the following matters before the other party makes or accepts an offer: (a) the technical steps to be taken in order to conclude the contract; (b) whether or not a contract document will be filed by the trader and whether it will be accessible; (c) the technical means for identifying and correcting input errors before the other party makes or accepts an offer; (d) the languages offered for the conclusion of the contract; (e) the contract terms. 4. The trader must ensure that the contract terms referred to in point (e) of paragraph 3 are made available in alphabetical or other intelligible characters and on a durable medium by means of any support which permits reading, recording of the information contained in the text and its reproduction in tangible form. 5. The trader must acknowledge by electronic means and without undue delay the receipt of an offer or an acceptance sent by the other party. Article 25 Additional requirements in distance contracts concluded by electronic means 1. Where a distance contract which is concluded by electronic means would oblige the consumer to make a payment, the trader must make the consumer aware in a clear and prominent manner, and immediately before the consumer places the order, of the information required by point (a) of Article 13 (1), Article 14(1) and (2), and point (b) of Article 16. 2. The trader must ensure that the consumer, when placing the order, explicitly acknowledges that the order implies an obligation to pay. Where placing an order entails activating a button or a similar function, the button or similar function must be labelled in an easily legible manner only with the words “order with obligation to pay” or similar unambiguous wording indicating that placing the order entails an obligation to make a payment to the trader. Where the trader has not complied with this paragraph, the consumer is not bound by the contract or order.

Proposal for a Regulation on a Common European Sales Law 1471 3. The trader must indicate clearly and legibly on its trading website at the latest at the beginning of the ordering process whether any delivery restrictions apply and what means of payment are accepted. Article 26 Burden of proof In relations between a trader and a consumer, the trader bears the burden of proof that it has provided the information required by this Section. Article 27 Mandatory nature In relations between a trader and a consumer, the parties may not, to the detriment of the consumer, exclude the application of this Section or derogate from or vary its effects. Section 4 Duty to ensure that information supplied is correct Article 28 Duty to ensure that information supplied is correct 1. A party who supplies information before or at the time a contract is concluded, whether in order to comply with the duties imposed by this Chapter or otherwise, has a duty to take reasonable care to ensure that the information supplied is correct and is not misleading. 2. A party to whom incorrect or misleading information has been supplied in breach of the duty referred to in paragraph 1, and who reasonably relies on that information in concluding a contract with the party who supplied it, has the remedies set out in Article 29. 3. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 5 Remedies for breach of information duties Article 29 Remedies for breach of information duties 1. A party which has failed to comply with any duty imposed by this Chapter is liable for any loss caused to the other party by such failure. 2. Where the trader has not complied with the information requirements relating to additional charges or other costs as referred to in Article 14 or on the costs of returning the goods as referred to in Article 17(2) the consumer is not liable to pay the additional charges and other costs. 3. The remedies provided under this Article are without prejudice to any remedy which may be available under Article 42 (2), Article 48 or Article 49.

1472  Part III: Common Principles 4. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Chapter 3  Conclusion of contract Article 30 Requirements for the conclusion of a contract 1. A contract is concluded if: (a) the parties reach an agreement; (b) they intend the agreement to have legal effect; and (c) the agreement, supplemented if necessary by rules of the Common European Sales Law, has sufficient content and certainty to be given legal effect. 2. Agreement is reached by acceptance of an offer. Acceptance may be made explicitly or by other statements or conduct. 3. Whether the parties intend the agreement to have legal effect is to be determined from their statements and conduct. 4. Where one of the parties makes agreement on some specific matter a requirement for the conclusion of a contract, there is no contract unless agreement on that matter has been reached. Article 31 Offer 1. A proposal is an offer if: (a) it is intended to result in a contract if it is accepted; and (b) it has sufficient content and certainty for there to be a contract. 2. An offer may be made to one or more specific persons. 3. A proposal made to the public is not an offer, unless the circumstances indicate otherwise. Article 32 Revocation of offer 1. An offer may be revoked if the revocation reaches the offeree before the offeree has sent an acceptance or, in cases of acceptance by conduct, before the contract has been concluded. 2. Where a proposal made to the public is an offer, it can be revoked by the same means as were used to make the offer. 3. A revocation of an offer is ineffective if: (a) the offer indicates that it is irrevocable; (b) the offer states a fixed time period for its acceptance; or (c) it was otherwise reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Proposal for a Regulation on a Common European Sales Law 1473 Article 33 Rejection of offer When a rejection of an offer reaches the offeror, the offer lapses. Article 34 Acceptance 1. Any form of statement or conduct by the offeree is an acceptance if it indicates assent to the offer. 2. Silence or inactivity does not in itself constitute acceptance. Article 35 Time of conclusion of the contract 1. Where an acceptance is sent by the offeree the contract is concluded when the acceptance reaches the offeror. 2. Where an offer is accepted by conduct, the contract is concluded when notice of the conduct reaches the offeror. 3. Notwithstanding paragraph 2, where by virtue of the offer, of practices which the parties have established between themselves, or of a usage, the offeree may accept the offer by conduct without notice to the offeror, the contract is concluded when the offeree begins to act. Article 36 Time limit for acceptance 1. An acceptance of an offer is effective only if it reaches the offeror within any time limit stipulated in the offer by the offeror. 2. Where no time limit has been fixed by the offeror the acceptance is effective only if it reaches the offeror within a reasonable time after the offer was made. 3. Where an offer may be accepted by doing an act without notice to the offeror, the acceptance is effective only if the act is done within the time for acceptance fixed by the offeror or, if no such time is fixed, within a reasonable time. Article 37 Late acceptance 1. A late acceptance is effective as an acceptance if without undue delay the offeror informs the offeree that the offeror is treating it as an effective acceptance. 2. Where a letter or other communication containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that the offer has lapsed.

1474  Part III: Common Principles Article 38 Modified acceptance 1. A reply by the offeree which states or implies additional or different contract terms which materially alter the terms of the offer is a rejection and a new offer. 2. Additional or different contract terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are presumed to alter the terms of the offer materially. 3. A reply which gives a definite assent to an offer is an acceptance even if it states or implies additional or different contract terms, provided that these do not materially alter the terms of the offer. The additional or different terms then become part of the contract. 4. A reply which states or implies additional or different contract terms is always a rejection of the offer if: (a) the offer expressly limits acceptance to the terms of the offer; (b) the offeror objects to the additional or different terms without undue delay; or (c) the offeree makes the acceptance conditional upon the offeror’s assent to the additional or different terms, and the assent does not reach the offeree within a reasonable time. Article 39 Conflicting standard contract terms 1. Where the parties have reached agreement except that the offer and acceptance refer to conflicting standard contract terms, a contract is nonetheless concluded. The standard contract terms are part of the contract to the extent that they are common in substance. 2. Notwithstanding paragraph 1, no contract is concluded if one party: (a) has indicated in advance, explicitly, and not by way of standard contract terms, an intention not to be bound by a contract on the basis of paragraph 1; or (b) without undue delay, informs the other party of such an intention. Chapter 4  Right to withdraw in distance and off-premises contracts between traders and consumers Article 40 Right to withdraw 1. During the period provided for in Article 42, the consumer has a right to withdraw from the contract without giving any reason, and at no cost to the consumer except as provided in Article 45, from: (a) a distance contract;

Proposal for a Regulation on a Common European Sales Law 1475 (b) an off-premises contract, provided that the price or, where multiple contracts were concluded at the same time, the total price of the contracts exceeds EUR 50 or the equivalent sum in the currency agreed for the contract price at the time of the conclusion of the contract. 2. Paragraph 1 does not apply to: (a) a contract concluded by means of an automatic vending machine or automated commercial premises; (b) a contract for the supply of foodstuffs, beverages or other goods which are intended for current consumption in the household and which are physically supplied by the trader on frequent and regular rounds to the consumer’s home, residence or workplace; (c) a contract for the supply of goods or related services for which the price depends on fluctuations in the financial market which cannot be controlled by the trader and which may occur within the withdrawal period; (d) a contract for the supply of goods or digital content which are made to the consumer’s specifications, or are clearly personalised; (e) a contract for the supply of goods which are liable to deteriorate or expire rapidly; (f) a contract for the supply of alcoholic beverages, the price of which has been agreed upon at the time of the conclusion of the sales contract, the delivery of which can only take place after 30 days from the time of conclusion of the contract and the actual value of which is dependent on fluctuations in the market which cannot be controlled by the trader; (g) a contract for the sale of a newspaper, periodical or magazine with the exception of subscription contracts for the supply of such publications; (h) a contract concluded at a public auction; and (i) a contract for catering or services related to leisure activities which provides for a specific date or period of performance. 3. Paragraph 1 does not apply in the following situations: (a) where the goods supplied were sealed, have been unsealed by the consumer and are not then suitable for return due to health protection or hygiene reasons; (b) where the goods supplied have, according to their nature, been inseparably mixed with other items after delivery; (c) where the goods supplied were sealed audio or video recordings or computer software and have been unsealed after delivery; (d) where the supply of digital content which is not supplied on a tangible medium has begun with the consumer’s prior express consent and with the acknowledgement by the consumer of losing the right to withdraw; (e) the consumer has specifically requested a visit from the trader for the purpose of carrying out urgent repairs or maintenance. Where on the occasion of such a visit the trader provides related services in addition to those specifically requested by the consumer or goods other than replacement parts necessarily used in performing the maintenance or in making the repairs, the right of withdrawal applies to those additional related services or goods.

1476  Part III: Common Principles 4. Where the consumer has made an offer which, if accepted, would lead to the conclusion of a contract from which there would be a right to withdraw under this Chapter, the consumer may withdraw the offer even if it would otherwise be irrevocable. Article 41 Exercise of right to withdraw 1. The consumer may exercise the right to withdraw at any time before the end of the period of withdrawal provided for in Article 42. 2. The consumer exercises the right to withdraw by notice to the trader. For this purpose, the consumer may use either the Model withdrawal form set out in Appendix 2 or any other unequivocal statement setting out the decision to withdraw. 3. Where the trader gives the consumer the option to withdraw electronically on its trading website, and the consumer does so, the trader has a duty to communicate to the consumer an acknowledgement of receipt of such a withdrawal on a durable medium without delay. The trader is liable for any loss caused to the other party by a breach of this duty. 4. A communication of withdrawal is timely if sent before the end of the withdrawal period. 5. The consumer bears the burden of proof that the right of withdrawal has been exercised in accordance with this Article. Article 42 Withdrawal period 1. The withdrawal period expires after fourteen days from: (a) the day on which the consumer has taken delivery of the goods in the case of a sales contract, including a sales contract under which the seller also agrees to provide related services; (b) the day on which the consumer has taken delivery of the last item in the case of a contract for the sale of multiple goods ordered by the consumer in one order and delivered separately, including a contract under which the seller also agrees to provide related services; (c) the day on which the consumer has taken delivery of the last lot or piece in the case of a contract where the goods consist of multiple lots or pieces, including a contract under which the seller also agrees to provide related services; (d) the day on which the consumer has taken delivery of the first item where the contract is for regular delivery of goods during a defined period of time, including a contract under which the seller also agrees to provide related services; (e) the day of the conclusion of the contract in the case of a contract for related services concluded after the goods have been delivered;

Proposal for a Regulation on a Common European Sales Law 1477 (f) the day when the consumer has taken delivery of the tangible medium in accordance with point (a) in the case of a contract for the supply of digital content where the digital content is supplied on a tangible medium; (g) the day of the conclusion of the contract in the case of a contract where the digital content is not supplied on a tangible medium. 2. Where the trader has not provided the consumer with the information referred to in Article 17 (1), the withdrawal period expires: (a) after one year from the end of the initial withdrawal period, as determined in accordance with paragraph 1; or (b) where the trader provides the consumer with the information required within one year from the end of the withdrawal period as determined in accordance with paragraph 1, after fourteen days from the day the consumer receives the information. Article 43 Effects of withdrawal Withdrawal terminates the obligations of both parties under the contract: (a) to perform the contract; or (b) to conclude the contract in cases where an offer was made by the consumer. Article 44 Obligations of the trader in the event of withdrawal 1. The trader must reimburse all payments received from the consumer, including, where applicable, the costs of delivery without undue delay and in any event not later than fourteen days from the day on which the trader is informed of the consumer’s decision to withdraw from the contract in accordance with Article 41. The trader must carry out such reimbursement using the same means of payment as the consumer used for the initial transaction, unless the consumer has expressly agreed otherwise and provided that the consumer does not incur any fees as a result of such reimbursement. 2. Notwithstanding paragraph 1, the trader is not required to reimburse the supplementary costs, if the consumer has expressly opted for a type of delivery other than the least expensive type of standard delivery offered by the trader. 3. In the case of a contract for the sale of goods, the trader may withhold the reimbursement until it has received the goods back, or the consumer has supplied evidence of having sent back the goods, whichever is earlier, unless the trader has offered to collect the goods. 4. In the case of an off-premises contract where the goods have been delivered to the consumer’s home at the time of the conclusion of the contract, the trader must collect the goods at its own cost if the goods by their nature cannot be normally returned by post.

1478  Part III: Common Principles Article 45 Obligations of the consumer in the event of withdrawal 1. The consumer must send back the goods or hand them over to the trader or to a person authorised by the trader without undue delay and in any event not later than fourteen days from the day on which the consumer communicates the decision to withdraw from the contract to the trader in accordance with Article 41, unless the trader has offered to collect the goods. This deadline is met if the consumer sends back the goods before the period of fourteen days has expired. 2. The consumer must bear the direct costs of returning the goods, unless the trader has agreed to bear those costs or the trader failed to inform the consumer that the consumer has to bear them. 3. The consumer is liable for any diminished value of the goods only where that results from handling of the goods in any way other than what is necessary to establish the nature, characteristics and functioning of the goods. The consumer is not liable for diminished value where the trader has not provided all the information about the right to withdraw in accordance with Article 17 (1). 4. Without prejudice to paragraph 3, the consumer is not liable to pay any compensation for the use of the goods during the withdrawal period. 5. Where the consumer exercises the right of withdrawal after having made an express request for the provision of related services to begin during the withdrawal period, the consumer must pay to the trader an amount which is in proportion to what has been provided before the consumer exercised the right of withdrawal, in comparison with the full coverage of the contract. The proportionate amount to be paid by the consumer to the trader must be calculated on the basis of the total price agreed in the contract. Where the total price is excessive, the proportionate amount must be calculated on the basis of the market value of what has been provided. 6. The consumer is not liable for the cost for: (a) the provision of related services, in full or in part, during the withdrawal period, where: (i) the trader has failed to provide information in accordance with Article 17(1) and (3); or (ii) the consumer has not expressly requested performance to begin during the withdrawal period in accordance with Article 18(2) and Article 19(6); (b) for the supply, in full or in part, of digital content which is not supplied on a tangible medium where: (i) the consumer has not given prior express consent for the supply of digital content to begin before the end of the period of withdrawal referred to in Article 42(1); (ii) the consumer has not acknowledged losing the right of withdrawal when giving the consent; or

Proposal for a Regulation on a Common European Sales Law 1479 (iii) the trader has failed to provide the confirmation in accordance with Article 18(1) and Article 19(5). 7. Except as provided for in this Article, the consumer does not incur any liability through the exercise of the right of withdrawal. Article 46 Ancillary contracts 1. Where a consumer exercises the right of withdrawal from a distance or an off-premises contract in accordance with Articles 41 to 45, any ancillary contracts are automatically terminated at no cost to the consumer except as provided in paragraphs 2 and 3. For the purpose of this Article an ancillary contract means a contract by which a consumer acquires goods, digital content or related services in connexion to a distance contract or an off-premises contract and these goods, digital content or related services are provided by the trader or a third party on the basis of an arrangement between that third party and the trader. 2. The provisions of Articles 43, 44 and 45 apply accordingly to ancillary contracts to the extent that those contracts are governed by the Common European Sales Law. 3. For ancillary contracts which are not governed by the Common European Sales Law the applicable law governs the obligations of the parties in the event of withdrawal. Article 47 Mandatory nature The parties may not, to the detriment of the consumer, exclude the application of this Chapter or derogate from or vary its effects. Chapter 5  Defects in consent Article 48 Mistake 1. A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) the party, but for the mistake, would not have concluded the contract or would have done so only on fundamentally different contract terms and the other party knew or could be expected to have known this; and (b) the other party: (i) caused the mistake; (ii) caused the contract to be concluded in mistake by failing to comply with any pre-contractual information duty under Chapter 2, Sections 1 to 4;

1480  Part III: Common Principles (iii) knew or could be expected to have known of the mistake and caused the contract to be concluded in mistake by not pointing out the relevant information, provided that good faith and fair dealing would have required a party aware of the mistake to point it out; or (iv) made the same mistake. 2. A party may not avoid a contract for mistake if the risk of the mistake was assumed, or in the circumstances should be borne, by that party. 3. An inaccuracy in the expression or transmission of a statement is treated as a mistake of the person who made or sent the statement. Article 49 Fraud 1. A party may avoid a contract if the other party has induced the conclusion of the contract by fraudulent misrepresentation, whether by words or conduct, or fraudulent non-disclosure of any information which good faith and fair dealing, or any pre-contractual information duty, required that party to disclose. 2. Misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false, or recklessly as to whether it is true or false, and is intended to induce the recipient to make a mistake. Non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake. 3. In determining whether good faith and fair dealing require a party to disclose particular information, regard should be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) the ease with which the other party could have acquired the information by other means; (d) the nature of the information; (e) the apparent importance of the information to the other party; and (f) in contracts between traders good commercial practice in the situation concerned Article 50 Threats A party may avoid a contract if the other party has induced the conclusion of the contract by the threat of wrongful, imminent and serious harm, or of a wrongful act.

Proposal for a Regulation on a Common European Sales Law 1481 Article 51 Unfair exploitation A party may avoid a contract if, at the time of the conclusion of the contract: (a) that party was dependent on, or had a relationship of trust with, the other party, was in economic distress or had urgent needs, was improvident, ignorant, or inexperienced; and (b) the other party knew or could be expected to have known this and, in the light of the circumstances and purpose of the contract, exploited the first party’s situation by taking an excessive benefit or unfair advantage. Article 52 Notice of avoidance 1. Avoidance is effected by notice to the other party. 2. A notice of avoidance is effective only if it is given within the following period after the avoiding party becomes aware of the relevant circumstances or becomes capable of acting freely: (a) six months in case of mistake; and (b) one year in case of fraud, threats and unfair exploitation. Article 53 Confirmation Where the party who has the right to avoid a contract under this Chapter confirms it, expressly or impliedly, after becoming aware of the relevant circumstances, or becoming capable of acting freely, that party may no longer avoid the contract. Article 54 Effects of avoidance 1. A contract which may be avoided is valid until avoided but, once avoided, is retrospectively invalid from the beginning. 2. Where a ground of avoidance affects only certain contract terms, the effect of avoidance is limited to those terms unless it is unreasonable to uphold the remainder of the contract. 3. The question whether either party has a right to the return of whatever has been transferred or supplied under a contract which has been avoided, or to a monetary equivalent, is regulated by the rules on restitution in Chapter 17. Article 55 Damages for loss A party who has the right to avoid a contract under this Chapter or who had such a right before it was lost by the effect of time limits or confirmation is entitled, whether

1482  Part III: Common Principles or not the contract is avoided, to damages from the other party for loss suffered as a result of the mistake, fraud, threats or unfair exploitation, provided that the other party knew or could be expected to have known of the relevant circumstances. Article 56 Exclusion or restriction of remedies 1. Remedies for fraud, threats and unfair exploitation cannot be directly or indirectly excluded or restricted. 2. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, directly or indirectly exclude or restrict remedies for mistake. Article 57 Choice of remedy A party who is entitled to a remedy under this Chapter in circumstances which afford that party a remedy for non-performance may pursue either of those remedies. Part III  Assessing what is in the contract Chapter 6  Interpretation Article 58 General rules on interpretation of contracts 1. A contract is to be interpreted according to the common intention of the parties even if this differs from the normal meaning of the expressions used in it. 2. Where one party intended an expression used in the contract to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could be expected to have been aware, of that intention, the expression is to be interpreted in the way intended by the first party. 3. Unless otherwise provided in paragraphs 1 and 2, the contract is to be interpreted according to the meaning which a reasonable person would give to it. Article 59 Relevant matters In interpreting a contract, regard may be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the interpretation which has already been given by the parties to expressions which are identical to or similar to those used in the contract; (d) usages which would be considered generally applicable by parties in the same situation;

Proposal for a Regulation on a Common European Sales Law 1483 (e) practices which the parties have established between themselves; (f) the meaning commonly given to expressions in the branch of activity concerned; (g) the nature and purpose of the contract; and (h) good faith and fair dealing. Article 60 Reference to contract as a whole Expressions used in a contract are to be interpreted in the light of the contract as a whole. Article 61 Language discrepancies Where a contract document is in two or more language versions none of which is stated to be authoritative and where there is a discrepancy between the versions, the version in which the contract was originally drawn up is to be treated as the authoritative one. Article 62 Preference for individually negotiated contract terms To the extent that there is an inconsistency, contract terms which have been individually negotiated prevail over those which have not been individually negotiated within the meaning of Article 7. Article 63 Preference for interpretation which gives contract terms effect An interpretation which renders the contract terms effective prevails over one which does not. Article 64 Interpretation in favour of consumers 1. Where there is doubt about the meaning of a contract term in a contract between a trader and a consumer, the interpretation most favourable to the consumer shall prevail unless the term was supplied by the consumer. 2. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 65 Interpretation against supplier of a contract term Where, in a contract which does not fall under Article 64, there is doubt about the meaning of a contract term which has not been individually negotiated within the

1484  Part III: Common Principles meaning of Article 7, an interpretation of the term against the party who supplied it shall prevail. Chapter 7  Contents and effects Article 66 Contract terms The terms of the contract are derived from: (a) the agreement of the parties, subject to any mandatory rules of the Common European Sales Law; (b) any usage or practice by which parties are bound by virtue of Article 67; (c) any rule of the Common European Sales Law which applies in the absence of an agreement of the parties to the contrary; and (d) any contract term implied by virtue of Article 68. Article 67 Usages and practices in contracts between traders 1. In a contract between traders, the parties are bound by any usage which they have agreed should be applicable and by any practice they have established between themselves. 2. The parties are bound by a usage which would be considered generally applicable by traders in the same situation as the parties. 3. Usages and practices do not bind the parties to the extent to which they conflict with contract terms which have been individually negotiated or any mandatory rules of the Common European Sales Law. Article 68 Contract terms which may be implied 1. Where it is necessary to provide for a matter which is not explicitly regulated by the agreement of the parties, any usage or practice or any rule of the Common European Sales Law, an additional contract term may be implied, having regard in particular to: (a) the nature and purpose of the contract; (b) the circumstances in which the contract was concluded; and (c) good faith and fair dealing. 2. Any contract term implied under paragraph 1 is, as far as possible, to be such as to give effect to what the parties would probably have agreed, had they provided for the matter. 3. Paragraph 1 does not apply if the parties have deliberately left a matter unregulated, accepting that one or other party would bear the risk.

Proposal for a Regulation on a Common European Sales Law 1485 Article 69 Contract terms derived from certain pre-contractual statements 1. Where the trader makes a statement before the contract is concluded, either to the other party or publicly, about the characteristics of what is to be supplied by that trader under the contract, the statement is incorporated as a term of the contract unless: (a) the other party was aware, or could be expected to have been aware when the contract was concluded that the statement was incorrect or could not otherwise be relied on as such a term; or (b) the other party’s decision to conclude the contract could not have been influenced by the statement. 2. For the purposes of paragraph 1, a statement made by a person engaged in advertising or marketing for the trader is regarded as being made by the trader. 3. Where the other party is a consumer then, for the purposes of paragraph 1, a public statement made by or on behalf of a producer or other person in earlier links of the chain of transactions leading to the contract is regarded as being made by the trader unless the trader, at the time of conclusion of the contract, did not know and could not be expected to have known of it. 4. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 70 Duty to raise awareness of not individually negotiated contract terms 1. Contract terms supplied by one party and not individually negotiated within the meaning of Article 7 may be invoked against the other party only if the other party was aware of them, or if the party supplying them took reasonable steps to draw the other party’s attention to them, before or when the contract was concluded. 2. For the purposes of this Article, in relations between a trader and a consumer contract terms are not sufficiently brought to the consumer’s attention by a mere reference to them in a contract document, even if the consumer signs the document. 3. The parties may not exclude the application of this Article or derogate from or vary its effects. Article 71 Additional payments in contracts between a trader and a consumer 1. In a contract between a trader and a consumer, a contract term which obliges the consumer to make any payment in addition to the remuneration stated for the trader’s main contractual obligation, in particular where it has been

1486  Part III: Common Principles incorporated by the use of default options which the consumer is required to reject in order to avoid the additional payment, is not binding on the consumer unless, before the consumer is bound by the contract, the consumer has expressly consented to the additional payment. If the consumer has made the additional payment, the consumer may recover it. 2. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 72 Merger clauses 1. Where a contract in writing includes a term stating that the document contains all contract terms (a merger clause), any prior statements, undertakings or agreements which are not contained in the document do not form part of the contract. 2. Unless the contract otherwise provides, a merger clause does not prevent the parties’ prior statements from being used to interpret the contract. 3. In a contract between a trader and a consumer, the consumer is not bound by a merger clause. 4. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 73 Determination of price Where the amount of the price payable under a contract cannot be otherwise determined, the price payable is, in the absence of any indication to the contrary, the price normally charged in comparable circumstances at the time of the conclusion of the contract or, if no such price is available, a reasonable price. Article 74 Unilateral determination by a party 1. Where the price or any other contract term is to be determined by one party and that party’s determination is grossly unreasonable then the price normally charged or term normally used in comparable circumstances at the time of the conclusion of the contract or, if no such price or term is available, a reasonable price or a reasonable term is substituted. 2. The parties may not exclude the application of this Article or derogate from or vary its effects. Article 75 Determination by a third party 1. Where a third party is to determine the price or any other contract term and cannot or will not do so, a court may, unless this is inconsistent with the contract terms, appoint another person to determine it.

Proposal for a Regulation on a Common European Sales Law 1487 2. Where a price or other contract term determined by a third party is grossly unreasonable, the price normally charged or term normally used in comparable circumstances at the time of the conclusion of the contract or, if no such price is available, a reasonable price, or a reasonable term is substituted. 3. For the purpose of paragraph 1 a ‘court’ includes an arbitral tribunal. 4. In relations between a trader and a consumer the parties may not to the detriment of the consumer exclude the application of paragraph 2 or derogate from or vary its effects. Article 76 Language Where the language to be used for communications relating to the contract or the rights or obligations arising from it cannot be otherwise determined, the language to be used is that used for the conclusion of the contract. Article 77 Contracts of indeterminate duration 1. Where, in a case involving continuous or repeated performance of a contractual obligation, the contract terms do not stipulate when the contractual relationship is to end or provide for it to be terminated upon giving notice to that effect, it may be terminated by either party by giving a reasonable period of notice not exceeding two months. 2. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 78 Contract terms in favour of third parties 1. The contracting parties may, by the contract, confer a right on a third party. The third party need not be in existence or identified at the time the contract is concluded but needs to be identifiable. 2. The nature and content of the third party’s right are determined by the contract. The right may take the form of an exclusion or limitation of the third party’s liability to one of the contracting parties. 3. When one of the contracting parties is bound to render a performance to the third party under the contract, then: (a) the third party has the same rights to performance and remedies for non-performance as if the contracting party was bound to render the performance under a contract with the third party; and (b) the contracting party who is bound may assert against the third party all defences which the contracting party could assert against the other party to the contract. 4. The third party may reject a right conferred upon them by notice to either of the contracting parties, if that is done before it has been expressly or impliedly

1488  Part III: Common Principles accepted. On such rejection, the right is treated as never having accrued to the third party. 5. The contracting parties may remove or modify the contract term conferring the right if this is done before either of them has given the third party notice that the right has been conferred. Chapter 8  Unfair contract terms Article 79 Effects of unfair contract terms 1. A contract term which is supplied by one party and which is unfair under Sections 2 and 3 of this Chapter is not binding on the other party. 2. Where the contract can be maintained without the unfair contract term, the other contract terms remain binding. Article 80 Exclusions from unfairness test 1. Sections 2 and 3 do not apply to contract terms which reflect rules of the Common European Sales Law which would apply if the terms did not regulate the matter. 2. Section 2 does not apply to the definition of the main subject matter of the contract, or to the appropriateness of the price to be paid in so far as the trader has complied with the duty of transparency set out in Article 82. 3. Section 3 does not apply to the definition of the main subject matter of the contract or to the appropriateness of the price to be paid. Article 81 Mandatory nature The parties may not exclude the application of this Chapter or derogate from or vary its effects. Section 2 Unfair contract terms in contracts between a trader and a consumer

Article 82 Duty of transparency in contract terms not individually negotiated Where a trader supplies contract terms which have not been individually negotiated with the consumer within the meaning of Article 7, it has a duty to ensure that they are drafted and communicated in plain, intelligible language.

Proposal for a Regulation on a Common European Sales Law 1489 Article 83 Meaning of “unfair” in contracts between a trader and a consumer 1. In a contract between a trader and a consumer, a contract term supplied by the trader which has not been individually negotiated within the meaning of Article 7 is unfair for the purposes of this Section if it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer, contrary to good faith and fair dealing. 2. When assessing the unfairness of a contract term for the purposes of this ­Section, regard is to be had to: (a) whether the trader complied with the duty of transparency set out in Article 82; (b) the nature of what is to be provided under the contract; (c) the circumstances prevailing during the conclusion of the contract; (d) to the other contract terms; and (e) to the terms of any other contract on which the contract depends. Article 84 Contract terms which are always unfair A contract term is always unfair for the purposes of this Section if its object or effect is to: (a) exclude or limit the liability of the trader for death or personal injury caused to the consumer through an act or omission of the trader or of someone acting on behalf of the trader; (b) exclude or limit the liability of the trader for any loss or damage to the consumer caused deliberately or as a result of gross negligence; (c) limit the trader’s obligation to be bound by commitments undertaken by its authorised agents or make its commitments subject to compliance with a particular condition the fulfilment of which depends exclusively on the trader; (d) exclude or hinder the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to an arbitration system not foreseen generally in legal provisions that apply to contracts between a trader and a consumer; (e) confer exclusive jurisdiction for all disputes arising under the contract to a court for the place where the trader is domiciled unless the chosen court is also the court for the place where the consumer is domiciled; (f) give the trader the exclusive right to determine whether the goods, digital content or related services supplied are in conformity with the contract or gives the trader the exclusive right to interpret any contract term; (g) provide that the consumer is bound by the contract when the trader is not; (h) require the consumer to use a more formal method for terminating the contract within the meaning of Article 8 than was used for conclusion of the contract;

1490  Part III: Common Principles (i)

grant the trader a shorter notice period to terminate the contract than the one required of the consumer; (j) oblige the consumer to pay for goods, digital content or related services not actually delivered, supplied or rendered; (k) determine that non-individually negotiated contract terms within the meaning of Article 7 prevail or have preference over contract terms which have been individually negotiated. Article 85 Contract terms which are presumed to be unfair A contract term is presumed to be unfair for the purposes of this Section if its object or effect is to: (a) restrict the evidence available to the consumer or impose on the consumer a burden of proof which should legally lie with the trader; (b) inappropriately exclude or limit the remedies available to the consumer against the trader or a third party for non-performance by the trader of obligations under the contract; (c) inappropriately exclude or limit the right to set-off claims that the consumer may have against the trader against what the consumer may owe to the trader; (d) permit a trader to keep money paid by the consumer if the latter decides not to conclude the contract, or perform obligations under it, without providing for the consumer to receive compensation of an equivalent amount from the trader in the reverse situation; (e) require a consumer who fails to perform obligations under the contract to pay a disproportionately high amount by way of damages or a stipulated payment for non-performance; (f) entitle a trader to withdraw from or terminate the contract within the meaning of Article 8 on a discretionary basis without giving the same right to the consumer, or entitle a trader to keep money paid for related services not yet supplied in the case where the trader withdraws from or terminates the contract; (g) enable a trader to terminate a contract of indeterminate duration without reasonable notice, except where there are serious grounds for doing so; (h) automatically extend a contract of fixed duration unless the consumer indicates otherwise, in cases where contract terms provide for an unreasonably early deadline for giving notice; (i) enable a trader to alter contract terms unilaterally without a valid reason which is specified in the contract; this does not affect contract terms under which a trader reserves the right to alter unilaterally the terms of a contract of indeterminate duration, provided that the trader is required to inform the consumer with reasonable notice, and that the consumer is free to terminate the contract at no cost to the consumer;

Proposal for a Regulation on a Common European Sales Law 1491 (j) enable a trader to alter unilaterally without a valid reason any characteristics of the goods, digital content or related services to be provided or any other features of performance; (k) provide that the price of goods, digital content or related services is to be determined at the time of delivery or supply, or allow a trader to increase the price without giving the consumer the right to withdraw if the increased price is too high in relation to the price agreed at the conclusion of the contract; this does not affect price-indexation clauses, where lawful, provided that the method by which prices vary is explicitly described; (l) oblige a consumer to perform all their obligations under the contract where the trader fails to perform its own; (m) allow a trader to transfer its rights and obligations under the contract without the consumer’s consent, unless it is to a subsidiary controlled by the trader, or as a result of a merger or a similar lawful company transaction, and such transfer is not likely to negatively affect any right of the consumer; (n) allow a trader, where what has been ordered is unavailable, to supply an equivalent without having expressly informed the consumer of this possibility and of the fact that the trader must bear the cost of returning what the consumer has received under the contract if the consumer exercises a right to reject performance; (o) allow a trader to reserve an unreasonably long or inadequately specified period to accept or refuse an offer; (p) allow a trader to reserve an unreasonably long or inadequately specified period to perform the obligations under the contract; (q) inappropriately exclude or limit the remedies available to the consumer against the trader or the defences available to the consumer against claims by the trader; (r) subject performance of obligations under the contract by the trader, or subject other beneficial effects of the contract for the consumer, to particular formalities that are not legally required and are unreasonable; (s) require from the consumer excessive advance payments or excessive guarantees of performance of obligations; (t) unjustifiably prevent the consumer from obtaining supplies or repairs from third party sources; (u) unjustifiably bundle the contract with another one with the trader, a subsidiary of the trader, or a third party, in a way that cannot be expected by the consumer; (v) impose an excessive burden on the consumer in order to terminate a contract of indeterminate duration; (w) make the initial contract period, or any renewal period, of a contract for the protracted provision of goods, digital content or related services longer than one year, unless the consumer may terminate the contract at any time with a termination period of no more than 30 days.

1492  Part III: Common Principles Section 3 Unfair contract terms in contracts between traders Article 86 Meaning of “unfair” in contracts between traders 1. In a contract between traders, a contract term is unfair for the purposes of this Section only if: (a) it forms part of not individually negotiated terms within the meaning of Article 7; and (b) it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing. 2. When assessing the unfairness of a contract term for the purposes of this Section, regard is to be had to: (a) the nature of what is to be provided under the contract; (b) the circumstances prevailing during the conclusion of the contract; (c) the other contract terms; and (d) the terms of any other contract on which the contract depends. Part IV  Obligations and remedies of the parties to a sales contract or a contract for the supply of digital content Chapter 9  General provisions Article 87 Non-performance and fundamental non-performance 1. Non-performance of an obligation is any failure to perform that obligation, whether or not the failure is excused, and includes: (a) non-delivery or delayed delivery of the goods; (b) non-supply or delayed supply of the digital content; (c) delivery of goods which are not in conformity with the contract; (d) supply of digital content which is not in conformity with the contract; (e) non-payment or late payment of the price; and (f) any other purported performance which is not in conformity with the contract. 2. Non-performance of an obligation by one party is fundamental if: (a) it substantially deprives the other party of what that party was entitled to expect under the contract, unless at the time of conclusion of the contract the non-performing party did not foresee and could not be expected to have foreseen that result; or (b) it is of such a nature as to make it clear that the non-performing party’s future performance cannot be relied on.

Proposal for a Regulation on a Common European Sales Law 1493 Article 88 Excused non-performance 1. A party’s non-performance of an obligation is excused if it is due to an impediment beyond that party’s control and if that party could not be expected to have taken the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences. 2. Where the impediment is only temporary the non-performance is excused for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the other party may treat it as such. 3. The party who is unable to perform has a duty to ensure that notice of the impediment and of its effect on the ability to perform reaches the other party without undue delay after the first party becomes, or could be expected to have become, aware of these circumstances. The other party is entitled to damages for any loss resulting from the breach of this duty. Article 89 Change of circumstances 1. A party must perform its obligations even if performance has become more onerous, whether because the cost of performance has increased or because the value of what is to be received in return has diminished. Where performance becomes excessively onerous because of an exceptional change of circumstances, the parties have a duty to enter into negotiations with a view to adapting or terminating the contract. 2. If the parties fail to reach an agreement within a reasonable time, then, upon request by either party a court may: (a) adapt the contract in order to bring it into accordance with what the parties would reasonably have agreed at the time of contracting if they had taken the change of circumstances into account; or (b) terminate the contract within the meaning of Article 8 at a date and on terms to be determined by the court. 3. Paragraphs 1 and 2 apply only if: (a) the change of circumstances occurred after the time when the contract was concluded; (b) the party relying on the change of circumstances did not at that time take into account, and could not be expected to have taken into account, the possibility or scale of that change of circumstances; and (c) the aggrieved party did not assume, and cannot reasonably be regarded as having assumed, the risk of that change of circumstances. 4. For the purpose of paragraphs 2 and 3 a ‘court’ includes an arbitral tribunal.

1494  Part III: Common Principles Article 90 Extended application of rules on payment and on goods or digital content not accepted 1. Unless otherwise provided, the rules on payment of the price by the buyer in Chapter 12 apply with appropriate adaptations to other payments. 2. Article 97 applies with appropriate adaptations to other cases where a person is left in possession of goods or digital content because of a failure by another person to take them when bound to do so. Chapter 10  The seller’s obligations Section 1  General provisions Article 91 Main obligations of the seller The seller of goods or the supplier of digital content (in this part referred to as ‘the seller’) must: (a) deliver the goods or supply the digital content; (b) transfer the ownership of the goods, including the tangible medium on which the digital content is supplied; (c) ensure that the goods or the digital content are in conformity with the contract; (d) ensure that the buyer has the right to use the digital content in accordance with the contract; and (e) deliver such documents representing or relating to the goods or documents relating to the digital content as may be required by the contract. Article 92 Performance by a third party 1. A seller may entrust performance to another person, unless personal performance by the seller is required by the contract terms. 2. A seller who entrusts performance to another person remains responsible for performance. 3. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of paragraph (2) or derogate from or vary its effects. Section 2 Delivery Article 93 Place of delivery 1. Where the place of delivery cannot be otherwise determined, it is:

Proposal for a Regulation on a Common European Sales Law 1495 (a) in the case of a consumer sales contract or a contract for the supply of digital content which is a distance or off-premises contract, or in which the seller has undertaken to arrange carriage to the buyer, the consumer’s place of residence at the time of the conclusion of the contract; (b) in any other case, (i) where the contract of sale involves carriage of the goods by a carrier or series of carriers, the nearest collection point of the first carrier; (ii) where the contract does not involve carriage, the seller’s place of business at the time of conclusion of the contract. 2. If the seller has more than one place of business, the place of business for the purposes of point (b) of paragraph 1 is that which has the closest relationship to the obligation to deliver. Article 94 Method of delivery 1. Unless agreed otherwise, the seller fulfils the obligation to deliver: (a) in the case of a consumer sales contract or a contract for the supply of digital content which is a distance or off-premises contract or in which the seller has undertaken to arrange carriage to the buyer, by transferring the physical possession or control of the goods or the digital content to the consumer; (b) in other cases in which the contract involves carriage of the goods by a carrier, by handing over the goods to the first carrier for transmission to the buyer and by handing over to the buyer any document necessary to enable the buyer to take over the goods from the carrier holding the goods; or (c) in cases that do not fall within points (a) or (b), by making the goods or the digital content, or where it is agreed that the seller need only deliver documents representing the goods, the documents, available to the buyer. 2. In points (a) and (c) of paragraph 1, any reference to the consumer or the buyer includes a third party, not being the carrier, indicated by the consumer or the buyer in accordance with the contract. Article 95 Time of delivery 1. Where the time of delivery cannot be otherwise determined, the goods or the digital content must be delivered without undue delay after the conclusion of the contract. 2. In contracts between a trader and a consumer, unless agreed otherwise by the parties, the trader must deliver the goods or the digital content not later than 30 days from the conclusion of the contract.

1496  Part III: Common Principles Article 96 Seller’s obligations regarding carriage of the goods 1. Where the contract requires the seller to arrange for carriage of the goods, the seller must conclude such contracts as are necessary for carriage to the place fixed by means of transportation appropriate in the circumstances and according to the usual terms for such transportation. 2. Where the seller, in accordance with the contract, hands over the goods to a carrier and if the goods are not clearly identified as the goods to be supplied under the contract by markings on the goods, by shipping documents or other­wise, the seller must give the buyer notice of the consignment specifying the goods. 3. Where the contract does not require the seller to effect insurance in respect of the carriage of the goods, the seller must, at the buyer’s request, provide the buyer with all available information necessary to enable the buyer to effect such insurance. Article 97 Goods or digital content not accepted by the buyer 1. A seller who is left in possession of the goods or the digital content because the buyer, when bound to do so, has failed to take delivery must take reasonable steps to protect and preserve them. 2. The seller is discharged from the obligation to deliver if the seller: (a) deposits the goods or the digital content on reasonable terms with a third party to be held to the order of the buyer, and notifies the buyer of this; or (b) sells the goods or the digital content on reasonable terms after notice to the buyer, and pays the net proceeds to the buyer. 3. The seller is entitled to be reimbursed or to retain out of the proceeds of sale any costs reasonably incurred. Article 98 Effect on passing of risk The effect of delivery on the passing of risk is regulated by Chapter 14. Section 3  Conformity of the goods and digital content Article 99 Conformity with the contract 1. In order to conform with the contract, the goods or digital content must: (a) be of the quantity, quality and description required by the contract; (b) be contained or packaged in the manner required by the contract; and

Proposal for a Regulation on a Common European Sales Law 1497 (c) be supplied along with any accessories, installation instructions or other instructions required by the contract. 2. In order to conform with the contract the goods or digital content must also meet the requirements of Articles 100, 101 and 102, save to the extent that the parties have agreed otherwise. 3. In a consumer sales contract, any agreement derogating from the requirements of Articles 100, 102 and 103 to the detriment of the consumer is valid only if, at the time of the conclusion of the contract, the consumer knew of the specific condition of the goods or the digital content and accepted the goods or the digital content as being in conformity with the contract when concluding it. 4. In a consumer sales contract, the parties may not, to the detriment of the consumer, exclude the application of paragraph 3 or derogate from or vary its effects. Article 100 Criteria for conformity of the goods and digital content The goods or digital content must: (a) be fit for any particular purpose made known to the seller at the time of the conclusion of the contract, except where the circumstances show that the buyer did not rely, or that it was unreasonable for the buyer to rely, on the seller’s skill and judgement; (b) be fit for the purposes for which goods or digital content of the same description would ordinarily be used; (c) possess the qualities of goods or digital content which the seller held out to the buyer as a sample or model; (d) be contained or packaged in the manner usual for such goods or, where there is no such manner, in a manner adequate to preserve and protect the goods; (e) be supplied along with such accessories, installation instructions or other instructions as the buyer may expect to receive; (f) possess the qualities and performance capabilities indicated in any pre-­ contractual statement which forms part of the contract terms by virtue of Article 69; and (g) possess such qualities and performance capabilities as the buyer may expect. When determining what the consumer may expect of the digital content regard is to be had to whether or not the digital content was supplied in exchange for the payment of a price. Article 101 Incorrect installation under a consumer sales contract 1. Where goods or digital content supplied under a consumer sales contract are incorrectly installed, any lack of conformity resulting from the incorrect installation is regarded as lack of conformity of the goods or the digital content if:

1498  Part III: Common Principles (a) the goods or the digital content were installed by the seller or under the seller’s responsibility; or (b) the goods or the digital content were intended to be installed by the consumer and the incorrect installation was due to a shortcoming in the installation instructions. 2. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 102 Third party rights or claims 1. The goods must be free from and the digital content must be cleared of any right or not obviously unfounded claim of a third party. 2. As regards rights or claims based on intellectual property, subject to paragraphs 3 and 4, the goods must be free from and the digital content must be cleared of any right or not obviously unfounded claim of a third party: (a) under the law of the state where the goods or digital content will be used according to the contract or, in the absence of such an agreement, under the law of the state of the buyer’s place of business or in contracts between a trader and a consumer the consumer’s place of residence indicated by the consumer at the time of the conclusion of the contract; and (b) which the seller knew of or could be expected to have known of at the time of the conclusion of the contract. 3. In contracts between businesses, paragraph 2 does not apply where the buyer knew or could be expected to have known of the rights or claims based on intellectual property at the time of the conclusion of the contract. 4. In contracts between a trader and a consumer, paragraph 2 does not apply where the consumer knew of the rights or claims based on intellectual property at the time of the conclusion of the contract. 5. In contracts between a trader and a consumer, the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 103 Limitation on conformity of digital content Digital content is not considered as not conforming to the contract for the sole reason that updated digital content has become available after the conclusion of the contract. Article 104 Buyer’s knowledge of lack of conformity in a contract between traders In a contract between traders, the seller is not liable for any lack of conformity of the goods if, at the time of the conclusion of the contract, the buyer knew or could not have been unaware of the lack of conformity.

Proposal for a Regulation on a Common European Sales Law 1499 Article 105 Relevant time for establishing conformity 1. The seller is liable for any lack of conformity which exists at the time when the risk passes to the buyer under Chapter 14. 2. In a consumer sales contract, any lack of conformity which becomes apparent within six months of the time when risk passes to the buyer is presumed to have existed at that time unless this is incompatible with the nature of the goods or digital content or with the nature of the lack of conformity. 3. In a case governed by point (a) of Article 101(1) any reference in paragraphs 1 or 2 of this Article to the time when risk passes to the buyer is to be read as a reference to the time when the installation is complete. In a case governed by point (b) of Article 101(1) it is to be read as a reference to the time when the consumer had reasonable time for the installation. 4. Where the digital content must be subsequently updated by the trader, the trader must ensure that the digital content remains in conformity with the contract throughout the duration of the contract. 5. In a contract between a trader and a consumer, the parties may not, to the detriment of a consumer, exclude the application of this Article or derogate from or vary its effect. Chapter 11  The buyer’s remedies Section 1  General provisions Article 106 Overview of buyer’s remedies 1. In the case of non-performance of an obligation by the seller, the buyer may do any of the following: (a) require performance, which includes specific performance, repair or replacement of the goods or digital content, under Section 3 of this Chapter; (b) withhold the buyer’s own performance under Section 4 of this Chapter; (c) terminate the contract under Section 5 of this Chapter and claim the return of any price already paid, under Chapter 17; (d) reduce the price under Section 6 of this Chapter; and (e) claim damages under Chapter 16. 2. If the buyer is a trader: (a) the buyer’s rights to exercise any remedy except withholding of performance are subject to cure by the seller as set out in Section 2 of this Chapter; and (b) the buyer’s rights to rely on lack of conformity are subject to the requirements of examination and notification set out in Section 7 of this Chapter. 3. If the buyer is a consumer: (a) the buyer’s rights are not subject to cure by the seller; and

1500  Part III: Common Principles (b) the requirements of examination and notification set out in Section 7 of this Chapter do not apply. 4. If the seller’s non-performance is excused, the buyer may resort to any of the remedies referred to in paragraph 1 except requiring performance and damages. 5. The buyer may not resort to any of the remedies referred to in paragraph 1 to the extent that the buyer caused the seller’s non-performance. 6. Remedies which are not incompatible may be cumulated. Article 107 Limitation of remedies for digital content not supplied in exchange for a price Where digital content is not supplied in exchange for the payment of a price, the buyer may not resort to the remedies referred to in points (a) to (d) of Article 106(1). The buyer may only claim damages under point (e) of Article 106 (1) for loss or damage caused to the buyer’s property, including hardware, software and data, by the lack of conformity of the supplied digital content, except for any gain of which the buyer has been deprived by that damage. Article 108 Mandatory nature In a contract between a trader and a consumer, the parties may not, to the detriment of the consumer, exclude the application of this Chapter, or derogate from or vary its effect before the lack of conformity is brought to the trader’s attention by the consumer. Section 2  Cure by the seller Article 109 Cure by the seller 1. A seller who has tendered performance early and who has been notified that the performance is not in conformity with the contract may make a new and conforming tender if that can be done within the time allowed for performance. 2. In cases not covered by paragraph 1 a seller who has tendered a performance which is not in conformity with the contract may, without undue delay on being notified of the lack of conformity, offer to cure it at its own expense. 3. An offer to cure is not precluded by notice of termination. 4. The buyer may refuse an offer to cure only if: (a) cure cannot be effected promptly and without significant inconvenience to the buyer; (b) the buyer has reason to believe that the seller’s future performance cannot be relied on; or (c) delay in performance would amount to a fundamental non-performance.

Proposal for a Regulation on a Common European Sales Law 1501 5. The seller has a reasonable period of time to effect cure. 6. The buyer may withhold performance pending cure, but the rights of the buyer which are inconsistent with allowing the seller a period of time to effect cure are suspended until that period has expired. 7. Notwithstanding cure, the buyer retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure. Section 3 Requiring performance Article 110 Requiring performance of seller’s obligations 1. The buyer is entitled to require performance of the seller’s obligations. 2. The performance which may be required includes the remedying free of charge of a performance which is not in conformity with the contract. 3. Performance cannot be required where: (a) performance would be impossible or has become unlawful; or (b) the burden or expense of performance would be disproportionate to the benefit that the buyer would obtain. Article 111 Consumer’s choice between repair and replacement 1. Where, in a consumer sales contract, the trader is required to remedy a lack of conformity pursuant to Article 110(2) the consumer may choose between repair and replacement unless the option chosen would be unlawful or impossible or, compared to the other option available, would impose costs on the seller that would be disproportionate taking into account: (a) the value the goods would have if there were no lack of conformity; (b) the significance of the lack of conformity; and (c) whether the alternative remedy could be completed without significant inconvenience to the consumer. 2. If the consumer has required the remedying of the lack of conformity by repair or replacement pursuant to paragraph 1, the consumer may resort to other remedies only if the trader has not completed repair or replacement within a reasonable time, not exceeding 30 days. However, the consumer may withhold performance during that time. Article 112 Return of replaced item 1. Where the seller has remedied the lack of conformity by replacement, the seller has a right and an obligation to take back the replaced item at the seller’s expense. 2. The buyer is not liable to pay for any use made of the replaced item in the period prior to the replacement.

1502  Part III: Common Principles Section 4 Withholding performance of buyer’s obligations Article 113 Right to withhold performance 1. A buyer who is to perform at the same time as, or after, the seller performs has a right to withhold performance until the seller has tendered performance or has performed. 2. A buyer who is to perform before the seller performs and who reasonably believes that there will be non-performance by the seller when the seller’s performance becomes due may withhold performance for as long as the reasonable belief continues. 3. The performance which may be withheld under this Article is the whole or part of the performance to the extent justified by the non-performance. Where the seller’s obligations are to be performed in separate parts or are otherwise divisible, the buyer may withhold performance only in relation to that part which has not been performed, unless the seller’s non-performance is such as to justify withholding the buyer’s performance as a whole. Section 5 Termination Article 114 Termination for non-performance 1. A buyer may terminate the contract within the meaning of Article 8 if the seller’s non-performance under the contract is fundamental within the meaning of Article 87 (2). 2. In a consumer sales contract and a contract for the supply of digital content between a trader and a consumer, where there is a non-performance because the goods do not conform to the contract, the consumer may terminate the contract unless the lack of conformity is insignificant. Article 115 Termination for delay in delivery after notice fixing additional time for performance 1. A buyer may terminate the contract in a case of delay in delivery which is not in itself fundamental if the buyer gives notice fixing an additional period of time of reasonable length for performance and the seller does not perform within that period. 2. The additional period referred to in paragraph 1 is taken to be of reasonable length if the seller does not object to it without undue delay. 3. Where the notice provides for automatic termination if the seller does not perform within the period fixed by the notice, termination takes effect after that period without further notice.

Proposal for a Regulation on a Common European Sales Law 1503 Article 116 Termination for anticipated non-performance A buyer may terminate the contract before performance is due if the seller has declared, or it is otherwise clear, that there will be a non-performance, and if the non-performance would be such as to justify termination. Article 117 Scope of right to terminate 1. Where the seller’s obligations under the contract are to be performed in separate parts or are otherwise divisible, then if there is a ground for termination under this Section of a part to which a part of the price can be apportioned, the buyer may terminate only in relation to that part. 2. Paragraph 1 does not apply if the buyer cannot be expected to accept performance of the other parts or the non-performance is such as to justify termination of the contract as a whole. 3. Where the seller’s obligations under the contract are not divisible or a part of the price cannot be apportioned, the buyer may terminate only if the nonperformance is such as to justify termination of the contract as a whole. Article 118 Notice of termination A right to terminate under this Section is exercised by notice to the seller. Article 119 Loss of right to terminate 1. The buyer loses the right to terminate under this Section if notice of termination is not given within a reasonable time from when the right arose or the buyer became, or could be expected to have become, aware of the non-­ performance, whichever is later. 2. Paragraph 1 does not apply: (a) where the buyer is a consumer; or (b) where no performance at all has been tendered. Section 6  Price reduction Article 120 Right to reduce price 1. A buyer who accepts a performance not conforming to the contract may reduce the price. The reduction is to be proportionate to the decrease in the

1504  Part III: Common Principles value of what was received in performance at the time performance was made compared to the value of what would have been received by a conforming performance. 2. A buyer who is entitled to reduce the price under paragraph 1 and who has already paid a sum exceeding the reduced price may recover the excess from the seller. 3. A buyer who reduces the price cannot also recover damages for the loss thereby compensated but remains entitled to damages for any further loss suffered. Section 7 Requirements of examination and notification in a contract between traders

Article 121 Examination of the goods in contracts between traders 1. In a contract between traders the buyer is expected to examine the goods, or cause them to be examined, within as short a period as is reasonable not exceeding 14 days from the date of delivery of the goods, supply of digital content or provision of related services. 2. If the contract involves carriage of the goods, examination may be deferred until after the goods have arrived at their destination. 3. If the goods are redirected in transit, or redispatched by the buyer before the buyer has had a reasonable opportunity to examine them, and at the time of the conclusion of the contract the seller knew or could be expected to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. Article 122 Requirement of notification of lack of conformity in sales contracts between traders 1. In a contract between traders the buyer may not rely on a lack of conformity if the buyer does not give notice to the seller within a reasonable time specifying the nature of the lack of conformity. The time starts to run when the goods are supplied or when the buyer discovers or could be expected to discover the lack of conformity, whichever is later. 2. The buyer loses the right to rely on a lack of conformity if the buyer does not give the seller notice of the lack of conformity within two years from the time at which the goods were actually handed over to the buyer in accordance with the contract. 3. Where the parties have agreed that the goods must remain fit for a particular purpose or for their ordinary purpose during a fixed period of time, the period for giving notice under paragraph 2 does not expire before the end of the agreed period.

Proposal for a Regulation on a Common European Sales Law 1505 4. Paragraph 2 does not apply in respect of the third party claims or rights referred to in Article 102. 5. The buyer does not have to notify the seller that not all the goods have been delivered if the buyer has reason to believe that the remaining goods will be delivered. 6. The seller is not entitled to rely on this Article if the lack of conformity relates to facts of which the seller knew or could be expected to have known and which the seller did not disclose to the buyer. Chapter 12  The buyer’s obligations Section 1  General provisions Article 123 Main obligations of the buyer 1. The buyer must: (a) pay the price; (b) take delivery of the goods or the digital content; and (c) take over documents representing or relating to the goods or documents relating to digital content as may be required by the contract. 2. Point (a) of paragraph 1 does not apply to contracts for the supply of digital content where the digital content is not supplied in exchange for the payment of a price. Section 2  Payment of the price Article 124 Means of payment 1. Payment shall be made by the means of payment indicated by the contract terms or, if there is no such indication, by any means used in the ordinary course of business at the place of payment taking into account the nature of the transaction. 2. A seller who accepts a cheque or other order to pay or a promise to pay is presumed to do so only on condition that it will be honoured. The seller may enforce the original obligation to pay if the order or promise is not honoured. 3. The buyer’s original obligation is extinguished if the seller accepts a promise to pay from a third party with whom the seller has a pre-existing arrangement to accept the third party’s promise as a means of payment. 4. In a contract between a trader and a consumer, the consumer is not liable, in respect of the use of a given means of payment, for fees that exceed the cost borne by the trader for the use of such means.

1506  Part III: Common Principles Article 125 Place of payment 1. Where the place of payment cannot otherwise be determined it is the seller’s place of business at the time of conclusion of the contract. 2. If the seller has more than one place of business, the place of payment is the place of business of the seller which has the closest relationship to the obligation to pay. Article 126 Time of payment 1. Payment of the price is due at the moment of delivery. 2. The seller may reject an offer to pay before payment is due if it has a legitimate interest in so doing. Article 127 Payment by a third party 1. A buyer may entrust payment to another person. A buyer who entrusts payment to another person remains responsible for payment. 2. The seller cannot refuse payment by a third party if: (a) the third party acts with the assent of the buyer; or (b) the third party has a legitimate interest in paying and the buyer has failed to pay or it is clear that the buyer will not pay at the time that payment is due. 3. Payment by a third party in accordance with paragraphs 1 or 2 discharges the buyer from liability to the seller. 4. Where the seller accepts payment by a third party in circumstances not covered by paragraphs 1 or 2 the buyer is discharged from liability to the seller but the seller is liable to the buyer for any loss caused by that acceptance. Article 128 Imputation of payment 1. Where a buyer has to make several payments to the seller and the payment made does not suffice to cover all of them, the buyer may at the time of payment notify the seller of the obligation to which the payment is to be imputed. 2. If the buyer does not make a notification under paragraph 1 the seller may, by notifying the buyer within a reasonable time, impute the performance to one of the obligations. 3. An imputation under paragraph 2 is not effective if it is to an obligation which is not yet due or is disputed. 4. In the absence of an effective imputation by either party, the payment is imputed to that obligation which satisfies one of the following criteria in the sequence indicated:

Proposal for a Regulation on a Common European Sales Law 1507 (a) the obligation which is due or is the first to fall due; (b) the obligation for which the seller has no or the least security; (c) the obligation which is the most burdensome for the buyer; (d) the obligation which arose first. If none of those criteria applies, the payment is imputed proportionately to all the obligations. 5. The payment may be imputed under paragraph 2, 3 or 4 to an obligation which is unenforceable as a result of prescription only if there is no other obligation to which the payment could be imputed in accordance with those paragraphs. 6. In relation to any one obligation a payment by the buyer is to be imputed, first, to expenses, secondly, to interest, and thirdly, to principal, unless the seller makes a different imputation. Section 3 Taking delivery Article 129 Taking delivery The buyer fulfils the obligation to take delivery by: (a) doing all the acts which could be expected in order to enable the seller to perform the obligation to deliver; and (b) taking over the goods, or the documents representing the goods or digital content, as required by the contract. Article 130 Early delivery and delivery of wrong quantity 1. If the seller delivers the goods or supplies the digital content before the time fixed, the buyer must take delivery unless the buyer has a legitimate interest in refusing to do so. 2. If the seller delivers a quantity of goods or digital content less than that provided for in the contract the buyer must take delivery unless the buyer has a legitimate interest in refusing to do so. 3. If the seller delivers a quantity of goods or digital content greater than that provided for by the contract, the buyer may retain or refuse the excess quantity. 4. If the buyer retains the excess quantity it is treated as having been supplied under the contract and must be paid for at the contractual rate. 5. In a consumer sales contract paragraph 4 does not apply if the buyer reasonably believes that the seller has delivered the excess quantity intentionally and without error, knowing that it had not been ordered. 6. This Article does not apply to contracts for the supply of digital content where the digital content is not supplied in exchange for the payment of a price.

1508  Part III: Common Principles Chapter 13  The seller’s remedies Section 1  General provisions Article 131 Overview of seller’s remedies 1. In the case of a non-performance of an obligation by the buyer, the seller may do any of the following: (a) require performance under Section 2 of this Chapter; (b) withhold the seller’s own performance under Section 3 of this Chapter; (c) terminate the contract under Section 4 of this Chapter; and (d) claim interest on the price or damages under Chapter 16. 2. If the buyer’s non-performance is excused, the seller may resort to any of the remedies referred to in paragraph 1 except requiring performance and damages. 3. The seller may not resort to any of the remedies referred to in paragraph 1 to the extent that the seller caused the buyer’s non-performance. 4. Remedies which are not incompatible may be cumulated. Section 2 Requiring performance Article 132 Requiring performance of buyer’s obligations 1. The seller is entitled to recover payment of the price when it is due, and to require performance of any other obligation undertaken by the buyer. 2. Where the buyer has not yet taken over the goods or the digital content and it is clear that the buyer will be unwilling to receive performance, the seller may nonetheless require the buyer to take delivery, and may recover the price, unless the seller could have made a reasonable substitute transaction without significant effort or expense. Section 3 Withholding performance of seller’s obligations Article 133 Right to withhold performance 1. A seller who is to perform at the same time as, or after, the buyer performs has a right to withhold performance until the buyer has tendered performance or has performed. 2. A seller who is to perform before the buyer performs and who reasonably believes that there will be non-performance by the buyer when the buyer’s performance becomes due may withhold performance for as long as the reasonable belief continues. However, the right to withhold performance is lost if the buyer gives an adequate assurance of due performance or provides adequate security.

Proposal for a Regulation on a Common European Sales Law 1509 3. The performance which may be withheld under this Article is the whole or part of the performance to the extent justified by the non-performance. Where the buyer’s obligations are to be performed in separate parts or are otherwise divisible, the seller may withhold performance only in relation to that part which has not been performed, unless the buyer’s non-performance is such as to justify withholding the seller’s performance as a whole. Section 4 Termination Article 134 Termination for fundamental non-performance A seller may terminate the contract within the meaning of Article 8 if the b ­ uyer’s non-performance under the contract is fundamental within the meaning of Article 87 (2). Article 135 Termination for delay after notice fixing additional time for performance 1. A seller may terminate in a case of delay in performance which is not in itself fundamental if the seller gives a notice fixing an additional period of time of reasonable length for performance and the buyer does not perform within that period. 2. The period is taken to be of reasonable length if the buyer does not object to it without undue delay. In relations between a trader and a consumer, the additional time for performance must not end before the 30 day period referred to Article 167(2). 3. Where the notice provides for automatic termination if the buyer does not perform within the period fixed by the notice, termination takes effect after that period without further notice. 4. In a consumer sales contract, the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Article 136 Termination for anticipated non-performance A seller may terminate the contract before performance is due if the buyer has declared, or it is otherwise clear, that there will be a non-performance, and if the non-performance would be fundamental. Article 137 Scope of right to terminate 1. Where the buyer’s obligations under the contract are to be performed in separate parts or are otherwise divisible, then if there is a ground for termination

1510  Part III: Common Principles under this Section of a part which corresponds to a divisible part of the seller’s obligations, the seller may terminate only in relation to that part. 2. Paragraph 1 does not apply if the non-performance is fundamental in relation to the contract as a whole. 3. Where the buyer’s obligations under the contract are not to be performed in separate parts, the seller may terminate only if the non-performance is fundamental in relation to the contract as a whole. Article 138 Notice of termination A right to terminate the contract under this Section is exercised by notice to the buyer. Article 139 Loss of right to terminate 1. Where performance has been tendered late or a tendered performance otherwise does not conform to the contract the seller loses the right to terminate under this Section unless notice of termination is given within a reasonable time from when the seller has become, or could be expected to have become, aware of the tender or the lack of conformity. 2. A seller loses a right to terminate by notice under Articles 136 unless the seller gives notice of termination within a reasonable time after the right has arisen. 3. Where the buyer has not paid the price or has not performed in some other way which is fundamental, the seller retains the right to terminate. Chapter 14   Passing of risk Section 1  General provisions Article 140 Effect of passing of risk Loss of, or damage to, the goods or the digital content after the risk has passed to the buyer does not discharge the buyer from the obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. Article 141 Identification of goods or digital content to contract The risk does not pass to the buyer until the goods or the digital content are clearly identified as the goods or digital content to be supplied under the contract, whether by the initial agreement, by notice given to the buyer or otherwise.

Proposal for a Regulation on a Common European Sales Law 1511 Section 2  Passing of risk in consumer sales contracts Article 142 Passing of risk in a consumer sales contract 1. In a consumer sales contract, the risk passes at the time when the consumer or a third party designated by the consumer, not being the carrier, has acquired the physical possession of the goods or the tangible medium on which the digital content is supplied. 2. In a contract for the supply of digital content not supplied on a tangible medium, the risk passes at the time when the consumer or a third party designated by the consumer for this purpose has obtained the control of the digital content. 3. Except where the contract is a distance or off-premises contract, paragraphs 1 and 2 do not apply where the consumer fails to perform the obligation to take over the goods or the digital content and the non-performance is not excused under Article 88. In this case, the risk passes at the time when the consumer, or the third party designated by the consumer, would have acquired the physical possession of the goods or obtained the control of the digital content if the obligation to take them over had been performed. 4. Where the consumer arranges the carriage of the goods or the digital content supplied on a tangible medium and that choice was not offered by the trader, the risk passes when the goods or the digital content supplied on a tangible medium are handed over to the carrier, without prejudice to the rights of the consumer against the carrier. 5. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 3  Passing of risk in contracts between traders Article 143 Time when risk passes 1. In a contract between traders the risk passes when the buyer takes delivery of the goods or digital content or the documents representing the goods. 2. Paragraph 1 is subject to Articles 144, 145 and 146. Article 144 Goods placed at buyer’s disposal 1. If the goods or the digital content are placed at the buyer’s disposal and the buyer is aware of this, the risk passes to the buyer at the time when the goods or digital content should have been taken over, unless the buyer was entitled to withhold taking of delivery pursuant to Article 113.

1512  Part III: Common Principles 2. If the goods or the digital content are placed at the buyer’s disposal at a place other than a place of business of the seller, the risk passes when delivery is due and the buyer is aware of the fact that the goods or digital content are placed at the buyer’s disposal at that place. Article 145 Carriage of the goods 1. This Article applies to a contract of sale which involves carriage of goods. 2. If the seller is not bound to hand over the goods at a particular place, the risk passes to the buyer when the goods are handed over to the first carrier for transmission to the buyer in accordance with the contract. 3. If the seller is bound to hand over the goods to a carrier at a particular place, the risk does not pass to the buyer until the goods are handed over to the carrier at that place. 4. The fact that the seller is authorised to retain documents controlling the disposition of the goods does not affect the passing of the risk. Article 146 Goods sold in transit 1. This Article applies to a contract of sale which involves goods sold in transit. 2. The risk passes to the buyer as from the time the goods were handed over to the first carrier. However, if the circumstances so indicate, the risk passes to the buyer when the contract is concluded. 3. If at the time of the conclusion of the contract the seller knew or could be expected to have known that the goods had been lost or damaged and did not disclose this to the buyer, the loss or damage is at the risk of the seller. Part V  Obligations and remedies of the parties to a related service contract Chapter 15  Obligations and remedies of the parties Section 1 Application of certain general rules on sales contracts Article 147 Application of certain general rules on sales contracts 1. The rules in Chapter 9 apply for the purposes of this Part. 2. Where a sales contract or a contract for the supply of digital content is terminated any related service contract is also terminated.

Proposal for a Regulation on a Common European Sales Law 1513 Section 2 Obligations of the service provider Article 148 Obligation to achieve result and obligation of care and skill 1. The service provider must achieve any specific result required by the contract. 2. In the absence of any express or implied contractual obligation to achieve a specific result, the service provider must perform the related service with the care and skill which a reasonable service provider would exercise and in conformity with any statutory or other binding legal rules which are applicable to the related service. 3. In determining the reasonable care and skill required of the service provider, regard is to be had, among other things, to: (a) the nature, the magnitude, the frequency and the foreseeability of the risks involved in the performance of the related service for the customer; (b) if damage has occurred, the costs of any precautions which would have prevented that damage or similar damage from occurring; and (c) the time available for the performance of the related service. 4. Where in a contract between a trader and a consumer the related service includes installation of the goods, the installation must be such that the installed goods conform to the contract as required by Article 101. 5. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of paragraph 2 or derogate from or vary its effects. Article 149 Obligation to prevent damage The service provider must take reasonable precautions in order to prevent any damage to the goods or the digital content, or physical injury or any other loss or damage in the course of or as a consequence of the performance of the related service. Article 150 Performance by a third party 1. A service provider may entrust performance to another person, unless personal performance by the service provider is required. 2. A service provider who entrusts performance to another person remains responsible for performance. 3. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of paragraph 2 or derogate from or vary its effects.

1514  Part III: Common Principles Article 151 Obligation to provide invoice Where a separate price is payable for the related service, and the price is not a lump sum agreed at the time of conclusion of the contract, the service provider must provide the customer with an invoice which explains, in a clear and intelligible way, how the price was calculated. Article 152 Obligation to warn of unexpected or uneconomic cost 1. The service provider must warn the customer and seek the consent of the customer to proceed if: (a) the cost of the related service would be greater than already indicated by the service provider to the customer; or (b) the related service would cost more than the value of the goods or the digital content after the related service has been provided, so far as this is known to the service provider. 2. A service provider who fails to obtain the consent of the customer in accordance with paragraph 1 is not entitled to a price exceeding the cost already indicated or, as the case may be, the value of the goods or digital content after the related service has been provided. Section 3 Obligations of the customer Article 153 Payment of the price 1. The customer must pay any price that is payable for the related service in accordance with the contract. 2. The price is payable when the related service is completed and the object of the related service is made available to the customer. Article 154 Provision of access Where it is necessary for the service provider to obtain access to the customer’s premises in order to perform the related service the customer must provide such access at reasonable hours.

Proposal for a Regulation on a Common European Sales Law 1515 Section 4 Remedies Article 155 Remedies of the customer 1. In the case of non-performance of an obligation by the service provider, the customer has, with the adaptations set out in this Article, the same remedies as are provided for the buyer in Chapter 11, namely: (a) to require specific performance; (b) to withhold the customer’s own performance; (c) to terminate the contract; (d) to reduce the price; and (e) to claim damages. 2. Without prejudice to paragraph 3, the customer’s remedies are subject to a right of the service provider to cure whether or not the customer is a consumer. 3. In the case of incorrect installation under a consumer sales contract as referred to in Article 101 the consumer’s remedies are not subject to a right of the service provider to cure. 4. The customer, if a consumer, has the right to terminate the contract for any lack of conformity in the related service provided unless the lack of conformity is insignificant. 5. Chapter 11 applies with the necessary adaptations, in particular: (a) in relation to the right of the service provider to cure, in contracts between a trader and a consumer, the reasonable period under Article 109 (5) must not exceed 30 days; (b) in relation to the remedying of a non-conforming performance Articles 111 and 112 do not apply; and (c) Article 156 applies instead of Article 122. Article 156 Requirement of notification of lack of conformity in related service contracts between traders 1. In a related service contract between traders, the customer may rely on a lack of conformity only if the customer gives notice to the service provider within a reasonable time specifying the nature of the lack of conformity. The time starts to run when the related service is completed or when the customer discovers or could be expected to discover the lack of conformity, whichever is later. 2. The service provider is not entitled to rely on this Article if the lack of conformity relates to facts of which the service provider knew or could be expected to have known and which the service provider did not disclose to the customer.

1516  Part III: Common Principles Article 157 Remedies of the service provider 1. In the case of a non-performance by the customer, the service provider has, with the adaptations set out in paragraph 2, the same remedies as are provided for the seller in Chapter 13, namely: (a) to require performance; (b) to withhold the service provider’s own performance; (c) to terminate the contract; and (d) to claim interest on the price or damages. 2. Chapter 13 applies with the necessary adaptations. In particular Article 158 applies instead of Article 132 (2). Article 158 Customer’s right to decline performance 1. The customer may at any time give notice to the service provider that performance, or further performance of the related service is no longer required. 2. Where notice is given under paragraph 1: (a) the service provider no longer has the right or obligation to provide the related service; and (b) the customer, if there is no ground for termination under any other provision, remains liable to pay the price less the expenses that the service provider has saved or could be expected to have saved by not having to complete performance. 3. In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Part VI  Damages and interest Chapter 16  Damages and interest Section 1 Damages Article 159 Right to damages 1. A creditor is entitled to damages for loss caused by the non-performance of an obligation by the debtor, unless the non-performance is excused. 2. The loss for which damages are recoverable includes future loss which the debtor could expect to occur.

Proposal for a Regulation on a Common European Sales Law 1517 Article 160 General measure of damages The general measure of damages for loss caused by non-performance of an obligation is such sum as will put the creditor into the position in which the creditor would have been if the obligation had been duly performed, or, where that is not possible, as nearly as possible into that position. Such damages cover loss which the creditor has suffered and gain of which the creditor has been deprived. Article 161 Foreseeability of loss The debtor is liable only for loss which the debtor foresaw or could be expected to have foreseen at the time when the contract was concluded as a result of the non-performance. Article 162 Loss attributable to creditor The debtor is not liable for loss suffered by the creditor to the extent that the creditor contributed to the non-performance or its effects. Article 163 Reduction of loss 1. The debtor is not liable for loss suffered by the creditor to the extent that the creditor could have reduced the loss by taking reasonable steps. 2. The creditor is entitled to recover any expenses reasonably incurred in attempting to reduce the loss. Article 164 Substitute transaction A creditor who has terminated a contract in whole or in part and has made a substitute transaction within a reasonable time and in a reasonable manner may, in so far as it is entitled to damages, recover the difference between the value of what would have been payable under the terminated contract and the value of what is payable under the substitute transaction, as well as damages for any further loss. Article 165 Current price Where the creditor has terminated the contract and has not made a substitute transaction but there is a current price for the performance, the creditor may, in so far as entitled to damages, recover the difference between the contract price and the price current at the time of termination as well as damages for any further loss.

1518  Part III: Common Principles Section 2 Interest on late payments: general provisions Article 166 Interest on late payments 1. Where payment of a sum of money is delayed, the creditor is entitled, without the need to give notice, to interest on that sum from the time when payment is due to the time of payment at the rate specified in paragraph 2. 2. The interest rate for delayed payment is: (a) where the creditor’s habitual residence is in a Member State whose currency is the euro or in a third country, the rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question, or the marginal interest rate resulting from variable-rate tender procedures for the most recent main refinancing operations of the European Central Bank, plus two percentage points; (b) where the creditor’s habitual residence is in a Member State whose currency is not the euro, the equivalent rate set by the national central bank of that Member State, plus two percentage points. 3. The creditor may recover damages for any further loss. Article 167 Interest when the debtor is a consumer 1. When the debtor is a consumer, interest for delay in payment is due at the rate provided in Article 166 only when non-performance is not excused. 2. Interest does not start to run until 30 days after the creditor has given notice to the debtor specifying the obligation to pay interest and its rate. Notice may be given before the date when payment is due. 3. A term of the contract which fixes a rate of interest higher than that provided in Article 166, or accrual earlier than the time specified in paragraph 2 of this Article is not binding to the extent that this would be unfair according to Article 83. 4. Interest for delay in payment cannot be added to capital in order to produce interest. 5. The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects. Section 3 Late payments by traders Article 168 Rate of interest and accrual 1. Where a trader delays the payment of a price due under a contract for the delivery of goods, supply of digital content or provision of related services

Proposal for a Regulation on a Common European Sales Law 1519

2.

3.

4. 5.

6.

without being excused by virtue of Article 88, interest is due at the rate specified in paragraph 5 of this Article. Interest at the rate specified in paragraph 5 starts to run on the day which follows the date or the end of the period for payment provided in the contract. If there is no such date or period, interest at that rate starts to run: (a) 30 days after the date when the debtor receives the invoice or an equivalent request for payment; or (b) 30 days after the date of receipt of the goods, digital content or related services, if the date provided for in point (a) is earlier or uncertain, or if it is uncertain whether the debtor has received an invoice or equivalent request for payment. Where conformity of goods, digital content or related services to the contract is to be ascertained by way of acceptance or examination, the 30 day period provided for in point (b) of paragraph 2 begins on the date of the acceptance or the date the examination procedure is finalised. The maximum duration of the examination procedure cannot exceed 30 days from the date of delivery of the goods, supply of digital content or provision of related services, unless the parties expressly agree otherwise and that agreement is not unfair according to Article 170. The period for payment determined under paragraph 2 cannot exceed 60 days, unless the parties expressly agree otherwise and that agreement is not unfair according to Article 170. The interest rate for delayed payment is: (a) where the creditor’s habitual residence is in a Member State whose ­currency is the euro or in a third country, the interest rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question, or the marginal interest rate resulting from variable-rate tender procedures for the most recent main refinancing operations of the European Central Bank, plus eight percentage points; (b) where the creditor’s habitual residence is in a Member State whose currency is not the euro, the equivalent rate set by the national central bank of that Member State, plus eight percentage points. The creditor may recover damages for any further loss. Article 169 Compensation for recovery costs

1. Where interest is payable in accordance with Article 168, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of EUR 40 or the equivalent sum in the currency agreed for the contract price as compensation for the creditor’s recovery costs. 2. The creditor is entitled to obtain from the debtor reasonable compensation for any recovery costs exceeding the fixed sum referred to in paragraph 1 and incurred due to the debtor’s late payment.

1520  Part III: Common Principles Article 170 Unfair contract terms relating to interest for late payment 1. A contract term relating to the date or the period for payment, the rate of interest for late payment or the compensation for recovery costs is not binding to the extent that the term is unfair. A term is unfair if it grossly deviates from good commercial practice, contrary to good faith and fair dealing, taking into account all circumstances of the case, including the nature of the goods, digital content or related service. 2. For the purpose of paragraph 1, a contract term providing for a time or period for payment or a rate of interest less favourable to the creditor than the time, period or rate specified in Articles 167 or 168, or a term providing for an amount of compensation for recovery costs lower than the amount specified in Article 169 is presumed to be unfair. 3. For the purpose of paragraph 1, a contract term excluding interest for late payment or compensation for recovery costs is always unfair. Article 171 Mandatory nature The parties may not exclude the application of this Section or derogate from or vary its effects. Part VII  Restitution Chapter 17  Restitution Article 172 Restitution on avoidance or termination 1. Where a contract is avoided or terminated by either party, each party is obliged to return what that party (“the recipient”) has received from the other party. 2. The obligation to return what was received includes any natural and legal fruits derived from what was received. 3. On the termination of a contract for performance in instalments or parts, the return of what was received is not required in relation to any instalment or part where the obligations on both sides have been fully performed, or where the price for what has been done remains payable under Article 8 (2), unless the nature of the contract is such that part performance is of no value to one of the parties. Article 173 Payment for monetary value 1. Where what was received, including fruits where relevant, cannot be returned, or, in a case of digital content whether or not it was supplied on a tangible

Proposal for a Regulation on a Common European Sales Law 1521

2. 3.

4. 5.

6.

medium, the recipient must pay its monetary value. Where the return is possible but would cause unreasonable effort or expense, the recipient may choose to pay the monetary value, provided that this would not harm the other party’s proprietary interests. The monetary value of goods is the value that they would have had at the date when payment of the monetary value is to be made if they had been kept by the recipient without destruction or damage until that date. Where a related service contract is avoided or terminated by the customer after the related service has been performed or partly performed, the monetary value of what was received is the amount the customer saved by receiving the related service. In a case of digital content the monetary value of what was received is the amount the consumer saved by making use of the digital content. Where the recipient has obtained a substitute in money or in kind in exchange for goods or digital content when the recipient knew or could be expected to have known of the ground for avoidance or termination, the other party may choose to claim the substitute or the monetary value of the substitute. A recipient who has obtained a substitute in money or kind in exchange for goods or digital content when the recipient did not know and could not be expected to have known of the ground for avoidance or termination may choose to return the monetary value of the substitute or the substitute. In the case of digital content which is not supplied in exchange for the payment of a price, no restitution will be made. Article 174 Payment for use and interest on money received

1. A recipient who has made use of goods must pay the other party the monetary value of that use for any period where: (a) the recipient caused the ground for avoidance or termination; (b) the recipient, prior to the start of that period, was aware of the ground for avoidance or termination; or (c) having regard to the nature of the goods, the nature and amount of the use and the availability of remedies other than termination, it would be inequitable to allow the recipient the free use of the goods for that period. 2. A recipient who is obliged to return money must pay interest, at the rate stipulated in Article 166, where: (a) the other party is obliged to pay for use; or (b) the recipient gave cause for the contract to be avoided because of fraud, threats and unfair exploitation. 3. For the purposes of this Chapter, a recipient is not obliged to pay for use of goods received or interest on money received in any circumstances other than those set out in paragraphs 1 and 2.

1522  Part III: Common Principles Article 175 Compensation for expenditure 1. Where a recipient has incurred expenditure on goods or digital content, the recipient is entitled to compensation to the extent that the expenditure benefited the other party provided that the expenditure was made when the recipient did not know and could not be expected to know of the ground for avoidance or termination. 2. A recipient who knew or could be expected to know of the ground for avoidance or termination is entitled to compensation only for expenditure that was necessary to protect the goods or the digital content from being lost or diminished in value, provided that the recipient had no opportunity to ask the other party for advice. Article 176 Equitable modification Any obligation to return or to pay under this Chapter may be modified to the extent that its performance would be grossly inequitable, taking into account in particular whether the party did not cause, or lacked knowledge of, the ground for avoidance or termination. Article 177 Mandatory nature In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of this Chapter or derogate from or vary its effects. Part VIII  Prescription Chapter 18  Prescription Section 1  General provisions Article 178 Rights subject to prescription A right to enforce performance of an obligation, and any right ancillary to such a right, is subject to prescription by the expiry of a period of time in accordance with this Chapter.

Proposal for a Regulation on a Common European Sales Law 1523 Section 2  Periods of prescription and their commencement Article 179 Periods of prescription 1. The short period of prescription is two years. 2. The long period of prescription is ten years or, in the case of a right to damages for personal injuries, thirty years. Article 180 Commencement 1. The short period of prescription begins to run from the time when the creditor has become, or could be expected to have become, aware of the facts as a result of which the right can be exercised. 2. The long period of prescription begins to run from the time when the debtor has to perform or, in the case of a right to damages, from the time of the act which gives rise to the right. 3. Where the debtor is under a continuing obligation to do or refrain from doing something, the creditor is regarded as having a separate right in relation to each non-performance of the obligation. Section 3 Extension of periods of prescription Article 181 Suspension in case of judicial and other proceedings 1. The running of both periods of prescription is suspended from the time when judicial proceedings to assert the right are begun. 2. Suspension lasts until a final decision has been made, or until the case has been otherwise disposed of. Where the proceedings end within the last six months of the prescription period without a decision on the merits, the period of prescription does not expire before six months have passed after the time when the proceedings ended. 3. Paragraphs 1 and 2 apply, with appropriate adaptations, to arbitration proceedings, to mediation proceedings, to proceedings whereby an issue between two parties is referred to a third party for a binding decision and to all other proceedings initiated with the aim of obtaining a decision relating to the right or to avoid insolvency. 4. Mediation means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the national law. Mediation ends by an agreement of the parties or by declaration of the mediator or one of the parties.

1524  Part III: Common Principles Article 182 Postponement of expiry in the case of negotiations If the parties negotiate about the right, or about circumstances from which a claim relating to the right might arise, neither period of prescription expires before one year has passed since the last communication made in the negotiations or since one of the parties communicated to the other that it does not wish to pursue the negotiations. Article 183 Postponement of expiry in case of incapacity If a person subject to an incapacity is without a representative, neither period of prescription of a right held by that person expires before one year has passed since either the incapacity has ended or a representative has been appointed. Section 4 Renewal of periods of prescription Article 184 Renewal by acknowledgement If the debtor acknowledges the right vis-à-vis the creditor, by part payment, payment of interest, giving of security, set-off or in any other manner, a new short period of prescription begins to run. Section 5 Effects of prescription Article 185 Effects of prescription 1. After expiry of the relevant period of prescription the debtor is entitled to refuse performance of the obligation in question and the creditor loses all remedies for non-performance except withholding performance. 2. Whatever has been paid or transferred by the debtor in performance of the obligation in question may not be reclaimed merely because the period of prescription had expired at the moment that the performance was carried out. 3. The period of prescription for a right to payment of interest, and other rights of an ancillary nature, expires not later than the period for the principal right. Section 6 Modification by agreement Article 186 Agreements concerning prescription 1. The rules of this Chapter may be modified by agreement between the parties, in particular by either shortening or lengthening the periods of prescription.

Proposal for a Regulation on a Common European Sales Law 1525 2. The short period of prescription may not be reduced to less than one year or extended to more than ten years. 3. The long period of prescription may not be reduced to less than one year or extended to more than thirty years. 4. The parties may not exclude the application of this Article or derogate from or vary its effects. 5. In a contract between a trader and a consumer this Article may not be applied to the detriment of the consumer. Appendix 1 Model instructions on withdrawal Right of withdrawal You have the right to withdraw from this contract within 14 days without giving any reason. The withdrawal period expires after 14 days from the day 1. To exercise the right of withdrawal, you must inform us (2) of your decision to withdraw from this contract by a clear statement (e.g. a letter sent by post, fax or e-mail). You may use the attached model withdrawal form, but it is not obligatory. 3 To meet the withdrawal deadline, it is sufficient for you to send your communication concerning your exercise of the right of withdrawal before the withdrawal period has expired. Effects of withdrawal If you withdraw from this contract, we will reimburse all payments received from you, including the costs of delivery (with the exception of the supplementary costs resulting from your choice of a type of delivery other than the least expensive type of standard delivery offered by us), without undue delay and in any event not later than 14 days from the day on which we are informed about your decision to withdraw from this contract. We will carry out such reimbursement using the same means of payment as you used for the initial transaction, unless you have expressly agreed otherwise; in any event, you will not incur any fees as a result of such reimbursement. 4 5 6 Instructions for completion: 1 Insert one of the following texts between inverted commas here: a) in the case of a related service contract or a contract for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium: “of the conclusion of the contract.”;

1526  Part III: Common Principles

2 3

4

5

b) in the case of a sales contract: “on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the goods.”; c) in the case of a contract relating to multiple goods ordered by the consumer in one order and delivered separately: “on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the last good.”; d) in the case of a contract relating to delivery of a good consisting of multiple lots or pieces: “on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the last lot or piece.”; e) in the case of a contract for regular delivery of goods during a defined period of time: “on which you acquire, or a third party other than the carrier and indicated by you acquires, physical possession of the first good.”. Insert your name, geographical address and, where available, your telephone number, fax number and e-mail address. If you give the option to the consumer to electronically fill in and submit information about his or her withdrawal from the contract on your website, insert the following: “You can also electronically fill in and submit the model withdrawal form or any other clear statement on our website [insert internet address]. If you use this option, we will communicate to you an acknowledgement of receipt of such a withdrawal on a durable medium (e.g. by e-mail) without delay.” In the case of sales contracts in which you have not offered to collect the goods in the event of withdrawal insert the following: “We may withhold reimbursement until we have received the goods back or you have supplied evidence of having sent back the goods, whichever is the earliest”. If the consumer has received goods in connection with the contract, insert the following: a insert: — “We will collect the goods.”; or — “You shall send back the goods or hand them over to us or ____ [insert the name and geographical address, where applicable, of the person authorised by you to receive the goods], without undue delay and in any event not later than 14 days from the day on which you communicate your withdrawal from this contract to us. The deadline is met if you send back the goods before the period of 14 days has expired.” b insert either: — “We will bear the cost of returning the goods.”; or — “You will have to bear the direct cost of returning the goods.”; or — If, in a distance contract, you do not offer to bear the cost of returning the goods and the goods, by their nature, cannot normally be returned by post: “You will have to bear the direct cost of returning the goods, — EUR [insert the amount].”; or if the cost of returning

Proposal for a Regulation on a Common European Sales Law 1527 the goods cannot reasonably be calculated in advance: “You will have to bear the direct cost of returning the goods. The cost is estimated to a maximum of approximately — EUR[insert the amount]”; or — If, in an off-premises contract, the goods, by their nature, cannot normally be returned by post and have been delivered to the consumer’s home at the time of the conclusion of the contract: “We will collect the goods at our own expense.” c “You are only liable for any diminished value of the goods resulting from the handling other than what is necessary to establish the nature, characteristics and functioning of the goods.” 6 In the case of a contract for the provision of related services insert the following: “If you requested to begin the performance of related services during the withdrawal period, you shall pay us an amount which is in proportion to what has been provided until you have communicated us your withdrawal from this contract, in comparison with the full coverage of the contract.”. Appendix 2 Model withdrawal form (complete and return this form only if you wish to withdraw from the contract) —— To [here the trader’s name, geographical address and, where available, his fax number and e-mail address are to be inserted by the trader]: —— I/We* hereby give notice that I/We* withdraw from my/our* contract of sale of the following goods*/for the supply of the following digital content/for the provision of the following related service* —— Ordered on*/received on* —— Name of consumer(s) —— Address of consumer(s) —— Signature of consumer(s) (only if this form is notified on paper) —— Date *Delete as appropriate. ANNEX II STANDARD INFORMATION NOTICE The contract you are about to conclude will be governed by the Common European Sales Law, which is an alternative system of national contract law available to consumers in cross-border situations. These common rules are identical throughout the European Union, and have been designed to provide consumers with a high level of protection. These rules only apply if you mark your agreement that the contract is governed by the Common European Sales Law.

1528  Part III: Common Principles You may also have agreed to a contract on the telephone or in any other way (such as by SMS) that did not allow you to get this notice beforehand. In this case the contract will only become valid after you have received this notice and confirmed your consent. Your core rights are described below. THE COMMON EUROPEAN SALES LAW: SUMMARY OF KEY CONSUMER RIGHTS Your rights before signing the contract The trader has to give you the important information on the contract, for instance on the product and its price including all taxes and charges and his contact details. The information has to be more detailed when you buy something outside the trader’s shop or if you do not meet the trader personally at all, for instance if you buy online or by telephone. You are entitled to damages if this information is incomplete or wrong. Your rights after signing the contract In most cases you have 14 days to withdraw from the purchase if you bought the goods outside the trader’s shop or if you have not met the trader up to the time of the purchase (for instance if you bought online or by telephone). The trader must provide you with information and a Model withdrawal form(7). If the trader has not done so, you can cancel the contract within one year. What can you do when products are faulty or not delivered as agreed? You are entitled to choose between: 1) having the product delivered 2) replaced or 3) repaired. 4) Ask for a price reduction. 5) You can cancel the contract, return the product and get a refund, except if the defect is very small. 6) You can claim damages for your loss. You do not have to pay the price until you get the product without defects. If the trader has not performed a related service as promised in the contract, you have similar rights. However, after you have complained to the trader, he normally has the right to first try to do the job correctly. Only if the trader fails again you have a choice between 1) asking the trader again to provide the related service, 2) not paying the price until you get the related service supplied correctly, 3) requesting a price reduction or 4) claiming damages. 5) You can also cancel the contract and get a refund, except if the failure in providing the related service is very small. Period to claim your rights when products are faulty or not delivered as agreed: You have 2 years to claim your rights after you realise or should have realised that the trader has not done something as agreed in the contract. Where such problems become apparent very late, the last possible moment for you to make such a claim is 10 years

Proposal for a Regulation on a Common European Sales Law 1529 from the moment the trader had to deliver the goods, supply the digital content or provide the related service. Unfair terms protection: Trader’s standard contract terms which are unfair are not legally binding for you. This list of rights is only a summary and therefore not exhaustive, nor does it ­contain all details. You can consult the full text of the Common European Sales Law here. Please read your contract carefully. In case of dispute you may wish to ask for legal advice. (1) (2) (3) (4) (5) (6) (7)

OJ C, p. OJ C, p. OJ L 177, 4.7.2008, p. 6. OJ L 199, 31.7.2007, p. 40. OJ L 124, 20.5.2003, p. 36. OJ L 376, 27.12.2006, p. 36. Insert a link here.

UNIDROIT Principles of International Commercial Contracts 2016(*) (2010 TEXT THE WITH ADDITIONS (SHOWN IN BOLD) SUBMITTED TO THE UNIDROIT GOVERNING COUNCIL FOR APPROVAL, 2016) Preamble (Purpose of the Principles) These Principles set forth general rules for international commercial contracts. They shall be applied when the parties have agreed that their contract be governed by them.(**) They may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like. They may be applied when the parties have not chosen any law to govern their contract. They may be used to interpret or supplement international uniform law instruments. They may be used to interpret or supplement domestic law. They may serve as a model for national and international legislators. Chapter 1—General Provisions Article 1.1 (Freedom of contract) The parties are free to enter into a contract and to determine its content.

*  The reader is reminded that the integral version of the Principles consists of both black-letter rules and Comments (see http://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2010). For select case law and bibliography relating to the Principles, see www.unilex.info. **  Parties wishing to provide that their agreement be governed by the Principles might use one of the Model Clauses for the Use of the Unidroit Principles of International Commercial Contracts (see http:// www.unidroit.org/instruments/commercial-contracts/upicc-model-clauses).

UNIDROIT Principles of International Commercial Contracts 2016 1531 Article 1.2 (No form required) Nothing in these Principles requires a contract, statement or any other act to be made in or evidenced by a particular form. It may be proved by any means, including witnesses. Article 1.3 (Binding character of contract) A contract validly entered into is binding upon the parties. It can only be modified or terminated in accordance with its terms or by agreement or as otherwise provided in these Principles. Article 1.4 (Mandatory rules) Nothing in these Principles shall restrict the application of mandatory rules, whether of national, international or supranational origin, which are applicable in accordance with the relevant rules of private international law. Article 1.5 (Exclusion or modification by the parties) The parties may exclude the application of these Principles or derogate from or vary the effect of any of their provisions, except as otherwise provided in the Principles. Article 1.6 (Interpretation and supplementation of the Principles) (1) In the interpretation of these Principles, regard is to be had to their international character and to their purposes including the need to promote uniformity in their application. (2) Issues within the scope of these Principles but not expressly settled by them are as far as possible to be settled in accordance with their underlying general principles. Article 1.7 (Good faith and fair dealing) (1) Each party must act in accordance with good faith and fair dealing in international trade. (2) The parties may not exclude or limit this duty.

1532  Part III: Common Principles Article 1.8 (Inconsistent behaviour) A party cannot act inconsistently with an understanding it has caused the other party to have and upon which that other party reasonably has acted in reliance to its detriment. Article 1.9 (Usages and practices) (1) The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves. (2) The parties are bound by a usage that is widely known to and regularly observed in international trade by parties in the particular trade concerned except where the application of such a usage would be unreasonable. Article 1.10 (Notice) (1) Where notice is required it may be given by any means appropriate to the circumstances. (2) A notice is effective when it reaches the person to whom it is given. (3) For the purpose of paragraph (2) a notice “reaches” a person when given to that person orally or delivered at that person’s place of business or mailing address. (4) For the purpose of this Article “notice” includes a declaration, demand, request or any other communication of intention. Article 1.11 (Definitions) In these Principles —— “court” includes an arbitral tribunal; —— where a party has more than one place of business the relevant “place of business” is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract; —— “long-term contracts” refers to contracts which are to be performed over a period of time and which normally involve, to a varying degree, complexity of the transaction and an ongoing relationship between the parties; —— “obligor” refers to the party who is to perform an obligation and “obligee” refers to the party who is entitled to performance of that obligation. —— “writing” means any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form.

UNIDROIT Principles of International Commercial Contracts 2016 1533 Article 1.12 (Computation of time set by parties) (1) Official holidays or non-business days occurring during a period set by parties for an act to be performed are included in calculating the period. (2) However, if the last day of the period is an official holiday or a non-business day at the place of business of the party to perform the act, the period is extended until the first business day which follows, unless the circumstances indicate otherwise. (3) The relevant time zone is that of the place of business of the party setting the time, unless the circumstances indicate otherwise. Chapter 2—Formation and Authority of Agents Section 1: Formation Article 2.1.1 (Manner of formation) A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement. Article 2.1.2 (Definition of offer) A proposal for concluding a contract constitutes an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance. Article 2.1.3 (Withdrawal of offer) (1) An offer becomes effective when it reaches the offeree. (2) An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Article 2.1.4 (Revocation of offer) (1) Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance. (2) However, an offer cannot be revoked (a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or (b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

1534  Part III: Common Principles Article 2.1.5 (Rejection of offer) An offer is terminated when a rejection reaches the offeror. Article 2.1.6 (Mode of acceptance) (1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance. (2) An acceptance of an offer becomes effective when the indication of assent reaches the offeror. (3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act without notice to the offeror, the acceptance is effective when the act is performed. Article 2.1.7 (Time of acceptance) An offer must be accepted within the time the offeror has fixed or, if no time is fixed, within a reasonable time having regard to the circumstances, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise. Article 2.1.8 (Acceptance within a fixed period of time) A period of acceptance fixed by the offeror begins to run from the time that the offer is dispatched. A time indicated in the offer is deemed to be the time of dispatch unless the circumstances indicate otherwise. Article 2.1.9 (Late acceptance. Delay in transmission) (1) A late acceptance is nevertheless effective as an acceptance if without undue delay the offeror so informs the offeree or gives notice to that effect. (2) If a communication containing a late acceptance shows that it has been sent in such circumstances that if its transmission had been normal it would have reached the offeror in due time, the late acceptance is effective as an acceptance unless, without undue delay, the offeror informs the offeree that it considers the offer as having lapsed.

UNIDROIT Principles of International Commercial Contracts 2016 1535 Article 2.1.10 (Withdrawal of acceptance) An acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. Article 2.1.11 (Modified acceptance) (1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects to the discrepancy. If the offeror does not object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. Article 2.1.12 (Writings in confirmation) If a writing which is sent within a reasonable time after the conclusion of the contract and which purports to be a confirmation of the contract contains additional or different terms, such terms become part of the contract, unless they materially alter the contract or the recipient, without undue delay, objects to the discrepancy. Article 2.1.13 (Conclusion of contract dependent on agreement on specific matters or in a particular form) Where in the course of negotiations one of the parties insists that the contract is not concluded until there is agreement on specific matters or in a particular form, no contract is concluded before agreement is reached on those matters or in that form. Article 2.1.14 (Contract with terms deliberately left open) (1) If the parties intend to conclude a contract, the fact that they intentionally leave a term to be agreed upon in further negotiations or to be determined by one of the parties or by a third person does not prevent a contract from coming into existence. (2) The existence of the contract is not affected by the fact that subsequently (a) the parties reach no agreement on the term; or (b) the party who is to determine the term does not do so; or (c) the third person does not determine the term,

1536  Part III: Common Principles provided that there is an alternative means of rendering the term definite that is reasonable in the circumstances, having regard to the intention of the parties. Article 2.1.15 (Negotiations in bad faith) (1) A party is free to negotiate and is not liable for failure to reach an agreement. (2) However, a party who negotiates or breaks off negotiations in bad faith is liable for the losses caused to the other party. (3) It is bad faith, in particular, for a party to enter into or continue negotiations when intending not to reach an agreement with the other party. Article 2.1.16 (Duty of confidentiality) Where information is given as confidential by one party in the course of negotiations, the other party is under a duty not to disclose that information or to use it improperly for its own purposes, whether or not a contract is subsequently ­concluded. Where appropriate, the remedy for breach of that duty may include compensation based on the benefit received by the other party. Article 2.1.17 (Merger clauses) A contract in writing which contains a clause indicating that the writing completely embodies the terms on which the parties have agreed cannot be contradicted or supplemented by evidence of prior statements or agreements. However, such statements or agreements may be used to interpret the writing. Article 2.1.18 (Modification in a particular form) A contract in writing which contains a clause requiring any modification or termination by agreement to be in a particular form may not be otherwise modified or terminated. However, a party may be precluded by its conduct from asserting such a clause to the extent that the other party has reasonably acted in reliance on that conduct. Article 2.1.19 (Contracting under standard terms) (1) Where one party or both parties use standard terms in concluding a contract, the general rules on formation apply, subject to Articles 2.1.20–2.1.22. (2) Standard terms are provisions which are prepared in advance for general and repeated use by one party and which are actually used without negotiation with the other party.

UNIDROIT Principles of International Commercial Contracts 2016 1537 Article 2.1.20 (Surprising terms) (1) No term contained in standard terms which is of such a character that the other party could not reasonably have expected it, is effective unless it has been expressly accepted by that party. (2) In determining whether a term is of such a character regard shall be had to its content, language and presentation. Article 2.1.21 (Conflict between standard terms and non-standard terms) In case of conflict between a standard term and a term which is not a standard term the latter prevails. Article 2.1.22 (Battle of forms) Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract. Section 2: Authority of Agents Article 2.2.1 (Scope of the Section) (1) This Section governs the authority of a person (“the agent”) to affect the legal relations of another person (“the principal”) by or with respect to a contract with a third party, whether the agent acts in its own name or in that of the principal. (2) It governs only the relations between the principal or the agent on the one hand, and the third party on the other. (3) It does not govern an agent’s authority conferred by law or the authority of an agent appointed by a public or judicial authority. Article 2.2.2 (Establishment and scope of the authority of the agent) (1) The principal’s grant of authority to an agent may be express or implied. (2) The agent has authority to perform all acts necessary in the circumstances to achieve the purposes for which the authority was granted.

1538  Part III: Common Principles Article 2.2.3 (Agency disclosed) (1) Where an agent acts within the scope of its authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly affect the legal relations between the principal and the third party and no legal relation is created between the agent and the third party. (2) However, the acts of the agent shall affect only the relations between the agent and the third party, where the agent with the consent of the principal undertakes to become the party to the contract. Article 2.2.4 (Agency undisclosed) (1) Where an agent acts within the scope of its authority and the third party neither knew nor ought to have known that the agent was acting as an agent, the acts of the agent shall affect only the relations between the agent and the third party. (2) However, where such an agent, when contracting with the third party on behalf of a business, represents itself to be the owner of that business, the third party, upon discovery of the real owner of the business, may exercise also against the latter the rights it has against the agent. Article 2.2.5 (Agent acting without or exceeding its authority) (1) Where an agent acts without authority or exceeds its authority, its acts do not affect the legal relations between the principal and the third party. (2) However, where the principal causes the third party reasonably to believe that the agent has authority to act on behalf of the principal and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent. Article 2.2.6 (Liability of agent acting without or exceeding its authority) (1) An agent that acts without authority or exceeds its authority is, failing ratification by the principal, liable for damages that will place the third party in the same position as if the agent had acted with authority and not exceeded its authority. (2) However, the agent is not liable if the third party knew or ought to have known that the agent had no authority or was exceeding its authority.

UNIDROIT Principles of International Commercial Contracts 2016 1539 Article 2.2.7 (Conflict of interests) (1) If a contract concluded by an agent involves the agent in a conflict of interests with the principal of which the third party knew or ought to have known, the principal may avoid the contract. The right to avoid is subject to Articles 3.2.9 and 3.2.11 to 3.2.15. (2) However, the principal may not avoid the contract (a) if the principal had consented to, or knew or ought to have known of, the agent’s involvement in the conflict of interests; or (b) if the agent had disclosed the conflict of interests to the principal and the latter had not objected within a reasonable time. Article 2.2.8 (Sub-agency) An agent has implied authority to appoint a sub-agent to perform acts which it is not reasonable to expect the agent to perform itself. The rules of this Section apply to the sub-agency. Article 2.2.9 (Ratification) (1) An act by an agent that acts without authority or exceeds its authority may be ratified by the principal. On ratification the act produces the same effects as if it had initially been carried out with authority. (2) The third party may by notice to the principal specify a reasonable period of time for ratification. If the principal does not ratify within that period of time it can no longer do so. (3) If, at the time of the agent’s act, the third party neither knew nor ought to have known of the lack of authority, it may, at any time before ratification, by notice to the principal indicate its refusal to become bound by a ratification. Article 2.2.10 (Termination of authority) (1) Termination of authority is not effective in relation to the third party unless the third party knew or ought to have known of it. (2) Notwithstanding the termination of its authority, an agent remains authorised to perform the acts that are necessary to prevent harm to the principal’s interests.

1540  Part III: Common Principles Chapter 3—Validity Section 1: General Provisions Article 3.1.1 (Matters not covered) This Chapter does not deal with lack of capacity. Article 3.1.2 (Validity of mere agreement) A contract is concluded, modified or terminated by the mere agreement of the parties, without any further requirement. Article 3.1.3 (Initial impossibility) (1) The mere fact that at the time of the conclusion of the contract the performance of the obligation assumed was impossible does not affect the validity of the contract. (2) The mere fact that at the time of the conclusion of the contract a party was not entitled to dispose of the assets to which the contract relates does not affect the validity of the contract. Article 3.1.4 (Mandatory character of the provisions) The provisions on fraud, threat, gross disparity and illegality contained in this Chapter are mandatory. Section 2: Grounds for Avoidance Article 3.2.1 (Definition of mistake) Mistake is an erroneous assumption relating to facts or to law existing when the contract was concluded. Article 3.2.2 (Relevant mistake) (1) A party may only avoid the contract for mistake if, when the contract was concluded, the mistake was of such importance that a reasonable person in the same situation as the party in error would only have concluded the

UNIDROIT Principles of International Commercial Contracts 2016 1541 c­ ontract on materially different terms or would not have concluded it at all if the true state of affairs had been known, and (a) the other party made the same mistake, or caused the mistake, or knew or ought to have known of the mistake and it was contrary to reasonable commercial standards of fair dealing to leave the mistaken party in error; or (b) the other party had not at the time of avoidance reasonably acted in reliance on the contract. (2) However, a party may not avoid the contract if (a) it was grossly negligent in committing the mistake; or (b) the mistake relates to a matter in regard to which the risk of mistake was assumed or, having regard to the circumstances, should be borne by the mistaken party. Article 3.2.3 (Error in expression or transmission) An error occurring in the expression or transmission of a declaration is considered to be a mistake of the person from whom the declaration emanated. Article 3.2.4 (Remedies for non-performance) A party is not entitled to avoid the contract on the ground of mistake if the circumstances on which that party relies afford, or could have afforded, a remedy for non-performance. Article 3.2.5 (Fraud) A party may avoid the contract when it has been led to conclude the contract by the other party’s fraudulent representation, including language or practices, or fraudulent non-disclosure of circumstances which, according to reasonable commercial standards of fair dealing, the latter party should have disclosed. Article 3.2.6 (Threat) A party may avoid the contract when it has been led to conclude the contract by the other party’s unjustified threat which, having regard to the circumstances, is so imminent and serious as to leave the first party no reasonable alternative. In particular, a threat is unjustified if the act or omission with which a party has been threatened is wrongful in itself, or it is wrongful to use it as a means to obtain the conclusion of the contract.

1542  Part III: Common Principles Article 3.2.7 (Gross disparity) (1) A party may avoid the contract or an individual term of it if, at the time of the conclusion of the contract, the contract or term unjustifiably gave the other party an excessive advantage. Regard is to be had, among other factors, to (a) the fact that the other party has taken unfair advantage of the first party’s dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill, and (b) the nature and purpose of the contract. (2) Upon the request of the party entitled to avoidance, a court may adapt the contract or term in order to make it accord with reasonable commercial standards of fair dealing. (3) A court may also adapt the contract or term upon the request of the party receiving notice of avoidance, provided that that party informs the other party of its request promptly after receiving such notice and before the other party has reasonably acted in reliance on it. Article 3.2.10(2) applies accordingly. Article 3.2.8 (Third persons) (1) Where fraud, threat, gross disparity or a party’s mistake is imputable to, or is known or ought to be known by, a third person for whose acts the other party is responsible, the contract may be avoided under the same conditions as if the behaviour or knowledge had been that of the party itself. (2) Where fraud, threat or gross disparity is imputable to a third person for whose acts the other party is not responsible, the contract may be avoided if that party knew or ought to have known of the fraud, threat or disparity, or has not at the time of avoidance reasonably acted in reliance on the contract. Article 3.2.9 (Confirmation) If the party entitled to avoid the contract expressly or impliedly confirms the contract after the period of time for giving notice of avoidance has begun to run, avoidance of the contract is excluded. Article 3.2.10 (Loss of right to avoid) (1) If a party is entitled to avoid the contract for mistake but the other party declares itself willing to perform or performs the contract as it was understood by the party entitled to avoidance, the contract is considered to have

UNIDROIT Principles of International Commercial Contracts 2016 1543 been concluded as the latter party understood it. The other party must make such a declaration or render such performance promptly after having been informed of the manner in which the party entitled to avoidance had understood the contract and before that party has reasonably acted in reliance on a notice of avoidance. (2) After such a declaration or performance the right to avoidance is lost and any earlier notice of avoidance is ineffective. Article 3.2.11 (Notice of avoidance) The right of a party to avoid the contract is exercised by notice to the other party. Article 3.2.12 (Time limits) (1) Notice of avoidance shall be given within a reasonable time, having regard to the circumstances, after the avoiding party knew or could not have been unaware of the relevant facts or became capable of acting freely. (2) Where an individual term of the contract may be avoided by a party under Article 3.2.7, the period of time for giving notice of avoidance begins to run when that term is asserted by the other party. Article 3.2.13 (Partial avoidance) Where a ground of avoidance affects only individual terms of the contract, the effect of avoidance is limited to those terms unless, having regard to the circumstances, it is unreasonable to uphold the remaining contract. Article 3.2.14 (Retroactive effect of avoidance) Avoidance takes effect retroactively. Article 3.2.15 (Restitution) (1) On avoidance either party may claim restitution of whatever it has supplied under the contract, or the part of it avoided, provided that the party concurrently makes restitution of whatever it has received under the contract, or the part of it avoided. (2) If restitution in kind is not possible or appropriate, an allowance has to be made in money whenever reasonable.

1544  Part III: Common Principles (3) The recipient of the performance does not have to make an allowance in money if the impossibility to make restitution in kind is attributable to the other party. (4) Compensation may be claimed for expenses reasonably required to preserve or maintain the performance received. Article 3.2.16 (Damages) Irrespective of whether or not the contract has been avoided, the party who knew or ought to have known of the ground for avoidance is liable for damages so as to put the other party in the same position in which it would have been if it had not concluded the contract. Article 3.2.17 (Unilateral declarations) The provisions of this Chapter apply with appropriate adaptations to any communication of intention addressed by one party to the other. Section 3: Illegality Article 3.3.1 (Contracts infringing mandatory rules) (1) Where a contract infringes a mandatory rule, whether of national, international or supranational origin, applicable under Article 1.4 of these Principles, the effects of that infringement upon the contract are the effects, if any, expressly prescribed by that mandatory rule. (2) Where the mandatory rule does not expressly prescribe the effects of an infringement upon a contract, the parties have the right to exercise such remedies under the contract as in the circumstances are reasonable. (3) In determining what is reasonable regard is to be had in particular to: (a) the purpose of the rule which has been infringed; (b) the category of persons for whose protection the rule exists; (c) any sanction that may be imposed under the rule infringed; (d) the seriousness of the infringement; (e) whether one or both parties knew or ought to have known of the infringement; (f) whether the performance of the contract necessitates the infringement; and (g) the parties’ reasonable expectations.

UNIDROIT Principles of International Commercial Contracts 2016 1545 Article 3.3.2 (Restitution) (1) Where there has been performance under a contract infringing a mandatory rule under Article 3.3.1, restitution may be granted where this would be reasonable in the circumstances. (2) In determining what is reasonable, regard is to be had, with the appropriate adaptations, to the criteria referred to in Article 3.3.1(3). (3) If restitution is granted, the rules set out in Article 3.2.15 apply with appropriate adaptations. Chapter 4—Interpretation Article 4.1 (Intention of the parties) (1) A contract shall be interpreted according to the common intention of the parties. (2) If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances. Article 4.2 (Interpretation of statements and other conduct) (1) The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been unaware of that intention. (2) If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances. Article 4.3 (Relevant circumstances) In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; (f) usages.

1546  Part III: Common Principles Article 4.4 (Reference to contract or statement as a whole) Terms and expressions shall be interpreted in the light of the whole contract or statement in which they appear. Article 4.5 (All terms to be given effect) Contract terms shall be interpreted so as to give effect to all the terms rather than to deprive some of them of effect. Article 4.6 (Contra proferentem rule) If contract terms supplied by one party are unclear, an interpretation against that party is preferred. Article 4.7 (Linguistic discrepancies) Where a contract is drawn up in two or more language versions which are equally authoritative there is, in case of discrepancy between the versions, a preference for the interpretation according to a version in which the contract was originally drawn up. Article 4.8 (Supplying an omitted term) (1) Where the parties to a contract have not agreed with respect to a term which is important for a determination of their rights and duties, a term which is appropriate in the circumstances shall be supplied. (2) In determining what is an appropriate term regard shall be had, among other factors, to (a) the intention of the parties; (b) the nature and purpose of the contract; (c) good faith and fair dealing; (d) reasonableness. Chapter 5—Content and Third Party Rights Section 1: Content Article 5.1.1 (Express and implied obligations) The contractual obligations of the parties may be express or implied.

UNIDROIT Principles of International Commercial Contracts 2016 1547 Article 5.1.2 (Implied obligations) Implied obligations stem from (a) the nature and purpose of the contract; (b) practices established between the parties and usages; (c) good faith and fair dealing; (d) reasonableness. Article 5.1.3 (Co-operation between the parties) Each party shall cooperate with the other party when such co-operation may reasonably be expected for the performance of that party’s obligations. Article 5.1.4 (Duty to achieve a specific result. Duty of best efforts) (1) To the extent that an obligation of a party involves a duty to achieve a specific result, that party is bound to achieve that result. (2) To the extent that an obligation of a party involves a duty of best efforts in the performance of an activity, that party is bound to make such efforts as would be made by a reasonable person of the same kind in the same circumstances. Article 5.1.5 (Determination of kind of duty involved) In determining the extent to which an obligation of a party involves a duty of best efforts in the performance of an activity or a duty to achieve a specific result, regard shall be had, among other factors, to (a) (b) (c) (d)

the way in which the obligation is expressed in the contract; the contractual price and other terms of the contract; the degree of risk normally involved in achieving the expected result; the ability of the other party to influence the performance of the obligation. Article 5.1.6 (Determination of quality of performance)

Where the quality of performance is neither fixed by, nor determinable from, the contract a party is bound to render a performance of a quality that is reasonable and not less than average in the circumstances.

1548  Part III: Common Principles Article 5.1.7 (Price determination) (1) Where a contract does not fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have made reference to the price generally charged at the time of the conclusion of the contract for such performance in comparable circumstances in the trade concerned or, if no such price is available, to a reasonable price. (2) Where the price is to be determined by one party and that determination is manifestly unreasonable, a reasonable price shall be substituted notwithstanding any contract term to the contrary. (3) Where the price is to be fixed by one party or a third person, and that party or third person does not do so, the price shall be a reasonable price. (4) Where the price is to be fixed by reference to factors which do not exist or have ceased to exist or to be accessible, the nearest equivalent factor shall be treated as a substitute. Article 5.1.8 (Termination of a contract for an indefinite period) A contract for an indefinite period may be terminated by either party by giving notice a reasonable time in advance. As to the effects of termination in general, and as to restitution, the provisions in Articles 7.3.5 and 7.3.7 apply. Article 5.1.9 (Release by agreement) (1) An obligee may release its right by agreement with the obligor. (2) An offer to release a right gratuitously shall be deemed accepted if the obligor does not reject the offer without delay after having become aware of it. Section 2: Third Party Rights Article 5.2.1 (Contracts in favour of third parties) (1) The parties (the “promisor” and the “promisee”) may confer by express or implied agreement a right on a third party (the “beneficiary”). (2) The existence and content of the beneficiary’s right against the promisor are determined by the agreement of the parties and are subject to any conditions or other limitations under the agreement. Article 5.2.2 (Third party identifiable) The beneficiary must be identifiable with adequate certainty by the contract but need not be in existence at the time the contract is made.

UNIDROIT Principles of International Commercial Contracts 2016 1549 Article 5.2.3 (Exclusion and limitation clauses) The conferment of rights in the beneficiary includes the right to invoke a clause in the contract which excludes or limits the liability of the beneficiary. Article 5.2.4 (Defences) The promisor may assert against the beneficiary all defences which the promisor could assert against the promisee. Article 5.2.5 (Revocation) The parties may modify or revoke the rights conferred by the contract on the beneficiary until the beneficiary has accepted them or reasonably acted in reliance on them. Article 5.2.6 (Renunciation) The beneficiary may renounce a right conferred on it. Section 3: Conditions Article 5.3.1 (Types of condition) A contract or a contractual obligation may be made conditional upon the occurrence of a future uncertain event, so that the contract or the contractual obligation only takes effect if the event occurs (suspensive condition) or comes to an end if the event occurs (resolutive condition). Article 5.3.2 (Effect of conditions) Unless the parties otherwise agree: (a) the relevant contract or contractual obligation takes effect upon fulfilment of a suspensive condition; (b) the relevant contract or contractual obligation comes to an end upon fulfilment of a resolutive condition.

1550  Part III: Common Principles Article 5.3.3 (Interference with conditions) (1) If fulfilment of a condition is prevented by a party, contrary to the duty of good faith and fair dealing or the duty of co-operation, that party may not rely on the non-fulfilment of the condition. (2) If fulfilment of a condition is brought about by a party, contrary to the duty of good faith and fair dealing or the duty of co-operation, that party may not rely on the fulfilment of the condition. Article 5.3.4 (Duty to preserve rights) Pending fulfilment of a condition, a party may not, contrary to the duty to act in accordance with good faith and fair dealing, act so as to prejudice the other party’s rights in case of fulfilment of the condition. Article 5.3.5 (Restitution in case of fulfilment of a resolutive condition) (1) On fulfilment of a resolutive condition, the rules on restitution set out in Articles 7.3.6 and 7.3.7 apply with appropriate adaptations. (2) If the parties have agreed that the resolutive condition is to operate retroactively, the rules on restitution set out in Article 3.2.15 apply with appropriate adaptations. Chapter 6—Performance Section 1: Performance in General Article 6.1.1 (Time of performance) A party must perform its obligations: (a) if a time is fixed by or determinable from the contract, at that time; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the other party is to choose a time; (c) in any other case, within a reasonable time after the conclusion of the contract. Article 6.1.2 (Performance at one time or in instalments) In cases under Article 6.1.1(b) or (c), a party must perform its obligations at one time if that performance can be rendered at one time and the circumstances do not indicate otherwise.

UNIDROIT Principles of International Commercial Contracts 2016 1551 Article 6.1.3 (Partial performance) (1) The obligee may reject an offer to perform in part at the time performance is due, whether or not such offer is coupled with an assurance as to the balance of the performance, unless the obligee has no legitimate interest in so doing. (2) Additional expenses caused to the obligee by partial performance are to be borne by the obligor without prejudice to any other remedy. Article 6.1.4 (Order of performance) (1) To the extent that the performances of the parties can be rendered simultaneously, the parties are bound to render them simultaneously unless the circumstances indicate otherwise. (2) To the extent that the performance of only one party requires a period of time, that party is bound to render its performance first, unless the circumstances indicate otherwise. Article 6.1.5 (Earlier performance) (1) The obligee may reject an earlier performance unless it has no legitimate interest in so doing. (2) Acceptance by a party of an earlier performance does not affect the time for the performance of its own obligations if that time has been fixed irrespective of the performance of the other party’s obligations. (3) Additional expenses caused to the obligee by earlier performance are to be borne by the obligor, without prejudice to any other remedy. Article 6.1.6 (Place of performance) (1) If the place of performance is neither fixed by, nor determinable from, the contract, a party is to perform: (a) a monetary obligation, at the obligee’s place of business; (b) any other obligation, at its own place of business. (2) A party must bear any increase in the expenses incidental to performance which is caused by a change in its place of business subsequent to the conclusion of the contract. Article 6.1.7 (Payment by cheque or other instrument) (1) Payment may be made in any form used in the ordinary course of business at the place for payment.

1552  Part III: Common Principles (2) However, an obligee who accepts, either by virtue of paragraph (1) or voluntarily, a cheque, any other order to pay or a promise to pay, is presumed to do so only on condition that it will be honoured. Article 6.1.8 (Payment by funds transfer) (1) Unless the obligee has indicated a particular account, payment may be made by a transfer to any of the financial institutions in which the obligee has made it known that it has an account. (2) In case of payment by a transfer the obligation of the obligor is discharged when the transfer to the obligee’s financial institution becomes effective. Article 6.1.9 (Currency of payment) (1) If a monetary obligation is expressed in a currency other than that of the place for payment, it may be paid by the obligor in the currency of the place for payment unless (a) that currency is not freely convertible; or (b) the parties have agreed that payment should be made only in the currency in which the monetary obligation is expressed. (2) If it is impossible for the obligor to make payment in the currency in which the monetary obligation is expressed, the obligee may require payment in the currency of the place for payment, even in the case referred to in ­paragraph (1)(b). (3) Payment in the currency of the place for payment is to be made according to the applicable rate of exchange prevailing there when payment is due. (4) However, if the obligor has not paid at the time when payment is due, the obligee may require payment according to the applicable rate of exchange prevailing either when payment is due or at the time of actual payment. Article 6.1.10 (Currency not expressed) Where a monetary obligation is not expressed in a particular currency, payment must be made in the currency of the place where payment is to be made. Article 6.1.11 (Costs of performance) Each party shall bear the costs of performance of its obligations. Article 6.1.12 (Imputation of payments) (1) An obligor owing several monetary obligations to the same obligee may specify at the time of payment the debt to which it intends the payment to

UNIDROIT Principles of International Commercial Contracts 2016 1553 be applied. However, the payment discharges first any expenses, then interest due and finally the principal. (2) If the obligor makes no such specification, the obligee may, within a reasonable time after payment, declare to the obligor the obligation to which it imputes the payment, provided that the obligation is due and undisputed. (3) In the absence of imputation under paragraphs (1) or (2), payment is imputed to that obligation which satisfies one of the following criteria in the order indicated: (a) an obligation which is due or which is the first to fall due; (b) the obligation for which the obligee has least security; (c) the obligation which is the most burdensome for the obligor; (d) the obligation which has arisen first. If none of the preceding criteria applies, payment is imputed to all the obligations proportionally. Article 6.1.13 (Imputation of non-monetary obligations) Article 6.1.12 applies with appropriate adaptations to the imputation of performance of non-monetary obligations. Article 6.1.14 (Application for public permission) Where the law of a State requires a public permission affecting the validity of the contract or its performance and neither that law nor the circumstances indicate otherwise (a) if only one party has its place of business in that State, that party shall take the measures necessary to obtain the permission; (b) in any other case the party whose performance requires permission shall take the necessary measures. Article 6.1.15 (Procedure in applying for permission) (1) The party required to take the measures necessary to obtain the permission shall do so without undue delay and shall bear any expenses incurred. (2) That party shall whenever appropriate give the other party notice of the grant or refusal of such permission without undue delay. Article 6.1.16 (Permission neither granted nor refused) (1) If, notwithstanding the fact that the party responsible has taken all measures required, permission is neither granted nor refused within an agreed period

1554  Part III: Common Principles or, where no period has been agreed, within a reasonable time from the conclusion of the contract, either party is entitled to terminate the contract. (2) Where the permission affects some terms only, paragraph (1) does not apply if, having regard to the circumstances, it is reasonable to uphold the remaining contract even if the permission is refused. Article 6.1.17 (Permission refused) (1) The refusal of a permission affecting the validity of the contract renders the contract void. If the refusal affects the validity of some terms only, only such terms are void if, having regard to the circumstances, it is reasonable to uphold the remaining contract. (2) Where the refusal of a permission renders the performance of the contract impossible in whole or in part, the rules on non-performance apply. Section 2: Hardship Article 6.2.1 (Contract to be observed) Where the performance of a contract becomes more onerous for one of the parties, that party is nevertheless bound to perform its obligations subject to the following provisions on hardship. Article 6.2.2 (Definition of hardship) There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and (a) the events occur or become known to the disadvantaged party after the conclusion of the contract; (b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract; (c) the events are beyond the control of the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party. Article 6.2.3 (Effects of hardship) (1) In case of hardship the disadvantaged party is entitled to request renegotiations. The request shall be made without undue delay and shall indicate the grounds on which it is based.

UNIDROIT Principles of International Commercial Contracts 2016 1555 (2) The request for renegotiation does not in itself entitle the disadvantaged party to withhold performance. (3) Upon failure to reach agreement within a reasonable time either party may resort to the court. (4) If the court finds hardship it may, if reasonable, (a) terminate the contract at a date and on terms to be fixed, or (b) adapt the contract with a view to restoring its equilibrium. Section 3: Termination for Compelling Reason Article 6.3.1 (Right to terminate for compelling reason) (1) A party may terminate a long-term contract if there is compelling reason for doing so. (2) The right of a party to terminate the contract is exercised by notice to the other party. (3) Termination of the contract for compelling reason takes effect as from the time of notice. (4) There is compelling reason only if, having regard to all the circumstances of the case, it would be manifestly unreasonable for the terminating party to be expected to continue the contractual relationship. Article 6.3.2 (Effects of termination for compelling reason) As to the effects of termination of a contract for compelling reason in general, and as to restitution, the provisions in Articles 7.3.5 and 7.3.7 apply. Chapter 7—Non-performance Section 1: Non-performance in General Article 7.1.1 (Non-performance defined) Non-performance is failure by a party to perform any of its obligations under the contract, including defective performance or late performance. Article 7.1.2 (Interference by the other party) A party may not rely on the non-performance of the other party to the extent that such non-performance was caused by the first party’s act or omission or by another event for which the first party bears the risk.

1556  Part III: Common Principles Article 7.1.3 (Withholding performance) (1) Where the parties are to perform simultaneously, either party may withhold performance until the other party tenders its performance. (2) Where the parties are to perform consecutively, the party that is to perform later may withhold its performance until the first party has performed. Article 7.1.4 (Cure by non-performing party) (1) The non-performing party may, at its own expense, cure any non-performance­, provided that (a) without undue delay, it gives notice indicating the proposed manner and timing of the cure; (b) cure is appropriate in the circumstances; (c) the aggrieved party has no legitimate interest in refusing cure; and (d) cure is effected promptly. (2) The right to cure is not precluded by notice of termination. (3) Upon effective notice of cure, rights of the aggrieved party that are inconsistent with the non-performing party’s performance are suspended until the time for cure has expired. (4) The aggrieved party may withhold performance pending cure. (5) Notwithstanding cure, the aggrieved party retains the right to claim damages for delay as well as for any harm caused or not prevented by the cure. Article 7.1.5 (Additional period for performance) (1) In a case of non-performance the aggrieved party may by notice to the other party allow an additional period of time for performance. (2) During the additional period the aggrieved party may withhold performance of its own reciprocal obligations and may claim damages but may not resort to any other remedy. If it receives notice from the other party that the latter will not perform within that period, or if upon expiry of that period due performance has not been made, the aggrieved party may resort to any of the remedies that may be available under this Chapter. (3) Where in a case of delay in performance which is not fundamental the aggrieved party has given notice allowing an additional period of time of reasonable length, it may terminate the contract at the end of that period. If the additional period allowed is not of reasonable length it shall be extended to a reasonable length. The aggrieved party may in its notice provide that if the other party fails to perform within the period allowed by the notice the contract shall automatically terminate. (4) Paragraph (3) does not apply where the obligation which has not been performed is only a minor part of the contractual obligation of the nonperforming­ party.

UNIDROIT Principles of International Commercial Contracts 2016 1557 Article 7.1.6 (Exemption clauses) A clause which limits or excludes one party’s liability for non-performance or which permits one party to render performance substantially different from what the other party reasonably expected may not be invoked if it would be grossly unfair to do so, having regard to the purpose of the contract. Article 7.1.7 (Force majeure) (1) Non-performance by a party is excused if that party proves that the nonperformance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. (2) When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract. (3) The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-receipt. (4) Nothing in this Article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due. Section 2: Right to Performance Article 7.2.1 (Performance of monetary obligation) Where a party who is obliged to pay money does not do so, the other party may require payment. Article 7.2.2 (Performance of non-monetary obligation) Where a party who owes an obligation other than one to pay money does not perform, the other party may require performance, unless (a) performance is impossible in law or in fact; (b) performance or, where relevant, enforcement is unreasonably burdensome or expensive; (c) the party entitled to performance may reasonably obtain performance from another source;

1558  Part III: Common Principles (d) performance is of an exclusively personal character; or (e) the party entitled to performance does not require performance within a reasonable time after it has, or ought to have, become aware of the non-performance. Article 7.2.3 (Repair and replacement of defective performance) The right to performance includes in appropriate cases the right to require repair, replacement, or other cure of defective performance. The provisions of Articles 7.2.1 and 7.2.2 apply accordingly. Article 7.2.4 (Judicial penalty) (1) Where the court orders a party to perform, it may also direct that this party pay a penalty if it does not comply with the order. (2) The penalty shall be paid to the aggrieved party unless mandatory provisions of the law of the forum provide otherwise. Payment of the penalty to the aggrieved party does not exclude any claim for damages. Article 7.2.5 (Change of remedy) (1) An aggrieved party who has required performance of a non-monetary obligation and who has not received performance within a period fixed or otherwise within a reasonable period of time may invoke any other remedy. (2) Where the decision of a court for performance of a non-monetary obligation cannot be enforced, the aggrieved party may invoke any other remedy. Section 3: Termination Article 7.3.1 (Right to terminate the contract) (1) A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance. (2) In determining whether a failure to perform an obligation amounts to a fundamental non-performance regard shall be had, in particular, to whether (a) the non-performance substantially deprives the aggrieved party of what it was entitled to expect under the contract unless the other party did not foresee and could not reasonably have foreseen such result; (b) strict compliance with the obligation which has not been performed is of essence under the contract; (c) the non-performance is intentional or reckless;

UNIDROIT Principles of International Commercial Contracts 2016 1559 (d) the non-performance gives the aggrieved party reason to believe that it cannot rely on the other party’s future performance; (e) the non-performing party will suffer disproportionate loss as a result of the preparation or performance if the contract is terminated. (3) In the case of delay the aggrieved party may also terminate the contract if the other party fails to perform before the time allowed it under Article 7.1.5 has expired. Article 7.3.2 (Notice of termination) (1) The right of a party to terminate the contract is exercised by notice to the other party. (2) If performance has been offered late or otherwise does not conform to the contract the aggrieved party will lose its right to terminate the contract unless it gives notice to the other party within a reasonable time after it has or ought to have become aware of the offer or of the non-conforming performance. Article 7.3.3 (Anticipatory non-performance) Where prior to the date for performance by one of the parties it is clear that there will be a fundamental non-performance by that party, the other party may terminate the contract. Article 7.3.4 (Adequate assurance of due performance) A party who reasonably believes that there will be a fundamental non-performance by the other party may demand adequate assurance of due performance and may meanwhile withhold its own performance. Where this assurance is not provided within a reasonable time the party demanding it may terminate the contract. Article 7.3.5 (Effects of termination in general) (1) Termination of the contract releases both parties from their obligation to effect and to receive future performance. (2) Termination does not preclude a claim for damages for non-performance. (3) Termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination.

1560  Part III: Common Principles Article 7.3.6 (Restitution with respect to contracts to be performed at one time) (1) On termination of a contract to be performed at one time either party may claim restitution of whatever it has supplied under the contract, provided that such party concurrently makes restitution of whatever it has received under the contract. (2) If restitution in kind is not possible or appropriate, an allowance has to be made in money whenever reasonable. (3) The recipient of the performance does not have to make an allowance in money if the impossibility to make restitution in kind is attributable to the other party. (4) Compensation may be claimed for expenses reasonably required to preserve or maintain the performance received. Article 7.3.7 (Restitution with respect to long-term contracts) (1) On termination of a long-term contract restitution can only be claimed for the period after termination has taken effect, provided the contract is divisible. (2) As far as restitution has to be made, the provisions of Article 7.3.6 apply. Section 4: Damages Article 7.4.1 (Right to damages) Any non-performance gives the aggrieved party a right to damages either exclusively or in conjunction with any other remedies except where the non-performance is excused under these Principles. Article 7.4.2 (Full compensation) (1) The aggrieved party is entitled to full compensation for harm sustained as a result of the non-performance. Such harm includes both any loss which it suffered and any gain of which it was deprived, taking into account any gain to the aggrieved party resulting from its avoidance of cost or harm. (2) Such harm may be non-pecuniary and includes, for instance, physical suffering or emotional distress. Article 7.4.3 (Certainty of harm) (1) Compensation is due only for harm, including future harm, that is established with a reasonable degree of certainty.

UNIDROIT Principles of International Commercial Contracts 2016 1561 (2) Compensation may be due for the loss of a chance in proportion to the probability of its occurrence. (3) Where the amount of damages cannot be established with a sufficient degree of certainty, the assessment is at the discretion of the court. Article 7.4.4 (Foreseeability of harm) The non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from its non-performance. Article 7.4.5 (Proof of harm in case of replacement transaction) Where the aggrieved party has terminated the contract and has made a replacement transaction within a reasonable time and in a reasonable manner it may recover the difference between the contract price and the price of the replacement transaction as well as damages for any further harm. Article 7.4.6 (Proof of harm by current price) (1) Where the aggrieved party has terminated the contract and has not made a replacement transaction but there is a current price for the performance contracted for, it may recover the difference between the contract price and the price current at the time the contract is terminated as well as damages for any further harm. (2) Current price is the price generally charged for goods delivered or services rendered in comparable circumstances at the place where the contract should have been performed or, if there is no current price at that place, the current price at such other place that appears reasonable to take as a reference. Article 7.4.7 (Harm due in part to aggrieved party) Where the harm is due in part to an act or omission of the aggrieved party or to another event for which that party bears the risk, the amount of damages shall be reduced to the extent that these factors have contributed to the harm, having regard to the conduct of each of the parties. Article 7.4.8 (Mitigation of harm) (1) The non-performing party is not liable for harm suffered by the aggrieved party to the extent that the harm could have been reduced by the latter ­party’s taking reasonable steps.

1562  Part III: Common Principles (2) The aggrieved party is entitled to recover any expenses reasonably incurred in attempting to reduce the harm. Article 7.4.9 (Interest for failure to pay money) (1) If a party does not pay a sum of money when it falls due the aggrieved party is entitled to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. (2) The rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment. (3) The aggrieved party is entitled to additional damages if the non-payment caused it a greater harm. Article 7.4.10 (Interest on damages) Unless otherwise agreed, interest on damages for non-performance of non-monetary obligations accrues as from the time of non-performance. Article 7.4.11 (Manner of monetary redress) (1) Damages are to be paid in a lump sum. However, they may be payable in instalments where the nature of the harm makes this appropriate. (2) Damages to be paid in instalments may be indexed. Article 7.4.12 (Currency in which to assess damages) Damages are to be assessed either in the currency in which the monetary obligation was expressed or in the currency in which the harm was suffered, whichever is more appropriate. Article 7.4.13 (Agreed payment for non-performance) (1) Where the contract provides that a party who does not perform is to pay a specified sum to the aggrieved party for such non-performance, the aggrieved party is entitled to that sum irrespective of its actual harm. (2) However, notwithstanding any agreement to the contrary the specified sum may be reduced to a reasonable amount where it is grossly excessive in

UNIDROIT Principles of International Commercial Contracts 2016 1563 relation to the harm resulting from the non-performance and to the other circumstances. Chapter 8—Set-off Article 8.1 (Conditions of set-off) (1) Where two parties owe each other money or other performances of the same kind, either of them (“the first party”) may set off its obligation against that of its obligee (“the other party”) if at the time of set-off, (a) the first party is entitled to perform its obligation; (b) the other party’s obligation is ascertained as to its existence and amount and performance is due. (2) If the obligations of both parties arise from the same contract, the first party may also set off its obligation against an obligation of the other party which is not ascertained as to its existence or to its amount. Article 8.2 (Foreign currency set-off) Where the obligations are to pay money in different currencies, the right of set-off may be exercised, provided that both currencies are freely convertible and the parties have not agreed that the first party shall pay only in a specified currency. Article 8.3 (Set-off by notice) The right of set-off is exercised by notice to the other party. Article 8.4 (Content of notice) (1) The notice must specify the obligations to which it relates. (2) If the notice does not specify the obligation against which set-off is exercised, the other party may, within a reasonable time, declare to the first party the obligation to which set-off relates. If no such declaration is made, the set-off will relate to all the obligations proportionally. Article 8.5 (Effect of set-off) (1) Set-off discharges the obligations. (2) If obligations differ in amount, set-off discharges the obligations up to the amount of the lesser obligation. (3) Set-off takes effect as from the time of notice.

1564  Part III: Common Principles Chapter 9—Assignment of Rights, Transfer of Obligations, Assignment of Contracts Section 1: Assignment of Rights Article 9.1.1 (Definitions) “Assignment of a right” means the transfer by agreement from one person (the “assignor”) to another person (the “assignee”), including transfer by way of security, of the assignor’s right to payment of a monetary sum or other performance from a third person (“the obligor”). Article 9.1.2 (Exclusions) This Section does not apply to transfers made under the special rules governing the transfers: (a) of instruments such as negotiable instruments, documents of title or financial instruments, or (b) of rights in the course of transferring a business. Article 9.1.3 (Assignability of non-monetary rights) A right to non-monetary performance may be assigned only if the assignment does not render the obligation significantly more burdensome. Article 9.1.4 (Partial assignment) (1) A right to the payment of a monetary sum may be assigned partially. (2) A right to other performance may be assigned partially only if it is divisible, and the assignment does not render the obligation significantly more burdensome. Article 9.1.5 (Future rights) A future right is deemed to be transferred at the time of the agreement, provided the right, when it comes into existence, can be identified as the right to which the assignment relates.

UNIDROIT Principles of International Commercial Contracts 2016 1565 Article 9.1.6 (Rights assigned without individual specification) A number of rights may be assigned without individual specification, provided such rights can be identified as rights to which the assignment relates at the time of the assignment or when they come into existence. Article 9.1.7 (Agreement between assignor and assignee sufficient) (1) A right is assigned by mere agreement between the assignor and the assignee, without notice to the obligor. (2) The consent of the obligor is not required unless the obligation in the circumstances is of an essentially personal character. Article 9.1.8 (Obligor’s additional costs) The obligor has a right to be compensated by the assignor or the assignee for any additional costs caused by the assignment. Article 9.1.9 (Non-assignment clauses) (1) The assignment of a right to the payment of a monetary sum is effective notwithstanding an agreement between the assignor and the obligor limiting or prohibiting such an assignment. However, the assignor may be liable to the obligor for breach of contract. (2) The assignment of a right to other performance is ineffective if it is contrary to an agreement between the assignor and the obligor limiting or prohibiting the assignment. Nevertheless, the assignment is effective if the assignee, at the time of the assignment, neither knew nor ought to have known of the agreement. The assignor may then be liable to the obligor for breach of contract. Article 9.1.10 (Notice to the obligor) (1) Until the obligor receives a notice of the assignment from either the assignor or the assignee, it is discharged by paying the assignor. (2) After the obligor receives such a notice, it is discharged only by paying the assignee.

1566  Part III: Common Principles Article 9.1.11 (Successive assignments) If the same right has been assigned by the same assignor to two or more successive assignees, the obligor is discharged by paying according to the order in which the notices were received. Article 9.1.12 (Adequate proof of assignment) (1) If notice of the assignment is given by the assignee, the obligor may request the assignee to provide within a reasonable time adequate proof that the assignment has been made. (2) Until adequate proof is provided, the obligor may withhold payment. (3) Unless adequate proof is provided, notice is not effective. (4) Adequate proof includes, but is not limited to, any writing emanating from the assignor and indicating that the assignment has taken place. Article 9.1.13 (Defences and rights of set-off) (1) The obligor may assert against the assignee all defences that the obligor could assert against the assignor. (2) The obligor may exercise against the assignee any right of set-off available to the obligor against the assignor up to the time notice of assignment was received. Article 9.1.14 (Rights related to the right assigned) The assignment of a right transfers to the assignee: (a) all the assignor’s rights to payment or other performance under the contract in respect of the right assigned, and (b) all rights securing performance of the right assigned. Article 9.1.15 (Undertakings of the assignor) The assignor undertakes towards the assignee, except as otherwise disclosed to the assignee, that: (a) the assigned right exists at the time of the assignment, unless the right is a future right; (b) the assignor is entitled to assign the right; (c) the right has not been previously assigned to another assignee, and it is free from any right or claim from a third party;

UNIDROIT Principles of International Commercial Contracts 2016 1567 (d) the obligor does not have any defences; (e) neither the obligor nor the assignor has given notice of set-off concerning the assigned right and will not give any such notice; (f) the assignor will reimburse the assignee for any payment received from the obligor before notice of the assignment was given. Section 2: Transfer of Obligations Article 9.2.1 (Modes of transfer) An obligation to pay money or render other performance may be transferred from one person (the “original obligor”) to another person (the “new obligor”) either (a) by an agreement between the original obligor and the new obligor subject to Article 9.2.3, or (b) by an agreement between the obligee and the new obligor, by which the new obligor assumes the obligation. Article 9.2.2 (Exclusion) This Section does not apply to transfers of obligations made under the special rules governing transfers of obligations in the course of transferring a business. Article 9.2.3 (Requirement of obligee’s consent to transfer) The transfer of an obligation by an agreement between the original obligor and the new obligor requires the consent of the obligee. Article 9.2.4 (Advance consent of obligee) (1) The obligee may give its consent in advance. (2) If the obligee has given its consent in advance, the transfer of the obligation becomes effective when a notice of the transfer is given to the obligee or when the obligee acknowledges it. Article 9.2.5 (Discharge of original obligor) (1) The obligee may discharge the original obligor. (2) The obligee may also retain the original obligor as an obligor in case the new obligor does not perform properly. (3) Otherwise the original obligor and the new obligor are jointly and severally liable.

1568  Part III: Common Principles Article 9.2.6 (Third party performance) (1) Without the obligee’s consent, the obligor may contract with another person that this person will perform the obligation in place of the obligor, unless the obligation in the circumstances has an essentially personal character. (2) The obligee retains its claim against the obligor. Article 9.2.7 (Defences and rights of set-off) (1) The new obligor may assert against the obligee all defences which the original obligor could assert against the obligee. (2) The new obligor may not exercise against the obligee any right of set-off available to the original obligor against the obligee. Article 9.2.8 (Rights related to the obligation transferred) (1) The obligee may assert against the new obligor all its rights to payment or other performance under the contract in respect of the obligation transferred. (2) If the original obligor is discharged under Article 9.2.5(1), a security granted by any person other than the new obligor for the performance of the obligation is discharged, unless that other person agrees that it should continue to be available to the obligee. (3) Discharge of the original obligor also extends to any security of the original obligor given to the obligee for the performance of the obligation, unless the security is over an asset which is transferred as part of a transaction between the original obligor and the new obligor. Section 3: Assignment of Contracts Article 9.3.1 (Definitions) “Assignment of a contract” means the transfer by agreement from one person (the “assignor”) to another person (the “assignee”) of the assignor’s rights and obligations arising out of a contract with another person (the “other party”). Article 9.3.2 (Exclusion) This Section does not apply to the assignment of contracts made under the special rules governing transfers of contracts in the course of transferring a business.

UNIDROIT Principles of International Commercial Contracts 2016 1569 Article 9.3.3 (Requirement of consent of the other party) The assignment of a contract requires the consent of the other party. Article 9.3.4 (Advance consent of the other party) (1) The other party may give its consent in advance. (2) If the other party has given its consent in advance, the assignment of the contract becomes effective when a notice of the assignment is given to the other party or when the other party acknowledges it. Article 9.3.5 (Discharge of the assignor) (1) The other party may discharge the assignor. (2) The other party may also retain the assignor as an obligor in case the assignee does not perform properly. (3) Otherwise the assignor and the assignee are jointly and severally liable. Article 9.3.6 (Defences and rights of set-off) (1) To the extent that the assignment of a contract involves an assignment of rights, Article 9.1.13 applies accordingly. (2) To the extent that the assignment of a contract involves a transfer of obligations, Article 9.2.7 applies accordingly. Article 9.3.7 (Rights transferred with the contract) (1) To the extent that the assignment of a contract involves an assignment of rights, Article 9.1.14 applies accordingly. (2) To the extent that the assignment of a contract involves a transfer of obligations, Article 9.2.8 applies accordingly. Chapter 10—Limitation Periods Article 10.1 (Scope of the Chapter) (1) The exercise of rights governed by the Principles is barred by the expiration of a period of time, referred to as “limitation period”, according to the rules of this Chapter.

1570  Part III: Common Principles (2) This Chapter does not govern the time within which one party is required under the Principles, as a condition for the acquisition or exercise of its right, to give notice to the other party or to perform any act other than the institution of legal proceedings. Article 10.2 (Limitation periods) (1) The general limitation period is three years beginning on the day after the day the obligee knows or ought to know the facts as a result of which the obligee’s right can be exercised. (2) In any event, the maximum limitation period is ten years beginning on the day after the day the right can be exercised. Article 10.3 (Modification of limitation periods by the parties) (1) The parties may modify the limitation periods. (2) However they may not (a) shorten the general limitation period to less than one year; (b) shorten the maximum limitation period to less than four years; (c) extend the maximum limitation period to more than fifteen years. Article 10.4 (New limitation period by acknowledgement) (1) Where the obligor before the expiration of the general limitation period acknowledges the right of the obligee, a new general limitation period begins on the day after the day of the acknowledgement. (2) The maximum limitation period does not begin to run again, but may be exceeded by the beginning of a new general limitation period under Article 10.2(1). Article 10.5 (Suspension by judicial proceedings) (1) The running of the limitation period is suspended (a) when the obligee performs any act, by commencing judicial proceedings or in judicial proceedings already instituted, that is recognised by the law of the court as asserting the obligee’s right against the obligor; (b) in the case of the obligor’s insolvency when the obligee has asserted its rights in the insolvency proceedings; or (c) in the case of proceedings for dissolution of the entity which is the obligor when the obligee has asserted its rights in the dissolution proceedings. (2) Suspension lasts until a final decision has been issued or until the proceedings have been otherwise terminated.

UNIDROIT Principles of International Commercial Contracts 2016 1571 Article 10.6 (Suspension by arbitral proceedings) (1) The running of the limitation period is suspended when the obligee performs any act, by commencing arbitral proceedings or in arbitral proceedings already instituted, that is recognised by the law of the arbitral tribunal as asserting the obligee’s right against the obligor. In the absence of regulations for arbitral proceedings or provisions determining the exact date of the commencement of arbitral proceedings, the proceedings are deemed to commence on the date on which a request that the right in dispute should be adjudicated reaches the obligor. (2) Suspension lasts until a binding decision has been issued or until the proceedings have been otherwise terminated. Article 10.7 (Alternative dispute resolution) The provisions of Articles 10.5 and 10.6 apply with appropriate modifications to other proceedings whereby the parties request a third person to assist them in their attempt to reach an amicable settlement of their dispute. Article 10.8 (Suspension in case of force majeure, death or incapacity) (1) Where the obligee has been prevented by an impediment that is beyond its control and that it could neither avoid nor overcome, from causing a limitation period to cease to run under the preceding Articles, the general limitation period is suspended so as not to expire before one year after the relevant impediment has ceased to exist. (2) Where the impediment consists of the incapacity or death of the obligee or obligor, suspension ceases when a representative for the incapacitated or deceased party or its estate has been appointed or a successor has inherited the respective party’s position. The additional one-year period under paragraph (1) applies accordingly. Article 10.9 (Effects of expiration of limitation period) (1) The expiration of the limitation period does not extinguish the right. (2) For the expiration of the limitation period to have effect, the obligor must assert it as a defence. (3) A right may still be relied on as a defence even though the expiration of the limitation period for that right has been asserted.

1572  Part III: Common Principles Article 10.10 (Right of set-off) The obligee may exercise the right of set-off until the obligor has asserted the expiration of the limitation period. Article 10.11 (Restitution) Where there has been performance in order to discharge an obligation, there is no right of restitution merely because the limitation period has expired. Chapter 11—Plurality of Obligors and of Obligees Section 1: Plurality of Obligors Article 11.1.1 (Definitions) When several obligors are bound by the same obligation towards an obligee: (a) the obligations are joint and several when each obligor is bound for the whole obligation; (b) the obligations are separate when each obligor is bound only for its share. Article 11.1.2 (Presumption of joint and several obligations) When several obligors are bound by the same obligation towards an obligee, they are presumed to be jointly and severally bound, unless the circumstances indicate otherwise. Article 11.1.3 (Obligee’s rights against joint and several obligors) When obligors are jointly and severally bound, the obligee may require performance from any one of them, until full performance has been received. Article 11.1.4 (Availability of defences and rights of set-off) A joint and several obligor against whom a claim is made by the obligee may assert all the defences and rights of set-off that are personal to it or that are common to all the co-obligors, but may not assert defences or rights of set-off that are personal to one or several of the other co-obligors.

UNIDROIT Principles of International Commercial Contracts 2016 1573 Article 11.1.5 (Effect of performance or set-off) Performance or set-off by a joint and several obligor or set-off by the obligee against one joint and several obligor discharges the other obligors in relation to the obligee to the extent of the performance or set-off. Article 11.1.6 (Effect of release or settlement) (1) Release of one joint and several obligor, or settlement with one joint and several obligor, discharges all the other obligors for the share of the released or settling obligor, unless the circumstances indicate otherwise. (2) When the other obligors are discharged for the share of the released obligor, they no longer have a contributory claim against the released obligor under Article 11.1.10. Article 11.1.7 (Effect of expiration or suspension of limitation period) (1) Expiration of the limitation period of the obligee’s rights against one joint and several obligor does not affect: (a) the obligations to the obligee of the other joint and several obligors; or (b) the rights of recourse between the joint and several obligors under ­Article 11.1.10. (2) If the obligee initiates proceedings under Articles 10.5, 10.6 or 10.7 against one joint and several obligor, the running of the limitation period is also suspended against the other joint and several obligors. Article 11.1.8 (Effect of judgment) (1) A decision by a court as to the liability to the obligee of one joint and several obligor does not affect: (a) the obligations to the obligee of the other joint and several obligors; or (b) the rights of recourse between the joint and several obligors under ­Article 11.1.10. (2) However, the other joint and several obligors may rely on such a decision, except if it was based on grounds personal to the obligor concerned. In such a case, the rights of recourse between the joint and several obligors under Article 11.1.10 are affected accordingly. Article 11.1.9 (Apportionment among joint and several obligors) As among themselves, joint and several obligors are bound in equal shares, unless the circumstances indicate otherwise.

1574  Part III: Common Principles Article 11.1.10 (Extent of contributory claim) A joint and several obligor who has performed more than its share may claim the excess from any of the other obligors to the extent of each obligor’s unperformed share. Article 11.1.11 (Rights of the obligee) (1) A joint and several obligor to whom Article 11.1.10 applies may also exercise the rights of the obligee, including all rights securing their performance, to recover the excess from all or any of the other obligors to the extent of each obligor’s unperformed share. (2) An obligee who has not received full performance retains its rights against the co-obligors to the extent of the unperformed part, with precedence over co-obligors exercising contributory claims. Article 11.1.12 (Defences in contributory claims) A joint and several obligor against whom a claim is made by the co-obligor who has performed the obligation: (a) may raise any common defences and rights of set-off that were available to be asserted by the co-obligor against the obligee; (b) may assert defences which are personal to itself; (c) may not assert defences and rights of set-off which are personal to one or several of the other co-obligors. Article 11.1.13 (Inability to recover) If a joint and several obligor who has performed more than that obligor’s share is unable, despite all reasonable efforts, to recover contribution from another joint and several obligor, the share of the others, including the one who has performed, is increased proportionally. Section 2: Plurality of Obligees Article 11.2.1 (Definitions) When several obligees can claim performance of the same obligation from an obligor: (a) the claims are separate when each obligee can only claim its share;

UNIDROIT Principles of International Commercial Contracts 2016 1575 (b) the claims are joint and several when each obligee can claim the whole performance; (c) the claims are joint when all obligees have to claim performance together. Article 11.2.2 (Effects of joint and several claims) Full performance of an obligation in favour of one of the joint and several obligees discharges the obligor towards the other obligees. Article 11.2.3 (Availability of defences against joint and several obligees) (1) The obligor may assert against any of the joint and several obligees all the defences and rights of set-off that are personal to its relationship to that obligee or that it can assert against all the co-obligees, but may not assert defences and rights of set-off that are personal to its relationship to one or several of the other co-obligees. (2) The provisions of Articles 11.1.5, 11.1.6, 11.1.7 and 11.1.8 apply, with appropriate adaptations, to joint and several claims. Article 11.2.4 (Allocation between joint and several obligees) (1) As among themselves, joint and several obligees are entitled to equal shares, unless the circumstances indicate otherwise. (2) An obligee who has received more than its share must transfer the excess to the other obligees to the extent of their respective shares.

Principles of European Insurance Contract Law* Part One Provisions Common to All Contracts Included in the Principles of European ­Insurance Contract Law (PEICL) Chapter One Introductory Provisions Section One Application of the PEICL Article 1:101 Substantive Scope of Application (1) The PEICL shall apply to private insurance in general, including mutual insurance. (2) The PEICL shall not apply to reinsurance. Article 1:102 Optional Application The PEICL shall apply when the parties, notwithstanding any limitations of choice of law under private international law, have agreed that their contract shall be governed by them. Subject to Article 1:103, the PEICL shall apply as a whole and no exclusion of particular provisions shall be allowed. Article 1:103 Mandatory Character (1) Articles 1:102 sentence 2, 2:104, 13:101 […](1) are mandatory. Other articles are mandatory as far as they regulate fraudulent behaviour. (2) The contract may derogate from all other provisions of the PEICL as long as such derogation is not to the detriment of the policyholder, the insured or * Project Group: “Restatement of European Insurance Contract Law”, Established by: Prof. Dr. Fritz Reichert-Facilides, LL.M., Innsbruck, Chairman: Prof. Dr. Helmut Heiss, LL.M., Zurich, www. restatement­.info.

Principles of European Insurance Contract Law 1577 beneficiary. However, derogation shall be allowed to the benefit of any party in contracts covering (a) risks in classes 4, 5, 6, 7, 11 or 12 of the Annex to this Article; (b) risks in classes 14 or 15 of the Annex to this Article, when the policyholder is engaged professionally in an industrial or commercial activity or in one of the liberal professions, and the risks relate to such activity; (c) risks in classes 3, 8, 9, 10, 13 or 16 of the Annex to this Article, in so far as the policyholder exceeds the limits of at least two of the following three criteria: —— balance-sheet total: 6.2 million euros —— net turnover: 12.8 million euros —— average number of employees during the financial year: 250. Annex(2) 1. Accident (including industrial injury and occupational disease) —— fixed pecuniary benefits —— benefits in the nature of indemnity —— combinations of the two —— injury to passengers 2. Sickness —— fixed pecuniary benefits —— benefits in the nature of indemnity —— combinations of the two 3. Land vehicles (other than railway rolling stock) All damage to or loss of —— land motor vehicles —— land vehicles other than motor vehicles 4. Railway rolling stock All damage to or loss of railway rolling stock 5. Aircraft All damage to or loss of aircraft 6. Ships (sea, lake, river and canal vessels) All damage to or loss of —— river and canal vessels —— lake vessels —— sea vessels 7. Goods in transit (including merchandise, baggage, and all other goods) All damage to or loss of goods in transit, irrespective of the form of transport 8. Fire and force of nature All damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to —— fire —— explosion —— storm —— natural forces other than storm

1578  Part III: Common Principles —— nuclear energy —— land subsidence 9. Other damage to property All damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to hail or frost, and any event such as theft, other than those mentioned under 8 10. Motor vehicle liability All liability arising out of the use of motor vehicles operating on the land (including carrier’s liability) 11. Aircraft liability All liability arising out of the use of aircraft (including carrier’s liability) 12. Liability for ships (sea, lake, river and canal vessels) All liability arising out of the use of ships, vessels or boats on the sea, lakes, rivers or canals (including carrier’s liability) 13. General liability All liability other than those forms mentioned under Nos. 10, 11 and 12 14. Credit —— insolvency (general) —— export credit —— instalment credit —— mortgages —— agricultural credit 15 Suretyship —— suretyship (direct) —— suretyship (indirect) 16. Miscellaneous financial loss —— employment risks —— insufficiency of income (general) —— bad weather —— loss of benefits —— continuing general expenses —— unforeseen trading expenses —— loss of market value —— loss of rent or revenue —— indirect trading losses other than those mentioned above —— other financial loss (non-trading) —— other forms of financial loss 17. Legal expenses Legal expenses and costs of litigation 18. Assistance Assistance for persons who get into difficulties while travelling, while away from home or while away from their permanent residence 19. Life assurance (excluding the classes enumerated at 20 and 21) 20. Marriage assurance and birth assurance 21. Assurance linked to investment funds

Principles of European Insurance Contract Law 1579 Article 1:104 Interpretation The PEICL shall be interpreted in the light of their text, context, purpose and comparative background. In particular, regard should be had to the need to promote good faith and fair dealing in the insurance sector, certainty in contractual relationships, uniformity of application and the adequate protection of policyholders. Article 1:105 National Law and General Principles (1) No recourse to national law, whether to restrict or to supplement the PEICL, shall be permitted. This does not apply to mandatory national laws specifically enacted for branches of insurance which are not covered by special rules contained in the PEICL. (2) Questions arising from the insurance contract, which are not expressly s­ ettled in the PEICL, are to be settled in conformity with the Principles of European Contract Law (PECL)(3) and, in the absence of relevant rules in that instrument, in accordance with the general principles common to the laws of the Member States. Section Two General Rules Article 1:201 Insurance Contract (1) “Insurance contract” means a contract under which one party, the insurer, promises another party, the policyholder, cover against a specified risk in exchange for a premium; (2) “Insured event” means the materialisation of the risk specified in the insurance contract; (3) “Indemnity insurance” means insurance under which the insurer is obliged to indemnify against loss suffered on the occurrence of an insured event; (4) “Insurance of fixed sums” means insurance under which the insurer is bound to pay a fixed sum of money on the occurrence of an insured event. Article 1:202 Further Definitions (1) “Insured” means the person whose interest is protected against loss under indemnity insurance; (2) “Beneficiary” means the person in whose favour the insurance money is payable under insurance of fixed sums; (3) “Person at risk” means the person on whose life, health, integrity or status insurance is taken;

1580  Part III: Common Principles (4) “Victim”, in liability insurance, means the person for whose death, injury or loss the insured is liable; (5) “Insurance agent” means an insurance intermediary employed by an insurer for marketing, selling or managing insurance contracts; (6) “Premium” means the payment due to the insurer on the part of the policyholder in return for cover; (7) “Contract period” means the period of contractual commitment starting at the conclusion of the contract and ending when the agreed term of duration elapses; (8) “Insurance period” means the period for which the premium is due in accordance with the parties’ agreement; (9) “Liability period” means the period of cover; Article 1:203 Language and Interpretation of Documents(4) (1) All documents provided by the insurer shall be plain and intelligible and in the language in which the contract is negotiated. (2) When there is doubt about the meaning of the wording of any document or information provided by the insurer, the interpretation most favourable to the policyholder, insured or beneficiary, as appropriate, shall prevail. Article 1:204 Receipt of Documents: Proof The burden of proving that the policyholder has received documents to be provided by the insurer shall lie with the insurer. Article 1:205 Form of Notice Subject to specific rules contained in the PEICL, notice by the applicant, policyholder, insured or beneficiary in relation to the insurance contract shall not be required to take any particular form. Article 1:206 Imputed Knowledge If any person is entrusted by the policyholder, the insured or the beneficiary with responsibilities essential to the conclusion or performance of the contract, relevant knowledge which that person has or ought to have in the course of fulfilling his responsibilities shall be deemed to be the knowledge of the policyholder, the insured or the beneficiary, as the case may be.

Principles of European Insurance Contract Law 1581 Article 1:207 Non-Discrimination(5) (1) The use of gender as a factor in the calculation of premiums and benefits shall not result in differences in individuals’ premiums and benefits unless the insurer shows that proportionate differences in individuals’ premiums and benefits are based upon relevant and accurate actuarial and statistical data. In any event, pregnancy and maternity shall not be factors resulting in differences in individuals’ premiums and benefits. (2) Nationality, racial or ethnic origin shall not be factors resulting in differences in individuals’ premiums and benefits. (3) Terms in breach of paras. 1 or 2, including terms as to premium, shall not be binding on the policyholder or the insured. Subject to para. 4, the contract shall continue to bind the parties on the basis of non-discriminatory terms. (4) In the case of breach of paras. 1 or 2, the policyholder shall be entitled to terminate the contract. Notice of termination shall be given to the insurer in writing within two months after the breach becomes known to the policyholder. Section Three Enforcement Article 1:301 Injunctions(6) (1) A qualified entity, as defined in para. 2, is entitled to seize a competent national court or authority and seek an order prohibiting or requiring the cessation of infringements of the PEICL, if applicable in accordance with Article 1:102. (2) A qualified entity means any body or organisation on the list drawn up by the European Commission in pursuance of Article 4 of the Directive 98/27/EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests, as amended. Article 1:302 Out-of-court Complaint and Redress Mechanisms Application of the PEICL does not preclude access to out-of-court complaint and redress mechanisms otherwise available to the policyholder, insured or beneficiary.

1582  Part III: Common Principles Chapter Two Initial Stage and Duration of the Insurance Contract Section One Applicant’s Pre-contractual Information Duty Article 2:101 Duty of Disclosure (1) When concluding the contract, the applicant shall inform the insurer of circumstances of which he is or ought to be aware, and which are the subject of clear and precise questions put to him by the insurer. (2) The circumstances referred to in para. 1 include those of which the person to be insured was or should have been aware. Article 2:102 Breach (1) When the policyholder is in breach of Article 2:101, subject to paras. 2 to 5, the insurer shall be entitled to propose a reasonable variation of the contract or to terminate the contract. To this end the insurer shall give written notice of its intention, accompanied by information on the legal consequences of its decision, within one month after the breach of Article 2:101 becomes known or apparent to it. (2) If the insurer proposes a reasonable variation, the contract shall continue on the basis of the variation proposed, unless the policyholder rejects the proposal within one month of receipt of the notice referred to in para. 1. In that case, the insurer shall be entitled to terminate the contract within one month of receipt of written notice of the policyholder’s rejection. (3) The insurer shall not be entitled to terminate the contract if the policyholder is in innocent breach of Article 2:101, unless the insurer proves that it would not have concluded the contract, had it known the information concerned. (4) Termination of the contract shall take effect one month after the written notice referred to in para. 1 has been received by the policyholder. Variation shall take effect in accordance with the agreement of the parties. (5) If an insured event is caused by an element of the risk, which is the subject of negligent non-disclosure or misrepresentation by the policyholder, and occurs before termination or variation takes effect, no insurance money shall be payable if the insurer would not have concluded the contract had it known the information concerned. If, however, the insurer would have concluded the contract at a higher premium or on different terms, the insurance money shall be payable proportionately or in accordance with such terms.

Principles of European Insurance Contract Law 1583 Article 2:103 Exceptions The sanctions provided for in Article 2:102 shall not apply in respect of (a) a question which was unanswered, or information supplied which was obviously incomplete or incorrect; (b) information which should have been disclosed or information inaccurately supplied, which was not material to a reasonable insurer’s decision to enter into the contract at all, or to do so on the agreed terms; (c) information which the insurer led the policyholder to believe did not have to be disclosed; or (d) information of which the insurer was or should have been aware. Article 2:104 Fraudulent Breach Without prejudice to the sanctions provided for in Article 2:102, the insurer shall be entitled to avoid the contract and retain the right to any premium due, if it has been led to conclude the contract by the policyholder’s fraudulent breach of Article 2:101. Notice of avoidance shall be given to the policyholder in writing within two months after the fraud becomes known to the insurer. Article 2:105 Additional Information Articles 2:102-2:104 shall also apply to any information supplied by a policyholder at the time of concluding the contract in addition to that required by Article 2:101. Section Two Insurer’s Pre-contractual Duties Article 2:201 Provision of Pre-contractual Documents(7) (1) The insurer shall provide the applicant with a copy of the proposed contract terms as well as a document which includes the following information if relevant: (a) the name and address of the contracting parties; (b) the name and address of the insured and of the beneficiary; (c) the name and address of the insurance agent; (d) the subject matter of the insurance and the risks covered; (e) the sum insured and any deductibles; (f) the amount of the premium or the method of calculating it; (g) when the premium falls due as well as the place and mode of payment; (h) the contract period and the liability period;

1584  Part III: Common Principles (i) the right to revoke the application or avoid the contract in accordance with Article 2:303; (j) the law applicable to the contract or, if a choice of law is permitted, the law proposed by the insurer; (k) the existence of an out-of-court complaint and redress mechanism for the applicant and the methods for having access to it; (l) the existence of guarantee funds or other compensation arrangements. (2) If possible, this information shall be provided in sufficient time to enable the applicant to consider whether or not to conclude the contract. (3) When the applicant applies for insurance cover on the basis of an application form and/or a questionnaire provided by the insurer, the insurer shall supply the applicant with a copy of the completed documents. Article 2:202 Duty to Warn about Inconsistencies in the Cover (1) When concluding the contract, the insurer shall warn the applicant of any inconsistencies between the cover offered and the applicant’s requirements of which the insurer is or ought to be aware, taking into consideration the circumstances and mode of contracting and, in particular, whether the applicant was assisted by an independent intermediary. (2) In the event of a breach of para. 1 (a) the insurer shall indemnify the policyholder against all losses resulting from the breach of this duty to warn unless the insurer acted without fault, and (b) the policyholder shall be entitled to terminate the contract by written notice given within two months after the breach becomes known to the policyholder. Article 2:203 Duty to Warn about Commencement of Cover If the applicant reasonably but mistakenly believes that the cover commences at the time the application is submitted, and the insurer is or ought to be aware of this belief, the insurer shall warn the applicant immediately that cover will not begin until the contract is concluded and, if applicable, the first premium is paid, unless preliminary cover is granted. If the insurer is in breach of the duty to warn it shall be liable in accordance with Article 2:202 para. 2(a).

Principles of European Insurance Contract Law 1585 Section Three Conclusion of the Contract Article 2:301 Manner of Conclusion An insurance contract shall not be required to be concluded or evidenced in writing nor subject to any other requirement as to form. The contract may be proved by any means, including oral testimony. Article 2:302 Revocation of an Application for Insurance An application for insurance may be revoked by the applicant if his revocation reaches the insurer before the applicant receives an acceptance from the insurer. Article 2:303 Cooling-off Period(8) (1) The policyholder shall be entitled to avoid the contract by giving written notice within two weeks after receipt of acceptance or delivery of the documents referred to in Article 2:501, whichever is the later. (2) The policyholder shall not be entitled to avoid the contract when (a) the duration of the contract is less than one month; (b) the contract is prolonged under Article 2:602; (c) it is a case of preliminary insurance, liability insurance or group insurance. Article 2:304 Abusive Clauses(9) (1) A term which has not been individually negotiated shall not be binding on the policyholder, the insured or the beneficiary if, contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in his rights and obligations arising under the contract to his detriment, taking into account the nature of the insurance contract, all the other terms of the contract and the circumstances at the time the contract was concluded. (2) The contract shall continue to bind the parties if it is capable of continuing in existence without the unfair term. If not, the unfair term shall be substituted by a term which reasonable parties would have agreed upon had they known the unfairness of the term. (3) This Article applies to terms that restrict or modify cover but it applies ­neither to (a) the adequacy in value of the cover and the premium, nor to (b) terms that state the essential description of the cover granted or the premium agreed, provided the terms are in plain and intelligible language.

1586  Part III: Common Principles (4) A term shall always be regarded as not individually negotiated when it has been drafted in advance and the policyholder has therefore not been able to influence the substance of the term, particularly in the context of a preformulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. When an insurer claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on the insurer. Section Four Retroactive and Preliminary Cover Article 2:401 Retroactive Cover (1) If, in the case of cover granted for a period before the contract was concluded (retroactive cover), the insurer knows at the time of the conclusion of the contract that no insured risk has occurred, the policyholder shall owe premiums only for the period after the time of conclusion. (2) If, in the case of retroactive cover, the policyholder knows at the time of the conclusion of the contract that the insured event has occurred, the insurer shall, subject to Article 2:104, provide cover only for the period after the time of the conclusion of the contract. Article 2:402 Preliminary Cover (1) When concluding a preliminary insurance contract, the insurer shall issue a cover note containing the information specified in Article 2:501 (a), (b), (d), (e) and (h) if relevant. (2) Articles 2:201-2:203 and, subject to para. 1 above, Article 2:501 do not apply to preliminary cover. Article 2:403 Duration of Preliminary Cover (1) When an applicant for an insurance contract is granted preliminary cover, that cover shall end no sooner than at the time when the cover under the insurance contract is agreed to begin or at the time the applicant receives notice from the insurer definitively rejecting the application, as the case may be. (2) When preliminary cover is granted to a person who does not apply for an insurance contract with the same insurer, the cover may be granted for a period less than that stated in Article 2:601 para. 1. Such cover may be cancelled by either party giving two weeks notice.

Principles of European Insurance Contract Law 1587 Section Five Insurance Policy Article 2:501 Contents When concluding the insurance contract, the insurer shall issue an insurance policy, together with the general contract terms as far as they are not included in the policy, containing the following information if relevant: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

the name and address of the contracting parties; the name and address of the insured and of the beneficiary; the name and address of the intermediary; the subject matter of the insurance and the risks covered; the sum insured and any deductibles; the amount of the premium or the method of calculating it; when the premium falls due as well as the place and mode of payment; the contract period and the liability period; the right to avoid the contract in accordance with Article 2:303; the law applicable to the contract; the existence of an out-of-court complaint and redress mechanism for the applicant and the methods for having access to it; (l) the existence of guarantee funds or other compensation arrangements. Article 2:502 Effects of the Policy (1) If the terms of the insurance policy differ from those in the policyholder’s application or any prior agreement between the parties, such differences as have been highlighted in the policy shall be deemed to have been assented to by the policyholder unless he objects within one month of receipt of the policy. The insurer shall give the policyholder notice in bold print of the right to object to the differences highlighted in the policy. (2) If the insurer fails to comply with para. 1, the contract shall be deemed to have been agreed on the terms in the policyholder’s application or the prior agreement of the parties, as the case may be. Section Six Duration of the Insurance Contract Article 2:601 Duration of the Insurance Contract (1) The duration of the insurance contract shall be one year. The parties may agree on a different period if indicated by the nature of the risk. (2) Para. 1 does not apply to personal insurance.

1588  Part III: Common Principles Article 2:602 Prolongation (1) After the one-year period referred to in Article 2:601 has expired the contract shall be prolonged unless (a) the insurer has given written notice to the contrary at least one month before the expiry of the contract period stating the reasons for its decision; or (b) the policyholder has given written notice to the contrary at the latest by the day the contract period expires or within one month after having received the insurer’s premium invoice whichever date is later. In the latter case, the one month period shall only start to run if it has been clearly stated on the invoice in bold print. (2) For the purposes of para. 1 (b) notice shall be deemed to be given as soon as it is dispatched. Article 2:603 Alteration of Terms and Conditions (1) In an insurance contract liable to prolongation under Article 2:602, a clause which allows the insurer to alter the premium or any other term or condition of the contract shall be invalid unless the clause provides that (a) any alteration shall not take effect before the next prolongation, (b) the insurer shall send written notice of alteration to the policyholder no later than one month before the expiry of the current contract period, and (c) the notice shall inform the policyholder about his right of termination and the consequences if the right is not exercised. (2) Para. 1 shall apply without prejudice to other requirements for the validity of alteration clauses. Article 2:604 Termination after the Occurrence of an Insured Event (1) A clause providing for termination of the contract after an insured event has occurred shall not be valid unless (a) it grants the right to terminate to both parties and (b) the policy is not one of personal insurance. (2) Both the provision for termination and the exercise of any right to terminate must be reasonable. (3) Any right to terminate shall expire if the party in question has not given written notice of termination to the other party within two months after becoming aware of the insured event. (4) The insurance cover shall terminate two weeks after notice in accordance with para. 3.

Principles of European Insurance Contract Law 1589 Section Seven Post-contractual Information Duties of the Insurer Article 2:701 General Information Duty Throughout the contract period the insurer shall provide the policyholder without undue delay with information in writing on any change concerning its name and address, its legal form, the address of its head office and of the agency or branch which concluded the contract. Article 2:702 Further Information upon Request (1) On the policyholder’s request, the insurer shall provide the policyholder without undue delay with information concerning (a) as far as can reasonably be expected of the insurer, all matters relevant to the performance of the contract; (b) new standard terms offered by the insurer for insurance contracts of the same type as the one concluded with the policyholder. (2) Both the policyholder’s request and the insurer’s response shall be in writing. Chapter Three Insurance Intermediaries Article 3:101 Powers of Insurance Agents (1) An insurance agent is authorised to perform all acts on behalf of the insurer that according to current insurance industry practice are within the scope of his employment. Any restriction of the agent’s authority shall be clearly notified to the policyholder in a separate document. However, the authority of the insurance agent shall at least cover the actual scope of his employment. (2) In any event the authority of the insurance agent shall include the power: (a) to inform and advise the policyholder, and (b) to receive notices from the policyholder. (3) Relevant knowledge which the insurance agent has or ought to have in the course of his employment shall be deemed to be the knowledge of the insurer. Article 3:102 Agents of Insurers Purporting to be Independent If an agent of the insurer purports to be an independent intermediary and acts in breach of duties imposed on such an intermediary by law, the insurer shall be liable for such breach.

1590  Part III: Common Principles Chapter Four The Risk Insured Section One Precautionary Measures Article 4:101 Precautionary Measures: Meaning A precautionary measure means a clause in the insurance contract, whether or not described as a condition precedent to the liability of the insurer, requiring the policyholder or the insured, before the insured event occurs, to perform or not to perform certain acts. Article 4:102 Insurer’s Right to Terminate the Contract (1) A clause which provides that in the event of non-compliance with a precautionary measure the insurer shall be entitled to terminate the contract, shall be without effect unless the policyholder or the insured has breached its obligation with intent to cause the loss or recklessly and with knowledge that the loss would probably result. (2) The right to terminate shall be exercised by written notice to the policyholder within one month of the time when the non-compliance with a precautionary measure becomes known or apparent to the insurer. Cover shall come to an end at the time of termination. Article 4:103 Discharge of the Insurer’s Liability (1) A clause that non-compliance with a precautionary measure totally or partially exempts the insurer from liability, shall only have effect to the extent that the loss was caused by the non-compliance of the policyholder or insured with intent to cause the loss or recklessly and with knowledge that the loss would probably result. (2) Subject to a clear clause providing for reduction of the insurance money according to the degree of fault, the policyholder or insured, as the case may be, shall be entitled to insurance money in respect of any loss caused by negligent non-compliance with a precautionary measure.

Principles of European Insurance Contract Law 1591 Section Two Aggravation of Risk Article 4:201 Clauses Concerning Aggravation of Risk If the insurance contract contains a clause concerning aggravation of the risk insured, the clause shall be without effect unless the aggravation of risk in question is material and of a kind specified in the insurance contact. Article 4:202 Duty to Give Notice of an Aggravation of Risk (1) If a clause concerning aggravation of the risk insured requires notification of an aggravation, notification shall be given by the policyholder, the insured or the beneficiary, as appropriate, provided that the person obliged to give notice was or should have been aware of the existence of the insurance cover and of the aggravation of the risk. Notice by another person shall be effective. (2) If the clause requires notice to be given within a stated period of time, such time shall be reasonable. Notice shall be effective on dispatch. (3) In the event of breach of the duty of notification, the insurer shall not on that ground be entitled to refuse to pay any subsequent loss resulting from an event within the scope of the cover unless the loss was caused by the aggravation of risk. Other losses resulting from events within the scope of the cover shall remain payable in accordance with Article 4:203 para. 3. Article 4:203 Sanctions (1) If the contract provides that, in the event of an aggravation of the risk insured the insurer shall be entitled to terminate the contract, such right shall be exercised by written notice to the policyholder within one month of the time when the aggravation becomes known or apparent to the insurer. (2) Cover shall expire one month after termination or, if the policyholder is in intentional breach of the duty under Article 4:202, at the time of termination. (3) If an insured event is caused by an aggravated risk, of which the policyholder is or ought to be aware, before cover has expired, no insurance money shall be payable if the insurer would not have insured the aggravated risk at all. If, however, the insurer would have insured the aggravated risk at a higher premium or on different terms, the insurance money shall be payable proportionately or in accordance with such terms.

1592  Part III: Common Principles Section Three Reduction of Risk Article 4:301 Consequences of the Reduction of Risk (1) If there is a material reduction of risk, the policyholder shall be entitled to request a proportionate reduction of the premium for the remaining contract period. (2) If the parties do not agree on a proportionate reduction within one month of the request, the policyholder shall be entitled to terminate the contract by written notice given within two months of the request. Chapter Five Insurance Premium Article 5:101 First or Single Premium When the insurer makes payment of the first or single premium a condition of ­formation of the contract or of the beginning of cover, that condition shall be without effect unless (a) the condition is communicated to the applicant in writing using clear language and warning the applicant that he lacks cover until the premium is paid, and (b) a period of two weeks has expired after receipt of an invoice which complies with requirement (a) without payment having been made. Article 5:102 Subsequent Premium (1) A clause, providing for the insurer to be relieved of its obligation to cover the risk in the event of non-payment of a subsequent premium, shall be without effect unless (a) the policyholder receives an invoice stating the precise amount of ­premium due as well as the date of payment; (b) after the premium falls due, the insurer sends a reminder to the policyholder of the precise amount of premium due, granting an additional period of payment of at least two weeks, and warning the policyholder of the imminent suspension of cover if payment is not made; and (c) the additional period in requirement (b) has expired without payment having been made. (2) The insurer will be relieved of liability after the additional period in para. 1 (b) has expired. Cover will be resumed for the future as soon as the policyholder pays the amount due unless the contract has been terminated in accordance with Article 5:103.

Principles of European Insurance Contract Law 1593 Article 5:103 Termination of the Contract (1) On expiry of the period referred to in Article 5:101 (b) or Article 5:102 para. 1 (b), without payment of the premium being made, the insurer shall be entitled to terminate the contract by written notice, provided that the invoice required by Article 5:101 (b) or the reminder required by Article 5:102 para. 1 (b), as the case may be, states the right of the insurer to terminate the contract. (2) The contract shall be deemed to be terminated if, as the case may be, the insurer does not bring an action for payment (a) of the first premium within two months after expiry of the period mentioned in Article 5:101 (b); or (b) of a subsequent premium within two months of expiry of the period mentioned in Article 5:102 para. 1 (b). Article 5:104 Divisibility of Premium If an insurance contract is terminated before the contract period has expired, the insurer shall only be entitled to premium in respect of the period prior to termination. Article 5:105 Right to Pay Premium The insurer shall not be entitled to refuse payment by a third party if (a) the third party acts with the assent of the policyholder; or (b) the third party has a legitimate interest in maintaining the cover and the policyholder has failed to pay or it is clear that he will not pay at the time payment is due. Chapter Six Insured Event Article 6:101 Notice of insured event (1) The occurrence of an insured event shall be notified to the insurer by the policyholder, the insured or the beneficiary, as appropriate, provided that the person obliged to give notice was or should have been aware of the existence of the insurance cover and of the occurrence of the insured event. Notice by another person shall be effective. (2) Such notice shall be given without undue delay. It shall be effective on dispatch. If the contract requires notice to be given within a stated period of time, such time shall be reasonable and in any event no shorter than five days. (3) The insurance money payable shall be reduced to the extent that the insurer proves that it has been prejudiced by undue delay.

1594  Part III: Common Principles Article 6:102 Claims Cooperation (1) The policyholder, insured or beneficiary, as appropriate, shall cooperate with the insurer in the investigation of the insured event by responding to reasonable requests, in particular for —— information about the causes and effects of the insured event; —— documentary or other evidence of the insured event; —— access to premises related thereto. (2) In the event of any breach of para. 1 and subject to para. 3, the insurance money payable shall be reduced to the extent that the insurer proves that it has been prejudiced by the breach. (3) In the event of any breach of para. 1 committed with intent to cause prejudice or recklessly and with knowledge that such prejudice would probably result, the insurer shall not be obliged to pay the insurance money. Article 6:103 Acceptance of Claims (1) The insurer shall take all reasonable steps to settle a claim promptly. (2) Unless the insurer rejects a claim or defers acceptance of a claim by written notice giving reasons for its decision within one month after receipt of the relevant documents and other information, the claim shall be deemed to have been accepted. Article 6:104 Time of Performance (1) When a claim has been accepted the insurer shall pay or provide the services promised, as the case may be, without undue delay. (2) Even if the total value of a claim cannot yet be quantified but the claimant is entitled to at least a part of it, this part shall be paid or provided without undue delay. (3) Payment of insurance money, whether under para. 1 or para. 2, shall be made no later than one week after the acceptance and quantification of the claim or part of it, as the case may be. Article 6:105 Late Performance(10) (1) If insurance money is not paid in accordance with Article 6:104, the claimant shall be entitled to interest on that sum from the time when payment was due to the time of payment and at the rate applied by the European Central Bank to its most recent main refinancing operation carried out before the first calendar day of the half-year in question, plus seven percentage points. (2) The claimant shall be entitled to recover damages for any additional loss caused by late payment of the insurance money.

Principles of European Insurance Contract Law 1595 Chapter Seven Prescription Article 7:101 Action for Payment of Premium Action for payment of premium shall be prescribed after a period of one year from the time when payment is due. Article 7:102 Action for Payment of Insurance Benefits (1) In general, action for insurance benefits shall be prescribed after a period of three years from the time when the insurer makes or is deemed to have made a final decision on the claim in accordance with Article 6:103. In any event, however, action shall be prescribed at the latest after a period of ten years from the occurrence of the insured event, except in the case of life assurance for which the relevant period shall be 30 years. (2) Action for payment of the surrender value of life assurance shall be prescribed after a period of three years from the time when the policyholder receives the final account from the insurer. In any event, however, action shall be prescribed at the latest after a period of 30 years from the termination of the life assurance contract. Article 7:103 Other Issues Relating to Prescription Subject to Article 7:101 and Article 7:102 of the PEICL, Articles 14:101—14:503 of the Principles of European Contract Law (PECL)(11) shall apply to claims arising out of a contract of insurance. The insurance contract may derogate from these provisions in accordance with Article 1:103 para. 2 of the PEICL. Part Two Provisions Common to Indemnity Insurance Chapter Eight Sum insured and Insured Value Article 8:101 Maximum Sums Payable (1) The insurer shall not be obliged to pay more than the amount necessary to indemnify losses actually suffered by the insured. (2) A clause which provides for the agreed value of the subject-matter insured shall be valid even if the said value exceeds the actual value of the subjectmatter, provided that there was no operative fraud or misrepresentation on the part of the policyholder or insured at the time the value was agreed.

1596  Part III: Common Principles Article 8:102 Underinsurance (1) The insurer shall be liable for any insured loss up to the sum insured even if the sum insured is less than the value of the property insured at the time when the insured event occurs. (2) However, when the insurer offers cover in accordance with para. 1, it shall be entitled alternatively to offer insurance on the basis that the indemnity to be paid shall be limited to the proportion that the sum insured bears to the actual value of the property at the time of the loss. In that case, moreover, mitigation costs, as defined in Article 9:102, shall be reimbursed in the same proportion. Article 8:103 Adjustment of Terms in Case of Overinsurance (1) If the sum insured exceeds the maximum possible loss under the insurance, either party shall be entitled to request a reduction of the sum insured and a corresponding reduction of premium for the remaining contract period. (2) If the parties do not agree on such a reduction within one month of the request, either party shall be entitled to terminate the contract. Article 8:104 Multiple Insurance (1) If the same interest is separately insured by more than one insurer, the insured shall be entitled to claim against any one or more of those insurers to the extent necessary to indemnify losses actually suffered by the insured. (2) The insurer against which a claim is brought shall pay up to the sum insured under its policy, together with the mitigation costs if any, without prejudice to its rights to contribution from any other insurer. (3) As between insurers, the rights and obligations referred to in para. 2 shall be in proportion to the amounts for which they are separately liable to the insured. Chapter Nine Entitlement to Indemnity Article 9:101 Causation of Loss (1) Neither the policyholder nor the insured, as the case may be, shall be entitled to indemnity to the extent that the loss was caused by an act or omission on his part with intent to cause the loss or recklessly and with knowledge that the loss would probably result.

Principles of European Insurance Contract Law 1597 (2) Subject to a clear clause in the policy providing for reduction of the insurance money according to the degree of fault on his part, the policyholder or insured, as the case may be, shall be entitled to indemnity in respect of any loss caused by an act or omission on his part that was negligent. (3) For the purposes of paras. 1 and 2 causation of loss includes failure to avert or to mitigate loss. Article 9:102 The Costs of Mitigation (1) The insurer shall reimburse the costs incurred or the amount of damage suffered by the policyholder or the insured in taking measures to mitigate insured loss, to the extent the policyholder or the insured was justified in regarding the measures as reasonable under the circumstances, even if they were unsuccessful in mitigating the loss. (2) The insurer shall indemnify the policyholder or the insured, as the case may be, in respect of any measures taken in accordance with para. 1, even if together with the compensation for the loss insured the amount payable exceeds the sum insured. Chapter Ten Rights of Subrogation Article 10:101 Subrogation (1) Subject to para. 3 the insurer shall be entitled to exercise rights of subrogation against a third party liable for the loss to the extent that it has indemnified the insured. (2) To the extent that the insured waives a right against such a third party in a way that prejudices the insurer’s right of subrogation, he shall forfeit his entitlement to indemnity in respect of the loss in question. (3) The insurer shall not be entitled to exercise rights of subrogation against a member of the household of the policyholder or insured, a person in an equivalent social relationship to the policyholder or insured, or an employee of the policyholder or insured, except when it proves that the loss was caused by such a person intentionally or recklessly and with knowledge that the loss would probably result. (4) The insurer shall not exercise its rights of subrogation to the detriment of the insured.

1598  Part III: Common Principles Chapter Eleven Insured Persons other than the Policyholder Article 11:101 Entitlement of the Insured (1) In the case of an insurance taken out for a person other than the policyholder, if the insured event occurs, that person shall be entitled to the insurance money. (2) The policyholder shall be entitled to revoke such cover, unless (a) the policy provides otherwise; or (b) the insured event has occurred. (3) Revocation shall take effect when written notice of revocation is given to the insurer. Article 11:102 Knowledge of the Insured Knowledge of a person insured in accordance with Article 11:101 shall not be attributed to the policyholder, unless that person is aware of his status as insured, when the policyholder is obliged to provide relevant information to the insurer. Article 11:103 Breach of Duty by One Insured Breach of duty by one insured shall not adversely affect the rights of other persons insured under the same insurance contract, unless the risk is jointly insured. Chapter Twelve Insured Risk Article 12:101 Lack of Insured Risk (1) If the insured risk exists neither at the time of conclusion of the contract nor at any time during the insurance period, no premium shall be due. However, the insurer shall be entitled to a reasonable sum for expenses incurred. (2) If the insured risk ceases to exist during the insurance period, the contract shall be deemed to have been terminated at the time that the insurer is notified thereof.

Principles of European Insurance Contract Law 1599 Article 12:102 Transfer of Property (1) If the title to insured property is transferred, the insurance contract shall be terminated one month after the time of transfer, unless the policyholder and transferee agree on termination at an earlier time. This rule shall not apply if the insurance contract was taken out for the benefit of a future transferee. (2) The transferee of the property shall be deemed to be the insured from the time that the risk in the insured property is transferred. (3) Paras. 1 and 2 shall not apply (a) if insurer, policyholder and transferee agree otherwise; or (b) to a transfer of title by inheritance. Part Three Provisions Common to Insurance of Fixed Sums Chapter Thirteen Admissibility Article 13:101 Insurance of Fixed Sums Only accident, health, life, marriage, birth or other personal insurance may be taken out as insurances of fixed sums. (1) Articles

1:102 sentence 2, 2:104 and 13:101 are the only mandatory provisions so far; however further mandatory articles are anticipated in future Articles on specific branches of insurance. (2) This Annex is modelled on Directive 73/239/EEC (as amended) and—in part— Directive 2002/83/EC (as amended). (3)  Cf. Lando/Beale (eds.), Principles of European Contract Law, Parts I and II (Kluwer Law International, The Hague 2000); Lando/Clive/Prüm/ Zimmermann (eds.), Principles of European Contract Law, Part III (Kluwer Law International, The Hague 2003). (4) Article 1:203 para. 2 is modelled on Article 5 of Directive 93/13/EEC. (5) This Article is modelled on Directive 2004/113/EC. (6) This Article is modelled on Directive 98/27/EC. (7)  This Article is modelled on Directive 73/239/EEC (as amended), Directive 2002/83/EC and Directive 2002/65/EC. (8) This Article is modelled on Directive 2002/65/EC. (9) This Article is modelled on Directive 93/13/EEC. (10) This Article is modelled on Article 3 para. 1 (d) Directive 2000/35/EC. (11)  Cf. Lando/Beale (eds.), Principles of European Contract Law, Parts I and II (Kluwer Law International, The Hague 2000); Lando/Clive/Prüm/ Zimmermann (eds.), Principles of European Contract Law, Part III (Kluwer Law International, The Hague 2003).

Principles of European Tort Law* TITLE I. Basic Norm Chapter 1. Basic Norm Art. 1:101. Basic norm (1) A person to whom damage to another is legally attributed is liable to compensate that damage. (2) Damage may be attributed in particular to the person a) whose conduct constituting fault has caused it; or b) whose abnormally dangerous activity has caused it; or c) whose auxiliary has caused it within the scope of his functions. TITLE II. General Conditions of Liability Chapter 2. Damage Art. 2:101. Recoverable damage Damage requires material or immaterial harm to a legally protected interest. Art. 2:102. Protected interests (1) The scope of protection of an interest depends on its nature; the higher its value, the precision of its definition and its obviousness, the more extensive is its protection. (2) Life, bodily or mental integrity, human dignity and liberty enjoy the most extensive protection. (3) Extensive protection is granted to property rights, including those in intangible property. (4) Protection of pure economic interests or contractual relationships may be more limited in scope. In such cases, due regard must be had especially to the proximity between the actor and the endangered person, or to the fact that the actor is aware of the fact that he will cause damage even though his interests are necessarily valued lower than those of the victim.

* 

European Group on Tort Law, 2005. See http://www.egtl.org.

Principles of European Tort Law 1601 (5) The scope of protection may also be affected by the nature of liability, so that an interest may receive more extensive protection against intentional harm than in other cases. (6) In determining the scope of protection, the interests of the actor, especially in liberty of action and in exercising his rights, as well as public interests also have to be taken into consideration. Art. 2:103. Legitimacy of damage Losses relating to activities or sources which are regarded as illegitimate cannot be recovered. Art. 2:104. Preventive expenses Expenses incurred to prevent threatened damage amount to recoverable damage in so far as reasonably incurred. Art. 2:105. Proof of damage Damage must be proved according to normal procedural standards. The court may estimate the extent of damage where proof of the exact amount would be too ­difficult or too costly. Chapter 3. Causation Section 1. Conditio sine qua non and qualifications Art. 3:101. Conditio sine qua non An activity or conduct (hereafter: activity) is a cause of the victim’s damage if, in the absence of the activity, the damage would not have occurred. Art. 3:102. Concurrent causes In case of multiple activities, where each of them alone would have caused the ­damage at the same time, each activity is regarded as a cause of the victim’s damage. Art. 3:103. Alternative causes (1) In case of multiple activities, where each of them alone would have been sufficient to cause the damage, but it remains uncertain which one in fact caused it, each activity is regarded as a cause to the extent corresponding to the likelihood that it may have caused the victim’s damage. (2) If, in case of multiple victims, it remains uncertain whether a particular victim’s damage has been caused by an activity, while it is likely that it did not cause the damage of all victims, the activity is regarded as a cause of the damage suffered by all victims in proportion to the likelihood that it may have caused the damage of a particular victim.

1602  Part III: Common Principles Art. 3:104. Potential causes (1) If an activity has definitely and irreversibly led the victim to suffer damage, a subsequent activity which alone would have caused the same damage is to be disregarded. (2) A subsequent activity is nevertheless taken into consideration if it has led to additional or aggravated damage. (3) If the first activity has caused continuing damage and the subsequent activity later on also would have caused it, both activities are regarded as a cause of that continuing damage from that time on. Art. 3:105. Uncertain partial causation In the case of multiple activities, when it is certain that none of them has caused the entire damage or any determinable part thereof, those that are likely to have [minimally] contributed to the damage are presumed to have caused equal shares thereof. Art. 3:106. Uncertain causes within the victim’s sphere The victim has to bear his loss to the extent corresponding to the likelihood that it may have been caused by an activity, occurrence or other circumstance within his own sphere. Section 2. Scope of Liability Art. 3:201. Scope of Liability Where an activity is a cause within the meaning of Section 1 of this Chapter, whether and to what extent damage may be attributed to a person depends on f­ actors such as a) the foreseeability of the damage to a reasonable person at the time of the activity, taking into account in particular the closeness in time or space ­ between the damaging activity and its consequence, or the magnitude of the damage in relation to the normal consequences of such an activity; b) the nature and the value of the protected interest (Article 2:102); c) the basis of liability (Article 1:101); d) the extent of the ordinary risks of life; and e) the protective purpose of the rule that has been violated. TITLE III. Bases of Liability Chapter 4. Liability based on fault Section 1. Conditions of liability based on fault Art. 4:101. Fault A person is liable on the basis of fault for intentional or negligent violation of the required standard of conduct.

Principles of European Tort Law 1603 Art. 4:102. Required standard of conduct (1) The required standard of conduct is that of the reasonable person in the circumstances, and depends, in particular, on the nature and value of the protected interest involved, the dangerousness of the activity, the expertise to be expected of a person carrying it on, the foreseeability of the damage, the relationship of proximity or special reliance between those involved, as well as the availability and the costs of precautionary or alternative methods. (2) The above standard may be adjusted when due to age, mental or physical disability or due to extraordinary circumstances the person cannot be expected to conform to it. (3) Rules which prescribe or forbid certain conduct have to be considered when establishing the required standard of conduct. Art. 4:103. Duty to protect others from damage A duty to act positively to protect others from damage may exist if law so provides, or if the actor creates or controls a dangerous situation, or when there is a special relationship between parties or when the seriousness of the harm on the one side and the ease of avoiding the damage on the other side point towards such a duty. Section 2. Reversal of the burden of proving fault Art. 4:201. Reversal of the burden of proving fault in general (1) The burden of proving fault may be reversed in light of the gravity of the danger presented by the activity. (2) The gravity of the danger is determined according to the seriousness of possible damage in such cases as well as the likelihood that such damage might actually occur. Art. 4:202. Enterprise Liability (1) A person pursuing a lasting enterprise for economic or professional purposes who uses auxiliaries or technical equipment is liable for any harm caused by a defect of such enterprise or of its output unless he proves that he has conformed to the required standard of conduct. (2) “Defect” is any deviation from standards that are reasonably to be expected from the enterprise or from its products or services. Chapter 5. Strict liability Art. 5:101. Abnormally dangerous activities (1) A person who carries on an abnormally dangerous activity is strictly liable for damage characteristic to the risk presented by the activity and resulting from it.

1604  Part III: Common Principles (2) An activity is abnormally dangerous if a) it creates a foreseeable and highly significant risk of damage even when all due care is exercised in its management and b) it is not a matter of common usage. (3) A risk of damage may be significant having regard to the seriousness or the likelihood of the damage. (4) This Article does not apply to an activity which is specifically subjected to strict liability by any other provision of these Principles or any other national law or international convention. Art. 5:102. Other strict liabilities (1) National laws can provide for further categories of strict liability for dangerous activities even if the activity is not abnormally dangerous. (2) Unless national law provides otherwise, additional categories of strict ­liability can be found by analogy to other sources of comparable risk of damage. Chapter 6. Liability for others Art. 6:101. Liability for minors or mentally disabled persons A person in charge of another who is a minor or subject to mental disability is liable for damage caused by the other unless the person in charge shows that he has ­conformed to the required standard of conduct in supervision. Art. 6:102. Liability for auxiliaries (1) A person is liable for damage caused by his auxiliaries acting within the scope of their functions provided that they violated the required standard of conduct. (2) An independent contractor is not regarded as an auxiliary for the purposes of this Article. TITLE IV. Defences Chapter 7. Defences in general Art. 7:101. Defences based on justifications (1) Liability can be excluded if and to the extent that the actor acted legitimately a) in defence of his own protected interest against an unlawful attack (self-defence), b) under necessity, c) because the help of the authorities could not be obtained in time (self-help), d) with the consent of the victim, or where the latter has assumed the risk of being harmed, or e) by virtue of lawful authority, such as a licence.

Principles of European Tort Law 1605 (2) Whether liability is excluded depends upon the weight of these justifications on the one hand and the conditions of liability on the other. (3) In extraordinary cases, liability may instead be reduced. Art. 7:102. Defences against strict liability (1) Strict liability can be excluded or reduced if the injury was caused by an unforeseeable and irresistible a) force of nature (force majeure), or b) conduct of a third party. (2) Whether strict liability is excluded or reduced, and if so, to what extent, depends upon the weight of the external influence on the one hand and the scope of liability (Article 3:201) on the other. (3) When reduced according to paragraph (1)(b), strict liability and any liability of the third party are solidary in accordance with Article 9:101 (1)(b). Chapter 8. Contributory conduct or activity Art. 8:101. Contributory conduct or activity of the victim (1) Liability can be excluded or reduced to such extent as is considered just ­having regard to the victim’s contributory fault and to any other matters which would be relevant to establish or reduce liability of the victim if he were the tortfeasor. (2) Where damages are claimed with respect to the death of a person, his conduct or activity excludes or reduces liability according to para. 1. (3) The contributory conduct or activity of an auxiliary of the victim excludes or reduces the damages recoverable by the latter according to para. 1. TITLE V. Multiple Tortfeasors Chapter 9. Multiple Tortfeasors Art 9:101. Solidary and several liability: relation between victim and multiple tortfeasors (1) Liability is solidary where the whole or a distinct part of the damage suffered by the victim is attributable to two or more persons. Liability is solidary where: a) a person knowingly participates in or instigates or encourages wrongdoing by others which causes damage to the victim; or b) one person’s independent behaviour or activity causes damage to the victim and the same damage is also attributable to another person. c) a person is responsible for damage caused by an auxiliary in circumstances where the auxiliary is also liable. (2) Where persons are subject to solidary liability, the victim may claim full compensation from any one or more of them, provided that the victim may not recover more than the full amount of the damage suffered by him.

1606  Part III: Common Principles (3) Damage is the same damage for the purposes of paragraph (1)(b) above when there is no reasonable basis for attributing only part of it to each of a number of persons liable to the victim. For this purpose it is for the person asserting that the damage is not the same to show that it is not. Where there is such a basis, liability is several, that is to say, each person is liable to the victim only for the part of the damage attributable to him. Art 9:102. Relation between persons subject to solidary liability (1) A person subject to solidary liability may recover a contribution from any other person liable to the victim in respect of the same damage. This right is without prejudice to any contract between them determining the allocation of the loss or to any statutory provision or to any right to recover by reason of subrogation [cessio legis] or on the basis of unjust enrichment. (2) Subject to paragraph (3) of this Article, the amount of the contribution shall be what is considered just in the light of the relative responsibility for the damage of the persons liable, having regard to their respective degrees of fault and to any other matters which are relevant to establish or reduce their liability. A contribution may amount to full indemnification. If it is not possible to determine the relative responsibility of the persons liable they are to be treated as equally responsible. (3) Where a person is liable for damage done by an auxiliary under Article 9:101 he is to be treated as bearing the entire share of the responsibility attributable to the auxiliary for the purposes of contribution between him and any tortfeasor other than the auxiliary. (4) The obligation to make contribution is several, that is to say, the person subject to it is liable only for his apportioned share of responsibility for the damage under this Article; but where it is not possible to enforce a judgment for contribution against one person liable his share is to be reallocated among the other persons liable in proportion to their responsibility. TITLE VI. Remedies Chapter 10. Damages Section 1. Damages in general Art. 10:101. Nature and purpose of damages Damages are a money payment to compensate the victim, that is to say, to restore him, so far as money can, to the position he would have been in if the wrong complained of had not been committed. Damages also serve the aim of preventing harm. Art. 10:102. Lump sum or periodical payments Damages are awarded in a lump sum or as periodical payments as appropriate with particular regard to the interests of the victim.

Principles of European Tort Law 1607 Art. 10:103. Benefits gained through the damaging event When determining the amount of damages benefits which the injured party gains through the damaging event are to be taken into account unless this cannot be ­reconciled with the purpose of the benefit. Art. 10:104. Restoration in kind Instead of damages, restoration in kind can be claimed by the injured party as far as it is possible and not too burdensome to the other party. Section 2. Pecuniary damage Art. 10:201. Nature and determination of pecuniary damage Recoverable pecuniary damage is a diminution of the victim’s patrimony caused by the damaging event. Such damage is generally determined as concretely as possible but it may be determined abstractly when appropriate, for example by reference to a market value. Art. 10:202. Personal injury and death (1) In the case of personal injury, which includes injury to bodily health and to mental health amounting to a recognised illness, pecuniary damage includes loss of income, impairment of earning capacity (even if unaccompanied by any loss of income) and reasonable expenses, such as the cost of medical care. (2) In the case of death, persons such as family members whom the deceased maintained or would have maintained if death had not occurred are treated as having suffered recoverable damage to the extent of loss of that support. Art. 10:203. Loss, destruction and damage of things (1) Where a thing is lost, destroyed or damaged, the basic measure of damages is the value of the thing or the diminution in its value and for this purpose it is irrelevant whether the victim intends to replace or repair the thing. However, if the victim has replaced or repaired it (or will do so), he may recover the higher expenditure thereby incurred if it is reasonable to do so. (2) Damages may also be awarded for loss of use of the thing, including consequential losses such as loss of business. Section 3. Non-pecuniary damage Art. 10:301. Non-pecuniary damage (1) Considering the scope of its protection (Article 2:102), the violation of an interest may justify compensation of non-pecuniary damage. This is the case in particular where the victim has suffered personal injury; or injury to human dignity, liberty, or other personality rights. Non-pecuniary damage

1608  Part III: Common Principles can also be the subject of compensation for persons having a close relationship with a victim suffering a fatal or very serious non-fatal injury. (2) In general, in the assessment of such damages, all circumstances of the case, including the gravity, duration and consequences of the grievance, have to be taken into account. The degree of the tortfeasor’s fault is to be taken into account only where it significantly contributes to the grievance of the victim. (3) In cases of personal injury, non-pecuniary damage corresponds to the ­suffering of the victim and the impairment of his bodily or mental health. In assessing damages (including damages for persons having a close relationship to deceased or seriously injured victims) similar sums should be awarded for objectively similar losses. Section 4. Reduction of damages Art. 10:401. Reduction of damages In an exceptional case, if in light of the financial situation of the parties full compensation would be an oppressive burden to the defendant, damages may be reduced. In deciding whether to do so, the basis of liability (Article 1:101), the scope of protection of the interest (Article 2:102) and the magnitude of the damage have to be taken into account in particular.

Principles of European Trust Law* Article I Main characteristics of the trust (1) In a trust, a person called the “trustee” owns assets segregated from his private patrimony and must deal with those assets (the “trust fund”) for the benefit of another person called the “beneficiary” or for the furtherance of a purpose. (2) There can be more than one trustee and more than one beneficiary; a trustee may himself be one of the beneficiaries. (3) The separate existence of the trust fund entails its immunity from claims by the trustee’s spouse, heirs and personal creditors. (4) In respect of the separate trust fund a beneficiary has personal rights and may also have proprietary rights against the trustee and against third parties to whom any part of the fund has been wrongfully transferred. Article II Creation of the trust The general rule is that in order to create a trust a person called the “settlor” in his lifetime or on death must, with the intention of creating a segregated trust fund, transfer assets to the trustee. However, it may also be possible for a settlor to create a trust by making it clear that he is to be trustee of particular assets of his. Article III Trust fund (1) The trust fund consists not only of the original assets and those subsequently added, but also of those assets from time to time representing the original or added assets. (2) The trust fund is not available to satisfy claims made against the trustee in his personal capacity. Except to the extent that the settlor’s creation of the trust contravenes laws protecting his creditors, spouse or heirs, the trust fund is available only for claims made by creditors dealing with the trustee in his

*  This text is published in D.J. Hayton, S.C.J.J. Kortmann, H.L.E. Verhagen, Principles of European Trust Law; The Hague 1999.

1610  Part III: Common Principles capacity as such and, subject thereto, for claims of the beneficiaries or the enforcer, who is an office holder entitled to enforce a trust for purposes. (3) A trustee of several trusts must keep each trust fund not only segregated from his private patrimony but also from each of the other trust funds, except to the extent that the terms of the trusts otherwise permit. Article IV Trusts for beneficiaries or for enforceable purposes (1) Upon creating a trust, the settlor must designate ascertained or ascertainable persons as beneficiaries to whom the trustee’s obligations in respect of the trust fund are owed or will be owed, or must designate purposes in respect of which there is an enforcer. (2) To the extent that the settlor fails to create rights affecting the whole of the trust fund the trustee will own the assets for the benefit of the settlor or his successors. (3) Any beneficiary, or any enforcer of a trust for purposes, has a right to information needed to protect his interest and to ensure that the trustee accounts to him. (4) Subject to the terms of the trust, a beneficiary can make a disposition of his rights. (5) Any beneficiary, or any enforcer of a trust for purposes, has the right to seek judicial enforcement of the terms of the trust. Article V Trustees’ duties and powers (1) The trustee must exercise his rights as owner in accordance with the law and the terms of the trust. (2) The fundamental duty of a trustee is to adhere to the terms of the trust, to take reasonable care of the trust assets and to act in the best interests of the beneficiaries or, in the case of a trust for purposes, the furtherance of those purposes. (3) A trustee must keep separate and protect the trust assets, must maintain accurate accounts and must provide the beneficiaries and the enforcer with information requested to protect their interests. (4) Except to the extent otherwise permitted by the terms of the trust or by law, a trustee must personally perform his functions. He must act honestly and he must avoid all conflicts of interest unless otherwise authorised. (5) A trustee is accountable for the trust fund, must personally make good any loss occasioned to the trust fund by his breach of trust and must personally augment such fund by the amount of any profits made by him in breach of his duty.

Principles of European Trust Law 1611 Article VI Remedies against trustees for breach of trust Remedies that the court can provide against a trustee for breach of trust include an order restraining particular conduct or removing the trustee from his office and replacing him or decreeing payment of compensation for losses or restitution of profits. The court may also have power to declare that particular assets of the trustee have always been part of the trust fund and never became part of his private patrimony or are to be regarded as security for satisfying his liability. Article VII Liabilities of third parties Where a trustee wrongfully transfers part of the trust fund to a transferee who is not protected as a purchaser in good faith or otherwise, the transferee must make good the loss to the trust fund or may be ordered to hold the assets so transferred (or assets representing them) as part of the trust fund separate from his private patrimony or as security for satisfying his liability. This liability may extend to any subsequent transferee who is not protected as a purchaser in good faith or otherwise. Article VIII Termination of a trust (1) Notwithstanding the terms of the trust, where all the beneficiaries are in existence, have been ascertained, and are of full capacity, then, if all such beneficiaries are in agreement, they can require the trustee to terminate the trust and distribute the trust fund between themselves and their nominees as they direct. However, if some material purpose of the settlor remains to be served then the beneficiaries may not be permitted to terminate the trust. (2) A trust terminates (a) by virtue of all the trust fund having been distributed to beneficiaries or having been used for trust purposes or (b) by virtue of there being no beneficiaries and no person, whether or not then in existence, who can become a beneficiary in accordance with the terms of the trust, or (c) by virtue of a person exercising a power of termination. (3) At the close of the permitted period for the duration of the trust (subject to the trustee retaining sufficient assets to make reasonable provision for possible liabilities) the trust fund shall be distributed by the trustee as soon as reasonably practicable in accordance with any terms of the trust setting out how the trust fund should then be distributed. However, if there are no such terms then the trust fund shall be owned by the trustee for the benefit of the settlor or his successors. (4) In the case of a trust for purposes, where such purposes have been fulfilled so far as possible or cannot now be carried out, then the trust fund shall be owned by the trustee for the benefit of the settlor or his successors, unless the terms of the trust are varied or extended.

Principles of European Family Law Regarding Divorce and Maintenance Between Former Spouses1 PART I: DIVORCE CHAPTER I: GENERAL PRINCIPLES Principle 1:1  Permission of divorce (1) The law should permit divorce. (2) No duration of the marriage should be required. Principle 1:2  Procedure by law and competent authority (1) The divorce procedure should be determined by law. (2) Divorce should be granted by the competent authority which can either be a judicial or an administrative body. Principle 1:3  Types of divorce The law should permit both divorce by mutual consent and divorce without consent of one of the spouses. CHAPTER II: DIVORCE BY MUTUAL CONSENT Principle 1:4  Mutual consent (1) Divorce should be permitted upon the basis of the spouses’ mutual consent. No period of factual separation should be required. (2) Mutual consent is to be understood as an agreement between the spouses that their marriage should be dissolved. (3) This agreement may be expressed either by a joint application of the spouses or by an application by one spouse with the acceptance of the other spouse.

1  Prepared by the Commission on European Family Law; ed. K Boele-Woelki, F Farrand, C Gonzales Beilfuss, M Jantera-Jareborg, N Lowe, D Martiny and W Pintens (Intersentia, 2004).

Principles of European Family Law Regarding Divorce 1613 Principle 1:5  Reflection period (1) If, at the commencement of the divorce proceedings, the spouses have ­children under the age of sixteen years and they have agreed upon all the consequences of the divorce as defined by Principle 1:6, a three-month period of reflection shall be required. If they have not agreed upon all the consequences, then a six-month period shall be required. (2) If, at the commencement of the divorce proceedings, the spouses have no children under the age of sixteen years and they have agreed upon all the consequences of the divorce as defined by Principle 1:6(d) and (e), no period of reflection shall be required. If they have not agreed upon all the consequences, a three-month period of reflection shall be required. (3) No period of reflection shall be required, if, at the commencement of the divorce proceedings, the spouses have been factually separated for six months. Principle 1:6  Content and form of the agreement (1) The consequences upon which the spouses should have reached an agreement are: (a) their parental responsibility, where necessary, including the residence of and the contact arrangements for the children, (b) child maintenance, where necessary, (c) the division or reallocation of property, and (d) spousal maintenance. (2) Such an agreement should be in writing. Principle 1:7  Determination of the consequences (1) In all cases the competent authority should determine the consequences for the children as mentioned in Principle 1:6(a) and (b), but any admissible agreement of the spouses should be taken into account insofar as it is ­consistent with the best interests of the child. (2) The competent authority should at least scrutinise the validity of the agreement on the matters mentioned in Principle 1:6(c) and (d). (3) If the spouses have not made an agreement or reached only a partial agreement on the matters mentioned in Principle 1:6(c) and (d), the competent authority may determine these consequences. CHAPTER III: DIVORCE WITHOUT THE CONSENT OF ONE OF THE SPOUSES Principle 1:8  Factual separation The divorce should be permitted without consent of one of the spouses if they have been factually separated for one year.

1614  Part III: Common Principles Principle 1:9  Exceptional hardship to the petitioner In cases of exceptional hardship to the petitioner the competent authority may grant a divorce where the spouses have not been factually separated for one year. Principle 1:10  Determination of the consequences (1) Where necessary, the competent authority should determine: (a) parental responsibility, including residence and contact arrangements for the children, and (b) child maintenance. Any admissible agreement of the spouses should be taken into account insofar as it is consistent with the best interests of the child. (2) On or after granting the divorce the competent authority may determine the economic consequences for the spouses taking into account any admissible agreement made between them. PART II: MAINTENANCE BETWEEN FORMER SPOUSES CHAPTER I: GENERAL PRINCIPLES Principle 2:1  Relationship between maintenance and divorce Maintenance between former spouses should be subject to the same rules regardless of the type of divorce. Principle 2:2  Self sufficiency Subject to the following Principles, each spouse should provide for his or her own support after divorce. CHAPTER II: CONDITIONS FOR THE ATTRIBUTION OF MAINTENANCE Principle 2:3  Conditions for maintenance Maintenance after divorce should be dependent upon the creditor spouse having insufficient resources to meet his or her needs and the debtor spouse’s ability to satisfy those needs. Principle 2:4  Determining claims for maintenance In determining a claim for maintenance, account should be taken in particular of factors such as: —— —— —— —— —— ——

the spouses’ employment ability, age and health; the care of children; the division of duties during the marriage; the duration of the marriage; the standard of living during the marriage and any new marriage or long-term relationship.

Principles of European Family Law Regarding Divorce 1615 Principle 2:5  Method of maintenance provision (1) Maintenance should be provided at regular intervals and in advance (2) The competent authority may order a lump sum payment upon request of either or both spouses taking into account the circumstances of the case. Principle 2:6  Exceptional hardship In cases of exceptional hardship to the debtor spouse the competent authority may deny, limit or terminate maintenance because of the creditor spouse’s conduct. CHAPTER III: SPECIFIC ISSUES Principle 2:7  Multiplicity of maintenance claims In determining the debtor spouse’s ability to satisfy the needs of the creditor spouse, the competent authority should (a) give priority to any maintenance claim of a minor child of the debtor spouse; (b) take into account any obligation of the debtor spouse to maintain a new spouse. Principle 2:8  Limitation in time The competent authority should grant maintenance for a limited period, but exceptionally may do so without time limit. Principle 2:9  Termination of the maintenance obligation (1) The maintenance obligation should cease if the creditor spouse remarries or establishes a long-term relationship. (2) After its cessation according to paragraph 1 the maintenance obligation does not revive if the new marriage or long-term relationship ends. (3) The maintenance obligation should cease upon the death of either the creditor or the debtor spouse. Principle 2:10  Maintenance agreement (1) Spouses should be permitted to make an agreement about maintenance after divorce. The agreement may concern the extent, performance, duration and termination of the maintenance obligation and the possible renouncement of the claim to maintenance. (2) Such an agreement should be in writing. (3) Notwithstanding paragraph 1, the competent authority should at least ­scrutinise the validity of the maintenance agreement.

Principles of European Family Law Regarding Parental Responsibilities1 PREAMBLE Recognising that, notwithstanding the existing diversities of national family law systems, there is nevertheless a growing convergence of laws; Recognising that the free movement of persons within Europe is hindered by the remaining differences; Desiring to contribute to common European values regarding the child’s rights and welfare; Desiring to contribute to the harmonisation of family law in Europe and to further facilitate the free movement of persons within Europe; The Commission on European Family Law recommends the following Principles: CHAPTER I: DEFINITIONS Principle 3:1  Concept of parental responsibilities Parental responsibilities are a collection of rights and duties aimed at promoting and safeguarding the welfare of the child. They encompass in particular: (a) (b) (c) (d) (e)

care, protection and education; maintenance of personal relationships; determination of residence; administration of property, and legal representation. Principle 3:2  Holder of parental responsibilities

(1) A holder of parental responsibilities is any person having the rights and duties listed in Principle 3:1 either in whole or in part. (2) Subject to the following Principles, holders of parental responsibilities are: (a) the child’s parents, as well as (b) persons other than the child’s parents having parental responsibilities in addition to or instead of the parents. 1  Prepared by the Commission on European Family Law; ed. K Boele-Woelki, F Farrand, C Gonzales Beilfuss, M Jantera-Jareborg, N Lowe, D Martiny and W Pintens (Intersentia, 2007).

Principles of European Family Law Regarding Parental Responsibilities 1617 CHAPTER II: RIGHTS OF THE CHILD Principle 3:3  Best interests of the child In all matters concerning parental responsibilities the best interests of the child should be the primary consideration. Principle 3:4  Autonomy of the child The child’s autonomy should be respected in accordance with the developing ability and need of the child to act independently. Principle 3:5  Non-discrimination of the child Children should not be discriminated on grounds such as sex, race, colour, language, religion, political or other opinion, national, ethnic or social origin, sexual orientation, disability, property, birth or other status, irrespective of whether these grounds refer to the child or to the holders of parental responsibilities. Principle 3:6  Child’s right to be heard Having regard to the child’s age and maturity, the child should have the right to be informed, consulted and to express his or her opinion in all matters concerning the child, with due weight given to the views expressed by him or her. Principle 3:7  Conflict of interests The interests of the child should be protected whenever they may be in conflict with the interests of the holders of parental responsibilities. CHAPTER III: PARENTAL RESPONSIBILITIES OF PARENTS AND THIRD PERSONS Principle 3:8  Parents Parents, whose legal parentage has been established, should have parental responsibilities for the child. Principle 3:9  Third persons Parental responsibilities may in whole or in part also be attributed to a person other than a parent. Principle 3:10  Effect of dissolution and separation Parental responsibilities should neither be affected by the dissolution or annulment of the marriage or other formal relationship nor by the legal or factual separation between the parents.

1618  Part III: Common Principles CHAPTER IV: EXERCISE OF PARENTAL RESPONSIBILITIES SECTION A: PARENTS Principle 3:11  Joint exercise Parents having parental responsibilities should have an equal right and duty to exercise such responsibilities and whenever possible they should exercise them jointly. Principle 3:12  Daily matters, important and urgent decisions (1) Parents having joint parental responsibilities should have the right to act alone with respect to daily matters. (2) Important decisions concerning matters such as education, medical treatment, the child’s residence, or the administration of his or her property should be taken jointly. In urgent cases a parent should have the right to act alone. The other parent should be informed without undue delay. Principle 3:13  Agreement on exercise (1) Subject to the best interests of the child, parents having joint parental responsibilities may agree on the exercise of parental responsibilities. (2) The competent authority may scrutinize the agreement. Principle 3:14  Disagreement on exercise (1) Where parents having joint parental responsibilities cannot agree on an important matter they may apply to the competent authority. (2) The competent authority should promote agreement between the parents. (3) Where agreement cannot be reached the competent authority should divide the exercise of parental responsibilities between the parents or decide the dispute. Principle 3:15  Sole exercise upon agreement or decision Subject to the best interests of the child a parent may exercise parental responsibilities alone (a) upon agreement between the parents according to Principle 3:13, or (b) upon a decision of the competent authority. Principle 3:16  Exercise by one parent If only one parent has parental responsibilities he or she should exercise them alone.

Principles of European Family Law Regarding Parental Responsibilities 1619 SECTION B: THIRD PERSONS Principle 3:17  Exercise in addition to or instead of the parents A person other than a parent may exercise some or all parental responsibilities in addition to or instead of the parents. Principle 3:18  Decisions in daily matters The parent’s partner living with the child may take part in decisions with respect to daily matters unless the other parent having parental responsibilities objects. CHAPTER V: CONTENT OF PARENTAL RESPONSIBILITIES SECTION A: THE CHILD’S PERSON AND PROPERTY Principle 3:19  Care, protection and education (1) The holders of parental responsibilities should provide the child with care, protection and education in accordance with the child’s distinctive character and developmental needs. (2) The child should not be subjected to corporal punishment or any other humiliating treatment. Principle 3:20  Residence (1) If parental responsibilities are exercised jointly the holders of parental responsibilities who are living apart should agree upon with whom the child resides. (2) The child may reside on an alternate basis with the holders of parental responsibilities upon either an agreement approved by a competent authority or a decision by a competent authority. The competent authority should take into consideration factors such as: (a) the age and opinion of the child; (b) the ability and willingness of the holders of parental responsibilities to cooperate with each other in matters concerning the child, as well as their personal situation; (c) the distance between the residences of the holders of the parental responsibilities and to the child’s school. Principle 3:21  Relocation (1) If parental responsibilities are exercised jointly and one of the holders of parental responsibilities wishes to change the child’s residence within or outside the jurisdiction, he or she should inform the other holder of parental responsibilities thereof in advance. (2) If the other holder of parental responsibilities objects to the change of the child’s residence, each of them may apply to the competent authority for a decision. (3) The competent authority should take into consideration factors such as:

1620  Part III: Common Principles (a) the age and opinion of the child; (b) the right of the child to maintain personal relationships with the other holders of parental responsibilities; (c) the ability and willingness of the holders of parental responsibilities to cooperate with each other; (d) the personal situation of the holders of personal responsibilities; (e) the geographical distance and accessibility; (f) the free movement of persons. Principle 3:22  Administration of the child’s property (1) The holders of parental responsibilities should administer the child’s property with due care and diligence in order to preserve and where possible increase the value of the property. (2) In administering the child’s property the holders of parental responsibilities should not make gifts unless the gifts are deemed to be made under a moral obligation. (3) The income derived from the child’s property which is not needed for the proper management of the property or for the maintenance and education of the child may, where necessary, be used for the needs of the family. Principle 3:23  Restrictions (1) The holders of parental responsibilities should not administer property acquired by a child through a testamentary disposition or a gift, if the testator or the donor so instructed. (2) Similarly the earnings by the child should not be administered by the holders of parental responsibilities unless the child is not of sufficient age and maturity to decide himself or herself. (3) Where transactions can have significant financial consequences for the child the authorisation of the competent authority should be necessary. Principle 3:24  Legal representation (1) The holders of parental responsibilities should legally represent the child in matters concerning the child’s person or property. (2) Legal representation should not take place where there is a conflict of interest between the child and the holders of parental responsibilities. (3) Having regard to the child’s age and maturity, the child should have the right to self-representation in legal proceedings concerning himself or herself. SECTION B: MAINTENANCE OF PERSONAL RELATIONSHIPS Principle 3:25  Contact with parents and other persons (1) The child and the parents should have the right to obtain and maintain regular contact with each other. (2) Contact should be established between the child and his or her close relatives.

Principles of European Family Law Regarding Parental Responsibilities 1621 (3) Contact may be established between the child and persons with whom the child has close personal relations. Principle 3:26  Content of contact (1) Contact comprises the child staying for a limited period of time with or meeting a parent or person other than a parent with whom he or she is not usually living; and any form of communication between the child and such person. (2) Such contact should be in the best interests of the child. Principle 3:27  Agreement (1) Subject to the best interests of the child, the parents and the other persons identified under Principle 3:25(2) and (3) may agree on contact. (2) The competent authority may scrutinize the agreement. Principle 3:28  Restrictions Contact may be restricted, terminated or made subject to conditions by the competent authority if the best interests of the child so require. Principle 3:29  Information to parents A parent should have the right to be informed about matters concerning the personal situation of the child. CHAPTER VI: TERMINATION OF PARENTAL RESPONSIBILITIES Principle 3:30  Termination (1) Parental responsibilities should be terminated in the case of the child: (a) reaching majority; (b) entering into a marriage or registered partnership; (c) being adopted; (d) dying. (2) If a parent’s partner adopts the child of the parent the parental responsibilities in relation to the other parent should be terminated. Principle 3:31  Death of the parents (1) If parents have joint parental responsibilities and one of them dies the parental responsibilities should belong to the surviving parent. (2) If a parent having sole parental responsibilities dies, responsibilities should be attributed to the surviving parent or a third person upon a decision by the competent authority. (3) On the death of both parents, of whom at least one parent had parental responsibilities, the competent authority should take protective measures in respect of the person and the property of the child.

1622  Part III: Common Principles CHAPTER VII: DISCHARGE AND RESTORATION OF PARENTAL RESPONSIBILITIES Principle 3:32  Discharge of parental responsibilities The competent authority should discharge the holder of parental responsibilities, wholly or in part, where his or her behaviour or neglect causes a serious risk to the person or the property of the child. Principle 3:33  Request for discharge of parental responsibilities (1) The discharge of parental responsibilities may be requested by: (a) any parent having parental responsibilities; (b) the child, and (c) any institution protecting the interests of the child. (2) The competent authority may also order the discharge of parental responsibilities of its own motion. Principle 3:34  Restoration of parental responsibilities Having regard to the best interests of the child, the competent authority may restore parental responsibilities if the circumstances that led to the discharge no longer exist. CHAPTER VIII: PROCEDURE Principle 3:35  Competent authority (1) All decisions on parental responsibilities should be taken by the competent authority which can either be a judicial or an administrative body. (2) Where necessary, the competent authority should appoint any suitable person or body to investigate the child’s circumstances. Principle 3:36  Alternative dispute resolution In all disputes regarding parental responsibilities alternative dispute resolution mechanisms should be available. Principle 3:37  Hearing of the child (1) Subject to Principle 3:6, the competent authority should hear the child in all proceedings concerning parental responsibilities but if it decides not to hear the child it should give specific reasons. (2) The hearing of the child should take place either directly before the competent authority or indirectly before a person or body appointed by the competent authority. (3) The child should be heard in a manner appropriate to his or her age and maturity.

Principles of European Family Law Regarding Parental Responsibilities 1623 Principle 3:38  Appointment of a special representative for the child In proceedings concerning parental responsibilities in which there could either be a serious conflict of interests between the child and the holders of parental responsibili­ ties or in which the welfare of the child is otherwise at risk, the competent authority should appoint a special representative for the child. Principle 3:39  Enforcement (1) Failing voluntary compliance, a decision by the competent authority and an enforceable agreement concerning parental responsibilities should be enforced without delay. (2) Enforcement should not take place if it is manifestly contrary to the best interests of the child.

ALI / UNIDROIT Principles of Transnational Civil Procedure* Scope and Implementation These Principles are standards for adjudication of transnational commercial ­disputes. These Principles may be equally appropriate for the resolution of most other kinds of civil disputes and may be the basis for future initiatives in reforming civil procedure. 1. Independence, Impartiality, and Qualifications of the Court and Its Judges 1.1  The court and the judges should have judicial independence to decide the ­dispute according to the facts and the law, including freedom from improper internal and external influence. 1.2 Judges should have reasonable tenure in office. Nonprofessional members of the court should be designated by a procedure assuring their independence from the parties, the dispute, and other persons interested in the resolution. 1.3 The court should be impartial. A judge or other person having decisional authority must not participate if there is reasonable ground to doubt such person’s impartiality. There should be a fair and effective procedure for addressing contentions of judicial bias. 1.4  Neither the court nor the judge should accept communications about the case from a party in the absence of other parties, except for communications concerning proceedings without notice and for routine procedural administration. When communication between the court and a party occurs in the absence of another party, that party should be promptly advised of the content of the communication. 1.5  The court should have substantial legal knowledge and experience.

*  Prepared and adopted by the American Law Institute (ALI) and the International Institute for the Unification of Private Law (UNIDROIT) (2004).

ALI / UNIDROIT Principles of Transnational Civil Procedure 1625 2. Jurisdiction Over Parties 2.1  Jurisdiction over a party may be exercised: 2.1.1  By consent of the parties to submit the dispute to the tribunal; 2.1.2  When there is a substantial connection between the forum state and the party or the transaction or occurrence in dispute. A substantial connection exists when a significant part of the transaction or occurrence occurred in the forum state, when an individual defendant is a habitual resident of the forum state or a jural entity has received its charter of organization or has its principal place of business therein, or when property to which the dispute relates is located in the forum state. 2.2  Jurisdiction may also be exercised, when no other forum is reasonably available, on the basis of: 2.2.1  Presence or nationality of the defendant in the forum state; or 2.2.2  Presence in the forum state of the defendant’s property, whether or not the dispute relates to the property, but the court’s authority should be limited to the property or its value. 2.3  A court may grant provisional measures with respect to a person or to property in the territory of the forum state, even if the court does not have jurisdiction over the controversy. 2.4  Exercise of jurisdiction must ordinarily be declined when the parties have previously agreed that some other tribunal has exclusive jurisdiction. 2.5 Jurisdiction may be declined or the proceeding suspended when the court is manifestly inappropriate relative to another more appropriate court that could ­exercise jurisdiction. 2.6  The court should decline jurisdiction or suspend the proceeding, when the dispute is previously pending in another court competent to exercise jurisdiction, unless it appears that the dispute will not be fairly, effectively, and expeditiously resolved in that forum. 3. Procedural Equality of the Parties 3.1 The court should ensure equal treatment and reasonable opportunity for ­litigants to assert or defend their rights. 3.2 The right to equal treatment includes avoidance of any kind of illegitimate discrimination, particularly on the basis of nationality or residence. The court ­ should take into account difficulties that might be encountered by a foreign party in participating in litigation. 3.3  A person should not be required to provide security for costs, or security for ­liability for pursuing provisional measures, solely because the person is not a national or resident of the forum state.

1626  Part III: Common Principles 3.4  Whenever possible, venue rules should not impose an unreasonable burden of access to court on a person who is not a habitual resident of the forum. 4. Right to Engage a Lawyer 4.1  A party has the right to engage a lawyer of the party’s choice, including both representation by a lawyer admitted to practice in the forum and active assistance before the court of a lawyer admitted to practice elsewhere. 4.2  The lawyer’s professional independence should be respected. A lawyer should be permitted to fulfill the duty of loyalty to a client and the responsibility to maintain client confidences. 5. Due Notice and Right to be Heard 5.1  At the commencement of a proceeding, notice, provided by means that are reasonably likely to be effective, should be directed to parties other than the plaintiff. The notice should be accompanied by a copy of the complaint or otherwise include the allegations of the complaint and specification of the relief sought by plaintiff. A party against whom relief is sought should be informed of the procedure for response and the possibility of default judgment for failure to make timely response. 5.2  The documents referred to in Principle 5.1  must be in a language of the forum, and also a language of the state of an individual’s habitual residence or a jural e­ ntity’s principal place of business, or the language of the principal documents in the transaction. Defendant and other parties should give notice of their defenses and other contentions and requests for relief in a language of the proceeding, as provided in Principle 6. 5.3  After commencement of the proceeding, all parties should be provided prompt notice of motions and applications of other parties and determinations by the court. 5.4  The parties have the right to submit relevant contentions of fact and law and to offer supporting evidence. 5.5  A party should have a fair opportunity and reasonably adequate time to respond to contentions of fact and law and to evidence presented by another party, and to orders and suggestions made by the court. 5.6 The court should consider all contentions of the parties and address those ­concerning substantial issues. 5.7  The parties may, by agreement and with approval of the court, employ expedited means of communications, such as telecommunication. 5.8  An order affecting a party’s interests may be made and enforced without giving previous notice to that party only upon proof of urgent necessity and preponderance of considerations of fairness. An ex parte order should be proportionate to the interests that the applicant seeks to protect. As soon as practicable, the affected party should be given notice of the order and of the matters relied upon to support it, and should have the right to apply for a prompt and full reconsideration by the court.

ALI / UNIDROIT Principles of Transnational Civil Procedure 1627 6. Languages 6.1 The proceedings, including documents and oral communication, ordinarily should be conducted in a language of the court. 6.2  The court may allow use of other languages in all or part of the proceeding if no prejudice to a party will result. 6.3  Translation should be provided when a party or witness is not competent in the language in which the proceeding is conducted. Translation of lengthy or voluminous documents may be limited to portions, as agreed by the parties or ordered by the court. 7. Prompt Rendition of Justice 7.1  The court should resolve the dispute within a reasonable time. 7.2 The parties have a duty to cooperate and a right of reasonable consultation concerning scheduling. Procedural rules and court orders may prescribe reasonable time schedules and deadlines and impose sanctions on the parties or their lawyers for noncompliance with such rules and orders that is not excused by good reason. 8. Provisional and Protective Measures 8.1  The court may grant provisional relief when necessary to preserve the ability to grant effective relief by final judgment or to maintain or otherwise regulate the status quo. Provisional measures are governed by the principle of proportionality. 8.2  A court may order provisional relief without notice only upon urgent necessity and preponderance of considerations of fairness. The applicant must fully disclose facts and legal issues of which the court properly should be aware. A person against whom ex parte relief is directed must have the opportunity at the earliest practicable time to respond concerning the appropriateness of the relief. 8.3  An applicant for provisional relief should ordinarily be liable for compensation of a person against whom the relief is issued if the court thereafter determines that the relief should not have been granted. In appropriate circumstances, the court must require the applicant for provisional relief to post a bond or formally to assume a duty of compensation. 9. Structure of the Proceedings 9.1  A proceeding ordinarily should consist of three phases: the pleading phase, the interim phase, and the final phase. 9.2  In the pleading phase the parties must present their claims, defenses, and other contentions in writing, and identify their principal evidence. 9.3  In the interim phase the court should if necessary: 9.3.1  Hold conferences to organize the proceeding;

1628  Part III: Common Principles 9.3.2  Establish the schedule outlining the progress of the proceeding; 9.3.3 Address the matters appropriate for early attention, such as questions of ­jurisdiction, provisional measures, and statute of limitations (prescription); 9.3.4  Address availability, admission, disclosure, and exchange of evidence; 9.3.5  Identify potentially dispositive issues for early determination of all or part of the dispute; and 9.3.6  Order the taking of evidence. 9.4 In the final phase evidence not already received by the court according to ­Principle 9.3.6 ordinarily should be presented in a concentrated final hearing at which the parties should also make their concluding arguments. 10. Party Initiative and Scope of the Proceeding 10.1  The proceeding should be initiated through the claim or claims of the plaintiff, not by the court acting on its own motion. 10.2  The time of lodging the complaint with the court determines compliance with statutes of limitation, lis pendens, and other requirements of timeliness. 10.3  The scope of the proceeding is determined by the claims and defenses of the parties in the pleadings, including amendments. 10.4  A party, upon showing good cause, has a right to amend its claims or defenses upon notice to other parties, and when doing so does not unreasonably delay the proceeding or otherwise result in injustice. 10.5  The parties should have a right to voluntary termination or modification of the proceeding or any part of it, by withdrawal, admission, or settlement. A party should not be permitted unilaterally to terminate or modify the action when ­prejudice to another party would result. 11. Obligations of the Parties and Lawyers 11.1  The parties and their lawyers must conduct themselves in good faith in dealing with the court and other parties. 11.2  The parties share with the court the responsibility to promote a fair, efficient, and reasonably speedy resolution of the proceeding. The parties must refrain from procedural abuse, such as interference with witnesses or destruction of evidence. 11.3 In the pleading phase, the parties must present in reasonable detail the relevant facts, their contentions of law, and the relief requested, and describe with sufficient specification the available evidence to be offered in support of their allegations. When a party shows good cause for inability to provide reasonable details of relevant facts or sufficient specification of evidence, the court should give due regard to the possibility that necessary facts and evidence will develop later in the course of the proceeding.

ALI / UNIDROIT Principles of Transnational Civil Procedure 1629 11.4  A party’s unjustified failure to make a timely response to an opposing party’s contention may be taken by the court, after warning the party, as a sufficient basis for considering that contention to be admitted or accepted. 11.5 Lawyers for parties have a professional obligation to assist the parties in observing their procedural obligations. 12. Multiple Claims and Parties; Intervention 12.1  A party may assert any claim substantially connected to the subject matter of the proceeding against another party or against a third person subject to the jurisdiction of the court. 12.2  A person having an interest substantially connected with the subject matter of the proceeding may apply to intervene. The court itself, or on motion of a party, may require notice to a person having such an interest, inviting intervention. Intervention may be permitted unless it would result in unreasonable delay or confusion of the proceeding or otherwise unfairly prejudice a party. Forum law may permit ­intervention in second-instance proceedings. 12.3 When appropriate, the court should grant permission for a person to be ­substituted for, or to be admitted in succession to, a party. 12.4  The rights and obligations of participation and cooperation of a party added to the proceeding are ordinarily the same as those of the original parties. The extent of these rights and obligations may depend upon the basis, timing, and circumstances of the joinder or intervention. 12.5  The court may order separation of claims, issues, or parties, or consolidation with other proceedings, for fair or more efficient management and determination or in the interest of justice. The authority should extend to parties or claims that are not within the scope of these Principles. 13. Amicus Curiae Submission Written submissions concerning important legal issues in the proceeding and matters of background information may be received from third persons with the consent of the court, upon consultation with the parties. The court may invite such a submission. The parties must have the opportunity to submit written comment addressed to the matters contained in such a submission before it is considered by the court. 14. Court Responsibility for Direction of the Proceeding 14.1  Commencing as early as practicable, the court should actively manage the proceeding, exercising discretion to achieve disposition of the dispute fairly, efficiently, and with reasonable speed. Consideration should be given to the transnational ­character of the dispute. 14.2  To the extent reasonably practicable, the court should manage the proceeding in consultation with the parties.

1630  Part III: Common Principles 14.3  The court should determine the order in which issues are to be resolved, and fix a timetable for all stages of the proceeding, including dates and deadlines. The court may revise such directions. 15. Dismissal and Default Judgment 15.1 Dismissal of the proceeding ordinarily must be entered against a plaintiff who, without justification, fails to prosecute the proceeding. Before entering such a ­dismissal, the court must give plaintiff a reasonable warning thereof. 15.2  Default judgment ordinarily must be entered against a defendant or other party who, without justification, fails to appear or respond within the prescribed time. 15.3  The court in entering a default judgment must determine that: 15.3.1  There is jurisdiction over the party against whom judgment is to be entered; 15.3.2  There has been compliance with notice provisions and that the party has had sufficient time to respond; and 15.3.3 The claim is reasonably supported by available facts and evidence and is legally sufficient, including the claim for damages and any claim for costs. 15.4  A default judgment may be no greater in monetary amount or in severity of other remedy than was demanded in the complaint. 15.5  A dismissal or a default judgment is subject to appeal or rescission. 15.6  A party who otherwise fails to comply with obligations to participate in the proceeding is subject to sanctions in accordance with Principle 17. 16. Access to Information and Evidence 16.1  Generally, the court and each party should have access to relevant and nonprivileged evidence, including testimony of parties and witnesses, expert testimony, documents, and evidence derived from inspection of things, entry upon land, or, under appropriate circumstances, from physical or mental examination of a person. The parties should have the right to submit statements that are accorded evidentiary effect. 16.2  Upon timely request of a party, the court should order disclosure of relevant, nonprivileged, and reasonably identified evidence in the possession or control of another party or, if necessary and on just terms, of a nonparty. It is not a basis of objection to such disclosure that the evidence may be adverse to the party or person making the disclosure. 16.3  To facilitate access to information, a lawyer for a party may conduct a voluntary interview with a potential nonparty witness. 16.4 Eliciting testimony of parties, witnesses, and experts should proceed as ­customary in the forum. A party should have the right to conduct supplemental

ALI / UNIDROIT Principles of Transnational Civil Procedure 1631 ­ uestioning directly to another party, witness, or expert who has first been quesq tioned by the judge or by another party. 16.5  A person who produces evidence, whether or not a party, has the right to a court order protecting against improper exposure of confidential information. 16.6  The court should make free evaluation of the evidence and attach no ­unjustified significance to evidence according to its type or source. 17. Sanctions 17.1 The court may impose sanctions on parties, lawyers, and third persons for failure or refusal to comply with obligations concerning the proceeding. 17.2 Sanctions should be reasonable and proportionate to the seriousness of the matter involved and the harm caused, and reflect the extent of participation and the degree to which the conduct was deliberate. 17.3 Among the sanctions that may be appropriate against parties are: drawing adverse inferences; dismissing claims, defenses, or allegations in whole or in part; rendering default judgment; staying the proceeding; and awarding costs in addition to those permitted under ordinary cost rules. Sanctions that may be appropriate against parties and nonparties include pecuniary sanctions, such as fines and ­astreintes. Among sanctions that may be appropriate against lawyers is an award of costs. 17.4  The law of the forum may also provide further sanctions including criminal liability for severe or aggravated misconduct by parties and nonparties, such as ­submitting perjured evidence or violent or threatening behavior. 18. Evidentiary Privileges and Immunities 18.1  Effect should be given to privileges, immunities, and similar protections of a party or nonparty concerning disclosure of evidence or other information. 18.2 The court should consider whether these protections may justify a party’s failure to disclose evidence or other information when deciding whether to draw adverse inferences or to impose other indirect sanctions. 18.3 The court should recognize these protections when exercising authority to impose direct sanctions on a party or nonparty to compel disclosure of evidence or other information. 19. Oral and Written Presentations 19.1  Pleadings, formal requests (motions), and legal argument ordinarily should be presented initially in writing, but the parties should have the right to present oral argument on important substantive and procedural issues. 19.2  The final hearing must be held before the judges who are to give judgment. 19.3  The court should specify the procedure for presentation of testimony. Ordinarily, testimony of parties and witnesses should be received orally, and reports of

1632  Part III: Common Principles experts in writing; but the court may, upon consultation with the parties, require that initial testimony of witnesses be in writing, which should be supplied to the ­parties in advance of the hearing. 19.4  Oral testimony may be limited to supplemental questioning following written presentation of a witness’s principal testimony or of an expert’s report. 20. Public Proceedings 20.1 Ordinarily, oral hearings, including hearings in which evidence is presented and in which judgment is pronounced, should be open to the public. Following ­consultation with the parties, the court may order that hearings or portions thereof be kept confidential in the interest of justice, public safety, or privacy. 20.2 Court files and records should be public or otherwise accessible to persons with a legal interest or making a responsible inquiry, according to forum law. 20.3  In the interest of justice, public safety, or privacy, if the proceedings are public, the judge may order part of them to be conducted in private. 20.4  Judgments, including supporting reasons, and ordinarily other orders, should be accessible to the public. 21. Burden and Standard of Proof 21.1  Ordinarily, each party has the burden to prove all the material facts that are the basis of that party’s case. 21.2  Facts are considered proven when the court is reasonably convinced of their truth. 21.3  When it appears that a party has possession or control of relevant evidence that it declines without justification to produce, the court may draw adverse ­inferences with respect to the issue for which the evidence is probative. 22. Responsibility for Determinations of Fact and Law 22.1  The court is responsible for considering all relevant facts and evidence and for determining the correct legal basis for its decisions, including matters determined on the basis of foreign law. 22.2  The court may, while affording the parties opportunity to respond: 22.2.1  Permit or invite a party to amend its contentions of law or fact and to offer additional legal argument and evidence accordingly; 22.2.2  Order the taking of evidence not previously suggested by a party; or 22.2.3  Rely upon a legal theory or an interpretation of the facts or of the evidence that has not been advanced by a party. 22.3  The court ordinarily should hear all evidence directly, but when necessary may assign to a suitable delegate the taking and preserving of evidence for consideration by the court at the final hearing.

ALI / UNIDROIT Principles of Transnational Civil Procedure 1633 22.4  The court may appoint an expert to give evidence on any relevant issue for which expert testimony is appropriate, including foreign law. 22.4.1  If the parties agree upon an expert the court ordinarily should appoint that expert. 22.4.2  A party has a right to present expert testimony through an expert selected by that party on any relevant issue for which expert testimony is appropriate. 22.4.3  An expert, whether appointed by the court or by a party, owes a duty to the court to present a full and objective assessment of the issue addressed. 23. Decision and Reasoned Explanation 23.1  Upon completion of the parties’ presentations, the court should promptly give judgment set forth or recorded in writing. The judgment should specify the remedy awarded and, in a monetary award, its amount. 23.2 The judgment should be accompanied by a reasoned explanation of the ­essential factual, legal, and evidentiary basis of the decision. 24. Settlement 24.1  The court, while respecting the parties’ opportunity to pursue litigation, should encourage settlement between the parties when reasonably possible. 24.2 The court should facilitate parties’ participation in alternative-dispute-­ resolution processes at any stage of the proceeding. 24.3  The parties, both before and after commencement of litigation, should cooperate in reasonable settlement endeavors. The court may adjust its award of costs to reflect unreasonable failure to cooperate or bad-faith participation in settlement endeavors. 25. Costs 25.1  The winning party ordinarily should be awarded all or a substantial portion of its reasonable costs. “Costs” include court filing fees, fees paid to officials such as court stenographers, expenses such as expert-witness fees, and lawyers’ fees. 25.2  Exceptionally, the court may withhold or limit costs to the winning party when there is clear justification for doing so. The court may limit the award to a proportion that reflects expenditures for matters in genuine dispute and award costs against a winning party who has raised unnecessary issues or been otherwise unreasonably disputatious. The court in making cost decisions may take account of any party’s procedural misconduct in the proceeding. 26. Immediate Enforceability of Judgments 26.1  The final judgment of the first-instance court ordinarily should be immediately enforceable.

1634  Part III: Common Principles 26.2  The first-instance court or the appellate court, on its own motion or motion of a party, may in the interest of justice stay enforcement of the judgment pending appeal. 26.3  Security may be required from the appellant as a condition of granting a stay or from the respondent as a condition of denying a stay. 27. Appeal 27.1  Appellate review should be available on substantially the same terms as other judgments under the law of the forum. Appellate review should be concluded expeditiously. 27.2 The scope of appellate review should ordinarily be limited to claims and defenses addressed in the first-instance proceeding. 27.3 The appellate court may in the interest of justice consider new facts and evidence. 28. Lis Pendens and Res Judicata 28.1  In applying the rules of lis pendens, the scope of the proceeding is determined by the claims in the parties’ pleadings, including amendments. 28.2 In applying the rules of claim preclusion, the scope of the claim or claims decided is determined by reference to the claims and defenses in the parties’ ­pleadings, including amendments, and the court’s decision and reasoned explanation. 28.3  The concept of issue preclusion, as to an issue of fact or application of law to facts, should be applied only to prevent substantial injustice. 29. Effective Enforcement Procedures should be available for speedy and effective enforcement of judgments, including money awards, costs, injunctions, and provisional measures. 30. Recognition A final judgment awarded in another forum in a proceeding substantially c­ ompatible with these Principles must be recognized and enforced unless substantive public ­policy requires otherwise. A provisional remedy must be recognized in the same terms. 31. International Judicial Cooperation The courts of a state that has adopted these Principles should provide assistance to the courts of any other state that is conducting a proceeding consistent with these Principles, including the grant of protective or provisional relief and assistance in the identification, preservation, and production of evidence.

Principles of European Insolvency Law § 1  Insolvency proceeding § 1.1 In an insolvency proceeding (“proceeding”) the assets of an insolvent debtor are collected and converted into money to be distributed among the creditors (“­liquidation”), or the liabilities of an insolvent debtor are restructured in order to re-establish­the debtor’s ability to meet liabilities (“reorganisation”). The proceeding can be a combination of liquidation and reorganisation. § 1.2 A proceeding can be opened when the debtor is unable or is likely to become unable to pay debts as they become due. § 1.3 The debtor or a creditor or a public authority can apply for the opening of the proceeding. § 1.4 Appropriate publicity must be given to the proceeding. § 2  Institutions and participants § 2.1 The proceeding is opened and supervised by the court. The law may provide that, when the debtor is a legal person, the proceeding can be opened by a formal declaration of the debtor. § 2.2 An administrator is appointed in order to carry out the liquidation or the reorganisation. The administrator must be independent and must act impartially. § 2.3 The debtor is under a duty to co-operate with the court and the administrator. If the debtor is a partnership, a company or other legal entity, this duty applies to its managing partners or directors.

1636  Part III: Common Principles § 2.4 The creditors’ collective interests may be represented by a meeting of creditors, a creditors’ committee or a creditors’ representative. § 3  Effects of the opening of the proceeding § 3.1 Assets belonging to the debtor at the time of the opening of the proceeding and assets acquired thereafter are included in the proceeding. When the debtor is a natural person certain assets are excluded from the proceeding. § 3.2 Upon the opening of the proceeding the powers to manage and dispose of the assets are transferred to the administrator. § 3.3 A claim against the debtor existing at the time of the opening of the proceeding (“insolvency claim”) can be pursued only through submission and admission under the conditions of the proceeding, without prejudice to security rights and rights of set-off. § 3.4 Upon the opening of the proceeding a creditor with an insolvency claim cannot improve that creditor’s position to the detriment of other creditors. § 3.5 Between the filing of the application and the opening of the proceeding, the court can take interim measures to preserve the debtor’s assets. § 4  Management of the assets § 4.1 The administrator collects and manages the debtor’s assets. § 4.2 Management actions of major importance may be subject to the consent of the court or the creditors. § 5  Obligations incurred by, and fees of, the administrator § 5.1 Obligations incurred by the administrator during the proceeding and the administrator’s fees are to be funded from the debtor’s assets and satisfied as they fall due, in priority to insolvency claims. If the assets are not sufficient to satisfy these obligations and fees, they are satisfied according to their ranking.

Principles of European Insolvency Law 1637 § 6  Treatment of contracts § 6.1 The opening of the proceeding does not automatically terminate a contract to which the debtor is a party. § 6.2 The other party cannot enforce performance by the administrator. § 6.3 If the administrator demands performance of a contract which at the time of the opening of the proceeding neither party has fully performed, the debtor’s obligations arising out of the contract must be satisfied as they fall due and in priority to insolvency claims. If the administrator has decided not to perform such a contract, any claim of the other party based on non-performance of the contract is an insolvency claim. The other party can demand that the administrator decides within a reasonable time whether to adopt the contract or not. § 7  Position of employees § 7.1 The administrator or the employee may terminate a contract of employment following special rules. § 7.2 An employee has a preferential ranking in respect of certain insolvency claims for wages and other sums due under the contract of employment or arising from its termination. § 7.3 A public fund is available to meet certain insolvency claims of employees for wages and other sums due under the contract of employment or arising from its termination. If the public fund pays the employee, it is subrogated in the rights of the employee. § 7.4 If the enterprise of the debtor, or any part of it, is transferred, the contracts of employment are automatically transferred to the purchaser of the enterprise. § 8 

Reversal of juridical acts

§ 8.1 A juridical act unfairly detrimental to the creditors performed by the debtor within a certain period of time before the opening of the proceeding, is subject to reversal. The administrator can recover or seek annulment of any benefit which has been obtained from the debtor.

1638  Part III: Common Principles § 8.2 Juridical acts subject to reversal include: a) b) c) d)

A transaction with the intent of defrauding creditors; A transaction for inadequate countervalue; A transaction with a creditor for which no enforceable obligation existed; A transaction with a creditor after the filing of the insolvency application or in a situation of imminent insolvency; e) The creation of a security right to secure a pre-existing obligation. § 9  Security rights and set-off § 9.1 A security right continues to exist after the opening of the proceeding. Enforcement may be subject to special rules. § 9.2 An asset subject to a security right is realised by the administrator or the secured creditor. The secured creditor is entitled to the proceeds of such asset, up to the amount of the secured claim and subject to the rights of creditors with higher ranking claims. § 9.3 The opening of the proceeding does not prevent set-off. § 10  Submission and admission of insolvency claims § 10.1 Creditors must be informed of the time and place for submission of claims, the authority where claims must be submitted and whether secured claims must be submitted. § 10.2 A claim is submitted by a notification indicating the amount and nature of the claim and stating whether a preference or security right is invoked. § 10.3 An insolvency claim can be disputed by the administrator. A disputed insolvency claim is admitted if and to the extent that the dispute is decided in favour of the creditor. Pending the dispute, a disputed insolvency claim can be admitted conditionally. § 10.4 An unmatured insolvency claim is admitted for its discounted value. An illiquid insolvency claim is admitted for its assessed value. A conditional insolvency claim is admitted for its discounted value or conditionally for its full amount.

Principles of European Insolvency Law 1639 A non-monetary insolvency claim is converted into a monetary claim for its assessed value. § 10.5 A secured insolvency claim is admitted to the extent that it cannot be satisfied from the proceeds of the assets subject to the security right. § 11  Reorganisation § 11.1 In a reorganisation, the liabilities of the debtor are restructured on the basis of a reorganisation plan, stating the extent and the manner of such restructuring. A reorganisation plan may include further measures. § 11.2 A reorganisation plan can be presented by the debtor or the administrator. § 11.3 A reorganisation plan is approved or rejected by a vote of the persons affected by it, or by the court. The approval of the reorganisation plan by a vote of the persons affected by it may be subject to: a) quorum requirement; b) the requirement of a qualified majority; c) the persons affected by the reorganisation plan voting in separate categories; d) certain categories of affected persons having blocking votes. A reorganisation plan approved by a vote of the persons affected by it needs the confirmation of the court. § 11.4 The confirmed reorganisation plan binds all persons affected by it, including persons who have not agreed and creditors who have not submitted their claims. § 11.5 The reorganisation plan does not affect the rights of creditors against third parties. § 12  Liquidation § 12.1 If and to the extent that there is no reorganisation, the administrator converts the debtor’s assets into money and distributes it among the creditors. The assets can be realised separately or together, whether or not as a going concern.

1640  Part III: Common Principles § 12.2 Creditors with insolvency claims have an equal right to be paid in proportion to and in accordance with the ranking of their claims. They are entitled to a distribution only if higher ranking insolvency claims can be satisfied to their full amount admitted. § 13  Closure of the proceeding § 13.1 In a reorganisation, the proceeding is closed either upon the confirmation of the reorganisation plan or upon its performance. In a liquidation, the proceeding is closed after the realisation of all the debtor’s assets and the distribution of the proceeds. The proceeding is closed if there are insufficient assets to fund the proceeding. § 13.2 The debtor, if a natural person, may be discharged from debts remaining after liquidation. The discharge does not affect the rights of creditors against third parties. When the debtor is a legal person, it will cease to exist following the closure of the liquidation. § 13.3 Assets discovered after the closure of a liquidation may give rise to a further liquidation. § 14  Debtor in possession § 14.1 The debtor may, subject to supervision, be allowed to manage and dispose of the assets. In this case the proceeding follows the Principles of §§ 1–13, except to the extent that they presuppose an administrator. § 14.2 In §§ 4.1, 5.1, 6.3, 7.1 and 10.3 references to the administrator are to be read as references to the debtor. § 14.3 The debtor does not have the power of the administrator to obtain reversal of a juridical act.