European Contract Law 9781509920570, 9781509920587

Citation preview

Foreword It is somewhat indicative of the nature of the developments in European contract law that a new edition of this volume was necessary just one year since the first edition. Legal science, practice and education have not only demanded a complete overview and structure of the extensive acquis communautaire but European contract law has also developed so rapidly since the first edition. Notably, the European Commission has ceased to pursue its proposal for a Common European Sales Law, yet the legal landscape has been shaped in particular by the new Package Travel Directive and Commission proposals for Directives on the Online Sale of Goods, and on the Supply of Digital Content. In addition, decisions from the CJEU have further developed, for instance, legislation on consumer guarantees, and the control of contract terms. Legal doctrine has also witnessed intense and lively discussions on the consequences of the ‘Digital Revolution’ for European contract law. This new edition contains extensive changes and additions in order to accommodate the recent changes in European contract law. In comparison to the first edition, this second edition contains revisions in light of new approaches in European legislation, contract types and contract parties, unfair contract terms, performance obligations, and consequences of non-performance. Furthermore, this edition contains a sub-chapter on long-term contracts in European private law. In considering the changes that arise for contract law from, above all, the new challenges presented by digitization, the new edition strives to fulfil an aim already outlined in the foreword to the first edition: to allow jurists from practice and legal science, as well as law students, to be a part of the on-going development of European contract law as a core element of European private law. Accordingly, the following volume conveys fundamental information on the content, methods and objectives of European legislation in this field and explains the interaction between legislation, case law, and legal science in the origins and development of European contract law. In particular, it attempts to outline the qualities of this supranational law and its innovative features in comparison to traditional contract law concepts. In so doing it seeks to serve as a guide to unfamiliar territory and promote an understanding of the characteristics of a new legal development. The new edition is once more the product of numerous discussions between the authors. The chapters §§ 1; 3 II 1–6, III; 5; 6 I, IV, and 8 were written by Reiner Schulze, §§ 2, 3 I, II 7, 4, 6 II, III, and 7 by Fryderyk Zoll. The chapters authored by Fryderyk Zoll were completed as part of the project ‘Made in Europe – European Legal Standards of Quality for Services on the Global Competitive Market’ and funded by the Narodowy Centrum Nauki (National Science Centre) on the basis of decision Nr. DEC-2012/04/A/HS5/00709.

V

Foreword

The content and structure are based on the second German edition of ‘Europäisches Vertragsrecht’ (Nomos 2017). The authors kindly thank Jonathon Watson, without whom this adapted English language version would not have been possible. July 2017

VI

Reiner Schulze/Fryderyk Zoll

Abbreviations AcP ADR AG AGB Art(s) Bd. B–B B–C BGH BGHZ Bianca/Grundmann EU Sales Directive BT-Drucks. CESL CIEU CJEU CMLR Contract II

CUP DCFR Full Edition

DNotZ EC ECJ ECLI ECR ECtHR ed(s) edn EEC e.g. ELI EP EULA ERCL ERPL et al.

Archiv für die civilistische Praxis Alternative Dispute Resolution Advocate General Allgemeine Geschäftsbedingungen; general terms and conditions Articles(s) Band; volume Business-to-Business Business-to-Consumer Bundesgerichtshof; German Federal Court of Justice Entscheidungen des Bundesgerichtshofs in Zivilsachen; Decisions of the German Federal Court of Justice (Civil Law) Bianca/Grundmann (eds), EU Sales Directive: Commentary (Intersentia 2002) Bundestagsdrucksache; Bundestag document Common European Sales Law Contratto e impresa/europa Court of Justice of the European Union Common Market Law Review Research Group on the Existing EC Private Law (Acquis Group), Principles of the Existing EC Contract Law (Acquis Principles) – Contract II: General Provisions, Delivery of Goods, Package Travel and Payment Services (Sellier 2009) Cambridge University Press von Bar/Clive (eds), Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference (DCFR) (Full Edition) (Sellier 2009) Deutsche Notar-Zeitschrift European Community European Court of Justice European Case Law Identifier European Court Reports European Court of Human Rights Editor(s) Edition European Economic Community Exempli gratia; for example European Law Institute European Parliament End User Licence Agreement European Review of Contract Law European Review of Private Law Et alia; and others XV

Abbreviations etc. et seq. EU EuCML EUI EuZW EWS FEDSA GPR HanseLR HK-BGB HZ ibid. i.e. IMCO IWRZ JR JURI JZ LQR M-EPLI MJ MLR MMR MüKo BGB n No. NJW NVwZ ODR OJ OUP Oxf J Leg Stud Para(s) QB RabelsZ Reg RGZ RIDC Riv.Dir.Civ. RTD Civ.

XVI

Et cetera; and the rest Et sequentia; and the following European Union Journal of European Consumer and Market Law European University Institute Europäische Zeitschrift für Wirtschaftsrecht Europäisches Wirtschafts- und Steuerrecht Federation of European Direct Selling Associations European Union Private Law Review Hanse Law Review Schulze et al., Bürgerliches Gesetzbuch – Handkommentar (9th edn, Nomos 2017) Historische Zeitschrift Ibidem; in the same place Id est; that is Internal Market Committee (European Parliament) Zeitschrift für Internationales Wirtschaftsrecht Juristische Rundschau Legal Affairs Committee (European Parliament) JuristenZeitung Law Quarterly Review Maastricht Faculty of Law European Private Law Institute Maastricht Journal of European and Comparative Law Modern Law Review Multimedia und Recht Münchener Kommentar zum Bürgerlichen Gesetzbuch: BGB (C.H. Beck) Footnote Number Neue Juristische Wochenschrift Neue Zeitschrift für Verwaltungsrecht Online Dispute Resolution Official Journal of the European Union Oxford University Press Oxford Journal of Legal Studies Paragraph(s) Queen's Bench Division Rabels Zeitschrift für ausländisches und internationales Privatrecht Regulation Decisions of the Reich Court (Civil Law) Revue internationale de droit comparé Rivista di Dirritto Civile Revue Trimestrielle de Droit Civil

Abbreviations Schlechtriem/Schwenzer CISG Schmidt-Kessel CESL Schulze CESL Staudinger BGB SE SI SME UN VUWLR WM ZEuP ZIP ZJS ZRP

Schwenzer (ed), Schlechtriem & Schwenzer: Commentary on the UN Convention on the International Sale of Goods (4th edn, OUP 2016) Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014) Schulze (ed), Common European Sales Law – Commentary (Nomos 2012) J. von Staudingers Kommentar zum Bürgerlichen Gesetzbuch: Staudinger BGB (Sellier) Societas Europaea Statutory Instrument Small and Medium-sized Enterprise United Nations Victoria University of Wellington Law Review Wertpapier-Mitteilungen Zeitschrift für Europäisches Privatrecht Zeitschrift für Wirtschaftsrecht Zeitschrift für das Juristische Studium Zeitschrift für Rechtspolitik

XVII

Legislation and Other Sources ABGB ACQP

ADR Directive

AGB-Gesetz 1976 BGB BW CESL

CESL-D CESL-Reg-D CFR CISG Coach Passenger Regulation

Commercial Agents Directive Consumer Credit Directive

Consumer ODR Regulation

CoPECL Consumer Rights Directive

Consumer Sales Directive

Allgemeines bürgerliches Gesetzbuch; Austrian Civil Code Principles of the Existing EC Contract Law (Acquis Principles) European Research Group on Existing EC Private Law (Acquis Group) (ed), Principles of the Existing EC Contract Law (Acquis Principles) Contract I (Sellier 2007) and Contract II (Sellier 2009) Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63 Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen; German Act on Standard Business Terms Bürgerliches Gesetzbuch; German Civil Code Nieuwe Burgerlijk Wetboek; Dutch Civil Code Common European Sales Law Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law COM(2011) 635 final. Common European Sales Law (Draft Annex I) Common European Sales Law (Draft Regulation) Charter of Fundamental Rights of the European Union [2016] OJ C202/389 United Nations Convention on Contracts for the International Sale of Goods Regulation (EU) No 181/2011 of the European Parliament and of the Council of 16 February 2011 concerning the rights of passengers in bus and coach transport and amending Regulation (EC) No 2006/2004 Text with EEA relevance [2011] OJ L55/1 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 [1986] OJ L382/17 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC [2008] OJ L133/66 Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes Common Principles of European Contract Law 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 [2011] OJ L304/64 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 [1999] OJ L171/12

XIX

Legislation and Other Sources Cultural Objects Directive

Directive 2014/60/EU of the European Parliament and of the Council of 15 May 2014on the return of cultural objects unlawfully removed from the territory of a Member State and amending Regulation (EU) No 1024/2012 (Recast) [2014] OJ L159/1 DCFR Draft Common Frame of Reference Prepared by Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group), Principles, Definitions and Model Rules of European Private Law (Sellier 2009) Denied Boarding Regulation Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 [2004] OJ L46/1 Digital Content Directive 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 Digital Content Directive – Proposal for a Directive on certain aspects concerning contracts Council for the supply of digital content COM(2015) 634 final – File 8800/17 (8 May 2017) Distance Marketing of Finan- Directive 2002/65/EC of the European Parliament and of the cial Services Directive Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EC and Directives 97///EC and 98/27/EC [2002] OJ L271/16 Distance Selling Directive 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 [1997] OJ L144/19 Doorstep Selling Directive Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L372/31 ECHR European Convention on Human Rights E-Commerce Directive 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 [2000] OJ L178/1 eDIAS Regulation Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC [2014] OJ L257/73 EGBGB Einführungsgesetz zum Bürgerlichen Gesetzbuche; Introductory Act to the German Civil Code Employment Equality Council Directive 2000/78/EC of 27 November 2000 establishDirective ing a general framework for equal treatment in employment and occupation [2000] OJ L303/16 GDPR Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC [2016] OJ L 119/1 (General Data Protection Regulation)

XX

Legislation and Other Sources Gender Directive

Geo-blocking Regulation

Insurance Distribution Directive Late Payment Directive

Late Payment Directive (2000) Life Assurance Directive

Markets in Financial Instruments Directive; MiFID

Misleading and Comparative Advertising Directive Mortgage Credit Directive

ODR Regulation

Online Sales Directive

OR Package Travel Directive

Package Travel Directive (1990)

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 [2004] OJ L373/37 Proposal for a Regulation of the European Parliament and of the Council on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC COM(2016) 289 final Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution [2016] OJ L26/19 Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions [2011] OJ L48/1 Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions [2000] OJ L156/17 Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance [2002] OJ L345/51 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [2002] OJ L145/1 Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising [2006] OJ L376/21 Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 [2014] OJ L60/34 Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L 163/1 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 Obligationenrecht; Swiss Law of Obligations Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC [2015] OJ L326/1 Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours [1990] OJ L158/59

XXI

Legislation and Other Sources Payment Services Directive

PECL

PEL PICC Racial Equality Directive

Rail Passenger Regulation

Rome I Regulation

Services Directive

Ship Passenger Regulation

TEU TFEU Timeshare Directive

Unfair Commercial Practices Directive; UCPD

Unfair Terms Directive UWG

XXII

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 [2007] OJ L187/5 Principles of European Contract Law Lando/Beale (eds), Principles of European Contract Law – Parts I & II (Kluwer 1999) and Lando et al. (eds), Principles of European Contract Law – Part III (Kluwer 2003) Principles of European Law UNIDROIT Principles of International Commercial Contracts Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin [2000] OJ L180/22 Regulation (EC) No 1371/2007 of the European Parliament and of the Council of 23 October 2007 on rail passengers' rights and obligations [2007] OJ L315/14 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations [2008] OJ L177/6 Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market [2006] OJ L376/36 Regulation (EU) No 1177/2010 of the European Parliament and of the Council of 24 November 2010 concerning the rights of passengers when travelling by sea and inland waterway and amending Regulation (EC) No 2006/2004 [2010] OJ L334/1 Treaty on the European Union [2016] OJ C202/13 Treaty on the Functioning of the European Union [2016] OJ C202/47 Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts Directive 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 [2009] OJ L149/22 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L95/29 Gesetz gegen den unlauteren Wettbewerb; German Unfair Competition Act

List of Cases European Union European Court of Justice Joined Cases C–43/59, 45/59 and 48/59 von Lachmüller ECLI:EU:C:1960:37 3 3 Case C–6/64 Costa ECLI:EU:C:1964:66 1 25 Case C–11/70 Internationale Handelsgesellschaften ECLI:EU:C:1970:114 1 25 Case C–106/77 Simmenthal II ECLI:EU:C: 1978:49 1 25 Case C–66/81 Pommerehnke ECLI:EU:C: 1982:130 1 25 Case C–215/88 Casa Fleischhandel ECLI:EU:C: 1989:331 2 126 Case C–362/88 GB INNO BM ECLI:EU:C: 1990:102 3 6 Case C–26/91 Handte ECLI:EU:C:1992:268 1 30 Case C–24/95 Aclan Deutschland ECLI:EU:C: 1997:163 3 3 Case C–269/95 Benincasa ECLI:EU:C:1997:337 1 48 Case C–45/96 Dietzinger ECLI:EU:C:1998:111 2 54 Case C–51/97 Réunion européenne ECLI:EU:C: 1998:509 1 30 Joined Cases C–240/98 to C–244/98 Océano ECLI:EU:C:2000:346 4 9, 4 30, 4 32, 4 33, 4 34, 4 35, 4 36, 4 37, 4 38, 4 53, 4 69 Case C–478/99 Commission v Sweden ECLI:EU:C:2002:281 4 27 Case C–481/99 Heininger ECLI:EU:C:2001:684 3 45, 3 139 Case C–96/00 Rudolf Gabriel ECLI:EU:C: 2002:436 1 48, 3 64 Case C–168/00 Leitner ECLI:EU:C:2002:163 1 37, 6 91 Case C–334/00 Tacconi ECLI:EU:C:2002:68 1 30 Case C–400/00 Club-Tour ECLI:EU:C:2002:272 1 37 Case C–464/01 Gruber ECLI:EU:C:2005:32 2 126 Case C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 4 9, 4 33, 4 34, 4 37, 4 38 Case C–70/03 Commission v Spain ECLI:EU:C: 2004:505 4 47 Case C–336/03 easyCar ECLI:EU:C:2005:150 1 31 Case C–144/04 Mangold ECLI:EU:C:2005:709 1 31, 2 116 Case C–168/05 Mostaza Claro ECLI:EU:C: 2006:675 4 54

Case C–252/06 Commission v Germany ECLI:EU:C:2006:798 1 38 Case C–306/06 01051 Telekom ECLI:EU:C: 2008:187 6 97 Case C–404/06 Quelle ECLI:EU:C:2008:231 1 37, 6 52, 6 53, 6 76 Case C–412/06 Hamilton ECLI:EU:C:2008:215 3 45 Case C–427/06 Bartsch ECLI:EU:C:2008:517 1 31 Case C–453/06 01051 Telecom ECLI:EU:C: 2007:211 1 38 Case C–54/07 Firma Feryn ECLI:EU:C: 2008:397 1 41 Joined Cases C–261/07 and C–299/07 VTB-VAB/ Galtea ECLI:EU:C:2009:244 1 43 Case C–298/07 deutsche internet versicherung ECLI:EU:C:2008:572 1 39 Case C–489/07 Messner ECLI:EU:C:2009:502 2 103, 3 143, 3 144, 3 145 Case C–555/07 Kücükdeveci ECLI:EU:C: 2010:21 1 31, 1 40 Case C–40/08 Asturcom Telecomunicaciones ECLI:EU:C:2009:615 4 55 Case C–147/08 Römer ECLI:EU:C:2011:286 1 31 Case C–243/08 Pannon ECLI:EU:C:2009:350 1 37, 4 36, 4 37 Case C–304/08 Plus Warenhandelsgesellschaft ECLI:EU:C:2010:244 1 43 Case C–434/08 Harms ECLI:EU:C:2010:285 1 30 Case C–484/08 Caja de Ahorros ECLI:EU:C: 2010:309 4 75 Case C–511/08 Heinrich Heine ECLI:EU:C: 2010:189 3 143 Case C–540/08 Mediaprint ECLI:EU:C: 2010:244 1 43 Joined Cases C–585/08 and C–144/09 Pammer/ Hotel Alpenhof ECLI:EU:C:2010:740 1 37 Case C–49/09 Rosenbladt ECLI:EU:C:2010:601 1 41 Joined Cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396 1 37, 6 49, 6 51, 6 52 Case C–203/09 Volvo Car Germany ECLI:EU:C: 2010:647 1 38 Case C–236/09 Test-Achats ECLI:EU:C: 2011:100 1 41 Case C–76/10 Pohotovosť ECLI:EU:C:2010:685 1 37 Case C–122/10 Ving Sverige ECLI:EU:C: 2011:299 1 43 Case C–292/10 G ECLI:EU:C:2012:142 1 39

XXIII

List of Cases Case C–415/10 Meister ECLI:EU:C:2012:217 1 41 Case C–453/10 Pereničová ECLI:EU:C: 2012:144 4 51 Case C–472/10 Invitel ECLI:EU:C:2012:242 1 37, 4 36, 4 38, 4 57 Case C–602/10 SC Volksbank România ECLI:EU:C:2012:443 1 37 Case C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 1 37, 1 43, 4 49, 4 50 Case C–49/11 Content Services ECLI:EU:C: 2012:419 2 37, 2 38, 3 76, 3 138, 3 139 Case C–128/11 UsedSoft ECLI:EU:C:2012:407 2 66 Case C–134/11 Blödel-Pawlik AG ECLI:EU:C: 2012:98 1 37 Case C–283/11 Sky Österreich ECLI:EU:C: 2013:28 1 30 Case C–335/11 HK Danmark ECLI:EU:C: 2013:222 1 41 Case C–555/11 EEAE ECLI:EU:C:2013:668 1 38 Case C–604/11 Genil 48 ECLI:EU:C:2013:344 1 43 Case C–616/11 T-Mobile Austria ECLI:EU:C: 2014:242 668 1 40 Case C–32/12 Duarte Hueros ECLI:EU:C: 2013:637 1 37, 6 64, 6 72 Case C–57/12 Femarbel [ECLI:EU:C:2013:171 1 43 Case C–184/12 Unamar ECLI:EU:C:2013:663 1 38 Case C–361/12 Carratù ECLI:EU:C:2013:830 1 41 Case C–265/12 Citroën Belux ECLI:EU:C: 2013:498 1 43 Case C–565/12 Crédit Lyonnais ECLI:EU:C: 2014:190 1 37 Case C–592/12 Napoli ECLI:EU:C:2014:128 1 41 Case C–26/13 Kásler ECLI:EU:C:2014:282 1 37, 4 41, 4 43, 4 50, 4 75

XXIV

Case C–143/13 Matei ECLI:EU:C:2015:127 1 37, 4 75 Case C–430/13 Baradics ECLI:EU:C:2014:32 1 37 Case C–449/13 Consumer Finance ECLI:EU:C: 2014:2464 1 37 Case C–497/13 Faber ECLI:EU:C:2015:357 1 37, 2 129 Case C–537/13 Devėnas ECLI:EU:C:2015:14 1 37, 2 127 Case C–96/14 van Hove ECLI:EU:C:2015:262 1 37, 4 75 Case C–104/14 Federconsorzi ECLI:EU:C: 2015:125 1 38 Case C–110/14 Costea ECLI:EU:C: 2015:538 1 37, 2 128 Case C–338/14 Quenon ECLI:EU:C:2015:795 1 38 Case C–555/14 IOS Finance ECLI:EU:C: 2017:121 1 38 Case C–119/15 Biuro podróży ECLI:EU:C: 2016:987 1 37, 4 57 Case C–149/15 Whatelet ECLI:EU:C:2016:840 1 37, 2 130 Case C–375/15 BAWAG ECLI:EU:C:2017:38 1 40 Case C–186/16 Andriciuc and Others ECLI:EU:C:2017:703 1 37, 4 3 General Court Case T–24/90 Automec ECLI:EU:T:1992:97 2 83 Case T–203/96 Embassy Limousines ECLI:EU:T:1998:302 3 30 Member States Germany BGH VIII ZR 146/15 3 121 United Kingdom Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 3 88 Walford v Miles [1992] 2 AC 128 3 16

Chapter 1 Foundations Literature: Basedow/Hopt/Zimmermann (eds), The Max Planck Encyclopedia of European Private Law (OUP 2012); Heiderhoff, Europäisches Privatrecht (4th edn, C.F. Müller 2016); Kötz, Europäisches Vertragsrecht (2nd edn, Mohr Siebeck 2015); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011); Schulze/Zuleeg/Kadelbach (eds), Europarecht – Handbuch für die deutsche Rechtspraxis (3rd edn, Nomos 2015); Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010); v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009).

I. Introduction 1. European contract law

Contract law is the central legal instrument for market organization and there- 1 fore for the provision of all forms of goods and services in market societies. In this context, one can therefore not overlook that the economic and political integration in Europe since the mid-20th century has led to the creation of one of the world's largest internal markets on which goods with a total value of approximately 2800 billion euros are traded annually.1 In addition, the EU internal market offers almost 500 million consumers the possibility to acquire goods and services from 28 EU Member States without customs fees or other charges. The benefits therefore affect all EU citizens. In other parts of the world, from China to the United States, such common markets of comparable size have long had at their disposal a common trade law (such as the Uniform Commercial Code in the United States) or a common contract law. In contrast, the European internal market is lacking a comparable legal answer to the economic potential that can be reached by removing internal barriers. The law of contract in Europe has certainly been subject to many more 2 changes than may be apparent at first glance; indeed one may be initially unaware of how or even the extent to which European law impacts on the law of contract in each of the Member States. A selection of examples includes the EUwide application of the same requirements for the consumer's withdrawal from a distance contract or the same minimum rights available to consumers in relation to defective products; contracts concerning payment transactions and rules on electronic signatures follow a uniform model; consumer credit contracts feature the same central provisions; air passengers have the same rights if their flight is cancelled or delayed; and businesses in all EU Member States can, in principle, demand interest on late payments (30 days after billing, at the latest). Each of these aspects, as well as many others, have been created and developed by European legislation in the area of contract law, though are still greatly shaped by the numerous differences between the individual laws of the Member States. Al1 European Commission, 20 Years of the European Single Market (Publications Office of the European Union 2012) 8.

1

Chapter 1 Foundations

though the influence of European legislation has created Europe-wide standards, the internal market lacks a comprehensive set of rules regulating cross-border contracts and thus an instrument that could be decisive in easing the sale and provision of goods and services in the internal market. In this respect, the European Commission estimates that a business must pay an average of 10,000 euro in order for its contract terms to be amended to comply with the law of another Member State.2 Such high transaction costs prevent mainly small and mediumsized enterprises (SMEs) from entering the internal market and thus their capacity to trade cross-border. Private international law does not provide any relief in respect of a choice of law clause in a consumer contract as art 6(2) Rome I Regulation stipulates that the consumer may not be deprived of the protection afforded by the law of its country of habitual residence. The deficits in European contract law in relation to cross-border contracts therefore prevent the internal market from reaching its full potential.3 3 EU legislation and court decisions, not to mention academic practice, are therefore facing considerable challenges in the field of contract law. The challenges concern not only the incoherency of the numerous legislative provisions but also the need for a complete and functioning set of rules for cross-border contracts. In one respect, academic drafts such as the ‘Acquis Principles’ (ACQP)4 and the ‘Draft Common Frame of Reference’ (DCFR)5 outlined possibilities for a coherent European contract law. In a second respect, the European Commission had used these drafts as sources of inspiration for the proposed ‘Common European Sales Law’ (CESL)6 – a proposal for a codification of a law of contract that was to be chosen by the parties to a cross-border sales contract. The Commission has since withdrawn this proposal and, in light of the focus on the digital internal market, replaced it with proposals for new directives and announced further legislation. The development in this area is not at an end, not least due to the changes resulting from the digital revolution7; European contract law will for the foreseeable future rather remain a law in progress, both at academic as well at legislative level. 2. Aim and structure of this book 4

This book intends to allow scholars, practitioners and students to participate in the development of European contract law. Its primary aim is therefore to ex2 See Press Release from 11 October 2011, available online under http://europa.eu/rapid/press-rel ease_IP-11-1175_en.htm (accessed 11 July 2017). 3 European Commission, ‘Proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law’ COM (2011) 635 final, 1–4. 4 See below, paras 47–49. 5 See below, para 51. 6 See below, paras 52–60 7 Schulze/Staudenmayer (eds), Digital Revolution: Challenges for Contract Law in Practice (Nomos 2016); Schulze/Staudenmayer/Lohsse (eds), Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017); Lohsse/Schulze/Staudenmayer (eds), Trading Data in the Digital Economy: Legal Concepts and Tools (Nomos 2017).

2

I. Introduction

plain the structures, functions and conditions for the development of European contract law, including its inadequacies and deficits, and the challenges that are presented for legal doctrine. In so doing it will refer to the key provisions in EU law, the decisions of the European courts, and underlying principles and objectives in European contract law. International uniform law (in particular the ECHR and the CISG) as well as comparative studies on the similarities and differences in national laws will also be considered to the extent necessary for understanding EU law and how it has developed so far. In light of this aim the book will focus on three main aspects. Firstly, consid- 5 erable attention will be paid to the concepts, rules and doctrines of overarching relevance for contract law. Secondly, emphasis will be placed on sales law and the legislative proposals regarding the supply of digital content due to their prominent role in the internal market. Finally, in accordance with the present development of EU contract law and the structure of the CESL (as the most important legislative project in this field), the legal framework in EU law relation to consumer contracts (B–C) and commercial contracts (B–B) will feature prominently throughout this book. Following an introduction to the foundations and components of European 6 contract law the chapters of this book are structured according to the ‘life cycle’ of a contract: conclusion, determination of content and rules concerning unfair terms, performance duties, non-performance and consequences, and prescription. Each section includes not only the applicable EU law and the underlying principles and central concepts but also the relevant provisions of the proposed CESL, the new legislative proposals concerning contract law in the digital single market8, and their possible consequences for the further development of European contract law. Each chapter begins with an overview of standard literature on the topic; whereas the footnotes contain references to further literature. Extracts from key documents and processes in the development of European contract law are also included in the text. 3. Sources and literature a) Sources

aa) The three most important sources for European contract law are:

7

– The EU Treaties, i.e. the Treaty on the European Union (TEU), Treaty on the Functioning of the European Union (TFEU) and the Charter of Fundamental Rights of the European Union (CFR);

8 In particular, European Commission, ‘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, and European Commission, ‘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.

3

Chapter 1 Foundations

– EU regulations and, in particular, EU directives concerning contract law. EU legislation is published in the Official Journal of the European Union (OJ): legislation is contained in the ‘L series’; whereas information and notices can be found in the ‘C series’. The Official Journal can be accessed via the website http://eur-lex.europa.eu; – Decisions of the General Court and of the Court of Justice of the European Union (CJEU). The decisions until 2011 are published in the European Court Reports (ECR). Citation of the source begins with the case reference number, the short title, the year, the ECR volume (since 1990) and the page number. The ECR volume number is indicated in roman numerals. Reports from 1 January 2012 are available in digital format only. All decisions from both European courts can be accessed via the websites http://eur-lex.europa.eu and http://curia.europa.eu. Decisions have a ‘European Case Law Identifier’ (ECLI): a uniform identification format for all Member States and the EU Courts. The ECLI comprises five mandatory elements: ECLI, a country code (EU for European Courts), a court code (C = Court of Justice, T = General Court), the year of the judgment, and a unique number for the individual case. bb) The European Commission's proposal for a Common European Sales Law is published in COM (2011) 635 final and, inter alia, in Part III of Radley-Gardner/Beale/Zimmermann/Schulze (eds), Fundamental Texts on European Private Law (2nd edn, Hart 2016). More detailed explanation of the proposal's content is contained in Schulze (ed), Common European Sales Law (CESL) – Commentary (Nomos 2012)9. Further publications on this subject include: Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); Deshayes, Le droit commun européen de la vente – Examen de la proposition de règlement du 11 octobre 2011 (Société de législation comparée 2012); SchmidtKessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014)10. Two of the European Commission's most important proposals for contract law in the digital single market concern contracts for the supply of digital content and contracts for the online and other distance sale of goods. Each proposal is published in COM (2015) 634 final and COM (2015) 635 final, respectively. The texts are published also in Part II of Part III of Radley-Gardner/Beale/Zimmermann/Schulze (eds), Fundamental Texts on European Private Law. 9 cc) Further sets of rules that are not legally binding but are of considerable importance for European contract law include, inter alia, the Principles of European Contract Law (PECL)11, the Principes du Droit Européen du Contrat12, the 8

9 References to the comments in this publication are cited as ‘Schulze CESL/contributor’ followed by the relevant article. 10 References to the comments in this publication are cited as ‘Schmidt-Kessel CESL/contributor’ followed by the relevant article.

4

II. Contract Law as Part of European Private Law

Principles of the Existing EC Contract Law (Acquis Principles)13, and the Draft Common Frame of Reference (DCFR)14. b) Literature

aa) Journals on European contract and private law include: – – – – – –

10

Contratto e impresa/europa (CIEU) European Review of Contract Law (ERCL) European Review of Private Law (ERPL) European Union Private Law Review (GPR) Journal of European Consumer and Market Law (EuCML) Zeitschrift für europäisches Privatrecht (ZEuP)

bb) The following works adopt a comparative law perspective – in part – on 11 the topic of European contract law: – Alpa/Andenas, Fondamenti del diritto privato europeo (Giuffrè 2005) – Kötz/Flessner, European Contract Law vol I (Clarendon 1998) – Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) In addition, further information on the implementation of consumer contract directives into national law can be obtained online via http://eur-lex.europa.eu/n-le x/. cc) The Max Planck Encyclopaedia of European Private Law (Basedow/ 12 Hopt/Zimmermann (eds), OUP 2012) is a highly useful reference work for various aspects of European contract law. II. Contract Law as Part of European Private Law 1. Concept a) Overview

European contract law became subject to increasing attention from academia 13 and European institutions15 since the 1980s. Subsequent studies by the ‘Commission for European Contract Law’16 and early policy documents17 placed this 11 Lando/Beale (eds), Principles of European Contract Law – Parts I & II (Kluwer 1999) and Lando et al. (eds), Principles of European Contract Law – Part III (Kluwer 2003). 12 Association Henri Capitant/Société de Législation Comparée (eds), Projet de Cadre Commun de Référence, Principes Contractuels Commun (Société de Législation Comparée 2008). 13 European Research Group on Existing EC Private Law (Acquis Group) (ed), Principles of the Existing EC Contract Law (Acquis Principles) Contract I (Sellier 2007) and Contract II (Sellier 2009). References to the comments in the latter are cited as ‘Contract II/contributor’ followed by the relevant article. 14 v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009). 15 Initially the European Parliament with the Resolution on action to bring into line the private law of the Member States [1989] OJ C158/400. 16 Chaired by the comparative lawyer, Ole Lando; on the creation of the Commission see Lando/ Beale (n 11) xi.

5

Chapter 1 Foundations

area of law at the centre of discussions surrounding concepts, methods and content of European private law.18 Early research was linked and extended by other legal disciplines:19 civil law (alongside national law) also focused increasingly on European private law and its influence on national law,20 European law (whose initial main focus on public law was criticized in 1964 by Walter Hallstein21), comparative law22, private international law23, and legal history24.

17 Gandolfi, ‘Pour un code européen des contrats’ (1992) RTD Civ. 707; Müller-Graff, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999); Schulze, ‘Allgemeine Grundsätze und europäisches Privatrecht’ (1993) ZEuP 442; Tunc, ‘L’unification du droit des contrats en Europe: avec ou sans loi?’ (1993) RIDC 877; Zeno-Zencovich, ‘Il diritto europeo dei contratti’ (1993) Giurisprudenza italiana 57. 18 On the current status and perspectives see Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011). 19 As was already noted at an earlier stage by Basedow et al., ‘Editorial’ (1993) ZEuP 3. 20 For early references to ‘Europeanization’ see Aubry, L’influence du droit communautaire sur le droit français des contrats (PU Aix-Marseille 2000); Beale, ‘The “Europeanisation” of Contract Law’ in Halson (ed), Exploring the Boundaries of Contract (Dartmouth 1994) 23– 24; Coing, Europäisches Privatrecht, vol II (C.H. Beck 1985); Lewis, ‘A Common law fortress under attack: is English law being Europeanized?’ (1995) Columbia Journal of European Law 1, 1–2; Markesinis, ‘Learning from Europe and Learning in Europe’ in Markesinis (ed), The Gradual Convergence (Clarendon1994) 1–2; Mengoni, ‘L’Europa dei codici o un codice per l’Europa?’ in Accademia Nazionale dei Lincei (ed), Il codice civile. Convegno del cinquantenario dedicato a Francesco Santoro Passarelli (Atti dei convegni Lincei 106 1994) 87–88; Schulze, ‘Le droit privé commun européen’ (1995) RIDC 7; Schulze, ‘A century of the Bürgerliches Gesetzbuch: German Legal Uniformity and European Private Law’ (1999) Columbia Journal of European Law 461, 461–462; Ulmer, ‘Vom deutschen zum europäischen Privatrecht?’ (1992) JZ 1; Vareilles-Sommières, Le droit privé européen (Economica 1998); Trabucchi, ‘Il codice civile di fronte alla normativa comunitaria’ (1993) Riv.Dir.Civ. 703, 703–704. 21 Hallstein, ‘Angleichung des Privat- und Prozessrechts in der Europäischen Wirtschaftsgemeinschaft’ (1964) RabelsZ 211. 22 For example Gorla, Diritto comparato e diritto comune europeo (Giuffrè 1981); Kötz/Flessner, European Contract Law, vol I (Clarendon 1998); Lipari (ed), Diritto privato europeo (CEDAM 1997); Institut Suisse de Droit Comparé in Publications de l’Institut suisse de droit comparé (ed), Le rôle du droit comparé dans l’avènement du droit européen (Schulthess 2002). 23 Dicey, Morris and Collins on The Conflict of Laws (15th edn, Sweet & Maxwell 2015) 11–12; Rogerson, Collier's Conflict of Laws (4th edn, CUP 2013) 8–9; von Hoffmann/Thorn, Internationales Privatrecht (9th edn, C.H. Beck 2007) paras 63–64a; Rauscher, Internationales Privatrecht (4th edn, C.F. Müller 2012) paras 89–92. 24 For earlier references see Cavanna, Storia del diritto moderno in Europa (Giuffrè 1982); Coing, ‘Das Recht als Element der europäischen Kultur’ (1984) HZ 1; Coing, Europäisches Privatrecht Vol. I and II (C.H. Beck 1985/1989); Delmas-Marty/Muir Watt/Ruiz Fabri (eds), Variations autour d’un droit commun. Première rencontres de l`UMR de droit comparé de Paris (Société de législation comparée 2002); Padoa-Schioppa, Italia ed Europa nella storia del diritto (Il Mulino 2003); Robinson/Fergus/Gordon, European Legal History (3rd edn, OUP 2005); Schulze, Europäische Rechts- und Verfassungsgeschichte, Ergebnisse und Perspektiven der Forschung (Duncker & Humblot 1991); Schulze, ‘La renaissance de l’idée de Jus commune’ in Delmas-Marty/Muir Watt/Ruiz Fabri ibid 181; Watkin, The Europeanisation of Law (Biicl 1998); Wieacker, A History of Private Law in Europe (OUP 1996).

6

II. Contract Law as Part of European Private Law

b) Variations

The new field of research was, however, confronted by the absence of a uni- 14 form concept of ‘European private law’. In essence there are four meanings underlying this concept. These thus have to be distinguished from the notion of ‘European contract law’. aa) Firstly, European private law may be understood as the private law of the 15 European Communities and, as such, of the European Union. The Community law understanding of European private law can be traced back to the aforementioned works since Walter Hallstein.25 European private law was initially expressed as ‘Community private law’,26 though the terms ‘EU private law’ or ‘Union private law’ (and thus ‘EU contract law’ or ‘Union contract law’) have become customary since the transition from European Community to European Union through the Treaty of Lisbon27. The use in this book of ‘European private law’ and ‘European contract law’ will adopt this meaning, unless stated otherwise. ‘European contract law’ used in this context comprises the acquis communau- 16 taire in contract law.28 The relevant rules belong partly to EU primary law and partly to EU secondary law. EU primary law29 refers particularly to the treaties founding the EU, i.e. the Treaty on European Union (TEU), the Treaty on the Functioning of the European Union (TFEU) and the Charter of Fundamental Rights of the European Union (CFR)30. Decisions of the Court of Justice of the European Union (CJEU) regarding the interpretation of Treaty provisions, including recognized general principles of law, are also considered primary law.31 In contrast, secondary law comprises EU legislation passed on the basis of primary law, in particular in the form of regulations, directives, and decisions, according to art 288 TFEU.

25 Hallstein (n 21). 26 Müller-Graff (n 17); Schulze (n 17); Smits, ‘A European Private Law as a Mixed Legal System’ (1998) MJ 328. 27 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community [2007] OJ C306/01 see now consolidated versions [2016] OJ C202/1. 28 On the concept of the acquis communautaire see Benacchio/Pasa, A Common Law for Europe (Central European University Press 2005) 20–22; Craig/de Búrca, EU Law (6th edn, OUP 2015) 13–14; Hesselink, ‘Contract theory and EU Contract Law’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 518 et seq.; Herdegen, Europarecht (17th edn, C.H. Beck 2015) § 6 paras 6–7, § 8 para 3; Streinz, Europarecht (10th edn, C.F. Müller 2016) para 100. 29 See Nowak, Europarecht nach Lissabon (Nomos 2011) I para 3; Streinz (n 28) para 3, 449 et seq.; Woods/Watson, Steiner &Woods EU Law (12th edn, OUP 2014) 18. 30 For the importance of the Charter on private law see Busch/Schulte-Nölke (eds), EU Compendium – Fundamental Rights and Private Law (Sellier 2010); Heiderhoff/Lohsse/Schulze (eds), EU Fundamental Rights and Private Law (Nomos 2016). 31 For more detail on the concept of primary law and the function of ECJ jurisprudence in this context see Haratsch/Koenig/Pechstein, Europarecht (10th edn, Mohr Siebeck 2016) paras 367–375; Herdegen (n 28) § 8 paras 4–37.

7

Chapter 1 Foundations

Regulations are binding in their entirety and are directly applicable in all Member States (art 288 TFEU), as such they resemble laws at national level. Directives, however, are addressed neither to individual citizens nor to other private parties but rather just to the Member States. Accordingly, directives do not in principle have direct effect as they first require implementation into national law. In so doing the national legislator has the choice of form and method of transposition in order to achieve the result intended by the directive (art 288 TFEU).32 The Member States can therefore choose to implement European rules into national law in a manner that causes the least friction between the two legal orders. In private law one will observe that the European legislator favours the directive as the preferred legislative instrument. 18 bb) Secondly, in a broad sense European private law also encompasses provisions of international conventions that apply in the Member States but do not apply to the European Union as an institution.33 An ideal illustration is the European Convention on Human Rights and its effects on fields of private law, for instance privacy rights, liberty, and family law.34 In this respect this broad understanding of European private law corresponds to a wide notion of European law often used when referring to EU law.35 19 Furthermore, European private law is occasionally linked to international uniform law that is not just applicable in the vast part of Europe but also worldwide. Such a link can be especially seen with respect to the UN Convention on Contracts for the International Sale of Goods (CISG), which is the uniform sales law on cross-border contracts in the majority of European countries.36 Moreover, many national laws in Europe, and indeed reforms of national civil codes, have been based on the CISG.37 At European level the work by the ‘Commission on European Contract Law’38, the Consumer Sales Directive (the most important 17

32 For more detail on the effect of directives and their, exceptional, direct effect see Haratsch/ Koenig/Pechstein (n 31) paras 384–403; Horspool/Humphreys, European Union Law (8th edn, OUP 2014) 166–168; König, ‘Gesetzgebungsakte’ in Schulze/Zuleeg/Kadelbach (eds), Europarecht (3rd edn, Nomos 2015) paras 44–71. 33 For example Müller-Graff (n 17); Schulze (n 17); Schulze ‘Le droit privé commun européen’ (n 20). 34 van Dam, ‘European Tort Law’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 161–162; Meyer-Ladewig in Meyer-Ladewig (ed), Europäische Menschenrechtskonvention (3rd edn, Nomos 2011) art 8 paras 1–2; Windel, ‘Die Bedeutung der Europäischen Menschenrechtskonvention für das Privatrecht’ (2011) JR 323; see also, for example, Zaunegger v Germany (2009) ECtHR App no 22028/04 on custodial rights for illegitimate children. 35 Herdegen (n 28) § 1 paras 6–11; Schulze/Kadelbach, ‘Zur Einführung’ in Schulze/Zuleeg/ Kadelbach (n 32) 37; Smits, The Making of European Private Law: Toward a Ius Commune Europaeum as a Mixed Legal System (Intersentia 2002) 6–7. 36 36 European states have ratified the CISG since it was passed in 1980, however not, i.a., Portugal and the United Kingdom. The text of the CISG is available online under http://www.unc itral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html (accessed 11 July 2017). 37 Such as the Netherlands in drafting the Nieuw Burgerlijk Wetboek, Germany in its 2002 modernization of the law of obligations, and many eastern European countries in the transition to the market economy; Ferrari, The CISG and its Impact on National Legal Systems (Sellier 2008); Hartkamp/Tillema/Ter Heide, Contract Law in the Netherlands (Kluwer 2011); Meyer,

8

II. Contract Law as Part of European Private Law

Directive in the field of sales law), and the Commission's proposal for a Common European Sales Law have each used the CISG as a basis for several fundamental aspects of European contract law.39 Accordingly, the CISG is to be at least considered as a prime source of inspiration for the broader notion of European contract law. cc) Thirdly, comparative law approaches lead to an understanding of Euro- 20 pean private law which does not, or at least not entirely, refer exclusively to the law of the European Union but rather extends beyond EU borders to other European countries. In this regard common European private law40 can describe the common principles and legal practices of national legal traditions in Europe. A comparative approach on this scale formed the basis of the work undertaken by the ‘Commission on European Contract Law’ and also for the analysis of ‘common principles’ of European contract law. This aspect also formed the foundation for, for example, Hein Kötz and Axel Flessner's publication on ‘European Contract Law’41. However, the results of comparative research on European private law can be 21 greatly distinguished by their subject matter, terminology, and methodology. For example, the concept of ‘common core’ also belongs to the central concepts, alongside ‘common principles’.42 The ‘evaluative’ approach towards obtaining common legal content43 is also accompanied by rather descriptive statements of the many differences in laws in Europe that are based on an understanding of European contract law in a geographical context.44 Furthermore, a part of the literature combines the comparative approach with a historical perspective. In part this contains a specific reference to the ius commune of the Middle Ages and early modern period,45 but also with partial inclusion of further historicallyfounded characteristics of European private law.46 More recent literature refers to the notion of the ‘acquis commun’47 in order to refer to the common stock of

38 39 40 41 42

43 44

45

‘UN-Kaufrecht in der deutschen Anwaltspraxis’ (2005) RabelsZ 457; in Romania: Bojin, ‘The Law of Obligations in Romania’ in Schulze/Zoll (eds), The Law of Obligations in Europe (Sellier 2013) 377; Schwenzer/Hachem, ‘The CISG – A Story of Worldwide Success’ in Kleinemann (ed), CISG Part II Conference (iustus 2009) 119, 125. See n 11. Schulze, ‘The New Shape of European Contract Law’ (2015) EuCML 139–144. Müller-Graff (n 17) 130. Kötz/Flessner (n 22). ‘The Trento Common Core Project’. The research network was created in 1993 at the University of Trento and headed by Rudolf B. Schlesing; publications have included, for example, Cartwright/Hesselink, Precontractual Liability in European Private Law (CUP 2009); Zimmermann/Whittaker, Good Faith in European Contract Law (CUP 2000). On this ‘evaluative’ approach see Lando, ‘Some Features of the Law of Contract in the Third Millenium’ (2000) Scandinavian Studies in Law 343, 364; Vogenauer, ‘Gemeineuropäische Methodenlehre’ (2005) ZEuP 234, 253. This direction is also followed by, for example, the extensive publication by Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009); see also Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 para 2. For a comparison of contract laws in Europe see Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016). Zimmermann, Law of Obligations (Clarendon 1996).

9

Chapter 1 Foundations

legal principles and views in Europe (i.e. the pendant of the acquis communautaire) and thus including the sets of rules that have been drafted on the basis of a comparative-historical approach. 22 dd) Fourthly, in an overarching respect the concept of European private law ultimately serves to describe the differences between the three aforementioned definitions, yet equally as complementary sources or elements contributing to the development of this area of law.48 2. Dualism of national and supranational law a) Origins 23

The origin of EU private law – and therein of European contract law – has led to a fundamental change in private law in Europe. The creation of a supranational community in the latter half of the 20th century resulted in a dualism of national and supranational private law. Ultimately, this dualism removed the monistic concept of national law which – linked with the idea of the nation state – had previously prevailed in many European countries during the 18th and 19th centuries as opposing the variety of different laws and jurisdictions.49 The monistic concept was especially apparent in the idea of national codifications that should uniform national law in a complete, comprehensive, permanent and systematic manner. In contrast, the Schuman Plan of May 195050 gave rise to the idea of a supranational community to whom its members transfer a part of their sovereignty and thus allowing the supranational community to create its own law. Just one year later, the formation of the European Coal and Steel Community51 allowed this supranational common law to stand alongside the different laws of the (then six) Member States. Since this time the dualism of national and supranational law has become characteristic for European integration. Even after the further development from the European Community to the European Union52 the notion of a new monism does not come into serious consideration – 46 See Grossi, Das Recht in der europäischen Geschichte (C.H. Beck 2010); Schulze, ‘Vom Ius commune bis zum Gemeinschaftsrecht’ in Schulze (ed), Europäische Rechts- und Verfassungsgeschichte (Duncker & Humblot 1991) 3; Schulze (n 17) 447–457. 47 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505; Zoll, ‘Die Grundregeln der Acquis-Gruppe im Spannungsverhältnis zwischen Acquis commun und Acquis communautaire’ (2008) GPR 106. 48 Müller-Graff (n 17) 14–17; Schulze (n 17). 49 Schulze, ‘Contours of European Private Law’ in Schulze/Schulte-Nölke (n 18) 3–8; Schulze, ‘Nuevos rasgos del Derecho privado en Europa’ (2015) Revista de Derecho Privado (Publicación Centenario) 139–166. 50 Schuman Declaration – 9 May 1950, available online under http://europa.eu/about-eu/basic-in formation/symbols/europe-day/schuman-declaration/index_en.htm (accessed 11 July 2017); see Fontaine, Eine neue Ordnung für Europa (Publications Office of the European Union 1990). 51 Treaty establishing the European Coal and Steel Community 18 April 1951, available online (in German, French, Italian, and Dutch) under http://eur-lex.europa.eu/legal-content/EN/TXT/ ?uri=CELEX:11951K/TXT (accessed 11 July 2017).

10

II. Contract Law as Part of European Private Law

either in the form of a return to the absolutism of national law or as suppression of national law through a European legal monism.53 The development of a supranational law initially appeared to be a matter 24 falling exclusively in the public law domain. However, by the 1960s there was increasing awareness of private law barriers to achieving free movement of goods and other fundamental freedoms; European legal harmonization and unification in the field of private law thus became necessary.54 At this time, the European legislator had already drafted legislation in the important private law aspects of competition law and company law. Over the following years this approach spread to encompass further areas of private law:55 employment law, consumer law, commercial law, insurance law, capital market law, intellectual property, contract law, non-contractual liability in environment law, anti-discrimination law etc. In addition to substantive law, several of these areas have also been subject to European legislation concerning procedural law and conflicts of laws. However, where further areas of private law are concerned (especially family law and inheritance law) the European legislator has focused primarily on the procedural and conflict aspects. b) Independence of the supranational legal order

An independent source of law56 can therefore be seen not only with regard to 25 public law but also in relation to broad aspects of private law subject to EU legislation57. Where conflicts between national and EU law arise, EU law will prevail due to its superiority.58 EU law (including interpretation by the CJEU) in private law is therefore to be applied, though the national law does not lose its validity as both legal systems remain independent of one another. European law, including private law, has developed – and is constantly developing – its own terminology, thereby reflecting its status as an independent supranational legal system. This independent terminology therefore requires autonomous interpretation in order to ensure uniformity – the use of national concepts would not 52 For an overview of this development see Brasche, Europäische Integration: Wirtschaft, Erweiterung und regionale Effekte (3rd edn, Oldenbourg Wissenschaftsverlag 2013); Clemens/ Reinfeldt/Wille, Geschichte der europäischen Integration: Ein Lehrbuch (UTB 2008); Gilbert, European Integration: A Concise History (Rowman & Littlefield 2012); Wagener/ Eger, Europäische Integration (3rd edn, Vahlen 2014). 53 See also Hesselink (n 28) 533–534. 54 Hallstein (n 21). 55 Overviews on each of these fields are given in Schulze/Zuleeg/Kadelbach (n 32); Schulze/ Schulte-Nölke (n 18); Twigg-Flesner (n 34). 56 Case C–6/64 Costa ECLI:EU:C:1964:66; Case C–106/77 Simmenthal II ECLI:EU:C:1978:49. 57 For more detail see Borchardt, Die rechtlichen Grundlagen der Europäischen Union (6th edn, UTB 2015) 81–94; Ehlers, ‘Verhältnis des Unionsrechts zu dem Recht der Mitgliedstaaten’ in Schulze/Zuleeg/Kadelbach (n 32) paras 6–8; Heiderhoff, Europäisches Privatrecht (4th edn, C.F. Müller 2016) para 8; Oppermann/Classen/Nettesheim, Europarecht (7th edn, C.H. Beck 2016) 20–23; Streinz/Pechstein, EUV/AEUV (2nd edn, C.H. Beck 2012) art 1 paras 7–8. 58 Costa (n 56); Case C–11/70 Internationale Handelsgesellschaften ECLI:EU:C:1970:114; Simmenthal II (n 56); see Craig/de Búrca (n 28) 266–315; Ehlers (n 57) paras 9–10.

11

Chapter 1 Foundations

achieve this goal due to their variations, e.g. in relation to core terms such as ‘competition’, ‘service’ or ‘sales contract’59. EU concepts must therefore be interpreted independently of national approaches and thus as a part of an independent supranational legal system.60 The CJEU (art 267 TFEU) and the binding nature of its decisions on the courts and authorities of the Member States ensure such autonomous interpretation of EU law – including private law.61 c) Interdependency between national and supranational law

EU laws may appear at first glance to be very independent legislative acts, though merely looking at the result fails to take into account that the legislation has not developed in isolation from national laws. With this in mind, one can rather view the EU as a ‘community of law’62 in which the development of independent legislation is influenced by interactions between EU and national laws. The development of EU legislation and jurisprudence can be stimulated and guided by comparisons between national laws. Indeed, the early stages of the legislative process often involve a review of the various existing approaches at national level.63 Moreover, art 340(2) TFEU even expressly provides that the noncontractual liability of the EU is to follow in accordance with the general principles common to the laws of the Member States. The development of supranational law can therefore be greatly influenced by pre-existing solutions and approaches at national level. 27 In contrast, the development of national private laws is greatly influenced by EU law, above all through the favoured use of directives as the legislative instrument. Many areas of national private law have thus been harmonized throughout Europe due to the implementation of directives containing EU rules.64 However, the influence of EU law does not lie merely in the compulsory obligation for the Member States to simply implement the rules of European directives into their national law. On the contrary, it is not unknown for Member States to go beyond these obligations and choose to use rules or principles from European directives 26

59 See Case C–66/81 Pommerehnke ECLI:EU:C:1982:130 paras 19–20. 60 Ehlers (n 57) para 104; Reich, Understanding EU Law (2nd edn, Intersentia 2005) 49–50; Schulte-Nölke/Schulze, Europäische Rechtsangleichung und nationale Privatrechte (Nomos 1999). 61 Basedow, ‘Der Europäische Gerichtshof und das Privatrecht’ (2010) 210 AcP 157; Borchardt, ‘Auslegung, Rechtsfortbildung und Rechtsschöpfung’ in Schulze/Zuleeg/Kadelbach (n 32) paras 19–22; Stuyck, ‘The ECJ as a motor of private law’ in Twigg-Flesner (n 34) 101, 110– 114. On the role of courts in general see Smits, ‘The future of contract law in Europe’ in Twigg-Flesner (n 28) 554 –556. 62 Rodriguez Iglesias, ‘Gedanken zum Entstehen einer Europäischen Rechtsordnung’ (1999) NJW 1. 63 See, for example, the following proposals from the European Commission, ‘Proposal for a Council Directive on unfair terms in consumer contracts’ COM (90) 322 final, 9 et seq.; ‘Proposal for a Council Directive on the protection of consumers in respect of contracts negotiated at a distance (distance selling)’ COM (92) 11 final, 8 et seq.; ‘Commission Green Paper on guarantees for consumer goods and after-sales services’ COM (93) 509 final, 17 et seq. 64 See below, para 31.

12

III. Contract Law in the Acquis Communautaire

in similar areas of law that do not fall within the directive's actual scope of application. Such an approach can therefore be adopted in order to avoid contradictions in national law.65 Furthermore, reasons of economic practicality have motivated several EU Member States to reform their national anti-trust laws in accordance with European anti-trust law.66 EU law has thus become an important source of inspiration for national legislators and can also contribute to an approximation of private law without the obligation to transpose directives.67 III. Contract Law in the Acquis Communautaire 1. Types of rules

Contract law is of central importance for the internal market. As such it is not 28 surprising that a comprehensive body of rules concerning contracts is contained in EU primary and secondary law (the acquis communautaire). Secondary law mostly encompasses numerous directives that have been passed to achieve uniformity in different ‘policy’ areas. In comparison, as an instrument of legal unification the regulation has so far played a relatively lesser role, though it is the preferred form of legislation for European private international law and procedural law – in particular, the Rome I Regulation68 is of key importance for the law applicable to contractual obligations. Some regulations are nonetheless of great significance in aspects of substantive contract law (e.g. the Denied Boarding Regulation and the Rail Passenger Regulation on passenger rights, and the exemptions to competition law69 for distribution contracts). An optional instrument (e.g. the proposed Common European Sales Law) would, however, be capable of giving greater importance to regulations as an instrument of future EU legislation and therefore for harmonization of laws – alongside approximation via directives – in European contract law.70 65 Some Member States (e.g. Germany) have extended the scope of the protection under the Doorstep Selling Directive to include contracts concluded on the street or on public transport although these were not covered under the Doorstep Selling Directive (see recital 22 Consumer Rights Directive). 66 For example for the Netherlands Wesseling, ‘The Netherlands’ in Cahill (ed), The Modernisation of EU Competition Law Enforcement (CUP 2004) 408; Zippro, Privaatrechtelijke handhaving van mededingingsrecht (Kluwer 2009) 15–16. 67 Schulze (n 39) 141. 68 See Ferrari/Leible, Rome I Regulation (Sellier 2009); Staudinger, ‘Sekundärrecht als Quelle des Internationalen Privatrechts’ in Schulze/Zuleeg/Kadelbach (n 32) paras 6–35. 69 For example Commission Regulation (EU) No 316/2014 (technology transfer agreements) [2014] OJ L93/17; Commission Regulation (EU) No 1218/2010 (specialization agreements) [2010] OJ L335/43; Commission Regulation (EU) No 1217/2010 (research and development agreements) [2010] OJ L335/36; Commission Regulation (EU) No 461/2010 (motor vehicle sector) [2010] OJ L129/52; Commission Regulation (EU) No 330/2010 (vertical agreements); Mäger, ‘Kartellrecht’ in Schulze/Zuleeg/Kadelbach (n 32) paras 120–165; Martinek, Franchising: Grundlagen der zivil- und wettbewerbsrechtlichen Behandlung der vertikalen Gruppenkooperation beim Absatz von Waren und Dienstleistungen (R. v. Decker 1987); Wijckmans/Tuytschaever, Vertical Agreements in EU Competition Law (2nd edn, OUP 2011) 87 et seq., 197–243. 70 See below, para 51.

13

Chapter 1 Foundations

2. Primary law

Although primary law regulates the EU's competences (in particular art 114(1) TFEU as the general provision on harmonization measures serving the development of the internal market71) and thus the basis for EU contract law, its importance in this area is not limited to affording legislative competence to the European legislator. Firstly, primary law also contains provisions directly related to the effectiveness of contracts and therefore shapes the relationship between the contracting parties (in particular art 101(2) TFEU for competition law). Secondly, primary law includes a series of central principles of contract law that are to be considered in the interpretation and systematization of secondary law. 30 The principle of freedom of contract is a central tenet of contract law – as well as in European private law72 – and has a footing in EU primary law. Freedom of contract is underpinned by the fundamental freedoms in arts 28 et seq. TFEU73 and is inseparably linked with the ‘principle of an open market economy with free competition’ (see art 119(1) TFEU). It is viewed as a necessary requirement in order to give full effect to the fundamental freedoms and, furthermore, is based on additional primary law provisions (in particular, arts 2 and 3(2) TEU and arts 6 et seq. CFR).74 Freedom of contract has also received judicial acknowledgment in ECJ decisions.75 31 The protection against discrimination in relation to the conclusion and content of contracts is a further highly important general principle anchored in EU primary law. Nonetheless, if there is contradictory Member State law the (complex and controversial) jurisprudence of the ECJ76 requires specificity of the principle of non-discrimination by means of a directive.77 The legislative basis for antidiscriminatory measures is, however, provided by numerous provisions in primary law, in particular art 19 TFEU and art 157 TFEU (equal pay) as well as the 29

71 For criticism see Cygan, ‘A step too far? Constitutional objections to harmonisation of EU consumer and contract law’ in Twigg-Flesner (n 28) 18–19; see also Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 30 et seq.; Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2013) 10 et seq., 62 et seq. 72 See Chapter 2, paras 83 et seq.; Heiderhoff (n 57) paras 233–234. 73 The freedoms are the free movement of goods (arts 28 et seq., 34 et seq. TFEU), free movement of services (arts 56 et seq. TFEU), freedom of establishment (arts 49 et seq. TFEU), free movement of workers (arts 45 et seq. TFEU), and free movement of capital and payments (arts 63 et seq. TFEU). 74 Contract II/Schulze art 4:101 para 3; Lorenz, Der Schutz vor dem unerwünschten Vertrag (C.H. Beck 1997) 22; Müller-Graff, ‘Gemeinsames Privatrecht in der Europäischen Gemeinschaft – Ansatzpunkte, Ausgangsfragen, Ausfaltungen’ in Müller-Graff (n 17) 7, 9, 28–34; Reich, ‘Zur Theorie des Europäischen Verbraucherrechts’ (1994) ZEuP 381. 75 For example, Case C–26/91 Handte ECLI:EU:C:1992:268 para 15; Case C–51/97 Réunion européenne ECLI:EU:C:1998:509 para 17; see also Case C–334/00 Tacconi ECLI:EU:C: 2002:68 (Opinion of AG Geelhoed) para 55; Case C–434/08 Harms ECLI:EU:C:2010:285; Case C–283/11 Sky Österreich ECLI:EU:C:2013:28 para 42. 76 Case C–144/04 Mangold ECLI:EU:C:2005:709; Case C–427/06 Bartsch ECLI:EU:C: 2008:517; Case C–555/07 Kücükdeveci ECLI:EU:C:2010:21; Case C–147/08 Römer ECLI:EU:C:2011:286. 77 Chapter 2, paras 112 et seq.

14

III. Contract Law in the Acquis Communautaire

values enshrined in art 10 TFEU and arts 21 and 23 CFR. Consumer protection – to the extent to which one considers this a principle of EU law78 – is also based on EU primary law (arts 12, 169 TFEU and art 38 CFR). These aforementioned examples may cause an increase in the future significance of the Charter of Fundamental Rights in order to determine the EU principles and underlying ideas relevant to contract law. This concerns, above all, the fundamental protection of human dignity (art 1 CFR), the protection of personal data (art 8 CFR), the freedom to choose an occupation (art 15 CFR), the freedom to conduct a business (art 16 CFR), the right to property (art 17 CFR) as well as the freedoms anchored in arts 10 et seq. CFR. 3. Directives a) Development

Secondary law on aspects of contracts has developed primarily through direc- 32 tives serving to achieve various policy aims anchored in the treaties. One of these aims includes consumer protection, which has been a prominent subject of European legislation.79 Since the 1980s, consumer protection legislation has rapidly extended to core areas of contract law, such content of contracts (Unfair Terms Directive) consequences of non-performance (Consumer Sales Directive) and pre-contractual duties (now in the Consumer Rights Directive). These Directives brought numerous new features to several Member States, for instance extensive information duties, withdrawal rights, control of standard contract terms or giving priority to specific performance over other remedies in (consumer) contract law. Furthermore, notable innovate features80 can be seen in contract law directives that (alongside consumer protection) also cover numerous policy areas each often linked to the objective of promoting the internal market e.g. protection and promotion of SMEs, promotion of information society services and, in particular, e-commerce, payment services and protection against discrimination81. b) Fragmentation

Contract law in the acquis communautaire is thus heavily based on legislation 33 passed over the course of many decades, in the context of different areas, and to 78 Such as in Case C–336/03 easyCar ECLI:EU:C:2005:150 para 21; cf Heiderhoff (n 57) paras 267–268. 79 The foundations were set by Council Resolution of 14 April 1975 on a preliminary programme of the European Economic Community for a consumer protection and information policy [1975] OJ C92/1; the first legislative measures in contract law included the Doorstep Selling Directive – (since repealed by the Consumer Rights Directive) as well as by the Package Travel Directive (1990) (repealed in 2015 by the Package Travel Directive). See also Reich et al. (n 71) 38 et seq. 80 Schulze (n 49); Schulze, ‘The CESL's Innovative Features – A Brief Overview’ (2013) CIEU 485. 81 For more detail see below, paras 38–43.

15

Chapter 1 Foundations

achieve different objectives. Such legislation was often a reaction to the challenges for the internal market in a particular policy area and was driven by varying political priorities without an underlying overall concept. Consequently, the ‘policy’ and ‘sector-guided’ approach was not especially appropriate for encouraging the internal market via the creation of a coherent and overarching contract law. The legislation has thus often been described as ‘fragmented’, ‘pointillist’ and sometimes with contradictions in its values.82 Even the efforts towards a summary and systematization of directives within individual policy areas came much later and had limited success. The Consumer Rights Directive is an ideal illustration of such an outcome as the original proposal83 intended to give a new, single structure to four consumer law directives,84 whereas the final version of the Directive only summarizes two of the original four directives and is, in this respect, only of limited success.85 c) Minimum and full harmonization 34

The directives, especially those serving consumer protection, are subject to two different levels of harmonization that have led to variations in uniformity across the field of contract law. The original approach adopted for many directives was to set EU-wide minimum standards but to allow the Member States to set higher standards in their national laws (‘minimum harmonization’). This approach in relation to consumer protection primarily aims at the objective of ensuring a high level of protection (art 169 TFEU) as it combines a common high (minimum) standard for the whole of the EU with the possibility for individual Member States to choose to maintain or introduce a higher level of consumer protection. However, minimum harmonization does little to serve the aim of internal market development (art 114 TFEU) and cross-border trade because it does not overcome the obstacles resulting from the variations in national laws. The European legislation does indeed set a minimum standard across the European Union, however selling goods or providing services in the internal market requires businesses to draft their contract terms, calculate their prices, and devise their sales methods in accordance with the individual levels of protection in the national laws. In light of this issue one may doubt the effectiveness of minimum harmonization in achieving internal market objectives.

82 Honsell, ‘Die Erosion des Privatrechts durch das Europarecht’ (2008) ZIP 621, 630; Schulze, ‘European Private Law and Existing EU Law’ (2005) ERPL 3, 4; Twigg-Flesner, ‘Introduction’ in Twigg-Flesner (n 28) 8. 83 European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on consumer rights’ COM (2008) 614 final. 84 The original intention concerned eight directives, see European Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 3. 85 See Hilbig-Lugani, ‘Neuerungen im Außengeschäftsraum- und Fernabsatzwiderrufsrecht Teil 1’ (2013) ZJS 44; Hondius, ‘The Proposal for a Directive on Consumer Rights’ (2011) ERPL 163.

16

III. Contract Law in the Acquis Communautaire

The EU legislator has since adopted a change in approach by selecting full 35 harmonization over minimum harmonization. This transition can be seen in a number of more recent consumer protection directives86 – for instance, the Distance Marketing of Financial Services Directive, the new versions of the Consumer Credit and Timeshare Directives, the Consumer Rights Directive, and the Package Travel Directive. Full harmonization is also proposed for the Digital Content Directive and Online Sales Directive. Art 288(3) TFEU continues to afford the Member States the freedom of choice and form for the implementation (individual legislative acts, consumer code or civil code),87 however the level of consumer protection may not exceed or be lower than the level foreseen by the directive. Full harmonization therefore obtains far-reaching harmonization of the content of national laws and thus offers a better solution than minimum harmonization for easing cross-border transactions. Nevertheless, full harmonization does exclude the possibility for consumer-friendlier national rules and can therefore lower the level of protection previously afforded to consumers in a Member State. Furthermore, a problem particular to full harmonization appears to be the lack 36 of scope available to Member States when aligning national law with European standards. Such an issue may prove to be an obstacle in relation to the voluntary ‘gold-plating’ of directives, as has been shown by the discussion surrounding the Consumer Rights Directive88. Extensive criticism of the proposal for this Directive ultimately resulted in a reduction of its scope of application to relatively narrow and clearly definable matters not closely interlinked with other matters of national law (in particular, provisions on information duties and withdrawal rights, which have often been established in national law on the basis of EU legislation rather than previous national legal traditions). In contrast, the proposed full harmonization of the control of unfair contract terms and guarantees in consumer sales appears to have been perceived as an extensive intrusion into the national legal systems. It therefore remains questionable whether the transition from minimum to full harmonization will continue to such an extent in the fu86 Not, however, for the Mortgage Credit Directive. On the shift to full harmonization in consumer law directives see Reich et al. (n 71) 40–42. 87 For criticism of the appropriate flexibility afforded under full harmonization see Micklitz/ Reich, ‘Crónica de una muerta anunciada: The Commission Proposal for a “Directive on Consumer Rights”’ (2009) CMLR 471, 477–478; Twigg-Flesner/Metcalfe, ‘The Proposed Consumer Rights Directive – Less Haste, More Thought?’ (2009) ERCL 368, 373. On the implementation of the Consumer Rights Directive into national law see De Cristofaro, ‘After the implementation of the Consumer Rights Directive in the Member States’ in De Cristofaro/De Franceschi (eds), Consumer Sales in Europe (Intersentia 2016) 5–7. 88 Howells/Schulze, ‘Overview of the Proposed Consumer Rights Directive’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 3; Loos, ‘Full harmonization as a regulatory concept and its consequences for the national legal orders. The example of the Consumer rights directive’ in Stürner (ed), Vollharmonisierung im Europäischen Verbraucherrecht? (Sellier 2010) 47; Zoll, ‘The Remedies for Non-Performance in the Proposed Consumer Rights Directive and the Europeanisation of Private Law’ in Howells/ Schulze ibid 279.

17

Chapter 1 Foundations

ture. The shift is most likely to be seen in new matters such as the supply of digital content or the contractual basis for the unobstructed transfer of data in the internal market, as far as the Member States' laws in these fields have not fully taken shape. On the whole, the approach to contract law legislation via directives may therefore continue be the combination of both methods: minimum harmonization with its advantages for consumer protection and disadvantages for internal market objectives, and full harmonization in specific fields with its advantages for the internal market and its possible disadvantages for the level of consumer protection and respect for individual Member States' legal systems. 4. Selected legislation and case law a) Consumer protection 37

The contract law acquis developed relatively early in the area of consumer protection and has since become quite extensive. The starting point was the 1985 Doorstep Selling Directive (Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L372/31), which has since been repealed by the Consumer Rights Directive. The following overview contains a selection of key directives and recent accompanying ECJ decisions. – Unfair Terms Directive (Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L95/29). A broad scope of application is attributed to the control of content (including control of transparency of terms) and thus considerable importance is afforded to the Unfair Terms Directive in relation to the development of European (consumer) contract law. ECJ decisions: Case C–472/10 Invitel ECLI:EU:C:2012:242 Case C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 Case C–26/13 Kásler ECLI:EU:C:2014:282 Case C–143/13 Matei ECLI:EU:C:2015:127 Case C–537/13 Devėnas ECLI:EU:C:2015:14 Case C–96/14 Van Hove ECLI:EU:C:2015:262 Case C–110/14 Costea ECLI:EU:C:2015:538 Case C–119/15 Biuro podróży ECLI:EU:C:2016:987 Case C–186/16 Andriciuc and Others ECLI:EU:C:2017:703 – Consumer Sales Directive (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 [1999] OJ L171/12). The Consumer Sales Directive covers a central aspect of irregularities in contract performance and is thus of considerable significance for doctrine and legal practice in the field of European contract law. ECJ decisions: 18

III. Contract Law in the Acquis Communautaire

–

–

–

–

–

Case C–404/06 Quelle ECLI:EU:C:2008:231 Joined Cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396 Case C–32/12 Duarte Hueros ECLI:EU:C:2013:637 Case C–497/13 Faber ECLI:EU:C:2015:357 Case C–149/15 Whatelet ECLI:EU:C:2016:840 Distance Marketing of Financial Services Directive (Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC [2000] OJ L271/16). Consumer Credit Directive (Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC [2008] OJ L133/66). ECJ decisions: Case C–76/10 Pohotovosť ECLI:EU:C:2010:685 Case C–602/10 SC Volksbank România ECLI:EU:C:2012:443 Case C–565/12 Crédit Lyonnais ECLI:EU:C:2014:190 Case C–449/13 Consumer Finance ECLI:EU:C:2014:2464 Timeshare Directive (Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts [2009] OJ L33/10). The 2008 Timeshare Directive repeals Directive 94/47/EC of the European Parliament and 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 [1994] OJ L280/83. Consumer Rights Directive (Directive 2011/83/EU of the European Parliament and of the Council of 25 January 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 [2011] OJ L304/64). The Consumer Rights Directive repeals the Doorstep Selling Directive (Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L372/21) and the Distance Selling Directive (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 [1997] OJ L144/19). Mortgage Credit Directive (Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 [2014] OJ L60/34).

19

Chapter 1 Foundations

– Package Travel Directive (Directive (EU) 2015/2302 of the European Parliament and of the Council of 25 November 2015 on package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC [2015] OJ L326/1). ECJ decisions (Directive 90/314/EEC): Case C–168/00 Leitner ECLI:EU:C:2002:163 Case C–400/00 Club-Tour ECLI:EU:C:2002:272 Joined Cases C–585/08 and C–144/09 Pammer/Hotel Alpenhof ECLI:EU:C:2010:740 Case C–134/11 Blödel-Pawlik AG ECLI:EU:C:2012:98 Case C–430/13 Baradics ECLI:EU:C:2014:32 (order) A notable feature of the 1990 Package Travel Directive is its use of a concept of consumer that varies from the standard established in later European legislation.89 b) Small and medium-sized enterprises 38

The following directives seek to provide support and protection to SMEs in the field of contract law: – Commercial Agents Directive (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 [1986] OJ L382/17). ECJ decisions: Case C–203/09 Volvo Car Germany ECLI:EU:C:2010:647 Case C–184/12 Unamar ECLI:EU:C:2013:663 Case C–338/14 Quenon ECLI:EU:C:2015:795 – Late Payment Directive (Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions [2011] OJ L48/1). The Directive repeals Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions [2000] OJ L156/17. ECJ decisions: Case C–453/06 01051 Telecom ECLI:EU:C:2007:211 (order relating to Late Payment Directive 2000) Case C–104/14 Federconsorzi ECLI:EU:C:2015:125 Case C–555/14 IOS Finance ECLI:EU:C:2017:121 – Insurance Distribution Directive (Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution 89 For the purposes of the Package Travel Directive (1990) the notion of the consumer under art 2(4) covered ‘the person who takes or agrees to take the package’ thus allowing businesses to be protected by the Directive's provisions. The new Package Travel Directive uses the notion ‘traveller’ to refer to the protected party (which may not necessarily be a consumer as defined in other EU legislation), see recital 7 Package Travel Directive.

20

III. Contract Law in the Acquis Communautaire

[2016] OJ L26/19). This Directive repeals the Insurance Mediation Directive (Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [2003] OJ L9/3). ECJ decisions (Directive 2002/92/EC): Case C–252/06 Commission v Germany ECLI:EU:C:2006:798 Case C–555/11 EEAE ECLI:EU:C:2013:668 c) E-Commerce

Two particular pieces of legislation are of importance for promoting informa- 39 tion society services and e-commerce: – E-Commerce Directive (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 [2000] OJ L178/1). ECJ decisions: Case C–298/07 deutsche internet versicherung ECLI:EU:C:2008:572 Case C–292/10 G ECLI:EU:C:2012:142 – eDIAS Regulation (Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market [2014] OJ L257/73). The Regulation repeals the E-Signature Directive (Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures [1999] OJ L13/12). d) Payment services

The development of an internal market concerning various important banking 40 services (collectively known as ‘payment services’) was formerly the objective of several separate pieces of legislation. This legislation is now comprised in one directive: – Payment Services Directive (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 [2007] OJ L187/5). ECJ decisions: Case C–616/11 T-Mobile Austria ECLI:EU:C:2014:242 Case C–375/15 BAWAG ECLI:EU:C:2017:38 e) Non-discrimination

Several directives serve to protect against discrimination. The relevance of 41 such protection in general contract law is highlighted by the extension beyond

21

Chapter 1 Foundations

the employment sector to include the access to and supply of goods and services: – Racial Equality Directive (Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin [2000] OJ L180/22). ECJ decision: Case C–54/07 Firma Feryn ECLI:EU:C:2008:397 – Employment Equality Directive (Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation [2000] OJ L303/16). ECJ decisions: Case C–555/07 Kücükdeveci ECLI:EU:C:2010:21 Case C–49/09 Rosenbladt ECLI:EU:C:2010:601 Case C–335/11 HK Danmark ECLI:EU:C:2013:222 – Gender Directive (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 [2004] OJ L373/37). ECJ decision: Case C–236/09 Test-Achats ECLI:EU:C:2011:100 – Equal Treatment Directive (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 [2006] OJ L204/23). ECJ decisions: Case C–415/10 Meister ECLI:EU:C:2012:217 Case C–361/12 Carratù ECLI:EU:C:2013:830 Case C–592/12 Napoli ECLI:EU:C:2014:128 f) Insurance contracts 42

The development of the internal market for several forms of insurance (and to some extent customer protection) is served by, inter alia, the following Directive relevant to contract law: – Life Assurance Directive (Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance [2002] OJ L345/1). g) Others

43

Furthermore, the acquis communautaire includes legislation with potential impact on contract law, but which was passed to achieve different objectives. Although the spectrum is broad, from the very specific purpose of the return of cultural objects to the wider purpose of freedom of services, and alternative dis-

22

III. Contract Law in the Acquis Communautaire

pute resolution, there are particular aspects that may also have contract law implications though this may not be apparent from the nature of the legislation. – Markets in Financial Instruments Directive (Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC [2002] OJ L145/1). ECJ decisions: Case C–604/11 Genil 48 ECLI:EU:C:2013:344 – Unfair Commercial Practices Directive (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 [2005] OJ L149/22). ECJ decisions: Joined Cases C–261/07 and C–299/07 VTB-VAB/Galtea ECLI:EU:C: 2009:244 Case C–304/08 Plus Warenhandelsgesellschaft ECLI:EU:C:2010:244 Case C–540/08 Mediaprint ECLI:EU:C:2010:244 Case C–122/10 Ving Sverige ECLI:EU:C:2011:299 Case C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 Case C–265/12 Citroën Belux ECLI:EU:C:2013:498 – Services Directive (Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market [2006] OJ L376/36). ECJ decision: Case C–57/12 Femarbel [ECLI:EU:C:2013:171 – ODR Regulation (Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L 163/1). – ADR Directive (Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63). – Cultural Objects Directive (Directive 2014/60/EU of the European Parliament and of the Council of 15 May 2014on the return of cultural objects unlawfully removed from the territory of a Member State and amending Regulation (EU) No 1024/2012 (Recast) [2014] OJ L159/1).

23

Chapter 1 Foundations

IV. Coherency of European Contract Law 1. Academic approaches a) Principles of European Contract Law 44

The further development of the internal market and the increasing inclusion of aspects of private law in EU legislation have provided the background for legal scientists to develop an overarching system of European contract law. Pioneering work on an overarching system was first undertaken by an international group of scholars headed by the Danish comparative lawyer, Ole Lando, who together formed the ‘Commission for European Contract Law’ and produced the ‘Principles of European Contract Law’ (PECL)90. These Principles have above all become a model for later research on European contract law as they include the most important aspects of general contract law structured according to the potential sequence of contractual events (i.e. the ‘life cycle of the contract’ from conclusion and effectiveness, to interpretation, content and the effects, to performance and remedies for non-performance). The first two parts of the PECL are limited to contract law91, abstain from the use of more extensive notions (such as ‘legal transaction’), and therefore avoid a system based on one individual national tradition. The basis for the PECL was formed by a comparison of national laws through which ‘common principles’, corresponding tendencies or, ultimately, ‘best solutions’ could be discovered.92 Such an approach allowed for considerable use of the results of comparative studies on sales law undertaken in the 1930s by Ernst Rabel93, and the CISG, which was based on Rabel's comparative studies. In coordination with parallel work on the UNIDROIT Principles on International Commercial Contracts (PICC)94, the Lando Commission developed, however, the CISG model into a general contract law that is generally applicable to all types of contract without regulating a specific contract type. b) Pavia Draft

45

A further pioneering project for European contract law is the ‘Pavia Draft of a European Contract Code’95 headed by Guiseppe Gandolfi and completed in 90 See n 11; on the working method see Beale, ‘Towards a Law of Contract for Europe: the work of the Commission of European Contract Law’ in Weick (ed), National and European Law on the Threshold to the Single Market (Peter Lang 1993) 177; Lando, ‘My life as a lawyer’ (2002) ZEuP 508, 519–522. 91 Part III PECL varies in this respect, see Lando et al. (eds), Principles of European Contract Law – Part III (Kluwer 2003). 92 Lando (n 90) 519–520; ‘Smits, European private law and the comparative method’ in TwiggFlesner (n 34); Vogenauer (n 43) 253. 93 Rabel, Das Recht des Warenkaufs. Eine rechtsvergleichende Darstellung (2 vols, de Gruyter 1936/1957). 94 Bonnell, An International Restatement of Contract Law (3rd edn, Brill 2004); Zimmermann, ‘Konturen eines Europäischen Vertragsrechts’ (1995) JZ 477, 479. 95 The English, French, German, Italian, and Spanish versions of the ‘European Contract Code’ are available online under http://www.eurcontrats.eu/acd2/ (accessed 11 July 2017).

24

IV. Coherency of European Contract Law

Pavia by the Academy of European Private Lawyers. In contrast to the PECL the ‘Pavia Draft’ included several provisions of European consumer law in the general contract law and is designed to include supplementary rules for specific types of contract.96 However, significant weaknesses of this project are its lesser focus on the CISG (which had already adopted by numerous European countries) and, despite international contributors, a focus on Italian law rather than a broader comparison. c) General contract law and commercial law

The effects of the PECL and the Pavia Draft on the discussion surrounding 46 European contract law can be seen in the model of a general contract law entering into the spotlight at the turn of the 21st century. By comparison, it was often the national codification of commercial law that played a pioneering role in national legal unification (e.g. in Spain and Germany97 during the 19th century and, to some extent, through the Uniform Commercial Code in the USA). At international level, work on the PICC began in 1980, just two years before the work on the PECL commenced. At European level, the extension of contract law acquis beyond the PECL has however allowed one to find the starting points in consumer law and individual aspects of commercial law in order to develop the concepts and principles of European contract law ‘from the specific to the general’. In consideration of national experiences in the 19th and 20th centuries it is somewhat astonishing that, only recently, has a discussion started on whether a codification of commercial contract law or a codification of business law relevant to the internal market can be of primary importance for European integration.98 d) Acquis Principles

The aforementioned earlier drafts could however only initially make a small 47 contribution to improving the coherency of EU contract law: the drafts were developed at a time in which consideration of the acquis communautaire was either not possible or very limited. Such drafts instead emerged on the basis of comparisons of national laws (though the Pavia Draft focused heavily on one national law) and not on the basis of an analysis of EU law and with consideration of its particular needs. Similarly, a primary or exclusive emphasis on the comparison of national laws can be seen in research intending to give an academic 96 See, for example, art 9 of the Pavia Draft (‘Negotiations with consumers off commercial premises’). 97 For a comprehensive overview see Schwenzer/Pachem/Kee, Global Sales and Contract Law (OUP 2012) 7 et seq. See also, for the United Kingdom, Rodger, ‘The Codification of Commercial Law in Victorian Britain’ (1992) LQR 570. 98 Recently, Association Henri Capitant, The integration of European business law: acquis and outlook (LGDJ 2016). See Schulze, ‘Towards a European Business Code?’ (2016) CIEU 413; also Schulze, ‘Das Europäische Wirtschaftsgesetzbuch – eine Chance für den Binnenmarkt’ (2016) IWRZ 241.

25

Chapter 1 Foundations

account of European contract law, for instance in the context of a textbook, but without an initial in-depth focus on the features of the new supranational law in Europe.99 In this respect there thus appears to have been a development of two parallel worlds of European contract law: on the one hand an expanding but incoherent acquis communautaire, and different, systematic drafts of an ideal European contract law far from the reality of a supranational law, on the other. 48 Since the 1990s there have been attempts to bridge the gap between legal science and applicable law by seeking guiding principles and overarching concepts in EU primary law and legislation on contract law (i.e. the contract law acquis communautaire).100 The research, primarily initiated by the ‘Research Group on the Existing EC Private Law’ (Acquis Group),101 does not view the contract law of the EU as a series of separate legislative acts for various policy areas but rather as the expression of guiding principles and notions within the legislation. For example, several directives from various areas can express that an agreement between the parties is necessary for the conclusion of contract;102 accordingly one could state that the principle of agreement for conclusion of contract is valid as an overarching principle anchored in EU law. Similarly, various directives may contain provisions concerning good faith and fair dealing103 as a principle of EU contract law that is not particular to one individual sector.104 49 The ‘Acquis Group’ thus drafted its ‘Principles of the Existing EC Contract Law (Acquis Principles)’ through this approach.105 The Acquis Principles are generally quite broad and therefore allow for application to various different types of contracts, in this respect they represent – as the PECL – a general law of contract. However, the Acquis Principles also consider that EU law affords specific rights and duties to particular categories of contract parties and thus limit the scope of application of several principles, for instance to B–B or B–C contracts.106 Furthermore, the general rules are supplemented by rules that are tai99 As an example of this approach see Kötz/Flessner, European Contract Law, vol I (Clarendon 1998). 100 Grundmann, ‘Europäisches Schuldvertragsrecht – Struktur und Bestand’ (2000) NJW 14; Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003); Schulze/Ajani (eds), Gemeinsame Prinzipien des Europäischen Privatrechts (Nomos 2003); Schulze/Ebers/Grigoleit (eds), Informationspflichten und Vertragsschluss im Acquis communautaire (Mohr Siebeck 2003); Schulze/Schulte-Nölke, ‘Europäisches Vertragsrecht im Gemeinschaftsrecht’ in Schulte-Nölke/Schulze (eds), Europäisches Vertragsrecht im Gemeinschaftsrecht (Bundesanzeiger 2002) 229. 101 On the methods adopted in researching the acquis see Contract II/Dannemann xxvi–xxviii; Schulze/Schulte-Nölke (n 100) 11; Schulze (n 82). 102 Also stated in case law see Case C–269/95 Benincasa ECLI:EU:C:1997:337; Case C–96/00 Rudolf Gabriel ECLI:EU:C:2002:436. 103 Such as for consumer protection art 3(1) Unfair Terms Directive; in relation to SMEs art 3(1) Commercial Agents Directive. 104 For more detail on this principle and its limitations in EU contract law see Chapter 2, paras 122–135. 105 n 11; Schulze, ‘I Principi Acquis. Situazione attuale e prospettive future della ricerca’ in De Cristofaro (ed), I « Principi » del diritto comunitario dei contratti, Acquis communautaire e diritto privato europeo (Giappichelli 2009) 1.

26

IV. Coherency of European Contract Law

lored to the needs of particular contracts or circumstances covered in existing EU law.107 Each individual chapter in the Acquis Principles contains the general and specific rules (in this order) for a particular subject matter e.g. pre-contractual duties, conclusion of contract etc. The chapters are structured to reflect the ‘life cycle of the contract’. However, although the chapters are structured in a manner similar to the PECL, the Acquis Principles focus on the matters of considerable significance for EU contract law but which were not (or to a much lesser extent) considered by the PECL, for instance pre-contractual duties, prohibitions of non-discrimination, withdrawal rights, and non-negotiated contract terms.108 Nevertheless, in comparison to the PECL the Acquis Principles do contain considerable gaps in those areas in which there is very little EU law, e.g. avoidance of contracts due to mistake or other defects in consent,109 and change of circumstances 110. Furthermore, a matter may only be partially covered by EU law. The coherency of the Acquis Principles was only ensured in such instances by referring to supplementary principles drafted on the basis of comparative law (e.g. the requirements of an offer as a requirement for conclusion of contract).111 The Acquis Principles are therefore a necessary – but not sufficient – basis for creating a ‘practice ready’ European contract law. 2. Commission Action Plan and the Common Frame of Reference a) ‘Basic sources’

The ‘Action Plan on a more coherent European contract law’112 resulted not 50 only in increased academic attention to EU contract law but, notably, also increased attention from the European Commission to academic research on European contract law. The Commission set itself the goal to focus European contract law legislation not just on individual ‘policies’ or ‘sectors’ but on overarching principles, definitions and model rules.113 Accordingly, an exclusive policy or sector-specific approach was replaced by the concept of a common contract law, as was outlined by the aforementioned academic drafts. Furthermore, the Commission considered the underlying approaches of these drafts as two ‘basic sources’114 for the future development of a coherent European contract law: the 106 For more detail see Chapter 2, paras 136–137. 107 For example, concerning off-premises contracts, contracts for the delivery of goods, package travel contracts, commercial agency contracts, timeshare contracts, service contracts, consumer credit contracts and payment services contracts. 108 Chapters 2, 3, 5 and 6 ACQP. 109 Arts 4:103 et seq. PECL. 110 Art 6:111 PECL. 111 Art 4:103 ACQP based on art II.–4:201 DCFR; see also art 2:201 PECL. 112 European Commission, ‘A more coherent European contract law: an action plan’ COM (2003) 68 final. For a detailed overview of the development see Gomes, ‘The Proposal for a Common European Sales Law (CESL): An Introduction’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 2 et seq. 113 COM (2003) 68 final, 16.

27

Chapter 1 Foundations

comparison of national laws and the analysis of the acquis communautaire should serve to create a ‘Common Frame of Reference’115 containing overarching principles, definitions, and model rules that will function as a ‘toolbox’116 for the improvement of European legislation. b) Draft Common Frame of Reference 51

The EC Action Plan thus decided in favour of a synthesis of comparative research and the ‘acquis approach’. Two separate research groups117 within an international network (CoPECL-Network118) completed comparative studies and research on the existing EC contract law, respectively, which were ultimately joined together to create an academic ‘Draft Common Frame of Reference’.119 However, this draft incorporated contract law into a much more comprehensive set of rules that covered further areas of the law of obligations (such as benevolent intervention in another's affairs, and tort law120) as well as property law.121 Book II DCFR is particularly noteworthy as a strong mixture of the Acquis Principles and comparative approach (mostly derived from the PECL) was used to draft rules on the negotiation, conclusion, and content of contracts. In contrast, the comprehensive DCFR primarily used the Acquis Principles as a basis for the rules on non-discrimination, marketing and pre-contractual duties, and the right of withdrawal 122, whereas the chapters on representation and the grounds for invalidity123 are based mainly on comparative research. The sections on conclusion of contract, as well as the interpretation, content and the effect of contracts124 are also mostly founded by comparisons of national laws but do include 114 COM (2003) 68 final, 17. 115 COM (2003) 68 final, 16; Staudenmayer, ‘Der Aktionsplan der EG-Kommission zum Europäischen Vertragsrecht’ (2003) EuZW 165. 116 European Commission, ‘European Contract Law and the revision of the acquis: the way forward’, COM (2004) 651 final, 2–3, see also Pasa/Morra (eds), Translating the DCFR and Drafting the CESL (Sellier 2014) 12–13. 117 The Study Group on a European Civil Code, which used a comparative law approach, and the ‘Acquis Group’ (see n 101); see v. Bar/Clive/Schulte-Nölke (eds), DCFR – Outline Edition (Sellier 2009) 1. 118 CoPECL, see cordis.europa.eu/publication/rcn/13014_en.html (accessed 11 July 2017); Eidenmüller et al., ‘The Common Frame of Reference for. European Private Law—Policy Choices and Codification Problems’ (2008) Oxf J Leg Stud 659, 665; v. Bar/Schulte-Nölke, ‘Gemeinsamer Referenzrahmen für europäisches Schuld- und Sachenrecht’ (2005) ZRP 165. 119 v. Bar/Clive/Schulte-Nölke (n 117); see also Vaquer Aloy/Bosch Capdevila/Paz Sánchez González (eds), Derecho Europeo de Contratos, Libros II y IV del Marco Común de Referencia (Atelier Libros 2012). 120 Book V DCFR Benevolent intervention in another's affairs; Book VI DCFR Non-contractual liability arising out of damage caused to another. 121 For criticism see Eidenmüller et al (n 118); Schulze, ‘The Academic Draft of the CFR and the EC Contract Law’ in Schulze (ed), ‘Common Frame of Reference and Existing EC Contract Law’ (2nd edn, Sellier 2009) 11–12. 122 Book II Chapter 2, 3 and 5 DCFR. 123 Book II Chapters 6 and 7 DCFR; for an overview of invalidity of contract see Luchetti/ Petrucci (eds), Fondamenti di diritto contrattuale europeo, Dalle radici romane al Draft Common Frame of Reference (Pàtron 2010) 31. 124 Book II Chapters 4, 8 and 9 DCFR.

28

IV. Coherency of European Contract Law

principles of existing EU law. Book III DCFR follows a similar approach with regard to the obligations and corresponding rights (however, not just from contracts but generally from all juridical acts125). Sales law in Book IV A. DCFR is strongly based on existing EU law (in particular the Consumer Sales Directive).126 In contrast, other parts of the DCFR are based exclusively, or almost entirely on comparative research (e.g. parts of Book IV DCFR on individual types of service contracts and on donation127) and therefore with no reference to existing EU law. Despite the criticisms of particular aspects,128 some core elements of contract law are provided with a model composed of a possible combination of Acquis Principles and principles obtained through comparative research. 3. The CESL as a codification a) Concept

The European Commission has not used the DCFR as announced in the 2003 52 Action Plan, namely to create a (political) frame of reference for future legislation.129 Since the European Parliament and Commission elections in 2009, the Commission has instead turned its attention to a project named in the Action Plan as a possible second step after the completion of a Common Frame of Reference: the development of an optional instrument. Such a project is aimed at devising a set of European contract law rules (in the form of a regulation) that will be available to parties as an additional option to existing national contract laws. The Commission's change in direction from the Common Frame of Reference project to an optional instrument cannot be viewed separately from the discussion surrounding the possibilities and limitations of approximation of laws via minimum or full harmonization.130 In the Commission's view, minimum harmonization was not sufficiently able to overcome the obstacles to the internal market that were created by the differences in the national laws. However, the criticism of the original scope of the Consumer Rights Directive showed that broad full harmonization could indeed lead to greater coherency of EU law but at the expense of considerable interference with existing structures of national law; the Member States were therefore not prepared to follow this path. Nonetheless, the concept of an optional instrument offered an alternative route that had previously been paved (albeit in a different form) in company law through the creation of a European Company (societas Europaea; SE)131. It 125 See Chapter 2, paras 1–5. 126 Book IV Part E DCFR is also strongly based on current EU law (in particular its Chapter 3 on commercial agency contracts). 127 Book IV C and H DCFR. 128 For example Eidenmüller (n 118); Schulze (n 121) 12; Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ (2007) ZEuP 130, 137–141. 129 See the criticisms by Twigg-Flesner, ‘Introduction: EU consumer and contract law at a crossroads?’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 7. See also Reich et al. (n 71) 62–64. 130 Weatherill (n 71) 197–199.

29

Chapter 1 Foundations

opened up the possibility of cross-border trade in the internal market on the basis of a uniform law that can cover the entire area yet without infringing on national laws and national systems. b) Preparation 53

Experts from academia and practice made the preparations for the optional contract law within a year. The result – the ‘Feasibility Study for a future instrument in European Contract Law’132 – was based largely on corresponding sections from the DCFR and other previous academic studies but also contained its own approaches.133 In particular, the ‘Feasibility Study’ set the proposed regulation in the direction of a sales law yet retained the approach of preceding academic works, i.e. a framework for a general European contract law that could later encompass other types of contracts. c) Structure and scope of application

The European Commission presented its proposal (based on the Feasibility Study) for a Regulation on a Common European Sales Law in November 2011 and thereby initiated the legislative process. Whereas the substantive rules are mainly contained in an annex (CESL-D), the actual text of the proposed regulation is limited mostly to definitions, rules on the scope of application and the optional nature of the instrument (CESL-Reg-D). 55 The proposed CESL's material scope of application comprises contracts for the sale of goods, related services, and the supply of digital content (art 5 CESLReg-D). However, the proposal is applicable only to B–C contracts and to B–B contracts if at least one of these parties is a SME (art 7 CESL-Reg-D).134 The territorial scope of application is, in principle, limited to cross-border contracts as according to art 4 CESL-Reg-D. However, each Member State shall have the choice to determine whether the CESL may also apply to domestic contracts and to B–B contracts without participation by a SME (art 13 CESL-Reg-D). In fulfilling each of these requirements the parties can select the CESL as the legal basis for their contract (art 3 CESL-Reg-D) instead of national law. However, valid application of the CESL to the contract requires satisfaction of the additional criteria under arts 8 et seq. CESL-Reg-D.135 The CESL should therefore – 54

131 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) [2001] OJ L249/1. 132 Available online under http://ec.europa.eu/justice/contract/files/feasibility_study_final.pdf (accessed 11 July 2017); Pfeiffer, ‘Unfaire Vertragsbestimmungen’ (2011) ERPL 835; Reich, ‘EU Strategies in Finding the Optimal Consumer Law Instrument’ (2012) ERCL 1, 6; Staudenmayer, ‘Der Kommissionsvorschlag für eine Verordnung zum Gemeinsamen Europäischen Kaufrecht’ (2011) NJW 3491, 3493. 133 On this study see Schulze/Stuyck (eds), Towards a European Contract Law (Sellier 2011). 134 See Chapter 2, paras 14–15 for more detail on the (unintended) inclusion of other contract parties and other questions regarding the scope of the instrument. 135 For criticism of the higher standards under arts 8(2) and 9 CESL-Reg-D for consumer contracts see CESL Schmidt-Kessel CESL/Schmidt-Kessel arts 8, 9 CESL-Reg-D paras 19–27;

30

IV. Coherency of European Contract Law

in comparison to the CISG – not apply ipso iure in the absence of an agreement between the parties. By favouring an ‘opt-in’ rather than an ‘opt-out’ approach the parties to a planned contract would have to agree on the application of the CESL to their contract.136 d) Codification character

The substantive rules contained in the annex are contained in 186 articles that 56 are divided across 18 chapters. All phases in the ‘life cycle’137 of the contract are covered: from conclusion to content, to obligations of the parties and remedies for non-performance, non-performance, restitution, and prescription. Structure of the proposed CESL Part I Introductory provisions Chapter 1 General principles and application Part II Making a binding contract Chapter 2 Pre-contractual information 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 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 Chapter 10 The seller's obligations Chapter 11 The buyer's remedies Chapter 12 The buyer's obligations Chapter 13 The seller's remedies Chapter 14 Passing of risk Part V Obligations and remedies of the parties to a related service contract Chapter 15 Obligations and remedies of the parties Part VI Damages and interest Chapter 16 Damages and interest Part VII Restitution Chapter 17 Restitution Part VIII Prescription Chapter 18 Prescription

Schulze CESL/Wendehorst art 3 CESL-Reg-D paras 2–3; Wagner, ‘Transaktionskostensenkung durch Europäisches Kaufrecht?’ (2012) ZEuP 455; for details on the scope of application see Chapter 2, paras 96–121. 136 For criticism see Lando, ‘CESL or CISG?’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 15, 18–19; Schulze CESL/SchulteNölke art 3 CESL paras 2–3. 137 See the explanatory memorandum COM (2011) 635 final, 4, as well as recitals 6 and 26. Claeys, ‘CESL Tools: Issues Settled, Matters Addressed, Rules, Principles, Objectives and All its Provisions’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 19.

31

Chapter 1 Foundations 57

Legislative work on European contract law had thus reached a new level: the object was no longer a multitude of individual legal acts from various ‘sectors’ and ‘policy areas’, but rather a set of rules with its own system and coherent terminology for large elements of contract law. It is therefore the first time that EU legislative bodies were occupied with a codification of contract law. In comparison to the CISG, which has outlined international standards for modern sales law since its ratification in 1980, this new codification not only included new matters (e.g. defects in consent138, defects in performance of related service contracts139 and prescription140) but also a series of innovations that have developed in the acquis communautaire141: for instance the inclusion of consumers in uniform law on cross-border sale of goods, the change in perspective from the traditional focus of negotiated contracts to standardized contracts (highlighted by the provisions on non-negotiated terms142 or the use of model instructions143), the consideration of modern forms of communication (in particular e-commerce), the inclusion of the pre-contractual phase and information duties144 and the stipulation of content145. Furthermore, the CESL adopted new approaches by being one of the first sets of rules to include specific provisions on the supply of digital content in the system of sales law. e) Legislative process and withdrawal

58

The legislative process for the CESL was accompanied from the outset by a lively academic and political discussion on the concept of a CESL and on its individual provisions. The discussions centred on various aspects including the proposed scope of application, individual provisions,146 and the selection of art 114 TFEU as the legal basis (for which the Commission and European Parliament had good reasons147) and thus the sufficient consideration of the princi138 Especially avoidance due to mistake, threat, fraud, and unfair exploitation, see arts 48 et seq. CESL-D. 139 Part V CESL-D (arts 147 et seq. CESL-D). 140 Part VIII CESL-D (arts 178 et seq. CESL-D). 141 Schulze (n 80) 495–497. 142 Chapter 8 CESL-D (arts 79 et seq. CESL-D). 143 Annex 1 and 2 CESL-D. 144 Chapter 2 CESL-D (arts 13 et seq. CESL-D). 145 In particular art 69 CESL-D. 146 The following chapters contain criticisms of individual provisions. 147 COM (2011) 635 final, 8–9; European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159); also Opinion of the Council Legal Service 7139/12. The same conclusion has also been reached by i.a. Moser, ‘Der Kommissionsvorschlag für eine Verordnung über ein Gemeinsames Europäisches Kaufrecht’ in Remien/Herrler/Limmer (n 136); Micklitz/Reich, ‘The Commission Proposal for a ‘Regulation on a Common European Sales Law (CESL)’ – Too Broad or Not Broad Enough?’ (2012) EUI LAW Working Paper 4–11; Micklitz/Reich, ‘Wie ,,optional“ ist ein ,,optionales“ EU-Vertragsrecht’ (2011) EWS 113–115; Staudenmayer (n 132) 3495; cf, for example, Basedow, ‘Art 114 AEUV als Rechtsgrundlage eines optionalen EU-Kaufrechts: Eine List der Kommission?’ (2012) EuZW 1; Max Planck Institute for Comparative and International Private Law, ‘Policy Options for Progress Towards a European Contract Law:

32

IV. Coherency of European Contract Law

ples of subsidiarity and proportionality.148 However, it is perhaps the criticisms regarding the CESL's nature as a ‘second contract law regime within the national law of each Member State’149 and the relationship to the Rome I Regulation150which will be particularly relevant to future projects. The legal objections were often tied the legal objections to political reservations regarding an extensive regulation of contract law –an ‘optional instrument’ would have left the national sales laws intact,151 yet it appears to have been the notion of a codification in the European legislative process which resulted in scepticism. The significance of a codification for the unification of national laws and the emergence of a national identity for several Member States during the 19th century may, even in the present, be of particular symbolic importance and be perceived as a privilege held by the national state. The European Parliament did not join the Internal Market Committee (IMCO) 59 in its objections to the CESL152 but rather shared the view of the Legal Affairs Committee (JURI)153 that the project should, in principle, be approved.154 The European Parliament has expressed a series of changes to the proposed CESL, which include initially limiting the scope of application to distance contracts.155 A series of further proposed changes indicate that the European Parliament has paid considerable attention to suggestions from academia and legal practice (e.g. concerning the scope of application, avoidance for defects in consent, remedies and restitution).156

148

149 150

151 152 153 154 155

Comments on the issues raised in the Green Paper from the Commission of 1 July 2010, COM (2010) 348 final’ (2011) RabelsZ 371. For example Schulte-Nölke, ‘How to realise the “Blue Button”? Reflections on an optional instrument in the area of contract law’ in Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011) 89, 92; cf BT-Drucks. 17/8000 from 30 November 2011, ‘Stellungnahme zum Vorschlag für eine Verordnung des Europäischen Parlaments und des Rates über ein Gemeinsames Europäisches Kaufrecht’; Riesenhuber, ‘Der Vorschlag für ein „Gemeinsames Europäisches Kaufrecht“ – Kompetenz, Subsidiarität, Verhältnismäßigkeit’ (2012) EWS 7. COM (2011) 635 final, 4. See Hesselink ‘How to opt into the Common European Sales Law? Brief comments on the Commission's proposal for a regulation’ in Claeys/Feltkamp (n 137) 7–8. COM (2011) 635 final, 19; see Fornasier, ‘»28.« versus »2. Regime« – Kollisionsrechtliche Aspekte eines optionalen europäischen Vertragsrechts’ (2012) RabelsZ 401; Hesselink (n 149) 2–6; Staudenmayer, Vorschlag für eine Verordnung des Europäischen Parlaments und des Rates über ein Gemeinsames Europäisches Kaufrecht (C.H. Beck 2012) 18–19; with correct criticisms Corneloup, ‘Der Anwendungsbereich des Optionalen Instruments, die Voraussetzungen seiner Wahl und das Verhältnis zur Rom I-VO’ (2012) ZEuP 705, 712– 723; Reich et al. (n 71) 64–65; Stadler, ‘Anwendungsvoraussetzungen und Anwendungsbereich des Common European Sales Law’ (2012) 212 AcP 473, 475–484. On the national perceptions regarding the CESL see, for example, the contributions in De Cristofaro/De Franceschi (n 87). Opinion of the Committee on the Internal Market and Consumer Protection for the Committee on Legal Affairs, A7-0301/2013. Report on the proposal for a Regulation of the European Parliament and of the Council on a Common European Sales law, A7-0301/2013. EP Legislative Resolution (n 147). EP Legislative Resolution (n 147) amendment 2, recital 9.

33

Chapter 1 Foundations 60

Strong objections and concerns surrounding the CESL raised by several Member States157 and the Council prompted the newly elected Commission to remove the proposed CESL from its ‘Work Programme 2015’158. At least for the time being, the Commission has therefore abandoned the project to codify European Sales Law, yet intends to modify the proposed CESL with legislative measures ‘in order to fully unleash the potential of e-commerce in the Digital Single Market’159. The development of European contract law in the future will therefore, to some extent, form part of the Commission's digital agenda.160 Irrespective of the formal effect the Commission's statement of withdrawn and modified proposals will have on the legislative process, it is nevertheless not to be expected that the CESL will enter into force. However, the proposal for the CESL is not entirely irrelevant for this new phase in the development of European contract law. It can serve as an important foundation for the further development as it, despite the criticisms, nonetheless summarized and structured prior developments, and was innovative in its inclusion of the supply of digital content into a system of contract law. 4. Focus on the Digital Single Market

61

The new phase in the development of European contract law has been initiated in particular by the proposed Digital Content Directive and the proposed Online Sales Directive which both serve to contribute to the faster growth of the digital internal market.161 The foremost aim of the latter Directive is indeed to overcome the obstacles to the development of cross-border e-commerce, yet also covers other forms of distance sales (such as telephone or mail order) ‘in order to avoid any unjustified distortions of competition and to create a level playing field for all businesses selling at a distance’.162 In this respect, the proposed scope of application of this Directive is limited in line with an amendment from 156 See arts 4, 5, 7, 48, 50 a, 106, 107, 172, art 172a CESL-D; EP Legislative Resolution (n 147); where the latter is concerned see also ELI, Statement of the European Law Institute on the Proposal for a Regulation on a Common European Sales Law COM (2011) 635 final (2012) 27–29, 112–114, 308–320 available online under https://www.europeanlawinstitute.e u/fileadmin/user_upload/p_eli/Publications/S-2-2012_Statement_on_the_Proposal_for_a_R egulation_on__a_Common_European_Sales_Law.pdf (accessed 11 July 2017). 157 BT-Drs. 17/8000 (n 148). 158 European Commission, ‘Commission Work Programme 2015 – A New Start’ COM (2014) 910 final. 159 See COM (2014) 910 final, Annex II, No. 60. 160 European Commission, ‘A Digital Single Market Strategy for Europe’ COM (2015) 192 final. 161 COM (2015) 634 final, 2; COM (2015) 635 final, 2. The European Commission has also proposed a ‘Regulation of the European Parliament and of the Council on ensuring the cross-border portability of online content services in the internal market’ COM (2015) 627 final and a ‘Regulation of the European Parliament and of the Council on addressing geoblocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC’ COM (2016) 289 final; see Chapter 2, para 121. 162 Recital 4 Online Sales Directive.

34

IV. Coherency of European Contract Law

the European Parliament to the CESL.163 In contrast to the CESL, the new proposal aims at a full harmonization (and not the creation of an optional instrument) of a considerably narrower set of issues, which mostly concerns the conformity of the goods and the remedies in consumer sales contracts. The concepts and the provisions are however not solely centred on the Consumer Sales Directive as elements from the CESL are visible. In comparison to the former, the level of consumer protection is considerably greater in a number of respects (for instance, the extension of the reversal of the burden of proof to two years164, the exclusion of a duty to inform of defects165, and the consumer's right to terminate the contract in case of a minor defect166). The proposed Online Sales Directive would therefore afford the consumer with more privileges when buying at a distance than in-store (and thereby possibly favouring distance trade in the internal market), of course only as long as corresponding rules are not created for instore purchases.167 The consultation process concerning the other proposal has since progressed 62 further within the European legislative process.168 It concerns the rapidly growing supply of digital content: an area of central importance for the development of the internal market due to the increasing ‘digitalization’ in almost all fields of commerce and society.169 The issues of conformity and remedies in consumer contracts also form the core of this proposal, though it also contains specific provisions concerning the modification of contracts and the termination of longterm contracts. The concepts and several of its key provisions also follow the model outlined by the CESL – for instance, the concept of conformity170 and the catalogue of remedies171. As a result of the various modes for the supply of digital content the proposal does, however, address new forms of contracts as it encompasses, in principle, all contracts ‘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’ (art 3(1) Digital Content Directive). It

163 See also Twigg-Flesner (n 129) 7–9. 164 Art 8(3) Online Sales Directive. 165 In contrast to art 5(2) Consumer Sales Directive which makes the notification duty an option for the Member States; see Chapter 6, paras 54, 75 et seq. 166 Recital 29, arts 3(3), 13 Online Sales Directive in contrast to art 3(6) Consumer Sales Directive; see Chapter 6, paras 69–70. 167 See Twigg-Flesner (n 129) 8. 168 Documents from the legislative process are available under http://eur-lex.europa.eu/procedure/EN/2015_287 (accessed 11 July 2017). 169 See Schulze/Staudenmayer (eds), Digital Revolution: Challenges for Contract Law in Practice (Nomos 2016) and Schulze/Staudenmayer/Lohsse (eds), Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017) each with further references. 170 Arts 6 and 7 Digital Content Directive; see Chapter 5, para 12. 171 Schulze, ‘Supply of Digital Content: A New Challenge for European Contract Law’ in De Franceschi (ed), European Contract Law and the Digital Single Market (Intersentia 2016) 139–140.

35

Chapter 1 Foundations

expressly includes services (i.a. if they serve the creation of data in digital form or the interaction with data; art 2(1)(b), (c) Digital Content Directive). The Directive's scope of application therefore covers services as part of webhosting contracts, cloud services or streaming services. Due to the specific demands of this new field, the proposal develops concepts and principles in the acquis communautaire and the CESL and accordingly takes various innovative steps. This not only concerns the inclusion of counter-performance in the form of data instead of money (art 3(1) Digital Content Directive) but also, for example, extending the concept of conformity to accommodate characteristics of digital content, such as the interoperability, accessibility and integration into the consumer's digital environment (arts 6 and 7 Digital Content Directive). Similarly, the proposal seeks to heed the features of contracts for the supply of digital content with, for example, rules on the refrain of use and restitution of data after the contract is terminated (arts 13 and 16 Digital Content Directive). 63 A number of gaps and inconsistencies are however visible within the broad scope of application proposed for the Digital Content Directive, for example, the liability for damages only’ for economic damage to digital environment of the consumer’ (art 14(1) Digital Content Directive). Clarification is also necessary not only in relation to the time frame for exercising the remedies but also in particular the question whether the objective standards for conformity (art 6(2) Digital Content Directive) are mandatory minimum standards or only apply as default rules. A further problematic aspect is the indiscriminate right to immediate termination for failure to supply, which may apply even where a delay in supply is short (art 11 Digital Content Directive).172 Furthermore, the Directive will have to be closely reviewed in order to align it not only with new European data protection rules (in particular under the General Data Protection Regulation) but also with the planned Online Sales Directive. Considerable gaps in protection are apparent in relation to, for instance, the supply of equipment that can only function when corresponding services are supplied (e.g. satellite navigation systems) or the purchase of durable mediums that do not solely serve to supply digital content (e.g. memory sticks or cards). The contracts in these are examples would not covered by the Digital Content Directive but would rather often fall in the scope of the directives on the sale of goods (i.e. the Online Sales Directive or the Consumer Sales Directive), which do not consider the particular regulatory demands associated with the supply of digital content.173

172 See Chapter 6, para 69. On this and other problems see De Franceschi (n 171); ELI, Statement of the European Law Institute on the European Commission's Proposed Directive on the Supply of Digital Content to Consumers COM (2015) 634 final (July 2016) available online under http://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/EL I_Statement_on_DCD.pdf 27–28 (accessed 11 July 2017); Wendehorst, ‘Consumer Contracts and the Internet of Things’ in Schulze/Staudenmayer (n 169) 206 et seq. 173 In this respect, ‘digitalization’ is also advanced by the Online Sales Directive (i.e. through the increased focus on the supply of digital content); see Wendehorst (n 172) 189–223.

36

IV. Coherency of European Contract Law

These examples show that the proposed Directives are to be viewed as merely 64 the first step in this new field of European legislation. Further attention will have to be paid to their form and a series of further supplementary measures will be necessary. The European Commission has already announced possible steps for the near future, such as regarding cross-border e-commerce, the access to digital content and online platforms, security in digital services and in the handling of personal data.174 Legal scholars and practitioners have already given consideration to these issues in a variety of different contexts.175 European contract law is once again proving to be a ‘law in a changing soci- 65 ety’. At the same time it makes clear that it is necessary to rethink the relationship between this contract law and other areas of European private law. In relation to the transfer and use of data, as well as the right of disposal, the contract law perspective will also have to focus above all on intellectual property law176 and privacy rights, but also on data protection law (i.e. public law and criminal law). Where the system of European contract law is concerned, the new phase in its development under the heading of the digital revolution and with the objective of unleashing the internal market's full potential thus presents legal science with a double challenge: to facilitate the coherency of European contract law through principles and the creation of a system without a codification and, most likely, with increasing use of piecemeal legislation; and to coordinate the principles and structures of this contract law with the new concepts in other fields of law which arise in order to respond to the challenges of the digital revolution at European level.

174 See COM (2015) 192 final. 175 Such as in the ELI Statement (n 172); the annual ‘Münster Colloquia on EU Law and the Digital Economy’; as part of a conference organized by the European Legal Studies Institute, see Research Group on the Law of Digital Services, ‘Discussion Draft of a Directive on Online Intermediary Platforms’ (2016) EuCML 164. 176 See Spindler, ‘Contract Law and Copyright – Regulatory Challenges and Gaps’ in Schulze/ Staudenmayer/Lohsse (n 169) 211 et seq.; see also the contributions to Lohsse/Schulze/Staudenmayer (eds), Trading Data in the Digital Economy: Legal Concepts and Tools (Nomos 2017).

37

Chapter 2 Core Elements Literature: Adams, Ökonomische Theorie des Rechts – Konzepte und Anwendungen (2nd edn, Peter Lang 2004); Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016); Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017); Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505; Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames europäisches Kaufrecht – Kommentar (Sellier 2014); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales gemeinsames Kaufrecht (Sellier 2012); Schulze/Wilhelmsson, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’ (2008) ERCL 154; Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); v. Bar/Clive, Principles, Definitions and Model Rules of European Private Law, DCFR (Full Edition) (Sellier 2009); Zoll, ‘Die Vertragstypen im Vorschlag für das Gemeinsame Europäische Kaufrecht – die Bestimmung des Anwendungsbereichs eines Optionalen Instruments durch die Typisierung von Verträgen’ in Stumpf/Kainer/Baldus (eds), Privatrecht, Wirtschaftsrecht, Verfassungsrecht: Festschrift für Peter-Christian Müller-Graff (Nomos 2015) 118– 128.

I. Concept of Contract 1. Contract and juridical act

The concept of contract1 naturally forms the heart of European contract law 1 as it allows private individuals to give binding effect to their own matters and to their relationship with others. In this respect seeking to regulate the obligations arising from legal acts always gives rise to the question of the level of abstractness to be used: on the level of a contract or, more broadly, on the level of a ‘juridical act’. 2 The legislator is therefore faced with a choice between either referring all rules to abstract concepts of juridical acts and treating the contract as a particular case thereof or principally regulating the contract and possibly allowing for contractual rules to be applicable to other juridical acts.3

1 Graziadei, ‘Variations on the Concept of Contract in a European Perspective: Some Unresolved Issues’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 311; Paricio, ‘Der Vertrag – Eine Begriffsbildung’ in Andrés Santos/Baldus/Dedek (eds), Vertragstypen in Europa: Historische Entwicklung und europäische Perspektiven (Sellier 2011) 11; Schulze/Wilhelmsson, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’ (2008) ERCL 154. 2 For a comparison of the German and English concepts see Whittaker/Riesenhuber, ‘Conceptions of Contract’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 120–126. See also Schmidt, ‘Der „juridical act“ im DCFR: Ein nützlicher Grundbegriff des europäischen Privatrechts?’ (2010) ZEuP 304, 305–320; Zoll, ‘Der Entwurf für einen Gemeinsamen Referenzrahmen im Prozess der europäischen Rechtsvereinheitlichung’ in Gebauer/Teichmann (eds), Enzyklopädie Europarecht, Band 6, Europäisches Privat- und Unternehmensrecht (Nomos 2016) § 9 paras 56–65.

39

Chapter 2 Core Elements

The European legislator has adopted the second approach: the contract forms the core of those directives and regulations regulating the European law of obligations.4 This indeed has practical reasons as the concept of a juridical act is a theoretical approach that is not used in many legal systems;5 in turn the notion of a contract is widely understood (and is the most frequent form of a juridical act) thereby allowing for European rules to be attached simply and clearly to this category. Where European private law is concerned, one has to bear in mind that it does not represent the creation of a comprehensive system;6 the various European directives do not form a complete European system but merely supplement the contract law of the Member States.7 By comparison, the German legal system – influenced by pandectism8 – adopts the model of a juridical act (‘Rechtsgeschäft’) due to its main role in creating a comprehensive legal system.9 3 The DCFR has, however, now attempted to use the notion of a juridical act for European contract law10 with the result that art II.–1:101 DCFR defines both ‘contract’ and ‘juridical act’: 2

Article II.–1:101 DCFR 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.

4

The definition, however, shows the DCFR's uncertainty regarding the position of the juridical act within its system.11 The DCFR first defines ‘contract’ and not ‘juridical act’ even though the reverse would have been more appropriate as the latter is more abstract.12 Nevertheless, the order of the two concepts is justified as ‘juridical act’ in the DCFR is seldom used independently as the central role is 3 On the relationship between juridical act and contract see Grundmann, ‘The Architecture of European Codes and Contract Law – A Survey of Structures and Contents’ in Grundmann/ Schauer (eds), The Architecture of European Codes and Contract Law (Kluwer 2006) 7 et seq. 4 A list of European legislation focusing on contracts can be found in Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 paras 28–43. 5 See Schmidt (n 2) 307, who refers to the variation in the spread of this concept across the different European legal systems. 6 Riesenhuber (n 4) § 1 para 26. 7 Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003) 55–58; Zoll, ‘A Need for a New Structure for European Private Law’ in Brownsword et al. (eds), The Foundations of European Private Law (Hart 2011) 556. 8 See Cabrillac, Droit européen comparé des contrats (2nd edn, LDGJ 2016) 21–21; Hattenhauer, Einseitige private Rechtsgestaltung: Geschichte und Dogmatik (Mohr Siebeck 2011) 78, 85–86; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 128–150, especially 135. 9 Markesinsis/Unberath/Johnston, The German Law of Contract (2nd edn, Hart 2006) 25–27; Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 1. 10 See Schmidt (n 2) 304–305; Whittaker/Riesenhuber (n 2) 137–159; Zoll (n 2). 11 Zoll (n 2). 12 DCFR Full Edition 125; Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 2.

40

I. Concept of Contract

instead played by the notion of ‘contract’.13 ‘Juridical act’ is indeed used in the different situations in which contract-based rules are applicable to other juridical acts (e.g. in art II.–4:301 DCFR)14 though this merely represents an extension of contract-based rules so that ‘contract’ forms the central point of reference for almost all relevant rules relating to the contract. Consequently, the use of ‘juridical act’ is rather unnecessary for the DCFR's regulatory technique as, in principle, the less abstract concept of contract performs this function.15 Despite the DCFR's considerable influence, the proposed CESL did not adopt 5 the notion of a juridical act.16 The current version of the DCFR has rather been ‘recontractualized’ by the proposal for a Common European Sales Law.17 The unilateral statements or conduct referred to in art 12 CESL-D are rather just considered an extension of the rules for the contract. Whereas the DCFR and the proposed CESL adopt a traditional concept of 6 contract,18 the European directives do not adhere to a specific concept but instead attempt to adapt the provisions to the different national notions of contract.19 The European legislator does not seek to impose a concept of contract on the Member States – the aim is to ensure that the protection foreseen in the relevant directive is applied irrespective of how a national legal system regulates a legal relationship arising between the parties. The European system of contract law therefore may not be compared with the system at national level. The proposed Common European Sales Law is also to be viewed as an attempt to make qualitative changes to European contract law through the development of a genuine (although optional) contract law instead of a system serving to supplement national law.20 The rejection of this approach by several Member States has, however, prevented its fruition.21 It thus remains to be seen whether the withdrawal of the proposal for the Common European Sales Law will have a longterm effect on the process of creating an independent European contract law.22 It would create the wrong impression if one were to deny that European law 7 has had considerable influence on the notion of contract in the Member States.23 13 14 15 16 17 18 19 20

21 22 23

Schmidt (n 2) 320. DCFR Full Edition 339–340. Schmidt (n 2) 311. Riesenhuber (n 4) para 50, who labels the scope of the CESL as concerning ‘contractual situations’and § 4 para 59, in which the CESL is referred to as an ‘optional second system of contract law’. Schulze, ‘Europäisches Vertragsrecht – die Zeit ist reif für die Gesetzgebung’ (2011) EuZW 569, 570; Schulze/Wilhelmsson (n 1) 165. DCFR Full Edition 170; Schmidt-Kessel CESL/Gebauer art 30 CESL-Reg-D para 1, 6. Contract II/Schulte-Nölke/Zoll Introductory Part xxv. For national views of the proposed CESL see the contributions in De Cristofaro/De Franceschi (eds), Consumer Sales in Europe (Intersentia 2016). See also Tamm/Tonner, ‘Vom Scheitern des Gemeinsamen Europäischen Kaufrechts im Rahmen des digitalen Binnenmarktes’ (2015) EWS 241, 243–244. See § 1 para 60; COM (2014) 910 final, Annex 2, No. 60. Tamm/Tonner (n 20) 246. Wiedmann/Gebauer in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010) Ch. 1 para 2.

41

Chapter 2 Core Elements

Such influence concerns not only the clear impact of European provisions on individual aspects of national laws but also extends to the redesign of the notion of contract. In this respect, one has to bear in mind the basis the EU adopts for contract law: the primary function of EU law rests in the removal of obstacles to the internal market.24 Accordingly, the perspectives on the role of a contract differ between the European and national legislators. In principle, the European legislator does not determine the rules on contracts in order to allow the individual to exercise free choice; it rather seeks to assimilate national laws in order to ensure that the internal market functions smoothly. It is therefore concerned with guiding the behaviour of market actors. However, this approach affects not only market procedures but also the legal form of the individual contractual relationships.25 Even though the European legislator does not intend to fundamentally redesign contract law in Europe, European law nevertheless has significant influence on the core elements thereof. The boundaries between the different phases of a legally-relevant relationship are less distinct in European contract law – the pre-contractual phase (e.g. giving pre-contractual information), the determination of the content of the contract, and the conclusion of the contract are increasingly merging into one process.26 Furthermore, the European legislator proceeds from the concept of the creditor's legitimate expectations.27 This concept not only plays a decisive role when determining the content of a contract but also, in principle, alters the perception of the cornerstones of a contract. For instance, the legitimate expectations replace the function of the declaration of intent: the content of the party's declaration is not decisive for forming the legal relationship but rather the assessment of what can be legitimately expected from the customer in relation to its declaration. The content is seldom determined just by the intention expressed by the parties. Yet, the role of the intention is reduced even further when using the concept of legitimate expectations. The intention will be decisive because it, under other circumstances surrounding the contract, forms the requirement of the ‘legitimate expectation’ and not because it is the intention of the parties. The European legislative thus invokes a factor that is tailored to the demands of the mass market.28 8 The concept of legitimate expectations can be identified in a number of sources of European contract law. 24 See, for example, Grundmann, ‘The Structure of European Contract Law (2001) ERPL 505; in relation to the legislative competence under art 114 TFEU Rutgers, European Competence and a European Civil Code, a Common Frame of Reference or an Optional Instrument' in Towards a European Civil Code (4th edn, Wolters Kluwer 2011) 320. 25 Busch, Informationspflichten im Wettbewerbs- und Vertragsrecht (Mohr Siebeck 2008) 173. 26 See § 3 paras 1 et seq.; Köndgen, Selbstbindung ohne Vertrag (Mohr Siebeck 1981) 434 et seq. 27 See, for example, Howells/Wilhelmsson, EC Consumer Law (Ashgate 1997) 320–323; Pfeiffer/Zoll, ‘Leistungsstörung im europäischen Vertragsrecht, UN-Kaufrecht und Common Frame of Reference im Bereich der Leistungsstörung’ (2007) ZEuP 260. See also Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 27–28. 28 Busch (n 25) 57–58.

42

I. Concept of Contract Article 6(5) Consumer Rights Directive Information requirements for distance and off-premises contracts 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.

Art 6(5) Consumer Rights Directive determines that the information shall form an integral part of the contract. Technically, the communication of information is not a declaration of intent but merely a declaration of knowledge.29 The distinction between these two types of declaration is increasingly fading.30 The communicated information forms the basis of an expectation regarding the content of the contract and the performance. The provision does not refer to legitimate expectations as a standard, yet it is the concept of legitimate expectations that provides the reason for the information becoming part of the legal relationship between the parties. The concept of legitimate expectations is especially apparent in the Consumer 9 Sales Directive. Recital 8 Consumer Sales Directive 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 secondhand; 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;

The European legislator clearly refers to the criterion of legitimate expectations by referring to the quality of the performance the consumer can reasonably expect. However, the legislator also emphasizes that the presumption (art 2 Consumer Sales Directive) does not restrict the principle of freedom of contract. However, how do these two principles of contract law interact with one an- 10 other? The principle of legitimate expectations does not limit the freedom of contract by restricting the parties' choice in the content of the contract. The parties can still continue to determine the content as they wish. The effect of the contract will, however, depend on whether the ‘agreed’ content also corresponds to the consumer's legitimate expectations. The business must therefore ensure that the legitimate expectations accord with the agreed content. The legitimate expectations concept is primarily concerned with the content of the legal relationship. Yet one cannot deny that this also provides a framework for the contract. This may be indirect, though the fact that other circumstances are also a

29 See Schwenzer/Hachem/Kee, Global Sales and Contract Law (OUP 2014) para 10.51. 30 Busch (n 25) 58.

43

Chapter 2 Core Elements

measure for the level of legitimate expectations does limit the influence of the parties' intent surrounding the content of the contract.31 11 This approach should indeed provide a solution for the problem of so-called ‘negative quality agreements’: the quality of the good falls below the standard that is usually expected of goods of a similar type. In principle, the parties are free to determine the quality of the good; however, the legitimate expectation of a lower-quality good is always to be examined in consideration all relevant factors. In those cases in which the agreement of lower quality does not accord with the circumstances (e.g. because the good appears to be complete), the content of the contract is to be adjudged from the perspective of the consumer's legitimate expectations. 12 More recently, the European Commission has attempted to use the proposals for a Digital Content Directive and an Online Sales Directive to approach the problem form a different perspective. Article 4 Online Sales Directive 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 pre-contractual 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 Online Sales Directive Requirements for conformity of 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:

31 See Busch (n 25) 57–58; Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 528–530.

44

I. Concept of Contract (i) (ii) (iii)

the seller was not, and could not reasonably have been, aware of the statement in question; by the time of conclusion of the contract the statement had been corrected; or the decision to buy the goods could not have been influenced by the statement.

The Commission attempts to solve the question surrounding the relationship between legitimate expectations and freedom of contract by providing a solution that varies from the approach in the Consumer Sales Directive. The Commission uses two different articles to determine two different forms of the contractual content. The first article regulates the description of the good as stipulated by the parties. This article expressly aims at providing a solution to the problem of a ‘negative quality agreement’: such an agreement is admissible but requires a form of qualified consensus between the parties. Whether a negative quality agreement is concluded depends on if the consumer knew of the specific condition of the goods and expressly accepted this specific condition when concluding the contract.32 In comparison, art 5 Online Sales Directive attempts to outline the objective 13 requirements for conformity of the good. This composition of the provisions on conformity differs from the Consumer Sales Directive and could form a basis for drawing conclusions on the European concept of contract. Art 2 Consumer Sales Directive shows that conformity is determined in consideration of all circumstances, whereas the provisions in the proposed Online Sales Directive represent a clear attempt to distinguish between the objective and subjective concept of non-conformity.33 The underlying structure attempts to draw on the classical notion of contract as an agreement between the parties. Firstly, the description shall arise from the statements given by the parties and thereafter determined objectively from the standardized expectations regarding the good. In reality, however, the concept of legitimate expectations remains in the pro- 14 posal. The Commission has not succeeded in finding sufficient criteria in order to (logically) separate the subject matter of arts 4 and 5 Online Sales Directive. The underlying notion of legitimate expectations is apparent in art 4(1)(c) Online Sales Directive, which considers pre-contractual statements as an integral part of the contract. The split between the provisions on conformity of the goods only provides a superficial solution to the problem of negative quality agreements. Despite the misleading structure of arts 4 and 5, an overall assessment of all circumstances is still needed to determine the non-conformity of the good. The interaction between contractual declarations and legitimate expectations 15 is clearer in the proposed Digital Content Directive: Article 6 Digital Content Directive Conformity of the digital content with the contract

32 Wendehorst, ‘Platform Intermediary Services and Duties under the E-Commerce Directive and the Consumer Rights Directive’ (2016) EuCML 30, 32. 33 Wendland, ‘Ein neues europäisches Vertragsrecht für den Online Handel?’ (2016) EuZW 126, 130.

45

Chapter 2 Core Elements (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; (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. (2) 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. (3) 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. (4) 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. (5) In order to conform with the contract the digital content must also meet the requirements of Articles 7 and 8.

According to this provision the agreed quality only takes priority when it is clearly and comprehensively outlined in the contract. The content of the contract is also based on the pre-contractual duties that ultimately form part of the contract. However, the Commission attempts to refer in (1) to the subjective properties and in (2) to the objective (i.e. not resulting solely from the contract) properties.34 2. Contract as consensus ad idem?35

The proposed Common European Sales Law defines ‘contract’ as:

16

Article 2(a) CESL-Reg-D Definitions ‘contract’ means an agreement intended to give rise to obligations or other legal effects;

34 See in detail Colombi Ciacchi/van Schagen, ‘Conformity under the Draft Content Directive: Regulatory Challenges and Gaps’ in Schulze/Staudenmayer/Lohsse, Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017) 99; Smits, ‘New European Proposals for Distance Sales and Digital Content Contracts: Fit for Purpose?’ (2016) ZEuP 319, 320–321.

46

I. Concept of Contract

This definition of contract36 may find support in the numerous directives 17 forming part of the acquis communautaire37. Admittedly, however, none these directives contains a definition of contract comparable with the definition in art 2(a) CESL-Reg-D.38 This understanding of contract underlies the respective definitions of a distance contract (art 2(7) Consumer Rights Directive) and an off-premises contract (art 2(8) Consumer Rights Directive), each of which refer to the conclusion of contract. However, as noted above,39 the underlying notion of contract in the acquis 18 communautaire is not to be understood merely as a meeting of the minds. Moreover, how European law perceives ‘contract’ does not provide a complete picture of the notion itself.40 The European legislator typically is only concerned with the standards for the declaration by one party. The aim is to avoid placing duties on the weaker party without such party having made a sufficiently clear statement of intentions. There are however too few indications in the acquis which allow one to determine that the European legislator has developed an independent notion of contract.41 One can assume that the European legislator proceeds from a concept of consensus ad idem when it uses the term ‘contract’ in the directives, though with just selective effects on the understanding of contract at national level. a) Contract and inertia selling

The European legislator uses its rule on inertia selling in order to protect the 19 consumer from the risk of being urged, unwillingly, into a contractual relationship: Article 27 Consumer Rights Directive 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.

35 An explanation of the concept of contract from the perspective of different legal systems and different stages in legal history is given in Paricio (n 1). 36 For more detail on the concept of contract in the CESL see Schmidt-Kessel CESL/SchmidtKessel art 2 CESL-Reg-D para 10. 37 Commission, ‘A Common European Sales Law to facilitate cross-border transactions in the single market’ COM (2011) 636 final, 10; Schmidt-Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D para 37. 38 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 10; Schulze CESL/Wendehorst art 2 CESL-Reg-D para 4. 39 Paras 2 et seq. 40 Jansen/Zimmermann (n 31) 518–519 41 Zoll, ‘Die Grundregeln der Acquis Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 109.

47

Chapter 2 Core Elements

Art 27 Consumer Rights Directive refers to the Unfair Commercial Practices Directive in which the practice of delivering unsolicited goods or services with the aim of concluding a contract with a consumer is categorized as an unfair commercial practice.42 This cross-reference is highly characteristic of the new development in contract law – the link between contract law and competition law.43 This can also be seen in art 27 Consumer Rights Directive as the provision is less concerned with the presentation of the European legislator's conviction surrounding certain, fixed elements of the contract than avoiding a practice which burdens consumers. The provision particularly aims at strengthening the consumer's capacity to make a free decision. The European legislator is therefore concerned only with one side to the contractual coin and does not decide whether there has to be consensus ad idem between the consumer and the business in order to establish a legal relationship. 21 The principle of protecting the consumer by protecting her capacity to make a free decision is especially clear in rules on inertia selling. An express rule on this sales method was first provided by art 9 Distance Selling Directive. This Directive has since been repealed by the Consumer Rights Directive which has, moreover, further developed the original European rule by explicitly including the consequences for breach. Art 27 Consumer Rights Directive provides that in the event of inertia selling the consumer will be exempted from the obligation to provide any consideration.44 As noted by Hall/Howells/Watson, the provision is ‘out of place’ in the structure of the Consumer Rights Directive.45 In this respect, it reflects the legislator's intention to dissuade the business from adopting such a consumer-unfriendly practice rather than to take a decision on the structure of contracts. 22 The Distance Marketing of Financial Services Directive contains a similar provision: 20

Article 9 Distance Marketing of Financial Services Directive 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.

42 Under No. 21 Annex I UCPD it is always an unfair commercial practice for the business to include ‘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’. 43 See Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016). 44 See Chapter 3, paras 90 et seq. For further problems see De Cristofaro, ‘Italy’ in De Cristofaro/De Franceschi (n 20) 102. 45 Hall/Howells/Watson, ‘The Consumer Rights Directive – An Assessment of its Contribution to the Development of European Consumer Law’ (2012) ERCL 139, 165.

48

I. Concept of Contract

This provision has the task of protecting the consumer's freedom surrounding her decision to enter into a contract – the business may not use performance as a means to force the consumer to submit to a payment obligation. The intention is also to avoid silence as a means to communicate consent. The provision does not, however, prohibit national laws that allow or provide for the tacit renewal of such distance contracts for financial services. This provision therefore concerns a rule that focuses primarily on the initiation of contracts. It serves to clarify that the consumer's silence does not constitute a declaration of contractual intent. In this respect, its aim is not to outline the requirements for the conclusion of contract but rather solely to give the minimum requirements for the validity of the consumer's declaration of intent. The Acquis Principles summarize the rules on inertia selling in the Distance 23 Selling Directive and in the Distance Marketing of Financial Services Directive as:46 Article 4:106 ACQP 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.

Whereas the ACQP state in general that no obligation arises for the consumer 24 in the event of a failure to respond, the DCFR is even clearer in expressing that no contract arises and no ‘non-contractual’ obligation arises for the consumer: Article II.–3:401 DCFR 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. (…)

The text adopted by the DCFR is based on the acquis communautaire as well 25 as on corresponding rules in national laws47 and thus allows for greater precision to be given to the scope of protection for the consumer. Irrespective of the stipulation that no contract will arise, and accordingly no contractual obligations for the consumer, the rule clarifies that the consumer can dispose of the delivered good without liability arising vis-à-vis the business.48

46 Contract II/Schulze art 4:106 para 1. 47 On the background to the DCFR see DCFR Full Edition 1 et seq; Schulte-Nölke, ‘Contract Law of Law of Obligations – The Draft Common Frame of Reference (DCFR) as a Mulitfunction Tool’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 47. 48 DCFR Full Edition 259.

49

Chapter 2 Core Elements 26

In contrast, the wording of the Consumer Rights Directive appears to limit this privilege to the exemption to pay consideration, therefore it remains unclear whether the business can enforce any other rights.49 The differences regarding the rights the business may have in this situation were clearer in the earlier stages of the legislative process, though it is apparent that the European legislator did not want to go so far as to regulate all the details in order to afford the national legislator more regulatory options for the consequences of inertia selling.50 b) Complex process of conclusion of contract

27

The Acquis Principles have used the acquis communautaire in order to give greater clarification to the concept of contract:51 Article 4:101 ACQP Agreement between the parties A contract is concluded if the parties intend to be legally bound, and they reach a sufficient agreement.

28

This article is based on various different sources in the acquis communautaire.52 Alongside the aforementioned Distance Selling and Doorstep Selling Directives (the Consumer Rights Directive was passed after the Acquis Principles were published), one can also refer to recital 10 Unfair Terms Directive, art 7(2) Consumer Sales Directive and art 9 Distance Marketing of Financial Services Directive as additional sources. One could certainly discuss whether the Acquis Principles are a correct reflection of the acquis. Art 9(2) Distance Marketing of Financial Services Directive only sets the minimum requirements for the consumer's declaration. A more convincing argument can be seen in the second sentence of art 7(1) Consumer Sales Directive: Article 7(1) Consumer Sales Directive Binding nature 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.

The provision refers to the agreement between the parties.53 However, it is doubtful whether it contains a sufficient basis for the suggestion that this represents the concept of contract supported by the European legislator. Here, the 49 50 51 52 53

50

For more detail see Chapter 3, para 95. Heiderhoff, Europäisches Privatrecht (4th edn, C.F. Müller 2016) para 394. See Chapter 3, para 10. Contract II/Schulze art 4:101 paras 1–3. Contract II/Schulze art 4:101 para 1.

I. Concept of Contract

European legislator does not attempt to use the wording of the provision to indicate particular features of the contract but rather aims at easing the mandatory provisions concerning prescription (in relation to second-hand goods). In this instance the Directive should not be interpreted in a manner suggesting that the ‘agreement’ is a particular form by which a contract is concluded. Furthermore, the provision does not determine the requirements for the conclusion and effectiveness of the contract. The Unfair Terms Directive is not to be considered as a sufficient basis for a 29 particular concept of contract. Recital 11 Unfair Terms 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; Recital 12 Unfair Terms Directive 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;

Both recitals do not make sufficient reference to the existence of a particular European understanding of contract. Recital 12 clarifies that the consumer must be protected from non-negotiated contract terms. Nevertheless, these recitals do show – albeit indirectly – a notion of contract, or to be more precise a concept of party autonomy. The recitals proceed from the basis of a distinction between negotiated and non-negotiated content of the contract. The fact that the content of the contract has not been individually negotiated justifies the legislative intervention – the lack of negotiations weakens the willingness to be bound by the contract as the control of terms greatly unfair to the consumer cannot be avoided with the arguments of freedom of contract and party autonomy. However, this is too little in order to assert that the European legislator could have a complete concept of the requirements for the conclusion of a contract. The requirement of consensus as the foundation for a contract is more preva- 30 lent in the proposal for a Common European Sales Law.54 Art 30 CESL-D55 emphasizes, as the Acquis Principles, the necessity to reach an agreement (art 30(1) (a) CESL-D). However, this article also stipulates the requirements of such an agreement, namely the intention that the agreement shall have legal effect (art 30(1)(b) CESL-D) and sufficient content (art 30(1)(c) CESL-D).56 In this 54 Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 1–7. 55 For more detail see Chapter 3, paras 58 et seq. 56 Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 8, 13; v. Bar/Zimmermann, Grundregeln des Europäischen Vertragsrechts, Teil I und II (Sellier 2002) Comment B. on art 2:102 PECL, 152.

51

Chapter 2 Core Elements

context, the qualitative changes to European contract law through an instrument such as the CESL are apparent. Adopting the CESL as an optional instrument would have resulted in a fundamental change in the nature of European contract law. The acceptance of the optional contract law would mean that complete and independent principles would shape the autonomous European contract law. Such an optional instrument would possibly also exercise extensive influence on the EU contract law founded by directives.57 This was perhaps one of the reasons why the European Commission withdrew its proposal for a CESL – it may have opened the door for the extensive development of European contract law that, accordingly, several Member States wanted to keep shut. 3. Contract and notice 31

The acquis communautaire lacks such a comprehensive concept surrounding the effectiveness of notice. However, a rule on this matter can be seen in the ECommerce Directive in relation to notice given electronically. Article 11(1) E-Commerce Directive Placing of the order (…) 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. (…)

This provision is, however, only concerned with the question of the requirements under which two types of statements (order and acknowledgement of receipt) are effective in order for the obligation to arise for the service provider to acknowledge the receipt of the order. The rule therefore only covers one aspect of a statement and is thus hardly a suitable foundation for more extensive generalizations.58 Consequently, the Acquis Principles have avoided using this provision to develop a general rule on notice; the principles are therefore limited to the following situation: Article 1:303 ACQP 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.

57 Stürner, Vollharmonisierung im Europäischen Verbraucherrecht (Sellier 2010) 20 et seq. 58 Contract II/Leible/Pisuliński/Zoll art 1:303 para 2.

52

I. Concept of Contract

The Acquis Principles do contain two further rules on notice that are applica- 32 ble to all statements: Article 1:301 ACQP Means of notice Notice may be given by any means appropriate to the circumstances. Article 1:302 ACQP Effectiveness of notice (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 a way that the addressee could reasonably be expected to obtain access to it without undue delay.

These rules are indicated as ‘grey rules’ in order to clarify that the Acquis 33 Group did not considered the single source in the E-Commerce Directive as offering a sufficient basis for a general rule.59 The Acquis Group was thus of the opinion that the decision concerning the parties' respective interests – as determined in the E-Commerce Directive – is not indicative of the European legislator's general interest in extending the concept of notice beyond the Directive's narrow scope of application.60 However, art 10 CESL-D has taken this rule from art 11(1) E-Commerce Directive as a model for a general rule on the requirements for effectiveness of notice.61 The approach is based on the ‘receipt theory’, which features in many national legal systems.62 The concept of notice is accompanied by a revolutionary change as the use of 34 the term ‘notice’ (as opposed to ‘statement of intent’) expresses legally relevant statements extending beyond indications of contractual intent. The term ‘notice’ not only includes statements of knowledge but also particularly includes information given by one party to the other.63 However, one has to bear in mind that such information is relevant for determining the content of the legal relationship between the parties. The transition from ‘statement of intent’ to ‘notice’ is thus characteristic for the shift in focus in modern contract law from individual con59 Contract II/Dannemann Introduction xlvii. 60 Contract II/Dannemann Introduction xlvii. 61 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 7; Schulze CESL/SchulteNölke art 10 CESL-D para 2. 62 See Brinkmann, Der Zugang von Willenserklärungen (Duncker & Humblot 1984) with further references; Perales Viscasillas, ‘Contract Conclusion under CISG’ (1997) Journal of Law and Commerce 315, 319; Schwenzer/Hachem/Kee (n 29) para 34.57. 63 Schmidt-Kessel CESL/Müller-Graff art 10 CESL-D para 1; Schulze CESL/Schulte-Nölke art 10 CESL-D para 3.

53

Chapter 2 Core Elements

tracting to standardized, mass contracting.64 Notice as a concept qualifies the strong boundaries of the distinction between statements of intent and of knowledge. Moreover, it diminishes the role of a statement of intention in shaping the contractual relationship between the parties because it makes it clear that particular contractual statements are to be treated in the same manner irrespective of whether they were made with the intention of creating the ‘desired’ legal consequences or whether they should only just outline the relevant facts for the other party. 35 A highly important aspect concerns the moment at which notices become effective. This question relates to all notices (irrespective of the aforementioned distinction) and can vary between two poles, as shown in the discussion in the 19th century: the ‘dispatch theory’, whereby notice will be effective upon dispatch, and the ‘receipt theory’, whereby the notice has to be communicated to the addressee in order for it to become aware of the content.65 The adopted approach results occasionally from a combination of individual aspects of each of these two theories. Article 11(2) Consumer Rights Directive Exercise of the right of withdrawal 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.

Although the aforementioned provision adopts the approach under the dispatch theory it only focuses on one aspect thereof, namely remaining within time limitations. The mere dispatch of notice of withdrawal within the withdrawal period will suffice in order for the withdrawal to be effective. However, the provision is restricted to this one issue and does not stipulate either the time at which the notice takes effect or the party who shall bear the risk should the notice of withdrawal not reach the addressee. As the Consumer Rights Directive does not provide and answer to these questions, it is therefore for the national legislator to provide a solution.66 37 The developments in communication technology give rise to an increasing amount of questions of this kind and it is above all in the modern digital world in which there is a clear need for uniform answers. Where electronic communications are concerned one has to further clarify how the traditional requirements can be satisfied by modern technology. This particular question was posed in Content Services. 36

64 Contract II/Leible/Pisuliński/Zoll art 1:301 para 1. 65 On these concepts see Schwenzer/Hachem/Kee (n 29) paras 34.55 et seq. 66 Contract II/Møgelvang-Hansen/Terryn/Schulze art 5:101 para 5; see also Toncoso, ‘Spain’ in De Cristofaro/De Franceschi (n 20) 176.

54

II. Types of Contract in the Acquis Communautaire Case C–49/11 Content Services ECLI:EU:C:2012:419 Article 5(1) of 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 must be interpreted as meaning that a business practice consisting of making the information referred to in that provision accessible to the consumer only via a hyperlink on a website of the undertaking concerned does not meet the requirements of that provision, since that information is neither ‘given’ by that undertaking nor ‘received’ by the consumer, within the meaning of that provision, and a website such as that at issue in the main proceedings cannot be regarded as a ‘durable medium’ within the meaning of Article 5(1).

The decision focused on the important question whether the formal require- 38 ments concerning the information on the right of withdrawal are fulfilled by merely sending a hyperlink to a website containing the information (including, as in the facts of Content Services, the exclusion of the right of withdrawal). This answer has an important consequence as the consumer will be able to effectively withdraw from the contract if such means of providing the information on the withdrawal right are not deemed to satisfy the requirements,67 whereas the withdrawal will be ineffective and the consumer will be contractually bound if the requirements have in fact been satisfied. The standards for the information could be fulfilled if, by merely clicking on the hyperlink, the consumer has the possibility to download the information and take notice thereof. However, the service provider can easily change the content of this information and, at the same time, the consumer can only obtain this information by actually clicking on the hyperlink. The passive consumer is thus precluded from taking notice of the information. Accordingly, the question is thereby posed whether the ‘passive’ consumer is the appropriate standard in this instance. There may be the view that the customers in Content Services are to rather be qualified as active consumers, i.e. one can expect them to undertake the necessary, simple steps to gain the information;68 the ECJ, however, decided against this liberal interpretation. In its opinion the information is only given in conformity with the requirements when the consumer does not have to undertake any additional acts in order to take notice of the information. The decision in Content Services indeed concerned the former Distance Selling Directive, yet it remains relevant in relation to the Consumer Rights Directive (which is referred to by the ECJ in paragraph 11 of its decision and thus can be viewed as an expression of advance effect of the Directive). II. Types of Contract in the Acquis Communautaire 1. Specific circumstances

European contract law greatly refrains from stipulating contract types. As the 39 directives generally only have a supplementary effect they do not need to contain provisions on the types of contract and, in particular, rules on the main obli67 Arts 6(1)(h) and 11(1) Consumer Rights Directive. 68 Tamm, Verbraucherschutzrecht (Mohr Siebeck 2011) 153

55

Chapter 2 Core Elements

gations characteristic of a particular type of contract.69 The European legislator's restraint is primarily based on the link in European contract law to specific circumstances in which the weaker party (in many cases the consumer) is to be protected. It is only in rare instances in which the acquis communautaire comes close to typifying contracts. a) Commercial agency Article 1(2) Commercial Agents Directive [Scope] For the purposes of this Directive, ‘commercial agent’ shall mean a self-employed 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. Article 3 Commercial Agents Directive [Rights and obligations of the commercial agent] (1) In performing has activities a commercial agent must look after his principal's interests and act dutifully and in good faith. (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 6(1) Commercial Agents Directive [Remuneration] 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.

40

The Commercial Agents Directive is an example of one of the rare instances in which a directive outlines an entire type of contract for the Member States. This Directive sets out the duties and rights under the defined type of contract and requires the national legislator to give legislative protection to a commercial agent in certain circumstances, but it also provides virtually complete regulation of the commercial agency contract. However, one has to bear in mind that the European legislator is ultimately pursuing a different objective to the national legislator when the latter outlines the rules for a particular type of contract in its national legislation. The national legislator is often acting with the main intention to provide the parties with a model to serve as a guideline for their agreement.70 In so doing there should be a reduction in the transaction costs that arise 69 Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Riesenhuber (n 7) 55–58; Zoll ‘New Structure for European Private Law’ (n 7) 556.

56

II. Types of Contract in the Acquis Communautaire

in preparing the contract. By comparison, the Commercial Agents Directive strives to go further by creating a frame of reference for an instrument protecting the commercial agent in order to combat the possible disadvantages that arise through improper behaviour by the principal. However, as the Directive outlines the rights and duties for both parties one can, with certain reservations, speak of a genuine type of contract as a product of European law.71 b) Timeshare

At first glance it may appear that other directives outline sets of rules for par- 41 ticular types of contracts, however a closer look at such directives results in the contrary approach, as demonstrated by the Timeshare Directive: Article 2(1)(a) Timeshare Directive Definitions ‘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

This definition of a timeshare contract does not serve to typify a particular contract. A ‘timeshare contract’ can cover many different types of contract that fulfil the requirements outlined in the Timeshare Directive. In this respect it is irrelevant whether the contract is to be classified purely as falling under the law of obligations or whether the parties are making use of proprietary rights (e.g. usufruct72). The European legislator therefore did not intend for the Directive to provide the parties with a complete model that would ease the conclusion of timeshare contracts, but rather that the particular legally-relevant situation should induce specific protective measures.73 The same function is also performed by the other definitions of contract types 42 contained in the Directive's list of definitions: ‘long-term holiday product contract’ (art 2(1)(b)), ‘resale contract’ (art 2(1)(c)) and ‘exchange contract’ (art 2(1)(d)). It may appear that the terms for these contracts correspond to a traditional manner of legislative typification of contracts, though this is misleading. Naming particular elements of these contracts merely serves to provide points of reference to allow the Directive's protection to be activated and is independent of the dogmatic structure the national legislator has chosen to cover these types of contract.74 70 See also Müller-Graff, ‘Ein fakultatives Kaufrecht als Instrument der Marktordnung?’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 38. 71 Flohr/Pohl in Martinek/Semler (eds), Handbuch des Vertriebsrechts (3rd edn, C.H. Beck 2010) Chapter 4, Der Handelsvertretervertrag. 72 Art 20 of the Polish Statute from 16 September 2011 on Timeshare, Dziennik Ustaw (Journal of Laws), No. 230, Pos. 1370. 73 Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Riesenhuber (n 4) § 1 para 28. 74 Recitals 1 and 5 Timeshare Directive.

57

Chapter 2 Core Elements

c) Consumer sales 43

A somewhat more complex situation arises in relation to the different forms of a sales contract given in EU law. These primarily stem from two directives that have been passed at different stages in the development of European contract law. It is characteristic that the first of these two directives – the Consumer Sales Directive – does not contain a definition of a sales contract.75 It merely defines ‘consumer goods’ (art 1(2)(b)), though this is purely to determine the Directive's scope of application. However, art 1(4) Consumer Sales Directive does contain an extension of the concept of a sales contract which can and must influence the classification of contracts from a national perspective: Article 1(4) Consumer Sales Directive Scope and definitions 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.

The European legislator has therefore decided to extend the scope of sales liability to contracts in which the performance of production-related obligations have been agreed, though the technical aspects of the implementation into national law remain with the national legislator. Irrespective of the variations in implementation at national level, one can nonetheless observe that the European legislator has opted to take a type of contract that may (in the broad sense) be categorized as a services contract and recategorize it as a type of sales contract. The Consumer Sales Directive has, however, refrained from outlining the details of a sales contract as the European legislator presumes that this context will be understood uniformly across Europe.76 It expects that the limitation to the type of goods77 defined in the Directive will eliminate the greatest differences between the various systems of sales contracts. These differences can be found above all in the diverging answers to the question of what, alongside tangible goods, can be the object of the sales contract. One can therefore at least presume that the Consumer Sales Directive is based on a common European notion of sales contract that has been derived from the comparative research undertaken when drafting this Directive. 45 The proposed Online Sales Directive regulates in more detail the notion of a sales contract. 44

75 Serrano/Bianca/Grundmann EU Sales Directive art 1 para 9. 76 Serrano/Bianca/Grundmann EU Sales Directive art 1 para 9. 77 On the concept of consumer goods see Serrano/Bianca/Grundmann EU Sales Directive art 1 paras 28–40; Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ (1999) EuZW 485, 486.

58

II. Types of Contract in the Acquis Communautaire Article 2(a) Online Sales Directive Definitions ‘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.

This article contains a comprehensive definition of a ‘sales contract’ and with 46 aspects ranging from the obligations to the effects falling under the definition. The legislator has attempted to take into consideration the various different national rules on a sales contract. For this reason, the definition also covers a contract with an intrinsic proprietary effect in order to include those legal systems in which the sales contract alone has proprietary effect without the need for an additional act to this effect, as for example under French law. The definition also covers the instances in which an obligation to transfer property arises with payment of the price. The broad concept of a sales contract under the Consumer Sales Directive has also been drafted so as to include the obligation to transfer property in the good to be manufactured. Furthermore, a duty to pay the price must also arise for the buyer/consumer. However, the definition of sales contract in the proposed Online Sales Directive cannot be equated with the classification of contract times in civil codes. The proposal rather attempts to cover the different national approaches to defining a sales contract in order to ensure that the Directive has a relatively broad scope of application. Its aim is therefore not to create a European concept but rather to respond to range of definitions of sales contract across the Member States. At the same time one may also observe a gradual shift in the current practice: a term for a type of contract is used instead of defining a situation in which the provisions are to apply. The DCFR has utilized the results of comparative research in order to synthe- 47 size the concept of a sales contract:78 Article IV. A.–1:202 DCFR 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.

d) Consumer credit

Similarly, a definition only relevant to the scope of application of a directive 48 is also apparent in the Consumer Credit Directive.

78 DCFR Full Edition 1234.

59

Chapter 2 Core Elements Article 3(c) Consumer Credit Directive Definitions ‘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;

49

In using such a definition the European legislator is attempting to cover all instances in which it considers that consumers ought to be protected. The definition is broad as it covers various different types of contracts – the decisive element here is whether a deferred payment or other financial accommodation is provided; therefore even sales contracts with deferred payment can fulfil the requirements of this definition. 2. Increase in contract types in the acquis communautaire a) Framework contract

50

These methods of regulating different legally-relevant situations in the acquis communautaire present the national legislators with the difficult question of how to integrate models, devised for an entirely different approach, into a system structured by contract types. Problems may arise when attempting to incorporate the European rules into the system as aspects of the European provisions may be easily overlooked. Moreover, the acquis communautaire is continuously growing and contains new directives that do not just provide rules for one specific issue but rather comprehensive provisions for an entire field. The Payment Services Directive is an example of the latter as it does not just define a framework contract but regulates it almost entirely. Article 4(12) Payment Services Directive Definitions ‘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;

Chapter 3 of the Payment Services Directive contains extensive rules for framework contracts. However, the provisions for these contracts do not just contain the foundations for customer protection but also include important points concerning the legal relationship vis-à-vis each of the parties (e.g. termination, art 45). The regulation of the framework contract has thus allowed for a near-complete system to emerge even though the development of this system can be traced back to purposes aimed at providing protection.

60

II. Types of Contract in the Acquis Communautaire

b) Advisory services

The increase in European norms regulating specific types of contracts is also 51 shown by the Mortgage Credit Directive, which provides rules on contracts for advisory services. Article 4(21) Mortgage Credit Directive Definitions ‘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.

Chapter 8 of the Mortgage Credit Directive contains comprehensive regulation of advisory services contracts, though in this instance the rules have the notable function of determining the status of the parties to one another. It is often difficult to ascertain the role the business performs when financial services are offered and accordingly the question is posed whether the business is solely aiming at the conclusion of a contract for financial services and is, alongside the required pre-contractual information, merely attempting to advertise its product or, moreover, whether an additional advisory contract shall be concluded. The concern for the European legislator is to ensure that customers are given clear information about the role the business has in providing its services and which duties can arise when a corresponding contract is concluded (e.g. when the business just provides advice).79 c) Service contracts

The European legislator uses the concept of services in a number of further 52 directives.80 From an economic perspective services play a role of increasing importance.81 This is also reflected at legislative level not only by the shift in focus towards service contracts but also by the view that such contracts present the most important tasks for a modern legal system.82 The term ‘service’ is therefore to be found in numerous other aspects of EU law, though its very heterogeneous use means that it covers (and can encompass) many different types of legal relationships. Consequently, the reference by the European legislator to

79 Recital 47 Mortgage Credit Directive. 80 For example art 4(1) Services Directive; art 2(a) E-Commerce Directive; art 1(2) Directive 98/48/EC of the European Parliament and of the Council of 20 July 1998 amending Directive 98/34/EC laying down a procedure for the provision of information in the field of technical standards and regulations [1998] OJ L217/18; art 4 and Annex Unfair Terms Directive; art 2 Package Travel Directive; art 3(c) Consumer Rights Directive; art 1(2)(c) Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [2002] OJ L09/03. 81 On the importance of services law in the EU see Streinz ‘Rezension zu Calliess/Korte, Dienstleistungsrecht in der EU’ (2013) NVwZ 346; Hatzopoulos, Regulating Services in the European Union (OUP 2012) vii-viii. 82 See Zimmermann, Service Contracts (Mohr Siebeck 2010).

61

Chapter 2 Core Elements

a ‘service’ or ‘service contract’ does not allow one to presume that there is a solid framework for a ‘European’ service contract. One can therefore even doubt whether in this respect it is possible to speak of a contract type.83 53 EU primary law contains a definition of ‘services’: Article 57 TFEU 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) activities of an industrial character; (b) activities of a commercial character; (c) activities of craftsmen; (d) 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.

The primary purpose of this provision does not lie in the regulation of issues of private law but rather serves to structure the freedom to provide services in the European Union.84 Nonetheless, the significance of this provision extends beyond the boundaries of public law: the definition provides the basis for the further development of European services law in its entirety. An illustration of this feature is provided by the Services Directive with its express reference to the definition of service given in art 50 EC Treaty, which has since been replaced without any change in content by art 57 TFEU: Article 4(1) Services Directive Definitions ‘service’ means any self-employed economic activity, normally provided for remuneration, as referred to in Article 50 of the Treaty;

Although the Services Directive mostly includes provisions of a public law nature,85 it does contain rules that are of importance for contract law, for example the content of the pre-contractual information to be given by the service provider (art 22(1)) and how it is to be provided (art 22(2)), as well as prohibiting discrimination (art 20). However, these articles do not represent the sole extent to which the Services Directive is relevant to contract law as specific rules can also be seen in the other provisions on the quality of services (Chapter V). The reference to the definition given in primary law is of additional importance for contract law as such a definition expresses that the term ‘service’ does not extend to contracts whose objects are goods or capital. This negative definition 83 Wendehorst, ‘Das Vertragsrecht der Dienstleistungen im deutschen und künftigen europäischen Recht’ (2006) 206 AcP 205, 226–227. 84 Tiedje in von der Groeben/Schwarze/Hatje (eds), Europäisches Unionsrecht (7the edn, Nomos 2015) Art. 57 AEUV, para 70. 85 Tiedje (n 84) para 73.

62

II. Types of Contract in the Acquis Communautaire

means that all contracts are to be considered as service contracts unless they are concerned with the movement of goods or capital. However, it is the European Commission's view that online sales contracts are to be considered as retailing services in order for the Services Directive to apply (e.g. the rules concerning non-discrimination), though the attempts to further extend the definition may go too far in this instance. Such attempts are nevertheless characteristic of the general problem surrounding the definition of a service and show the inherent difficulties. It may appear to be a category for which an autonomous definition is necessary, but one has to remember that this category is developing into an endless general term that covers nearly all contracts other than sales contracts. This problem becomes clear when interpreting ‘contracts under which a trad- 54 er supplies goods or services to a consumer’ – an expression used in many directives.86 The question in this respect is whether this wording functions as a limitation or as a synonym for ‘all contracts’; this was the subject of the decision in Dietzinger.87 In this case the ECJ was, inter alia, to decide whether a guarantee contract concluded by a private individual (as guarantor) does not fall under the (then applicable) Doorstep Selling Directive because this Directive applied only to contracts for the supply of goods. Case C–45/96 Dietzinger ECLI:EU:C:1998:111 17. The Court observes that, according to Article 1, Directive 85/577 applies to ‘contracts under which a trader supplies goods or services to a consumer’ which are concluded away from the trader's business premises, unless the trader was expressly requested by the consumer to visit him with a view to the negotiation of the contract. 18. In determining whether a contract of guarantee securing performance of a credit agreement by the principal debtor can fall within the scope of Directive 85/577, it should be noted that, apart from the exceptions listed in Article 3(2), the scope of the directive is not limited according to the nature of the goods or services to be supplied under a contract; the only requirement is that the goods or services must be intended for private consumption. The grant of a credit facility is indeed the provision of a service, the contract of guarantee being merely ancillary to the principal contract, of which in practice it is usually a precondition. 19. Furthermore, nothing in the wording of the directive requires that the person concluding the contract under which goods or services are to be supplied be the person to whom they are supplied. Directive 85/577 is designed to protect consumers by enabling them to withdraw from a contract concluded on the initiative of the trader rather than of the customer, where the customer may have been unable to see all the implications of his act. Consequently, a contract benefiting a third party cannot be excluded from the scope of the directive on the sole ground that the goods or services purchased were intended for the use of the third party standing outside the contractual relationship in question. 20. In view of the close link between a credit agreement and a guarantee securing its performance and the fact that the person guaranteeing repayment of a debt may either assume joint and several liability for payment of the debt or be the guarantor of its repayment, it cannot be excluded that the furnishing of a guarantee falls within the scope of the directive.

86 As in art 1(1) Doorstep Selling Directive. 87 See Kümmerle, ‘„Güter und Dienstleistungen“ – Vertragstypenbildung durch den EuGH’ Andrés Santos/Baldus/Dedek (eds), Vertragstypen in Europa: Historische Entwicklung und europäische Perspektiven (Sellier 2011) 305–307.

63

Chapter 2 Core Elements

The ECJ's decision expresses that ‘goods and services’ does not serve as a limitation. It does not refer to types or groups of contracts; the Court rather considers that the European legislator intended to set as wide a scope of application as possible so that not only sales contracts are covered.88 56 However, this does not mean that the European legislator only uses this nonspecific definition of service. Several directives contain a more precise definition of services in order to give a more definable category of contracts, for example the Consumer Rights Directive: 55

Article 2(6) Consumer Rights Directive Definitions ‘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;

57

This particular definition reflects all of the problems concerning the definition of a service contract. An observable characteristic is its inclusion of the negative element, namely a contract that is not considered a sales contract. It is clear to the legislator that this negative definition is insufficient and therefore there is the – quite unsuccessful – attempt to incorporate a positive aspect by referring to the supply of the service; though this highlights the vicious circle afflicting the definition – idem per idem.89 Classification of this contract has therefore not been achieved, in fact it lacks criteria that could have provided a clearer definition. Similarly, academic sets of rules such as the DCFR have also been unsuccessful in proposing a better and fuller definition of a service contract.90 Article IV. C.–1:101(1)(a) DCFR Scope This Part of Book IV applies: 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

58

The DCFR does in fact contain a complex regulation of service contracts and related contracts (e.g. distributorship contracts in arts IV.E.–5:101 et seq. DCFR) though this system does not represent current European law. Great difficulty also arises in attributing the system to the results of comparisons from the Member States – a basis can only be seen in the new Dutch Civil Code.91 In this respect, the DCFR therefore only presents an attractive model for the future.

88 Kümmerle (n 87) 305–307; Zoll, ‘Consumer Notion: Suretyship’ in Terryn/Straetmans/ Colaert (eds), Landmark Cases of EU Consumer Law (Intersentia 2013) 73. 89 Whittaker in Zimmermann (n 82) 135; Loos in Hartkamp (ed), Towards a European Civil Code (4th edn, Kluwer 2011) 764. 90 See Unberath, ‘Der Dienstleistungsvertrag im Entwurf des Gemeinsamen Referenzrahmens’ (2008) ZEuP 745. 91 De overeenkomst van opdracht in art 7:400 BW.

64

II. Types of Contract in the Acquis Communautaire

d) Contract types under the CESL

The European legislator took an important step towards a complete regulation 59 of contract types through its proposal for a Common European Sales Law. In contrast to directives, the proposed CESL does not seek to supplement national laws but rather to create a complete, directly applicable regulation of the legal relationships between parties. As such it adopts an entirely different legislative technique.92 The ‘typificiation’ of contracts in the CESL93 would function not only as a set of rules for the parties but moreover would set the boundaries for effectively selecting the optional instrument as the regulatory basis for the contract. Art 5 CESL-Reg-D outlined the intended scope of application for the CESL: 60 Article 5 CESL-Reg-D Contracts for which the Common European Sales Law can be used The Common European Sales Law may be used for: (a) sales contracts; (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.

Art 5 CESL-Reg-D affords the classification of contracts with a particular 61 function: the criteria for determining a type of contract shall also be decisive for the application of the CESL. Consequently, the method of classification is faced with a considerable challenge. A type of contract typically does not define the scope of application of legislation but rather offers a starting point.94 The classification of the contract is suitable in order to allow the identification of a group of norms that shall apply to a particular legal relationship. However, the proposed CESL attempts to draw strict boundaries in order to exclude the majority of mixed contracts from its scope. The types or groups of contracts falling in the scope of the proposed CESL 62 are defined as follows: Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (…) (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;

92 COM (2011) 636 final, 7. 93 Schmidt-Kessel CESL/Schmidt-Kessel art 5 CESL-Reg-D paras 1–6. 94 Andrés Santos, ‘Einleitung’ in Andrés Santos/Baldus/Dedek (n 87) 4–5; Staudinger BGB/ Feldmann/Löwisch (2012) § 311 paras 30–32.

65

Chapter 2 Core Elements (…) (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; (…)

63

Art 2 CESL-Reg-D does not contain a definition of ‘contracts for the supply of digital content’, but rather only defines the notion of ‘digital content’: Article 2(j) CESL-Reg-D Definitions ‘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;

64

The entire definition of a contract for the supply of digital content requires one to read the provision on the CESL's material scope of application95 (art 5(b) CESL-Reg-D) in conjunction with the aforementioned definition of ‘digital content’.96 In this instance one also must take into account the double function of these definitions: to determine the instrument's scope of application and to make the possibility of a complete regulation of the contractual relationship available to the parties. e) Contracts for the Supply of Digital Content

65

The European legislator turned in the Consumer Rights Directive to the regulation of digital content in a contract law framework. Although since withdrawn, the proposed CESL was, as indicated above, an attempt to approach this complex problem at EU level. The Consumer Rights Directive indeed provides rules for contracts for digital content, though these are not comprehensive. The Directive defines digital content as: 95 On the material scope of application see COM (2011) 636 final, 8; Gomes, ‘The Proposal for a Common European Sales Law (CESL): An Introduction’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 11– 13. 96 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D paras 63–67; on the difficulties in distinguishing digital content from pure service contracts see ibid para 46.

66

II. Types of Contract in the Acquis Communautaire Article 2(11) Consumer Rights Directive Definitions ‘digital content’ means data which are produced and supplied in digital form;

The Consumer Rights Directive does not contain a rule concerning contracts for the supply of digital content. The Directive only uses such a category of contract in instances in which the legislator has considered it justifiable to include separate rules for digital content (e.g. art 5(g) Consumer Rights Directive). One can see that there is a clear tendency in EU law to attribute the supply of 66 digital content to sales law. Moreover, this development shows an extensive change that not only impacts on the contract law of the Member States but also has a profound effect on the existing structures in conventional copyright law. The ECJ voiced its view on this issue in UsedSoft, a much-discussed decision:97 Case C–128/11 UsedSoft ECLI:EU:C:2012:407 1.

2.

Article 4(2) of Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs must be interpreted as meaning that the right of distribution of a copy of a computer program is exhausted if the copyright holder who has authorised, even free of charge, the downloading of that copy from the internet onto a data carrier has also conferred, in return for payment of a fee intended to enable him to obtain a remuneration corresponding to the economic value of the copy of the work of which he is the proprietor, a right to use that copy for an unlimited period. Articles 4(2) and 5(1) of Directive 2009/24 must be interpreted as meaning that, in the event of the resale of a user licence entailing the resale of a copy of a computer program downloaded from the copyright holder's website, that licence having originally been granted by that rightholder to the first acquirer for an unlimited period in return for payment of a fee intended to enable the rightholder to obtain a remuneration corresponding to the economic value of that copy of his work, the second acquirer of the licence, as well as any subsequent acquirer of it, will be able to rely on the exhaustion of the distribution right under Article 4(2) of that directive, and hence be regarded as lawful acquirers of a copy of a computer program within the meaning of Article 5(1) of that directive and benefit from the right of reproduction provided for in that provision.

In applying sales law to a contract for the supply of computer software the decision thus not only typifies a contractual relationship but also foresees a mandatory categorization under sales law. The parties thus lose the possibility to be free to arrange their legal relationship in a manner that ensures, as far as possible, the complete mobility of the digital content. The European Commission has now proposed to regulate Contracts for the 67 Supply of Digital Content in a separate directive, namely the Digital Content Directive. Recital 11 Digital Content Directive 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

97 See in particular Spindler, ‘Contract Law and Copyright – Regulatory Challenges and Gaps’ in Schulze/Staudenmayer/Lohsse (n 34) 211.

67

Chapter 2 Core Elements 2011/83/EU of the European Parliament and of the Council. 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.

The recital makes clear that the proposal attempts to give a broad scope to contracts for the supply of digital content.98 It refers primarily to the technical aspects, though the new legal instrument is to exist independent of the technical development. However, this has an indirect effect on the classification of contracts because these varying technological processes can influence the types of contracts that cover the different forms of supply of digital content. The drafters would like to not only avoid a categorization of contract type through the technical procedures but also an unnecessary restriction of the Directive's scope. The contract for the supply of digital content under the proposal is a very comprehensive and non-specific category. Article 3 Digital Content Directive 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 counter-performance other 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

98 See Lehmann, ‘A European Market for Digital Goods’ in De Franceschi (ed), European Contract Law and the Digital Single Market (Intersentia 2016) 117; Lurger, ‘Anwendungsbereich und kaufvertragliche Ausrichtung der DIRL- und FWRL-Entwürfe’ in Wendehorst/ZöchlingJud (eds), Ein neues Vertragsrecht für den digitalen Binnenmarkt (Manz 2016) 27.

68

III. Mixed Contracts

(e)

games, poker games and betting transactions, by electronic means and at the individual request of a recipient of a service; financial services.

(…)

The notion of supply is to be understood in a broad sense.99 The proposal de- 68 fines the term ‘supply’ as follows: Article 2(10) Digital Content Directive Definitions ‘supply’ means providing access to digital content or making digital content available;

The provision does not specify in great detail the notion of supply even though it is of central importance in determining the content of the content of the Directive. The drafters intended to use a broad notion that does not attach significance to the nature and means by which the access to digital content is granted. The provision does however conceal a revolution: normally the manner of performance (permanent transfer of rights, time-limited transfer, creating access to particular goods) is also a criterion for distinguishing between different types of contract. The broad spectrum of supply and access to digital content covers a wide range of types of performance without providing a concept for the type of contract concerned. The decision made by the proposal can pave the way for future legislation. Such an approach for modern contracts not only corresponds to the technological aspects in practice but also the classification of contracts does not serve to lower costs because of the complexities involved. III. Mixed Contracts

The ever-growing number of rules in European contract law causes the afore- 69 mentioned types of contracts (even with their specific functions) to become more widespread,100 thereby giving rise to the problem of how to treat mixed contracts in the acquis communautaire. Art 2(5) Consumer Rights Directive therefore contains the first EU rule concerning this problem.

99 See Lehmann (n 98) 116. 100 Alpa, ‘Towards a European Contract Law’ in Schulze/Stuyck (eds), Towards an European Contract Law (Sellier 2011) 23, 23–33; Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009); Müller-Graff, ‘Der Introitus des optionalen Europäischen Kaufrechts: Das erste Kapitel im Kontext von Kodifikationskonzept und Primärrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 51, 54 and n 13 on the numerous projects contributing to harmonization of European private law; MüKo BGB/Busche (2012) Vorbemerkung paras 47–48; Reding, ‘The Next Step Towards a European Contract Law for Businesses and Consumers’ in Schulze/Stuyck ibid 9, 9–20; Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) paras 24–43, Introduction, 3, 3– 4; Schulze/Stuyck, ‘An Introduction’ in Schulze/Stuyck ibid 3, 3–8.

69

Chapter 2 Core Elements Article 2(5) Consumer Rights Directive Definitions ‘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;

Art 2(5) Consumer Rights Directive regulates how a contract is to be treated when it contains both sale and service elements. At first glance it would appear that this article adopts the absorption theory101 as a mixed contract is to be treated as a sales contract (irrespective of the reciprocal relationship of both types of performance). There are however two reasons which cast doubt on whether such an interpretation is actually intended: the first arises from the entirely pragmatic observation that the general application of sales law would lead to unreasonable results in contracts in which the service element plays the dominant role and the transfer of ownership is merely secondary (e.g. restricted to documentation). The second concerns the function of art 2(5) Consumer Rights Directive – the provision should not be viewed as a complete regulation of mixed contracts but rather merely as a norm outlining the scope of application of those provisions of the Directive which indirectly refer to the sales contract. It primarily concerns the rules in Chapter IV of the Directive which are specific to sales, but also other individual provisions elsewhere in the Directive e.g. art 9(2)(b) which determines the start of the withdrawal period. The final version of the Directive does not aim at comprehensive regulation of a sales contract which also contains features to be performed under other contract types; instead it attempts to use these simple means to determine the scope of application of the Directive's provisions. In other words the Directive does not contain a general rule for mixed contracts but only stipulates the application of individual rules. 71 The DCFR contains a more traditional approach to regulating mixed contracts: 70

Article II.–1:107 DCFR 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 (…) (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. (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 aris-

101 See below, para 72.

70

III. Mixed Contracts ing 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.

The DCFR offers a near complete regulation of the contractual relationships. 72 In this case a rule pertaining to mixed contracts therefore has the task of determining the law applicable to the contract. Art II.–1:107 DCFR expresses a typical approach (at least in the Germanic legal family) of supplementing the combination theory102 with the absorption theory. However, one must bear in mind that a typification of contracts is not the approach favoured by the DCFR. This is illustrated especially in Book IV DCFR (specific contracts), which takes on the characteristic role of regulating service contracts, and for which the DCFR's authors have selected the method of grouping contracts.103 Book IV contains three chapters which concern service contracts: Part C focuses on services (in the narrow sense), Part D on mandate and Part E on commercial agency, franchise and distributorship. Each of these groups covers further types of contracts, such as construction, processing, storage etc. However, each part contains general rules and Part C serves as a type of ‘general part’ for the other parts (art IV. C.–1:103 DCFR); the provisions on mandate are in principle applicable subsidiarily to commercial agency, franchise and distribution contracts (art IV. E.–1:201 DCFR). The scope of application of a group of contracts is defined by a method that can be compared with concentric circles. Art IV. C.–1:101 DCFR serves as an example of this approach: Article IV. C.–1:101 DCFR 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.

One can observe under this provision that the relevant contracts are arranged 73 into three circles. The narrowest circle (for which the provisions of Book IV DCFR were mainly drafted) covers the contracts listed in art IV. C.–1:101(2) DCFR and for which the proposed rules are directly applicable. The further circles cover other service contracts in which remuneration is to be provided (art IV. C.–101(1)(a) DCFR) and, likewise, no restrictions apply for the application of the provisions in Book IV. The method signals that the rules for these contracts are indeed to be applied, but one has to consider that the content of the 102 Gawlik, ‘Umowy mieszane. Konstrukcja i ocena prawna’ in Pojęcie umowy nienazwanej, studia cywilistyczne (1971) vol XVIII (Palestra 1974) no. 5, 25, 30. 103 DCFR Full Edition 13–14.

71

Chapter 2 Core Elements

rules for the contracts is more greatly distanced from the contracts that the authors of the DCFR had in mind when drafting the rules. Although the wording of this provision does not stipulate an adjustment to the contract, it concerns the guarantee of greater flexibility that considers the deviations from the basic model. Finally, the third circle covers the service contracts for which a service is provided other than in exchange for a price (art IV. C.–1:101(1)(b) DCFR). It is expressly stipulated that the rules of Book IV can be applied but with ‘appropriate adaptations’.104 74 The three circles are not exhaustive in relation to the groups of rules that shall be applied to service contracts. The method adopted by the DCFR may also allow for the identification of further ‘concentric circles’ as is clearly illustrated by the definition of the individual contracts (contract groups): Article IV. C.–3:101 DCFR 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.

75

This provision is constructed under the same principle. The centre circle encompasses the contracts listed in art IV. C.–3:101(1), whereas the contracts listed in paragraph (2) fall within the outer circle. Similarly, further ‘service contracts’ are outlined. This method changes the concept of a mixed contract. The service contracts, which form a very broad and heterogeneous category, cover very different types of contractual performance. Such a very open concept of a service contract means that the boundaries for this type of contract are very vague. However, this aspect results in a flexible concept that leaves relatively little room for unnamed and mixed contracts as many different contracts for various types of performance – and of varying intensity – will indeed fall under the broad definition of a service contract. Art IV. C.–1:101 DCFR is not directly applicable to mixed contracts within the group and, moreover, within all three ‘service’ groups. The internal structure of the rule on services is rather to be observed and the general rule on mixed contracts is only applicable when no solution can be found within this structure. Despite the conceptual similarity, the method adopted by the DCFR for mixed contracts differs from the approach influenced by Germanic-continental European legal systems (combination and absorption theory) as it refrains from a clear differentiation between the contracts. 104 Zoll, ‘Der Entwurf für einen Gemeinsamen Referenzrahmen im Prozess der europäischen Rechtsvereinheitlichung’ in Gebauer/Teichmann (eds), Enzyklopädie Europarecht, Band 6, Europäisches Privat- und Unternehmensrecht (Nomos 2016) § 9 para. 99.

72

III. Mixed Contracts

The problem of mixed contracts also features greatly in the CESL. Its rule on mixed contracts fulfils many functions, for instance the traditional function of determining the scope of application of those provisions aimed at a particular type of contract, as well as contracts beyond this type. This function forms the basis of art 9 CESL-Reg-D. Article 9 CESL-D 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.

In comparison to art II.–1:107 DCFR, art 9 CESL-D contains a rule exclu- 76 sively following the combination theory. However, the heart of the statement lies in the effect of terminating the contract. In terms of structure this approach is surprising because such a rule would rather be expected under those provisions concerning the termination of the contract. The problems presented here are due to the unclear relationship between the sales contract (and the contract for the supply of digital content) and the ‘related’ service contract within the structure of the proposal. The provision attempts to align the relationship between the contracts, though in so doing the drafters are faced with two competing ideas underlying these types of contract. From a purely technical perspective the CESL names three separate types of contract: sales contract, contract for the supply of digital content, and the ‘related service’ contract. The CESL regulates the content of a contract for a ‘related service’ almost entirely through the provisions on the consequences of non-performance (Part V). According to the CESL's structure, the agreement of a sales contract and of a related service contract are to be viewed not as one contract but rather as two different contracts, although the CESL is not consistent in this concept. The aforementioned art 2(m) CESL-RegD requires the related service contract to be concluded at the same time, with the same object and between the same parties as for the sales contract or contract for the supply of digital content. It is frequently a mixed contract that is to be subjected to the combination theory. The drafters of the CESL have recognized the problem of the unclear relationship between the sales contract (or contract for supply of digital content) and the related service contract and have consequently included a separate rule for the termination of the contract: 73

Chapter 2 Core Elements Article 147 CESL-D 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.

The title of this provision is somewhat misleading as it does not concern the application of specific rules for sales contracts but rather the application of provisions that are mainly devised for sales contracts, though also for service contracts. Art 147(2) CESL-D plays a particular role in relation to the aforementioned problem of mixed contracts. It contains a hidden exception to art 9(2) CESL-D which, for unknown reasons, was not included in art 9 CESL-D. This exception sets out that, in contrast to art 9(2) CESL-D, the termination of the contract leads to the termination of the related service contract. However, one can presume that art 9 CESL-D regulates all the various combinations between the ‘main contract’ and the related service contract. 77 The complexity surrounding the subject matter of the contract is a problem facing the legislator in relation to the proposals for an Online Sales Directive and a Digital Content Directive. The modern-day developments in technology also mean a completely different set of contractual obligations and rights that cannot easily be reduced to a basic structure. The different approaches to mixed contracts in the Online Sales Directive and in Consumer Rights Directive are therefore particularly noteworthy. Article 1 Online Sales Directive Subject matter and scope (…) (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. (…)

78

Art 1(2) Online Sales Directive attempts to clarify the relationship between sales and service elements in a contract. In contrast to the definition of a sales contract under the Consumer Rights Directive (which is based on the absorption theory), the Online Sales Directive favours the combination theory.105 There is therefore a similar mistake in methodology as in the Consumer Rights Directive, whereby the absorption theory is applied without giving consideration (at least according to the wording of the Directive) to the relationship between the sales 105 See Ostendorf, ‘Geplanter neuer Rechtsrahmen für Online-Warenhandel’ (2016) ZRP 69, 70; Wendehorst, ‘Hybride Produkte und hybrider Vertrieb. Sind die Richtlinienentwürfe vom 9. Dezember 2015 fit für den digitalen Binnenmarkt?’ in Wendehorst/Zöchling-Jud (n 98) 52.

74

III. Mixed Contracts

and service elements of the contract. Under the Online Sales Directive, however, the combination theory is applicable irrespective of whether the sales or service element is dominant.106 One ought not be restricted to the wording when interpreting this provision. The absorption theory must apply if the sales or service element dominates the nature of the contract – the wording of art 1(2) cannot oppose this approach.107 If the service element is dominant it will ‘absorb’ the sales element. A contract concluded in the real world will seldom fulfil all the requirements for just one specific type of contract; it is always a question of proportion.108 If the overlap is relatively high, one will apply the provisions for one type of contract. The question of the applicable provisions becomes increasingly pressing the greater the contract deviates from the central elements set by the legislation. A strict application of the combination theory, which aims at the application of the most appropriate rules for different, separate groups of rights and obligations, would fail if the various parts of the contract were so greatly intertwined so as to render their separation impossible. Here the provision from one contract type should be applied. In this respect, art 1(2) Online Sales Directive is of relatively little substance. In those cases in which the combination theory is applicable, the law harmonized by the Directive only applies to the sales element. Art 1(3) Online Sales Directive serves to regulate a further conflict. In this 79 case the conflict does not concern mixed contracts per se but rather the regulatory competition with the rules for contracts for the supply of digital content. The rule in paragraph 3 seeks to clarify that the provisions for an online sales (distance) contract do not apply to contracts for the supply of digital content on a durable medium.109 In this case the provisions of the Digital Content Directive apply instead (as clarified by art 3(3) Digital Content Directive). However, this approach creates gaps. The drafter has failed to realize that such contracts are not necessarily excluded from the scope of the Consumer Sales Directive. It is to be expected that this inconsistency will be removed over the course of the legislative process. The Digital Content Directive features an approach similar to art 1(2) Online 80 Sales Directive.

106 Ostendorf (n 105). 107 See Schmidt-Kessel/Erler/Grimme/Kramme, ‘Die Richtlinienvorschläge der Kommission zu Digitalen Inhalten und Online-Handel – Teil 1’ (2016) GPR 2, 5. See also Wendehorst (n 105) 53. 108 Schmidt-Kessel/Erler/Grimme/Kramme (n 107) 5. 109 Wendehorst (n 105) 52. See also the comments by Howells, ‘Reflections on Remedies for Lack of Conformity in Light of the Proposals of the EU Commission on Supply of Digital Content and Online and Other Distance Sales of Goods’ in De Franceschi (n 98) 155.

75

Chapter 2 Core Elements Article 3(6) Digital Content Directive Scope 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.

The wording of this provision also reflects the attempt to utilize the combination theory. The drafter has made an effort to also separate the scope in relation to the obligations and remedies beyond the supply digital content.110 The aforementioned is also relevant in this context: the rule is too strict and ignores the different scenarios, especially those in which a specific group of obligations and rights for a particular type of contract would be better suited in order to encompass the entire contract. In such instances, the wording of art 3 Digital Content Directive should not deny such an interpretation.111 81 Furthermore, these two examples of the discussions surrounding the issue of mixed contracts in both proposals highlight further problems that are a feature of EU law. The aforementioned provisions do not just concern the question of the rules to be applied in a mixed contract but rather also the Directive's scope of application and therefore the scope of European harmonization. Consequently, the problem in determining the true meaning of art 1(2) and (3) Online Sales Directive and art 3 Digital Content Directive means not only uncertainty as to the applicable rules but also uncertainty surrounding the extent of the European legislation.112 This is all the more concerning as full harmonization is proposed for both Directives. The text alone does not provide a clear basis for ascertaining the scope of the rules. 82 The Digital Content Directive features a further issue. A contract for the supply of digital content is not a particular type of contract,113 but rather a broad category that comprises many different types of contract. One therefore has to exercise restraint in applying the concept of a mixed contract in this context (which in principle is limited only by the notion of digital content). To some extent the concept of a contract for the supply of digital content ‘crosses’ different types of contracts under national law. Accordingly, the national legislator may choose to spread the provisions when implementing the Directive into national law.114 It would therefore not be a mixed contract from the national perspective. The national legislator would rather have to consider that particular contractual obligations and rights are subject to European law if they concern digital content. This example illustrates that the meaning of a mixed contract under European contract law differs from a mixed contract under national law. The tech110 111 112 113

Schmidt-Kessel/Erler/Grimme/Kramme (n 107) 7. Wendehorst (n 105) 19–43. Wendehorst (n 105) 42. See para 39; Schmidt-Kessel/Erler/Grimme/Kramme, ‘Die Richtlinienvorschläge der Kommission zu Digitalen Inhalten und Online-Handel – Teil 2’ (2016) GPR 54, 61. 114 Schmidt-Kessel/Erler/Grimme/Kramme (n 113) 61.

76

IV. Freedom of Contract

nique of identifying and applying the law within the national legal system can only be applied at European level in consideration of the, in part, different purposes. The European legislator simply intends to stipulate the extent of the harmonization – the 'European contract types' do not bind the Member States as long as the Directive's aims can be achieved. IV. Freedom of Contract 1. Overview

The principle of freedom of contract appears to also be self-evident in the 83 European context.115 It is emphasized in, for example, the DCFR: Article II.–1:102 DCFR 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.

The principle of freedom of contract is also stated very clearly in the pro- 84 posed CESL:116 Article 1 CESL-D 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.

As stated earlier, the withdrawal of the proposed Common European Sales 85 Law is of considerable significance for the notion of freedom of contract at European level. Freedom of contract in the CESL system was designed as a principle for the parties who chosen this instrument to regulate their contract.117 It was thus foreseen as a genuine principle of European contract law.118 How-

115 See Case T–24/90 Automec ECLI:EU:T:1992:97 para 51; Wagner, ‘Zwingendes Vertragsrecht’ in Eidenmüller et al., Revision des Verbraucher-acquis (Mohr 2011) 2–3. 116 On freedom of contract in the CESL see Claeys, ‘CESL Tools: Issues Settled, Matters Addressed, Rules, Principles, Objectives and All its Provisions’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 34; Schmidt-Kessel, ‘Der Vorschlag der Kommission für ein Optionales Instrument – Einleitung’ in Schmidt-Kessel (n 100); Schulze CESL/Schulte-Nölke art 1 CESL-Reg-D para 1. 117 See Schmidt-Kessel (n 116) 2. 118 See Schmidt-Kessel (n 116) 2; Herresthal, ‘Zur Dogmatik und Methodik des Gemeinsamen Europäischen Kaufrechts nach dem Vorschlag der Kaufrechts-Verordnung’ in Schulte-Nölke

77

Chapter 2 Core Elements

ever, as the proposal has been withdrawn and therefore has not become binding law, the principle of freedom of contract in a European context is not to be generalized in light of the role it was to play in the Common European Sales Law. European law rather acknowledges freedom of contract as a dominant principle of contract law in the Member States and modifies this principle with its own rules.119 86 It cannot be denied that European law imposes mandatory rules on the Member States and thus often limits contractual freedom.120 This is understandable when one takes into account the removal obstacles to trade in the internal market as an objective of European law. Consequently, many directives will contain mandatory rules that are to remain mandatory when transposed into national law. However, the European legislator has attempted to shape the national legal systems in a manner that strengthens the freedom of the weaker market actor (consumer, investors, distributors, groups susceptible to discrimination) in order to strengthen the internal market. One seeks to prevent businesses from using the freedom of contract to gain a greater advantage over those businesses that have to trade in accordance with laws serving to protect the weaker party.121 87 The extensive effect of European law on the national legal systems does however change the concept of freedom of contract. The primary focus of EU law lies in market regulation, not the will of the individual. The European legislator especially seeks to ensure that the customer receives that which he can legitimately expect to receive. It is therefore a market perspective whereby the standardization of contracts and products leaves little room for individual freedom to design the contract as desired. Furthermore, EU law serves to guarantee fair conditions and fair competition.122 For example, as a specific instrument of consumer protection, the right of withdrawal simply allows the consumer to change its decision and to withdraw from the contract.123 Although it is not suitable (at least not directly) as a means to exercise influence over the content of the contract, it does promote one aspect of the freedom of contract: the freedom to conclude the contract. Relaxing the principle of pacta sunt servanda also serves competition (as the consumer can still seek better offers even after the contract has been concluded).124 At the same time a right of withdrawal can serve as an incentive for businesses to refrain from imposing unacceptable terms – the consumer may exercise the right after discovering such terms during the ‘coolingoff’ period. Ultimately, it is an instrument to guide market behaviour.125

119 120 121 122 123 124

78

et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 111. In this vein also Claeys (n 116) 34. Herresthal (n 118) 111. Schmidt-Kessel (n 116) 3; Faust, Der Vorschlag für ein Gemeinsames Europäisches Kaufrecht (2012) Bonner Rechtsjournal 123, 128. Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 7 para. 943. Schmidt-Kessel (n 116) 5. See Chapter 3, paras 116 et seq.; Watson, ‘Withdrawal rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241. Riesenhuber (n 121) § 31 para 943.

IV. Freedom of Contract

2. Non-mandatory and mandatory law

In contrast to the DCFR and the proposed CESL, the Acquis Principles do not 88 contain a general rule that expresses the principle of freedom of contract or party autonomy.126 Art 1:203 ACQP merely contains a rule outlining the requirements for the mandatory nature of rules protecting a consumer:127 Article 1:203 ACQP 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.

The above rule not only reflects the current acquis communautaire but also 89 attempts to indirectly determine the boundaries of contractual freedom. One can see that not all of the Acquis Principles are mandatory (or cannot be modified to the consumer's disadvantage) even though their effect is to protect the consumer in a particular situation.128 According to these rules, only those provisions directly addressed to the consumer can be prejudicial, i.e. the notion of the consumer is assumed by the norm. One can therefore conclude that the authors of the Acquis Principles generally intended the Principles to be of a non-mandatory nature. Many sources129 of European private law contain similar provisions stipulat- 90 ing the mandatory effect of certain aspects of consumer protection. An illustrative example is given by art 25 Consumer Rights Directive: Article 25 Consumer Rights Directive 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.

This article only ascertains that all of the rules arising from this Directive can- 91 not be changed to the consumer's disadvantage. It is, however, not possible to ascertain from this provision whether the European legislator has taken the principle of freedom of contract as its foundation, though the drafters of the Directive have certainly acted on the basis that the contract law of the Member States has been built with this principle as the cornerstone. Nevertheless, it cannot be stated just in this context that the principle of freedom of contract is a tenet of 125 126 127 128 129

Watson (n 123) 241. Wagner (n 115) 4. Contract II/Schulte-Nölke art 1:203 para 1. Wagner (n 115) 49. As in the proposal for a Consumer Rights Directive, see Wagner (n 115) 4–6.

79

Chapter 2 Core Elements

European law. Ascertaining the role played by freedom of contract in the EU rather requires further sources, in particular the fundamental freedoms and fundamental rights anchored in EU primary law.130 92 According to Grigoleit131 the European legislator does not have the competence to pass non-mandatory (‘dispositive’) law as provisions of this kind are neither of significance for the creation of the internal market nor do they fall under the competence132 afforded by art 114 TFEU.133 However, one cannot accept this view as it is inaccurate for the harmonization of non-mandatory law to be of no actual significance for the creation of the internal market. Non-mandatory law is to be seen as the guiding model for the legislator's notion of justice and considered as giving direction to the control of contract terms.134 The harmonization of such law therefore plays an indispensable role in the harmonization of contract law and thus ultimately in creating the internal market. 93 Several directives contain non-mandatory provisions. The Consumer Sales Directive provides a notable example: Article 7(1) Consumer Sales Directive Binding nature 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.

94

Article 4 Consumer Sales Directive 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.

Art 4 Consumer Sales Directive concerns the legal relationships between businesses and protects the final seller from the risk of bearing the costs of consumer protection. However, art 4 is not covered by art 7 Consumer Sales Directive. A literal interpretation of the Consumer Sales Directive gives rise to the ar130 See Chapter 3, para 50. 131 Grigoleit, ‘Der Entwurf für ein Gemeinsames Europäisches Kaufrecht; Funktionsbedingungen, EU-Kompetenz und Perspektiven’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 67. 132 With respect to the choice of art 114 TFEU as the legislative basis and the contrary view that art 352 TFEU should have been the legal basis see Schmidt Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D paras 23–36. 133 Grigoleit (n 131) 77–81. 134 Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 141; Riesenhuber (n 121) § 31 paras 910 et seq.

80

IV. Freedom of Contract

gument that the Member States are free to use mandatory or non-mandatory provisions to implement the claims to redress. If this is true, one can pose the question whether the national legislator is free to designate the implemented norm as fully or partially mandatory. Minimum harmonization applies to this Directive: Article 8 Consumer Sales Directive 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.

Minimum harmonization allows the Member States to exceed the level of protection afforded by the Directive. However, according to art 8 Consumer Sales Directive this only concerns the level of consumer protection. As art 4 Consumer Sales Directive is not concerned with consumer protection one could consider that, in this instance, the national legislator's freedom surrounding implementation arises from the provision itself. The consequence may therefore be that the Directive even mandates the dispositive nature of the rule and the national legislator would have no room to restrict the freedom to draft the contract as desired. If such an interpretation were to apply then one would presume that, for example, the German transposition in § 478 BGB (which only affords the parties a very limited possibility to deviate from this rule) would be in breach of the Directive. This conclusion would, however, go too far. The teleological interpretation of art 4 Consumer Sales Directive would allow for the conclusion that the purpose of protecting the (often weaker) final seller from bearing all liability could hardly be achieved if there were no limitations on excluding the application of this rule. For this reason one can rather presume that the provision allows, at least implicitly, the national legislator to place restrictions on the dispositive nature of this rule. However, it may even be possible that an implementation allowing absolute exclusion of this rule would not violate the Directive. The Payment Services Directive also contains numerous provisions that can 94a be categorized as non-mandatory law. The dispositive nature of these provisions is primarily founded by the express stipulation in the Directive of mandatory rules protecting consumers, e.g. art 30(1) Payment Services Directive: Article 30 Payment Services Directive 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. (…)

81

Chapter 2 Core Elements

Art 30 Payment Services Directive clearly expresses that, with the exception of consumer protection, all provisions covered by this article are non-mandatory. However, this Directive represents an exception in European contract law because it does not simply supplement particular aspects of national law but rather represents a complete set of rules for this area. In this case the set of rules is ‘self-supporting’, i.e. it has to practically be implemented as a whole into national law. It therefore does not just need mandatory rules but also a system of dispositive rules to define and shape the area of law. The European legislator has, however, allowed the Member States to waive the non-mandatory nature of these rules and to assimilate them with the consumer protection standards, even outside of consumer law. 3. Limitations on contract drafting by controlling contract terms 95

European contract law may only selectively limit the boundaries of party autonomy by requiring the Member States to implement mandatory law. Yet at the same time it also adopts a different approach to restricting party autonomy, namely through the control of non-negotiated contract terms in consumer contracts through the Unfair Terms Directive.135 Article 3 Unfair Terms Directive [Terms not individually negotiated] (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.

96

This provision plays a specific role in European legislation because it expresses the substantive requirement for the limitations of party autonomy. The European legislator presumes that this control is necessary if the terms of the contract are given to the consumer either as part of pre-formulated standard terms or with the intention of single use. Protection for the consumer is difficult to justify when she can influence the content of the term.136 135 Collins, ‘The Directive on Unfair Contract Terms: Implementation, Effectiveness and Harmonization’ in Collins (ed), Standard Contract Terms in Europe (Wolters Kluwer 2008) 2; Jansen, ‘Klauselkontrolle’ in Eidenmüller et al. (n 115) 53–107. 136 Zoll, ‘Unfair Terms in the Acquis Principles and Draft Common Frame of Reference: A Study of the Differences between the Two Closest Members of One Family’ (2008) XIV Juridica International 69, 75.

82

IV. Freedom of Contract

It can be considered a paradox that the European legislator appears to be less 97 active with regard to B–B contracts. The Late Payment Directive is an example of such activity, albeit in a relatively narrow field of law. Article 7 Late Payment Directive 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. (…)

The Late Payment Directive only applies to B–B contracts. Art 7 Late Payment Directive creates a basis for the control of contract terms that determines the period for payment, however this control can even be carried out when the parties have negotiated the term. This does not mean that the negotiation of the term is not relevant for the control of its content. Art 7 Late Payment Directive outlines a number of criteria to be considered when examining the (un)fairness of a term; the negotiation does not form an explicit part of this list. In this instance the European legislator has attempted to use a ‘flexible system’137 to set the boundaries of party autonomy. This system is tailored to the requirements of the individual case rather than the mass-contracting characteristic of consumer transactions. The Late Payment Directive refrains from clearly stipulating that the negotiation and real possibility of negotiation should exclude examination of the content of the terms. This solution appears to be better suited to the future as it is very difficult to ascertain in practice whether a process of negotiation actually took place or whether a party actually had the possibility to influence how the contract was drafted. It is not simply possible to give a ‘yes or no’ answer as negotiations themselves as well as the influence of one party can vary in intensity. Consequently, the relationship between negotiations and the boundaries of

137 The term was coined by the Austrian scholar Walter Wilburg in Elemente des Schadenrechts (Elwert 1941); see, in English, Wilburg, The Development of a Flexible System in the Area of Private Law (Manz 2000).

83

Chapter 2 Core Elements

contractual freedom is much more complicated. Put simply, the greater the drafting scope available to the parties the greater their realistic influence on the contract. However, here one has to assess the influence under consideration of the factors listed in art 7 Late Payment Directive. 4. Good faith 98

The concept of good faith is not self-evident in EU law.138 National legal systems acknowledge good faith in its function as a rectification in a legal relationship and as a limitation on the exercise of subjective rights, though to varying extents (for instance common law legal systems are at the least sceptical of the concept139).140 The European law on this matter has therefore been very restrained141 thus only few directives expressly include the concept of good faith in their provisions. The Unfair Terms Directive142 outlines good faith as: Article 3(1) Unfair Terms Directive [Terms not individually negotiated] 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.

99

The Unfair Terms Directive plays a central role in spreading the concept of good faith.143 The required implementation into national law has therefore resulted in ‘good faith’ finding its way into the common law;144 though of course the concept of ‘good faith’ under the Directive is restricted in scope as it concerns terms that have not been individually negotiated. The Late Payment Directive uses, however, the wording good faith and fair dealing, though here the functions are similar and the content is comparable: 138 Zoll, ‘Die Grundregeln der Acquis Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 114. 139 Brownsword, ‘Regulating Transactions: Good Faith and Fair Dealing’ in Howells/Schulze (n 100) 88; Howells/Wilhelmsson/Twigg-Flesner (n 134) 145 with further references; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 1873 n 114, 1873–1875; Stuyck, ‘Unfair Terms’ in Howells/Schulze (n 100) 142–147; Teubner, ‘Legal irritants: Good faith in British law or how unifying law ends up in new divergences’ (1998) MLR 11; Zimmermann/Whittaker, Good faith in European Contract Law (CUP 2000) 39. 140 Patti, ‘Interpretation of the General Clauses “Public Policy” and “Good Morals” in European Contract Law’ (2014) ERPL 611; Riesenhuber, System und Prinzipien des europäischen Vertragsrechts (de Gruyter 2003) 570; Smits, Contract Law, A Comparative Introduction (Edward Elgar 2014) 136–137, 139; Zimmermann/Whittaker (n 139) 16–39. 141 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 524; Riesenhuber (n 140) 412–510. 142 Riesenhuber (n 140) 402–403, 570. 143 Riesenhuber (n 140) 410; Rott, ‘Unfair Contract Terms’ in Twigg-Flesner (ed), EU Consumer and Contract Law (Edward Elgar 2016) 299–300. 144 On the difficulties in practice see, for example, Howells/Watson, ‘Comparative Law and Consumer Litigation’ in Andenas and Fairgrieve (eds), Courts and Comparative Law (OUP 2015) 628–631.

84

IV. Freedom of Contract Article 7(1) Late Payment Directive Unfair contractual terms and practices 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; (…)

However, the inclusion of good faith in Unfair Terms Directive does not rep- 100 resent the European legislator's first use of the concept: it is also explicitly included in the Commercial Agents Directive. Article 3(1) Commercial Agents Directive [Rights and obligations of the commercial agent] In performing has activities a commercial agent must look after his principal's interests and act dutifully and in good faith. Article 4(1) Commercial Agents Directive [Rights and obligations of the principal] In his relations with his commercial agent a principal must act dutifully and in good faith.

The use of good faith in this context was less of a revolution for the common law legal tradition – its use concerns a long-term obligation that is characterized by the parties' particular duties of loyalty,145 a contract of the uberrima fidei146. The parties to such contracts are obliged to act to achieve a common goal. This requires co-operation to an extent which cannot be precisely defined but which must be substantiated by a flexible term such as good faith. The inclusion of good faith has over time become more commonplace in 101 European law, for instance in the Unfair Commercial Practices Directive: Article 2(h) Unfair Commercial Practices Directive Definitions ‘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;

The notion of good faith here is accompanied by the further category of ‘hon- 102 est market practice’; the notions can be used as an alternative to each another.147 In this respect one must remember that the Directive is addressed to the Member

145 Riesenhuber (n 140) 403–404. 146 See Burrows (ed), Principles of the English Law of Obligations (OUP 2015) para 1.193; Zimmermann/Whittaker (n 139) 42. 147 For more detail see Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016) 76 et seq.

85

Chapter 2 Core Elements

States (art 288 TFEU). Consequently, the alternative is also addressed to the Member States who may choose to use the milder term ‘honest market practice’ rather than ‘good faith’. These two terms are not synonymous:148 the concept of good faith shrouds an ideal of reciprocal relationships – a form of wishful thinking which sets a standard for people to achieve in their actions.149 ‘Honest market practices’ represents a different notion as it does not refer to an idealized situation but rather to actual practices and usages that only have to be qualified as ‘honest’. This of course requires evidence of their actual use in practice. The concept of good faith extends further as it also encompasses the ‘honest market practices’, though actually behaving in such a manner is not required. Consequently, it makes little sense for the national legislator to give no thought and simply implement into national law the phrase covering both concepts. There is rather a choice whereby the inclusion of ‘honest market practices’ would mean reluctance to implement the broader notion of good faith. 103 The ECJ also referred to the concept of good faith, in particular in its decision in Messner150: Case C–489/07 Messner ECLI:EU:C:2009:502 The provisions of the second sentence of Article 6(1) and Article 6(2) of 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 must be interpreted as precluding a provision of national law which provides in general that, in the case of withdrawal by a consumer within the withdrawal period, a seller may claim compensation for the value of the use of the consumer goods acquired under a distance contract. However, those provisions do not prevent the consumer from being required to pay compensation for the use of the goods in the case where he has made use of those goods in a manner incompatible with the principles of civil law, such as those of good faith or unjust enrichment, on condition that the purpose of that directive and, in particular, the efficiency and effectiveness of the right of withdrawal are not adversely affected, this being a matter for the national court to determine.

This decision is particularly noteworthy as the Court uses the notion of good faith without an explicit basis in the Distance Selling Directive, i.e. the legislation at the basis of the dispute. However, good faith was not referred to as an independent part of the acquis communautaire but the Court merely made reference to the use of the principle in modifying the European rule on restitution following withdrawal. 104 The authors of the Acquis Principles have considered that these few traces of claims to good faith provide a sufficient basis for general rules.151 However, it is to be noted that the Acquis Principles do not contain a general provision expressing the general application of the principle of good faith.152 Aside from the

148 See below, para 133. 149 Brownsword (n 139) 91–92. 150 See Rott, The Balance of Interests in Distance Selling Law – Case Note on Pia Messner v Firma Stefan Krüger (2010) ERPL 185. 151 Contract II/Pfeiffer/Ebers art 2:101 para. 10; Zoll (n 138) 113–115. 152 Jansen/Zimmermann (n 141) 524; Ranieri (n 139) 1896–1897.

86

IV. Freedom of Contract

control of contract terms (art 6:301 ACQP), the principle of good faith is also relevant for pre-contractual obligations, determining the content of obligations, and the rules on performance:153 Article 2:101 ACQP Good faith In pre-contractual dealings, parties must act in accordance with good faith. Article 7:101 ACQP 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 ACQP 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.

The decision to contain separate rules on good faith arises from a reluctance 105 to give this concept an overly prominent standing within the system adopted by the Acquis Principles. The effect of good faith ought therefore to be selective.154 The question may be asked whether, at the time of drafting, sufficient sources were available in order to declare the application of good faith in EU law in the form of a restatement. The European Commission took, at least at that time, an alternative view by explicitly stating in a Green Paper155 that European law does not contain a general principle of good faith. Annex I 4.3. Green Paper on the Review of the Consumer Acquis COM (2006) 744 final The concepts of good faith and fair dealing in the Consumer Acquis The consumer acquis on contract law does not include a general duty to deal fairly or to act in good faith. A general clause referring to the concept of (un-)fairness exists in Article 5 of Directive on Unfair Commercial Practices, which concerns marketing practices, but which does not apply to contracts. Article 3 (1) of Directive 93/13/EEC on Unfair Terms in Consumer Contracts constitutes a general clause referring to ‘(un-) fairness’ and contains a definition of that term for the purposes of the Directive. The main advantage of an overarching general clause for consumer contracts in the horizontal instrument would be the creation of a tool which would provide guidance for the interpretation of more specific provisions and would allow the courts to fill gaps in the legislation by developing complementary rights and obligations. It could therefore provide a safety net for consumers and create certainty for producers by filling gaps in legislation. In addition, a general provision may also be a useful tool when interpreting clauses contained in offers or contracts and it may as well respond to the criticism that certain directives or provisions are not time-proof. A general provision could be built

153 Jansen/Zimmermann (n 141) 510. 154 Ranieri (n 139) 1896–1897. 155 European Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final,17.

87

Chapter 2 Core Elements round the phrase ‘good faith and fair dealing’. This includes the idea that they show due regard to the interests of the other party, considering the specific situation of certain consumers. The disadvantage of such a general clause is that it does not encompass precisely the rights and obligations imposed on each party. Its interpretation may vary from Member State to Member State. If included, such a general principle should apply from the negotiation phase to the execution of the contract, including remedies. It would also prevent the emergence of the kind of problems encountered with the current consumer protection directives, due to legislation being overtaken by technological and market developments. Question C: Should a horizontal instrument include an overarching duty for professionals to act in accordance with the principles of good faith and fair dealing? Option 1: The horizontal instrument would provide that under EU consumer contract law professionals are expected to act in good faith. Option 2: The status quo would be maintained: There would be no general clause. Option 3: A general clause would be added which would apply both to professionals and consumers.

The Consumer Rights Directive – which can be considered as one of the consequences of this Green Paper – did not adopt the principle of good faith. It thus appears that Option 2 was followed. 107 The DCFR makes express reference to the principle of good faith: 106

Article III.–1:103 DCFR 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.

It can be seen from the wording that the DCFR has attempted to find a balance between the various traditions in the legal systems of the Member States. Phrasing a general principle of good faith accords with the approach in continental legal systems, though the use of good faith as a ‘shield’ rather than a ‘sword’ follows from the English doctrine of estoppel. The wording means that no direct claims can be derived from the principle of good faith as it merely serves as a defence mechanism. 109 Art III.–1:103(1) DCFR contains slight traces of the approach under the Unfair Commercial Practices Directive by referring to ‘fair dealing’ in addition to good faith. Adopting this approach from the acquis communautaire is somewhat unsuccessful as, as noted above,156 both terms provide a useful alternative to the national legislator rather than the creation of a new concept as fair dealing will be encompassed by the concept of good faith. 108

156 See above, para 102.

88

IV. Freedom of Contract

The CESL utilizes the principle of good faith as a general rule applicable 110 across its entire system: Article 2 CESL-D 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.

Moreover, the CESL-Reg-D contains a definition of ‘good faith and fair deal- 111 ing’: Article 2(b) CESL-Reg-D Definitions ‘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;

It is clear from this provision that the concept of ‘fair dealing’ (which replaces the notion of ‘honest market practices’ used in the Unfair Commercial Practices Directive) has been merged with ‘good faith’ without actually extending or changing the content of the latter principle. Its use rather aims at bringing familiarity to the reader from a common law jurisdiction.157 Although the definition under art 2(b) CESL-Reg-D also uses various undefined terms that also require substantiation, it does show the direction taken by contract law under the CESL. The CESL requires the parties to consider the interests of the other party and to co-operate with each other for this purpose (see also art 3 CESL-D on the obligation to co-operate158).159 In other words, contract law under the CESL is focused on party co-operation rather than the parties each acting in its own interest. In general, the wording of art 2(b) CESL-Reg-D repeats the concept adopted in the DCFR160 though it includes the possibility for the injured party to claim damages. The injured party is therefore afforded not only a ‘shield’ but also a ‘sword’ in the form of damages; this approach stems from the French legal system. The inclusion of a general principle of good faith in the CESL highlights a development that was anticipated by the Acquis Principles. In this sense, had the CESL been adopted, its principle of good faith could, in spite of its optional nature, have possibly influenced the entire acquis communautaire. However, in this respect there has been no change to European private law due to the withdrawal of the CESL.

157 158 159 160

Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D paras 14, 15. See Schulze CESL/Wendehorst art 2 CESL-Reg-D para 5. Schulze CESL/Wendhorst art 2 CESL-Reg-D para 5. Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 9.

89

Chapter 2 Core Elements

5. Non-discrimination a) Foundation

European contract law is heavily influenced by the development of non-discrimination legislation.161 Moreover, it is an important example for the horizontal effect of fundamental rights on private law. The protection against discrimination impacts considerably on the principle of freedom of contract – the freedom to decide on the partner to the contract. It also affects the content of the contract because non-discrimination provisions may set limitations. A controversial issue is whether the prohibition of discrimination is compatible with the traditional notion of contract law. Storme even notes a ‘right to discriminate’ as a fundamental principle of private law.162 In contrast, Lehmann presumes that the principle of non-discrimination is a fundamental principle in civil law codifications.163 This is particularly noticeable in the French Civil Code with origins in liberté, égalité, fraternité. However, both authors are correct as they consider different aspects in the structure of private law. It cannot be denied that the codifications have their origins in liberal traditions with an image of an equal society, yet at the same time the principle of free will also played a decisive role. From this perspective, declarations of intent do not require justification, such as why it was not made towards a particular person. Freedom of contract did not prevent a contract from being discriminatory in situations of equal bargaining power. 113 Non-discrimination plays a particular role in EU law:164 the European legislator attempts to sanction such behaviour by a party to the contract. Such actions are not only inconsistent with a multi-cultural European society but prejudice and stereotypes can also deny particular groups access to the market, or even render it impossible. The European system of non-discrimination comprises various elements that make a number of distinctions under the common feature of ensuring market access to as many groups as possible. In part, the basis for equal treatment is derived from fundamental rights.165 This concerns cases of discrimination on the grounds of personal characteristics such as gender, ethnic origin or race. However, there are prohibitions that are justifiable from an internal market perspective – non-discrimination in access to services (and soon the access to online services) due to habitual residence in a different Member State. 112

161 Leible/Schlachter (eds), Diskriminierungsschutz durch Privatrecht (Sellier 2009); Heiderhoff/Lohsse/Schulze (eds), EU-Grundrechte und Privatrecht (Nomos 2016); Schulze (ed), Non-discrimination in European Private Law (Mohr Siebeck 2011); Zoll, ‘Non-Discrimination and European Private Law’ in Twigg-Flesner (ed), The Cambridge Companion to European Private Law (CUP 2011) 298. 162 Storme, Vivat academia 2005, No. 126, 3. 163 Lehmann, ‘Diskriminierungsschutz und Vertragsrecht – Entwicklungstendenzen im Rechtsvergleich’ in: Schulze (ed), New Features in Contract Law (Sellier 2009) 67–69. 164 Schulze (n 161); Zoll, ‘Remedies for Discrimination: a Comparison of the Draft Common Frame of Reference and the Acquis Principles’ (2008) ERA Forum Special 87–88. 165 Art 21 CFR.

90

IV. Freedom of Contract

b) Discrimination due to a personal characteristic

A class of persons protected in the acquis communautaire is composed of 114 those persons who display an actual or supposed characteristic that forms the basis of discrimination when accessing publicly offered goods or services (including housing). The Racial Equality Directive and the Gender Directive are two non-discrimination directives that are of particular interest in contract law (further protection is available in employment law, which is not covered here).166 These two Directives have a similar structure: they list the factors for prohibited unequal treatment, define direct and indirect discrimination, give instances in which unequal treatment is justified, provide a framework for proportionate and deterring sanctions, and include a presumption of discrimination when plausible facts are established. These Directives are anchored in EU primary law: art 18 TFEU prohibits dis- 115 crimination on the basis of EU citizenship whereas art 19 TFEU provides the legislative competence for the EU to prohibit discrimination based on gender, racial or ethnic origin, religion or belief, disability, age or sexual orientation. In addition, art 21 CFR prohibits discrimination on further grounds such as political opinion, genetic features etc. Article 18 TFEU [Non-discrimination] 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 TFEU [Measures against discrimination] (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.

A particular question arises in relation to the extent to which non-discrimina- 116 tion applies in contract law if it is not expressed in a directive. One can see that, where employment law is concerned, the ECJ decision in Mangold has gone so far as to assume general application of non-discrimination.

166 On non-discrimination legislation in the acquis communautaire see Zoll (n 164) 87.

91

Chapter 2 Core Elements Case C–144/04 Mangold ECLI:EU:C:2005:709 (…) 75. The principle of non-discrimination on grounds of age must thus be regarded as a general principle of Community law. Where national rules fall within the scope of Community law, which is the case with Paragraph 14(3) of the TzBfG, as amended by the Law of 2002, as being a measure implementing Directive 1999/70 (see also, in this respect, paragraphs 51 and 64 above), and reference is made to the Court for a preliminary ruling, the Court must provide all the criteria of interpretation needed by the national court to determine whether those rules are compatible with such a principle (Case C–442/00 Rodríguez Caballero [2002] ECR I–11915, paragraphs 30 to 32). 76. Consequently, observance of the general principle of equal treatment, in particular in respect of age, cannot as such be conditional upon the expiry of the period allowed the Member States for the transposition of a directive intended to lay down a general framework for combating discrimination on the grounds of age, in particular so far as the organisation of appropriate legal remedies, the burden of proof, protection against victimisation, social dialogue, affirmative action and other specific measures to implement such a directive are concerned.

Art 3:101 ACQP prohibits discrimination in contract law on the grounds of sex, racial or ethnic origin; art II.–2:101 DCFR contains a similar provision.167 Both of these sets of rules extend the scope of non-discrimination to contract law, which is otherwise reluctant to do so as it considerably limits the freedom of contract, particularly the freedom to choose the counterparty. The horizontal application of provisions prohibiting discrimination in contract law just on the basis of open-phrased fundamental rights infringes on the status of contract law as an independent and autonomous area of law. However, present legislation generally allows one to presume that discrimination on the grounds of sex, racial or ethnic origin is prohibited. 118 The Racial Equality Directive maintains that its use of ‘racial origin’ does not mean the acceptance of ‘theories attempting to determine the existence of separate human races’ (recital 6). However, ‘racial origin’ is one of the requirements for unequal treatment. One can therefore presume that the focus is particularly on the racist motives of the discriminating party who insinuates that its counterparty is of a particular racial or ethnic origin.168 It cannot be denied that this requirement is lacking the necessary precision. Particular objective elements are necessary in order to provide a basis for probable racist motivations underlying the unequal treatment.169 117

Recital 3 Racial Equality Directive 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 Con-

167 See also Zoll (n 164) 87. 168 Riesenhuber in Leible/Schlachter (n 161) 130. 169 See generally Schiek/Waddington/Bell (eds), Cases, Materials and Text on National, Supranational and International Non-Discrimination Law (Bloomsbury 2007).

92

IV. Freedom of Contract vention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.

The Commission is presently working on a proposal for a directive that, following the model in employment law, will extend the scope of non-discrimination in relation to access to goods and services made available to the public by including the other factors listed in art 19 TFEU.170 c) Discrimination as an obstacle to the internal market

EU law also prohibits discrimination that jeopardizes the internal market. The 119 justification focuses not on the protection of human rights but rather the realization of European fundamental principles, in particular the freedom to provide services. The Services Directive contains the central provision prohibiting discrimination: Article 20 Services Directive Non-discrimination (1) Member States shall ensure that the recipient is not made subject to discriminatory requirements based on his nationality or place of residence. (2) Member States shall ensure that the general conditions of access to a service, which are made available to the public at large by the provider, do not contain discriminatory provisions relating to the nationality or place of residence of the recipient, but without precluding the possibility of providing for differences in the conditions of access where those differences are directly justified by objective criteria.

The provision prohibits unequal treatment on the grounds of nationality or 120 place of residence.171 Unequal treatment may however be justified by objective criteria – for instance cases in which access to services is denied due to distance, type of service etc. or the service can only be offered in a particular place or would require unreasonable effort. The prohibition does however raise significant doubts. Commercial freedom allows a business to determine its field of operations and does not require, for example a workman, to offer his services in the whole of the EU. The notion underlying the provision is understandable as access to different services, especially those offered online, is not the same in all EU Member States. However, the wording of art 20 is hardly compatible with the principles of commercial freedom.172 Nationality as a criterion for discrimination under art 20 is redundant as this principle is anchored in art 19 TFEU.

170 European Commission, ‘Proposal for a Council Directive on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation’ COM (2008) 426 final. 171 See Schulte-Nölke et al. (eds), Discrimination of Consumers in the Digital Single Market, Study requested by the European Parliament's Committee on Internal Market and Consumer Protection (2013) 45 available online under http://www.europarl.europa.eu/meetdocs/ 2014_2019/documents/imco/dv/discrim_consumers_/discrim_ consumers_en.pdf (accessed 11 July 2017). 172 Schulte-Nölke et al. (n 171) 50.

93

Chapter 2 Core Elements 121

Furthermore, the European Commission is attempting to restrict the practice of ‘geo-blocking’,173 which can result in discrimination in the access to goods and services. This term describes the practice in which access to digital content is made impossible or more difficult due to the customer's geographical location. The proposed Regulation aims to prohibit discrimination in the following fields: Article 3 Geo-blocking Regulation Access to online interfaces (1) Traders shall not, through the use of technological measures or otherwise, block or limit customers' access to their online interface for reasons related to the nationality, place of residence or place of establishment of the customer. (2) Traders shall not, for reasons related to the nationality, place of residence or place of establishment of the customer, redirect customers to a version of their online interface that is different from the online interface which the customer originally sought to access, by virtue of its layout, use of language or other characteristics that make it specific to customers with a particular nationality, place of residence or place establishment, unless the customer gives his or her explicit consent prior to such redirection. In the event of such redirection with the customer's explicit consent, the original version of the online interface shall remain easily accessible for that customer. (3) The prohibitions set out in paragraphs 1 and 2 shall not apply where the blocking, limitation of access or redirection with respect to certain customers or to customers in certain territories is necessary in order to ensure compliance with a legal requirement in Union law or in the laws of Member States in accordance with Union law. (4) Where a trader blocks or limits access of customers to an online interface or redirects customers to a different version of the online interface in compliance with paragraph 4, the trader shall provide a clear justification. That justification shall be given in the language of the online interface that the customer originally sought to access. Article 4 Geo-blocking Regulation Access to goods or services (1) Traders shall not apply different general conditions of access to their goods or services, for reasons related to the nationality, place of residence or place of establishment of the customer, in the following situations: (a) where the trader sells goods and those goods are not delivered cross-border to the Member State of the customer by the trader or on his or her behalf; (b) where the trader provides electronically supplied services, other than services the main feature of which is the provision of access to and use of copyright protected works or other protected subject matter; (c) where the trader provides services, other than those covered by point (b), and those services are supplied to the customer in the premises of the trader or in a physical location where the trader operates, in a Member State other than that of which the customer is a national or in which the customer has the place of residence or the place of establishment. (2) The prohibition set out in point (b) of paragraph 1 shall not apply to traders that are exempted from VAT on the basis of the provisions of Chapter 1 of Title XII of Directive 2006/112/EC. (3) The prohibition set out in paragraph 1 shall not apply in so far as a specific provision laid down in Union law or in the laws of Member States in accordance with Union law prevents the trader

173 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on addressing geo-blocking and other forms of discrimination based on customers' nationality, place of residence or place of establishment within the internal market and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC’ COM (2016) 289 final.

94

IV. Freedom of Contract from selling the goods or providing the services to certain customers or to customers in certain territories With respect to sales of books, the prohibition set out in paragraph 1 shall not preclude traders from applying different prices to customers in certain territories in so far as they are required to do so under the laws of Member States in accordance with Union law. Article 5 Geo-blocking Regulation Non-discrimination for reasons related to payment (1) Traders shall not, for reasons related to the nationality, place of residence or place of establishment of the customer, the location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument within the Union, apply different conditions of payment for any sales of goods or provision of services, where: (a) those payments are made through electronic transactions by credit transfer, direct debit or a card-based payment instrument within the same payment brand; (b) the payee can request strong customer authentication by the payer pursuant to the Directive (EU) 2015/2366; and (c) the payments are in a currency that the payee accepts. (2) The prohibition set out in paragraph 1 shall not preclude traders' possibility to request charges for the use of a card-based payment instrument for which interchanges fees are not regulated under Chapter II of Regulation (EU) 2015/751 and for those payment services to which Regulation (EU) No 260/2012 does not apply. Those charges shall not exceed the costs borne by the trader for the use of the payment instrument.

The main purpose of the proposal it to prevent the access to the internal mar- 122 ket by reason of an unfair distinction between customers on the basis of their nationality, place of residence and place of establishment. There are many reasons for why suppliers often attempt to subject their performance to different conditions depending on the Member State, for instance to take advantage of regional differences including the level of competition at local market level.174 6. Party status

Party status (business or consumer) is of key importance for European con- 123 tract law. However, before shifting the focus to the consumer, it is important to note that the original notion of the consumer is well rooted in the commercial realities of the 1970s and 1980s. Social changes and the technological revolution now question the present justification for the notion of the consumer.175 The social roles of market actors are now less clearly defined; there is an increasing number of persons who do not have an easily identifiable role,176 or whose behaviour gives rise to new categories such as ‘prosumers’177. In addition to the 174 See, for example, European Parliament, Briefing Paper on Geo-blocking and discrimination among customers in the EU (July 2016) available online under http://www.europarl.europa.e u/RegData/etudes/BRIE/2016/586620/EPRS_BRI(2016)586620_EN.pdf (accessed 11 July 2017) 9. 175 Gumularz, ‘Ochrona Konusmenta a Fenomen „Rozszerzonej Rzeczywistości” – Nowe Wyzwania Polityki Prawa’ (2013) Transformacje Prawa Prywatnego 39, 40. 176 Schulte-Nölke, ‘The Brave New World of EU Consumer Law – Without Consumers, or Even Without Law?’ (2015) EuCML 135, 138. See also Reich et al. European Consumer Law (Intersentia 2014) 52–60. 177 The term is used to describe consumers who are actively involved in, for example, production, see Toffler, Future Shock (1971). See also for the term produsage Bruns, ‘Towards Pro-

95

Chapter 2 Core Elements

different risks brought by the technological revolution, such concepts also have an immense impact on the asymmetry in access to information, an important justification for the development of the notion of a ‘consumer’. In the modern era, anyone equipped with a smartphone can easily access the information on goods, comparable offers or customer reviews. However, this change is hardly considered in current EU law, yet there are indications for a change in direction. For instance, the Package Travel Directive describes the parties as follows: Article 3 Package Travel Directive Definitions (…) (6) ‘traveller’ means any person who is seeking to conclude a contract, or is entitled to travel on the basis of a contract concluded, within the scope of this Directive; (7) ‘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, whether acting in the capacity of organiser, retailer, trader facilitating a linked travel arrangement or as a travel service provider; (…)

The Package Travel Directive (1990) contained a very broad notion of ‘consumer’, which corresponds to the term ‘traveller’ used in the new Package Travel Directive. Nevertheless, in this case the change in terminology is symptomatic. It emphasizes that the protection covers all customers, not just the consumer. This development from consumer to customer protection may possibly appear in other areas of EU law. V. Consumers and other protected parties 1. Overview 124

European private law has undergone a development that differs from the development of the traditional private laws of the individual Member States. The extensive codifications of the 19th century reflect the liberal tendencies of the time and set out rights that should serve to remove the formal differences between individuals. However, the realization of the principle of formal equality led these private laws to contain merely ‘Tropfen sozialen Öls’ (literally, ‘drops of social oil’178). Over the course of the 20th century the many experiences from the development of a market economy under the welfare state gave rise to the tendency to protect the weaker party. Such a tendency was particularly prevalent in employment law, which ultimately resulted in this area of law becoming a separate legal discipline in many European legal systems.179 The protection of the dusage: Futures for User-Led Content Production’ in Sudweeks/Hrachovec/Ess (eds), Proceedings: Cultural Attitudes towards Communication and Technology (Murdoch University 2006) 275–284. 178 v. Gierke, Die soziale Aufgabe des Privatrechts (Springer 1889) 10; Markesinsis/Unberath/ Johnston, The German Law of Contract (2nd edn, Hart 2006) 45.

96

V. Consumers and other protected parties

weaker party first arose in some legal systems by affording protection to tenants and thereafter to consumers;180 many national legal systems also attempted to protect other ‘non-professionals’ as well as SMEs. The development was however quite uncoordinated amongst the individual countries and has since become an obstacle to the creation of a smoothly functioning internal market.181 The necessity of increased protection for particular market participants does however raise costs182 and leads to unequal opportunities for businesses as some may, in comparison to others, have to consider less rigorous rules, which can ultimately lead to social dumping. This variation in protection across the Member States was also a decisive factor in a consumer's decision not to purchase cross-border.183 As such it is hardly surprising that the development of European private law has focused on the removal of such differences in national laws.184 Nonetheless, the removal of these differences ought not result in a reduction of the level of protection but instead create high common standards of protection. The protection in contract law has particularly developed on the basis of the concept of the consumer, a notion that is also of central importance in the development of European contract law. The concept of the consumer serves to ‘generalize’ characteristics that have to be displayed in order for protection to be granted.185 In particular instances the consumer may be the superior party (e.g. in terms of knowledge about the good or service) and not actually deserve the protection that it will nevertheless be afforded. One can therefore see that an intrinsic and potential injustice is linked to the concept of the consumer. Such injustice may also be seen whereby inferiority is more significant than in the case of a consumer (e.g. small businesses) yet no protection is afforded, whereas others will be protected even though it may not be necessary under the circumstances. Ultimately, the classification as a consumer is a phenomenon corresponding to the demands of mass contracts.186 However, this results in problems in relation to 179 See Wieacker, Privatrechtsgeschichte der Neuzeit (2nd edn, Vandenhoeck & Ruprecht 1967) 547. 180 See Schlosser, Grundzüge der Neueren Privatrechtsgeschichte Rechtsentwicklungen im europäischen Kontext (10th edn, C.F. Müller 2005) 202–203. 181 This issue was also approached by the European Commission in 2000 in its ‘Communication on European Contract Law’ COM (2001) 398 final and has been a recurring theme in later communications, in particular in the ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 6. See also Riesenhuber/Takayama, ‘Rechtsangleichung: Grundlagen, Methoden und Inhalte’ in Riesenhuber/Takayama (eds), Rechtsangleichung: Grundlagen, Methoden und Inhalte (de Gruyter 2006) 1, 2. 182 See Adams, Ökonomische Theorie des Rechts: Konzepte und Anwendungen (2nd edn, Lang 2004) 115–118; Luth/Cseres, ‘The DCFR and Consumer Protection: An Economic Analysis’ in Chirico/Larouche (eds) Economic Analysis of the DCFR (Sellier 2010) 243 et seq. 183 E.g. COM (2006) 744 final, 7 with references to further studies; COM(2010) 348 final, 5. 184 As is made clear in, for example, European Commission, ‘Consumer Policy Strategy 2002– 2006’ COM (2002) 208 final; ‘A More Coherent Contract Law – An Action Plan’ COM (2003) 68 final; ‘European Contract Law and the revision of the acquis: the way forward’ COM (2004) 651 final. 185 See Riesenhuber (n 140) 206; see MüKo BGB/Micklitz (2016) Vorbermerkung zu §§ 13, 14 para 95.

97

Chapter 2 Core Elements

‘dual use’,187 i.e. acting for a purpose that is a combination of commercial and private motivations. 125 The protection of parties under a contract of course depends on the nature of the contract to be concluded. Accordingly, the parties' contractual role and, in some circumstances, their personal characteristics will be of considerable relevance for the application of protective measures; though in certain cases it will rather be the nature of the legal relationship, not party status, which will be relevant e.g. package holidays. The role of a party in a contract can be particularly seen in the notion of the consumer, a term that is defined in the numerous consumer law directives188 but, as stated above, is nevertheless problematic due to particular issues such as ‘dual use’. A further example can also be seen in certain B–B contracts, such as investment contracts.189 2. Notion of the consumer in the acquis communautaire 126

According to art 1:201 ACQP, a consumer is any natural person who is mainly acting for purposes that are outside its business activity. Jansen and Zimmermann have criticized this wording as the use of ‘mainly’ would allow a party to be classed as a consumer in a contract containing business purposes that may play a subordinate, but nonetheless not irrelevant, role.190 Moreover, Jansen and Zimmermann note that the ECJ came to a different conclusion in Gruber as the classification as a consumer did not focus on the predominance of the private element but rather the negligibility of the business purpose.191 Case C–464/01 Gruber ECLI:EU:C:2005:32 The rules of jurisdiction laid down by the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic, by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic, and by the Convention of 29 November 1996 on the Accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden must be interpreted as follows: – a person who concludes a contract for goods intended for purposes which are in part within and in part outside his trade or profession may not rely on the special rules of jurisdiction laid down in Articles 13 to 15 of the Convention, unless the trade or professional purpose is so limited as to be negligible in the overall context of the supply, the fact that the private element is predominant being irrelevant in that respect; – it is for the court seised to decide whether the contract at issue was concluded in order to satisfy, to a non-negligible extent, needs of the business of the person concerned or whether, on the contrary, the trade or professional purpose was negligible;

186 See v. Hippel, Verbraucherschutz (3rd edn, Mohr Siebeck 1981) 3–4. 187 See Reich et al. (n 176) 52–54; Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) 91. 188 A useful overview of the notion of the consumer in EU directives is given in Riesenhuber (n 140) 251–253. See also Howells/Wilhelmsson/Twigg-Flesner (n 134) 25 et seq. 189 Recital 1 MiFID. 190 Jansen/Zimmermann (n 141) 514. 191 Jansen/Zimmermann (n 141) 515.

98

V. Consumers and other protected parties –

to that end, that court must take account of all the relevant factual evidence objectively contained in the file. On the other hand, it must not take account of facts or circumstances of which the other party to the contract may have been aware when the contract was concluded, unless the person who claims the capacity of consumer behaved in such a way as to give the other party to the contract the legitimate impression that he was acting for the purposes of his business.

The decision in Gruber was concerned with a procedural question on international jurisdiction.192 It can therefore be questioned whether its notion of the consumer can be applied to substantive contract law or whether there is a sufficient basis in the substantive acquis communautaire for the notion of the consumer adopted in Gruber. The Consumer Rights Directive does not provide clear clarification in this respect. At first glance it appears that art 2(1) Consumer Rights Directive has defined the notion of the consumer in the traditional manner, as is frequently the case in the directives: Article 2(1) Consumer Rights Directive Definitions ‘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;

The recitals193 to the Consumer Rights Directive do however contain a more differentiated definition of the consumer. This model of a narrow definition in the legislation194 itself and a broader paraphrasing in the recitals195 has also been adopted in the Mortgage Credit Directive and Consumer ODR Regulation. Article 4(1) Mortgage Credit Directive Definitions ‘Consumer’ means a consumer as defined in point (a) of Article 3 of Directive 2008/48/EC. Article 4(1)(a) Consumer ODR Regulation Definitions ‘consumer’ means a consumer as defined in point (a) of Article 4(1) of Directive 2013/11/EU; Recital 17 Consumer Rights Directive 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.

192 More specifically, the application of arts 13–15 Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Brussels Convention) [1978] OJ L304/36. 193 Recital 17 Consumer Rights Directive. 194 See the definition of the ‘consumer’ in art 4(a) Consumer ODR Regulation and art 4(1) Mortgage Credit Directive. 195 Recital 10 Consumer ODR Regulation and recital 12 Mortgage Credit Directive.

99

Chapter 2 Core Elements Recital 12 Mortgage Credit Directive 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. Recital 13 Consumer ODR Regulation 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.

According to these recitals, the consumer concept encompasses dual use contracts as long as the private element is predominant; therefore more extensive than in Gruber. The problem arises in relation to the role of the recitals as they could indeed complete and extend the definition given in the main text of the directive. Moreover, one cannot ignore the recitals when interpreting the directive.196 One can thus pose the question of why their content was not directly included in the main text; the reason may perhaps lie in simply trying to reach a consensus during the legislative process. It is however clear from these Directives and the Regulation that the dual purpose of the contract does not prevent the classification of a party as a consumer as long as the private purpose is predominant. There is however another possible reason for approaching the issue of dual-use contracts just in the recitals: the European legislator may possibly have sought a generalization also with regard to the definition of the consumer in other directives. One could argue that the clarification that the traditionally ‘narrow’ definition of the consumer also covers ‘dual use’, thereby older definitions of the consumers (e.g. in the Unfair Terms Directive or Consumer Sales Directive) are also to be interpreted in the same manner as the notion of the consumer under the Consumer Rights Directive. 127 A tendency to broaden the scope of the consumer definition (but also the definition of trader) is clear from recent ECJ case-law, for example in the 2015 decision in Devėnas: Case C–537/13 Devėnas ECLI:EU:C:2015:14 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as applying to standard form contracts for legal services, such as those at issue in the main

196 A recital in the premable may cast light on the interpreation of a rule but cannot in itself constitute such a rule, Case C–215/88 Casa Fleischhandel ECLI:EU:C:1989:331 para 31; furthermore the ‘purpose of the recitals is to set out concise reasons for the chief provisions of the enacting terms, without reproducing or paraphrasing them. They shall not contain normative provisions or political exhortations’, Interinstitutional Agreement of 22 December 1998 on common guidelines for the quality of drafting of Community legislation [1999] OJ C73/1 para 10.

100

V. Consumers and other protected parties proceedings, concluded by a lawyer with a natural person acting for purposes which are outside his trade, business or profession.

The ECJ clearly expresses that a contract between a lawyer and natural person, who is not acting for professional purposes, is a consumer contract. The lawyer is indeed a member of the legal profession, but this does not change his status as a ‘seller or supplier’ for the purposes of the Unfair Terms Directive. His client can therefore act as a consumer when the criteria are fulfilled. 128 The ECJ determined in Costea that: Case C–110/14 Costea ECLI:EU:C:2015:538 Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that a natural person who practises as a lawyer and concludes a credit agreement with a bank, in which the purpose of the credit is not specified, may be regarded as a ‘consumer’ within the meaning of that provision, where that agreement is not linked to that lawyer's profession. The fact that the debt arising out of the same contract is secured by a mortgage taken out by that person in his capacity as representative of his law firm and involving goods intended for the exercise of that person's profession, such as a building belonging to that firm, is not relevant in that regard.

This case clarifies that a close connection between the contract and the natural person's professional activity does not exclude the classification as a consumer when the purpose of the contract (e.g. credit) is not linked to the natural person's profession. The cases highlight the aforementioned development towards a general customer protection.197 A tendency to favour the classification as a consumer is also apparent in the 129 context of procedural law, as is shown in the ECJ decision in Faber: Case C–497/13 Faber ECLI:EU:C:2015:357 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 must be interpreted as meaning that a national court before which an action relating to a contract which may be covered by that directive has been brought, is required to determine whether the purchaser may be classified as a consumer within the meaning of that directive, even if the purchaser has not relied on that status, as soon as that court has at its disposal the matters of law and of fact that are necessary for that purpose or may have them at its disposal simply by making a request for clarification.

According to this decision, the court is required to determine whether a party is to be classified as a consumer. The decision in Faber does not make a substantive change to the definition of the consumer, yet will result in the more frequent categorization of a party as a consumer during the litigation process. Consequently, this will extend the scope of parties that benefit from the qualification as a consumer. The classification as a consumer also requires, in principle, the other party to 130 be a trader. Contracts between two parties, neither of whom are acting for purposes related to their business, craft, trade or profession, are not consumer con197 See above, para 123.

101

Chapter 2 Core Elements

tracts. However, such circumstances are open to abuse, especially a professional intermediary commissions the contract. In general, an intermediary (such as a broker) will not change the parties' legal status, though there are cases in which the intermediary's acts exceed mere commission or, such as in the decision Whatelet, the role as an intermediary is not made apparent: Case C–149/15 Whatelet ECLI:EU:C:2016:840 The concept of ‘seller’, for the purposes of Article 1(2)(c) 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, must be interpreted as covering also a trader acting as intermediary on behalf of a private individual who has not duly informed the consumer of the fact that the owner of the goods sold is a private individual, which it is for the referring court to determine, taking into account all the circumstances of the case. The above interpretation does not depend on whether the intermediary is remunerated for acting as intermediary.

The ECJ therefore assumes that the lack of transparency regarding the role of a trader acting as an intermediary allows the consumer buyer to enforce its rights under the Directive against the trader. However, the consequences of this decision are unclear with respect to the legal relationships between the parties. European contract law merely requires the intermediary to be liable (as the seller) for non-conformity; all other aspects are left to the Member States. 3. Other protected parties 131

The acquis communautaire also contains rules protecting a party regardless of its status as a consumer: the nature of the legal relationship is the determinative factor. For instance, the Late Payment Directive and the Commercial Agents Directive are examples for circumstances in which businesses are protected. Recital 9 Late Payment Directive 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 therefore also regulate all commercial transactions between main contractors and their suppliers and subcontractors. Article 1 Commercial Agents Directive Scope (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 self-employed 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. (…)

In addition, art 4 Consumer Sales Directive provides a business (who was liable to the consumer) with a right to seek redress from other businesses. In each

102

V. Consumers and other protected parties

of these examples there are no particular criteria for the business seeking protection; playing a particular role in the legal relationship, e.g. supplier, commercial agent, or final seller, will therefore suffice.198 The Markets in Financial Instruments Directive applies a mixed system under 132 which all customers will in principle be protected, though the level of protection will vary depending on whether the customer is a professional or retail client.199 A similar system can also be seen in the E-Commerce Directive as generally all customers of a service provider will be protected (e.g. information obligations will apply to the same extent to all customers) though rules protecting consumers are mandatory. Article 10(1) E-Commerce Directive Information to be provided 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: (…)

198 On the different national approaches to the regress chain see Ebers/Janssen/Meyer (eds), European Perspectives on Producers' Liability (Sellier 2009). 199 Recital 31 MiFID.

103

Chapter 3 Conclusion and Content of Contracts Literature: Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts vol II (Mohr Siebeck 2009); Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); van Erp, Contract als Rechtsbetrekking (Willink 1990); Fleischer, Informationsasymmetrie im Vertragsrecht – Eine rechtsvergleichende und interdisziplinäre Abhandlung zu Reichweite und Grenzen vertragsschlussbezogener Aufklärungspflichten (C.H. Beck 2001); Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017); Kötz/Flessner, European Contract Law (Clarendon 1997); Micklitz/Stuyck/Terryn, Cases, Materials and Text on Consumer Law (Hart 2010); Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schulze, ‘Die Widerrufsrechte im Gemeinsamen Europäischen Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales Kaufrecht (Sellier 2012) 151; Terryn, ‘The Right of Withdrawal, the Acquis-Principles, the Draft Common Frame of Reference and the Proposal for a Consumer Rights Directive’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 143–182; Twigg-Flesner/Schulze/Watson, ‘Protecting rational choice: information and the right of withdrawal’ in Howells/Ramsay/Wilhelmsson (eds), Handbook of Research on International Consumer Law (2nd edn, Edward Elgar forthcoming) 145; v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009); Zoll, ‘Culpa in Contrahendo in European Contract law – A Useful Concept?’ in Schulze/Perales Viscasillas (eds), The Formation of Contract (Nomos 2016) 41.

I. Pre-contractual Duties 1. Overview

The conclusion of contracts under European private law is understood as a 1 process that begins at an early stage. Accordingly, European private law has devoted increasing attention to the question whether a duty of loyalty exists between the parties even before the contract has been concluded. Present EU law has however only focused on particular aspects of pre-contractual duties, in particular determining pre-contractual information duties.1 Nonetheless, EU law is taking ever more steps, as is illustrated by the inclusion of particular duties which are subject to the principle of good faith and honest market practices (art 5(2)(a), art 2(h) UCPD).2 The Acquis Principles have used the principle of good faith as a source for 2 pre-contractual duties (see art 2:101 ACQP).3 This rule is not merely a matter of course as the Acquis Principles were drafted at a time when there were few bases in the acquis communautaire to underpin the assumption that EU law would adopt the general principle of good faith. The Green Paper on the Review of the Consumer Acquis highlighted that the acquis communautaire does not include a ‘general duty to deal fairly or act in good faith’ but indicated that a gen1 See also Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 95 et seq; Riesenhuber, EU Vertragsrecht (Mohr Siebeck 2013)§ 7 paras 16–51. 2 See also Riesenhuber (n 1) paras 3–15. 3 On wording see Chapter 2, para 104.

105

Chapter 3 Conclusion and Content of Contracts

eral clause would be beneficial.4 The examination of the various national legal systems shows that the principle of good faith has not been adopted in all systems. There is limited use of good faith in common law systems and has principally only become part of such systems since the implementation of EU law (in particular the Unfair Terms Directive).5 3 However, the importance of the principle of good faith has increased in recent EU law. This is clearly demonstrated by, for example, the Unfair Commercial Practices Directive; moreover, the ECJ has also referred to good faith in both public and private law contexts preceding the Unfair Terms Directive.6 The proposed CESL makes frequent references to the principle of good faith;7 lasting changes could therefore have been made to EU law beyond the scope of the CESL had it not been withdrawn.8 4 One aspect of pre-contractual duties has been subject to comprehensive regulation at European level: information duties.9 Correct information is indeed critical in the decision-making process but is also required in order to (consciously) behave in a manner that allows for the intended legal consequences to be achieved (or that no legal consequences shall arise). However, at present it is almost a permanent feature that decisions are made without the full, necessary information. The amount of available information is extensive, yet it is rarely possible to select the information that is necessary in the decision-making process.10 The process is made increasingly difficult by the frequent asymmetry in information.11 Such an asymmetry formed part of the initial aspects of the notion of a consumer, namely a person who is lacking sufficient information due to the weaker contractual position. However, such structural asymmetry is not limited to consumer contracts as considerable information asymmetries also exist in contracts between businesses. Insufficient information is also not just a feature of the pre-contractual phase – information may also be necessary to ensure the performance of the contract. 5 Modern legal systems ought not fail to take into account the information asymmetries between the parties. Indeed, the development in many legal systems has shown an increase in the information duties that are imposed on a party 4 European Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 17–18. 5 See Chapter 2, paras 98 et seq. 6 For example Joined Cases C–43/59, 45/59 and 48/59 von Lachmüller ECLI:EU:C:1960:37; Case C–24/95 Aclan Deutschland ECLI:EU:C:1997:163. 7 Recital 31, art 2(b) CESL-Reg-D; art 2, art 23(1), art 48(1)(b)(iii), art 49(1), (3), art 59(h), art 68(1)(c), art 83(1), art 86(1)(b), art 170(1) CESL-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. 8 See Chapter 2, paras 110–111. 9 COM (2006) 744 final, 19–20. 10 See Howells, ‘The Potential and Limits of Consumer Empowerment by Information’ (2005) Journal of Law and Society 349. 11 For more detail see, for example Howells/Janssen/Schulze, Information Rights and Obligtions (Ashgate 2005); Vogenauer/Kerber/Weatherill (eds), Party Autonomy and the Role of Information in the Internal Market (de Gruyter 2001).

106

I. Pre-contractual Duties

in certain contractual relationships; however there are differences amongst the legal traditions in Europe. These differences have arisen against the background of the cultural diversities that have not only influenced the image of Europe but also, more fundamentally, influenced the ideas whether and what duties the parties are to perform in the pre-contractual phase. Some legal systems aim more at party co-operation – as opposed to solely considering and asserting one's own interests – therefore resulting in extensive duties arising from the principle of mutual loyalty. The obligation to provide pre-contractual information therefore extends further into such ‘co-operative’ systems and is easier to justify. Other legal systems take the opposite approach by focusing more on the individual. Accordingly, such systems proceed from the general assumption that each person is responsible for obtaining the information it requires. These two approaches represent two ends of a spectrum composed of various models that adopt a conciliatory position.12 The pre-contractual information duties in these systems are often obtained from the principle of good faith and the generalization of the different analogies from specific provisions.13 The right to information in EU law is considered as one of the most important 6 instruments used to strengthen the position of the consumer.14 Catalogues of information duties have therefore been included in (or attached to) numerous directives, though the information itself fulfils different functions. Some information intends to allow the consumer to make the correct decision. This concerns all information that primarily concerns the subject matter of the performance as well as explaining the risks that may prevent the consumer from achieving the purpose of the contract.15 A further category of information serves to identify the party to the contract.16 Other information explains the procedure that should lead to the conclusion of 7 the contract. Such information plays a prevailing role when the procedure requires particular knowledge or is technically complex (art 8(1) and (2) Consumer Rights Directive).17 For example, the consumer in a distance contract (and especially in e-commerce) must therefore be informed of the technical aspects concerning the procedure for the conclusion of contract. 12 On the cooperative, individualistic and altruistic systems of contract law see Brownsword, Contract Law. Themes for the Twenty-First Century (2nd edn, OUP 2006). 13 In relation to the modernization of the 2002 reform of the German law of obligations see, Schulze, ‘Schuldrechtsreform und Gemeinschaftsrecht’ in Schulte-Nölke/Schulze (eds), Die Schuldrechtsreform vor dem Hintergrund des Gemeinschaftsrechts (Mohr Siebeck 2001) 18. Culpa in contrahendo is not regulated in a single provision but rather expressed through the application of good faith to the pre-contractual stage. 14 As is apparent in the decision Case C–362/88 GB INNO BM ECLI:EU:C:1990:102 paras 13– 18. Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 21 et seq. For criticisms of the modern EU approach see Howells/Wilhelmsson/Twigg-Flesner (n 1) 95. 15 See, for example, art 5(1) and art 6(1) Consumer Credit Directive; recital 21 Distance Marketing of Financial Services Directive. 16 See, for example, arts 13(1)(c), 15(a) CESL-D. 17 See also recital 36 Consumer Rights Directive; recital 23 and art 3(2) Distance Marketing of Financial Services Directive; arts 5–7 E-Commerce Directive.

107

Chapter 3 Conclusion and Content of Contracts Article 8 Consumer Rights Directive 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. (…)

8

Information obligations also exist which serve to make the other party aware of the commercial nature underlying the contract. In turn, other information concerns the availability of particular rights that are available to the consumer under the contract, for instance a withdrawal right which is available to the consumer in specific situations (e.g. in an off-premises or distance contract).18 Article 6(1)(h) Consumer Rights Directive Information requirements for distance and off-premises contracts 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: (…) 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);

9

The acquis communautaire contains very few provisions stipulating the sanctions for breach of information duties,19 though an extension of the withdrawal period belongs to the typical consequences under EU contract law.20 However, this reluctance to set sanctions is waning – academic research groups have drafted sets of rules, namely the Acquis Principles and the DCFR, which provide for a complete set of sanctions for the breach of information duties (art 2:208 ACQP; art II.–3:109 DCFR). An important element of these systems is to allow the contract to be modified in light of missing or incorrect information:

18 COM (2006) 744 final, 19–20. See also, for example, art 5(1)(o), art 10(2)(p) Consumer Credit Directive; recital 43 Consumer Rights Directive. 19 As also observed by Howells/Wilhelmsson/Twigg-Flesner (n 1) 111. 20 See, for example, art 14(1)(b) Consumer Credit Directive; art 10 Consumer Rights Directive.

108

I. Pre-contractual Duties Article 2:208(2) ACQP Remedies for breach of information duties 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. Article II.–3:109(2) DCFR Remedies for breach of information duties 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.

The European legislator is gradually beginning to refrain from primarily al- 10 lowing the Member States to regulate the sanctions for breach of information duties. The Consumer Rights Directive contains detailed provisions on such sanctions.21 Article 6(6) Consumer Rights Directive Remedies for breach of information duties 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. Article 10(1) Consumer Rights Directive Omission of information on the right of withdrawal 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). Article 24(1) Consumer Rights Directive 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.

Furthermore, EU law contains information duties that apply outside the field 11 of consumer law, such as the Services Directive. The recipient of the service need not be a consumer in order to benefit from the service provider's information duty:

21 See Hall/Howells/Watson, ‘The Consumer Rights Directive – An Assessment of its Contribution to the Development of European Consumer Law’ (2012) ERCL 139, 151–153.

109

Chapter 3 Conclusion and Content of Contracts Article 22 Services Directive Information on providers and their services (1) Member States shall ensure that providers make the following information available to the recipient: (a) the name of the provider, his legal status and form, the geographic address at which he is established and details enabling him to be contacted rapidly and communicated with directly and, as the case may be, by electronic means; (b) where the provider is registered in a trade or other similar public register, the name of that register and the provider's registration number, or equivalent means of identification in that register; (c) where the activity is subject to an authorisation scheme, the particulars of the relevant competent authority or the single point of contact; (d) where the provider exercises an activity which is subject to VAT, the identification number referred to in Article 22(1) of 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 (38); (e) in the case of the regulated professions, any professional body or similar institution with which the provider is registered, the professional title and the Member State in which that title has been granted; (f) the general conditions and clauses, if any, used by the provider; (g) the existence of contractual clauses, if any, used by the provider concerning the law applicable to the contract and/or the competent courts; (h) the existence of an after-sales guarantee, if any, not imposed by law; (i) the price of the service, where a price is pre-determined by the provider for a given type of service; (j) the main features of the service, if not already apparent from the context; (k) the insurance or guarantees referred to in Article 23(1), and in particular the contact details of the insurer or guarantor and the territorial coverage. (2) Member States shall ensure that the information referred to in paragraph 1, according to the provider's preference: (a) is supplied by the provider on his own initiative; (b) is easily accessible to the recipient at the place where the service is provided or the contract concluded; (c) can be easily accessed by the recipient electronically by means of an address supplied by the provider; (d) appears in any information documents supplied to the recipient by the provider which set out a detailed description of the service he provides. (3) Member States shall ensure that, at the recipient's request, providers supply the following additional information: (a) where the price is not pre-determined by the provider for a given type of service, the price of the service or, if an exact price cannot be given, the method for calculating the price so that it can be checked by the recipient, or a sufficiently detailed estimate; (b) as regards the regulated professions, a reference to the professional rules applicable in the Member State of establishment and how to access them; (c) information on their multidisciplinary activities and partnerships which are directly linked to the service in question and on the measures taken to avoid conflicts of interest. That information shall be included in any information document in which providers give a detailed description of their services; (d) any codes of conduct to which the provider is subject and the address at which these codes may be consulted by electronic means, specifying the language version available; (e) where a provider is subject to a code of conduct, or member of a trade association or professional body which provides for recourse to a non-judicial means of dispute settlement, information in this respect. The provider shall specify how to access detailed information on the characteristics of, and conditions for, the use of non-judicial means of dispute settlement. (4) Member States shall ensure that the information which a provider must supply in accordance with this Chapter is made available or communicated in a clear and unambiguous manner, and

110

I. Pre-contractual Duties in good time before conclusion of the contract or, where there is no written contract, before the service is provided. (5) The information requirements laid down in this Chapter are in addition to requirements already provided for in Community law and do not prevent Member States from imposing additional information requirements applicable to providers established in their territory. (6) The Commission may, in accordance with the procedure referred to in Article 40(2), specify the content of the information provided for in paragraphs 1 and 3 of this Article according to the specific nature of certain activities and may specify the practical means of implementing paragraph 2 of this Article.

However, as European contract law predominantly concerns consumer law, there are fewer instances of information duties outside of the field of consumer law. The ever increasing number of information duties may indeed be positive, yet 12 it does have the negative effect that consumers are often overwhelmed because they are not able to cope with volume of information.22 The performance of the information duty is therefore reduced to a formality that has no positive influence on improving the consumer's actual level of information. The consumer will only become an ‘informed consumer’ in theory, whereas the practical reality is that it will be ‘struck down’ by the information without being able to make actual use thereof. Information duties also entail risks for businesses – as diligent as the business may be, it will often have no certainty as to whether it has actually given the other party all the necessary information. The risk is especially prevalent where the scope of the information duty is solely determined by the principle of good faith. The European legislator has attempted to achieve greater certainty by introducing specific forms that can be used as a basis for providing the information. These forms serve a function in protecting the interests of both parties: the consumer will receive standardized and manageable information and the business will have clear boundaries for the information duty to depend on and refer to. The Consumer Credit Directive illustrates this approach: Article 5(1) Consumer Credit Directive Pre-contractual information 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.

22 See, for example, Ben-Shahar/Schneider, More than you wanted to know – the failure of mandated disclosure (Princeton University Press 2014); Howells (n 10); Howells/Wilhelmsson/ Twigg-Flesner (n 1) 330. See also: ‘Warning: Too Much Information Can Harm an Interim Report by the Better Regulation Executive and National Consumer Council on Maximising the Positive Impact of Regulated Information for Consumers and Markets’ (2007) available online under http://www.eurofinas.org/uploads/documents/policies/NCB-BRE-Report.pdf (accessed 11 July 2017).

111

Chapter 3 Conclusion and Content of Contracts (…)

13

The European legislator has also attempted to expand the pre-contractual duties in particularly risky financial transactions (e.g. investments) in order to protect the customer from taking a considerable risk. Financial institutions are therefore subject to specific duties that, alongside giving information, also serve the creation of a client profile that will allow the institution to determine whether the intended transaction can actually meet the customer's needs.23 The pre-contractual duties may therefore mean that the business is obliged to refrain from concluding the contract unless the client is adamant despite being informed of the risks and unsuitability of the transaction. Article 19 Markets in Financial Services Directive Conduct of business obligations when providing investment services to clients (1) Member States shall require that, when providing investment services and/or, where appropriate, ancillary services to clients, an investment firm act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the principles set out in paragraphs 2 to 8. (2) All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing communications shall be clearly identifiable as such. (3) Appropriate information shall be provided in a comprehensible form to clients or potential clients about – the investment firm and its services, – financial instruments and proposed investment strategies; this should include appropriate guidance on and warnings of the risks associated with investments in those instruments or in respect of particular investment strategies, – execution venues, and – costs and associated charges so that they are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. This information may be provided in a standardised format. (4) When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client's or potential client's knowledge and experience in the investment field relevant to the specific type of product or service, his financial situation and his investment objectives so as to enable the firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him. (…) (10) In order to ensure the necessary protection of investors and the uniform application of paragraphs 1 to 8, the Commission shall adopt, in accordance with the procedure referred to in Article 64(2), implementing measures to ensure that investment firms comply with the principles set out therein when providing investment or ancillary services to their clients. Those implementing measures shall take into account: (a) the nature of the service(s) offered or provided to the client or potential client, taking into account the type, object, size and frequency of the transactions; (b) the nature of the financial instruments being offered or considered; (c) the retail or professional nature of the client or potential clients. (…)

23 See Howells/Wilhelmsson/Twigg-Flesner (n 1) 330.

112

I. Pre-contractual Duties

2. Comparative perspectives

In 1861 the celebrated German scholar, Rudolf von Jhering, published his ar- 14 ticle ‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen’24 in which he outlined his theory on the existence of loyalty duties between the parties in a relationship that can result in the conclusion of a contract. This ‘discovery’ has since had a long-lasting effect on the concept of contract: the existence of a legally relevant relationship prior to the conclusion of contract reduces the significance of the contract itself. Jhering's focus was on the question of liability for breach of pre-contractual obligations and therefore he may not have intended that the content of the contract would also be determined by the pre-contractual phase. Nonetheless, Jhering assumed a contractual relationship that would oblige the parties to act loyally towards one another at the time the contract was concluded; this basis provided the source for pre-contractual obligations. The classification under contract was founded by the absence of a sufficient non-contractual foundation for liability, which continued after the German Civil Code entered into force in 1900. Jurisprudence and legal theory indeed renounced the fiction of a contract on the conclusion of contract but have nonetheless remained with the contractual approach. The liability due to culpa in contrahendo was expressly included in the German Civil Code following modernization of the law of obligations in 2002.25 Jhering's theory on the liability due to the breach of pre-contractual duties re- 15 ceived recognition outside of the German jurisdiction, yet the contractual (or quasi-contractual) classification is considered a feature of the German approach. The theory inspired Italian and French scholars, Gabriele Faggella and Raymond Saleiles, respectively, to seek the source of liability in tort law à la française.26 In comparison to German law, the French model for tort law was (and is) more generous to the injured party. The concept of pre-contractual liability was however met with considerable 16 scepticism in other legal traditions, especially the common law. This is particularly apparent in the English decision Walford v Miles: However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations.27

24 v. Jhering, ‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen’ in Jahrbücher für die Dogmatik des heutigen römischen und deutschen Rechts (Jherings Jahrbücher) vol 4 (1861) – reprint: v. Jhering, Culpa in contrahendo (Gehlen 1969) 7–91. 25 Looschelders, ‘Pre-contractual Obligations and the Concept of Culpa in Contrahendo in German law’ in Schulze/Perales Viscasillas (eds), The Formation of Contract (Nomos 2016) 29– 40. 26 Fagella, ‘Dei periodi precontrattuali e dell loro vera ed esatta costruzionescientifica’ in Studi Giuridici in onore di Carlo Fadda, vol 3 (Pierro 1906) 269, 271; Saleilles, ‘De la responsabilité précontractuelle; à propos d´une étude nouvelle sur la matière’ (1907) Revue Trimestrelle de Droit civil 697. 27 Walford v Miles [1992] 2 AC 128, 138 per Ackner LJ.

113

Chapter 3 Conclusion and Content of Contracts

It is thus undeniable that the different legal traditions in Europe have adopted various different positions concerning the question of pre-contractual duties. Consequently, the process of European harmonization in this area of law faces numerous difficulties. 3. Pre-contractual duties and good faith in the acquis communautaire

The different approaches at national level allowed the drafters of the Acquis Principles to presume that the acquis communautaire does not contain a duty of loyalty between the parties to a contract that has not yet been concluded. However, these Principles were drafted at a time of few indications that good faith had made its way into the acquis and will become an integral part thereof.28 18 Art 4(2) Distance Selling Directive provided that the principles of good faith in commercial transactions were to be regarded when determining the form and manner in which the information was to be given to the consumer. The Distance Selling Directive has since been replaced by the Consumer Rights Directive, which neither includes this requirement nor makes reference to the standard of good faith. The catalogue of information in the Consumer Rights Directive is rather to be viewed as an independent source for the information to be given. Moreover, full harmonization prevents the national legislator from extending the list for off-premises or distance contracts even if this were justified by the principle of good faith. In comparison, art 5 Consumer Rights Directive concerns the information duties for other types of contracts and does not prevent other information duties arising under national law due to application of good faith. Such duties under the Directive can therefore not be derived solely from the principle of good faith. 17

Article 5 Consumer Rights Directive 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 off-premises 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; (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;

28 For comments on the application of good faith in the acquis communautaire see COM (2006) 744 final, 19–20 and Chapter 2, paras 132–134.

114

I. Pre-contractual Duties (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-today 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.

4. Pre-contractual duties and good faith in the CESL

The aforementioned sources show that good faith has become a part of the 19 acquis communautaire, albeit with considerable caution. This reluctance and uncertainty can be seen in the narrow scope of the sources but is especially apparent in the ‘Green Paper on the Review of the Consumer Acquis’ the Commission maintained that the principle of good faith did not apply in EU law and its inclusion would first have to be considered.29 However, the Commission failed to take account of the sources of EU law30 in which, even for modern law, the principle of good faith unarguably applies. This still holds true even though the Consumer Rights Directive is entirely silent on this principle. The actual break in the application of good faith as a source of rights and du- 20 ties for the parties (also in the pre-contractual phase) can be observed in the frequent references to good faith in the proposed CESL and the intended general application of this principle.31 As already indicated,32 had the proposed CESL not been withdrawn its principle of good faith would have had influence on the entire acquis communautaire as it would have been adopted elsewhere in EU law. The proposed CESL contains a definition of the principle of good faith. As 21 under the Unfair Commercial Practices Directive33 the principle has been extended to also include ‘fair dealing’. Both concepts are covered under one uniform definition: 29 COM (2006) 744 final, 17–18. On the application of the principle of good faith see Chapter 2, paras 128–129. 30 See Whittaker/Zimmermann, ‘Good faith in European contract law: surveying the legal landscape’ in Zimmermann/Whittaker (eds), Good faith in European Contract Law (CUP 2000) 7–62. 31 Recital 3, art 2(b) CESL-Reg-D, art 2, art 23(1), art 48(1)(b)(iii), art 49(1) and (3), art 59(h), art 68(1)(c), art 83(1), art 86(1)(b), art 170(1) CESL-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. 32 See above, para 3. 33 See Riesenhuber (n 1) § 7 paras 8–11.

115

Chapter 3 Conclusion and Content of Contracts Article 2(b) CESL-Reg-D34 Definitions ‘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;

A law of contract that is based on this principle should consequently be guided by a principle of co-operation between the parties. It is therefore a law of contract that does not focus on adversarial relationship between the parties but rather attempts to encourage the parties to respect the others' interests so that the purpose of the contract can be achieved. 22 The CESL places the party under a duty to act in accordance with the principle of good faith and fair dealing (art 2(1) CESL-D). The consequences of breach are outlined in art 2(2) CESL-D and include preclusion from exercising or relying on a right, remedy or defence. In addition, breach of the duty of good faith and fair dealing may give rise to a claim for damages for loss suffered as a consequence. The provision therefore attributes a double function to the principle of good faith. Firstly, good faith is a limitation on the exercise of subjective rights. The first part of art 2(2) CESL-D is reminiscent of the English estoppel that can prevent or exclude the exercise of rights.35 Such a limitation thus allows good faith to function as a ‘shield’ and not as a ‘sword’ and therefore not as an independent source of rights and obligations. However, the second part of art 2(2) CESL-D modifies this concept by including ‘liability’ for the breach of rights and obligations which arise due to good faith. Accordingly, the principle can also be used as a ‘sword’. The wording ‘liable for any loss thereby caused’ is however unclear as it raises the question of how the ‘loss’ corresponds to the harm. Moreover, it is also unclear whether the breach of good faith will lead to the application of other remedies for breach. Despite such uncertainties it is nevertheless clear that liability from culpa in contrahendo shall arise for the precontractual phase, though the optional nature of the CESL means that this liability can only arise if the CESL has been chosen and thus applies to the contract. Consequently, the pre-contractual phase is included in the regime of contractual liability. 23 A notable feature of the CESL is the distinction between the pre-contractual information duties in B–C and B–B contracts. Art 13 CESL-D states information duties for B–C contracts but does not refer to the principle of good faith.

34 The European Parliament has proposed to restructure art 2 CESL-Reg-D by placing a definition of ‘good faith and fair dealing’ in art 2(fe) CESL-Reg-D, see European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159) amendment 37. 35 Whittaker, ‘Theory and Practice of the “General Clause” in English Law: General Norms and Structuring of Judicial Discretion’ in Grundmann/Mazeaud (eds), General Clauses and Standards in European Contract Law – Comparative Law, EC Law and Contract Law Codification (Kluwer 2006) 57, 69.

116

I. Pre-contractual Duties

However, art 23(1) CESL-D stipulates:

24

Article 23(1) CESL-D Duty to disclose information about goods and related services 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.

The provision gives rise to the question whether a duty to give information in B–C contracts is not derived solely from the principle of good faith. However, the reference to good faith in B–B contracts allows greater flexibility in ascertaining the scope of the information duties. In this respect, one has to bear in mind the differences in contracting practice for B–C and B–B contracts and therefore the variation in approach. B–C contracts are primarily standardized, mass contracts in nature and therefore it is possible to determine an exhaustive list of information duties. This approach is also in the interest of the seller as it can be sure that it will have correctly performed its information duties;36 such certainty is all the more relevant due to monitoring by consumer organizations and authorities. However, the circumstances may lead to the paradox that the information duties in a particular B–B contract may be more extensive than in a B–C contract. This is somewhat theoretical as such extensive information duties are seldom likely to arise from the principles of good faith and fair dealing, yet it does highlight the possibility for further information duties in B–B contracts. One can therefore see that the principle of good faith is better suited to contracts negotiated individually. In comparison, too much flexibility and the need to consider the individual circumstances (as result from the principle of good faith) are not well suited to standardized, mass contracts. It is therefore not contradictory that no additional information duty in consumer contracts can be derived from the principle of good faith even though this principle is generally acknowledged. The information duties listed in the CESL are therefore exhaustive. 5. Pre-contractual duties and good faith in the DCFR

The DCFR represents an amalgamation of various different sources: where 25 applicable, the text from the Acquis Principles was modified and interwoven with the text from the Principles of European Law (PEL) and indirectly with the text from the PECL.37 The research attempted to find common denominators between very different traditions; this was especially difficult for pre-contractual duties and the principle of good faith due to the considerable variations amongst the legal systems. Although the DCFR had considerable influence on the content of the CESL38 one can nevertheless see clear differences between the two sets of 36 See above, paras 12–13. 37 Contract II/Ajani/Schulte-Nölke Preface xiii–xiv.

117

Chapter 3 Conclusion and Content of Contracts

rules, particularly in relation to good faith. The concept of good faith under the DCFR is used more sparingly than in the proposed CESL. Article III.–1:103 DCFR 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. (…) (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.

In contrast to the CESL, art III.–1:103(3) DCFR provides that the breach of the duty of good faith and fair dealing does not give rise to remedies. However, both sets of rules provide that the breach of good faith can preclude the party in breach from exercising or relying on rights, remedies or defences. The provision implements the common law concept of estoppel, which is similar to good faith in this respect, and is based on the assumption that good faith can solely function as a ‘shield’ and not as ‘sword’. The wording of art III.–1:103(1) DCFR implies that the provision only applies to a relationship between the parties that has arisen after a contract was concluded. This narrow version of the principle of good faith, as well as the limited consequences for breach, indicate that this principle cannot serve as a general source for pre-contractual duties.39 26

Article I.–1:103 DCFR 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.

The provision contains the same definition as used in the CESL. Moreover, it can be seen from art I.–103(2) DCFR that the concept of good faith can apply to the pre-contractual phase, though this will only be of practical relevance once the contract has been concluded. In this case art III.–1:103(1) DCFR may be applied by way of analogy. However, it would not be possible to use this as a base for damages claim; liability due to culpa in contrahendo is also practically excluded. One may consider basing liability on the DCFR's general tort law provisions, though this conclusion would diminish the importance of art III.–1:103 38 See European Commission, ‘A Common European Sales Law to facilitate cross-border transactions in the single market’ COM (2011) 636 final, 5–7. 39 Zoll, ‘Der Entwurf für einen Gemeinsamen Referenzrahmen im Prozess der europäischen Rechtsvereinheitlichung’ in Gebauer/Teichmann (eds), Enzyklopädie Europarecht, Band 6, Europäisches Privat- und Unternehmensrecht (Nomos 2016) § 9 para 71.

118

I. Pre-contractual Duties

DCFR. The extensive liability for culpa in contrahendo under the DCFR is excluded on the basis of two provisions: art II.–3:301(2) DCFR provides liability for breach of the duty of good faith and fair dealing when conducting negotiations or in breaking-off negotiations; art II.–3:301(4) DCFR states a particular type of such breach, namely entering into negotiations without the intention to conclude a contract. The second provision concerns the breach of the duty of confidentiality in re- 27 lation to the information given in the course of negotiations: Article II.–3:302 DCFR 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.

The express regulation of these two issues in the DCFR and its the narrow un- 28 derstanding of the concept of good faith indicate that one cannot assume extensive liability under culpa in contrahendo for the breach of duties derived from good faith. The liability in this respect will be neither on the basis of tort nor contract and shall only arise when it is expressly provided by a provision to that effect. 6. Liability under the Acquis Principles

As stated above, the Acquis Principles provide a relatively broad basis for lia- 29 bility due to breach of the duty of good faith.40 The Principles do not only determine that the parties are to act in accordance with good faith during the pre-contractual phase (art 2:101 ACQP) but also the standard for the business' pre-contractual duties, namely to act with the care and skill that a consumer would reasonably expect (art 2:102 ACQP). The Acquis Principles also provide liability for negotiations conducted contrary to the principle of good faith (art 2:103 ACQP). It has been questioned whether there is actually a sufficient basis in the acquis 30 communautaire for such liability.41 No source directly regulates this type of liability. However, CJEU jurisprudence does provide clear indications that such a basis for liability is not alien to EU law. Such liability for the European Commu-

40 See Chapter 2, paras 98 et seq. 41 See Jansen/Zimmermann, ‘Restating the Acquis communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law’ (2008) MLR 505, 525.

119

Chapter 3 Conclusion and Content of Contracts

nity was affirmed in the decision Embassy Limousines42 in which the non-contractual basis for the liability was derived from the EC Treaty.43 31 Jansen and Zimmermann's criticism of the wording of the Acquis Principles draws on the availability of withdrawal rights for consumers in particular situations.44 In their opinion, art 2:103 ACQP could form the basis for the liability of the consumer if she concluded the contract with the intention of later withdrawing.45 This would not be compatible with EU law, though it is important to note that one can speak of abuse in relation to withdrawal rights and that this can have indirect, negative consequences for the consumer. The provisions on withdrawal rights can be, however, considered as lex specialis even if one does not agree with this opinion. 7. Information duties in the acquis communautaire

Current EU law contains a series of provisions that place a party under the duty to provide various types of information to the other before the contract is concluded. The European legislator has been most active in the field of consumer law, which now contains a considerable number of information duties. The right to information initially formed one of the cornerstones of the development and justification for consumer policy.46 Indeed, one of the consumer's key weaknesses lies in the asymmetry of information; consequently the European legislator has attempted to combat this weakness by imposing information duties on the business. 47 The information duties do not just cover the field of consumer law but also extend to other contractual situations. For example, the Services Directive practically contains no limitations to particular types of recipients – the mere fact that a services contract shall be concluded will suffice in order for the information duties to apply.48 In addition, information duties arise in e-commerce regardless of the status of the parties;49 the mandatory nature of the information duties in this context does however depend on whether the customer is a consumer.50 The mandatory nature of the information duties also depends on the status of the parties in investment contracts. 33 Information duties serve different purposes including, for example, identifying the party, informing of the intention to create legal relations, technical aspects of the procedure for concluding the contract, the subject-matter of the contract, requirements for performing the contract, risks, content of the contract and 32

42 43 44 45 46 47 48 49 50

120

Case T–203/96 Embassy Limousines ECLI:EU:T:1998:302. The Court based liability on art 215(2) EC Treaty, see Embassy Limousines (n 42) para 45. Jansen/Zimmermann (n 41) 520–531. See Jansen/Zimmermann (n 41) 527. Summarized in Reich et al. (n 14) 21 et seq.; Weatherill, EU Consumer Law and Policy (2nd edn, Elgar 2013) 5 et seq. See above, paras 4 et seq. See art 22 Services Directive. See arts 5–7 E-Commerce Directive. See art 10(1) E-Commerce Directive.

I. Pre-contractual Duties

standard terms, as well as certain rights that are available to a party (e.g. withdrawal rights). Several directives also provide that information is to be given on the enforcement of rights, methods of dispute resolution as well as the applicable law.51 However, before the Services Directive and, above all, the Consumer Rights Directive were passed, these information duties were generally scattered across the acquis communautaire and only applied in specific situations. The Services Directive stipulates that a service provider is obliged to provide 34 all the information listed in its art 21. The notion of a services contract is very broad.52 It is so extensive that one can ultimately presume that a general information duty applies especially as this duty does not only apply to consumer contracts. A comprehensive information duty was also introduced in the Consumer Rights Directive,53 though this Directive distinguishes between information duties in off-premises and distance contracts, and other types of contract. Offpremises and distance contracts are subject to full harmonization54 and therefore the Member States cannot introduce any additional information duties for these types of contracts.55 The Member States are entitled to maintain or introduce further information duties for other circumstances. The Directive does however contain an exception for contracts (not off- 35 premises or distance) involving day-to-day transactions performed immediately at the time they are concluded: the information duties may not apply to such contracts (art 5(3) Consumer Rights Directive). This exception is necessary because in day-to-day transactions (e.g. in a supermarket) the business would otherwise have to provide all the information listed under the Directive, which would certainly not be practicable.

51 See, for example, on the information duty concerning the right of withdrawal art 5(1)(o), art 10(2)(p) Consumer Credit Directive; art 6(1)(h) Consumer Rights Directive; art 17(1) CESL-D; further information duties under art 10(2)(q), (r) and (s) Consumer Credit Directive (on the excerise of the rights under art 15 Consumer Credit Directive); art 5(1)(f) Consumer Rights Directive (on the termination of contracts of undetermined duration); art 16(b), art 19(3)(e) CESL-D (on the conditions for terminating the contract); the procedure for early payment art 10(2)(r), the procedure for termination (s); on ADR art 10(2)(t) Consumer Credit Directive; art 6(1)(t) Consumer Rights Directive; art 13(1)(g) CESL-D; on the applicable law art 8(1) in conjunction with art 9(1) CESL-Reg-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. 52 Cf the definitions in art 4(1) Services Directive with the restrictions under the second sentence of art 2 Services Directive. 53 Arts 5 and 6 Consumer Rights Directive. See Hall/Howells/Watson (n 23) 142 et seq.; Reich et al. (n 14) 401 et seq. 54 See recital 5 Consumer Rights Directive. 55 With respect to the fully harmonized aspects in the Consumer Rights Directive see Loos, ‘Full harmonisation as a regulatory concept and its consequences for the national legal orders. The example of the consumer rights directive’ (2010) Centre for the Study of European Contract Law Working Paper Series 5, 6 available online under http://papers.ssrn.com/sol3/papers.cfm? abstract_id=1639436 (accessed 11 July 2017).

121

Chapter 3 Conclusion and Content of Contracts

8. Between pre-contractual information duties and fair trading 36

Pre-contractual information duties are also included in the Unfair Commercial Practices Directive: Article 7(1) UCPD Misleading omissions A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations 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.

37

The Unfair Commercial Practices Directive does not aim at a regulation of individual contractual relationships but rather seeks to structure the market according to the principles of fair trading.56 In practice, however, the boundary between individual contract law and fair trading is no longer easily recognizable.57 Art 7 UCPD results in a general information duty in favour of consumers. The requirement for this duty is simply that particular information is necessary in order to allow the ‘average consumer’ to take an informed contractual decision. 9. Standardized performance

38

Imposing new information duties does not always lead an improvement in level of information for the other party: as noted above, the volume of information creates difficulties for this party to take on, process and sort the information it has received.58 Even the business is faced with the challenge of determining the information that must be provided in order to perform the information duty. New directives have therefore introduced standard forms to overcome this problem, for example the Consumer Credit Directive59 and the Markets in Financial Instruments Directive60. These standard forms should ensure that the business performs its duties. In turn, the consumer shall gain easy access to the information and be able to more easily compare the information given by various businesses.61

56 See art 1 UCPD. 57 See in particular Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016). See also Howells/Wilhelmsson/Twigg-Flesner (n 1) 49 who comment that the European legislator has not appropriately considered the link between contract law and unfair commercial practices. 58 See above, para 12. 59 See the European standard information for consumer credit in Annex II Consumer Credit Directive. 60 Provided at the end of art 19(3) MiFID. 61 For detail using the example of European standard information for consumer credit as well as the criticisms of the Member States on the standard information see Lawrynowicz, The Implementation of the Consumer Credit Directive (Study for the European Parliament 2012) 31–32; available online under www.europarl.europa.eu/RegData/etudes/etudes/join/2012/475083/IPO L-IMCO_ET(2012)475083_EN.pdf (accessed 11 July 2017).

122

I. Pre-contractual Duties

10. Pre-contractual information duties in the CESL

The pre-contractual information duties in the proposed CESL generally follow the concept adopted by the Consumer Rights Directive;62 only the structure has been altered. In comparison to the Consumer Rights Directive, the proposed CESL first lists the information duties for distance and off-premises contracts (arts 13–19 CESL-D) before the general information duties for other types of contracts (art 20 CESL-D). The proposed CESL does however regulate information duties in B–B contracts (art 23 CESL-D); these information duties are derived from the principle of good faith and fair dealing (art 23(1) CESL-D).63 The information duties in consumer contracts are structured in accordance with the function of the different pieces of information. Accordingly, art 13 CESL-D generally outlines the duty to inform of the subject matter of the contract (paragraphs a, b), the identity of the business (paragraph c), the contract terms (paragraph d) as well as the rights of withdrawal (paragraph e); arts 14–17 contain the specifics for each of these types of information. The further information duties concern guarantees, after-sales services and complaints handling policy (paragraph f), ADR mechanisms (paragraph g) as well as particular technical aspects relating to digital content (paragraphs i, j). The technique is somewhat surprising because art 20 CESL-D concerns other types of contract yet almost repeats art 13 CESL-D. As in the Consumer Rights Directive, day-to-day contracts performed immediately at the time of their conclusion are not subject to the information duties. The pre-contractual information duties in the CESL face a fundamental problem that is linked to the optional nature of this instrument. The regulation of the pre-contractual phase in the optional instrument appears to create a paradox – the application of the European sales law (if passed in its current form) is subject to selection as the law regulating the contract (art 8(1) CESL-D). It therefore ought to appear that the pre-contractual phase could not be subject to regulation under an opt-in optional instrument because it will have no effect until after it has been selected.64 However, it can be argued that the rights and duties of the parties can be determined retrospectively. This nonetheless poses the question whether the provisions of the optional instrument would therefore be inapplicable if it is not actually chosen by the parties. The business will have to know which duties it will have to perform before the optional instrument is (or is not) selected. Indeed, the performance of the pre-contractual duties is also significant even if a contract is not concluded. This 62 For a general overview of the pre-contractual information duties in the CESL see Delvoie/ Reniers, ‘Pre-contractual Information in the Proposal for a Common European Sales Law’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 49 et seq. 63 See Delvoie/Reniers (n 62) 52, who note that good faith probably would not play an important role in this context. 64 See Delvoie/Reniers (n 62) 52.

123

39

40

41

42

Chapter 3 Conclusion and Content of Contracts

is especially important in consumer law because the business is often subject to close monitoring by various different authorities. Although this question has not yet been clarified sufficiently, it can be assumed that the effect of the optional instrument on determining the rights and duties in the pre-contractual phase shall solely depend on the intention to conclude the contract under its regime. In this respect, one can presume the optional instrument to have a direct effect on the pre-contractual phase. 11. Pre-contractual information duties in the Acquis Principles and DCFR

The Acquis Principles represented the first attempt to structure the pre-contractual information duties in the acquis communautaire. In so doing it included the duties that arise in relation to the marketing of goods and services (art 2:202 ACQP). The Acquis Principles use the specifics of European directives in order to draft general principles65 and therefore they include information duties that are designed to apply regardless of particular contractual situations. Moreover, the Acquis Principles provide specific information duties for situations in which particular types of information are necessary. The relationship between this general clause (art 2:202 ACQP) and the specific information duties cannot be described as simply being lex specialis – lex generalis. For example, art 2:E–01 ACQP on package travel contracts shows that the performance of these detailed information duties leads to the presumption of compliance with the general information duty (art 2:202 ACQP). This approach attempts to link the need for certainty with flexibility. 44 The pre-contractual duties under the DCFR have generally been drafted in line with the Acquis Principles though some distinctions can be observed. The structure of the DCFR is more conservative and not as greatly influenced by the development of the acquis communautaire; arts II.–3:101 to 3:108 DCFR therefore only contain general information duties. Specific information duties tailored to particular situations are, with the exception of arts II.–3:103 to 3:105 DCFR, therefore lacking in the general framework. The DCFR does contain specific information duties but these are, more traditionally, linked to the particular types of contract. 43

12. Consequences of breach 45

For many years the Member States were generally responsible for determining the sanctions for the breach of information duties provided in EU directives. One of the few sanctions arising from the acquis communautaire is an extension of the withdrawal period, though the same period was not given in all of the relevant directives;66 these differences also resulted in notable ECJ decisions in cases such as Heininger67 and Hamilton68. The Consumer Rights Directive 65 Contract II/Dannemann Introductory Part xxiii–xxvi. 66 See below, para 118.

124

I. Pre-contractual Duties

should now remove these unfounded differences, at least in distance and offpremises contracts. However, one can note a further tendency to also remove such differences in other directives. The Acquis Principles and the DCFR contain detailed rules on the sanctions 46 for the breach of information duties. Where the method adopted by the Acquis Group is concerned, the principle of effet utile justifies the addition of sanctions missing from EU law. However, a uniform rule was first found in the context of withdrawal rights (art 2:208(1) ACQP). The rule served as a model for the Consumer Rights Directive (as well as the CESL) and aims to remedy the incoherency in EU law. Two further sanctions were not expressly provided in EU law but could nonetheless be identified therein: firstly, art 2:208(2) ACQP provides for a modification of the content to take into account the rights and obligations that the other party could reasonably expect in light of the information that was (or was not) given. The concept therefore creates an alternative to avoidance due to defects in consent. The mistake potentially caused by the breach of the information duty will be resolved by adapting the content of the contract to the other party's legitimate expectations. Secondly, art 2:208(3) ACQP provides a right to damages due to breach. Furthermore, the Acquis Principles refer to the rules on damages due to non-performance. It is therefore clear that the breach of an information duty is to be equated with the non-performance of a contractual obligation. The DCFR includes a very similar rule in its art II.–3:109, which was derived from the Acquis Principles. However, in contrast to the Acquis Principles, the DCFR contains rules on defects in consent. In this respect art II.–7:201(b) (iii) DCFR contradicts the model of the self-correcting contractual content; here the conservative elements of this draft are not sufficiently in tune with a new development. By comparison the new Consumer Rights Directive includes only few rules 47 outlining the sanctions for the breach of information duties. The European legislator has not provided any sanctions for the breach of information duties in contracts other than off-premises or distance contracts, therefore leaving the responsibility with the national legislator. Nonetheless, the Consumer Rights Directive does contain two specific sanctions for breach of certain information duties in distance and off-premises contracts: the consumer will not have to bear any additional charges or costs if it has not been informed thereof (art 6(6), in a similar vein art 14(1), (2) and (4)); the withdrawal period will be extended if the consumer has not been provided with the information on the right of withdrawal (art 10). The proposed CESL contains more detailed rules than the Consumer Rights 48 Directive: Art 29(1) CESL-D provides – as the Acquis Principles – a right to damages; art 29(2) CESL stipulates that consumer will not be liable to pay additional costs if the business has breached its duty to inform thereof. Furthermore, 67 Case C–481/99 Heininger ECLI:EU:C:2001:684. 68 Case C–412/06 Hamilton ECLI:EU:C:2008:215.

125

Chapter 3 Conclusion and Content of Contracts

the provisions on defects in consent will also apply (art 29(3) CESL-D). Art 42(2) CESL-D contains the consequences of a failure to inform the consumer of its right of withdrawal. The proposed CESL has however not adopted the approach of adjusting the contract and therefore tensions arise between the law on defective performance and the law on defects in consent. It is regrettable that the Commission proposes to remain with a rather conservative approach towards regulating the sanctions for breach of information duties despite an initial intention to follow the Acquis Principles.69 II. Conclusion of Contract 1. Overview a) Introduction 49

The conclusion of a contract causes a legal relationship with specific rights and obligations to arise between the parties. Although increasing consideration is given to the pre-contractual relationship between the parties, the rules concerning the manner as well as the time of conclusion of contract remain of central importance in all European legal systems. However, examination of the various legal systems shows that there are considerable differences between the individual rights, especially in civil law and common law jurisdictions (e.g. the requirement of consideration under the common law).70 Furthermore, the European legal systems have reacted differently to the new challenges for conclusion of contract in national and, above all, in international trade (such as those forms of agreement not traditionally categorized as offer and acceptance, and e-commerce). The effects of these new developments concern all European countries. There is therefore an increased need for a convergence of national laws or uniform rules, especially for cross-border trade. Rules on conclusion of contract are thus of central importance also for European private law. b) Acquis communautaire

50

The acquis communautaire does not contain a comprehensive group of rules on conclusion of contract. Nonetheless, there are numerous provisions and court decisions concerning this matter and therefore open the possibility for identification of overarching principles. Fundamental principles can even be found within EU primary law: freedom of conclusion and freedom of content are at the core of the principle of freedom of contract;71 the principle of non-discrimination is based on arts 10, 18 and 19 TFEU and art 21 CFR as well as the principles for

69 See the Feasibility Study published by the Expert Group on European Contract Law, available online under ec.europa.eu/justice/contract/files/feasibility_study_final.pdf (accessed 11 July 2017). 70 See also below, para 62. 71 For more detail see Chapter 2, paras 83 et seq.

126

II. Conclusion of Contract

the EU's individual policy areas (for instance, consumer protection under art 38 CFR, which also extends to the conclusion of consumer contracts). However, the law regarding conclusion of contract is of much greater signifi- 51 cance within secondary EU law. Many directives contain rules concerning various aspects of conclusion of contract, for instance inertia selling72, form requirements and electronic confirmation73, and withdrawal rights. In contrast to the laws of the Member States, one can observe great inconsistencies in the regulatory density of the acquis communautaire: the directives contain very few details on the general requirements for conclusion of contract via offer and acceptance,74 yet several questions of conclusion via telephone or electronic means have, in comparison, been regulated in considerable detail. Accordingly, Member States' laws on conclusion of contract are a mixture of aspects that have been greatly harmonized (though in part by minimum harmonization) and matters that have not been subject to any, or very little, harmonization whatsoever (such as defects in consent). Despite this fragmented nature, EU law on conclusion of contract does dis- 52 play several tendencies that deviate from the traditional models of conclusion of contract founded in 19th century codifications. It not only includes consideration of new media, such as the Internet and other means of distance communication, but also probable future rules on data as counter-performance under the contract.75 A particular feature of EU contract law is its expansion to take account of the notion of ‘mass contracts’ and the associated standardization of contracts.76 In this respect it is necessary to take account of the modern reality of contract practice in which contracts are often (in contrast to the traditional model) not the result of individual negotiations between the parties. A party (or even each party) will rather use its own standard terms in the hope that these will be accepted by the other party without the need for negotiations.77 Furthermore, the acquis communautaire is characterized by its focus on pre- 53 contractual behaviour and the content of the future contract. Its broad range of information duties to be performed before or at the moment the contract is concluded sometimes allow for a smooth transition between the pre-contractual phase and the conclusion of a contract.78 Such a strong link to the formation of intention and the content of the contract thus gives rise to key questions surrounding the relationship between these information duties and the traditional doctrines on invalidity and avoidance of contract due to defects in consent. In 72 73 74 75

On inertia selling see art 27 Consumer Rights Directive. Art 8 Consumer Rights Directive; art 11(1) E-Commerce Directive. Contract II/Schulze art 4:102 para 3. See below, paras 74 et seq.; on the rules surrounding data as counter-performance see Chapter 5, para 16. 76 See Chapter 2, para 34. 77 See Chapter 4, paras 64, 78 et seq. 78 On information duties see paras 88–91; Busseuil, ‘La Phase précontractuelle – La formation du contrat électronique’ in Rochfeld (ed), L’Acquis Communautaire – Le contrat électronique (Economica 2010) 71.

127

Chapter 3 Conclusion and Content of Contracts

contrast to information duties, the acquis communautaire contains very few rules belonging to the ‘traditional’ area of defects in consent, such as the consequences of mistake, threat, and misrepresentation. It is thus for the national legislator to coordinate the extensive information duties with such types of rules. Nonetheless, the task remains to consider both approaches in order to develop a theory of risk distribution in the event of missing, incomplete or incorrect information during the conclusion of a contract.79 54 The defects in contractual intent and the distribution of information risks indeed require reconsideration due to the acquis communautaire, though attention is also to be paid to the starting points for determining the content of the contract and the time aspects for the conclusion of the contract. Particular acts during the pre-contractual phase can exercise direct and significant influence on the content of the contract and therefore on the seller's contractual duties towards the consumer, for instance advertising and other public statements made by third parties.80 This effect is expressly acknowledged in art 6(1) Package Travel Directive in which pre-contractual information provided to the traveller ‘shall form an integral part of the package travel contract’. Some directives provide the consumer with a right of withdrawal and thus modify the traditional notions underpinning the time after agreement. Such provisions cause the contract to be ‘pending effectiveness’ and grant the weaker party the possibility to cancel the contract after the agreement has been made.81 Consequently, consideration of each of these approaches in the acquis communautaire allows one to identify a notion of conclusion of contract with several innovative features: formation of contract does not occur solely from the perspective of a ‘magical moment’82 in which two corresponding statements of intention create the contract. Formation of contract rather requires consideration of the process from pre-contractual information, to the postponing the conclusion of the contract via ‘reflection periods’ (art 14(6) Mortgage Credit Directive) and to subsequent correction of the agreement through the right of withdrawal.83 c) Academic and legislative drafts 55

The principles on conclusion of contract in the acquis communautaire are mainly reflected in the Acquis Principles.84 However, the acquis is not a comprehensive source for all aspects of conclusion of contract; the development of rules in areas not covered by the acquis has therefore adopted a comparative law approach through the PECL, with further development by the DCFR and the 79 Schulze, ‘The Formation of Contract: New Features and Developments in Contracting’ in Schulze/Perales Viscasillas (n 25) 9–24; below paras 97 et seq. 80 See below, paras 83 et seq. 81 See below, paras 128. 82 Pfeiffer, ‘New Mechanisms for Concluding Contracts’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 167. 83 See para 116. 84 Contract II/Schulze et al. on conclusion of contract, in particular Chapter 4.

128

II. Conclusion of Contract

French Principes Directeurs.85 It is to be noted that the PECL extend beyond those aspects traditionally regulated by the Member States as its Principles (despite their rather concise nature86) do not categorize the conclusion of contract in offer and acceptance, and also include unilateral promises. Several of the rules from these further sources have been used by the Acquis Principles to supplement matters of EU law requiring completion.87 Moreover, Book II DCFR has proposed a broad synthesis of the principles obtained by the comparative and acquis approaches in order to provide rules for almost all key aspects of the conclusion of contract. The synthesis approach adopted by the DCFR was also been followed in the 56 Commission's proposal for a Common European Sales Law. The CESL's chapter on conclusion of contract forms the heart of the main part on ‘making a binding contract’, preceded by pre-contractual information and succeeded by the chapters on withdrawal and on defects in consent, respectively. Moreover, several provisions in other parts of the CESL concern specific aspects of conclusion of contract, such as the requirement of an explicit statement (separate from the statement indicating the agreement to conclude a contract) on the agreement to use the CESL in consumer contracts (art 8(2) CESL-Reg-D) and the effect of pre-contractual statements on the content of the contract (art 69 CESL-D). The CESL therefore proposes to comprise matters based on the traditions of the Member States (e.g. the conclusion of contract through offer and acceptance) as well as new approaches based on the acquis communautaire (e.g. the inclusion in consumer contracts of pre-contractual statements and a right to withdraw).88 The aforementioned innovative approaches in the acquis communautaire 57 were included in the proposed CESL (though mostly in a more general manner) and were developed further, especially in relation to digital content. Nonetheless, the proposal did not contain specific, detailed rules that took into account the particular features of digital content. The Commission's proposal for a Digital Content Directive did however use the CESL as a starting point in order to develop rules better suited to the needs surrounding digital content (such as extending the notion of non-conformity89 with features specific to digital content 85 Association Henri Capitant/Société de legislation, European Contract Law – Materials for a Common Frame of Reference: Terminology, Guiding Principles, Model Rules (Sellier 2008) 421–422. 86 Art 2:101 PECL. art 2:201 PECL contains a rule on offer and art 2:204 PECL on acceptance. 87 Such as detailed requirements for an offer (art 4:103 ACQP) and the binding effect of unilateral promises (art 4:109(1) ACQP). 88 Summarizing the conclusion of contract under the CESL, Conelis, ‘Unaware of any evil: breath-taking, simply breath-taking – Articles 30–39 and 48–57 of the CESL’ in Claeys/ Feltkamp (n 62) 84 et seq.; Szczerbowski, ‘Formation of Contract’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 37 et seq. 89 Art 6 Digital Content Directive. See Colombi Ciacchi/van Schagen, ‘Conformity under the Draft Digital Content Directive: Regulatory Challenges and Gaps’ in Schulze/Staudenmayer/ Lohsse (eds), Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017) 99.

129

Chapter 3 Conclusion and Content of Contracts

and taking the role of data into account in the rules on termination of contracts90). However, as the CESL is designed as an optional instrument, not all of the innovative suggestions from comparative law or the acquis communautaire were adopted. For example, the consequences of inertia selling91 or unilateral promises92 cannot be regulated by a law of contract that is only applicable by means of an agreement between the parties. Furthermore, in some respects the CESL appears to have been reluctant to include matters of considerable importance in practice, but which have received little attention in the legislation and jurisprudence of the Member States and have been inadequately discussed in legal doctrine. It would be especially desirable if the further development of European private law were to direct greater attention towards the many different forms of conclusion of contract without the traditional structure of offer and acceptance. 2. Agreement a) Principle 58

The requirement in European contract law for the formation of a contract and creation of rights and obligations for the parties is an agreement between the parties.93 In this respect, European contract law follows the concept whereby parties are contractually bound by reason of their agreement; this concept primarily arose through the natural law doctrine of the 17th and 18th centuries in relation to the view that the parties' promises form the basis of their respective obligations.94 According to this traditional doctrine, the binding effect for both parties is based on the consensus shown in the congruence in the content of their statements of contractual intention. As has been shown by the analysis of the concept of contract in EU law95, the acquis communautaire does not contain such an express, general stipulation; a series of different sources do however indicate that EU law has adopted this principle of conclusion of contract96 but has used different means to modify and develop the principle.97 The PECL, Acquis Principles and the DCFR98 assisted the CESL in determining its three require90 Art 13 Digital Content Directive. See Schulze, ‘Supply of Digital Content: A New Challenge for European Contract Law’ in De Franceschi (ed), European Contract Law and the Digital Single Market (Intersentia 2016) 140. 91 Art 27 Consumer Rights Directive; previously art 9 Distance Selling Directive (which provided the basis for art 4:106 ACQP). 92 Art 2:107 PECL; art 4:109 ACQP; art II.–1:103 DCFR. 93 See also Schulze, ‘Formation of Contract’ in DiMatteo/Janssen/Magnus/Schulze (eds), International Sales Law (Nomos 2016) 220 et seq. 94 Kötz, Europäisches Vertragsrecht (2nd edn, Mohr Siebeck 2015) 24–25. For more detail on the development of the notion of promises see Hogg, Promises and Contract Law (CUP 2011). 95 For more detail see Chapter 2 paras 1 et seq. 96 Contract II/Schulze art 4:101 paras 4–6. 97 See Chapter 2 paras 6, 18. 98 Art 2:101 PECL; art 4:101 ACQP; art II.–4:101 DCFR.

130

II. Conclusion of Contract

ments for the conclusion of a contract: Conclusion of contract is therefore subject to three requirements: the parties reach an agreement; they intend the agreement to have legal effect (intention to be legally bound); the content and certainty of the agreement is sufficient to give legal effect. In principle these three core elements of conclusion of contract are firmly set by art 30 CESL-D. The article's subsequent paragraphs, as well as the further articles in Chapter 3 (arts 31–39 CESL-D), substantiate and supplement these rules. Article 30 CESL-D 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.

b) Requirements

aa) The academic and legislative drafts for a European contract law primarily 59 follow the traditional model of conclusion via offer and acceptance.99 Offer and acceptance do not necessarily require express statements but can be inferred from conduct (‘conclusive behaviour’).100 Furthermore, the drafts substantiate the requirement of an agreement to the extent that a party can give a specific matter such significance that a contract cannot be concluded until an agreement on that matter has been reached (see art 30(4) CESL-D). In this context a typical, yet non-essential, question can be regarded by a party as fundamental for the conclusion of the contract.101 This provision guarantees the party's freedom to conclude a contract and to determine its content even with regard to unusual, individual expectations and values. bb) Furthermore, the various sets of rules for a European contract law require 60 the parties to intend to be legally bound by their agreement.102 Such a require99 See below, para 64. See also Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016) 54 et seq. 100 See art 2:204 PECL; art II.-4:204 DCFR; art 30(2) and art 34(1) CESL-D for the offer. Although arts 30(2) and 34(1) CESL-D explicitly refer to the acceptance, the exclusion of such possibility for the offer would not only contradict the values and purpose of arts 6 and 10 CESL-D; for criticisms of this double approach and the wording of art 30(2) CESL-D see Schulze CESL/Terryn art 30 CESL-D para 13. 101 Looschelders, ‘Das allgemeine Vertragsrecht im Common European Sales Law’ (2012) 212 AcP 581, 606; Schmidt, Der Vertragsschluss (Mohr Siebeck 2013) 270; Schulze CESL/ Terryn art 30 CESL-D para 12; DCFR Full Edition 279. 102 See art 2:102 PECL; art 4:101 ACQP; art II.–4:102 DCFR; art 30 (1)(b) CESL-D.

131

Chapter 3 Conclusion and Content of Contracts

ment particularly allows a distinction to be drawn between a contractually-binding agreement and a non-binding favour (gentlemenʹs agreement, acte de complaisance).103 This distinction does however create difficulties especially for unilateral promises and can have serious consequences (e.g. A promises to hand in B's lottery ticket, A forgets and B seeks to claim compensation for the lost winnings). It is not necessary for the parties to expressly state their intention to be legally bound, nonetheless art 30(3) CESL-D states that the parties' statements and conduct are determining factors for ascertaining such an intention in relation to their agreement.104 61 cc) A further requirement for the conclusion of contract is the sufficiency of the content and certainty of the agreement. This standard seeks to ensure that the parties' respective obligations can be clearly determined in order to ensure the performance of the contract. The various sets of rules do however adopt different approaches to achieving this aim.105 Whereas art 4:101 ACQP is phrased in a general manner, art 30(1) CESL-D seeks to achieve precision through three aspects: firstly, it stipulates that the rules of the CESL are to be considered alongside the agreement in order to determine whether the agreement is sufficient. This concerns not only the rules on the content of the contract (Part III CESL) but also all parts of the CESL (i.e. including the rules in Parts IV–VIII on the obligations of the parties). Secondly, the agreement has to be sufficient in relation to its content and certainty, therefore the extent of the parties' terms (supplemented by the CESL) and their certainty (also supplemented by the CESL, e.g. rules on interpretation) are each to be considered. Thirdly, the standard for ‘sufficient’ content and certainty is set by ‘to be given legal effect’. Such wording has little conclusive effect by itself and requires substantiation by the aforementioned principle that the obligations of the parties have to be determined to the extent that allows for the performance of the contract.106 The requirement will often be satisfied by the seller's extensive pre-contractual information duties (especially in consumer contracts) under Chapter 2 CESL-D.107

103 Harvey/Schillig, ‘Conclusion of Contract’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 248, 263–265; Deshayes, ‘Formation du Contrat’ in Deshayes (ed), Le Droit Commun Européen de la Vente (Société de législation comparée 2012) 95, 112. 104 In general accordance with art 2:102 PECL, art II.–4:102 DCFR and art 30(3) CESL-D. 105 Compare art 2:103(1) PECL, art II.–4:103(1) DCFR, art 4:101 ACQP and art 30(1) CESLD. 106 It is however not necessary for all obligations to have been performed. It will rather suffice when the agreement provides criteria or mechanisms (e.g. transfer of responsibilities to a third party) by which a party's or both parties' obligations can be determined; see also, for example, Huber/Mullis, The CISG (Sellier 2007) 73–75; Schlechtriem/Schroeter, Internationales UN-Kaufrecht (5th edn, Mohr Siebeck 2013) paras 244–245. 107 Schulze CESL/Terryn art 30 CESL-D paras 7–8 with reference to the possibility in B–B contracts to also draw on art 14(1) CISG as a source of inspiration.

132

II. Conclusion of Contract

c) Additional requirements?

aa) The PECL, DCFR, ACQP and the proposed CESL do not contain any ad- 62 ditional requirements for the conclusion of a contract; this is expressly stated in art 2:101 PECL and art II.–4:101 DCFR. In comparison, the lack of additional requirements under the CESL-D is apparent from both the wording of art 30(1) CESL-D and the origins of the provision.108 However, the CESL does not only follow the approaches in the earlier academic works regarding the requirements for the conclusion of contract but also accords with the concept of contract which, according to the Acquis Principles, forms the basis in EU contract law.109 Accordingly, the effectiveness of a contract in European contract law depends neither on consideration (such as in English law), cause (such as in previous French law) nor causa (as in Spanish law).110 The requirement in European contract law of an agreement now appears to have influenced national law, as is demonstrated the reform of the French law of obligations and its removal of the requirement of cause.111 bb) The principle of freedom of form features in each of the sets of rules on 63 European contract law.112 Unless stated otherwise, contracts are therefore neither subject to specific formal requirements nor do they have to be evidenced.113 3. Modes a) Offer and acceptance

aa) Parties will frequently come to an agreement on the contract through the 64 acceptance by one party of an offer made by the other. The underlying consensus consists of the congruence in content of the offer and the corresponding ac108 Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 17–18; Schulze CESL/Terryn art 30 CESL-D para 10. 109 Art 4:101 ACQP; Contract II/Schulze art 4:101 para 9. See Chapter 2, para 15. 110 On both concepts Cabrillac (n 99) 39–40; Farnsworth, ‘Comparative Contract Law’ in Reimann/Zimmermann (eds), The Oxford Handbook of Comparative Law (OUP 2006) 908– 910; Gordley, ‘Consideration’ in Smits (ed), Elgar Encyclopedia of Comparative Law (2nd edn, Edward Elgar 2012) 180; Kadner Graziano, Comparative Contract Law (Palgrave 2009) 101–149; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 76–100, 1049, 1153–1179; Szczerbowski (n 88) 38–39; on consideration Whittaker/Riesenhuber, ‘Conceptions of Contract’ in Dannemann/Vogenauer (n 103) 120, 129–130. 111 Journal officiel de la République française n°0035 du 11 février 2016, texte n° 26, Ordonnance n° 2016-131 du 10 février 2016 portant réforme du droit des contrats, du régime général et de la preuve des obligations, abrufbar unter: www.legifrance.gouv.fr/affichTexte. do?cidTexte=JORFTEXT000032004939&categorieLien=id (accessed 11 July 2017); see als o the special edition of the journal Revue des contrats (April 2016) on the topic of ‘La réfor me du droit des contrats: quelles innovations?’; Schulze/Wicker/Mäsch/Mazeaud (eds), La réforme du droit des obligations en France, 5èmes Journées franco-allemandes (Société de Législation Co 2015). 112 Art 2:101(2) PECL; art 1:304 ACQP; art II.–106(1) DCFR; art 6 CESL-D. 113 Limitations on the freedom of form are contained in, for example, art 19(4) and art 25(2) CESL-D with respect to distance contracts concluded electronically; see below, paras 74 et seq. Harmonized restrictions on the freedom of form may also be seen in national laws, for example in distance contracts concluded via telephone (art 8(6) Consumer Rights Directive).

133

Chapter 3 Conclusion and Content of Contracts

ceptance. Offer and acceptance are therefore traditionally central parts of the laws of the Member States that serve to describe the process of conclusion of contract and the elements of the agreement.114 However, EU legislation and ECJ decisions115 also consider a contract to be concluded by means of offer and acceptance;116 art 4:102(1) ACQP contains a corresponding rule. Nevertheless, current EU law is not a fruitful source for detailed provisions on the conclusion of contract via offer and acceptance. In contrast, arts 2:201 et seq. PECL and accordingly arts II.–4:201 et seq. DCFR have considered this matter in much more detail (in part through reference to the CISG as well as the UNIDROIT Principles).117 Arts 31 et seq. CESL are largely based on this model in order to substantiate and supplement the general rule on agreement via offer and acceptance. They comprise rules on the terminology, revocation and rejection of an offer (arts 31–33 CESL-D) as well as on the acceptance (arts 34, 36–38 CESL-D), time of conclusion of contract (art 35 CESL-D), and conflicting standard terms (art 39 CESL-D). 65 bb) Arts 31 and 32 CESL-D draw on two problems relating to an offer and for which there no clear answer in the present acquis communautaire: firstly, the boundaries between the offer and other conduct and statements by a potential contract party prior to the possible conclusion of contract; secondly, the revocation of an offer before its acceptance. Article 31 CESL-D 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 14(2) CISG Proposal 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.

114 Kötz/Flessner, European Contract Law (Clarendon 1997) 16–18; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 161; see also Kadner Graziano (n 110) 49–93; Ranieri (n 110) 176–228, 290–309; Szczerbowski (n 88) 39–41; DCFR Full Edition 294–295. 115 The ECJ made express reference to the conclusion of contract via acceptance of an offer, see Case C–96/00 Rudolf Gabriel ECLI:EU:C:2002:436 paras 48–49. 116 This model has already been referred to by, for example, the Doorstep Selling Directive (since repealed by the Consumer Rights Directive) and art 3(3) of the Commission Recommendation of 19 October 1994 relating to the legal aspects of electronic data interchange (94/820/EC) [1994] OJ L338/98. 117 Lando/Beale (n 114) xxv-xxvii; Lando, ‘Das neue Schuldrecht des Bürgerlichen Gesetzbuchs und die Grundregeln des europäischen Vertragsrechts’ (2003) RabelsZ 235; Vogenauer in Kleinheisterkamp/Vogenauer (eds), Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (OUP 2009) Introduction para 22.

134

II. Conclusion of Contract Article 2:201(3) PECL Offer 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.

The boundary between an offer and other preparatory statements and conduct 66 is of considerable importance in practice.118 If such a statement or conduct is an offer, the other party merely has to state its acceptance in order for the contract to be concluded and therefore to give rise to rights and obligations for each party. However, if preparatory statements by one party do not fulfil the requirements of an offer, the acceptance by the other party is not binding. There will often be a divergence in the parties' interests and views in regard to whether the proposal by one party contains an offer or is merely an invitation to the other party to make an offer (invitatio ad offerendum). For example, if a seller distributes a catalogue it will thus often not be in its interest to make an offer to each recipient as its stock level will only suffice for a limited number of customers. Alternatively, it may be in the interest of the recipient to not have to first make an offer and to thus keep the conclusion of contract in suspense until the seller responds. National and international laws give different answers to this conflict of inter- 67 ests. Where the general requirements for an offer are concerned, the CISG, PECL and DCFR indeed adopt the same approach for the central aspects of intention to be legally bound, and sufficient certainty;119 art 31 CESL-D follows these models. However, there are differences between the standards vis-à-vis proposals made in public advertisements, catalogues etc., and directed at an undefined group. Under art 14(2) CISG such a proposal is, in the absence of the contrary, to be considered merely as invitatio ad offerendum. In contrast, art 2:201(3) PECL and art II.–4:201(3) DCFR have not adopted this approach, which would be more favourable to the offeror (in consumer contracts this would often be the seller). These provisions instead provide that a proposal to deliver goods or to provide services at stated prices are presumed to be an offer to sell at the stated price. However, this is limited in public advertisements, catalogues, or in a display of goods by the supplier's capacity to supply the service or goods. Art 4:103(3) ACQP incorporates this rule in order to supplement existing EU law. Although no clear rule on this matter can be found within the acquis communautaire, such a supplementary rule in the Acquis Principles can serve to clarify whether (and at what moment) a contract is concluded and thus if, under the circumstances, protective rules in EU law can be invoked to benefit a party. The reference in the Acquis Principles to the solution favoured by the PECL and 118 Illmer, ‘Vertragsschluss’ in Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts, vol II (C.H. Beck 2009) 1697. 119 Some differences can be observed, cf art 14(1) CISG with art 2:201(1) PECL and art II.– 4:201(1) DCFR.

135

Chapter 3 Conclusion and Content of Contracts

DCFR is founded by the important role that EU law attributes to public statements in other contexts.120 Moreover, this solution corresponds with the values of the Unfair Commercial Practices Directive.121 In spite of these indications for opposing values in the acquis communautaire, the CESL has nevertheless chosen not to follow the approach adopted in the DCFR. Conversely, the CESL does not follow the CISG method of a presumption of invitatio ad offerendum in the absence of clear statements to the contrary. The CESL instead combines the presumption that a proposal directed to the public is not an offer with a much broader possibility to refute: the basis is not solely the statement by the proposing party but rather the ‘circumstances’, i.e. the facts and processes that the proposing party has not itself expressed and may have not even considered. Furthermore, these ‘circumstances’ are not linked to the additional requirement of ‘clear indication’ but must rather satisfy the general requirements for notice (art 10 CESL-D). Although the proposed CESL did not adopt the balanced approach of art II.–4:201(3) DCFR it does differ considerably from the particularly friendly approach the CISG has adopted for the proposing party. 68 The questions of whether and under what circumstances an offer can be revoked remain unanswered in EU contract law. Moreover, the laws of the Member States also do not contain uniform answers to these issues:122 many national laws provide that the offer can be revoked until its acceptance by the other party, whereas other national laws stipulate that the offeror is principally bound as soon as the offer has been communicated to the other party (unless the binding effect has been excluded).123 A general statement in favour of one or the other solution cannot be obtained from the acquis communautaire. Individual provisions instead indicate that EU law acknowledges both approaches and abstains from making a specific decision.124 Consequently, the Acquis Principles do not contain a rule on this matter. In contrast, art 16 CISG, art 2:202 PECL and art II.–4:202 DCFR adopt the approach of the majority of European states and allow for the revocation of the offer until its acceptance by the offeree. In principle, the CESL follows the approach of allocating of the risk to the offeree (for instance due to changes in interest resulting from market fluctuations or offers from third parties): art 32(1) CESL-D allows for revocation of an offer when the revocation reaches the offeree before the offeree has sent its acceptance. The same principle applies in the event of acceptance by conduct (art 34 CESL-D), i.e. before the contract has been concluded by such conduct. Offers directed at

120 Contract II/Schulze art 4:103 para 1 relating to art 2(2)(d), (4) and art 6(1) Consumer Sales Directive, second sentence of art 3(2) Package Travel Directive; Møgelvang-Hansen, ‘The Binding Effects of Advertising’ in Schulze (n 82) 169–179. 121 For more detail see Schulze CESL/Terryn art 31 CESL-D para 10. 122 Kadner Graziano (n 110) 150–190; Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 356–363. 123 Lando/Beale (n 114) 166–167; DCFR Full Edition 304–307; Zweigert/Kötz (n 122) 356– 364. 124 See recital 14 Consumer Rights Directive.

136

II. Conclusion of Contract

the public can be revoked but the revocation is to be by the same means as were used to make the offer (art 32(2) CESL-D125). Art 32(3) CESL-D provides three limitations on the principle of revocation: the offer indicates that it is irrevocable; the offer states a fixed period of time for its acceptance; or 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. The latter exception expresses the principle of the protection of legitimate reliance126 and softens the model whereby the offeror is principally bound by its offer. cc) The PECL, DCFR and CESL-D rules concerning acceptance of the offer 69 mainly follow the same approach. Acceptance can be given either by a statement or conduct in any form if it expresses the assent to the offer, though mere silence or inactivity will not in itself constitute acceptance.127 Silence or inactivity are therefore not excluded as methods of communicating acceptance but require further circumstances in order to have binding effect (such as statements during the negotiations, framework agreements or agreements on such form of acceptance).128 The relevant period for acceptance primarily determined within the offer itself. 129 In the absence of such a contractual stipulation, the offer will otherwise remain open for a reasonable time after it was made. If an offer can be accepted by conduct or through practices established between the parties the offeree must behave in such a manner within the allocated (or reasonable) time frame for acceptance.130 However, it is possible for late acceptance to be effective if, without undue delay, the offeror informs the offeree that the acceptance will be treated as being effective. Furthermore, a late acceptance is effective if the communication of the (late) acceptance shows that the acceptance has been sent in such circumstances that have resulted in late communication of the acceptance. The acceptance will be ineffective if the offeror informs the offeree without undue delay that the offer has lapsed.131 If the offeree's reply to the offer contains material differences or additions to the contract terms, it will be deemed a rejection and a new offer.132 This principle is adopted by most of the Member States, though the CESL does deviate in some respects from national approaches. In particular, it contains the presumption that there is a material difference if the changes or additional contract terms refer to particular aspects (such as 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; art 38(2) CESLD).133

125 126 127 128 129 130 131 132

See also art 2:202(2) PECL; art II.–4:202(2) DCFR. For more detail see Chapter 2, para 10. Art 2:204 PECL; art II.–4:204 DCFR; art 34 CESL-D. DCFR Full Edition 310–311; Lando/Beale (n 114) 169; Schulze CESL/Terryn art 34 CESLD paras 5–6. Art 2:206 PECL; art II.–4:206 DCFR; art 36 CESL-D. Art 2:205(3) PECL; art II.–4:205(3) DCFR; art 35(3) CESL-D. Art 2:207 PECL; art II.–4:207 DCFR; art 37 CESL-D. Art 2:208(1) PECL; art II.–4:208(1) DCFR; art 38(1) CESL-D.

137

Chapter 3 Conclusion and Content of Contracts 70

dd) The acceptance of the offer results in the conclusion of the contract. The statement of acceptance must reach the offeror.134 The contract is concluded via conduct when knowledge of the conduct reaches the offeror. However, if the offeree can accept via conduct without notice to the offeror,135 the relevant point in time is the moment the conduct commences.136 b) Conclusion without offer and acceptance

aa) In practice, a contract can be concluded in forms that are not limited to conclusion via offer and acceptance. However, present EU contract law does not give sufficient consideration to these variations in methods. For example, the parties' statements concerning their intention to conclude a contract may cross in the post. In such instances it is not possible to categorize the conclusion of contract in offer and acceptance; if each statement contains corresponding conditions, the underlying consensus and agreement do not present objective reasons for rejecting the conclusion of a contract. The focus on the notion of consensus is reflected in art 2.1.1. PICC, in which a contract can be concluded ‘by conduct of the parties that is sufficient to show agreement’. In accordance with this rule the laws of several Member States137 and with the application of the CISG138, art 2:211 PECL, art 4:102(2) ACQP, and art II.–4:211 DCFR each stipulate that the provisions on conclusion of contract are applicable if categorization in offer and acceptance is not possible. Similarly, such an analogous application of the CESL rules on offer and acceptance would also be appropriate if the statements of intention were to ‘cross paths’. However, the absence of a provision expressly permitting the possibility of analogous application ought not to be understood as a decision to exclude the application. It rather shows the reluctance in favour of how this relatively new field can be shaped by doctrine and jurisprudence on the basis of principles arising from arts 30 et seq. CESL-D on the conclusion of contract. 72 bb) The valid application of rules to ‘crossing statements’ must also apply in the numerous other situations in which there is sufficient agreement for the conclusion of contract but no possible categorization in offer and acceptance. Busi71

133 For further detail see Gebauer, ‘Der Vertragsschluss im EU-Kaufrecht (Art 30–39 GEKR)’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 121, 142– 144; Schulze CESL/Terryn art 38 CESL-D paras 2–7, 12–13. 134 Art 2:205(1) PECL; art II.-4:205(1) DCFR; art 35(1) CESL-D. The CESL-D further requirements for communication of the acceptance – and thus for the formation and time of conclusion of contract – are contained in its general provisions on notice (art 10 CESL-D); see Chapter 2, paras 22, 33 et seq. 135 See above, para 59. 136 Lando/Beale (n 114) 172 give the example of a recently hired opera singer who, under instructions from the manager, begins with rehearsals whilst the remainder of the ensemble is on tour and cannot be contacted. 137 For example, for Germany Staudinger BGB/Bork (2015) § 146 para 7; for Italy: Bianca, Diritto Civile, vol 3: Il contratto (2nd edn, Giuffrè 2015) 238. 138 See Schlechtriem/Schwenzer CISG/Schmidt-Kessel Introduction to arts 14–24 para 8.

138

II. Conclusion of Contract

ness needs have given rise to many such situations that can be described as ‘gradual’ or ‘uneven’ conclusion of contract. A characteristic of such methods is the gradual substantiation of the contractual intent and content through the use of legal instruments, such as a Letter of Intent, Punktation, Heads of Agreement, and Memorandum of Understanding139, with the aid of diverse rights and duties for a (third) party or partial stipulation or substantiation of content in one or several steps at different points in time.140 Such forms of ‘gradual’ conclusion of contract are not regulated in general in the acquis communautaire however the absence of such rules does not mean that EU law considers these forms to be insignificant. In addition, one cannot conclude that the express reference in EU law to the process of offer and acceptance141 excludes other forms of conclusion of contract. On the contrary, the provisions rather indicate that pre-contractual statements or a party's right of withdrawal are of considerable importance for the conclusion of contract.142 Moreover, the notion of effet utile requires provisions of EU law, which should protect a party during conclusion of contract, to have no effect because the contract has been concluded in a manner other than by offer and acceptance. It is rather to be examined in each case whether the provisions of EU law on conclusion of contract are to be applied in a situation whereby conclusion does not follow via offer and acceptance (e.g. to statements made by the protected party in the process of being ‘gradually’ bound). Where the proposed CESL is concerned, one may use the aforementioned 73 reasons regarding ‘crossing statements of intent’143 to determine that its rules can be applied by analogy. The Commission's proposal indeed has not seized the opportunity to react to the growing importance of ‘gradual’ conclusion of contract (also in cross-border contracts) with express, specific rules providing an innovative response to the demands of modern contract law. However, this may be due primarily to the differences in development between theory and practice and thus the absence of a strong doctrinal basis for the legislator. The lack of express rules ought not to be construed as the decision for contracts to be concluded only through offer and acceptance but rather as allocating the task (above all for legal doctrine) regarding the future European law on conclusion of contract. Clarifica139 On these and further instruments before and during the conclusion of contract CorderoMoss, ‘The Function of Letters of Intent and their Recognition in Modern Legal Systems’ in Schulze (n 82) 139; Heussen, Letter of Intent (2nd edn, Otto Schmidt 2014); Thümmel, ‘Letter of Intent (Absichtserklärung)’ in Schütze/Weipert/Rieder (eds), Münchener Vertragshandbuch, vol 4 (7th edn, C.H. Beck 2014) 1–17; Weick/Basse (eds), Recht des internationalen Handels- und Wirtschaftsverkehrs (C.H. Beck 2013) 85–89. 140 For further detail see Demoulin/Montero, ‘La conclusion des contrats par voie électronique’ in Fontaine (ed), Le Processus du Formation du Contrat (Bruylant 2002) 771; Fontaine, ‘Offre et acceptation, approche dépassée du processus de formation des contrats’ in Mélanges offerts à Pierre Van Ommeslaghe (Bruylant 2000) 115–133; Schulze (n 93) 203– 241; Siems, ‘Unevenly Formed Contracts’: Ignoring the ‘Mirror of Offer and Acceptance’ (2004) ERPL 771 ; van Erp, Contract als Rechtsbetrekking (Willink 1990). 141 See above, para 64. 142 See above, para 56. 143 See above, para 72.

139

Chapter 3 Conclusion and Content of Contracts

tion is necessary with regard to many questions concerning the ‘appropriate adaptation’144 in the corresponding application of the provisions (for instance, the revocation of individual statements during the conclusion of contract and the time at which individual contractual duties are created145). c) Conclusion via distance means of communication

aa) Present EU contract law (as well as the proposed CESL) does not use a traditional approach to distinguish between contracts concluded in the presence of the parties and contracts concluded in absentia.146 They rather use specific provisions for the different forms in which a contract can be concluded without the simultaneous physical presence of the parties. The concept of a ‘distance contract’147 (see art 2(7) Consumer Rights Directive; art 2(p) CESL-Reg-D) covers a particularly broad range of means of distance communication that can be used to prepare and conclude the contract, for instance post, telephone, email, and trading websites;148 a necessary approach in order to be ‘future proof’ in the rapidly developing field of communication technology.149Although the definition of a distance contract requires the exclusive use of one or more such means of distance communication up to and including the time at which the contract is concluded, the relevant directives and the proposed CESL contain the limitation in consumer contracts that the contract has to be concluded under an organized distance sales or service-provision scheme.150 75 bb) The preparation and conclusion of contract often takes place through the use of ‘real time’ communication which allows direct contact without simultaneous physical presence of the parties and without the loss of time (in particular, via telephone or some internet services). A guiding principle for this area is that the business has to disclose its identity and commercial purpose when it seizes the initiative to contact the consumer via distance communication. Similar protective rules are not just contained in art 6 E-Commerce Directive (with regard to commercial communications which are part of, or constitute, an information society service) but also in art 3(3)(a) Distance Marketing of Financial Services 74

144 See art 2:211 PECL. 145 On the question whether a ‘magical moment’ remains necessary in relation to the ‘gradual’ conclusion of contract see Pfeiffer, ‘Der Vertragsschluss im Gemeinschaftsrecht’ in Schulze/ Ebers/Grigoleit (eds), Informationspflichten und Vertragsschluss im Acquis communautaire (Mohr Siebeck 2003) 103, 110–111; Pfeiffer (n 82) 165–168; Schulze, ‘The New Challenges in Contract Law’ in Schulze (n 82) 3, 18–19. 146 See, for example, § 130(1), 147 BGB; arts 4, 5 OR. 147 See art 2(a) Distance Marketing of Financial Services Directive; art 2(7) Consumer Rights Directive; art 2(p) CESL-Reg-D; and now also art 1(1), art 2(e) Online Sales Directive. 148 Recital 20 Consumer Rights Directive. For more detail see Schulze CESL/Wendehorst art 2 CESL-Reg-D paras 32–36. 149 See recital 15 Distance Marketing of Financial Services Directive. 150 It has however been considered not to limit the concept to consumer contracts; European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TAPROV(2014)0159) amendments 26, 49, 60–61.

140

II. Conclusion of Contract

Directive, art 8(5) Consumer Rights Directive and, art 19(1) CESL-D. The business is liable for every loss suffered by the consumer as a result of the business' failure to perform this duty (art 29(1) CESL-D).151 cc) E-commerce is of considerable importance for the internal market and 76 thus is encouraged by EU law.152 Conclusion of contract via e-commerce is therefore subject to specific rules on information and formal requirements (arts 10 and 11 E-Commerce Directive153), with further additional rules for B–C contracts (art 8(2)–(7) Consumer Rights Directive) and requirements for performance of information duties where there are technical limitations (e.g. the limited number of characters that can be displayed on mobile phones).154 Similar requirements are also provided by arts 13(3), 19(1) and 25 CESL-D.155 The principles concerning the communication of information and statements before and at the conclusion of contract also require substantiation and development in light of the progress made in e-commerce. This was shown in the ECJ decision Content Services156 with regard to the use of hyperlinks to information on the right of withdrawal,157 and may be the subject of future EU legislation and court decisions. The same also applies to numerous practical problems concerning the security and evidentiary issues surrounding the electronic conclusion of contract. Nonetheless, the provisions of the eDIAS Regulation entered into force on 1 July 2016 and regulate some of the issues concerning e-commerce. However, it will remain to be seen whether there will be an increase in the user's confidence in the security, confidentiality, integrity of data as well as the identity of the business partner, and thus whether e-commerce will be strengthened.158 dd) Art 8(6) Consumer Rights Directive provides that, where a distance con- 77 tract is to be concluded by telephone, the Member States may additionally require the business to confirm the offer to the consumer. With such a requirement the contract would only be binding once the consumer has signed the offer or sent its written consent. Such an option for the Member States aims at providing additional protection to consumers by, on the one hand, the warning given through the signature or written consent and, on the other hand, improving the evidentiary issues. Art 19(4) CESL-D has adopted the Consumer Rights Directive's optional model as a mandatory provision for contracts concluded via tele151 The Acquis Principles provide that the consumer can withdraw from the contract and claim damages if there has been a breach of the specific information duties in real-time communication (art 4:104(4) ACQP). 152 Recital 1 and art 1(1) E-Commerce Directive. 153 Art 4:105 ACQP is very similar, but provides a right to withdraw and a claim to damages as possible sanctions for breach. 154 Recital 36 Consumer Rights Directive. 155 For further detail see below, paras 74 et seq. 156 Case C–49/11 Content Services ECLI:EU:C:2012:419. 157 See Chapter 2, paras 37–38. 158 For criticism see Spindler/Rockenbauch, ‘Die elektronische Identifizierung – Kritische Analyse des EU-Verordnungsentwurfs über elektronische Identifizierung und Vertrauensdienste’ (2013) MMR 139; Roßnagel, ‘Neue Regeln für sichere elektronische Transaktionen’ (2014) NJW 3686, 3692.

141

Chapter 3 Conclusion and Content of Contracts

phone. The requirement of a signature or written consent is therefore not only a requirement for the consumer to be contractually bound (as in the Directive) but also for the effectiveness of the contract. The aforementioned protective aims are thus reinforced by the preventative aspect (irrespective of the consumer's interest in maintaining the contract) together with the strict sanction of ipso iure invalidity of the contract. The inclusion of this requirement in the section on precontractual information duties thus expresses the close interaction between the pre-contractual and conclusion phases – though this is not absolutely necessary from a structural perspective. 4. Pre-contractual public statements a) Party to the contract

aa) The content of the contract may be determined not only by statements made by the parties before and during the conclusion of the contract but also by pre-contractual public statements made by one of the parties.159 Such principle of European contract law has particularly emerged on the basis of the Consumer Sales and Package Travel Directives. According to arts 2(2)(d) and 6(1) Consumer Sales Directive, statements made in advertising, labelling and the guarantee can be relevant for determining the content of the seller's contractual obligations. Similarly, pre-contractual statements concerning a package holiday are also binding on the organizer or retailer under arts 6(1) and 5(1) Package Travel Directive.160 These rules in the two Directives have had an innovative effect on the development of contract law in Europe. They take account of the situation in modern sales practice in which decisive information about the goods or services are often not first given to the other party at the time the contract is concluded. The seller can rather use advertising in media, such as television, internet, magazines or catalogues, to influence the expectations of a large group of persons a long time before the parties contact one another and negotiate the conclusion of a specific contract. The customer will possibly not ask important questions about the object of the contract (e.g. the fuel consumption or engine performance when purchasing a car) because it considers itself to have been informed by the precontractual statements made in the advertisements. The Directives consider the business' responsibility in contributing to the customer's expectations and therefore bind it to its pre-contractual statements. 79 bb) The binding effect under the Consumer Sales Directive concerns two situations. On the one hand, a guarantee under art 6(1) binds the offeror not only to the conditions contained in the guarantee statement but also to the conditions set out in the associated advertising. On the other hand art 2(2) determines that public statements, made by the seller in advertising or labelling, are criteria for the presumption that the goods are in conformity with the contract. However, the 78

159 For more detail see Møgelvang-Hansen (n 120) 169–179. 160 See recitial 26 Package Travel Directive.

142

II. Conclusion of Contract

seller is not bound by these public statements when it can prove that the statement had been corrected by the time the contract was concluded or that the statement could not have influenced the decision to purchase the goods. The decisive aspect thereby is not whether the seller was actually aware of the statement but rather whether it could have reasonably been aware thereof. The provision takes into account the difficulties that are caused by the multitude of influences in complex advertising strategies when attempting to reconstruct the moment (as well as the content) of the buyer's opinion in the individual case – the buyer, even when receiving the goods, will often not be aware of the ways and time at which the advertising impacted on its purchasing decision. The binding effect of pre-contractual statements in travel law concerns the ex- 80 tensive amount of information the organizer (and retailer) is to provide to the traveller in accordance with art 5 Package Travel Directive. Such information includes the main characteristics of the travel services (such as destination, travel, duration, categories of transport etc.), the total price, the arrangements for payment, the minimum number of persons required for the package to take place, and information that the traveller may terminate the contract at any time before the start of the package in return for payment of an appropriate termination fee. The organizer and retailer shall provide this standard information by means of the relevant form as set out in annex I to the Directive (different versions of the form are provided depending on whether a hyperlink can be used). According to art 6 Package Travel Directive, the pre-contractual information shall form an integral part of the package travel contract. The ‘binding effect’ of this information is especially strong as the information shall not be altered unless the contracting parties ‘expressly’ agree otherwise. The content of the contract is therefore determined to a large extent by the pre-contractual details provided by the organizer and retailer. Moreover, the principle of transparency provides a basis for limitations regarding changes to the organizer's pre-contractual statements even prior to the conclusion of contract: all changes to the pre-contractual information are to be provided to the traveller in a ‘clear, comprehensible and prominent manner’ (art 6(1) Package Travel Directive). The multitude of pre-contractual information does however question whether the desired transparency can be obtained in practice. cc) The provisions in the Consumer Sales Directive and in the Package Travel 81 Directive are restricted to the protection of consumers in the purchase of goods and package holidays, respectively.161 However, these two specific situations do share a common principle: pre-contractual advertising and other public statements on the characteristics of goods and services remain key for the performance due under the contract without the need to refer to such statements during the negotiation stage. Such pre-contractual statements typically aim to influence 161 For different approaches under national law see Ruiz ‘The Integration of Advertising Statements into the Content of the Contract’ in Plaza Penadés/Martínez Velencoso (n 88) 78 et seq.

143

Chapter 3 Conclusion and Content of Contracts

the customer's decision on the contract and therefore form the basis for a legitimate expectation that the characteristics of the goods or services under the contract will correspond to the pre-contractual statements made by the business. The reason for the binding effect of pre-contractual statements in consumer sales and package travel lies therein that the pre-contractual behaviour by the business has generated legitimate expectations in relation to the subject matter of the contract. However, this basis for liability does not exist only in relation to the two types of contracts regulated by the Directives; it rather generally applies to contracts for goods and services. The business must be aware that marketing these products through public statements will generate the corresponding expectations from its customers; it must therefore assume responsibility for these pre-contractual statements when concluding the contract. Art 4:107 ACQP has thus proposed a general rule for such pre-contractual public statements: Article 4:107 ACQP 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.

82

dd) Art 69 CESL-D largely follows this approach.162 Its first two paragraphs generally cover the pre-contractual statements made by a business (both in the conclusion of B–C and B–B contracts). According to the CESL, pre-contractual public statements can be binding on the content of the contract without being included in the offer made to each individual party and without the need for the other party to be aware of the statements at the time the contract was concluded. The link between the binding effect of pre-contractual statements and the legitimate expectations assists in explaining the exceptions provided in art 69(1) CESL-D. These follow art 2(3) and (4) Consumer Sales Directive and art 6(1) Package Travel Directive, albeit with minor differences.163 The public statements could therefore not generate such legitimate expectations if the other party knew or could be expected to have known that the statement was incorrect or that the statement could not have influenced the decision to conclude the contract.

162 On the CESL approach see Ruiz (n 161) 75 et seq. 163 In particular through the additional limitation that the other party knew or could be expected to have known that it ‘could not otherwise be relied on as such a term’, see Schulze CESL/ Kieninger art 69 CESL-D para 5.

144

II. Conclusion of Contract Article 69 CESL-D 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.164 (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.

b) Third parties

aa) Pre-contractual public statements may also bind a party to the contract 83 even if the statement has originated from a third party. This approach in the acquis communautaire arises from art 2(2)(d) Consumer Sales Directive with regard to pre-contractual statements on the specific characteristics of the goods made by the producer or its representative (in particular in advertising or labelling). The same principle underpins art 6 Package Travel Directive when the traveller concludes the contract with the retailer (art 3 No. 9 Package Travel Directive) but the organizer has provided the standard information. Art 69(3) CESL-D contains a corresponding rule for consumer contracts. The principle of binding effect of pre-contractual public statements has since 84 been extended in European private law to cover certain statements made by third parties. In this respect it curtails the principle of privity of contractual rights and obligations as the content of a party's obligations does not solely arise from the relationship with the other party but is also determined by third party conduct. In so doing it takes into account the widespread collaboration in marketing goods and services: advertising, labelling and other marketing measures affecting the final buyer are often not undertaken by the final seller (especially where massmarket products are concerned) but instead (and sometimes even almost entirely) by the producer, importer or a distributor. These measures employed by third 164 The German version of (3) reads: ‘Handelt es sich bei der anderen Partei um einen Verbraucher, wird für die Zwecke des Absatzes 1 eine öffentliche Erklärung, die im Vorfeld des Vertragsschlusses von oder im Auftrag eines Herstellers oder einer anderen Person abgegeben wurde, als vom Unternehmer abgegeben angesehen, es sei denn, der Unternehmer kannte diese Erklärung bei Vertragsschluss nicht und hätte sie auch nicht kennen müssen.’ As the German version does not refer to ‘in earlier links of the chain of transactions leading to the contract’ it is not clear that the ‘other person’ has to be part of one of the earlier links in the chain; see Schmidt-Kessel CESL/Looschelders/Makowsky art 69 CESL-D para 20.

145

Chapter 3 Conclusion and Content of Contracts

parties can have a decisive impact on the final buyer's decision to conclude the contract and on its expectations of the content thereof. The final seller can utilize this influence but has to allow it to be a factor in the contract concluded with the final buyer, indeed a factor that may later be used against the final seller. 85 bb) The personal scope of application of the CESL provisions on pre-contractual public statements by third parties has taken a different path than was originally paved for European contract law by the PECL and Acquis Principles: according to art 6:101(3) PECL pre-contractual public statements are to be treated as a source of the contractual obligations if they are made by a person who either advertises or markets the goods for the professional supplier, or is an earlier link in the chain of transactions. The requirement ‘professional supplier’ (i.e. a ‘business’ in modern EU legal terminology) means that the rule can generally be applied to all types of contracts (and not just specifically to consumer contracts). Arts 4:107 and 4:108 ACQP adopt a similar line as public statements by ‘the producer, another person in the business chain between producer and ultimate consumer, or any person advertising or marketing services or goods for the business’ (art 4:108 ACQP) will be binding irrespective of whether the other party to the contract is a business or a consumer (as long as the final seller is a business). In contrast, the Consumer Sales Directive stipulates the binding effect of precontractual statements only for consumer sales contracts. However, this accords with the general limitations on the scope of this Directive165 but does not allow one to draw the conclusion that the underlying principle can only concern consumer contracts. The general relevance of this principle in the acquis communautaire is rather illustrated by arts 5 and 6 Package Travel Directive which substantiate the principle for standard pre-contractual information to be given by the organizer/retailer. According to art 3 No. 6 Package Travel Directive, businesses may also refer to the standard information if they have concluded a contract with an organizer or retailer.166 86 However, art 69(3) CESL-D expressly restricts the application of the provisions on pre-contractual statements by a third party to consumer contracts: a public statement will be treated as being made by the business at the time of the conclusion of the contract, but it must have been made by (or on behalf of) a producer or other person in earlier links of the contractual chain.167 If the other party is not a consumer, the binding effect of statements by third parties is to be viewed in light of the requirements under art 69(2) CESL-D. The extent to which statements by third parties will have binding effect in B–B contracts will 165 Art 1 Consumer Sales Directive. 166 In contrast to the notion generally used in EU law, the term ‘consumer’ defined in art 2(4) Package Travel Directive includes businesses that have concluded the contract for a commercial purpose or other purpose related to their business (e.g. booking a company trip). 167 For more detail see Schulze CESL/Kieninger art 69 CESL-D para 11; Looschelders/ Makowski, ‘Inhalt und Wirkungen von Verträgen’ in Schmidt-Kessel (n 133) 227, 238; Wendehorst, ‘Regelungen über den Vertragsinhalt’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 87, 94.

146

II. Conclusion of Contract

depend primarily on the interpretation of ‘engaged’ under art 69(2) CESL-D. A reason for this restriction to consumer contracts is not apparent. The advertising measures taken by the seller, service provider or previous links in the business chain can exert considerable influence on parties' expectations irrespective of whether the party is a consumer or business (as is shown by the Package Travel Directive). The collaborative marketing structure means that advertising and other public statements by other participants equally benefit the business – this also does not depend on whether the other party is a consumer or a business. This issue has been taken into account by the ‘gold plating’ of the Consumer Sales Directive by some national legislators when implementing the Directive into national law.168 A restriction to consumer contracts would not sufficiently consider that producers, importers and the other links in the business chain often (in collaboration with, but not engaged by the final seller) organize the marketing even when the final buyer is a business (or both consumers and businesses are addressed to the same extent). The general restriction to consumer contracts may however sufficiently take into account the differences between B–B and B– C contracts: in the former the parties can waive the binding effect of pre-contractual statements, whereas in the latter it is in the interest of consumer protection for these statements to have mandatory effect. 5. Unilateral promises a) Binding effect

Uncertainty still remains in European law in relation to the questions of the 87 manner, scope and consequences concerning obligations that do not just arise through the conclusion of a contract but also from unilateral promises. The CESL does not contain any provisions on this latter issue as its application requires an agreement between two future parties to a contract (art 8 CESL-RegD) and accordingly is only tailored to obligations arising from a contract. In contrast, the PECL and the Acquis Principles (as well as art II.–1:103(2) DCFR) have proposed basic rules defining the unilateral statement as a further source of legally binding obligations. Article 2:107 PECL Promises binding without acceptance A promise which is intended to be legally binding without acceptance is binding.

168 In Germany with the third sentence of § 434(1) BGB which extends the scope of art 2 Consumer Sales Directive to all sales contracts.

147

Chapter 3 Conclusion and Content of Contracts Article 4:109 ACQP Binding force of unilateral promises (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.

88

These rules reflect the significance that the unilateral promise has gained both in several Member States as well as in international practice169 (e.g. concerning guarantees, prize notifications170, securities171 and in relation to contract formation as well as the ‘gradual’ conclusion of contract172). In most European countries, legal doctrine paid relatively little attention to this matter following the 17th and 18th century controversies surrounding the theories of contract and promise173. However, unilateral promises do play an important role in Nordic laws with respect to establishing obligations: according to the løfteteori (‘promise theory’) the starting point (also for contractual obligations) can be formed by the promise in which the party has assumed its obligations. Under the løfteteori an offer (as a promise) would bind the offeror and would become a contractual obligation upon acceptance (and retrospectively from the moment the offeree becomes aware of the offer).174 Several provisions of EU law are also indicative of the possible binding effect of unilateral promises, for example art 6(1) Consumer Sales Directive the offeror of a guarantee is bound to the conditions set out in the guarantee statement and the associated advertising. This particular effect of the guarantee does not necessarily require an acceptance by the seller. Furthermore, it does not just concern the buyer–seller relationship but also guarantees given by the producer and other third parties.175 Ascertaining this binding effect of guarantees under the Consumer Sales Directive does, however, not present a sufficient basis for the presumption that EU law generally attributes binding effect to unilateral promises.176

169 For example, for England Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256; for Germany § 657 BGB (promises of a reward) and § 661a BGB (promises of prizes); see also Cauffman, ‘Standard Clauses and Unilateral Promises’ in Collins (ed), Standard Contract Terms in Europe (Wolters Kluwer 2008) 246 et seq.; Schulze (n 79) 9–24. 170 See Cauffman (n 169) 264 et seq. 171 Kleinschmidt, ‘Unilateral contract und einseitiges Versprechen’ (2007) Jura 250; Treitel, ‘The Agreement’ in Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell 2012) paras 2–081–2–086. 172 For example letter of intent; to such (unilateral and bilateral) statements in conclusion of contract, paras 71–72. 173 See para 58. 174 Møgelvang-Hansen, ‘Contract and Sales in Denmark’ in Dahl/Melchior/Tamm (eds), Danish Law in a European Perspective (2nd edn, Gaunt & Sons 2002) 237, 238–239. 175 Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ (1999) EuZW 485, 488; Riesenhuber, EUVertragsrecht (Mohr Siebeck 2013) § 11 para 35. 176 Accordingly art 4:109(1) ACQP is not based on current EU law but rather on art 2:107 PECL; see Contract II/Schulze art 4:109 para 1. See also Wiewiórowska-Domagalska, Consumer Sales Guarantees in the European Union (Sellier 2012) 140 et seq.

148

II. Conclusion of Contract

b) Protecting the offeror

Although the acquis communautaire does not contain a general rule on the 89 binding nature of unilateral promises, the laws of the Member States do indicate that EU contract law ought to protect the weaker party when it enters into obligations in particular situations. The purpose of such protection lies frequently in protecting one party from disadvantages that typically arise when creating or performing the obligation. As such, the need for protection is not lowered if the obligation does not arise from a contract but rather from a unilateral promise – one could easily avoid the protection if the protected party were bound by a unilateral promise (e.g. on the basis of a suggestion made by a better-prepared or financially-superior counterparty). The purpose of protective provisions and the effet utile177 principle therefore require the protection (afforded by EU law when entering into or performing obligations) to extend beyond the contractual obligations to the obligations due to unilateral promises as long as the unilateral creation of obligations is permitted by EU and Member State law. If the wording of EU law only applies to contractual obligations, but there is a similar need for protection in relation to unilateral promises binding under EU or national law, one can consider an analogous application of the protection available under contract law (art 4:109(2) ACQP). 6. Inertia selling a) Principle

The directives’ provisions regulating unsolicited goods and services is not 90 just important for the concept of contract in European private law178 but also for national contract practice and jurisprudence on obligations. The second indent of art 9 Distance Marketing of Financial Services Directive and art 27 Consumer Rights Directive afford extensive to protection to consumers in respect of unsolicited demands for payment and aggressive marketing practices. They provide that silence or inactivity by the consumer following the receipt of unsolicited goods or services does not amount to an acceptance of an offer and may not result in any obligation whatsoever for the consumer (e.g. to pay consideration). These provisions are based on early policy considerations179 indicating the need for a Europe-wide protection of consumers from demands for payment for unsolicited goods.180 The underlying policy considerations as well as the terms of the 177 See above, para 72. 178 See Chapter 2, paras 19 et seq. 179 Council Resolution of 14 April 1975 on a preliminary programme of the European Economic Community for a consumer protection and information policy [1975] OJ C92/1. See Preliminary programme of the European Economic Community for a consumer protection and information policy [1975] OJ C92/2, 6 (as referred to in recital 5 of the Distance Selling Directive). 180 Howells/Weatherill, Consumer Protection Law (2nd edn, Ashgate 2005) 370–371; Ranieri (n 110) 310–322.

149

Chapter 3 Conclusion and Content of Contracts

Directives have allowed art 4:106 ACQP to formulate a far-reaching general principle: no obligation will arise from the consumer's failure to respond to a delivery of unsolicited goods or services.181 b) Functions 91

The provisions on inertia selling distinctly show the double function that can be frequently observed in European consumer law: combining the protection of the individual consumer with the objective of generally guiding the supplier's market behaviour.182 In this context, the rules serve to combat unwanted market behaviour by excluding the conclusion of a contract thereby preventing contractual obligations for the consumer (e.g. to pay for the goods provided). In any event, the exclusion concerns all obligations that will satisfy the ‘consideration’ requirement. The interpretation by art 4:106 ACQP, art II.–3:401 DCFR, as well as the widespread view in the Member States covers the obligations that can be placed on the consumer in respect of the acquisition, retention, rejection or use of the goods (or services).183 Moreover, this may particularly include (depending on the national legal system) tort law, unjust enrichment, benevolent intervention in another's affairs, and the legal relationships between owner and possessor. The increased need for protection, which can justify extensive consequences, is however restricted to the imbalance in consumer contracts and does not arise in contracts concluded between other parties. c) Requirements

92

In addition to the notion of the consumer,184 the ‘unsolicited’ performance forms a central requirement in the relevant provisions.185 The ‘unsolicited’ concept will not extend to goods or services that have been delivered or supplied following an offer sent by the consumer to the business in relation to the particular goods or services subsequently provided. A distinction will be necessary if the consumer has not sent an offer but merely an invitatio ad offerendum186: the goods or services are not unsolicited if the consumer knew or ought to have known under the circumstances that the business would link the request for an offer with the delivery of the goods.187 The goods or services will therefore be unsolicited if the consumer could not foresee such delivery of goods or services. 181 See Chapter 2, para 10, also for the corresponding provision in the DCFR. The CESL does not contain such a rule because intertia selling is characterized by the absence of a contractual basis and therefore falls outside of the CESL's intended scope of application. 182 In particular the recourse to the policy on protecting the buyer from payment demands for unsolicited goods and from aggressive sales practices clearly expresses the preventative aim of the policy (recital 5 Distance Selling Directive, ‘Preliminary Programme’ (n 179). 183 Contract II/Schulze art 4:106 paras 5, 9; DCFR Full Edition 257–261; MüKo BGB/Finkenauer (2016) § 241a paras 25–34. 184 See Chapter 2, paras 126 et seq. 185 Art 27 Consumer Rights Directive; art 9, 2nd indent Distance Marketing of Financial Services Directive. 186 See above, para 66.

150

II. Conclusion of Contract

Performance to be tendered under a contract cannot subsequently become 93 ‘unsolicited’ in the event that a party has terminated the contract through a remedy such as withdrawal or avoidance. This must also apply when remedies under national law provide that the contract is void from the outset (for instance the ex tunc effect of avoidance provided in the CESL and in many national laws188).189 The mistaken delivery to the incorrect recipient as well as the delivery in the mistaken belief that an order was placed will at least not be classified as ‘unsolicited’ if the consumer was aware or could have been aware thereof had it taken reasonable care. 190 In these cases it is also not necessary – both in respect of the individual consumer and guiding market behaviour – to provide protection through provisions on unsolicited performance. d) Legal effects

aa) The Directives expressly stipulate that the ‘absence of a response’ does 94 not constitute ‘consent’191. In this respect the provisions strengthen the principle that the agreement between the parties forms the basis of contract.192 The delivery of goods or provision of services can in any case be considered an (implied) offer to conclude a contract. An acceptance to this offer will therefore be lacking if the consumer (as the recipient) does not respond and consequently a contract will not be concluded. In some legal systems it may be possible under particular circumstances for silence to constitute acceptance,193 though this will not apply in the context of unsolicited performance covered by the Directives. Moreover, the mere use or consumption of the goods or services by the consumer can also not be considered an implied acceptance to an offer if there are no further circumstances allowing an inference that the consumer intended to be contractually bound. In each of these situations the consumer's behaviour is not directed outwards and therefore the wording and purpose of the Directives' provisions do not allow for such behaviour to be considered as a ‘reaction’ or ‘response’ by the consumer to the business.194 bb) Furthermore, the consumer is ‘exempted from the obligation to provide 95 consideration’ (art 27 Consumer Rights Directive) and ‘any obligation’ (art 9 Distance Marketing of Financial Services Directive). The concept of ‘consideration’ is not limited to just the reciprocal contractual obligations, such as paying 187 188 189 190 191 192 193 194

Contract II/Schulze art 4:106 para 8; DCFR Full Edition 258. For example, in Dutch law art 3:53(1) BW; in German law § 142 BGB. Contract II/Schulze art 4:106 para 8. As in Austrian law § 864(2) ABGB; German law, § 241a (2) BGB; Polish law art 15 ustawa z dn. 2 marca 2000 r. o ochronie niektórych praw konsumentów (tj. Dz.U. 2012 poz. 1225). Art 27 Consumer Rights Directive, though already in the second indent of art 9 Distance Marketing of Financial Services Directive; second indent of art 9 Distance Selling Directive. See above, para 58. Ranieri (n 110) 151–160. Contract II/Schulze art 4:106 para 9; DCFR Full Edition 259; for German law MüKo BGB/ Finkenauer (2016) § 241a para 26; cf Casper, ‘Die Zusendung unbestellter Waren nach § 241a BGB’ (2000) ZIP 1602, 1607.

151

Chapter 3 Conclusion and Content of Contracts

the price or other contractual fee: due to the protective nature of the provision the ‘consideration’ must also encompass other performances the business could demand due to the delivery of goods or services, for example payment for use or compensation due to damage or destruction.195 The teleological interpretation of the provisions therefore means that generally all obligations for the consumer will be excluded if they can result from the acquisition, use or destruction of the unsolicited good or service and irrespective of whether the obligations are contractual or non-contractual under EU or the applicable national law196 (in particular demanding payment of the price for the goods or the fee for services, damages for depreciation, damage or loss of the good, compensation for use and return of emoluments; it is irrelevant whether the claims are founded in property law, unjust enrichment, tort law or on another legal basis).197 However, it is questionable whether the exclusion of a claim from the business also concerns the claim to the return of the unsolicited good itself. According to the widespread opinion, as the protection has an absolute exclusionary effect, the business cannot demand the return of the good either on the basis of property law, unjust enrichment, or other provision in the law of obligations.198 Nevertheless, one has to consider whether such long-term exclusion of the owner's possession and use of its things is proportionate with regard to the underlying protection of property. The exclusion of all claims to compensation for use and replacement may result in such a considerable risk for the business that the additional exclusion of a claim to recover possession is hardly necessary in order to effectively guide market behaviour.199 Permitting the return of the good would not result in any considerable legal disadvantages for the consumer because it is not under an obligation to keep the goods safe and, moreover, there would be no claim to damages even if the consumer were to intentionally destroy the good. 96 cc) The provisions on inertia selling do not exclude the possibility for the consumer to conclude a contract, if desired. The unsolicited good may be delivered together with an offer from the business; here the consumer is free to accept this offer.200 Careful examination will be necessary in relation to whether the consumer has actually accepted the offer (in conformity with the applicable requirements) or has not made such a statement and simply uses the goods. As noted above, the provisions on unsolicited performance will exclude contractual and non-contractual claims in the latter case. However, the former case will result in the creation of a contractual relationship between the consumer and the business and therefore in the rights and obligations that generally apply to (consumer) contracts. 195 This is even clearer in the second section of art 9 Distance Marketing of Financial Services Directive as it stipulates the exemption ‘from any obligation’. 196 DCFR Full Edition 260. 197 See Chapter 2, paras 19 et seq. with further references. 198 DCFR Full Edition 260; see Chapter 2, n 21. 199 HK-BGB/Schulze (2016) § 241a paras 7–8. 200 See above, para 59.

152

II. Conclusion of Contract

7. Defects in Consent a) An alternative concept for protecting against flawed decisions?

The law on defects in consent is a major part of the entire concept of private 97 autonomy and thus belongs at the heart of the continental legal tradition. Private autonomy – as an expression of personal freedom – requires accompanying conditions for a free, conscious decision that has not been distorted by false expectations. The legal relevance of defects in consent is limited by the need for legal certainty.201 The various continental legal traditions use different methods to attempt to balance these values and to suitably protect commerce either by strict requirements for a legally-relevant defect in consent, procedural barriers (e.g. the contract can only be avoided by a judge) or, in certain cases, affording the other party with a claim to damages. The liberal common law tradition only allows for particular types of defects in consent (e.g. fraudulent misrepresentation) to allow for avoidance of the contract.202 Aside from these differences across Europe, it is to be emphasized that the regulation of defects in consent primarily stems from the notion that a contract has been individually negotiated.203 The contract law acquis is however characterized by mass contracts, an entirely different starting point. The acquis communautaire has therefore tried to develop alternative instruments that will ensure a free decision, especially on the part of a consumer.204 At the same time, the European legislator is striving towards creating instruments that shall fulfil the function of market shaping; these instruments are above all the pre-contractual information duties205 and the rights of withdrawal206. The two approaches serve to afford the entitled party with a possibility to make an informed decision; this is especially relevant in situations in which marketing practices can exert considerable influence on the customer's decision. Accordingly, consumers only have rights of withdrawal in certain situations, such as in distance or off-premises contracts. Tension exists between these European approaches and traditional laws on de- 98 fects in consent. For example, there are overlaps between the respective functions of right of withdrawal and the rules on defects in consent, but fundamental differences in the requirements. No reason is required for withdrawal and there201 Schulze CESL/Pfeiffer art 48 CESL-D para 1. 202 Stone/Devenney, Text, Cases and Materials on Contract Law (3rd edn, Routledge 2014) 367; on the comparison between civil law and common law see Dalhuisen, Dalhuisen on Transnational, Comparative, Commercial, Financial and Trade Law, Contract and Movable Property Law, vol 2 (5th edn, Hart 2013) 1.4.2. 203 Martens, ‘Einigungsmängel im EU-Kaufrecht’ in Schmidt-Kessel (n 133) 179, 189; Schmidt-Kessel CESL/Martens art 48 CESL-D para 1. 204 European Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law’ COM (2011) 635 final, 4, 6; Jansen/Zimmermann, ‘Restating the Acquis communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law’ (2008) MLR 505, 510. 205 See Part 2, Chapter 2 CESL-D. 206 See Part 2, Chapter 4 CESL-D.

153

Chapter 3 Conclusion and Content of Contracts

fore it is irrelevant whether the consumer had been induced to make a mistake or it simply changed its mind during the withdrawal period;207 such extensive flexibility is indeed not a feature of the rules on defects in consent. One has to remember that withdrawal rights are however designed for mass contracting and are tailored to fit this purpose. Though shall the possibility of withdrawal limit the right to avoid the contract because of a mistake? Should a business, who has performed its information duties, be safe in knowing that avoidance of the contract because of a mistake is excluded once the withdrawal period has expired? European law cannot give answers to these questions as long as the system of contract law is incomplete. 99 European law features an approach that can represent an alternative to rules on defects in consent: adjusting the contract in light of the other party's (consumer or debtor) legitimate expectations208. It concerns those provisions which cause the information or statement by a third party to become part of the contract: Article 3 Package Travel Directive 1990 [Brochure] (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: (…) 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 2 Consumer Sales Directive 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: (…) (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.

207 See para 116; Schulze, ‘Die Widerrufsrechte im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 151, 162−163. 208 On the principle of legitimate expectations see Howells/Wilhelmsson, EC Consumer Law (Ashgate 1997) 320–323; Micklitz, ‘Perspektiven eines europäischen Privatrechts’ (1998) ZEuP 253, 263–264; Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 27– 28.

154

II. Conclusion of Contract

At first glance it would appear that these provisions have little to do with the 100 law on defects in consent. However, it does indeed concern provisions that provide a mechanism for adapting the contract to take account of the consumer's legitimate expectations. The relevance of a mistake is therefore diminished because the contract is automatically adjusted in light of potential expectations. Integrating a system of self-correction is a promising alternative to the traditional solutions under the law of defects in consent. b) Defects in consent in the acquis communautaire

Current EU law does not contain any rules that fall under the traditional no- 101 tion of defects in consent. However, a certain legal mechanism does exist which directly serves to protect against such defects in e-commerce: the duty for the service provider to give customers means to correct input errors. Article 11(2) E-Commerce Directive Placing of the order 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.

The E-Commerce Directive has designed this duty as an information duty. 102 However, it concerns a technical possibility to identify and, if necessary, correct the content of notice before it is sent.209 The rule highlights a characteristic of EU law, namely to develop an instrument that determines a standardized preventative measure though without the need to question whether the consumer's decision was influenced by a mistake caused by the other party. Moreover, it emphasizes a further feature of EU law in relation to information duties: the E-Commerce Directive does not provide sanctions for breach of this duty but rather the responsibility to introduce sanctions for breach remains – as in other directives210 – with the national legislator.211 The Acquis Principles have strived to create a complete rule that contains a 103 sanction for breach, namely a right for the other party to withdraw from the contract:212 Article 4:105 ACQP Formation by electronic means (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: (…)

209 210 211 212

Contract II/Lehmann art 4:105 para 1. See above, para 101. Recital 54 E-Commerce Directive. See Contract II/Lehmann art 4:105.

155

Chapter 3 Conclusion and Content of Contracts (c) the technical means for identifying and correcting input errors: (…) (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.

One may ask whether the Acquis Group has exceeded the limits of its approach213 by introducing the sanction in art 4:105(4) ACQP. The Acquis Group did however endeavour to draft complete rules from fragments in the acquis communautaire, in other words to also propose sanctions that best correspond to the nature of the duties under EU law.214 The Acquis Principles therefore do not feature a system of rules on defects in consent as a result of the lack of sources in acquis communautaire. The right to withdraw is thus available to the other party irrespective of whether it actually made an input error; the relevant criterion is the failure by the business to perform its duty vis-à-vis this technical aspect of the conclusion of contract. The underlying system focuses primarily on guiding market behaviour and less on the legal consequences in the individual circumstances.215 105 The DCFR has adopted a different approach to the ‘duty to make available a means of correcting input errors’ (art II.–7:201(1)(b)(iii) DCFR) by creating a direct link to the regulation of defects in consent: 104

Article II.–7:201 DCFR Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (…) (b) the other party (…) (iii) caused the contract to be concluded in mistake by failing to comply with a precontractual information duty or a duty to make available a means of correcting input errors; or (…)

The approaches therefore vary between the DCFR and the Acquis Principles. The DCFR outlines that the breach of this duty is one of many requirements for avoiding the contract. The key requirement is a mistake. It can be questioned whether this rule is suitable for providing an instrument for mass contracting which aims, as the E-Commerce Directive216, at guiding business' market behaviour. 213 European Commission, ‘A more coherent European contract law – An action plan’ COM (2003) 68 final, 18–25; Schulte-Nölke, ‘Function of Contracts in EC Private Law’ in Schulze/Ebers/Grigoleit (n 145) 85, 93. 214 COM (2003) 68 final, 18–19. 215 Contract II/Lehmann art 4:105 para 7. 216 DCFR Full Edition 268.

156

II. Conclusion of Contract

c) Mistake and protection against unfair commercial practices

The European legislator attempts to support the consumer's decision-making 106 process by prohibiting certain types of unfair commercial practices with a misleading effect:217 Article 5 UCPD Prohibition of unfair commercial practices (1) Unfair commercial practices shall be prohibited. (…) (4) In particular, commercial practices shall be unfair which: (a) are misleading as set out in Articles 6 and 7, (…) Article 6(1) UCPD Misleading actions 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 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: (…) Article 7(1) UCPD Misleading omissions A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations 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. (…)

These provisions are directly attributed to fair trading law instead of contract 107 law.218 The Unfair Commercial Practices Directive219 does not require for a specific contract or statement of intent to be voidable but rather focuses on collective sanctions, though the Member States are entitled to introduce sanctions that can be enforced by the consumer directly affected by the unlawful act:220

217 Art 1 and recitals 4, 6, 8–10, 12 UCPD; Schmidtke, Unlautere geschäftliche Handlungen bei und nach Vertragsschluss (Utz Verlag 2011) 30. 218 As is the opinion of the German legislator, see BT-Drucks. 16/10145 vom 20.08.2008, 10. 219 See Chapter 2, para 9. 220 See Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016) 146 et seq.; Howells/Watson, ‘Redress for Consumer's in respect of Unfair Commercial Practices’ in Buttigieg (ed), Rights and Remedies for the Consumer in the European Union (Gutenberg 2012) 77–79.

157

Chapter 3 Conclusion and Content of Contracts Article 11(1) UCPD Enforcement 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. Such means shall include legal provisions under which persons or organisations regarded under national law as having a legitimate interest in 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. (…)

108

The Misleading and Comparative Advertising Directive also features such preventative measures that shall prevent customers from making their decisions on the basis of mistaken beliefs: Article 1 Directive on Misleading and Comparative Advertising [Purpose] 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.

109

These aspects of fair trading law are integral parts of a system that strives to use modern approaches to create conditions for free decision-making. The system aims at changing the traditional contract law by utilizing instruments such as pre-contractual information duties, withdrawal rights and the aforementioned self-correction of contracts on the basis of the consumer's legitimate expectations. In future, one will ask the question whether there is still space for the traditional law on defects in consent. d) Defects in consent in the CESL

110

In consideration of the present acquis communautaire one may be surprised by the inclusion of traditional aspects of the law of defects in consent alongside pre-contractual information duties, rights of withdrawal as well as instruments to adapt the contract to the customer's legitimate expectations. The Commission acted, however, on the assumption that contract law would not be complete without provisions on defects in consent.221 The drafters intended to create a near-complete system for the purpose of making available a uniform contract law rather than bringing about a revolution. The absence of rules on defects in consent would cause the problem of external gaps to remain. One would therefore have to attempt to close these gaps with approaches from Member States' law thus contradicting the desired effect of uniformity. Although the proposed

221 On the importance of an avoidance right as a fundamental part of European contract law see Schmidt-Kessel CESL/Martens art 48 CESL-D para 1; Schulze CESL/Pfeiffer art 48 CESL paras 1–3.

158

II. Conclusion of Contract

CESL has been withdrawn it is nonetheless valuable to examine its solutions in order to discuss the possible future development in the acquis communautaire. The CESL lists four types of defects in consent as reasons for the avoidance 111 of the contract: mistake (art 48 CESL-D), fraud (art 49 CESL-D), threat (art 50 CESL-D), and unfair exploitation (art 51 CESL-D). The system is generally based on the DCFR approach, which (in applying the restatements-approach222) strives to synthesize various models.223 A defect in consent under arts 48–51 CESL-D leads to avoidance of the contract. Avoidance is effected by notice to the other party: Article 52 CESL-D 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.

It is apparent from this provision that the entitled party does not have to claim 112 avoidance of the contract in order to extinguish the effects of the contract; a statement to that effect will suffice.224 The specific effects of avoidance on the restitutionary aspects are given in Chapter 17 CESL-D (see art 172 CESL-D), whereas art 54 CESL-D contains the general effects of avoidance:225 Article 54 CESL-D 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.

Art 54 CESL-D provides that a voidable contract (e.g. due to mistake) will 113 remain valid until avoidance by the other party. The result is therefore that no statutory avoidance will apply, even in serious cases of defects in consent; there is thus no instance of nullité absolue226 as is familiar to French law. A notable aspect is the possibility of partial avoidance under art 54(2) CESL-D which, in 222 Riedl, Vereinheitlichung des EU-Vertragsrechts in Europa (Nomos 2004) 141–147; Schwartze,‘Die Drechtsvergleichung’ in Riesenhuber (ed), Europäische Methodenlehre (2nd edn, de Gruyter 2010) § 4 para 27. 223 Martens, ‘Die Regelung der Willensmängel im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ (2011) 211 AcP 845, 853. 224 Art 52(1) CESL-D; on avoidance as a formative right see Schmidt-Kessel CESL/Martens art 52 CESL-D paras 1–2; Schulze CESL/Pfeiffer art 52 CESL-D paras 1, 9–14. 225 On the general effect of avoidance see Schmidt-Kessel CESL/Martens art 54 CESL-D; Schulze CESL/Pfeiffer art 54 CESL-D.

159

Chapter 3 Conclusion and Content of Contracts

respect of defects in consent, is scarce in national laws; partial avoidance due to defects in consent is therefore not to be taken for granted.227 According to art 48(1)(a) CESL-D, the mistake must be fundamental228 – the party would therefore not have otherwise concluded the contract under these terms. The partial avoidance thus leads to a modification of the contract. If there is no fundamental mistake and the party avoids the contract, it must be void as a consequence. However, under art 54 CESL-D the avoidance is to lead to a change in the contract: the content is reduced to those terms that are not affected by the avoidance. This shows the lack of coherency within the system of defects in consent. It is a consequence of the notion that the conclusion of contract requires the intention to conclude the contract with certain content, even if this requirement is only sanctioned through the provisions on defects in consent. In this case, partial avoidance means that the contract is unilaterally changed by a unilateral statement (avoidance), but where the control of terms is concerned (art 79(2) CESL-D) the remainder of the contract will be effective despite the ineffectiveness of individual terms.229 The customer shall ultimately receive the performance due. However, defects in consent are not concerned with the fairness of the contract but rather the protection of freedom in making a decision. The sanction of partial avoidance therefore does not correspond to this underlying justification. 114 Furthermore, the CESL also proposed damages as the sanction for loss caused by the defect in consent:230 Article 55 CESL-D 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 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.

The provision thus provides a form of liability for culpa in contrahendo.231 As noted above,232 some Member States regulate culpa in contrahendo under 226 See Beckmann, Nichtigkeit und Personenschutz (Mohr Siebeck 1998) 111–112; Bénabent, Droit civil – Les obligations (11th edn, Dalloz 2007) para 208; Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion (Mohr Siebeck 1996) 160. 227 Martens (n 223) 196. 228 See Schmidt-Kessel CESL/Martens art 48 CESL-D paras 4–7. 229 Schmidt-Kessel CESL/Möslein art 79 CESL-D para 29; Schulze CESL/Mazeaud/SauphanorBrouillaud art 79 CESL-D para 8. 230 In general on the damages sanction see Baeck, ‘Damages and interest under the CESL proposal: not too different from Belgian law’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 255 et seq.; Lehmann, ‘Damages and Interest’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 243 et seq; SchmidtKessel CESL/Martens art 55 CESL-D; Schmidt-Kessel/Silkens, ‘Breach of Contract’ in Plaza Penadés/Martínez Velencoso ibid 130–132; Schulze CESL/Pfeiffer art 55 CESL-D.

160

III. Right of Withdrawal

their national tort law – in this respect the scope of the proposed CESL would have also impacted on the tort law of such Member States (e.g. France). The potential result could have been a greater than expected effect of the CESL on national law because its selection would have repressed not just national contract law. The regulation of defects in consent in the proposed CESL was an attempt to 115 reduce as many European traditions as possible to a common denominator in order to make harmonization more attractive. However, the central role placed by the law of defects in consent may perhaps become unnecessary in a future contract law that is aimed towards mass contracting and that attaches lesser importance to the statement of intention. III. Right of Withdrawal 1. Overview a) Introduction

A right of withdrawal entitles a party to withdraw from a contract or their 116 statement of intention without giving any reason (e.g. art 9 Consumer Rights Directive; art 40 CESL-D). In this respect the right limits the principle of pacta sunt servanda, i.e. that parties are bound to the contract.233 Several European directives234 and the CESL grant mandatory withdrawal rights in specific situations in which a party (usually a consumer) is typically considered to warrant protection during the conclusion of the contract.235 Consumers were first afforded a right of withdrawal at European level by the 1985 Doorstep Selling Directive.236 Subsequent expansion of the instances in which consumers are to receive additional protection has therefore led withdrawal rights to become a core element of European contract law and to develop into a common characteristic of consumer protection in the EU.237 This position has been strengthened through

231 Schulze CESL/Pfeiffer art 55 CESL-D paras 1–2. 232 See above, paras 64–66. 233 Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 113; Loos, ‘Rights of Withdrawal’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 237, 241; Micklitz/Stuyck/Terryn, Cases, Materials and Text on Consumer Law (Hart 2010) 240; Terryn, Het herroepingsrecht als instrument van consumentenbescherming (Intersentia 2005) 51–52. 234 In particular Consumer Credit Directive, Consumer Rights Directive, Distance Marketing of Financial Services Directive, Timeshare Directive; in contrast to other directives, art 35(1) Life Assurance Directive provides that not just consumers are entitled to withdraw from life assurance contracts; see Contract II/Schulze art 5:101 para 3. 235 Schulze (n 207) 151–168. 236 Art 4 Doorstep Selling Directive used the expression ‘right of cancellation’. 237 An overview of the implementation of EU minimum harmonization directives is given in Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008). An updated version is available online under http://ec.europa.eu/consumers/archive/rights/d ocs/consumer_law_compendium_comparative_analysis_en_final.pdf (accessed 11 July 2017).

161

Chapter 3 Conclusion and Content of Contracts

the gradual transition over recent years from minimum to full harmonization of withdrawal rights.238 However, the recent Mortgage Credit Directive has adopted a different approach that fulfils a similar function to a right of withdrawal. According to art 14(6) Mortgage Credit Directive, the consumer is to be given a period of at least seven days in order to ‘compare offers, assess their implications and make an informed decision’. In addition, the Member States shall afford the consumer either a right of withdrawal within this period or a corresponding ‘reflection period before the conclusion of the credit agreement’ (or both) so that the potential conclusion of contract is postponed by the reflection period. 117 Furthermore, the rights of withdrawal in distance and off-premises contracts under the proposed CESL are greatly coordinated with the Member State law in this area. Prior to 2011 the withdrawal rights for these two areas were contained in the Distance Selling Directive and Doorstep Selling Directive; the Consumer Rights Directive now collates these rights in one legislative act together with the aim of full harmonization. In contrast to the original proposal the Consumer Rights Directive does not include the areas of consumer sales and unfair contract terms;239 full harmonization of these two areas would have had a considerable impact on national legal systems. However, full harmonization is more appropriate for narrower, more definable areas that had already been greatly shaped by European legislation, such as withdrawal rights (and also pre-contractual information duties). The Commission intended to synchronize the CESL's provisions on withdrawal with those of the Consumer Rights Directive: the choice of the optional instrument should guarantee the same level of consumer protection as has been provided at national level through full harmonization. The provisions in the proposed CESL are however more precise in nature and more structured. Furthermore, the CESL incorporates the rights of withdrawal into its own system of contract law, whereas the full harmonization via the Consumer Rights Directive can only cover a section of different systems of (consumer) contract law in the EU. b) Emergence of a general part 118

The rights of withdrawal in the earlier European directives displayed a number of inconsistencies regarding the terminology,240 time periods, exercise of the right as well as the effects thereof, without any ascertainable objective reason for the differences.241 Several Member States therefore attempted to overcome the 238 Secondly in 1994 in timeshare contracts, thereafter in, for example, 1997 in distance selling contracts, in 2002 for financial services contracts concluded at a distance, in 2008 for consumer credit contracts and extended more recently in 2011 by the Consumer Rights Directive. 239 See Chapter 1, para 33. 240 Pozzo, ‘Harmonisation of European Contract Law and the Need of Creating a Common Terminology’ (2003) ERPL 754, 764–766; for example, art 4 Doorstep Selling Directive refers to ‘cancellation’.

162

III. Right of Withdrawal

chaos and occasional inconsistencies by creating overarching rules for the withdrawal rights in several or all relevant directives.242 General rules for the exercise and effect of withdrawal rights were first proposed at European level by the Acquis Principles and later followed by the DCFR, whereas special rules tailored for the individual characteristics of contract types are contained in separate sections of these sets of rules. The Consumer Rights Directive and the proposed CESL have adopted this ap- 119 proach for distance and off-premises consumer contracts.243 Both sets of rules contain a ‘general part’, which applies in principle to all off-premises and distance contracts, alongside separate specific rules for each of these respective types of contract.244 These ‘general’ provisions concern, in particular, the exercise of the right of the withdrawal, the length of the withdrawal period (including the extended withdrawal period), the effects of the withdrawal (including ancillary contracts) and the obligations of the parties after withdrawal (arts 9–16 Consumer Rights Directive; arts 40–46 CESL-D). This academic and now legislative formation of a ‘general part’ shows that the withdrawal rights in European contract law are greatly based on the same or similar principles and in this respect can be allocated to a uniform system. 2. Functions a) Protection

The directives primarily grant withdrawal rights on the basis of the presump- 120 tion that one of the parties to the contract is in a weaker position vis-á-vis the other party. This weakness particularly concerns the party's decision to conclude and draft the contract and arises due to the situation in which the contract is concluded (for instance in distance or off-premises contracts) or the complex nature of the contract (such as in consumer credit, life assurance, and timeshare contracts).245 Withdrawal rights shall partially compensate for this presumed disadvantage by affording the weaker party additional time (the withdrawal period) before being definitively contractually bound. Accordingly, such rights shall reduce the imbalance between the parties regarding the rational decision made in one's own interest on the conclusion of the contract.246 241 Loos, Review of the European Consumer Acquis (Sellier 2008) 49; Mankowski, ‘Widerrufsrecht’ in Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts vol II (C.H. Beck 2009) 1791–1795. 242 See, for example, for Germany §§ 355 et seq. BGB; for Poland art 7 ustawa z dn. 2 marca 2000 r. o ochronie niektórych praw konsumentów (tj. Dz.U. 2012 poz. 1225). 243 See Schulze/Morgan, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 297. 244 Due to the limited scope of application of the Consumer Credit Directive, Distance Marketing of Financial Services Directive, Life Assurance Directive, and the Timeshare Directive it is not necessary to separate the content into general and situation-specific parts. However, there are similarities between the provisions. 245 See, for example, recital 37 Consumer Rights Directive, recital 23 Distance Marketing of Financial Services Directive; recital 11 Timeshare Directive.

163

Chapter 3 Conclusion and Content of Contracts 121

The need to protect the weaker party can be based on an asymmetry in information before the conclusion of contract (e.g. when the consumer can not sufficiently inform itself on the quality of the product).247 In this respect, the protection afforded by a withdrawal right is linked to the aim of limiting the asymmetry during the formation of contract by providing further possibilities to acquire information. However, withdrawal rights do not necessarily require that the information was not available to the consumer prior to the conclusion of contract. This concerns, for example, situations in which the consumer has acquired knowledge of the good’s properties through previous purchases or through prior examination of the good in-store (so-called ‘showrooming’).248 In addition, there is nothing preventing the consumer from using the right of withdrawal as a means to negotiate better contract terms or price on the basis of alternatives found elsewhere during the withdrawal period.249 Irrespective thereof, withdrawal rights rather afford the weaker party with additional time to reconsider the conclusion of the contract (as reflected in the expression ‘cooling-off period’) as a means of compensating for such typical disadvantages.250 b) Creating confidence

122

The increased expansion of the situations affording the consumer with withdrawal rights poses the question of the further objectives and effects of the withdrawal rights besides their traditional protective function.251 Particular significance is attached to increasing consumer confidence in relation to certain types of transaction and marketing techniques. One the one hand, the possibility to use a right of withdrawal in order to correct a decision on the conclusion of contract offers the entitled party protection against an unfavourable contract. On the other hand, however, the knowledge of such protection can increase confidence in relation to the seller, subject-matter of the contract, marketing technique or sector and thereby increase the willingness to contract. This particular effect often provides the basis for a business to voluntarily offer a right of withdrawal beyond mere compliance with statutory provisions. Similarly, the statutory obligation to afford a right of withdrawal in, for example, timeshare or consumer credit contracts can also increase the consumer’s confidence in these types of transactions. Rights of withdrawal therefore play a key role in promoting the internal 246 Twigg-Flesner/Schulze/Watson, ‘Protecting rational choice: information and the right of withdraw’ in Howells/Ramsay/Wilhelmsson (eds), Handbook of Research on International Consumer Law (2nd edn, Edward Elgar forthcoming). 247 Micklitz/Stuyck/Terryn (n 233) 240; Terryn (n 233) 461–432; Twigg-Flesner/Schulze/ Watson (n 246) 132–134. 248 See Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 256–257. 249 As decided by the German Federal Supreme Court in its decision from 16 March 2016 – VII ZR 146/15, see (2016) NJW 1951. 250 See Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2014) 114. 251 Loos (n 233) 244–245; Terryn, ‘The Right of Withdrawal’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 143, 148–151.

164

III. Right of Withdrawal

market – this is especially prominent in distance contracts as such means of supply (e.g. via catalogue, telephone or online) present the possibility of cross-border contracting with minimum effort and therefore present the opportunity to maximize the potential of the internal market. The limitation of the principle pacta sunt servanda serves not only to protect against possible disadvantages for the weaker party but also has a positive function in increasing confidence vis-àvis particular transactions.252 The economic effect of withdrawal rights is therefore not restrictive but can prove to be a competitive advantage for a particular branch or sales method. c) Scope

A variety of different needs and policy considerations underlie how the legis- 123 lation has determined the situations in which protection is afforded by withdrawal rights. According to the European legislator, the motivation in off-premises contracts (e.g. doorstep sales) is to compensate for the ‘surprise element’ the consumer experiences in relation to the conclusion of contract.253 The consumer in a distance contract experiences the disadvantage of often being unable to gain a direct impression of the subject matter and partner to the contract.254 In contrast, timeshare contracts are subject to particular risks that arise from the (often) foreign element and other circumstances surrounding the conclusion of the contract.255 Lastly, credit contracts and life assurance contracts frequently involve long-term obligations and with future consequences that the consumer does not initially recognize because of the complexity of the contract.256 The various justifications for protection may often feature together in relation to one particular contract. ‘Double’ protection can arise, for example, when credit or life assurance contracts are concluded in off-premises or distance circumstances. The protection afforded in these situations by a right of withdrawal was origi- 124 nally introduced via separate directives. The Consumer Rights Directive now contains the withdrawal rights from the Doorstep Selling Directive and Distance Selling Directive, whereas separate sets of rules continue to provide protection in the other aforementioned situations. The proposed CESL generally follows the model of the Consumer Rights Directive with respect to the areas subject to protection.257 Both of these sets of rules considerably extend the scope of the 252 FEDSA, ‘Commission Green Paper on policy options for progress towards European contract law for consumers and businesses’ as part of the public consultation concerning the Green Paper on policy options for progress towards a European Contract Law, available online under http://ec.europa.eu/justice/news/consulting_public/0052/contributions/143_en.pdf (accessed 11 July 2017). 253 Recital 37 Consumer Rights Directive. 254 Recital 37 Consumer Rights Directive; see also above, para 144. 255 For more detail see recitals 9 and 11 Timeshare Directive; Loos (n 233) 246. 256 Recital 27 Consumer Credit Directive; recital 23 Distance Marketing of Financial Services Directive. 257 For an overview of the right to withdrawal in the CESL see Azcárrage Monzonis/Guillién Catalán, ‘The Mandatory Nature of the Right of Withdrawal’ in Plaza Penadés/Martínez Ve-

165

Chapter 3 Conclusion and Content of Contracts

protection originally provided in the Doorstep Selling Directive by including, in principle, all contracts that are concluded in the simultaneous physical presence of the consumer and business but not at the business' premises258 (e.g. on the street or on public transport259). The protection in distance contracts is generally extended to all contracts that are concluded with the exclusive use of one or more means of distance communication under an organized distance sales scheme and without the simultaneous physical presence of the parties.260 Consequently, the far-reaching protection is similar to art 5:A–01 ACQP, which proposed the single category of ‘contracts negotiated away from business premises’261 for both off-premises and distance sales contracts. 125 The Directives and the proposed CESL contain numerous exceptions that restrict the right of withdrawal in the various situations.262 These exceptions particularly aim at avoiding the disproportionate burdens for the business which would arise under specific circumstances (e.g. goods created according to the consumer's specifications could not be resold) and, furthermore, preventing the risk of abuse (e.g. in relation to goods subject to fluctuating market value).263 3. Legal nature a) Formative right 126

aa) The protection afforded by a right of withdrawal shall ensure the possibility of a self-determined, rational decision and therefore ensure freedom of contract in a ‘substantive’ sense.264 In light of this objective, a withdrawal right is milder than the ipso iure rescission of the contract, such as is provided in many

258 259 260

261 262 263 264

166

lencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 53 et seq.; Steennot, ‘The right of withdrawal and unfair contract terms under the Proposal for a Common European Sales Law’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 118 et seq. Art 9(1) in conjunction with art 2(8)(a) Consumer Rights Directive; extended by art 2(8)(b)– (d) for similar situations which are also to be considered as off-premises contracts; art 40(1) in conjunction with art 2(q) CESL-Reg-D. As was already provided in German law as part of the ‘gold plating’ of the Doorstep Selling Directive. Art 9(1) in conjunction with art 2(7) Consumer Rights Directive; art 40(1) in conjunction with art 2(p) CESL-Reg-D; on the question of internet auctions Riefa, ‘A Dangerous Erosion of Consumer Rights: The Absence of a Right to Withdraw from Online Auctions’ in Howells/Schulze (n 233) 177–187; see also Neubauer/Steinmetz, ‘Internetauktionen’ in Hoeren/Sieber/Holznagel, Handbuch Mulitmedia Recht (44th edn, C.H. Beck 2017) Teil 14 paras 73–89. The term ‘contracts negotiated away from business premises’ used art 5:A–01 ACQP is broader than the Consumer Rights Directive and the proposed CESL as it includes not only face-to-face contracts but also distance contracts. Art 16 Consumer Rights Directive and art 40(2), (3) CESL-D contain extensive exceptions, art 6(2) Distance Marketing of Financial Services Directive; see also art 5:A–01(3) to (5) ACQP. See also Watson (n 248) 253–258. Art 16(c) Consumer Rights Directive; art 40(2)(d) CESL-D. Canaris, ‘Wandlungen des Schuldvertragsrecht – Tendenzen zu seiner „Materialisierung“’ (2000) 200 AcP 276, 344–345; Schulze (n 207) 165–166.

III. Right of Withdrawal

Member States in situations in which the imbalance between the parties is exploited (e.g. usury, see § 138(2) BGB), the cause is contrary to good morals (see art 1133 in conjunction with art 1131 Code Civil265) or specific requirements of form have not been observed (e.g. § 311b(1) BGB). In these circumstances the ‘automatic’ rescission prevents the effectiveness of the contract even if this is contrary to the interests and intentions of both parties. In contrast, a withdrawal right affords the disadvantaged party with the withdrawal period in order for it to decide whether or not the contract should be upheld. The freedom to decide on the conclusion of the contract is thus extended beyond the time of conclusion and accordingly limits the binding nature of the contract. bb) A three-tier structure is thus of significance for withdrawal rights. Firstly, 127 the legislative requirements for the protection in a given situation must be fulfilled. Secondly, the entitled party must effectively exercise the right of withdrawal within the allocated period – this requirement is conditional for the third tier, namely the effect of the withdrawal in releasing parties from their respective obligations to perform the contract. Situations affording withdrawal rights and the effect thereof are therefore not linked by a strict automatism but are instead underpinned by the flexible, procedural model of a ‘formative right’, namely the power for a party to create, modify or end a legal relationship through a unilateral act.266 The contract is therefore not definitively effective during the withdrawal peri- 128 od, even if the parties' agreement has been made in accordance with the provisions on the conclusion of contract. During this time the contract is instead ‘pending effectiveness’267: the withdrawal period does not prevent the parties from performing their contractual obligations, for example to deliver or to make payment (art 9(3) Consumer Rights Directive268; arts 44(1) and 45(1) CESL-D). Such an approach thus ensures that, in relation to the claim for performance, the position of the consumer is not worse than without a withdrawal right. It is however for the consumer to decide whether to exercise the withdrawal right and thereby for the effectiveness of original performance obligations of both parties to be terminated. The contract becomes definitively effective if the consumer does not exercise the withdrawal right during the withdrawal period.

265 The articles refer to the version of the Code civil prior to the 2016 reform. Cause is no longer a requirement in the stated articles. However, non-violation of the ordre public is refered to in other articles, e.g. art 1162 Code civil. 266 See above, paras 120 et seq. 267 Contract II/Schulze art 5:105 para 4; Meller-Hannich, ‘Verbraucherschutz im Schuldvertragsrecht’ (Mohr Siebeck 2005) 155–157; Schulze/Morgan (n 243) 319–320; TwiggFlesner/Schulze/Watson (n 246) 152. 268 National laws prohibiting the performance of the consumer's payment obligation during the withdrawal period may however be maintained for off-premises contracts, see art 9(3) Consumer Rights Directive.

167

Chapter 3 Conclusion and Content of Contracts

b) Distinction from revocation and termination rights

aa) There are a number of differences between the withdrawal rights considered here and the revocation of an offer in the sets of rules on European contract law269 as well as under the different national approaches270. Withdrawal rights can be exercised after the conclusion of the contract, are limited to specific circumstances and are only available to one party. Accordingly, rights of withdrawal do not just have the effect of rendering ineffective a statement of intent before the contract is concluded but there also allow for termination of the contract after its conclusion. 130 Art 12(1) Package Travel Directive allows the traveller to ‘terminate the package travel contract’. Whereas the consumer is, in principle, not to incur any costs through the exercise of the right of withdrawal, the traveller may be required to pay a justifiable and appropriate termination fee when exercising its right to terminate. Furthermore, Art 12(2) Package Travel Directive provides that such termination fee is not to be paid in the event of an unavoidable and extraordinary circumstances relating to the package. Moreover, the termination right is restricted to the time before the start of the package, whereas the exercise of the right to withdrawal is subject to other restrictions.271 131 Rights of withdrawal differ from other termination rights (such as according to art 3(2), (5), (6) Consumer Sales Directive and arts 114 et seq., 134 et seq., 155 et seq. CESL-D272) as the former do not require a lack of conformity or other defect in performance. Furthermore, withdrawal rights are not as closely linked to a defect in consent (such as the avoidance rights under the PECL and CESL-D and the corresponding national provisions on avoidance or rescission).273 The relevant directives instead provide that the withdrawing party does not have to give a reason for the withdrawal274 – the mere existence of a particular situation will suffice in order for a withdrawal right to compensate for a perceived disadvantage.275 The provisions on rights of withdrawal are therefore often based on the presumption of a potential impairment of the decision-making capability under the particular circumstances.276 In contrast to rescission rights, actual impairment is not necessary. 132 bb) The differing characteristics of a withdrawal right are reflected in its location within the various sets of rules. The proposal for a CESL follows the model 129

269 See above, para 68. 270 For example, §§ 130, 145 BGB; art 1328 Codice Civile. 271 See e.g. arts 9(2), 16(a) Consumer Rights Directive; Martens, ‘Die Regelung der Willensmängel im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ (2011) 211 AcP 845, 854–855; Watson (n 248) 256–258. 272 See Chapter 6, paras 61 et seq. 273 See above, para 116. 274 For example art 14(1) Consumer Credit Directive; art 9(1) Consumer Rights Directive; art 6(1) Distance Marketing of Financial Services Directive; art 6(1) Timeshare Directive. 275 See above, paras 120 et seq. 276 Eidenmüller, ‘Why withdrawal rights?’ (2011) ERCL 1, 5.

168

III. Right of Withdrawal

adopted by the Acquis Principles and the DCFR277 and places withdrawal rights in its Part II on ‘making a binding contract’ and (as also in these academic drafts) places withdrawal rights a separate chapter after the conclusion of contract (and before defects in consent).278 c) Mandatory nature

aa) Rights of withdrawal can be granted either voluntarily to the consumer by 133 virtue of freedom of contract or by reason of mandatory legislative provisions. European consumer directives often provide for mandatory rights of withdrawal. An important justification is that the extension of the disadvantage surrounding the conclusion of the contract would extend to the negotiation of a right of withdrawal – the position of the weaker party would be weakened even further if such negotiations were left to the parties. If the ability to form decisions surrounding the conclusion of the contract is impaired (e.g. by the information asymmetry), one can therefore presume that this imbalance extends to such a decision on the right of withdrawal. The substantive protection of freedom of contract by a withdrawal right is reflected in the mandatory nature of this right. Where confidence is concerned, a mandatory right provides greater legal certainty to the consumer can thereby increase the consumer’s confidence in relation to particular sales methods, especially as the consumer will often not take knowledge of the terms and conditions in low-cost transactions). The standardization of withdrawal rights in areas such as distance sales can further consumer confidence and therefore contribute to the economic development.279 Arguments have been raised against the use of mandatory withdrawal rights 134 in distance contracts,280 though these are not fully convincing. The need to protect the consumer in distance contracts due to the lack of the opportunity to physically examine the good before purchase is to be viewed in the context of the extensive information available via the Internet. Such new possibilities in the ‘digital age’ are not limited to contracts concluded online (e.g. checking information online whilst in store) and do not negate the specific disadvantages of distance contracts in comparison to contracts concluded in-store (e.g. information about the contract partner). The contribution of ‘optional’ rights of withdrawal to consumer protection and strengthening consumer confidence is less effective than mandatory rights (also due to the general advantages of standardiza-

277 Chapter 5 ACQP; Book II Chapter 5 DCFR. 278 This is different in, for example, German law as the general provisions on withdrawal are not contained alongside the provisions on conclusion of contract in the ‘General Part’ of the BGB but rather in the law of obligations in the context of revocation (§§ 355 et seq. BGB). 279 Cf in particular Eidenmüller (n 276) 11–14, who does however favour standardization in relation to the proposed ‘optional’ right of withdrawal. 280 Eidenmüller (n 276); Smits, ‘The Right to Change Your Mind? Rethinking the Usefulness of Mandatory Rights of Withdrawal in Consumer Contract Law’ (2011) M-EPLI Working Paper No. 1; Wagner, ‘Mandatory Contract Law: Functions and Principles in Light of the Proposal for a Directive on Consumer Rights’ (2010) Erasmus Law Review 47.

169

Chapter 3 Conclusion and Content of Contracts

tion281). Such optional rights may encourage the consumer to acquire as much information prior to the conclusion of the contract, but they do not ensure that the consumer is sufficiently informed of aspects such as the risks (such as those which justify affording the consumer a right of withdrawal) and the effort that is involved in obtaining information in the particular situation (so that the consumer is possible indifferent as to the conclusion of the contract with a right of withdrawal). The deficits regarding a self-determined decision would not be eliminated but would rather be extended by the risk that the consumer would, without the necessary reflection, refrain from choosing a right of withdrawal.282 Ultimately, the apparent increase in the freedom of contract means to forfeit decision-making possibilities surrounding the conclusion of contract and thus substantive freedom of contract. 135

4. Exercise a) Notice Article 5:102 ACQP 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 ACQP 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 9(1) Consumer Rights Directive Right of withdrawal 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. (…) Article 11 Consumer Rights Directive 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

281 See above, para 133. 282 Eidenmüller (n 276) 12.

170

III. Right of Withdrawal (a) (b)

use the model withdrawal form as set out in Annex I(B); or 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.

The Acquis Principles have proposed general rules for the exercise of the 136 withdrawal right and the withdrawal period. These general rules have been designed in order to be applicable to all withdrawal rights.283 The Consumer Rights Directive and arts 40–42 CESL-D followed this approach by also adopting a uniform 14-day withdrawal period284 (as also in the Timeshare Directive and Consumer Credit Directive) and overarching rules on the exercise of the withdrawal right. The Consumer Rights Directive and the proposed CESL-D provide that the withdrawal period in a sales contract generally begins at the moment in which the consumer acquires ‘physical possession’ of the goods. However, other criteria provide greater differentiation in relation start of the withdrawal period for instalment deliveries and other modes of delivery (art 9(2) Consumer Rights Directive; art 42(1) CESL-D). Furthermore, the Consumer Rights Directive and the proposed CESL-D also give the consumer two further options for exercising the right of withdrawal: in addition to an unequivocal statement, the consumer can use a model withdrawal form or (if available) submit the withdrawal statement electronically via the business' website (art 11(1) and (3) Consumer Rights Directive; art 41(2) and (3) CESL-D). The mere return of the good is not considered as an unequivocal declaration of withdrawal, therefore in this respect there is a gap in relation to art 5:102 ACQP.285 b) Dispatch principle

The timely exercise of the right of withdrawal does not depend on when the 137 communication of the withdrawal is received by the business but rather on if the notice of withdrawal is sent within the withdrawal period (e.g. art 14(3) Consumer Credit Directive; art 11(2) Consumer Rights Directive; art 41(4) CESLD). This rule guarantees that the consumer has the entire length of the withdrawal period in order to reflect on the contract and to make a decision. However, the concept only concerns the timely exercise of the withdrawal right and not its effectiveness. In European contract law (as in most Member States286) the latter 283 For the most part adopted from art II.–5:102–5:103 DCFR. 284 In contrast art 5(1) Doorstep Selling Directive provided a minimum withdrawal period of 7 days and art 6(1) Distance Selling Directive a minimum of 7 working days (under minimum harmonization), see also art 14(6) Mortgage Credit Directive. A 14-day withdrawal period was already provided in several Member States e.g. Czech Republic, Denmark and Portugal; see Schulte-Nölke/Twigg-Flesner/Ebers (n 237) 347. 285 See Schulze, ‘The Right of Withdrawal’ in Schulte-Nölke/Tichy (eds), Perspectives for European Consumer Law (Sellier 2010) 13, 20.

171

Chapter 3 Conclusion and Content of Contracts

issue is generally subject to the receipt principle (art 10(3) CESL-D; art I.– 1:109(3) DCFR),287 namely the communication is effective if it is sent before the end of the period and irrespective of when it is received. However, the burden of proving the timely dispatch (as well as the other requirements for the correct exercise of the withdrawal right) rests with the consumer (as expressly stipulated in art 11(4) Consumer Rights Directive; art 41(5) CESL-D). c) Information on the right of withdrawal

The stipulation of a withdrawal period is very closely linked to the requirement that the business sufficiently informs the consumer of the withdrawal. Typically the presumed imbalance between the business and consumer is also manifested in an information asymmetry concerning the withdrawal right itself (as well as how the right is to be exercised and in which time frame). Art 5:104 ACQP and art II.–5:103 DCFR have therefore summarized the individual provisions of the various directives288 in an overarching rule: the information on withdrawal (availability, withdrawal period, name and address to whom the withdrawal is to be communicated) not only has to be brought appropriately to the entitled party's attention but it must also be provided in plain and intelligible language on a durable medium.289 The Consumer Rights Directive and the proposed CESL have now integrated the duty for the business to inform the consumer of the conditions, time limit and procedures for exercising the withdrawal right in their respective catalogue of pre-contractual information duties (art 6(1) (h) Consumer Rights Directive; art 17(1) CESL-D). Furthermore, some directives and the proposed CESL contain model instructions on withdrawal that can be tailored to requirements of the individual contract290 and, if completed correctly by the business, will fulfil the information duties on withdrawal rights.291 Such an instrument can therefore ease cross-border transactions for businesses by overcoming one aspect of the obstacles posed by different languages. 139 Performing the information duties292 should compensate for the consumer's presumed lack of information on the withdrawal right and give the consumer the possibility to use the standard 14-day withdrawal period to make an informed 138

286 Ferrari, ‘Offer and acceptance inter absentes’ in Smits (ed), Elgar Encyclopedia of Comparative Law (2nd edn, Edward Elgar 2012) 642–643; Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 357. 287 See Chapter 2, para 33. 288 Art 3(1)(3) Distance Marketing of Financial Services Directive; art 4(1)(f) Distance Selling Directive; art 4 Doorstep Selling Directive; art 5(4) Timeshare Directive. 289 According to the ECJ in Content Services (Case C–49/11 ECLI:EU:C:2012:419) a website is not a ‘durable medium’; furthermore, information duties will not be performed through the use of hyperlinks; Schulze/Morgan (n 243) 322–323. 290 Annex III 6 Consumer Credit Directive; Annex I Consumer Rights Directive; Annex V Timeshare Directive; Annex II CESL-D. 291 Art 5(1) Consumer Credit Directive, art 6(4) Consumer Rights Directive, art 17(4) CESL-D. German law also provided standard forms prior to the introduction of the Consumer Rights Directive (§ 360(1) and (3) BGB in conjunction with § 355(3) BGB and the model withdrawal information form in Annex 1 to art 246 § 2(3) EGBGB).

172

III. Right of Withdrawal

decision on the exercise of the withdrawal right. However, if the business does not perform this information duty correctly293 (thus resulting in the absence of a typically necessary basis for the consumer's decision) the possibility for withdrawal can therefore not be limited by a 14-day period. Accordingly, the withdrawal period cannot begin if the information duties on withdrawal have not been performed (art 14 (1)(b) Consumer Credit Directive and art 6(1) Distance Marketing of Financial Services Directive). Such an approach therefore results in a right of withdrawal that is in principle not subject to time limitations and, following the ECJ decision in Heininger294, cannot be limited by the Member States. The Acquis Principles and DCFR (art 5:103(1) ACQP; art II.–5:103(3) DCFR) have adopted a different approach which has been followed in art 10(1) Consumer Rights Directive and art 42(2)(a) CESL-D: in the event of non-performance of the relevant information duties the withdrawal period is limited to a maximum of one year beginning from the end of the initial withdrawal period.295 The performance of the information duties during this extended period will cause the withdrawal period to end 14 days after the day on which the consumer has received the information (art 10(2) Consumer Rights Directive; art 42(2)(b) CESL-D); the maximum withdrawal period is therefore one year and 14 days (as expressly stated in art 6(3)(a) Timeshare Directive). The use of a maximum withdrawal period thus avoids the continuous status of ‘pending effectiveness’ and allows the contract to become definitively effective. It therefore protects the business from an unreasonably lengthy withdrawal period and continuous uncertainty regarding the status of the contract.296 5. Effect a) Restitution

Comprehensive regulation at European level of the consequences of with- 140 drawal is a relatively modern feature. The Consumer Rights Directive and the proposed CESL now adopt such an approach whereas earlier directives instead only provide for specific consequences in relation to their particular area.297 It 292 On the extent and type of the notice in e-commerce see Content Services (n 289); see Chapter 2, para 20 and above, para 30. 293 This represents a breach of unfair competition law, namely art 7(1) UCPD. 294 Case C–481/99 Heininger ECLI:EU:C:2001:684refers to a one year limitation in German law; for more detail see Rott, ‘The Effects of the Consumer's Withdrawal from the Contract’ in Straetmans/Terryn/Colaert (eds), Landmark Cases of EU Consumer Law (Intersentia 2013) 523, 526. 295 Prior to the Consumer Rights Directive the Distance Selling Directive and the Timeshare Directive had already provided a maximum of three months for exercising the right to withdraw. The Doorstep Selling Directive did not provide a maximum period (see Heininger (n 294)). art 5:103(1) ACQP and art II.–5:103(3) DCFR have proposed a general one year maximum period for the exercise of the withdrawal right due to breach of the seller's information obligations. 296 Koch, ‘Rechte des Unternehmers und Pflichten des Verbrauchers nach Umsetzung der Richtlinie über die Rechte der Verbraucher’ (2014) JZ 758, 760.

173

Chapter 3 Conclusion and Content of Contracts

was – and in some instances remains – necessary to refer to national laws in relation to issues such as the return of performance, compensation for benefits, diminished value or damages, despite there being considerable variations in approach (e.g. the analogous application of provisions on revocation298, unjust enrichment, or damages299). In light of these national differences art 5:105 ACQP is thus restricted to proposals for several core issues which have been made apparent in the directives and in ECJ case law but without providing for a general regime of restitution. Art II.–5:105(2) DCFR is, by comparison, more extensive as its general provisions on restitution (arts III.–3:510 et seq. DCFR) are applicable to withdrawal rights, albeit with some modifications. The proposed CESL has not adopted such an approach: as it does not contain an express reference to the general provision on restitution (arts 172 et seq. CESL-D) the questions thus remain whether and how these general provisions can supplement the specific rules on the effect of the withdrawal. Nonetheless, the provisions on the effects of withdrawal in the Consumer Rights Directive and, accordingly, the CESL are much more extensive and precise than their counterparts in the Acquis Principles and DCFR. b) Termination 141

The primary effect of the withdrawal is to end the obligations of the parties to perform the contract (art 12(a) Consumer Rights Directive; art 8(1) Timeshare Directive; art 43(a) CESL-D). The exercise of the withdrawal right therefore releases the parties from their original contractual obligations,300 though it is not expressly regulated whether the legal relationship established by contract between the parties also ends.301 It therefore remains unclear whether the restitution takes place within or outside of a contract-based relationship between the parties. In the former case the withdrawal would merely change the original content of the contractual relationship by substituting the original obligations with the duties of restitution, compensation for diminished value and damage.302 However, the language in art 15(1) Consumer Credit Directive, art 15(1) Consumer Rights Directive, art 11(1) Timeshare Directive and art 46(1) CESL-D clearly implies that withdrawal ends the contractual relationship. According to these provisions, the withdrawal will ‘automatically’ terminate ‘any’ ancillary contracts. If one were to thus follow this approach, the parties' respective duties 297 For example art 7 Distance Marketing of Financial Services Directive concerning payment for services performed prior to withdrawal. 298 As was the approach previously adopted under German law §§ 357, 346 et seq. BGB (former version). 299 Terryn (n 251) 164–165. 300 See also art 35(1) Life Assurance Directive. According to this provision the withdrawal has an ex nunc effect, i.e. the consumer is released from its future obligations under the life assurance contract. 301 See also art 5:105(1) ACQP; cf art II.–5:105(1) DCFR: ‘Withdrawal terminates the contractual relationship …’. 302 For German law see Schulze/Morgan (n 243) 330 et seq.

174

III. Right of Withdrawal

of restitution would solely arise from a legislative basis (similar to restitution for an enrichment with no contractual basis). The right of withdrawal can be exercised even prior to the conclusion of the 142 contract. In this event the consumer will no longer be bound by her offer (art 12(b) Consumer Rights Directive; art 43(b) CESL-D).303 This effect restricts the binding nature of the offer (as stipulated in several different national laws304) and modifies the general provision of European sales law on the ineffective revocation of an offer (art 32(3) CESL-D).305 c) Obligations of the parties

The restitutionary aspects of withdrawal are subject to the important principle 143 that no costs should arise for the consumer on exercising the withdrawal right (art 6(1) Distance Marketing of Financial Services Directive; art 8(2) Timeshare Directive; an exception is the cost of returning the goods, see art 9(1) Consumer Rights Directive and art 40(1) CESL-D306). The business is obliged to reimburse all payments received from the consumer, including the costs of delivery (art 13(1) Consumer Rights Directive; art 44(1) CESL-D).307 The reimbursement is to follow without undue delay (at the latest within a time limit308 beginning from the day on which it has been informed of the consumer's decision to withdraw from the contract). The consumer is subject to the same time frame for returning the goods to the business. The burden of paying the direct costs of returning the goods can be placed on the consumer, however the business can bear these costs either by agreement or through the failure to inform the consumer that it has to bear such costs (art 14(1) Consumer Rights Directive; art 45(1), (2) CESL-D). The consumer is only liable for the diminished value of the goods if this is the 144 result of the use of the goods beyond what would be permissible in a shop in order to establish the nature, characteristics and functioning of the goods.309 This is subject to the requirement that the business must have correctly informed the consumer of the withdrawal right (art 14(2) Consumer Rights Directive; 303 ‘Withdrawal terminates the obligations of both parties under the contract … to conclude the contract’ is unfortunate wording because the contract is concluded with the acceptance of the offer without such such an obligation being relevant. 304 See above, para 68; § 145 BGB; Ferrari (286) 637–638; Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 362–363. 305 See also art II.–4:202(3) DCFR. 306 See also Case C–489/07 Messner ECLI:EU:C:2008:98 (Opinion of AG Trstenjak) para 79; Watson (n 248) 248. 307 See Case C–511/08 Heinrich Heine ECLI:EU:C:2010:189, which concerned the Distance Selling Directive; art 13(2) Consumer Rights Directive and art 44(2) CESL-D restrict the reimbursement to the standard delivery costs. 308 14 days in the Consumer Rights Directive and in the CESL, 30 days in the Consumer Credit Directive and in the Distance Marketing of Financial Services Directive. Timeshare contracts have an additional feature, namely that the consumer cannot make payments to the provider during the withdrawal period, see art 9 Timeshare Directive. 309 Recital 47 and art 14(2) Consumer Rights Directive.

175

Chapter 3 Conclusion and Content of Contracts

art 45(3) CESL-D). Furthermore, art 45(4) CESL-D provides that the consumer does not have to pay any compensation for use of the goods during the withdrawal period.310 This key point represents a distinction between the proposed CESL and the Consumer Rights Directive: the latter does not contain such a provision and thus its art 14(2) does not contain a clear exclusion of compensation for use from the obligation to compensate for the diminished value of the goods. The level of protection in the Consumer Rights Directive thus falls below the previous level set by the ECJ in Messner in relation to withdrawal rights under the Distance Selling Directive. The proposed CESL has thus opted to follow the principle underlying the decision in Messner through releasing the consumer from an obligation to compensate for use, but instead binding it to the principle of good faith and fair dealing (art 2(1) CESL-D).311 Case C–489/07 Messner ECLI:EU:C:2009:502 However, those provisions do not prevent the consumer from being required to pay compensation for the use of the goods in the case where he has made use of those goods in a manner incompatible with the principles of civil law, such as those of good faith or unjust enrichment, on condition that the purpose of that directive and, in particular, the efficiency and effectiveness of the right of withdrawal are not adversely affected, this being a matter for the national court to determine.

145

The decision in Messner raises a number of points regarding the relationship between the consumer and the business: guaranteeing the consumer's freedom to exercise the right of withdrawal in its own interest, and protecting the business against the abuse of this freedom. One the one hand, this concerns the criteria that, in this respect, substantiate the principle of good faith and the detailed requirements for the application of principles of unjust enrichment as noted in this decision. On the other hand, it also presents the opportunity to review the borderline between permissible use and abuse of the right of withdrawal.312 Similarly, clarification is also required with regard to the practice of ‘blacklisting’ consumers who frequently exercise their right of withdrawal.313 In principle, freedom of contract allows the business to decide with whom it wishes to contract,314 though such a ‘sanction’ impacts on the consumer's freedom to exercise the right of withdrawal – a right that ought to protect its freedom of contract.

310 See also art 8(2) Timeshare Directive, according to which the consumer does not have to pay for services provided. 311 The extent to which principles of unjust enrichment can be applied still remains questionable, Messner para 26; on the question of recourse to the provisions in Part VII CESL-D see above, para 161; see also Weller, ‘Widerrufsrecht bei Fernabsatz- und Haustürgeschäften’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 170. 312 See e.g. on the costs of unwinding the contract in ‘Showrooming’ Höhne, Das Widerrufsrecht bei Kaufverträgen im Spannungsverhältnis von Opportunismus und Effektivität (Mohr Siebeck 2016) 144 et seq. 313 See Watson (n 248) 247–248. 314 See above, para 50.

176

III. Right of Withdrawal

d) Service contracts

In contrast to sales contracts for goods, the withdrawal from service contracts 146 is linked to the conclusion of contract (art 9(2)(a) Consumer Rights Directive; art 42(1)(e) CESL-D). Furthermore, particular rules apply to the payment of costs following the withdrawal from a service contract. It is to be noted that these rules are always subject to the requirement that a withdrawal right is excluded for particular services (e.g. for urgent repairs or maintenance under the requirements of art 16(h) Consumer Rights Directive, art 40(3)(e) CESL-D, or services that have been fully performed, art 16(a) Consumer Rights Directive315). If the consumer does have a right to withdraw from a service contract, it will not have to bear any costs for services rendered if it did not expressly request performance to begin during the withdrawal period, or the business has not provided information on the withdrawal right and the liability to pay reasonable costs (art 14(4) Consumer Rights Directive; art 45(6) CESL-D).316 In comparison, a higher level of protection is provided in timeshare contracts as the consumer is not generally liable for the costs of services provided during the withdrawal period (art 8(2) Timeshare Directive). e) Ancillary contracts

The withdrawal from a contract also results in the termination of so-called an- 147 cillary or linked contracts (art 15(1) Consumer Rights Directive and art 46(1), (2) CESL-D); art 14(4) Consumer Credit Directive and art 11 Timeshare Directive contain similar provisions. The purpose of such rules is to protect the consumer from the risks that may arise from – objectively – breaking down one transaction into numerous different contracts (in particular by splitting an instalment contract into a cash sale for the sale of goods or other services and a consumer credit contract serving to finance the contract).317 The single transaction can be considered as one economic unit, for example the conclusion of a credit agreement with a car dealership in order to purchase the vehicle. Whereas there is a variation in the definition of ‘ancillary’ contracts in the directives and the CESL-D resulting from the differences in application, the Acquis Principles contain one general definition of linked contracts.318

315 Services do not fall within the scope of the proposed CESL, only related services. The right of withdrawal is not excluded for related service contracts. The consumer must also be informed that costs may arise and must also expressly consent to the performance of the related service (art 17(1) and (3); art 18(2) and art 19(6); art 45(6)(a) CESL-D). 316 Art 45(6)(b) CESL-D contains a similar approach for contracts for the supply of digital content. 317 DCFR Full Edition 381–384; Rott, ‘Die neue Verbraucherkredit-Richtlinie 2008/48/EG und ihre Auswirkungen auf das deutsche Recht’ (2008) WM 1104, 1112; Welter, ‘Verbraucherkredit’ in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010) 641. 318 In principle this adopts art II.–5:106(2)(d) DCFR.

177

Chapter 3 Conclusion and Content of Contracts Article 5:106 ACQP 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. (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. (…)

148

According to the aforementioned provisions, the effective exercise of the right of withdrawal of one contract therefore extends to the linked or ancillary contract. The ancillary contract is thus terminated without the need for any further actions. As for the exercise of the withdrawal right, the termination of the ancillary contract should not cause the consumer any costs (art 15(1) Consumer Rights Directive; art 46(1) CESL-D). Furthermore, art 46(2) CESL-D provides that the provisions on termination following withdrawal shall also apply to the ancillary contract.

178

Chapter 4 Unfair Contract Terms Literature: Baier, Europäische Verbraucherverträge und missbräuchliche Klauseln. Die Umsetzung der Richtlinie 93/13/EWG über missbräuchliche Klauseln in Verbraucherverträgen in Deutschland, Italien, England und Frankreich (Kovac 2004); Collins (ed), Standard Contract Terms in Europe (Wolters Kluwer 2008); Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009); Jansen, ‘Klauselkontrolle im europäischen Privatrecht. Ein Beitrag zur Revision des Verbraucheracquis’ (2010) ZEuP 69; Kötz, Vertragsrecht (2nd edn, Mohr Siebeck 2012); Loos, ‘Standard Contract Terms Regulation in the Proposal for a Common European Sales Law. Comment to Jansen’ (2012) ZEuP 776; Pecyna, ‘Nieuczciwe postanowienia umowne w projekcie dyrektywy o prawach konsumenta, Zasadach Acquis i DCFR. Różne środki do tego samego celu’ (2009) 1–2 Transformacje Prawa Prywatnego 91; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009); Reich et al., European Consumer Law (2nd edn, Intersentia 2014); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012); Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008); Steinmetz/Calais-Auloy, Droit de la consommation (7th edn, Dalloz 2006); Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016); Ulmer/Brander/Hensen, AGB-Recht, Kommentar zu den §§ 305–310 BGB und zum UKlaG (12th edn, Otto Schmidt 2016); Willett, Fairness in Consumer Contracts: The Case of Unfair Terms (Ashgate 2007); Wolf/Lindacher/Pfeiffer (eds), AGB-Recht (6th edn, C.H. Beck 2013); Zoll, ‘Unfair Terms in the Acquis Principles and Draft Common Frame of Reference: A Study of the Differences between the Two Closest Members of One Family’ (2008) Juridica International 69.

I. Overview 1. Unfair terms law as a core area of contract law

The law of unfair terms in consumer contracts forms a core part of the law of 1 contract in the EU Member States and is an area in which extensive legislation has been passed at European level. The modern reality of economic activity is that consumer contracts not subject to the Unfair Terms Directive are very much an exception. The Unfair Terms Directive is one of the most important legal instruments in European contract law. It plays a notable role in practice, as is illustrated by the volume of ECJ case law. The relatively large amount of decisions is not due to a disproportionately high number of deficiencies concerning the Directive. It is rather a consequence of the complex relationship between the provisions in national law that are based on the Directive and other areas of national law, as well as the spectrum of problems covered by the Directive. The Unfair Terms Directive is not a self-contained system – its principle of fairness can only be realized in the framework of the Member States' own legal systems, which are also responsible for the degree of harmonization achieved by this Directive. The Unfair Terms Directive thus delivers an instrument whose gaps are to be 179

Chapter 4 Unfair Contract Terms

filled by the values at national level. However, this instrument is not neutral. It conveys the European perception of good faith that must also be aligned with the notion at Member State level. Consequently, the specific provisions developed in the process of applying the Unfair Terms Directive are the result of the interaction between European and national law. The Unfair Terms Directive is an example of how European and national law are inseparably intertwined. 2 The Unfair Terms Directive is not the only example of a legal instrument that is concerned with the control of contract terms. The Late Payment Directive also provides for such control though only in the narrow area of the period for payment and only in B–B contracts. 3 This chapter will cover both Directives. It will outline the structure of the Unfair Terms Directive as well as the relationship between the general clause and the list of unfair terms. In particular, the chapter will examine the problem of the relationship between the European and national notion of good faith. The ECJ has been faced with numerous questions regarding financial transactions as a result of the financial crisis and associated problems that have also required consideration of the principle of transparency and the consequences of unfair terms.1 The economic crisis has increased the number of decisions on unfair terms and directed the attention to several of the Unfair Terms Directive's underlying concepts. The influence of these changes on the Directive's function is also to be examined in more detail. The procedural aspect of the control of contract terms has also been the subject of an astonishing number of ECJ decisions even though the Directive is concerned primarily with substantive law. 2. Unfair Terms Directive a) Structure

The 1993 Unfair Terms Directive is the result of a compromise between several legal traditions, though primarily the French and German.2 Consequently, the Directive features inconsistencies resulting from these very different approaches.3 5 Art 3 Unfair Term Directive contains the ‘general clause’ that stipulates the principles for the control and thus the heart of the Directive. Art 3(1) anchors the standard by which the unfairness is determined. Art 3(2) provides that negotiat4

1 See, for example, Case C–186/16 Andriciuc and Others ECLI:EU:C:2017:703. 2 Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 197, 204; Pecyna, ‘Nieuczciwe postanowienia umowne w projekcie dyrektywy o prawach konsumenta, Zasadach Acquis i DCFR. Różne środki do tego samego celu’ (2009) 1/2 Transformacje Prawa Prywatnego 91, 95; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 404; Zoll, ‘Unfair Terms in the Acquis Principles and Draft Common Frame of Reference: A Study of the Differences between the Two Closest Members of One Family’ (2008) Juridica International 69, 71. On the background to the Unfair Terms Directive see Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 127 et seq. 3 See Nebbia, Unfair Contract Terms in European Law (Hart 2007) 3; Ranieri (n 2) 405 with further references.

180

I. Overview

ed terms are excluded from the control. Clauses that reflect mandatory statutory or regulatory provisions are also not subject to control (art 1(2) Unfair Terms Directive). Art 4 Unfair Term Directive describes the additional criteria that are to be 6 considered when determining the unfairness of a term (nature of goods or services, circumstances attending the conclusion of the contract etc.). Art 4(2) excludes terms that concern the main rights and duties under the contract, unless these terms are not transparent. Art 5 contains the principle of transparency and the standard of interpretation to be applied to ambiguous terms. Art 6(1) Unfair Terms Directive regulates the consequences of unfair terms. 7 Art 6(2) contains a conflict of laws provision that protects the consumer against contracting out of the protection afforded by the Unfair Terms Directive by virtue of the choice of the law of a non-EU country. In addition, the Directive requires the Member States to use adequate and effective means to prevent the use of unfair terms in B–C contracts (art 7). Art 8 Unfair Terms Directive stipulates that the Directive is a minimum harmonization directive; further provisions concern the technical issues surrounding application of the Directive. An indicative list of terms is contained in an annex comprised of two parts. Part 1 lists the terms that may be regarded as unfair; part 2 contains limitations on the scope of the prohibitions of terms listed in part 1. b) Standard under the general clause

The core of the control of unfair terms is formed by a ‘general clause’4 in 8 art 3, which defines the underlying framework for permissible contract terms. Article 3 Unfair Terms Directive (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.

The concept of good faith is central to the content of this provision. The rule 9 is substantiated by a so-called ‘indicative’ list of terms that are, in cases of doubt, to be regarded as unfair. The ECJ decisions in the area of unfair terms increasingly concern the question of the extent to which the control is subject to 4 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116.

181

Chapter 4 Unfair Contract Terms

European standards and the extent to which national standards should determine the outcome.5 10

c) Relationship to German law

At first glance it would appears that the structure underpinning the Unfair Terms Directive resembles the solution adopted in German law.6 A general clause, specific prohibited terms and a provision on intransparency are reminiscent of the former German legislation on Standard Contract Terms (Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen; AGB-Gesetz), whose content was incorporated into the German Civil Code in 2002 as a consequence of the modernization of the law of obligations.7 Similarities aside, there are of course a number of differences to previous German legislation (e.g. the absence of a so-called ‘black list’ of prohibited terms) as this was not the sole source of inspiration for the European approach. d) Approaches to further development 11

The modernization in the area of unfair contract terms also formed part of the European Commission's aspirations of reform in order to develop a more coherent European contract law.8 With the aid of the ‘Green Paper on the Review of the Consumer Acquis’ (in which the Commission outlined the fundamental issues for reform) the Commission intended to ascertain whether prohibited terms should be expressed by a ‘black’ (always unfair) and ‘grey’ (presumed unfair) list of terms and should also extend to include negotiated terms.9 Furthermore, the Commission considered a deviation from the scope of the Unfair Terms Directive by extending the control to terms on main performance obligations. The Unfair Terms Directive is a minimum harmonization directive. Member States are therefore afforded the possibility to maintain or introduce national rules that exceed the minimum level of protection granted by the Directive.10 However, the insufficiencies of this approach in combating the legal fragmentation in Europe led the Commission to propose a shift to full harmonization of rules on, inter alia, unfair terms in consumer contracts.11 This proposal was ultimately rejected during the legislative process; art 8 Unfair Terms Directive therefore con-

5 Case C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209; joined Cases C–240/98 to C–244/98 Océano ECLI:EU:C:2000:346; see also Schulte-Nölke/Twigg-Flesner/Ebers (n 2) 202; Ranieri (n 2) 438–448. 6 Nebbia (n 3) 119. 7 §§ 305–310 BGB. On the implementation of the Unfair Terms Directive into German law prior to the modernization of the law of obligations see Reich, ‘The implementation of Directive 93/13/EEC on unfair terms in consumer contracts in Germany’ (1997) ERPL 165. 8 European Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 14, 18–20. 9 COM (2006) 744 final, 14, 20–21. 10 Recital 12 Unfair Terms Directive. 11 COM (2006) 744 final, 14.

182

I. Overview

tinues to afford the Member States with the freedom to introduce rules with a higher level of consumer protection. Following a consultation period, the Commission published in 2008 its pro- 12 posal for a Consumer Rights Directive. 12 The proposal contained new provisions on the control of contract terms,13 yet reflected to a remarkable extent the provisions contained in the Unfair Terms Directive.14 The main differences concerned the list of prohibited terms and the method of harmonization – full harmonization was to replace the minimum harmonization applied to the Unfair Terms Directive.15 However, the discussions surrounding the proposal maintained that it would hardly be possible to use full harmonization to implement important aspects into national law.16 The general view favoured the exclusion of unfair contract terms legislation from the scope of full harmonization;17 the regulation of unfair contract terms (and also other matters) was therefore not included in the final version of the Consumer Rights Directive. The outcome does not mean that a reform is not necessary; on the contrary reform and possibly a new conceptual framework concerning the scope of the rules still remain desirable – in this respect, the work on an optional instrument presented a new chance for reform.18 The scope of the control of terms under the Unfair Terms Directive only concerns consumer law19 and the acquis communautaire only contains very limited control over terms in B–B contracts: the control under the Late Payment Directive 2000 (as well as under the new Late Payment Directive) only applies to agreements on, inter alia, dates or periods of payment which are grossly unfair.20 This control also covers negotiated terms, which is surprising because the control of individually negotiated contract terms is not foreseen for consumer con-

12 European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on consumer rights’ COM (2008) 614 final. 13 COM (2008) 614 final, 3. 14 COM (2008) 614 final, 11. 15 COM (2008) 614 final, 3, 6, 7. See also Micklitz/Reich, ‘Crónica de una muerte anunciada: The Commission proposal for a “Directive on consumer rights”’ (2009) CMLR 471, 510 et seq.; Stuyck (n 4) 128 et seq.; Twigg-Flesner/Metcalf, ‘The proposed Consumer Rights Directive – less haste, more thought?’ (2009) ERCL 368, 388. 16 Martinek refers to this problem of full harmonization in Eckpfeiler des Zivilrechts (5th edn, Sellier-de Gruyter 2014) para 194. 17 See Position of the European Parliament adopted at first reading on 23 June 2011 with a view to the adoption of Directive of the European Parliament and of the Council 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. 18 See below, paras 9–11; Chapter 1, paras 51–58. 19 See art (1)(1) Unfair Terms Directive; extensive explanation of control of contract terms in consumer contracts in Loos, ‘Standard Contract Terms Regulation in the Proposal for a Common European Sales Law. Comment to Jansen’ (2012) ZEuP 776, 788–790; for criticism of the limitation of scope to party status see Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 7 para 207 (cf § 10 paras 2, 6 where Riesenhuber does not criticize the scope of the Unfair Terms Directive and only discusses the issue of negotiation). 20 Art 3(3) Late Payment Directive (2000); art 7 Late Payment Directive.

183

Chapter 4 Unfair Contract Terms

tracts. Moreover, this distinction in approach may serve as an example for the lack of coherency in EU law. 3. Unfair Terms in the Acquis Principles and DCFR 13

The academics working on the Acquis Principles and the DCFR have also attempted to revise European law on unfair contract terms and each contain rules inspired by the acquis communautaire. The same (and clear) source of inspiration has nevertheless resulted in a number of variations between the Unfair Terms Directive and the rules in the Acquis Principles and DCFR. Moreover, significant distinctions can also be observed between the Acquis Principles and the DCFR even though the former provided the basis for some of the provisions in the latter and are therefore closely related. These differences confirm that the task of academic discussion concerning the best regulation of unfair contract terms for Europe still remains. 4. Unfair Terms in the CESL

14

The proposed CESL contains provisions concerning the control of unfair contract terms21 and generally expands on the design outlined by the Unfair Terms Directive.22 The CESL refrains from using ‘standard terms’ in its legislative provisions although the control of terms in B–B contracts is still subject to the ‘nonnegotiated’ requirement (art 86(1)(a) CESL-D). The structure of the control is similar to the original (and, at least where unfair terms are concerned, failed) proposal for a Consumer Rights Directive. The control of terms in consumer contracts is therefore regulated by a general clause that is accompanied by lists of particular terms (arts 83–85 CESL-D). Article 83 CESL-D 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 negotiated23 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) the other contract terms; and (e) to the terms of any other contract on which the contract depends.

21 Chapter 8 CESL-D. 22 Loos (n 19) 778; Riesenhuber (n 19) § 10 para 2. 23 The European Parliament omitted ‘not been individually negotiated’ in its amendments; however this does not mean a change in content see European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159) amendment 155.

184

II. Comparative Law Foundations

The CESL contains lists of ‘grey’ (presumed unfair; art 84 CESL-D) and 15 ‘black’ (always unfair; art 85 CESL-D) terms and therefore follows the approach adopted by the original proposal for a Consumer Rights Directive. Moreover, the CESL also provides for the control of terms in B–B contracts, which is also based on a general clause (art 86 CESL-D); as may be expected, the standard of unfairness in a B–B is subject to requirements much stricter than for B– C contracts. Article 86 CESL-D 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.

The lists of prohibited terms do not apply to B–B contracts. As an optional instrument, the proposed CESL would have been relevant for 16 the control of contract terms once selected by the parties to form the basis of the contract. Moreover, according to Stürner24 the instrument would rather also have been of importance for the interpretation of the Unfair Terms Directive. The list of unfair terms under the CESL could have been used to substantiate and give further detail to the content of the general clause under art 3(1) Unfair Terms Directive. The adoption of the proposed CESL could have thus resulted in a fundamental change to the European contract law in the area of unfair terms as, in some areas, genuine European provisions with their European notion of fairness would have replaced national provisions. Such an outcome would have brought about a noticeable change in the role of European law and resulted in a decisive step towards the ‘independence’ of European law. However, it may well be that precisely this possible step contributed to the fate of the proposed CESL. II. Comparative Law Foundations

The Unfair Terms Directive is based on a compromise between two different 17 concepts underlying the control of contract terms.25 Put simply, the Directive attempts to reduce the German and French systems to a common denominator. Other models for controlling contract terms have of course also developed in Europe, in particular in the English and Scandinavian tradition, but these were 24 Stürner, ‘Das Verhältnis des Gemeinsamen Europäischen Kaufrechts zum Richtlinienrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 79–80. 25 Nebbia (n 3) 34; Ranieri (n 2) 404; Zoll (n 2) 71.

185

Chapter 4 Unfair Contract Terms

given lesser consideration during the legislative development of the Unfair Terms Directive. 1. Development in German law 18

German law developed a concept of standard terms, i.e. pre-formulated contract terms designed for repeated use.26 The party using such pre-formulated terms can divide the drafting costs across numerous customers and thus reduce its own costs of concluding the contract.27 In comparison, the other party is faced with much higher costs if it intends to actually influence or just examine the terms. Under normal circumstances the risk of a negative development in the contractual relationship is too low in order for the counterparty to justify taking on such costs. This structural characteristic of conclusion of contract through standard terms gives the user greater scope to easily impose contractual risks on the counterparty; such a typical imbalance would not arise without the use of standard terms. German law thus developed the control of contract terms. Originally, doctrine and jurisprudence developed the concept until the German legislator took legislative measures28 – this was of course at a time when the control of unfair contract terms lay entirely with the national legislator. The control served to limit the user's factual one-sided freedom to draft the contract29 and the system generally allowed for the control of standard terms irrespective of the type of customer – the scope of the legislative rule was merely more flexible for business customers. The 1976 AGB-Gesetz (Standard Contract Terms Act) did, however, not accommodate the notion of the consumer because the underlying logic was based on the premise that the control of control of standard terms was not justified by the need to protect specific parties but rather that the use of standard terms represented a potential danger for the customer.30 The legislation im26 On the German law of standard terms see Markesinis/Unberath/Johnston, The German Law of Contract (2nd edn, Hart 2006) 163 et seq. See also Schmidt-Salzer, ‘Recht der AGB und der mißbräuchlichen Klauseln’ (1995) JZ 223. On the use of standard terms in the Member States see European Commission, ‘Proposal for a Council Directive on Unfair Terms in Consumer Contracts’ COM (90) 322 final, 5 in which the use of standard terms is described (in 1990) as a widespread practice. 27 See, for example, Akerlof, ‘The Market for Lemons: Qualitative Uncertainty and the Market Mechanism’ (1970) 84 Quarterly Journal of Economics 488; Hatzis, ‘An Offer You Cannot Negotiate: Some Thoughts on the Economics of Standard Form Consumer Contracts’ in Collins (ed), Standard Contract Terms in Europe (Wolters Kluwer 2008) 43 et seq.; Jansen, ‘Klauselkontrolle im europäischen Privatrecht. Ein Beitrag zur Revision des Verbraucheracquis’ (2010) ZEuP 69, 84–86; Kötz, Vertragsrecht (2nd edn, Mohr Siebeck 2012) § 6 para 242; Twigg-Flesner, ‘Standard Terms in International Commercial Law’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 327. See also COM (90) 322 final, 5 which attributes the use of standard terms to the ‘emergence of a society of mass production, distribution and consumption [that] has resulted in the increasing formailization of contracts’. 28 See Micklitz, ‘Some Reflections on Cassis de Dijon and the control of Unfair Contract Terms in Consumer Contracts’ in Collins (n 27) 25–26, 28–29. 29 Hommelhoff/Wiedemann, ‘Allgemeine Geschäftsbedingungen und unausgehandelte Klauseln in Verbraucherverträgen. Grundsätzliches zur Transformation der EG-Klauselrichtlinie ins deutsche Recht’ (1993) ZIP 562, 565; Kötz (n 27) § 6 para 244. 30 Kötz (n 27) § 6 paras 243–245.

186

II. Comparative Law Foundations

plemented the control on three principal levels: control of inclusion31, control by contra proferentem interpretation32 and control of content 33, with the latter being the heart of this system. A general clause represented the central basis for the fairness control:34 § 9(1) AGB-Gesetz 1979 Provisions in standard business terms are ineffective if, contrary to the requirement of good faith, they unreasonably disadvantage the other party to the contract with the user.35

Two lists of prohibited terms also featured alongside this general clause. One list contained indistinct terms which could be assessed for unfairness and therefore afforded some scope for interpretation;36 the terms in the second list could not be subject to assessment so that, at least in theory, they should lead to clearcut results.37 By comparison, the general clause should only be applied if a questionable standard term did not fall in either these two lists. The control of terms in B–B contracts was only undertaken on the basis of the general term, although in these cases the judges used the two lists of prohibited terms as a guideline. Substantiation of the general clause was therefore to be found in non-mandatory law, which reflected the legislative view of justice.38 Controlling the inclusion of standard terms should ensure that the customer could take notice of the standard terms before the contract is concluded. The approach therefore linked the law on standard terms to the traditional doctrine in contract. Furthermore, the system was supplemented by a traditional rule on interpretation (in dubio contra proferentem),39 whereby any doubts in the interpretation of the clause would give rise to an interpretation against the user and, accordingly, in favour of the customer. The structure can be seen in the text of the Unfair Terms Directive but in a simpler form. One can therefore see why an understanding of German law is important to comprehend the unfair terms legislation at European level. German law can therefore function as a point of reference in helping one to grasp the development of this area of law in the EU.

31 32 33 34 35 36 37 38 39

§ 2 AGB-Gesetz 1976, § 305 BGB. § 5 AGB-Gesetz 1976, § 305c (2) BGB. §§ 9–11 AGB-Gesetz 1976, §§ 307–309 BGB. § 9 AGB-Gesetz 1976, § 307 BGB. Original text: ‘Bestimmungen in Allgemeinen Geschäftsbedingungen sind unwirksam, wenn sie den Vertragspartner des Verwenders entgegen den Geboten von Treu und Glauben unangemessen benachteiligen.’ § 10 AGB-Gesetz 1976, § 308 BGB. § 11 AGB-Gesetz 1976, § 309 BGB. Stoffels, Gesetzlich nicht geregelte Schuldverträge: Rechtsfindung und Inhaltskontrolle (Mohr Siebeck 2001) 98–100. § 5 AGB-Gesetz 1976, § 305c(2) BGB.

187

19

20

21

22

Chapter 4 Unfair Contract Terms

2. Control of terms under the French system 23

Although it is clear that German law influenced the structure of the Unfair Terms Directive, its content was inspired by the French system. The French tradition was less familiar with the phenomenon of standard terms as greater emphasis was placed on the notions of a contrat d’adhésion,40 whereby the factual imbalance between the parties results in the weaker party being unable to influence the drafting process41 – the origins of the control of contract terms in consumer contracts lie in this approach. It was irrelevant within this system whether the term was negotiated between the consumer and the business or whether the latter simply provided it42 without giving the consumer any drafting scope. The justification for the control therefore generally does not lie in the particular nature of a term but rather in the presumption of a structural imbalance between the parties.43 Accordingly, the control could be applied to single-use contract terms. The control was initially devised in the context of administrative law, though over time it has developed into a judicial control, as has been confirmed by case law from the higher courts. 3. English and Scandinavian Systems

In addition to the two basic models outlined above, one can also note the development of English and Scandinavian systems on the control of contract terms. The English approach concerns the attempt to remove certain, particularly detrimental terms on the basis that a customer would clearly ‘not want’ such a term and therefore it would not fall within the consensus between the parties.44 The control of content (due to the weaker party's inability to influence the term) was discussed in the context of conclusion of contract.45 This particular feature of English law also played a role following the implementation of the Unfair Terms Directive and in the further discussions on necessary reforms – the justification for control on the basis of the customer's insufficient intention allows for the control of content and control of inclusion to be more easily intertwined with one another. 25 The Scandinavian legal tradition adopts a further approach that is based on the extensive competence of the courts to control all contracts irrespective of the 24

40 HK-BGB/Schulte-Nölke Vorbemerkung zu §§ 305–310 para 6. 41 For more detail see Brock, Der Schutz der Verbraucher vor mißbräuchlichen Klauseln im französischen Privatrecht (BWV 1998) 53–55; Nebbia (n 3) 34; Nobis, Missbräuchliche Vertragsklauseln in Deutschland und Frankreich (Nomos 2005) 60–61. 42 Brock (n 41) 5–6; Nobis (n 41) 92. 43 The control is rather focused on the consumer see Steinmetz/Auloy, Droit de la consommation (7th edn, Dalloz 2006) 204; also Aubert, Le contrat. Droit des obligations (4th edn, Dalloz 2010) 82–84; see also Brock (n 41) 5–6; Nebbia (n 3) 38–40. 44 See also the report of the Scottish Law Commission from 7 August 2002 available online under https://www.scotlawcom.gov.uk/files/7412/7893/8453/nr_unfair_terms_dp119.pdf (accessed 11 July 2017). 45 See Nebbia (n 3) 46–48; Micklitz (n 28) 27–28; Willett, ‘The Directive of Unfair Terms in Consumer Contracts and its Implementation in the United Kingdom’ (1997) ERPL 223.

188

III. Unfair Terms Directive as a Compromise

status of the parties (e.g. as business or consumer) and whether or not the terms were negotiated.46 III. Unfair Terms Directive as a Compromise

The first proposals for the Unfair Terms Directive focused greatly on the 26 French model47 for the control of contract terms.48 All terms not directly concerning the primary contractual obligations could be subjected to control and, in consumer contracts, all individually negotiated terms. Furthermore, the European legislator also intended to follow the French model by applying the control to single-use terms. The original proposal for the Unfair Terms Directive was therefore very broad and thus difficulties arose in attempting to reach an agreement. The final version of the Unfair Terms Directive adopted a compromise along different lines: the control of unfair terms should extend to single-use terms,49 but (in contrast to French law50) negotiated terms would be excluded from the scope of the control.51 The approach therefore represents the attempt to combine two different justifications for controlling contract terms: the structural weakness of one party, who was typified as ‘consumer’, and the lack of a possibility to influence the content of the contract, a possibility which is needed to sufficiently consider party autonomy. IV. General Clause and the List of Unfair Terms

A general clause52 on the unfairness criteria is at the centre of the control of 27 contract terms. Art 3(1) Unfair Terms Directive stipulates that a term will be unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer. These criteria are substantiated in a non-exhaustive list referred to in art 3(3) Unfair Terms Directive. The substantiation is assisted by a so-called ‘indicative’ list of terms that are, in cases of doubt, to be regarded as unfair. These prohibited terms must be read in conjunction with the criteria outlined in art 3(1) Unfair Terms Directive as they clarify the distinctions and indicate the types of terms that the European legislator sought to counter. The indicative list should therefore also serve as a guideline for the national legislator. The binding 46 See, for Finland, Wilhelmsson, ‘The implementation of the EC directive on unfair terms in Finland’ (1997) ERPL 151; for Sweden Bernitz, ‘Swedish Standard Contracts Law and the EEC Directive’ (1997) ERPL 213; for Scandinavia Marthinussen, ‘Unfair Contract Terms’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 94 et seq. 47 See Callais-Auloy/Steinmetz, Droit de la consommation (6th edn, Dalloz 2003) paras 176– 196. 48 See also Schulte-Nölke/Twigg-Flesner/Ebers (n 2) 197, 204; Howells/Wilhelmsson/TwiggFlesner, Rethinking EU Consumer Law (Routledge 2017) 133 et seq.; Zoll (n 2) 71. 49 See also Schulte-Nölke/Twigg-Flesner/Ebers (n 2) 197, 204. 50 Callais-Auloy/Steinmetz (n 47) para 179. 51 Schulte-Nölke/Twigg-Flesner/Ebers (n 2) 197, 204; Zoll (n 2) 71. 52 See above, paras 8–9.

189

Chapter 4 Unfair Contract Terms

nature of this list is therefore limited and need not be implemented by the Member States, as confirmed by the ECJ in Commission v Sweden.53 On the whole, national legislation has included the list, though sometimes with variations in content in order to accommodate national requirements. Case C–478/99 Commission v Sweden ECLI:EU:C:2002:281 Inasmuch as the list contained in the annex to the Directive is of indicative and illustrative value, it constitutes a source of information both for the national authorities responsible for applying the implementing measures and for individuals affected by those measures. As noted by the Advocate General in paragraph 48 of his Opinion, Member States must therefore, in order to achieve the result sought by the Directive, choose a form and method of implementation that offer a sufficient guarantee that the public can obtain knowledge of it.

A key question for control of terms under EU law arises in this context: does the substantiation of the general clause (art 3(1) Unfair Terms Directive) actually constitute a matter belonging to the acquis communautaire? Is the principle of good faith in art 3(1) Unfair Terms Directive to be uniformly understood in a European context or does the substantiation of the general criteria under art 3(1) (as well as the answer to the question whether the term at issue could survive the fairness test) remain exclusively a national matter? 29 It was initially apparent that there was absolute unawareness of the need for such a distinction. There appeared to be satisfaction with the presumption that the control of the content of unfair terms became part of Community law once the Unfair Terms Directive entered into force. One must therefore observe the list of prohibited terms when interpreting the general clause under art 3(1) Unfair Terms Directive because the list expresses the legislative intention at European level. The question concerning the interpretation of the general clause – and thus the understanding and substantiation of the principle of good faith – can therefore be answered in the affirmative. The general clause is thus a matter of European law and accordingly subject to interpretation by the ECJ. 30 It can be seen from its decision in Océano that the ECJ initially understood its competence to that effect.54 The Court determined in its decision that: 28

Joined Cases C–240/98 – C–244/98 Océano ECLI:EU:C:2000:346 22. A term of this kind, the purpose of which is to confer jurisdiction in respect of all disputes arising under the contract on the court in the territorial jurisdiction of which the seller or supplier has his principal place of business, obliges the consumer to submit to the exclusive jurisdiction of a court which may be a long way from his domicile. This may make it difficult for him to enter an appearance. In the case of disputes concerning limited amounts of money, the costs relating to the consumer's entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence. Such a term thus falls within the category of terms which have the object or effect of excluding or hindering the consumer's right to take legal action, a category referred to in subparagraph (q) of paragraph 1 of the Annex to the Directive. (…) 24. It follows that where a jurisdiction clause is included, without being individually negotiated, in a contract between a consumer and a seller or supplier within the meaning of the Directive and

53 Stuyck (n 4) 119. 54 Stuyck (n 4) 120.

190

IV. General Clause and the List of Unfair Terms where it confers exclusive jurisdiction on a court in the territorial jurisdiction of which the seller or supplier has his principal place of business, it must be regarded as unfair within the meaning of Article 3 of the Directive in so far as it causes, contrary to the requirement of good faith, a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

The ECJ decided here on the premise that the question of the unfairness of a contract term due to a breach of good faith can be answered from the perspective of European law. Furthermore, it is has been often indicated that the Court in Océano viewed the term in question (on court jurisdiction) as always being unfair. The ECJ therefore laid the foundation for the European black list of prohibited contract terms, an approach that has also been followed by the DCFR55 and the Acquis Principles56. It cannot be concluded from this decision that agreements on jurisdiction are 31 always prohibited.57 The Court also emphasized that this type of agreement belongs to the terms contained in the list. One has to therefore remember that this list does not contain terms which are always prohibited but rather only indicates terms which will have to be assessed under the criteria in art 3(1) Unfair Terms Directive. This would rather imply that the Court does not entirely exclude the possibility for additional consideration by applying the general clause. However, there is no doubt that the Court categorically states its view in relation to the incompatibility between jurisdiction clauses and the principle of good faith. The aforementioned view gives rise to a number of questions on theoretical as 32 well as practical aspects. Can the ECJ fill a concept such as good faith with content that is generally binding across Europe? Since the legislator uses wording such as good faith in order to ensure flexibility when applying the law, is it therefore possible to substantiate the principle with the same content for the whole of Europe? The content of good faith strongly depends on extra-legal rules which an individual society strives to respect and which are considered as the glue holding the society together.58 The use of these principles therefore rather implies that the European legislator wanted to create a scope allowing the inclusion of local values. Consequently, the examination of unfairness has to take place in accordance with such values. The harmonization of law in Europe does not and shall not mean that it will eliminate the cultural diversity in Europe. However, cultural diversity also plays a role in relation to contractual relationships and therefore gains indirect legal relevance. The principle of good faith therefore serves as a door allowing this diversity to flow into harmonized and

55 Arts II.–9:409 and II.–9:410 DCFR. 56 Arts 6:304 and 6:305 ACQP. 57 Zoll, ‘Die Grundregeln der Acquis-Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 113. 58 For German law Huber in Eckpfeiler des Zivilrechts (Sellier – de Gruyter 2005) 125–126; Lurger, ‘The Common Frame of Reference’ in Wilhelmsson/Paunio/Pohjolainen (eds), Private Law and the Many Cultures of Europe (Kluwer 2007) 189; Markesinis/Unberath/Johnston (n 26) 119 et seq.

191

Chapter 4 Unfair Contract Terms

uniform law. In this sense the ECJ went too far in its decision in Océano. However, this theoretical problem does not just arise from the decision in this case:59 if the Court's approach were correct it would be faced with the considerable problem of a multitude of preliminary rulings – each control of terms in Europe would give rise to the question of interpreting good faith from a European perspective. This would ultimately paralyse the Court, permanently. 33 The ECJ did, however, soon recognize the problems emerging from its decision in Océano. This can be seen in a subsequent decision in the Court's clear (though not stated) distancing from the substantive aspects of the control of terms. The German Federal Court of Justice (Bundesgerichtshof; BGH) posed the following question to the ECJ in Freiburger Kommunalbauten: Case C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 Is a term, contained in a seller's standard business conditions, which provides that the purchaser of a building which is to be constructed is to pay the total price for that building, irrespective of whether there has been any progress in the construction, provided that the seller has previously provided him with a guarantee from a credit institution securing any monetary claims the purchaser may have in respect of defective performance or non-performance of the contract, to be regarded as unfair within the meaning of Article 3(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts?

The ECJ responded:

34

Case C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 It is for the national court to decide whether a contractual term such as that at issue in the main proceedings satisfies the requirements for it to be regarded as unfair under Article 3(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

One can clearly see that the decision is incompatible with Océano. The Court emphasized in Freiburger Kommunalbauten that it does not have the competence to assess the contract term in light of the principle of good faith.60 Additionally, it could not also substantiate the principle of good faith for the whole of Europe. However, the Court did attempt to maintain the impression that in this respect there is no fundamental difference between Océano and Freiburger Kommunalbauten. In its reference to Océano the Court states that the term in this case was clearly unfair because it was ‘solely to the benefit of the seller and contained no benefit in return for the consumer’61. On this basis it was possible to determine the unfairness of the term without ‘having to consider all the circumstances in which the contract was concluded and without having to assess the advantages and disadvantages that that term would have under the national law applicable to the contract’62. The ECJ therefore attempts to divide the terms into two categories: firstly, terms that are so clearly in violation of the principle 59 60 61 62

192

See Zoll (n 57) 113. See Freiburger Kommunalbauten paras 21–24. Freiburger Kommunalbauten para 23. Freiburger Kommunalbauten para 23.

IV. General Clause and the List of Unfair Terms

of good faith that they have to be prohibited across Europe; this prohibition represents a part of the acquis communautaire. Secondly, those terms that are only ineffective at local level thereby European law merely provides the framework for assessing the term.63 A problem does however exist in relation to criteria that are to be applied to 35 defining the first group of terms prohibited across Europe. The approach is, in principle, understandable as Europe does have many common values, though at the same time there are of course many differences at local level. In theory, one could imagine a system in which two different standards apply when interpreting the principle of good faith: good faith under European and under national standards. In a technical sense this would mean that the concept of good faith would partly belong to the acquis communautaire and partly to national law. However, this somewhat attractive notion of double content for good faith could, from a practical perspective, hardly be realized as many unsolvable problems would arise in relation to the boundaries between the terms ‘European’ and ‘national’ content. The ECJ would be faced with numerous instances in which it would have the exceptionally difficult task of determining the border between European and local breaches of the principle of good faith. The term in Océano would breach the principle of good faith and would therefore be unfair, whereas this jurisdiction clause in Freiburger Kommunalbauten would be categorized as unfair without requiring an additional assessment that should apply to the same extent in all Member States. It is questionable whether a jurisdiction clause such as in Océano would al- 36 ways be unfair irrespective of all other circumstances. It is clear that such a clause particularly affects those consumers who live far away from the place named in the term. Nonetheless, it is not unlikely that the term does not present such a problem for those parties who live close to the chosen jurisdiction and therefore the term must not necessarily be unfair. It was precisely in this respect that ECJ softened its approach in later decisions. The Court held in Pannon that the national court is to determine whether a contract term (a jurisdiction clause) fulfils the criteria in order to be unfair under art 3(1) Unfair Terms Directive.64 In so doing the Court distanced itself further from its opinion in Océano, namely on the absolute unfairness of a jurisdiction clause. 37

Case C–243/08 Pannon ECLI:EU:C:2009:350 It is for the national court to determine whether a contractual term, such as a term conferring jurisdiction, satisfies the criteria to be categorised as unfair within the meaning of Article 3(1) of Directive 93/13 on unfair terms in consumer contracts. In so doing, the national court must take account of the fact that a term, contained in a contract concluded between a consumer and a seller or supplier, which has been included without being individually negotiated and which confers exclusive jurisdic-

63 Rott, ‘What is the Role of the ECJ in the EC Private Law – A Comment on the ECJ Judgments in Océano Grupo, Freiburger Kommunalbauten, Leitner and Veedfalt’ (2005) HanseLR 6, 12. 64 See Pannon para 32; see also Case C–472/10 Invitel ECLI:EU:C:2012:242.

193

Chapter 4 Unfair Contract Terms tion on the court in the territorial jurisdiction of which the seller or supplier has his principal place of business, may be considered to be unfair.

The Court's treatment of a jurisdiction clause differs between Pannon and Océano. There is a repeat of the Freiburger Kommunalbauten principle that it is for the national courts to determine a breach of good faith, however Pannon refers again to the typical unfairness of a jurisdiction clause (without this being understood as an automatic response). 38 Recent decisions show that the ECJ has taken the middle ground between Océano and Freiburger Kommunalbauten. In principle, no conclusive decisions are made as to the unfairness of an individual term. However, the ECJ has made a very clear statement determining the ‘European framework’ of good faith, as is illustrated by the decision in Invitel: Case C–472/10 Invitel ECLI:EU:C:2012:242 It is for the national court, ruling on an action for an injunction, brought in the public interest and on behalf of consumers by a body appointed by national law, to assess, with regard to Article 3(1) and (3) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, the unfair nature of a term included in the general business conditions of consumer contracts by which a seller or supplier provides for a unilateral amendment of fees connected with the service to be provided, without setting out clearly the method of fixing those fees or specifying a valid reason for that amendment. As part of this assessment, the national court must determine, inter alia, whether, in light of all the terms appearing in the general business conditions of consumer contracts which include the contested term, and in the light of the national legislation setting out rights and obligations which could supplement those provided by the general business conditions at issue, the reasons for, or the method of, the amendment of the fees connected with the service to be provided are set out in plain, intelligible language and, as the case may be, whether consumers have a right to terminate the contract. (…)

The ECJ expressly outlines the criteria by which the national court is to substantiate the notion of good faith. However, the national court has to adapt this notion to the individual circumstances of the case with regard to national law and in accordance with the ECJ criteria. 39 The role of transparency is not to be underestimated in relation to the control of unfair terms, as is expressed in Unfair Terms Directive: Article 4(2) Unfair Terms Directive 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. Article 5 Unfair Terms Directive 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. (…)

The first sentence of art 5 anchors the principle of transparency: written terms must always be drafted in plain, intelligible language. As according to the sec194

IV. General Clause and the List of Unfair Terms

ond sentence of art 4(2), this is a positive requirement for the control of terms concerning the main performance obligations. Transparency is considered in the scope of the control of the content of the 40 term. It may first appear to be somewhat surprising as the plain language requirement rather indirectly concerns the problem of a conscious decision, i.e. the problem of conclusion of contract.65 However, the distinction between conclusion, stipulation of content, and performance is less sharp in modern contract law. At the same time, the law of unfair terms is also relevant for a guarantee of fair market behaviour. The Unfair Terms Directive is thus characteristic for a European contract law tailored to mass contracting. The consideration of transparency with regard to the control of content is ex- 41 pressed in the ECJ decision Kásler:66 Case C–26/13 Kásler ECLI:EU:C:2014:282 (68) It follows that that requirement of plain, intelligible language applies in all cases, including that in which a term falls within Article 4(2) of Directive 93/13 and therefore avoids the assessment of its unfairness referred to in Article 3(1) thereof.

The decision in Kásler gives a very broad understanding to the principle of transparency. It no longer concerns just the control of the clarity of the language but also covers the awareness of the risks and dangers arising from the term. The ECJ emphasizes: Case C–26/13 Kásler ECLI:EU:C:2014:282 Article 4(2) of Directive 93/13 must be interpreted as meaning that, as regards a contractual term such as that at issue in the main proceedings, the requirement that a contractual term must be drafted in plain intelligible language is to be understood as requiring not only that the relevant term should be grammatically intelligible to the consumer, but also that the contract should set out transparently the specific functioning of the mechanism of conversion for the foreign currency to which the relevant term refers and the relationship between that mechanism and that provided for by other contractual terms relating to the advance of the loan, so that that consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it.

In light of this decision, the principle of transparency also acquires the task of protecting the consumer's particular perceptions and expectations. An indirect effect of the role of legitimate expectations is therefore also visible in this context. The control of content does not extend to terms concerning the main subject 42 matter of the contract, as is clearly shown by art 4(2) Unfair Terms Directive. It is therefore clear that it is not the task for the Directive to examine the relationship between the price and counter-performance. The Directive does not serve to ensure that the consumer concludes a cost-effective contract. Ensuring a ‘just 65 Pflug, ‘Allgemeine Geschäftsbedingungen und „Transparenzgebot“’ (1992) Die Aktiengesellschaft 1, 17–18. 66 Rott, ‘Unfair Contract Terms’ in Twigg-Flesner (ed.), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 295.

195

Chapter 4 Unfair Contract Terms

price’ (iustum praetium) is a task for the market, not the courts. Such notion is however influenced from the standpoint of a sales contract – the greater the distinction between this form of contract and the contract concluded the most difficult it is to separate the main and ancillary obligations. 43 The difficulties in distinguishing between main and ancillary obligations are exemplified by the financial crisis in 2007–2008, namely the control of contracts for financial products. The description of the performance was either complicated or contained factors that were often of a speculative nature. The inherent risks for the consumer became manifest through the crisis and resulted in extensive litigation, as is illustrated by the ECJ decision in Kásler: Case C–26/13 Kásler ECLI:EU:C:2014:282 Article 4(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that: – the expression the ‘main subject-matter of a contract’ covers a term, incorporated in a loan agreement denominated in foreign currency concluded between a seller or supplier and a consumer and not individually negotiated, such as that at issue in the main proceedings, pursuant to which the selling rate of exchange of that currency is applied for the purpose of calculating the repayment instalments for the loan, only in so far as it is found, which it is for the national court to ascertain having regard to the nature, general scheme and stipulations of the contract and its legal and factual context, that that term lays down an essential obligation of that agreement which, as such characterises it; – such a term, in so far as it contains a pecuniary obligation for the consumer to pay, in repayment of instalments of the loan, the difference between the selling rate of exchange and the buying rate of exchange of the foreign currency, cannot be considered as ‘remuneration’ the adequacy of which as consideration for a service supplied by the lender cannot be the subject of an examination as regards unfairness under Article 4(2) of Directive 93/13. (…)

It is clear that the concept of main performance obligations is becoming increasingly narrower. One has to consider that the main performance obligations often lack transparency in complex contracts. As such, the problem of a doctrinal marginalization of such terms is less acute. 44 The Consumer Rights Directive, however, takes a different approach: Article 22 Consumer Rights Directive 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.

The provision also concerns the problem of intransparency. The European legislator has not attempted to protect the consumer with a control of the contract term but rather requires the express consent from the consumer. Once again, the problem is shifted to the rules concerning the conclusion of contract.

196

IV. General Clause and the List of Unfair Terms

Interpretation of the term is necessary in order to allow examination. The Un- 45 fair Terms Directive contains only the principle of a consumer-friendly interpretation: Article 5 Unfair Terms Directive (…) 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).

The approach reflects a tradtional rule in the control of terms67 – the con- 46 sumer shall also be protected via interpretation. However, the European legislator has also recognized that the principle of a consumer-friendly interpretation does not always have a positive effect on the consumer. In an in abstracto approach68 to the control of terms, the interpretation that is (theoretically) more advantageous to the consumer would often have the consequence that a term could be considered effective and could endanger consumer interests, whereas a restrictive interpretation could classify the same term as unfair. The ECJ decision in Commission v Spain concerned the question whether the 47 Unfair Terms Directive is implemented incorrectly if national law does not include the reservation in art 5(2) that excludes the consumer-friendly interpretation in assessments in abstracto. Case C–70/03 Commission v Spain ECLI:EU:C:2004:505 (…) by failing correctly to transpose into national law Articles 5 and 6(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, the Kingdom of Spain has failed to fulfil its obligations under that directive;

The failure to correctly transpose the Unfair Terms Directive is, however, harmless. The problem of potential consumer-unfriendliness of a supposed consumer-friendly interpretation is also posed in an incidental proceeding. Consequently, it is suggested to conduct a dual proceeding combined with a control of the content fo the term. The first step is to conduct a consumer-unfriendly interpretation of the content: the term is rendered ineffective if it proves to be unfair. Should the term withstand such interpretation, the second step is to subject the term to a consumer-friendly interpretation.69 It is for this reason that the consumer-friendly interpretation has to be distinguished from an interpretation that is ultimately, in consideration of the content, more advantageous for the consumer. The decision in Commission v Spain would be incorrect if one were to follow this interpretation.70 The requirement of a consumer-friendly interpreta67 Jansen, ‘Klauselkontrolle im europäischen Privatrecht’ (2010) ZEuP 69, 72–73. 68 I.e. a procedure in which the pre-drafted term is examined irrespective of whether it has actually become a term of the contract. 69 Ulmer, in Ulmer/Brandner/Hensen, AGB-Recht (12th edn, Otto Schmidt 2016) § 5 paras 7–8. 70 Gorzko, ‘Transformacje Prawa Prywatnego’ (2013) 1 ISSN 1641–1609, Do Wyroku Europejskiego Trybunału Sprawiedliwości z Dnia 9 Września 2004 r. w Sprawie Komisja UE Vs. Królestwo Hiszpanii C-70/0 7, 19.

197

Chapter 4 Unfair Contract Terms

tion must be understood as a requirement of an interpretation more favourable to consumer in consideration of the content of the term. The decision in Commission v Spain renders more difficult the interpretation of art 5 Unfair Terms Directive instead of correcting its misleading wording. 48 Art. 6(1) Unfair Terms Directive stipulates the consequences of an unfair term. Article 6(1) Unfair Terms Directive 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.

The European legislator proceeds from the principle that the unfair term will not bind the consumer. The sanction is asymmetric as the business may not invoke the non-binding nature of the term.71 The contract shall continue to remain in existence as far as it is able to do so without the unfair term. The European legislator seeks to avoid the ineffectiveness of the entire contract and, consequently, the loss of the performance desired by the consumer. 49 It is in this context that the question arises whether European law prohibits the so-called ‘preservative reduction’, whereby the court is permitted to reduce the unfair term to legally-acceptable content (even if such content presents a disadvantage to the consumer). This question formed the basis of two ECJ decisions. The Court expressly excluded the possibility of ‘preservative reduction’ in its decision in Banco Español de Crédito SA. Case C–618/10 Banco Español de Crédito SA ECLI:EU:C:2012:349 Article 6(1) of Directive 93/13 must be interpreted as precluding legislation of a Member State, such as Article 83 of Royal Legislative Decree 1/2007 approving the consolidated version of the General Law for the protection of consumers and users and other supplementary laws (Real Decreto Legislativo 1/2007 por el que se aprueba el texto refundido de la Ley General para la Defensa de los Consumidores y Usuarios y otras leyes complementarias) of 16 November 2007, which allows a national court, in the case where it finds that an unfair term in a contract concluded between a seller or supplier and a consumer is void, to modify that contract by revising the content of that term.

50

The prohibition of a preservative reduction is also justified from the perspective of transparency. Furthermore, it has a preventative function by discouraging the business from the temptation that at least a part of its terms would withstand the control and the consumer would ultimately be worse-off than through supplementary provisions.72 However, the increasing test of the main subject matter of the contract often results in a gap in the contract that cannot be filled. The ECJ has expressly allowed an unfair term to be substituted by a supplementary provision of national law: 71 Pfeiffer, in Wolf/Lindacher/Pfeiffer (eds), AGB-Recht Kommentar (6th edn, C.H. Beck 2013) Part 7 art 6 para 3. 72 Case C–618/10 Banco Español de Crédito SA ECLI:EU:C:2012:349 para 69.

198

IV. General Clause and the List of Unfair Terms Case C–26/13 Kásler ECLI:EU:C:2014:282 Article 6(1) of Directive 93/13 must be interpreted as meaning that, in a situation such as that at issue in the main proceedings, in which a contract concluded between a seller or supplier and a consumer cannot continue in existence after an unfair term has been deleted, that provision does not preclude a rule of national law enabling the national court to cure the invalidity of that term by substituting for it a supplementary provision of national law.

The approach does not however solve the problem. The ECJ has rejected a 51 preservative reduction even if it could aid the consumer. The Court can nullify the entire contract if this is in the consumer's interest despite it being technically possible to maintain the contract, as can be seen in the decision in Pereničová. Case C–453/10 Pereničová ECLI:EU:C:2012:144 Article 6(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that, when assessing whether a contract concluded with a consumer by a trader which contains one or more unfair terms can continue to exist without those terms, the court hearing the case cannot base its decision solely on a possible advantage for one of the parties, in this case the consumer, of the annulment of the contract in question as a whole. That directive does not, however, preclude a Member State from providing, in compliance with European Union law, that a contract concluded with a consumer by a trader which contains one or more unfair terms is to be void as a whole where that will ensure better protection of the consumer.

Many ECJ decisions concern the question of the procedural enforceability of 52 the control of unfair terms, namely the extent to which the Court should protect the passive consumer. The Court has emphasized on numerous occasions the principle of an ex officio (of its own motion) control even when the national provisions proceed from the requirement of active behaviour. A number of decisions relate to the different stages in the procedure.73 Océano is the first decision in the series. The case concerned the question 53 whether the court had jurisdiction over a payment order as the consumers were not domiciled in its jurisdiction. Joined Cases C–240/98 – C–244/98 Océano ECLI:EU:C:2000:346 1.

2.

The protection provided for consumers by Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts entails the national court being able to determine of its own motion whether a term of a contract before it is unfair when making its preliminary assessment as to whether a claim should be allowed to proceed before the national courts. The national court is obliged, when it applies national law provisions predating or postdating the said Directive, to interpret those provisions, so far as possible, in the light of the wording and purpose of the Directive. The requirement for an interpretation in conformity with the Directive requires the national court, in particular, to favour the interpretation that would allow it to decline of its own motion the jurisdiction conferred on it by virtue of an unfair term.

The decision has an extensive effect on national law. It demands an extensive interpretation of national law in conformity with EU law in order to ensure that the consumer does not lose the protection afforded by substantive law.

73 See also Reich et al. (n 2) 161–162.

199

Chapter 4 Unfair Contract Terms 54

A similar decision can be seen in Mostaza Claro. The case concerned the effectiveness of an arbitration clause that was not objected to in arbitration proceedings. Case C–168/05 Mostaza Claro ECLI:EU:C:2006:675 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that a national court seised of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment.

The ECJ required the national court to examine the arbitration clause even where the consumer has been inactive. The protection afforded to the consumer should not suffer as a result of solutions based on procedural economy. 55 Furthermore, the ECJ did not exclude the examination of a term in enforcement proceedings. However, in this case the rules of procedure in the Member State procedural law must have the possibility for similar (domestic) actions to be assessed. Case C–40/08 Asturcom Telecomunicaciones ECLI:EU:C:2009:615 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that a national court or tribunal hearing an action for enforcement of an arbitration award which has become final and was made in the absence of the consumer is required, where it has available to it the legal and factual elements necessary for that task, to assess of its own motion whether an arbitration clause in a contract concluded between a seller or supplier and a consumer is unfair, in so far as, under national rules of procedure, it can carry out such an assessment in similar actions of a domestic nature. If that is the case, it is for that court or tribunal to establish all the consequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause.

56

The Unfair Terms Directive also stipulates a duty for the Member States to provide an abstract examination procedure in order to prevent the continued use of unfair terms. Article 7 Unfair Terms Directive (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.

57

The Directive does not specify a particular form of this procedure at national level but rather only outlines the minimum requirements for such a procedure (art 6(2)). However, in Invitel the ECJ had to answer the question whether it 200

V. Late Payment Directive

would be in breach of the Directive if decisions from such proceedings were binding in general. Case C–472/10 Invitel ECLI:EU:C:2012:242 Article 6(1) of Directive 93/13, read in conjunction with Article 7(1) and (2) thereof, must be interpreted as meaning that: – it does not preclude the declaration of invalidity of an unfair term included in the standard terms of consumer contracts in an action for an injunction, provided for in Article 7 of that directive, brought against a seller or supplier in the public interest, and on behalf of consumers, by a body appointed by national legislation from producing, in accordance with that legislation, effects with regard to all consumers who concluded with the seller or supplier concerned a contract to which the same general business conditions apply, including with regard to those consumers who were not party to the injunction proceedings; – where the unfair nature of a term in the general business conditions has been acknowledged in such proceedings, national courts are required, of their own motion, and also with regard to the future, to take such action thereon as is provided for by national law in order to ensure that consumers who have concluded a contract with the seller or supplier to which those general business conditions apply will not be bound by that term.

The ECJ made the correct decision that European law does not prevent such an effect. The requirement of such an effect would, however, be an over interpretation of this decision.74 More recently, doubts were raised in Biuro podróży whether it is possible to extend a decision declaring unfair terms unlawful to all consumers who have concluded a contract containing the same terms but with a different seller or supplier who was not a party to the proceedings giving rise to the declaration that the terms in question were unfair. In this case the ECJ held Case C–119/15 Biuro podróży ECLI:EU:C:2016:987 –

Article 6(1) and Article 7 of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, read in conjunction with Articles 1 and 2 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 and in the light of Article 47 of the Charter of Fundamental Rights of the European Union, must be interpreted as not precluding the use of standard contract terms with content identical to that of terms which have been declared unlawful by a judicial decision having the force of law and which have been entered in a national register of unlawful standard contract terms from being regarded, in relation to another seller or supplier which was not a party to the proceedings culminating in the entry in that register, as an unlawful act, provided, which it is for the referring court to verify, that that seller or supplier has an effective judicial remedy against the decision declaring the terms compared to be equivalent in terms of the question whether, in the light of all relevant circumstances particular to each case, those terms are materially identical, having regard in particular to their harmful effects for consumers, and against the decision fixing the amount of the fine imposed, where applicable.

(…)

V. Late Payment Directive

The acquis communautaire does not just contain rules concerning the regu- 58 lation of unfair terms in B–C contracts but also provides for the control of terms

74 Mathiak, ‘Anmerkung zum Urteil des EuGH v. 26.4.2012, Rechtswirkung der Feststellung der Missbräuchlichkeit einer AGB-Klausel’ (2012) EuZW 786, 789.

201

Chapter 4 Unfair Contract Terms

in B–B contracts, however to a much more limited extent. The Late Payment Directive 2000 already outlined the control of an agreement on an excessive deferral of the payment period;75 such control applied irrespective of whether the term was individually negotiated.76 This system has been adopted and extended by the new Late Payment Directive. Art 7 Late Payment Directive compels the Member States to provide that such contract terms or practices relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs, will either be unenforceable or will give rise to a claim for damages if they are grossly unfair to the creditor. One can therefore observe that the Late Payment Directive contains an entirely different system of control than is provided under the Unfair Terms Directive. Contract terms are controlled in a similar manner to practices between the parties. The abuse of freedom of contract is placed on a level of prohibited behaviour in the sense of the Unfair Commercial Practices Directive, which also conveys the departure from the traditional understanding of contract. The Unfair Commercial Practices Directive represents an attempt by the European legislator to clearly separate contract and commercial practices by stipulating that the Directive shall have no influence on the validity of the contract.77 However, this appears to be quite out of touch with everyday reality as, in practice, both areas cannot be strictly separated from one another.78 The Late Payment Directive joins both areas together. 59 The criterion ‘grossly unfair to the creditor’ used in the Late Payment Directive is supplemented by further criteria. A particular role is played here by the ‘gross deviation from good commercial practice, contrary to good faith and fair dealing’ according to art 7(1)(a) Late Payment Directive. This criterion, which only serves to substantiate the concept of ‘grossly unfair’, is itself significant in academic drafts (art 6:301 ACQP; art II.–9:405 DCFR) as well as in the proposed Common European Sales Law (art 86 CESL-D). Article 7 Late Payment Directive Unfair contract 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

75 Art 3(3) Late Payment Directive 2000. 76 Inferred e contrario from art 3(3) Late Payment Directive 2000 and art 7 Late Payment Directive. 77 Art 3(2) Unfair Commercial Practices Directive. 78 On this question see also Leistner, Richtiger Vertrag und lauterer Wettbewerb (Mohr Siebeck 2007) 450–454.

202

VI. Acquis Principles (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. (…)

VI. Acquis Principles

The Acquis Principles serve to provide a structure and create internal co- 60 herency within the acquis communautaire,79 therefore it is not surprising that the structure of its control of terms was strongly based on the Unfair Terms Directive. The Directive was not simply copied as other directives (e.g. the 2000 Late Payment Directive) were also considered when devising the system for the Acquis Principles. In addition, attention was also paid to legislation from the Member States – the inspiration from the German law on standard terms is readily apparent. Moreover, the method adopted by the Acquis Group was also applied in order to propose generalizations of EU rules that, although narrowly worded, have extendable content. Although the Unfair Terms Directive is a part of European consumer law, the problem of controlling contract terms is not just limited to consumers – freedom of contract can also be compromised in relation to other parties. The Acquis Principles have taken this into account by extending the scope of the control of contract terms to include B–B and B–C contracts as well as other contracts (e.g. between businesses and parties who are neither a business nor a consumer, such as non-profit associations). However, it does not mean that the control adopts the same criteria in each of these situations and that the party's status is ultimately irrelevant. The Acquis Principles also adopt the model in the Unfair Terms Directive by 61 including the control of single-use terms and thereby greatly reducing the importance of standard terms in this set of rules. Standard terms only play a role in relation to a battle of the forms between the parties (art 6:204 ACQP).80 The Acquis Principles are also based on the Directive as they only subject non-negotiated terms to control (art 6:301 ACQP). However, extending the control to contracts other than B–C contracts is more than merely extending the scope of the Unfair Terms Directive. As has been shown, the notion of controlling terms of B–B contracts is not alien to the acquis communautaire due to the Late Payment Directive.81 The criteria concerning the control under this Directive have therefore also influenced the corresponding criteria in the Acquis Principles. The Acquis Principles structure the control in accordance with the traditional 62 approach, namely by providing for control in relation to three different aspects: inclusion82, interpretation83 and, most importantly, content84. 79 80 81 82

See Contract II/Dannemann Introductory Part vi, xxv; see also Zoll (n 2) 69. This ‘Grey-Rule’ is taken from art II.–4:209 DCFR. See Chapter 2, para 143. Art 6:201 ACQP.

203

Chapter 4 Unfair Contract Terms 63

Art 6:201 ACQP concerns the control surrounding the inclusion of standard terms which is indeed explained by a long tradition in the individual legal systems, but one which has not been adopted by the Unfair Terms Directive. The Acquis Principles attempt – in a rather traditional manner – to clearly separate the control of inclusion from the control of content,85 whereas the Unfair Terms Directive has followed a different path. This distinction is demonstrated when one compares art 6:201 ACQP with point (1)(i) of the Annex to the Unfair Terms Directive. According to art 6:201(4) ACQP, terms are not binding on a consumer if it has not had a real opportunity to become acquainted with the terms before the conclusion of the contract. The concept employed by the Unfair Terms Directive means that this problem is shifted to the control of content – this conclusion is rather implied by the Directive as it is only drawn from point (1)(i) of the Annex and the absence of provisions on inclusion. Article 6:201 ACQP 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 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.

In principle, the Acquis Principles provide a general control of inclusion without placing restrictions concerning the legal status of the parties. This can be seen in the wording of art 6:201 ACQP: art 6:201(1) ACQP generally provides that the user of non-negotiated terms has to draw the other party's attention to the terms; art 6:201(3) ACQP expands on this requirement by providing that the terms are to be made available to the other party in text form if the contract is to be concluded by electronic means. Stricter requirements are provided if the customer is a consumer. In this case, the effective inclusion depends on the real opportunity to become acquainted with the terms before the contract is concluded (art 6:201(4) ACQP). 65 Art 6:201 ACQP on inclusion reflects the problems that are caused by the departure from the concept of standard terms. Controlling the inclusion of terms is only sensible when it is based on a particular phenomenon, such as standard terms. In this context, there is the question of how contract terms devised for mass contracting become part of the individual contract. In comparison there is no need to impose additional rules in respect of single-use clauses. The Acquis 64

83 Art 6:203 ACQP. 84 Arts 6:301–6:306 ACQP. 85 Contract II/Pfeiffer/Ebers art 6:101 para 10.

204

VI. Acquis Principles

Principles therefore show the uncertainties underlying the development in this area of law. The control of contract terms is based on a framework devised for standard terms although the standard terms characteristic is no longer a criterion of the control. The remaining parts of the Acquis Principles are closer to the structure from 66 the familiar system under the Unfair Terms Directive. The differences arise in relation to the extended scope of application to B–B contracts as well as to contracts in which it is not necessary to qualify the status of the parties. The centre of the system is formed by a general clause (art 6:301(1) ACQP),86 67 which refers to criteria taken from the Unfair Terms Directive:87 Article 6:301(1) ACQP Unfairness of terms 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 other terms of the contract, and to all terms of any other contract on which the contract depends.

According to this provision, a term is unfair when, contrary to good faith, it 68 creates a significant imbalance between the rights and obligations of the parties under the contract to the disadvantage of the customer. In contrast to the Unfair Terms Directive, this provision shall not just apply to consumer contracts. The general clause will be applied, unchanged, to contracts in which the customer is neither a consumer nor a business. An exception applies to B–B contracts in the application of an additional criterion for unfairness that is inspired by the Late Payment Directive: the gross deviation from good commercial practice:88 Article 6:301(2) ACQP Unfairness of terms 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.

In contrast to the Late Payment Directive,89 the deviation from ‘good commercial practice’ has become an additional, but independent criterion. This additional requirement serves to clarify that the examination of the unfairness of a term in a B–B contract has to be more restrained because it is essential to retain more drafting flexibility in B–B contracts. One can nevertheless not neglect the differences between the different types 69 of contract parties. The Acquis Principles provides two lists of prohibited terms 86 87 88 89

On the general clause see Contract II/Pfeiffer/Ebers art 6:301. Contract II/Pfeiffer/Ebers art 6:301 paras 1, 12. Contract II/Pfeiffer/Ebers art 6:301 para 14. See above, paras 32–33; Chapter 2, para 143.

205

Chapter 4 Unfair Contract Terms

in consumer contracts: the grey (art 6:305 ACQP) and the black (art 6:304 ACQP) lists. The black list only contains one term, which was motivated by the decision in Océano.90 It serves as an example of how a system could look if it were to include a black list. The approach in the Acquis Principles concerning control of terms in other types of contracts is based on a general clause, though the three different types of contract covered in these Principles are each subject to a slightly different control. Terms in B–C contracts are subject to the application of a general clause as well as a grey (which is somewhat surprisingly labelled as an ‘indicative list’) and black list of prohibited terms.91 The control of content in B–B contracts is undertaken on the basis of a general clause, which is however distinguished by stricter criteria of unfairness. Furthermore, neither the grey nor the black list of prohibited terms applies to B–B contracts. The general clause will apply to other contracts, though without the application of the ‘gross deviation from good commercial practice’. However, both lists of prohibited terms will also not be used here in order to substantiate the general clause. VII. DCFR

The parts of the DCFR based on the acquis communautaire are related to the text of the Acquis Principles and have generally been drafted on the basis of the same method, i.e. to reflect and structure EU law.92 The text of Acquis Principles thus served as a basis for the corresponding provisions in the DCFR but one can nevertheless identify striking differences between the two texts. The basic structure is initially similar: control of inclusion and content of the terms. At first glance it would appear that – barring editorial differences – the content of art II.–9:103 DCFR is almost identical in content to art 6:201 ACQP. This presumed similarity is misleading as considerable differences between the texts become apparent on closer examination of the provisions. The DCFR contains two quite detailed provisions concerning the duty of transparency, i.e. the duty to supply non-negotiated terms in clear language (art II.–9:402 DCFR), and the factors to be taken into account in assessing unfairness, in particular the absence of a real opportunity for a consumer to become acquainted with the terms before the conclusion of contract (art II.–9:407(2) DCFR). 71 The Acquis Principles also contain a transparency requirement (art 6:302 ACQP), but drafted in a very general manner without outlining sanctions for breach. In comparison, the DCFR expressly considers the duty of transparency as an aspect of the control of content; this can be seen in the wording of art II.–9:401(2) DCFR. This provision determines that just a breach of the duty of transparency can lead to the unfairness of a term in a consumer contract. It is apparent from art II.–9:407 DCFR that, in light of the circumstances prevailing during the conclusion of the contract, a further point of consideration for the unfairness of a 70

90 Contract II/Pfeiffer/Ebers art 6:304 para 1. 91 Contract II/Pfeiffer/Ebers art 6:304 4, art 6:305 ACQP. 92 v. Bar/Clive/Schulte-Nölke (eds), DCFR Outline Edition (Sellier 2009) 7.

206

VII. DCFR

term in a B–C contract is whether the consumer had a real opportunity to become acquainted with the term. This provision can be traced back to the concept of presumed unfairness descended from the Unfair Terms Directive93 and which wants to derive the unfairness from the lack of an opportunity to become acquainted with the term. The heart of the control of contract terms in the DCFR is shifted to the control of content. Here these aspects will also be considered which do not directly concern the relationship between the rights and obligations between the consumer and the business, but extend beyond this to also include aspects related to the customer's decision-making process. The potential possibility for the customer to become acquainted with the content and meaning of the term, as well as the extent of the possibilities to influence the content, shall be relevant under this system when assessing the fairness of the term. The editors of the DCFR could not come to an agreement as to whether negotiated terms should be subject to control, at least in consumer contracts. This indecisiveness is clear from the parenthesis used in art II.–9:403 DCFR.94 However, the DCFR's system in consumer law rather appears to tend to give greater protection to the freedom to make decisions and individual responsibility, and does not solely examine the content of contractual rights and duties on the basis of an objective examination. Nonetheless, the DCFR also includes the general presumption that the term of a consumer contract was not individually negotiated (art II.–1:110(4) DCFR). One can see a difference between the DCFR and the content of the Unfair Terms Directive, which only links such a presumption with the use of standard contract terms.95 The DCFR therefore also differs from the Acquis Principles as these have followed the Directive in this respect (art 6:101(4) ACQP).96 Surprisingly, the DCFR has – in contrast to the Acquis Principles – restricted 72 the control of terms in non-consumer contracts just to the standard terms, i.e. contract terms drafted in advance for multiple transactions (art II.–9:404, art II.– 9:405 in conjunction with art II.–1:109 DCFR). The systems of control in and outside of consumer law are therefore underpinned by different principles and values even though both systems are partly served by the same or similarly worded provisions. Furthermore, the DCFR makes distinctions within the control of standard 73 terms. Both general clauses are distinguished by the additional requirement of deviation from ‘good commercial practice’ introduced for B–B contracts.

93 94 95 96

Recital 20 Unfair Terms Directive. Stuyck (n 4) 127. Art 3(2) Unfair Terms Directive. In this respect the CESL has adopted the DCFR system (art II.–1:110(4) DCFR, art 7(5) CESL-D) for B–C contracts, although for B–B contracts the use of standard terms is relevant for determining that there has not been a neogitation.

207

Chapter 4 Unfair Contract Terms Article II.–9:404 DCFR Meaning of ‘unfair’ in contracts between non-business parties 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. Article II.–9:405 DCFR 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.

The additional criterion shall express that the control in B–B contracts is to consider the necessary drafting scope that must be retained in such types of contract. The DCFR follows the Acquis Principles in this respect.97 74 The DCFR also adopts a similar approach to the Acquis Principles by including two lists of prohibited terms: the grey (art II.–9:410 DCFR) and the black list (art II.–9:409 DCFR). The latter contains (as the Acquis Principles) just one prohibited term. However, these two lists are only applicable to consumer contracts. The DCFR and Acquis Principles are therefore identical in this respect, also. VIII. Reform 75

The 2007 Green Paper on the Review of the Consumer Acquis also included the control of contract terms.98 The Commission debated whether to just maintain the indicative list of prohibited terms or whether to supplement the general clause with a black (always unfair) or a grey (presumed unfair) list or with both lists. Furthermore, the Commission sought to examine the scope of the unfairness test: should the test also encompass negotiated terms or should the status quo be maintained, i.e. only non-negotiated terms can be assessed under the Unfair Terms Directive? The Commission also considered an extension to the unfairness test. Under the Unfair Terms Directive (which is reflected in the DCFR and Acquis Principles) terms will be excluded from the unfairness test if they cover the main subject matter of the contract, unless they are not in plain intelligible language (art 4(2) Unfair Terms Directive). The control of the price : performance ratio should be left to the market. However, it is exceptionally difficult in practice to separate the terms on the main subject matter from the additional provisions.99 Furthermore, for several contracts (e.g. for insurance100) this re97 Stuyck (n 4) 126. 98 COM (2006) 744 final, 18–20. 99 On the issue of the main subject matter of the contract see Case C–484/08 Caja de Ahorros ECLI:EU:C:2010:309; C–26/13 Kásler ECLI:EU:C:2014:282; cf C–143/13 Matei ECLI:EU:C:2015:127. 100 See Case C–96/14 van Hove ECLI:EU:C:2015:262.

208

IX. The Exclusion of Unfair Terms from the Consumer Rights Directive

sults in – from a policy perspective – an undesirable limitation on the extent of the unfairness test. Consequently, the Commission considered abolishing this requirement. However, the Commission above all considered a step concerning a general 76 question of EU consumer law, but which would have had considerable impact on the control of contract terms. The Commission posed the question whether the future consumer law should be regulated on the basis of a fully harmonizing directive. The consequence of this approach for the Member States would be the withdrawal of the scope to determine the level of consumer protection: national legislators could no longer provide rules more protective than foreseen in the relevant European directive. The control of contract terms is however a part of national contract law and does not exclude the traditional national instruments concerning the content of contract – good morals, principles of good faith and other comparable standards determine the general boundaries of contractual freedom in many legal systems. The full harmonization of the control of contract terms would cast considerable doubt on the extent to which the national legislator should lose the competence to independently regulate its own national contract law. Restricting the control to non-negotiated terms would lead to the paradox that the national legislator could introduce more restrictive measures on negotiated terms as these would fall outside of the scope of harmonized EU law. The concept of full harmonization affecting core parts of contract law has therefore proven not to be ripe enough for implementation in practice. IX. The Exclusion of Unfair Terms from the Consumer Rights Directive

The Commission presented its proposal for a Directive on Consumer Rights 77 in 2008.101 The proposal covered the regulation of unfair contract terms that have indeed repealed the Unfair Terms Directive,102 though differences between the two were minimal. The general solutions were maintained and only the nonnegotiated terms should be subject to the unfairness test; clearly drafted terms on the main subject matter of the contract would continue to be excluded from the scope of the test. A new feature could however be observed in the inclusion of two lists of unfair terms – the ‘black’ and ‘grey’ lists – which were to replace the ‘indicative’ list in the Unfair Terms Directive.103 Although these reforms were very restrained and rather lacking in innovation, the Commission could nevertheless not push this proposal through in its original form. The reason for this failure lay in the intended full harmonization104 – one could not foresee that the Member States would not have been able to regulate by themselves. For instance, would the fully harmonized ‘black list’ have allowed for other mandato101 COM (2008) 614 final. 102 Recitals 1 and 2 COM (2008) 614 final. 103 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 128. 104 See Chapter 3, para 35.

209

Chapter 4 Unfair Contract Terms

ry norms which would have restricted the freedom of contract but which would have not just been applicable to non-negotiated terms? The general criticism105 of the proposal thus caused the Commission to significantly reduce the scope of the intended directive and ultimately resulted in the exclusion of the control of contract terms. X. CESL 78

The content of the control of contract terms in the proposed CESL resembles most of all the corresponding content of the Acquis Principles.106 However, the presumptions of non-negotiation as well as the clear integration of a transparency requirement in this proposed CESL system were more greatly influenced by the DCFR.107 The inclusion test is regulated in art 70 CESL–D, this overlaps entirely with the rule in art 6:201 ACQP.108 Article 70 CESL-D 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. (…)

79

The proposed CESL distinguishes between the control in B–C contracts (art 83 CESL-D)109 and the control in B–B contracts (art 86 CESL-D)110, and thereby covers all the circumstances covered in the CESL's proposed personal scope of application (art 7(1) CESL-Reg-D111). However, non-negotiated terms are not subject to the test,112 thus the proposal has not adopted the DCFR approach on this issue. In addition, single-use terms in B–B contracts may also be subject to control (art 86(1)(a) CESL-D). The notion of standard terms does not play a role if one does not abstain from presuming the non-negotiation of stan105 See, for example, the criticism from Graf, ‘Richtlinienentwurf und Allgemeine Geschäftsbedingungen’ in Jud/Wendehorst (eds), Neuordnung des Verbraucherprivatrechts in Europa? (Manz 2009) 143–144. 106 Schulze CESL/Kieninger art 70 CESL-D para 3. 107 Schulze CESL/Kieninger art 70 CESL-D para 2. 108 On the inclusion in the CESL see Möslein, ‘Kontrolle vorformulierter Vertragsklauseln’ in Schmidt-Kessel, Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 255, 274; Schmidt-Kessel CESL/Looschelders/Makowsky art 70 CESL-D; see also Schulze CESL/ Kieninger art 70 CESL-D para 2. 109 See above, para 9. 110 See above, para 10. 111 On the personal scope of application see also Möslein (n 108) 266; Schulze CESL/Mazeaud/ Sauphanor-Brouillaud art 83 CESL-D. 112 Möslein (n 108) 267; Schmidt-Kessel CESL/Looschelders/Mankowsky art 70 CESL-D para 1; Schulze CESL/Kieninger art 70 CESL-D para 1.

210

X. CESL

dard terms. The requirement of non-negotiated terms is also maintained in B–C contracts (art 83(1) CESL-D). Both groups exclude contract terms on the main subject matter of the contract from control unless the trader has not complied with the duty of transparency (art 80(2) CESL-D).113 In comparison with the Unfair Terms Directive, the DCFR and the Acquis Principles, the rule was only revised in order to create a restrictive interpretation of the exception. The core of the test comprises the general clauses (arts 83 and 86 CESL- 80 D)114, which are regulated separately for both groups of contracts (B–B and B– C). Article 83 CESL-D 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 86 CESL-D 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.

The significant imbalance between the rights and obligations of the parties 81 which arises in B–C contracts to the detriment of the consumer, contrary to good faith and fair dealing, is the decisive criterion for classifying a term as unfair.115 The provision is not as specific for B–B contracts (no reference to a significant imbalance) but there is the addition of gross deviation from good commercial practice. The DCFR and Acquis Principles once again serve as a model for more restricted control in B–B contracts in order to afford businesses greater freedom when drafting contracts.116 113 114 115 116

On the exceptions under art 80 CESL-D see Möslein (n 109) 270–272. See above, paras 9–10. Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 83 CESL-D para 7. Möslein (n 109) 284.

211

Chapter 4 Unfair Contract Terms

The wording of the general clause in art 83(1) CESL–D varies from the corresponding provisions in the Unfair Terms Directive (art 3), the Acquis Principles (art 6:301(1) ACQP) and the DCFR (art II.–9:404 and art II.–9:405). The general clause in the new proposal refers more to the contract as a whole rather than a specific term. However, it is to be doubted whether this distinction (which could theoretically allow for less restricted consideration of the terms to be controlled) could actually lead to lower consumer protection in practice. Two lists are again foreseen for B–C contracts: a black (art 84 CESL-D)117 and a grey (art 85 CESL-D)118 list. However, the black list is much longer than its counterparts in the DCFR and Acquis Principles.119 83 The control of terms in the proposed CESL did not expanded on several of the DCFR's innovative approaches (e.g. the control of terms of which the consumer was not aware before the conclusion of the contract). In general, one has remained with the familiar and practiced solutions and therefore preserved several contradictions in the acquis communautaire that have arisen in this area of law since the Unfair Terms Directive was passed. In spite of this reserved approach the adoption of the CESL would have resulted in a genuine revolution. It would have meant the creation of self-standing system with its own requirement of fairness that, despite its optional nature, would have spread across the whole of European law. This would have represented an important step towards independence of the acquis communautaire. 82

117 On the prohibited terms under art 84 CESL-D see Schmidt-Kessel CESL/Möslein art 84 CESL-D paras 10–20; Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 84 CESL-D. 118 On the prohibited terms under art 85 CESL-D see Schmidt-Kessel CESL/Möslein art 85 CESL-D paras 4–11. 119 Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 84 CESL-D para 3.

212

Chapter 5 Performance Obligations Literature: Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); De Franceschi (ed), European Contract Law and the Digital Single Market (Intersentia 2016); De Wit, ‘Duties of buyer and seller. Transfer of risk’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 155; Lorenz, Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law (2012) 212 AcP 702; Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014); Schulze (ed), Common European Sales Law – Commentary (Nomos 2012); v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009).

I. Performance Obligations 1. Acquis communautaire

a) A contract founds the obligation for one or both parties to perform for the 1 other or a third party. The content of these obligations can be very diverse. The principle of freedom of contract – more specifically its form of freedom of content of contract – ensures that it is primarily the parties who can determine the content of their contractual obligations. Freedom of contract is acknowledged in the laws of the Member States as well as in EU contract law.1 Accordingly, mandatory rules in national law are often only applicable to performance obligations in a limited number of circumstances. However, the laws of the Member States contain extensive rules, in particular on the manner of performance (such as time and place) as well as non-mandatory obligations in individual types of contract, which supplement the parties' contractual agreement should such terms not have been specifically stipulated in the contract.2 In contrast to national laws the acquis communautaire does not contain a comparatively comprehensive set of rules on performance obligations. Present EU contract law rather limits itself to a series of specific aspects that are considered to be of great significance for the development of the internal market and for further functions in the EU. Directives pursuing objectives such as the protection of consumer or SMEs have indeed contributed above all to extending the scope of mandatory rules in national law on performance obligations. b) The performance obligations in the rules of European contract law have 2 not necessarily resulted in affording the injured party with a corresponding primary contractual right to performance. The provisions of EU contract law can rather be additionally or exclusively linked with other legal consequences. In this respect, European law has not clearly decided between the continental-Euro-

1 See Chapter 1, para 30; on the recognition of this principle in the Member States see DCFR Full Edition 131–132. 2 For more detail see Chapter 2, paras 88–94.

213

Chapter 5 Performance Obligations

pean legal tradition, which in principle affords the injured party with a claim to performance in natura, and the Common law, in which specific performance is a discretionary, equitable remedy.3 The CISG has already paved the way to frame the claim to performance as a remedy (arts 45 et seq. CISG). The PECL continued this approach for European contract law – the claim to performance is the first in a series of remedies (arts 9:101–9:102 PECL).4 Accordingly, the performance obligations in European private law can – even without a primary claim to performance – form the basis for the availability of remedies such as subsequent performance and termination.5 3 c) Art 18(1) Consumer Rights Directive and art 2(1) Consumer Sales Directive play a highly significant role concerning the regulation of performance obligations in specific areas of contract law covered by the acquis communautaire. According to the latter provision the seller is to deliver goods that are in conformity with the sales contract. The content of the obligation is therefore not just the delivery but also the requirement that the delivered goods are to be ‘in conformity with the contract of sale’. This obligation is therefore fulfilled not just by the delivery of the goods (in contrast to non-delivery as non-performance in a broad sense) but rather extends to cover the performance in conformity with the contract (in contrast to non-conformity or defective performance). In this respect the Consumer Sales Directive follows the approach under the CISG to provide an overarching concept of the obligation to perform in conformity with the contract and, accordingly, a broad understanding of non-performance.6 4 Art 18(1) Consumer Rights Directive is of particular importance for performance of the delivery obligation in consumer sales contracts. The provision determines the scope of the delivery obligation under the Directive together with the time and the nature of the delivery to the buyer.7 Article 18(1) Consumer Rights Directive Delivery 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.

5

The Consumer Sales Directive has developed a catalogue of objective and subjective criteria for performance in conformity with the contract.8 Art 2(1) Consumer Sales Directive links the subjective element of conformity to the sell-

3 Kötz, Europäisches Vertragsrecht (2nd edn, Mohr Siebeck) 290–300; see generally Smits/Haas/ Hesen (eds), Specific Performance in Contract Law: National and Other Perspectives (Intersentia 2008). See also Chapter 6, paras 40 et seq. 4 See also arts III.–3:301, III.–3:302 DCFR and art 155(1)(a) CESL-D. 5 See Chapter 6, paras 33 et seq.; on non-contractual sanctions see Chapter 6, para 1. 6 For more detail see Chapter 6, paras 14–31. 7 The delivery obligation was previously outlined in art 7(1) Distance Selling Directive. See also below, paras 21–32. 8 Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ (1999) EuZW 485, 486.

214

I. Performance Obligations

er's duty to deliver goods in conformity with the contract; art 2(2) Consumer Sales Directive contains a list of criteria in the form of a rebuttable presumption.9 Subjective and objective standards are thus combined, for instance the fitness for the purpose for which the consumer requires the goods (art 2(2)(b) Consumer Sales Directive), the fitness for the purposes for which goods of the same type are normally used and the quality and performance normal in goods of the same type (art 2(2)(c), (d) Consumer Sales Directive). In addition to an exclusion of non-conformity in the event the consumer is aware of the lack of conformity (art 2(3)) and criteria for excluding the binding nature of public statements on the seller (art 2(4))10 this central provision of European guarantee law also stipulates that some instances of incorrect installation and shortcomings in installation instructions are non-conformities (art 2(5)). Article 2 Consumer Sales Directive 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. (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.

d) Individual specific aspects of performance obligations in other areas are 6 also regulated by, for example, arts 3 and 5 Commercial Agents Directive, art 21(1) Markets in Financial Instruments Directive, art 59(1) Payment Services 9 Recital 8 Consumer Sales Directive. 10 See Chapter 3, paras 1–48.

215

Chapter 5 Performance Obligations

Directive11, art 3(1) No. 1 Package Travel Directive, as well as in a number of provisions on the manner of performance.12 The Acquis Principles have structured such individual provisions of the acquis communautaire in an overarching manner which has been combined with the principle of good faith to create the rule: ‘the debtor must perform its obligations in accordance with good faith’ (art 7:101(1) ACQP). This rule is supplemented by more detailed provisions on performance obligations e.g. in contracts for the delivery of goods (art 7:B–01 ACQP) or commercial agency contracts (arts 7:H–03 et seq. ACQP). The Acquis Principles therefore generalize the rules derived from present EU law to create an abstract principle and supplement such principle with specific rules for particular types of contract, as far as such rules could be ascertained from the acquis. At the time the Acquis Principles were drafted EU law was however lacking a sufficient foundation to expound the performance obligations. The acquis has since developed, in particular through the revised version of the Package Travel Directive. This is linked to the content and scope of the performance obligations defined in the definition of a travel service as well as the binding effect of pre-contractual information and the content of the written version of the package travel contract (arts 6 and 7 Package Travel Directive), the responsibility for performance and the individual consequences of a lack of conformity (using the expression familiar to sales law, see art 13(2)–(4) Package Travel Directive). Furthermore, the Digital Content Directive also shows the adoption and modification of the concept of a performance obligation from sales law (including the obligation to perform in conformity with the contract) in a broader context, namely the supply of digital content.13 2. Proposed legislation a) Typical performance obligations 7

aa) The CESL has proposed a structure for the performance obligations for parties to a sales contract but also to contracts for the supply of digital content, and contracts for (related) services. The rules are general and sometimes catalogue-like in nature. The provisions on performance obligations in contracts for the supply of digital content are, however, derived mostly from the corresponding provisions for sales contracts. These general rules for sales contracts (and contracts for the supply of digital content) and for related-service contracts each follow provisions that determine the manner of performance and specify the further requirements for conformity. In following the pattern in the CISG these provisions on the respective contractual obligations for the parties are followed by the rules on the remedies available to the other party in the event of non-performance.14 11 For more detail see Contract II/Aubert de Vincelles et al. art 7:101 para 2. 12 See below, para 12. 13 See below, paras 12–13.

216

I. Performance Obligations

The catalogue of the seller's main obligations is at the peak of the provisions 8 for a sales contract and contracts for the supply of digital content. ‘Main obligations’ expresses that these obligations are characteristic for these types of contract but that it does not intend to represent an exhaustive list of all of the seller's obligations. Furthermore, ‘main obligations’ are not the pendant to the notion of ‘fundamental non-performance’ of contractual obligations. A breach of the main obligations under art 91 CESL-D will often be considered ‘fundamental’ under art 87(2) CESL-D, however this does not mean that the breach of such obligations will always be considered ‘fundamental’.15 Article 91 CESL-D 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.

The ‘main obligations of the seller’ under the proposed CESL therefore in- 9 clude the delivery obligation (and the supply in relation to digital content) as well as the obligation to perform in conformity with the contract. In addition to the duty to transfer physical possession (‘delivery’16) the proposed CESL also lists the transfer of ownership as another ‘main obligation’. According to art 99(1) CESL-D, the goods or digital content must be of the quantity, quality and description required by the contract. Art 99(1) in conjunction with art 100 CESL-D broadens the standard of conformity with subjective elements (such as suitability for a purpose made known to the seller) and objective elements (such as suitability for purposes for which goods of a similar description would ordinarily be used, and the qualities and capabilities the buyer ‘may expect’). As the Consumer Sales Directive, art 99(2) in conjunction with art 101 CESL-D includes incorrect installation and shortcomings in the instructions. According to art 102(1) CESL-D, the notion of conformity under the proposed CESL includes the freedom of the goods or digital content from ‘rights or not obviously unfounded claim of a third party’17 and supplements this with regard to intellectual property rights. However, according to art 99(2) CESL-D the criteria in arts 14 See De Wit, ‘Duties of buyer and seller. Transfer of risk’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 155. 15 For more detail see Chapter 6, paras 27, 62. 16 See below, para 22. 17 The provision is based on arts 41 and 42 CISG. See De Wit (n 14) 171–172; Faust, ‘Leistungsstörungsrecht’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) paras 19–20; Schmidt-Kessel CESL/Remien art 102 paras 2 et seq.; Schuller/Zenefels, ‘Obligations of Sellers and Buyers’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 597.

217

Chapter 5 Performance Obligations

100–102 CESL-D are only relevant for the question of conformity ‘save to the extent that the parties have agreed otherwise’. The CESL-D therefore sets a primarily subjective standard for conformity.18 However, despite this generally subjective approach the proposed CESL seeks to ensure a greater objective standard in consumer contracts. Agreements derogating from arts 100–102 CESL to the consumer's detriment are only valid if the consumer knew of the specific condition of the goods (or digital content) at the time of the conclusion of the contract and accepted them ‘as being in conformity’ (art 99(3) CESL-D). In light of an imbalance of bargaining power one could doubt whether sufficient protection is afforded to the consumer.19 10 bb) As the Consumer Sales Directive, the proposed Online Sales Directive only selects certain aspects of conformity from the catalogue of ‘main obligations’ proposed by the CESL. The proposed Directive largely adopts the subjective approach outlined by the proposed CESL but intends to strengthen the consumer's protection with the requirement of ‘express acceptance’ of the specific condition of the goods that deviates from the objective standard. Specifically, art 4 Online Sales Directive substantiates the notion of conformity with subjective criteria (requirements under the contract, consumer's required purpose, qualities indicated in pre-contractual statements). In addition art 5 Online Sales Directive outlines particular objective criteria (fitness for all purposes for which goods of the same description are ordinarily used, delivery with accessories the consumer may expect to receive, quality and capabilities normal for goods of the same type). Furthermore, the conformity standard includes the correct installation and correct instructions (art 6 Online Sales Directive); the good must also be free from third party rights (art 7 Online Sales Directive). 11 cc) In contrast to the Online Sales Directive, the Digital Content Directive does not just regulate the notion of conformity but also includes provisions concerning the performance of obligations under a contract for the supply of digital content. Art 5 Digital Content Directive anchors the obligation to supply the digital content (corresponding to the delivery obligation in sales contracts and following art 91(a) CESL-D). This obligation contains two alternatives (also with regard to the time of performance): performance to the consumer (art 5(1)(a)) and performance to a third party chosen by the consumer (art 5(1)(b)). From a temporal perspective, art 5(2) Digital Content Directive determines that the digital content is to be supplied ‘immediately after the conclusion of the contract’20 and therefore represents a rule better suited to the fast-paced nature of Internet trade.21 18 Gsell, ‘Fehlerbegriff und (negative) Beschaffenheitsvereinbarungen im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 231; CESL Schulze/Zoll art 99 para 26. 19 Gsell (n 18) 237 et seq. 20 Cf the 30-day delivery period in art 95(2) CESL-D. 21 Wendland, ‘GEK 2.0? Ein europäischer Rechtsrahmen für den Digitalen Binnenmarkt’ (2016) GPR 8, 14.

218

I. Performance Obligations Article 5 Digital Content Directive 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.

The Digital Content Directive follows a similar approach to earlier sets of 12 rules by adopting a ‘hybrid’ approach, namely the combination of subjective and objective criteria. However, in doing so it places particular emphasis on the subjective element – the requirements under the contract, the pre-contractual information and the purpose for which the consumer requires it as made known to22 and accepted by the supplier (art 6(1) Digital Content Directive23). According to art 6(2) Digital Content Directive, the objective standards only apply as far as the contract does not stipulate the subjective requirements in a ‘clear and comprehensible manner’. Where a high level of consumer protection is concerned, this rule can be problematic in consideration of the supplier's stronger bargaining position and the possibility to use ‘clear and comprehensible’ contract terms to go below the minimum, objective standards. An examination under the Unfair Terms Directive could serve to restrict the effect of such terms, though the scope of control is limited by art 4(2) Unfair Terms Directive. The concerns against such a strong focus on the subjective element of conformity also relate the use of the digital content and the associated risks to the consumer due to ‘End-User Licence Agreements’ (EULA). Such risks will only be lessened to the extent that ‘clear and comprehensible’ terms24 are possible for such a complex issue. Potential approaches to correct the strong emphasis on the subjective criteria could not only be to add the objective standards could exist in addition to the subjective standards but also to include the familiar standard of ‘legitimate expectations’.25 In spite of the problems, arts 6 et seq. Digital Content Directive do, however, 13 feature a number of noteworthy advances in the concept of conformity in the context of the supply of digital content. For instance, art 6 Digital Content Di22 For criticism of this requirement see Spindler, ‘Verträge über digitale Inhalte – Anwendungsbereich und Ansätze’ (2016) MMR 147, 151. 23 See Chapter 2, para 15. 24 See Spindler, ‘Contract Law and Copyright – Regulatory Challenges and Gaps’ in Schulze/ Staudenmayer/Lohsse, Contracts for the Supply of Digital Content – Regulatory Challenges and Gaps (Nomos 2017) 220 et seq. 25 The Council has proposed both approaches, though with a ‘reasonable expectations’ standard, see art 6a(1) of the file 8800/17 (8 May 2017) available online under http://data.consilium.europa.eu/doc/document/ST-8800-2017-INIT/en/pdf (accessed 11 July 2017) hereinafter referred to as ‘Digital Content Directive – Council’.

219

Chapter 5 Performance Obligations

rective includes, inter alia, ‘functionality, interoperability and other performance features such as accessibility, continuity and security’. These factors are relevant from a subjective perspective when they are required by the contract or are included in pre-contractual information that forms part of the contract. Furthermore, such factors also form part of the objective standards for determining whether the digital content is fit for purpose. In particular, consideration is also given to the temporal aspect of the use of digital content, for example ‘duration’ (art 6(1)(a)), ‘most recent version’ (art 6(4)), and the ‘modification of the digital content’ (art 15). The bulk of these provisions serve the objective outlined in the proposed CESL, namely to ‘ensure that the buyer has the right to use the digital content in accordance with the contract’ (art 91(d) CESL-D). However, the proposed Digital Content Directive reflects more the general motivation of a buyer, i.e. to be able to use what was purchased and focuses more precisely on the specific features of digital content. 14 Furthermore, art 7 Digital Content Directive adopts the general rule in art 2(5) Consumer Sales Directive (and also art 101(1) CESL-D) on conformity of installation and instructions: ‘incorrect integration into the consumer's digital environment’. Art 8 Digital Content Directive follows earlier sets of rules with regard to third party rights, however with an additional rule concerning the supply over a period of time. Art 9 Digital Content Directive reverses the burden of proof of conformity in favour of the consumer, again with consideration of the supply over a period of time. The reversal does however not apply if the supplier can show that the consumer's digital environment is incompatible with the digital content and that he informed the consumer of the requirements prior to the conclusion of the contract; arts 5(1)(h) and 6(1)(s) Consumer Rights Directive provide that such information is to be provided in a ‘clear and comprehensible manner’.26 In addition, art 9(3) Digital Content Directive stipulates a duty for the consumer to cooperate with the supplier in order to determine the consumer's digital environment. This duty is however limited to the ‘technically available means which are the least intrusive for the consumer’. b) Counter-performance 15

aa) The proposed CESL lists the ‘main obligations of the buyer’ in art 123 CESL-D. Such ‘main obligations’ include payment of the purchase price, taking delivery of the goods or digital content and, if required by the contract, taking over documents representing or relating to the goods or to digital content.27 Where taking delivery is concerned, art 129 CESL-D provides that the buyer has

26 The Council has proposed to amend art 6(2) Digital Content Directive in order to take this standard into account. The supplier therefore also bears the burden of proving compliance with the standard of the information requirements. See art 10(2) Digital Content Directive – Council (n 25). 27 On the latter point see Schulze CESL/Dannemann art 123 CESL-D para 12. For a summary of the duties see also De Wit (n 14) 173 et seq.

220

I. Performance Obligations

to perform all acts that could be expected in order to enable the seller to perform its delivery obligation, for example informing the seller of the place of delivery and ensuring it has access.28 Although the buyer is obliged to take delivery of the goods, there are no rules in the CESL concerning the specific consequences of non-acceptance.29 However, the seller can benefit from the exclusion of the buyer's remedies when the latter has caused the non-performance (art 106(5) CESL-D). The seller must also take reasonable steps to protect and preserve the goods or digital content (art 97(1) CESL-D), though it is entitled to deposit or sell the goods or digital content and retain its costs from the amount to be reimbursed to the buyer (art 97(2), (3) CESL-D). The buyer can only refuse to accept early delivery or delivery of a lesser quantity than agreed if it has a legitimate interest in doing so (art 130(1), (2) CESL-D).30 bb) The Commission's proposals for an Online Sales Directive and a Digital 16 Content Directive do not contain any comparable provision on counter-performance. The Digital Content Directive does, however, make a reference to counter-performance, though in the context of its scope of application. According to art 3(1) Digital Content Directive, the Directive applies to contracts in which the consumer ‘actively provides counter-performance other than money in the form of personal data or any other data’. Data can be of notable economic value to the supplier of digital content either when used by the supplier itself or if sold to other businesses. Accordingly, there are good reasons for considering data as counter-performance as the customer is giving significant value to the supplier. However, in contrast to the transfer of property or other proprietary rights, a customer who gives data often does not suffer a loss as the data will still remain with the customer. The Digital Content Directive takes this situation into account by extending it notion of counter-performance to include money and data; though where the latter is concerned, the Directive's scope is limited to contracts in which the consumer ‘actively’ provides the data. The restriction to ‘active’ appears to be questionable (at least for personal data) with regard to the level of consumer protection and may lead to difficulties in determining the borderline between active and passive provision.31 Aside from this, the proposal for the Digital Content Directive does show that the concept of counter-performance

28 See also DCFR Full Edition 1328 for the corresponding rule. 29 For criticism see Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 722. 30 On the buyer's right to elect between retaining or rejecting the goods in the event of excess delivery as well and the restriction of the payment obligation in relation to intentional excess delivery see Schulze CESL/Dannemann art 130 CESL-D paras 13, 19–20. 31 Schulze, ‘Supply of Digital Content. A New Challenge for European Contract Law’ in De Franceschi (ed), European Contract Law and the Digital Single Market (Intersentia 2016) 140–141. The Council has proposed to replace the specific ‘active’ requirement with the general and broader requirement that the Directive does not apply where the consumer ‘does not provide or undertake to provide personal data to the supplier’, see art 3(1a) Digital Content Directive – Council (n 25).

221

Chapter 5 Performance Obligations

is not limited to the traditional transfer of property but can include the transfer of data. c) Further areas of regulation under the CESL-D

aa) Entrusting the performance of contractual obligations to a third party is a common feature of the modern, distributive economy. The proposed CESL takes this characteristic into account with a basic rule concerning performance by a third party (art 92 CESL-D). According to this provision, a seller may entrust performance to a third party unless the contract requires the seller to perform personally. In the event the seller does entrust performance to another person he nevertheless remains responsible.32 18 bb) The proposed CESL contains specific provisions on related-service contracts in addition to the list of the ‘main performance obligations’ in sales contracts and for the supply of digital content. Its provisions distinguish between two types of obligations of related-service providers. the CESL thus distinguishes between two types of obligations for service providers. Art 148(1) CESL-D will be applicable if the contract requires a specific result to be achieved. The service provider is therefore obliged to achieve every result due under the contract. Services of this kind often include the examples of related services listed in art 2(m) CESL-Reg-D (installation, maintenance or repair). If, however, the service contract does not contain an express or implied obligation to achieve a specific result, the applicable criteria are stipulated under art 148(2) and (3) CESL-D.33 In such instances the service is to be provided with the care and skill that a reasonable service provider would exercise and is to conform to the relevant statutory provisions. Consequently, merely performing in accordance with regulations would not suffice under this standard if, under the individual circumstances, the reasonable service provider is subject to further requirements of care and skill.34 Art 148(3) CESL-D contains a non-exhaustive list of the requirements of care and skill in relation to the foreseeability of risks35, the costs of preventing damage and the time available for performance of the related service. Moreover, if a consumer contract includes the installation of the goods, the service provider must also ensure that the installed goods conform to the contract in accordance with art 101 CESL-D. This rule in art 148(4) CESL-D reflects the current rule in European contract law according to which an incorrect installation is regarded as non-conformity of the goods.36 Art 149 CESL-D places the service provider under the obligation to prevent against damage. The service provider must therefore take reasonable precautions in order to prevent damage 17

32 This requirement is mandatory in consumer contracts, art 92(3) CESL-D. 33 Art 148(2) CESL-D is mandatory for consumer contracts (art 148(5) CESL-D). 34 Faber, ‘Dienstleistungsverträge’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 147, 181–182. 35 Contrary to the wording of art 148(3)(a) CESL-D, which is clearly the result of an editorial error, this does not just apply to risks concerning consumers but also for businesses as customers; Faber (n 34) 182–183.

222

I. Performance Obligations

to the goods or digital content, and to prevent physical injury or other loss and damage from arising during performance or as a consequence of the performance of the related service. These secondary obligations arising from the related service contract37 are therefore aimed not only at preventing damage to the goods or digital content delivered with the related service but rather also extend to protect against loss or harm to the contractual partner's other legal interests, such as its physical integrity.38 In this respect these obligations have the character of contractually based obligations to protect the legal interests of the other party. The customer's obligation under a service contract is primarily to pay the con- 19 tractually agreed price (art 153(1) CESL-D). In addition, art 154 CESL-D outlines the specific obligation to provide access to the premises at reasonable hours if this is necessary in order for the service to be provided. d) Emergence of a general conceptual basis

An examination of the development of concepts surrounding the performance 20 obligations in European contract law shows that the delivery obligation and obligation to perform in conformity with the contract are two central concepts in sales law. The breach of these obligations can be described as ‘non-delivery’ or ‘non-conforming performance’ (or, more generally, as non-performance’). These types of breach of performance obligations are linked to the injured party's remedies. Furthermore, the provisions in more recent directives and proposals indicate a tendency to apply the notion of conformity in sales law to service contracts. This therefore leads to the extension of a concept that is relevant for the whole of European contract law. In particular, art 13 Package Travel Directive39 and art 6 Digital Content Directive could prove to be pillars in the acquis communautaire for the emergence of a European services law that is based on the same basic concepts as sales law.40 Moreover, a similar development in relation to the remedies for non-conforming performance would give rise to a general concept for the framework of European contract law in the field of performance and non-performance and would make a significant contribution to coherency.41

36 Further provisions on the obligations of the service provider concern, in particular, the (ancillary) obligations to provide an invoice (art 151 CESL-D), to warn of unexpected or uneconomic cost (art 152 CESL-D). The service provider may also entrust performance to a third party unless personal performance is required (art 150 CESL-D). The wording of art 150 CESL-D differs slightly from art 92 CESL-D, the comparable provision for sales contracts. The difference may be explained by the general personal nature of a service and the need for further restriction in this respect, see Schulze CESL/Zoll art 92 CESL-D para 2. 37 Illmer, ‘Related Services in the Commission Proposal for a Common European Sales Law’ (2013) EPRL 131, 168. 38 Faber (n 34) 183. 39 See above, para 6. 40 Schulze (n 31) 142–143. 41 See Chapter 6, paras 14–15.

223

Chapter 5 Performance Obligations

II. Forms of performance 1. Overview 21

In addition to the basic obligation to perform, the laws of the Member States often contain detailed rules concerning time, place, and manner of performance in order to clearly determine the debtor's performance obligations and the requirements for creditor's remedies in the event of non-performance. The acquis communautaire also contains a number of provisions on these matters, though these do not form part of a complete regulatory foundation. As a consequence, the Acquis Principles had to partly refer to the results of the comparative approach in the PECL and DCFR in order to fill the relevant gaps in the EU law.42 However, the proposed CESL has followed these drafts so that its chapters on obligations of the parties now contain a complete set of rules for the forms of performance. Admittedly, it cannot answer all questions arising in relation to performance due to the many different types of clauses that exist in practice. One will therefore often have to refer to general provisions and principles in the acquis communautaire, for instance good faith and legitimate consumer expectations43. 2. Place and type of performance

22

aa) The acquis communautaire does not contain any general requirements on place and type of performance, though a key starting point for the delivery of goods can be found in the Consumer Rights Directive. The Directive's scope of application extends beyond the former art 7(1) Distance Selling Directive and the present art 2(1) Consumer Sales Directive not only by providing that the seller has to deliver the goods to the consumer but also through a more precise concept of delivery. Art 18(1) Consumer Rights Directive states that the seller delivers the goods by transferring the ‘physical possession’ or ‘control’ of the goods to the consumer.44 Whereas is clear from the language that the notion of physical possession refers to the actual delivery the goods,45 the concept of ‘control’ refers to constructive delivery whereby the consumer either has access to the goods or the ability to resell them.46 The Consumer Rights Directive does not contain an express provision concerning the place at which the possession or control is transferred to the consumer.47 42 In particular art 7:201(4) ACQP with reference to art III.–2:104 DCFR, and art 7:202 ACQP with reference to art III.–2:101 DCFR. 43 See Chapter 2, paras 7 et seq. 44 The moment of physical possession serves as the relevant point in time for ascertaining conformity of the goods as according to the art 8(1)(a), (2) Online Sales Directive; see below, paras 36–37. 45 ‘[T]ransferring the physical possession of the goods’, the French and German versions of the Directive also includes such clear language ‘transférant la possession physique’ and ‘physischen Besitz’, respectively. 46 Recital 51 Consumer Rights Directive.

224

II. Forms of performance

bb) The proposed CESL broadens this approach and its rules on the type of 23 delivery are linked to the place of delivery for various different situations. Art 93 CESL-D gives priority to the agreement under the contract; however there are three different circumstances to be considered if the place of delivery is not stipulated or cannot otherwise be determined (e.g. no reference to the INCOTERMS48 in B–B contracts): (1) the place of delivery in a distance or offpremises contract is the consumer's place of residence at the time of the conclusion of the contract. The same applies under a consumer contract if the seller is to arrange the carriage of the goods to the buyer. (2) In other cases the place of delivery will depend on whether the sales contract includes the carriage of the goods by a carrier. Following the provisions of the CISG, a carrier is independent of the seller, for example not an employee.49 Under such circumstances the place of delivery will be the nearest collection point of the first carrier. (3) If the sales contract does not include the carriage of the goods by an independent carrier, the place of delivery will be the seller's place of business at the time of the conclusion of the contract. The obligation to collect the goods is therefore the residual concept foreseen for the delivery of goods in instances involving neither a contract of carriage under the aforementioned requirements in (2) nor a consumer contract under the above requirements in (1). In contrast, if such a consumer contract exists, an obligation to deliver at the consumer's residence is foreseen as this is more favourable to the consumer. Art 94 CESL-D stipulates how the seller is to perform its delivery obligation 24 in each of these three situations. Where the obligation to deliver is concerned, the seller is to transfer the physical possession or control of the goods or digital content to the consumer (art 94(1)(a) CESL-D; as also provided under art 18(1) Consumer Rights Directive). If the contract includes carriage, the delivery obligation will be performed by handing over the goods to the first carrier and, if necessary, handing over any document to the buyer which is necessary in order to enable it to take over the goods from the carrier (art 94(1)(b) CESL-D). Art 96 CESL-D contains more specific rules on this mode of performing the delivery obligation. Where collection of the goods is concerned, the seller has to make the goods or digital content available to the buyer (or, if agreed, deliver the documents representing the goods) (art 94(1)(c) CESL-D).50

47 Zöchling-Jud, ‘Acquis-Revision, Common European Sales Law und Verbraucherrechterichtlinie’ (2012) 212 AcP 550, 568. 48 Schmidt-Kessel CESL/Remien art 93 CESL-D para 2. The INCOTERMS (International Commercial Terms) 2010 contain fundamental rules on the obligations for buyers and sellers, see http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms -rules/ (accessed 11 July 2017). 49 Schlechtriem/Schwenzer CISG/Widmer-Lüchinger art 31 CISG paras 22–23; Schmidt-Kessel CESL/Remien art 93 CESL-D para 2. 50 Furthermore, art 94(2) CESL-D stipulates that the provisions on the buyer in the first and third situation also apply to a third party (but not the carrier as under arts 93–94 CESL-D) who was indicated by the consumer or the buyer in accordance with the contract.

225

Chapter 5 Performance Obligations

The Digital Content Directive rests on the notion of ‘supply’, which it defines as ‘providing access to digital content or making digital content available’ (art 2 No. 10 Digital Content Directive). The concept takes into account the circumstance that the transfer of digital content to the consumer's domain (or, using the terminology of the Consumer Rights Directive and CESL-D, placing it under its ‘control’) requires a corresponding ‘digital environment’ and often some action on the part of the consumer (e.g. downloading the data). The digital content can also be supplied to a third party chosen by the consumer when such third party operates a platform or cloud that either makes the content available to the consumer or allows the consumer to access the content (art 5(1)(b) Digital Content Directive). 26 d) The acquis communautaire does not contain any general rules regarding the place of performance of monetary obligations. Although it does contain individual rules on the means of payment, these are merely applicable in specific circumstances.51 The (in part) very detailed provisions of the Payment Services Directive mainly apply to the relationship between payment service providers and their users, therefore they are mostly of indirect relevance. The Acquis Principles on this area are thus restricted to referring to art III.–2:101 DCFR52 as a model to fill this particular gap. 27 The rules proposed for the CESL follow the approach in the DCFR. Art 125 CESL-D provides that the place of payment in sales contracts is, unless determined otherwise, the seller's place of business at the time of the conclusion of contract. The place with the closest relationship to the obligation to pay will otherwise apply in the event the seller has more than one place of business. The details of the means of payment are contained in art 124 CESL-D, which is based in part on art 7:108 PECL and art III.–2:109 DCFR. In the absence of an agreement to the contrary the debtor can, taking into account the nature of the transaction, pay by any means that are used in the ordinary course of business at the place of payment. One can therefore use this basic rule to determine that the payment is to be made in the local currency at the place of payment.53 Where payments are not made in cash (e.g. by cheque, other money orders or a promise to pay) it is presumed that these are accepted on the condition that they will be honoured. Failure to do so will entitle the seller to enforce the original payment obligation.54 However, the buyer's original payment obligation will be extinguished if the seller accepts a promise to pay from a third party if such a preexisting arrangement exists (e.g. payment by credit card).55 As under art 19 Consumer Rights Directive, art 124(4) CESL-D restricts the extent of the seller's 25

51 For example, art 7 Distance Marketing of Financial Services Directive; arts 13, 19 and 22 Consumer Rights Directive; art 25 Mortgage Credit Directive. 52 Based in part on arts 31(c), 57 CISG and art 7:101 PECL. 53 Schulze CESL/Dannemann art 124 CESL-D para 18. 54 On the increased certainty which can arise from art 124(2) CESL-D in comparison to the second sentence of art 7:107(2) PECL and the second sentence of art III.–2:108(2) DCFR see Schmidt-Kessel CESL/Schaub art 124 CESL-D para 4.

226

II. Forms of performance

costs that can be borne by the consumer: the consumer can be liable to pay fees for using means of payment, though not fees that exceed the cost borne by the business for the use of such means of payment. The consumer can therefore only be burdened with the actual costs that arise for the business, thereby prohibiting the business from, for example, imposing the payment of flat processing charges.56 Art 90(1) CESL-D extends the scope of these provisions beyond the payment of the purchase price to other payments (with appropriate adaptations), unless otherwise provided.57 3. Time

aa) The point in time at which the performance is due is indicated in specific 28 parts of the acquis communautaire through the expression without any undue delay. For instance, art 7(1) Distance Marketing of Financial Services Directive stipulates that the consumer, in exercising the withdrawal right, may only be required to pay ‘without undue delay’ for services actually provided. Art 18(1) Consumer Rights Directive provides that the business is to deliver the goods to the consumer ‘without undue delay, but not later than 30 days from the conclusion of the contract.’ In this respect, the Consumer Rights Directive has further developed58 the 30-day period not only in relation to the notion of delivery and the right to termination after non-performance in an additional period59 but also in relation to a time period for delivery. In comparison, art 3(3) Consumer Sales Directive denotes the time period available for repair or replacement as a ‘reasonable time’. Nevertheless, the Acquis Principles outline the general principle of EU contract law as being the obligation for the debtor to perform without undue delay, unless agreed otherwise (art 7:201(1) ACQP). By comparison, the Digital Content Directive does not stipulate that the per- 29 formance is to be tendered ‘without undue delay’. Unless the parties have agreed otherwise, the digital content is to be supplied ‘immediately’ after the conclusion of contract (art 5(2) Digital Content Directive). The difference in terminology clarifies that ‘without undue delay’ does not exclude a delay where appropriate, whereas ‘immediately’ reflects that time for performance is generally not necessary for digital content.60 The consumer is entitled to terminate the contract if the supplier fails to supply immediately (art 11 Digital Content Directive).61 55 For further detail and on the questions concerning the borderline to personal loans see Schmidt-Kessel CESL/Schaub art 124 CESL-D paras 5–6. 56 This point has been left open, see Lorenz (n 29) 806. 57 See Schulze CESL/Zoll art 90 paras 1–4. 58 The 30-day period for delivery was originally provided under art 7(1) Distance Selling Directive. 59 For further detail on the concept of delivery see above, para 3; for termination see Chapter 6, paras 53–69. 60 See in this respect art 11 Digital Content Directive – Council (n 25). 61 The rule does not take the length of delays into consideration and is therefore harsh in relation to very short delays, see ELI, Statement of the European Law Institute on the European Commission's proposed Directive on the Supply of Digital Content to Consumers COM (2015) 634

227

Chapter 5 Performance Obligations

These provisions are however tailored to the specific technical and commercial processes in the supply of digital content and do not exclude the application of the principle of performance without undue delay to other areas. 30 bb) The CESL follows the approach adopted by the Acquis Principles for the time of performance and therefore deviates from art 33 CISG as well as from the complex rules in arts III.–2:102 and IV.A.–2:202 DCFR.62 According to art 95(1) CESL-D, the delivery of goods must, unless agreed otherwise, be delivered without undue delay after the conclusion of the contract; the CESL does not state the meaning of ‘undue’.63 The comments to art 7:201 ACQP allow one to presume that the time frame cannot be generalized but rather depends on the individual circumstances, namely the type and object of the delivery: the debtor has to perform as soon as is possible for a ‘diligent and well-organised person’ to perform under the circumstances.64 The scope of ‘without undue delay’ in art 95(1) CESL-D is limited however to the delivery of goods and digital content (whereas the Acquis Principles apply the principle to performance obligations in general). The CESL contains specific rules on the time of payment, namely at the moment of performance for which payment is due. Art 126(1) CESL-D bolsters this principle by stipulating that the payment of the price is due at the moment of delivery. According to art 90(1) CESL-D, this rule is also applicable (with appropriate adaptations) to other payments. Where (related) services contracts are concerned, art 153(2) CESL-D contains the more precise rule that the payment is due when the service is completed and the object of the service is made available to the customer. One has to of course always distinguish between when the payment is due and whether it can be performed. The latter point does not concern the question when the debtor has to perform, but when it may perform. One can deduce from art 126(2) CESL that, in principle, payment is possible before the due date but the creditor can reject the offer to pay if it has a legitimate interest in doing so.65 31 cc) Modifications to the time of performance can arise when one party is entitled to make unilateral changes to the terms of the contract. Such an entitlement is provided by, for example, art 11(1) Package Travel Directive, though with re-

62

63 64 65

228

final (July 2016) 27–28, available online under http://www.europeanlawinstitute.eu/fileadmin/ user_ upload/p_eli/Publications/ELI_Statement_on_DCD.pdf (accessed 11 July 2017). Moreover, the approach does not follow the general model in European contract law whereby the consumer would have to provide the supplier with an additional period for performance, see art 11 Digital Content Directive – Council (n 25). In contrast to art 7:201 ACQP, however, art 95(1) CESL-D expressly states the moment of conclusion of contract as the relevant time, whereas the comments to the Acquis Principles favour the time at which the obligations arise (which may sometimes be difficult to determine); see Contract II/Aubert de Vincelles et al. art 7:201 para 8. On the controversial doctrinal views see De Wit (n 14) 167; Lorenz (n 29) 702, 721; SchmidtKessel CESL/Remien art 95 CESL-D para 1; Schulze CESL/Zoll art 95 CESL-D para 8. Contract II/Aubert de Vincelles et al. art 7:201 para 10. Similarly, art 25 Mortgage Credit Directive does not provide for such a right of rejection to the lender but does not exclude a claim to compensation in the event of early repayment by the consumer.

III. Risk

strictions. According to paragraph 1(b) of this provision, the organizer can unilaterally change the time of performance if the change is significant. If the organizer has to make significant changes to any of the main characteristics the traveller may elect to accept the change, to terminate the contract (without paying a termination fee) or to accept the offer of a substitute package (art 11(2) Package Travel Directive). Changes to the departure or arrival times are considered significant if, for example, they cause significant inconvenience or additional costs to the traveller.66 Furthermore, performance or aspects of performance may be conditional. Ac- 32 cordingly, there are particular features in relation to performance over a period of time or with various ‘layers’. For example art 7(5) Package Travel Directive stipulates that the organizer is to provide the traveller with the necessary tickets in good time before departure. The time for performance of this obligation therefore depends on the time at which the main performance (i.e. the package) is due. The difference between these two points in time is determined by the term ‘in good time’ (which depends on the circumstances in the individual case). III. Risk 1. Basic features

The provisions on when the buyer has to pay the purchase price has although 33 it has not yet received the object, or it has received a non-conforming good, are closely linked to the rules establishing the form of performance. The academic drafts on European contract law could initially refer to arts 66 et seq. CISG in relation to the transfer of economic risk (price risk) to the buyer. The DCFR based its rules on this model, though took account of the characteristics of European contract law by including specific provisions for consumer contracts (art IV. A.–5:103 DCFR). Art 20 Consumer Rights Directive now represents a rule in the acquis communautaire in relation to this issue of high practical importance in distance and off-premises contracts involving the carriage of goods. According to this provision the risk of loss or damage passes to the consumer when it or a third party (indicated by the consumer and not the carrier) has acquired the physical possession of the goods.67 The risk will only pass to the consumer when the goods are delivered to a carrier that has been commissioned by the consumer and this option was not offered by the business. A characteristic of the proposed CESL is its further development of structure 34 originally outlined by the DCFR for European contract law. This approach is reflected in arts 140 et seq. CESL-D as its rules on the passage of risk are divided into three sections.68 The first section contains the ‘General provisions’ that apply to all sales contracts and contracts for the supply of digital content under the 66 Recital 33 Package Travel Directive. 67 See above, para 22. 68 Summarized in De Wit (n 14) 178 et seq.

229

Chapter 5 Performance Obligations

CESL. These ‘General provisions’ determine the effect of passage of risk and the requirement that the goods or digital content can be clearly identified to the contract (arts 140, 141 CESL-D). Specific rules for ‘passing of risk in consumer contracts’ form the second section (art 142 CESL-D) and rules for ‘passing of risk in contracts between traders’ (arts 143 et seq. CESL-D) comprise the third. According to the general rule in art 140 CESL-D, the effect of passage of risk is that the buyer is not released from its obligation to pay the purchase price if the goods or digital content have been lost or damaged after the risk has passed (though this will not apply if the loss or damage is due to an act or omission of the seller). However, this effect will only arise when the goods or digital content to be delivered/supplied have been either identified beforehand by the parties during the conclusion of the contract (specific goods) or through subsequent identification of unascertained goods, for example by notice to the buyer (art 141 CESL-D).69 2. Consumer contracts

The relevant moment for the passage of risk is principally the transfer the possession to the seller. Art 20 Consumer Rights Directive outlines this approach70 for consumer contracts and is regulated further by art 142 CESL-D. In principle the risk passes to the consumer when it or a third party it has designated (but, again, not the carrier) acquires the physical possession of the goods. Where digital content is concerned, the relevant moment will also be the acquisition of physical possession if the content is supplied on a tangible medium; otherwise it will be the moment the consumer obtains control of the content (art 142(1), (2) CESL-D). Art 142(3) CESL-D does however detract from these principles if the consumer has not performed its obligation to take delivery of the goods or digital content and such non-performance is not excused under art 88 CESL-D.71 36 Where the risk is concerned, the proposals for an Online Sales Directive and a Digital Content Directive follow the present development in consumer contracts. The Online Sales Directive does not intend to generally regulate the risk in the relationship between performance and counter-performance. However, it does touch indirectly on this issue as the sets of rules on European contract law often link the relevant time for conformity to the transfer of risk. The relevant time for establishing conformity in distance contracts for the sale of goods is the time 35

69 On the individual groups see Schmidt-Kessel CESL/Wiese arts 140, 141 CESL-D paras 8–10 (here also on the particular problem of combined shipment); Schulze CESL/Zoll/Watson art 141 CESL-D paras 6–10; DCFR Full Edition 1374–1375. 70 See above, para 33. 71 Under these requirements the risk will pass at the moment the consumer would have acquired physical possession or control of the digital content had it performed its obligation to accept delivery. However, this rule will not apply in distance selling contracts or off-premises contracts (art 142(3) CESL-D). For more detail see Schmidt-Kessel CESL/Wiese art 142 CESL-D para 6, 12–14; Schulze CESL/Zoll/Watson art 142 CESL-D paras 8–12.

230

III. Risk

when the consumer (or a third party chosen by the consumer) acquires ‘physical possession’ (art 8(1) Online Sales Directive, in accordance with art 20 Consumer Rights Directive and art 142 CESL-D). An alternative point in time is the moment at which the goods are handed over to a carrier who was nominated by the consumer and who was not proposed by the seller. In contracts in which the goods are installed by the seller, the consumer acquires physical possession at the moment the installation is complete.72 According to art 10(b) Digital Content Directive, the supplier is liable for any lack of conformity at the time of supply. However, for digital content supplied over a period of time, art 10(c) Digital Content Directive provides that the supplier is liable for any lack of conformity within the duration of this time frame. The Online Sales Directive follows the approach under the Consumer Sales 37 Directive and the proposed CESL by favouring the moment of ‘physical’ possession, whereas the moment of supply is relevant under the Digital Content Directive. The scope of the latter Directive also reflects the distinction in art 142 CESL-D between the possession of digital content on a tangible medium and ‘control’ over digital content not supplied on a tangible medium. In principle, the Digital Content Directive (and not the Online Sales Directive) covers DVDs, CDs and other mediums for storing data.73 However, the provisions on ‘supply’ under art 5 Digital Content Directive are not suitable for the supply of digital content on such tangible media and are therefore not applicable (art 3(3) Digital Content Directive).74 Not all consequences of this exclusion have been sufficiently regulated.75 Doubt exists in such cases as to the provisions should, instead of art 5 Digital Content Directive, specify in more detail the performance obligations of the supplier76 and how the relevant time for liability under art 10 Digital Content Directive and for the passage of risk can be determined without referring to the standards under art 5 Digital Content Directive. 3. Commercial contracts

The CESL adopts a similar approach for B–B contracts as for B–C contracts 38 by providing that the risk will pass when delivery is taken of the goods or the documents representing the goods (art 143(1) CESL-D).77 However, this princi72 If the goods are intended to be installed by the consumer the physical possession will instead be acquired after a reasonable time for installation but no later than 30 days after delivery of the goods. 73 See art 3(3) Digital Content Directive; art 1(3) Online Sales Directive; recital 12 Online Sales Directive. 74 The immediate termination of the contract (art 11 Digital Content Directive) is also not applicable. 75 Committee on the Internal Market and Consumer Protection, Committee on Legal Affairs, ‘Working Document on the directive of the European Parliament and of the Council on certain aspects concerning contracts for the supply of digital content’ (23 June 2016) 3. 76 In particular when the medium is not supplied via a distance contract and therefore the Online Sales Directive does not apply and the application of the Consumer Sales Directive is excluded by art 20 Digital Content Directive.

231

Chapter 5 Performance Obligations

ple is bypassed by specific rules for circumstances that often arise in practice. In the event that the goods or digital content are, with the buyers knowledge, placed at its disposal, the risk will generally pass at the moment the buyer should have taken over the goods or digital content (obligation to collect, art 144 CESL-D) unless it is entitled under art 113 CESL-D to withhold performance of its obligation to accept delivery. A particularly significant difference between B– B and B–C contracts can be seen in relation to sales contracts providing for the carriage of goods: the risk will generally pass to the buyer in a B–B contract when the goods are handed over to the first carrier in accordance with the contract (art 145(2) CESL-D). Similarly, risk will pass to the buyer in relation to goods sold in transit when the goods are handed over to the first carrier. However, here the circumstances may indicate that risk shall pass at the time of conclusion of contract. Nevertheless, the seller may still bear the risk of loss or damage to the goods if it knew, or could be expected to have known of the loss or damage to the goods at the time the contract was concluded (art 146 CESLD). The fundamental difference between all of these provisions on passage of risk in B–B contracts and art 142 CESL-D on B–C contracts lies ultimately in their non-mandatory nature. IV. Features of long-term contracts 1. Overview a) Types 39

Greater attention will have to be paid in the future to the principles and rules applicable to contracts in which the performance takes place over a long period of time. Such long-term contracts are of vast importance in the commercial as well as the consumer context and significant with regard to the delivery of goods and the provision of many different types of services (including financial services and payment systems). The conditions of the various contracts can vary considerably. They can include, for example, framework agreements for complex relationships between the parties, contracts for services that are to be performed over a long period of time, and supply contracts. The latter could range from the supply of a total amount delivered in instalments over a set period of time to an indefinite amount over an indefinite period of time. Furthermore, such long-term contracts often involve more than two parties or a number of such contracts are linked together to form an economic and legal unit. In practice, withdrawal rights in linked contracts play a key role with regard to long-term contracts.78 ‘Relational contracts’ are also of key legal and economic importance 77 On the unanswered question whether ‘takes delivery of’ shall have a different meaning to ‘has acquired the physical possession’ under art 142(1) CESL-D (or which only arises because art 142 CESL-D is based on art 20 Consumer Rights Directive and art 143 is based on art 67(1) CISG and art IV.A.–5:102 DCFR) see Schmidt-Kessel CESL/Wiese arts 143–146 CESL-D para 3.

232

IV. Features of long-term contracts

with regard to long-term contracting,79 as is ‘networks’, i.e. the complex links between multiple long-term contracts. b) Acquis communautaire

The primary focus of the PECL is on the traditional model of the contract in- 40 volving the single exchange of performances.80 By comparison the acquis communautaire contains a number of specific rules concerning contracts for longterm performance. Indeed, the beginning of the contract law acquis saw the European legislator pass two directives regulating two such types of long-term contract: the Commercial Agents Directive from 1986 and the Consumer Credit Directive81 from 1987. In this respect, the provisions on long-term contracts may be viewed as the starting point for the development of European contract law, whereas the single exchange of performances formed the basic model in national law (and accordingly the basis for the comparison of national laws). The further development of the acquis communautaire included an increasing amount of legislation concerning long-term contracts and took into account their particular features to varying extents. For example, the Unfair Terms Directive refers to the presumed unfairness of terms that enable the seller to terminate a contract of indeterminate contract without reasonable notice82 and art 5(1)(f) Consumer Rights Directive provides specific information duties for indeterminate contracts. Numerous other directives (especially those concerning services) do not make express reference to long-term contracts yet are designed for such types of contracts (e.g. the Distance Marketing of Financial Services Directive and various directives in the field of employment law). Several directives are tailored entirely to those types of contract that are often long-term in nature, for instance the Commercial Agents Directive, the Consumer Credit Directive, the Timeshare Directive and the Payment Services Directive. c) Supply of digital content

The Digital Content Directive develops in various respects the temporal ele- 41 ments of performance under European contract law. For instance, its provisions on the supply, conformity of digital content, and the supplier's liability are based on the distinction between performance at a particular point in time and performance over a period of time. This provides the basis for determining that digital 78 See Chapter 3, paras 167–168. 79 See MacNeil, ‘Relational Contract: What we do and do not know’ (1985) Wisconsin Law Review 483. 80 Long-term contracts are not covered in a separate section and are only included in individual provisions that take into account the particular nature of such contracts (in particular, art 9:302 PECL concerning contracts to be performed in parts). 81 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 [1987] OJ L42/48. 82 See Annex (h) Unfair Terms Directive.

233

Chapter 5 Performance Obligations

content, which is to be supplied over a period of time, shall be in conformity with the contract and be free of third party rights throughout that period (arts 6(3), 8(3) Digital Content Directive). Accordingly, the supplier is not only liable for a non-conformity that exists at the time of supply but also for any lack of conformity that occurs during the period of supply (art 10(b) and (c) Digital Content Directive). Furthermore, performances over a period of time are also subject to specific rules concerning modification and termination of the contract (art 15 Digital Content Directive). Article 15 Digital Content Directive 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, (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.

The Digital Content Directive therefore presents for discussion a model that takes into account the need to make changes to the performance agreed under the contract. It does not leave the framework for such changes solely to the parties but intends to provide a legislative basis for an appropriate balance of interests. 42 A conceptual distinction is necessary with regard to performance tendered over the course of a period of time and ‘long term contracts’ under the Digital Content Directive. According to art 16(1) Digital Content Directive, a long-term contract concerns contracts under which the digital content is to be supplied for an ‘indeterminate period or where the initial contract duration or any combination of renewal periods exceed 12 months’. The Digital Content Directive therefore provides a definition of long-term contracts that comprises indeterminate and fixed-term contracts of a minimum duration of 12 months. Both types of contract feature a specific termination right83 that differs from the aforementioned termination right in the event of modification (art 15 Digital Content Di83 It is apparent from recital 43 Digital Content Directive that no specific limitation period is determined in relation to the supplier's liability for non-conformity – Member State law will fill

234

IV. Features of long-term contracts

rective) as well as the termination right in the event of non-performance (arts 11, 12(3) and (5) Digital Content Directive).84 2. Performance and non-performance

Due to the long-term binding nature of the contract and the possibility that the 43 contractual burdens may be difficult for a party to ascertain, long-term contracts are often subject to pre-contractual information duties and requirements concerning form.85 Furthermore, long-term contracts contain particular rules on the performance and consequences of non-performance. More specifically, the question arises whether the general rules on non-performance are applicable or whether modifications are necessary. The Acquis Principles do not contain a general principle. However, the Digital Content Directive contains several rules for performance over a period of time in addition to its termination right for long-term contracts. The Directive adopts the basic approach that the supplier is liable for any non-conformity arising during the time period (art 10(c) Digital Content Directive). The termination right is modified in two respects – the termination only applies to the period of non-conformity and the reimbursement is apportioned to reflect the period in which the digital content was in conformity (arts 13(5) and (6) Digital Content Directive). As far as such specific provisions do not apply, it is to be presumed that the general rules on non-performance apply, in principle, to instalment contracts.86 In contrast, the scope of the performance is open in contracts of indeterminate duration and/or quantity. The nonperformance of an obligation therefore does not represent a proportion of the entire performance obligations. The general provisions on non-performance may apply without restrictions to the individual performance though the general rules on revocation (termination)87 will have to be substituted by a specific remedy where future performance is concerned. In contrast to termination due to nonperformance or other important reason the termination of a long-term contract does not require such a reason but is often subject to a time limit. Such form of termination is commonly referred to as ‘ordinary’ or ‘standard’ termination. 3. Termination

‘Standard’ termination rights feature, for example, in commercial agency con- 44 tracts – art 15 Commercial Agents Directive regulates the termination periods for each party. Art 13(1) Consumer Credit Directive stipulates that the consumer

84 85 86 87

this gap. It is to be considered, especially with regard to contracts of indeterminate duration, whether to provide that the national limitation period may not be shorter than a time period proposed by the Directive; ELI (n 60) 33, see also art 9a Digital Content Directive – Council (n 25). See above, para 29. For example arts 3(2)(b) and 4(2)(b) Commercial Agents Directive; arts 5 and 6 Consumer Credit Directive; arts 13 et seq. Mortgage Credit Directive. See Chapter 6, paras 14 et seq. See Chapter 6, paras 101 et seq.

235

Chapter 5 Performance Obligations

in an open-end credit agreement has a standard termination right that can be exercised free of charge at any time (unless there is an agreed period of notice, which may not exceed one month). The same provision provides the creditor with a standard termination right, however the creditor has to give notice on paper (or another durable medium) at least two months in advance. In addition to this standard termination right, art 13(2) Consumer Credit Directive provides that the creditor may for ‘objectively justified reasons’ terminate the consumer's right to access credit.88 Art 55(1) Payment Services Directive provides the payment service user with a right to terminate the framework at any time (unless there is an agreed period of notice, which may not exceed one month). The termination is free of charge unless the contract has been in force for less than six months (art 55(2) Payment Services Directive). The payment service provider can terminate a framework contract concluded for an indefinite period by giving at least two months' notice on paper or another durable medium (art 55(3) Payment Services Directive).89 45 The Acquis Principles propose ‘General rules for a termination of contract concerning continuous or periodic performance’ as part of Chapter 7 on ‘Content and Performance of Obligations’. These general rules concern termination within a notice period and the effect of the termination. Article 7:301 ACQP Termination [by notice] of a contract concerning continuous or periodic performance for an indefinite period (1) Either party to a contract for a continuous or periodic performance over an indefinite period may terminate the contract by giving notice to the other. (2) This notice may be given only with a notice period, the length of which depends on the type and duration of the contract, and on the circumstances of the case. Article 7:302 ACQP Effect of termination by notice (1) Termination by notice under Article 7:301 releases both parties from their obligations to perform for the time after termination becomes effective. (2) Both parties are obliged to return to the other what has been performed for the time after termination becomes effective.

46

The DCFR contains provisions on this subject matter in its third book (‘Obligations and Corresponding Rights’). According to art III.–1:109 DCFR, each party to a contract involving continuous or periodic performance may terminate the contract with future effect by giving the other party reasonable notice. The proposed CESL provides that the reasonable period may not exceed two months (art 77 CESL-D) – the provision is however supplemented by more general rules in art 8 CESL-D90 for the different types of termination and also by the provi88 See Reich/Micklitz/Rott/Tonner, European Consumer Law (2nd edn, Intersentia 2014) 223. 89 On termination rights in insurance contracts see Basedow et al. (eds), Principles of European Insurance Contract Law (PEICL) (2nd edn, Sellier 2016) art 2:202 C2.

236

IV. Features of long-term contracts

sion on divisible obligations in art 117 CESL-D. It will be necessary to consider whether this division or an individual rule is preferable for long-term contracts. Article III.–1:109 DCFR 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 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. Article 77 CESL-D 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.

The proposed Digital Content Directive contains more detailed provisions on 47 the period and effects of long-term contracts for digital content due to its definition of ‘long-term contracts’91. According to art 16(2) Digital Content Directive, termination of a long-term contract is effective 14 days after the supplier receives notice, which can given by any means. In principle, the effect is ex nunc as 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 is effective’ (art 16(3) Digital Content Directive). The supplier may prevent the future use of the digital content, such as by blocking access to the consumer's account (art 16(5) Digital Content Directive). The termination under art 16 Digital Content Directive may therefore be considered ‘standard’ in nature. The termination of a long-term contract under the Digital Content Directive 48 contains aspects not only with ex nunc effect but also ex tunc effect, as shown by the rules in art 16(4) Digital Content Directive concerning data. For instance, with regard to the former the supplier has to take measures to refrain from using 90 See Chapter 6, para 77. 91 See above, para 43.

237

Chapter 5 Performance Obligations

data collected from or provided by the consumer in exchange for the digital content (art 16(4)(a) Digital Content Directive). Where the latter is concerned, the supplier has to provide the consumer with the technical means to retrieve, for example, the data she has provided (art 16(4)(b) Digital Content Directive). The consumer shall not only refrain from using (or making available to a third party) any copies of the digital content but also delete any copies or render them unintelligible (art 16(4)(c) Digital Content Directive). 49 The proposed Digital Content Directive does however contain a gap with regard to the requirements and effects of termination if the consumer uses her right under art 7 GDPR to withdraw her consent to the use of personal data.92 Greater assimilation is therefore still required between contract law and data protection law. From a data protection perspective, art 7(3) GDPR entitles the consumer to withdraw her consent to the use of her personal data – data protection will therefore require a corresponding restriction on the pacta sunt servanda principle, and thus on contract law itself, if this consent has been given in a contract for the supply of digital content. Furthermore, the lawfulness of processing data prior to the withdrawal of consent also illustrates the proximity to ex nunc termination rights (art 7(3) GDPR). In this respect it will be necessary to extend the provisions of the Digital Content Directive. 50 The provisions of the Digital Content Directive are tailored to contracts for the supply of digital content yet its underlying combination of termination ex nunc with ex tunc effects (through return of performance tendered) is not an exception in European contract law. A similar approach features, for example, in the field of commercial agency. Art 15(1) Commercial Agents Directive provides that an agency contract for an indefinite period may be terminated by notice from either party. Art 17 Commercial Agents Directive combines this termination right with the entitlement for the commercial agent to claim indemnification or compensation after termination of the agency contract.93 Indemnification is to be calculated in accordance with the requirements under art 17(2) Commercial Agents Directive, for instance whether the principal continues to derive substantial benefits from the business with customers brought by the commercial agent. The indemnification and, to some extent, compensation payments express consideration of the situation prior to the termination of the long-term contract. The Acquis Principles take this into account, though only for commercial agent contracts (art 7:H-15 ACQP on additional remuneration) and not in the general rules on the consequences of termination (art 7:302 ACQP).94 The adoption of 92 See art 3(1b) Digital Content Directive – Council (n 25) notes 17 and 18. The Council's proposed solution to leave to the Member States the regulation of the effects of the withdrawal of consent on the contract would represent a missed opportunity for European contract law and European data protection law. 93 For example, French law provides for compensation whereas German law provides for indemnification see Saintier, ‘Commercial Agency’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 280. 94 See above, para 45.

238

IV. Features of long-term contracts

this approach in the context of contracts for the supply of digital content would pose the question whether and in which form it can be expressed as a principle of European contract law.

239

Chapter 6 Consequences of Non-performance Literature: Bianca/Grundmann (eds), EU Sales Directive – Commentary (Intersentia 2002); Claeys/Feltkamp, The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013); Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); DiMatteo/Janssen/Magnus/Schulze (eds), International Sales Law: Contract, Principles & Practice (Nomos 2016); Grabitz/Hilf/Nettesheim (eds), Das Recht der Europäischen Union (60th edn, C.H. Beck 2016); Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017); Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702; Reich et al., European Consumer Law (2nd edn, Intersentia 2014); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales Kaufrecht (Sellier 2012); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014); Schmidt-Kessel/Silkens, ‘Breach of Contract’ in Plaza Penadés/ Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 111; Schulze (ed), Common European Sales Law – Commentary (Nomos 2012); Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ (2012) ZEuP 797; Zoll, ‘The remedies in the proposals of the Directive for the Online and Distance Sales Contracts and the Directive on the Supply of Digital Content’ (2016) EuCML 250.

I. Introduction 1. Innovative approaches in the acquis communautaire

The consequences of the non-performance of contractual obligations and in 1 particular the legal responses to non-performance (remedies) are central parts of the law of contract. The sanctions foreseen by contract law for the non-performance of obligations give the injured party the possibility to react; the threat of sanctions also has a preventative effect to induce a party to perform its duties and therefore ensure the performance of the contract. Although a number of EU directives contain contractual obligations, the responsibility for providing the corresponding sanctions has mainly been left to the Member States. Accordingly, there is a great variation in the measures that have been adopted to secure the objectives of the respective directive, for example private law instruments, administrative preventative and sanctioning measures, and even criminal sanctions have been provided in the field of consumer law.1 Nonetheless, a series of directives2 and regulations3 contain express rules on the remedies that shall be avail-

1 For example reg 38 of the Irish European Communities (Consumer Information, Cancellation and Other Rights) Regulations 2013 (SI No. 484/2013), which served to implement the Consumer Rights Directive into Irish law; or the ‘fraud’ under art L 213–1 Code de la consommation, which served to implement the Consumer Sales Directive; see Thissen, Die Verbrauchsgüterkaufrichtlinie und die Haftung des Verkäufers für öffentliche Äußerungen Dritter in Frankreich (LIT 2005) 72–74. 2 These include, above all, the Commercial Agents Directive, Consumer Rights Directive, Consumer Sales Directive, Late Payment Directive, Package Travel Directive, and the Payment Services Directive. 3 For example, Denied Boarding Regulation, Rail Passenger Regulation, Ship Passenger Regulation, Coach Passenger Regulation.

241

Chapter 6 Consequences of Non-performance

able to the injured party in the event of a non-performance as well as other private law consequences that are not contained in specific rules. Despite their fragmented nature, several EU laws have given key features to the development of this area of law. Consequently, one can observe in several Member States a number of extensive changes to traditional approaches that have occasionally extended beyond the foreseen scope of the European legislation. 2 EU law on non-performance has indeed initiated or promoted a number of developments. The most important includes the emergence of a uniform aspect as the link to several or all remedies available to the injured party. The basis is formed by the concept of (non-) conformity outlined in art 3 Consumer Sales Directive (inspired by the CISG and the PECL). The model adopted by this Directive made, for example, an important contribution to the 2002 modernization of the German law of obligations not only through the introduction of uniform aspects of breach and non-conformity into the general law of obligations but also through the integration of sales law provisions into this framework. Similarly, the approach adopted in the Consumer Sales Directive also played an important innovative role for Member States' rules on the relationship between performance and termination, as well as the other remedies. In this respect, the concept of a claim to performance as a remedy was a new approach for many Member States. Further innovative aspects of the Consumer Sales Directive also concern the seller's right to ‘cure’ a breach and the hierarchy of the remedies, namely the priority of repair or replacement over the remedies of price reduction and termination.4 Furthermore, the injured party's right to rescind or terminate the contract is also linked to the innovative approach whereby judicial intervention is not necessary in order to execute the remedy, as was required in some Member States; art 18 Consumer Rights Directive also follows a similar approach to the Consumer Sales Directive. Withdrawal rights in this context also represent a departure from some traditional national approaches in which judicial intervention is needed in order for one party to unilaterally terminate or change the contractual relationship.5 In this respect the directives – as the CISG and the PECL – have placed a different model in the foreground: the legislator affords a party the power to create, modify or end a legal relationship through unilateral acts (so-called ‘formative rights’).6 3 Moreover, the new European rules have had considerable effect on the notion of defect in sales law. On the one hand this concerns the integration of this notion into the more general contractual concepts of conformity and non-conformity.7 However, on the other hand the Consumer Sales Directive expands the traditional national criteria of conformity by including pre-contractual public state4 See below, paras 61 et seq., and paras 78 et seq. 5 See Chapter 3, para 136. 6 Schmidt-Kessel, ‘Remedies for Breach of Contract in European Private Law – Principles of European Contract Law, Acquis Communautaire and Common Frame of Reference’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 185–187. 7 See Chapter 5, paras 5, 36.

242

I. Introduction

ments made by the seller and third parties8. The notion of defect in the sale of goods is not limited to the physical integrity of the good but rather also includes associated acts, namely the installation instructions and installation by the seller (see art 2(5) Consumer Sales Directive). This concept of defect thus expresses that the contractual obligations are substantiated by consideration of the other party's legitimate expectations.9 Such change in perspective towards the legitimate expectations of the other party is prevalent throughout the provisions on contractual obligations in relation to non-performance and therefore places the criteria for non-performance in a new context. 2. System a) Acquis communautaire

The European rules on non-performance of contract have been subject to a 4 piecemeal development for specific circumstances and are thus far from forming a complete system of law for breach of contract. Nevertheless, this limited number of rules does provide a starting point for a partial systemization. In light of the aforementioned provisions of the Consumer Sales Directive, one can therefore refer to, for example, the concept of a uniform requirement of breach as a common requirement for several remedies, the inclusion of (subsequent) performance as a remedy, the hierarchy of remedies, the division of subsequent performance in repair and replacement, and the equal ranking of rescission (and termination) and price reduction as remedies.10 Member States have not just implemented these provisions on the design and relationship between remedies beyond the scope of the Directive but have used them as a framework for a new structure of sales law and of the general law of obligations as a whole (especially in Germany).11 The Acquis Principles have used the relevant directives and associated Euro- 5 pean case law in order to develop approaches for structuring European contract law concerning non-performance. This especially includes the use of overarching principles on the requirements and exercise of remedies, and their relationship to one another (including also damages and interest), as well as the extension of general principles through specific rules for individual aspects (e.g. the delivery of goods or for particular services).12 The Acquis Principles have out8 See Chapter 3, para 80. The Package Travel Directive contains a similar approach in relation to statements from organizers and retailers, see recital 26 Package Travel Directive. 9 See Chapter 2, paras 7 et seq. 10 See paras 39 et seq. It is doubtful whether one can derive general principles of current EU contract law from the provisions of the Consumer Sales Directive; on remedies for non-performance see Contract II/Machnikowski/Szpunar art 8:202 paras 1–2; Schmidt-Kessel (n 6) 188; Zoll, ‘The Remedies for Non-performance’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 195, 197. 11 See above, para 2. 12 Contract II Chapter 8, Part A on ‘doorstep’ sales; Part B on the delivery of goods; Part E on package travel; Part G on payment services; Part H on commercial agency contracts.

243

Chapter 6 Consequences of Non-performance

lined the possibilities for a coherent development of the acquis communautaire, but the extent of current EU contract law prevents the further step of drafting a complete system of European law on breach of contract. The Acquis Principles therefore do not cover important topics such as the restitution after termination of contract and, furthermore, must refer to the PECL or DCFR as the gaps cannot be filled through reference to the acquis communautaire.13 b) CESL

aa) The proposed Common European Sales Law presented the European legislator with the challenge of developing an overarching system of rules for breach of contract that is as comprehensive as possible in order to work in practice. In addition, the CESL proposes a broad catalogue of remedies that closely followed the system of remedies in the PECL, Acquis Principles and DCFR. The CESL seeks to provide each of the parties (seller and buyer) with separate remedies positioned after the obligations for the other contract party.14 The remedies for parties to a service contract were to be regulated separately, however in one general section on remedies15 after the sections on the parties' obligations. This separation into types of contracts and parties expresses that the remedies in each case are possible reactions to the non-performance of the contractual obligations stipulated in the preceding sections. The approach does, however, lead to repetitions and frequent cross-references, particularly to the earlier chapter on general terms16 which concerns the requirements of various remedies (such as non-performance, fundamental non-performance and excused non-performance), as well as to later17 rules on damages and interest – these latter aspects have general effect on each type of contract and party, yet are positioned after specific rules. 7 bb) Art 106(1) CESL-D outlines the basic structure of the catalogue of remedies available to the buyer in the event of a non-performance by the seller.18 The remedies available to the injured party consist of the request for performance, withholding performance, termination, price reduction, and damages.19 Art 106(6) CESL-D regulates the general relationship between the remedies by stipulating their cumulative application under the requirement ‘not incompati6

13 Arts 8:201 and 8:202 ACQP on monetary and non-monetary obligations, respectively, corresponding to arts III.–3:301 and III.–3:302 DCFR; art 8:302 ACQP on notice of termination, corresponding to art III.–3:507(1) DCFR; art 8:304 ACQP on the right to withhold performance, corresponding to art III.–3:401 DCFR; art 8:404 ACQP on interest on delayed payment, corresponding to art III.–3:708 DCFR. 14 Chapter 11 the remedies for the buyer (arts 106 et seq. CESL-D) follow the obligations of the seller in Chapter 10; the remedies of the seller in Chapter 13 (arts 131 et seq. CESL-D) follow the obligations of the buyer in Chapter 12. 15 Chapter 15, Section 4 (arts 155 et seq. CESL-D). 16 Chapter 9 (arts 87 et seq. CESL-D). 17 Chapter 16 (arts 159 et seq. CESL-D). 18 Corresponding provisions for the seller, the customer in a service contract, and the service provider are contained in arts 131, 155, 157 CESL-D. 19 For more detail on each of these remedies see below, paras 39–105.

244

I. Introduction

ble’.20 However, separate rules on the specific relationship between the individual remedies are foreseen in, for instance, art 8(2) CESL-D (termination and damages), art 120(3) CESL-D (price reduction and damages), and art 8(1) CESL-D (exclusionary effect of termination). Article 106 CESL-D 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 (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.

cc) It is characteristic of the system of remedies in art 106 CESL-D that all 8 remedies (except withholding performance) in B–B contracts are first subject to cure of the non-performance by the seller (art 106(2)(a) CESL-D). The non-performing party is therefore afforded the right to perform in conformity with the contract (cf art 109(1) CESL-D) and thereby cure its breach.21 Performance can therefore be claimed by the injured party as a remedy (art 106(1)(a) CESL-D) but is also a right for the party in breach (the right to performance in the form of cure under art 109 CESL-D). A further characteristic can be identified in art 106(2)(b) CESL-D, namely the buyer can only rely on the remedies if requirements of examination and notification in arts 121 and 122 CESL have been fulfilled. However, these are again only applicable in B–B contracts and do not apply to consumers (art 106(3)(b) CESL-D).22 Art 106(5) CESL-D outlines the

20 See Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 754; Schmidt-Kessel/Silkens, ‘Breach of Contract’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 132–133. On art III.–3:102 DCFR see DCFR Full Edition 777–778. 21 See below, paras 32–38. 22 See below, paras 54–55.

245

Chapter 6 Consequences of Non-performance

final principle for all remedies, namely the causal link between the non-performance and the actions by the non-performing party.23 9 Art 106(4) CESL-D highlights that each of the remedies do not require fault on the part of the party in breach i.e. liability is objective. In this respect, the CESL adopts the CISG-model, which favours the common law ‘breach of contract’ instead of the fault-based approach in continental legal systems. The CESL limits the liability only in respect of performance and damages if the nonperformance is excused under the requirements of art 88(1) CESL-D, namely where the non-performance 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.’24 In applying this form of foreseeability as an excuse that excludes performance and damages the CESL thereby deviates from the approach under the CISG, i.e. foreseeability as a means to limit the extent of loss to be compensated (art 74 CISG). The CESL rule also follows the PECL and the DCFR.25 However, the approach can be problematic in situations in which the buyer desires (delayed) performance but the claim to performance is eliminated.26 10 dd) The CESL's chapters on remedies do not regulate all consequences resulting from the exercise of remedies. In particular, the effects of termination are contained mainly in art 8 CESL-D, which covers the termination of contract in general. Whether (and to what extent) a party is to return what has been obtained under the contract falls under the issue of restitution, which is contained in a separate part of the CESL (arts 172 et seq. CESL-D).27 This part is innovative in relation to European contract law and the laws of many Member States as its provisions concern the return of what has been received not only in the event of termination but also in the event of avoidance due to a defect in consent. From the German perspective, it covers the consequences of termination and the compensation for enrichment.28 Accordingly, the provisions are removed from the chapter on defects in consent and from the parts on remedies and – in adhering to the ‘life cycle’ of the contract29 – placed before prescription in the penultimate chapter of the CESL. c) Services 11

The developments in services law over recent years have outlined the possibilities for systematization in relation to the law surrounding non-performance. The CESL laid the foundation by including provisions on related services con23 24 25 26 27 28 29

246

For more detail see below, para 47. See Chapter 5, para 35. Art 8:101(2) PECL; art III.–3:101(2) DCFR. Schmidt-Kessel CESL/Zöchling-Jud art 106 CESL-D paras 11–12. See below, paras 101–105. §§ 346 et seq. §§ 812 et seq. BGB. Recitals 6, 26 CESL-D.

II. Non-performance

tracts and, moreover, applying structures developed for sales law to the services sector, yet without comprehensive regulation or consideration of the latter's features. The Package Travel Directive and the proposed Digital Content Directive continue with the approach by adopting several basic elements from the sales law acquis for key areas of the service sectors and adapting them to suit the particular needs. Both the Package Travel Directive and the Digital Content Directive contain a 12 catalogue of remedies comprising (as under the system in the CESL) subsequent performance, price reduction, termination, and damages (arts 13 and 14 Package Travel Directive; arts 12 et seq. Digital Content Directive), yet each with their own particular features.30 The Package Travel Directive also takes the particular nature of the contract into account by not adopting repair or replacement as the modes for remedying non-performance, but rather through allowing alternative arrangements for continuation of the package where a significant proportion of the service cannot be provided (art 13(5)). Although modifications are provided for these types of service contracts it is nevertheless possible to identify an overarching structure in which the primacy of performance, as outlined for sales law by the Consumer Sales Directive, is reflected in some form (e.g. ‘self-help’ in art 13(4) Package Travel Directive, the transition to price reduction or termination in art 12(2) and (3)(b) Package Travel Directive as well as in art 12(3)(b) Digital Content Directive). As for the notion of conformity,31 concepts outlined primarily in sales law for 13 the structure of remedies are also transferred to services. Future developments will indicate the relevance of these concepts beyond the scope of the two directives noted here. One can at the least consider that the adoption and adaption of these concepts for particular types of service contracts can contribute to the development of a general concept of the law of non-performance in service contracts. This concept may correspond to the approach for sales contracts and therefore strengthen the coherency of European contract law. II. Non-performance 1. Overview

The directives in the acquis communautaire have paid less attention to the 14 questions of non-performance32 than to the contractual duties. The consequences of breach have been left in the domain of the Member States. Nevertheless, the process of consolidating European contract law has given rise to an increasing number of rules on non-performance. One could pose the question whether a system is emerging which will consist of coherent parts, or whether different 30 For example, art 13(3), (5) and (6) Package Travel Directive and art 12 (1), (3) and (4) Digital Content Directive. 31 Chapter 5, paras 5, 36. 32 European Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 22–23.

247

Chapter 6 Consequences of Non-performance

rules will emerge for various different points and will be scattered across the acquis communautaire. The authors of the Acquis Principles presumed that the existing EU private law offers a sufficient basis for generalized rules. The Acquis Principles define the concept of non-performance as: Article 8:101 ACQP 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.

15

The definition follows the approach of proceeding from a uniform notion of breach/non-conformity33 and therefore is linked to the model in the CISG, PECL and DCFR. Despite such indications that the European legislator would follow this approach, the alternative of characterizing particular types of breach (such as delay or defective performance) and creating specific types of remedies is not unknown to EU law. This can be attributed to the initial problem-orientated approach adopted by the European legislation as opposed to seeking coherency in European contract law. The acquis communautaire therefore contains approaches both in relation to the theory that the European legislator attempts to deliver building blocks for general European rules on non-performance and regarding the supposition that it is not seeking to create such a system. 2. Requirement in the acquis communautaire

16

The model of a uniform concept of non-performance, which does not categorize the different types of breach, can be seen primarily in the Package Travel Directive:34 Article 3(13) Package Travel Directive Definitions ‘lack of conformity’ means a failure to perform or improper performance of the travel services included in a package; the failures which occur in the performance of the contract are attributable to the consumer

17

A uniform concept of non-performance is also included in the Payment Services Directive: Article 75(1) Payment Services Directive Non-execution or defective execution 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

33 Contract II/Machnikowski/Szpunar art 8:101 para 5. 34 On non-performance see Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 13 paras 22– 37.

248

II. Non-performance 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.

The Consumer Sales Directive is the most important directive to adopt the 18 uniform approach to non-performance:35 Article 3(1) Consumer Sales Directive Rights of the consumer The seller shall be liable to the consumer for any lack of conformity which exists at the time the goods were delivered.

It may be surprising that this provision is given as an example of the uniform 19 concept of non-performance even though it only contains a specific case of defective or non-performance, namely the lack of conformity.36 This lack of conformity is a functional equivalent of the concept of a material defect. However, the underlying concept of the Consumer Sales Directive differs from the traditional understanding of defect and can be deduced from the development of this Directive: one can see its relationship to the CISG,37 which is devised on the basis of a uniform notion of breach.38 The use of such a uniform approach does not necessarily result in the complete absence of a distinction between the different sub-forms of defective and non-performance. The Consumer Sales Directive merely represents a part of a system that has not fully developed in the acquis communautaire. The system39 has now been completed by the proposed CESL. The proposed Online Sales Directive also uses the general concept of non- 20 conformity as the link to the buyer's remedies: Article 9(1) Online Sales Directive Consumer's remedies for the lack of conformity with the contract 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. (…)

The proposal however contains indications for a typification of the types of non-performance that give rise to liability. The key articles (arts 4 and 5) have been cited earlier in this volume with regard to the concept of contract40, though 35 Bianca/Grundmann EU Sales Directive/Bianca art 3 para 3; see also Mak, Performance-Oriented Remedies in European Sale of Goods Law (Hart 2009) 28–30; Miller, The Emergence of EU Contract Law: Exploring Europeanization (OUP 2011) 73–74 36 Bianca/Grundmann EU Sales Directive/Bianca art 3 para 3. 37 Bianca/Grundmann EU Sales Directive/Bianca Introduction para 21. 38 Schlechtriem/Schwenzer CISG/Müller-Chen art 45 CISG para 5. 39 Art 87 CESL-D contains a list of acts which fall under non-performance see Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D paras 1–11; Schulze CESL/Zoll art 87 CESLD para 4; the reference for determining non-performance is conformity under arts 99–105 CESL-D, see Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 8; Schulze CESL/Zoll art 87 CESL-D para 18. 40 Chapter 2, para 1.

249

Chapter 6 Consequences of Non-performance

one will recall the distinction between ‘conformity with the contract’ and ‘requirements for conformity of the goods’: the subjective and objective concept of defect. The objectification under art 5 could lead to the independence of the concept in relation to the contract. As highlighted above,41 the distinction foreseen by the proposal is not however of great significance. 21 The proposed Digital Content Directive also uses the concept of conformity: Article 12(1) Digital Content Directive Remedies for the lack of conformity with the contract 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.

The proposal covers non-performance in a narrow sense (i.e. without covering defective performance) in a separate provision. It is labelled as the ‘failure to supply’: Article 11 Digital Content Directive 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.

In the event of a failure to supply, the proposed Digital Content Directive affords the consumer with the specific right to immediate termination of the contract.42 As full harmonization is proposed for the Digital Content Directive (art 4), the question is to be asked whether the national legislator is thus prevented from providing other remedies for this type of non-performance. In turn, this would make clear the implications of a distinction between non-performance and defective performance. 3. Types of non-performance in the acquis communautaire 22

Other directives and regulations specify the different types of non-performance for which the European legislator has provided the corresponding remedies. A key example of the renaissance of such a case approach instead of a remedy approach (as the label for the method of a uniform requirement) can be seen in the Consumer Rights Directive: Article 18(2) Consumer Rights Directive Delivery 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

41 Chapter 2, para 68. 42 See below, paras 61–77.

250

II. Non-performance fails to deliver the goods within that additional period of time, the consumer shall be entitled to terminate the contract.

This provision regulates late performance and provides the consumer with a 23 right to terminate if an additional period has been set and the seller has failed to perform in this additional time. It follows a strict liability approach in relation to the type of delay. The national legislator indeed has the choice to transpose this provision into a standard breach of contract provision, but this does not alter the fact that a specific remedy (termination) is available and original legal concepts – additional period – are applicable. In this respect it concerns a part of the law related to non-performance whose origins are in a system that differs from the system of the Consumer Sales Directive (even if both systems can indeed be merged by the national legislator). Such typification of non-performance can also be seen in the various travel 24 law regulations on passenger rights: The Denied Boarding Regulation and the Rail Passenger Regulation: Article 16 Rail Passenger Regulation Reimbursing and re-routing Where it is reasonably to be expected that the delay in the arrival at the final destination under the transport contract will be more than 60 minutes, the passenger shall immediately have the choice between: (a) reimbursement of the full cost of the ticket, under the conditions by which it was paid, for the part or parts of his or her journey not made and for the part or parts already made if the journey is no longer serving any purpose in relation to the passenger's original travel plan, together with, when relevant, a return service to the first point of departure at the earliest opportunity. The payment of the reimbursement shall be made under the same conditions as the payment for compensation referred to in Article 17; or (b) continuation or re-routing, under comparable transport conditions, to the final destination at the earliest opportunity; or (c) continuation or re-routing, under comparable transport conditions, to the final destination at a later date at the passenger's convenience.

The Denied Boarding Regulation covers numerous different types of non-performance, such as denied boarding (art 4), cancellation (art 5), and delay (art 6) and provides different consequences in each instance. The European legislator could not be content with a general clause due to the strict liability and specific type of performance. 4. Requirement in the CESL

The proposed CESL presented the European legislator with the first opportu- 25 nity to draft a near-complete system of contract law. The proposal also introduced its own concept of law concerning non-performance: Article 87 CESL-D 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:

251

Chapter 6 Consequences of Non-performance (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.

The provision clearly expresses a homogenized concept of non-performance43 and lists various different examples of types of non-performance. The list is not exhaustive and thus also provides a clear framework in uncertain cases.44 The concept of non-performance is (somewhat unfortunately) thus used in two contexts – as the general concept and thereby as a synonym of default or of breach45 and in a more specific sense as the term for fundamental non-performance and entire non-performance46. However, it does clarify that the entire non-performance also falls under the uniform concept of non-performance. Accordingly, the right to require performance can be included as one of several remedies.47 The CESL therefore does not distinguish between primary and secondary contractual rights. 27 Art 87(2) CESL-D proposes to introduce an additional category of ‘fundamental non-performance’48, which corresponds to ‘fundamental breach’ in the CISG49.50 This additional category is an important extension to the uniform concept of non-performance: in principle all remedies are available for all types of non-performance, therefore other means are necessary in order to prevent simple termination of the contract.51 This function can be achieved through classification of the types of non-performance (e.g. late performance or impossibility) and attributing remedies that end the contract (such as termination). In the CESL, a contract can generally only be terminated due to non-performance when the non-performance is fundamental. However, the CESL contains an important exception that corresponds to the solution in art 3(6) Consumer Sales Directive. 26

43 Schopper, ‘Verpflichtungen und Abhilfen der Parteien eines Kaufvertrages oder eines Vertrages über die Bereitstellung digitaler Inhalte’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 108. 44 Schulze CESL/Zoll art 87 CESL-D para 4. 45 See Zöchling-Jud, ‘Rechtsbehelfe des Käufers im Entwurf eines Gemeinsamen Europäischen Kaufrechts’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 327. 46 Schulze CESL/Zoll art 87 CESL-D para 4. 47 Zöchling-Jud (n 45) 332. 48 Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 12. 49 Art 25 CISG; see Schlechtriem/Schwenzer CISG/Schroeter art 25 CISG. 50 Schopper (n 43) 110; cf Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 13. 51 See also Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 12.

252

II. Non-performance Article 114 CESL-D 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.

According to the CESL, the termination of a consumer sales contract and a 28 contract for the supply of digital content would be possible even if the non-performance is not fundamental. However, this only concerns one variant of nonperformance: the delivery of non-conforming goods. The contract can only be terminated if the non-conformity is not minor; here the business will bear the burden of proof. Moreover, particular remedies are subject to a limitation that supplements the 29 notion of non-performance: Article 106(4) CESL-D Overview of buyer's remedies 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.

The CESL defines excused non-performance as follows:

30

Article 88 CESL-D 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. (…)

The German translation of excused non-performance (entschuldigte 31 Nichterfüllung) does, however, vary from the English version as the former indirectly suggests the concept of fault (Verschulden) as a requirement for liability. This is not so. The release of the non-performing party rather occurs if the nonperformance is due to an impediment beyond its control. It is therefore an objective test.52

52 Schopper (n 43) 113−114; Schulze CESL/Zoll art 88 CESL-D para 8.

253

Chapter 6 Consequences of Non-performance

III. Right to Cure 1. Acquis communautaire 32

The acquis communautaire contains two provisions that provide the right to terminate a sales contract: art 3(5) Consumer Sales Directive53 and art 18(2) Consumer Rights Directive54: Article 3(5) Consumer Sales Directive Rights of the consumer 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 – if the seller has not completed the remedy without significant inconvenience to the consumer. Article 18(2) Consumer Rights Directive Delivery 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 case concerns the seller's liability in respect of the non-conformity of the goods, whereas the second concerns the delay in performance. The question is always posed of whether the non-performing party can prevent the termination of the contract even though the requirements for termination have been fulfilled. Similarly, the question can also be asked in relation to the price reduction under the Consumer Sales Directive as this also affords the seller a second chance to perform. Both Directives use different instruments in order to protect similar interests. The Consumer Rights Directive requires an additional period that serves to allow performance even though the original time frame has passed. However, it is not appropriate in this context to refer to a ‘second chance’ or a ‘right to cure’ because no performance has been tendered. The cure of the performance itself is thus unnecessary even though the injuring party continues to remain responsible for resolving the non-performance. In comparison, the Consumer Sales Directive does not require the consumer to first grant an ‘additional period’ but rather stipulates that the consumer has to first require repair or replacement,55 which have to be provided within a reasonable time. In a technical sense, one could rather refer to the ‘chance’ to cure rather than a ‘right’. Whether the seller receives such a possibility to perform in conformity

53 Bianca/Grundmann EU Sales Directive/Bianca art 3 paras 40–53. 54 Zoll, ‘The Remedies for Non-Performance in the Proposed Consumer Rights Directive and the Europeanisation of Private Law’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 285–286. 55 Bianca/Grundmann EU Sales Directive/Bianca art 3 para 54.

254

III. Right to Cure

with the contract depends on the consumer who, in principle, can choose between both forms of rectification. The seller is therefore not entitled to cure, but the consumer can neither terminate the contract nor reduce the price if it has not first demanded repair or replacement. However, this is subject to the exceptions in art 3(5) Consumer Sales Directive. The right to remedy the defect is considered here as an important part in the balance of interests between consumers and businesses because the return of the good often leads to a relatively high loss in value.56 These goods can often not be sold on the market as new, therefore it is very much in the seller's interest to maintain the contract and to remedy the nonconformity. The proposals for a Digital Content Directive and an Online Sales Directive 33 each provide a right to receive a cure of the defect as a remedy for the consumer. The model in the latter proposal strongly resembles the approach in the Consumer Sales Directive. Article 9(3) Online Sales Directive Consumer's remedies for the lack of conformity with the contract 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.

The distance between the parties to a distance contract can represent a consid- 34 erable obstacle for the consumer when demanding cure. In light of such circumstances it can be justifiable to include additional rules for the right to cure in distance contracts. The proposed Online Sales Directive does not, however, make such a distinction in order to take account of the different interests in a distance sales contract. Such a criticism is especially relevant in relation to the proposed Digital Con- 35 tent Directive. Article 12(3) Digital Content Directive Remedies for the lack of conformity with the contract 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

56 See, for example, Mak (n 35) 64 et seq; Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ (2012) ZEuP 797, 809–810.

255

Chapter 6 Consequences of Non-performance (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. (…)

The inclusion of a right to cure is often not sensible for digital content. Where standard software is concerned, the business often does not suffer any significant additional costs when the contract is ended immediately. The restitution follows electronically – the subject matter of the contract is not compromised and there are no return costs. It would be desirable, at least with standard software, to abstain entirely from the requirement of cure and therefore avoiding an interpretation of the concept of disproportionality that allows such a day-to-day contract to be ended immediately. 2. DCFR 36

The right to cure in the DCFR restricts all remedies except the right to withhold performance (art III.–3:202):57 Article III.–3:202 DCFR Cure by the 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 nonconformity. (…)

3. CESL 37

The methods to balance the parties' interests may be considered an established part of the acquis communautaire at the time the DCFR was drafted. However, the CESL distinguishes between the type of buyer: a seller's right to cure is not proposed for consumer contracts.58 The consumer could therefore exercise its rights in the event of non-performance irrespective of whether the seller is willing to cure (art 106(3)(a) CESL-D).59 A right to cure is, however, granted in B– B contracts:60

57 See DCFR Full Edition 835–838; Zoll, ‘Entwurf für einen Gemeinsamen Referenzrahmen’ in Gebauer/Teichmann (eds), Europäisches Privat- und Unternehmensrecht (Nomos 2016) para 108. 58 MacQueen/Dauner-Lieb/Tettinger, ‘Specific Performance and Right to Cure’ in Dannemann/ Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 643; Zoll, ‘Das Dienstleistungsrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in SchulteNölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 284. 59 Schmidt-Kessel CESL/Zöchling-Jud art 106 CESL-D para 6; Schulze CESL/Zoll art 106 CESL-D para 3. 60 See Feltkamp/Vanbossele, ‘Remedies under the optional Common European Sales Law’ in Claeys/Feltkamp, The Draft Common European Sales Law: Towards an Alternative Sales

256

IV. Remedies for the Injured Party Article 106 CESL-D Overview of buyer's remedies (…) (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 (…)

The decision not to include the right to cure in a consumer contract under the CESL attracted considerable criticism.61 It has been viewed as too great a privilege for the consumer and inappropriately harsh on the business in instances in which the goods have been tailored to the consumer's individual requirements. The termination of the contract by the consumer would therefore result in a total loss for the seller as he can no longer use or resell the returned goods. However, the extensive privilege for the consumer stems from the view that the prospect of communicating about non-conformity and cure with a business based abroad can deter the consumer from concluding a cross-border contract. As an exception, the CESL proposed a right to cure in consumer contracts for 38 related services. However, the consumer's remedies are not subject to a right to cure by the service provider in the event of incorrect installation. As such a circumstance is more closely linked to a sales contract there was the need to avoid the introduction of a right to cure ‘through the backdoor’. Article 155 CESL-D Remedies of the customer (…) (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.

IV. Remedies for the Injured Party 1. Performance a) Overview

aa) The injured party can claim performance as a remedy should the counter- 39 party fail to perform a contractual obligation. This particular concept of performance as a remedy was outlined for European contract law by the PECL.62 Its adoption into the acquis communautaire occurred primarily via the Consumer Law? (Intersentia 2013) 222–224; Schmidt-Kessel/Silkens (n 20) 122; Schulze CESL/Zoll art 106 CESL-D para 3. 61 Wagner (n 56) 825; Zoll (n 58) 284.

257

Chapter 6 Consequences of Non-performance

Sales Directive. The CESL proposed an extension of the concept for sales (arts 106, 131 CESL-D) and for related services contracts (arts 155, 157 CESLD). Article 3 Consumer Sales Directive Rights of the consumer (…) (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. (…) Article 106(1)(a) CESL-D Overview of buyer's remedies In the case of non-performance of an obligation by the seller, the buyer may do any of the following: – require performance, which includes specific performance, repair or replacement of the goods or digital content, under Section 3 of this Chapter; (…)

The Consumer Sales Directive is restricted to the provision of a right to performance (repair or replacement) for one aspect of non-performance, namely defective performance due to the delivery of non-conforming goods. It therefore recognizes performance as an enforceable right and the requirement of performance as a remedy for the injured party. However, the Directive does not determine whether a claim to performance can arise prior to the delivery of non-conforming goods (and accordingly – using the terminology of several national legal systems – whether to distinguish between primary and secondary claims to performance under the contract). Such a limitation allowed the integration of its provisions on performance into the common law legal systems, which generally do not contain a primary claim to performance, and into the civil law legal systems with primary claims to performance. 41 bb) In contrast, the CESL's intention to be a (as far as possible) complete sales law and an independent set of rules thus required a decision on this question. The proposed was therefore to take the middle path between the legal traditions of the EU Member States:63 in comparison to the common law it does not exclude a claim to performance. However, in comparison to most continental European legal systems, it does not grant performance as a primary contractual right but only as remedy in the event of non-performance.64 In this respect, the 40

62 Arts 9:101 and 9:102 PECL provide the right to performance as the first remedy for the debtor in the event of non-performance. The remedy is divided into monetary and non-monetary obligations; the same approach has been adopted by arts III.–3:301 and 3:302 DCFR albeit with some differences. 63 See Chapter 5, para 1.

258

IV. Remedies for the Injured Party

CESL does not contrast the contractual duty to perform with a congeneric ‘primary’ right to demand performance. It rather first recognizes an enforceable right to performance as one of several possible ‘remedies’ arising with non-performance. Using this approach it integrates performance into its catalogue of remedies and thus includes subsequent performance as a particular form of performance. This is clearly expressed in art 106(1) CESL-D: point (a) places performance at the top of the list of ‘remedies’ for the buyer and therefore makes clear that performance in this context ‘includes […] repair or replacement of the goods or digital content’. In this respect, the CESL also differs from the CISG, which generally accepts the performance claim under the continental European approach and only takes common law approach into account in art 28 CISG.65 According to art 106(1) CESL-D, the principal requirement for the claim to 42 performance as a remedy is the non-performance of an obligation. The CESL therefore adopted an overarching concept that is not present in the EU consumer law directives: whereas subsequent performance under art 3(2) Consumer Sales Directive is merely linked to the non-conformity of the good,66 art 18(2) Consumer Rights Directive contains a rule on non-delivery as a specific type of nonperformance.67 In comparison, the CESL's broad notion of non-performance encompassed each type of defective performance as well as non-performance.68 This general notion of non-performance is used for the seller's and buyer's obligations as well as for the service provider's and its customer's obligations (arts 106, 131, 155, 157 CESL-D). It defines this notion in art 87(1) CESL-D, which applies to all remedies in sales contracts and, as according to art 147(1) CESL-D, to contracts for related services.69

64 Lorenz (n 20) 757; Weller, ‘Die Struktur des Erfüllungsanspruchs im BGB; Common Law und DCFR – ein kritischer Vergleich’ (2008) JZ 764–765; Zoll (n 58) 279–280; Zoll, ‘The Influence on the Chosen Structure of the Draft for the Optional Instrument on the Functioning of the System of Remedies’ in Schulze/Stuyck (eds), Towards a European Contract Law (Sellier 2011) 151–52; Schulze CESL/Zoll art 106 CESL-D paras 1–2. 65 See Kröll/Mistelis/Perales Viscasillas (eds), UN Convention on Contracts for the International Sale of Goods (CISG) (C.H. Beck 2011) art 28 paras 1–2; Schlechtriem/Butler, UN Law on International Sales (Springer 2009) para 103; Schlechtriem/Schroeter, Internationales UNKaufrecht (5th edn, Mohr Siebeck 2013) para 338. 66 For more detail see Bianca/Grundmann EU Sales Directive/Grundmann art 2 paras 1–7; Magnus, ‘Consumer Sales and Associated Guarantees’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 249–251; Schulte-Nölke/TwiggFlenser/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 420; Schwartze, ‘Sachprobleme für die Umsetzung aus Genese, Inhalt und Dogmatik’ in Schermaier (ed), Verbraucherkauf in Europa (Sellier 2003) 135–138. 67 The Package Travel also contains the possibility of a claim in the event of non-performance, see art 4(6) Package Travel Directive. 68 Schmidt-Kessel, ‘Der Torso des allgemeinen Leistungsstörungsrechts, Art. 87–90 GEKR’ in Schmidt-Kessel (n 45) 292; Schopper (n 43) 108–109; Schulze CESL/Zoll art 87 CESL-D para 3. 69 See Chapter 5, para 18.

259

Chapter 6 Consequences of Non-performance

The CESL's ‘third way’ between common law and civil law indeed allows the right to performance only as a remedy, yet it does so in a comprehensive manner which, in principle, includes all types of non-performance. It does not view the remedy merely as an instrument of consumer protection (as in the Consumer Sales Directive) but includes B–B contracts in this concept. However, the right does not adopt a uniform approach for all questions in B–C and B–B contracts: in B–B contracts only the non-performing party has a right to cure70 and the injured party is subject to examination and notification duties concerning non-conforming performance (art 106(2), (3) CESL-D). Furthermore, the consumer only has the right to choose between repair or replacement to remedy the non-conformity (art 111 CESL-D). 44 cc) In contrast, the proposed Digital Content Directive refrains from an overarching rule on non-performance. On the one hand, it places the supplier under the duty to supply the digital content, holds him liable for ‘any failure to supply the digital content’ (arts 5, 10(a)), and affords the consumer with an immediate right to terminate for a failure to supply (art 11). On the other hand, it determines the requirements for conformity, the supplier's liability for non-conformity, and the catalogue of remedies (arts 6, 10(b) and (c), 12). This double-headed approach clearly reflects the differences between the failure to tender performance and defective performance. However, where defective performance is concerned, the proposed Digital Content Directive follows the approach in the Consumer Sales Directive and in the CESL not only in relation to the concept of conformity. Moreover, its remedies are based on the Consumer Sales Directive and focuses on the importance of bringing the performance into conformity with the contract in stipulating subsequent performance as the primary remedy (art 12(1) Digital Content Directive). In comparison to the Consumer Sales Directive, the Digital Content Directive does not distinguish between repair and replacement as modes of bringing the digital content into conformity with the content. Accordingly, it takes account of the differences between digital content and goods. Moreover, it does not outline any alternatives or provide examples tailored to subsequent performance in a contract for the supply of digital content. The proposed Directive is satisfied with simply outlining the general entitlement for the consumer to have the digital content brought into conformity with the contract free of charge. 43

Article 12 Digital Content Directive 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:

70 See above, paras 32–37.

260

IV. Remedies for the Injured Party (a) (b)

the value the digital content would have if it were in conformity with the contract; and 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. (…)

b) Requirements and exclusion

aa) In the acquis communautaire, art 3(2) and (3) Consumer Sales Directive 45 form the central method of linking the claim to (subsequent) performance to the conformity requirements. Most recently, art 12(1) Digital Content Directive follows this approach in determining (with almost identical language as the Consumer Sales Directive) that the consumer is entitled to have the digital content brought into conformity free of charge. In so doing it refers to the non-conformity of the digital content rather than the consumer good. By comparison, the broader concept of non-performance in art 87 CESL 46 formed the criterion for the claim to performance. If the requirements for nonperformance are satisfied, the innocent party can, in principle, demand performance from the other party in accordance with arts 110 et seq., 132, 155(1)(a), 157(1)(a) CESL-D if none of the restrictions mentioned below apply. Moreover, the provisions on cure are also to be considered if the contract is not a consumer contract.71 Article 110 CESL-D 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.

bb) As also applies to the other remedies, the claim to performance can be ex- 47 cluded if the injured party has caused the non-performance (see art 106(5) CESL-D). A specific form of this principle is present in acquis communautaire in art 2(3) Consumer Sales Directive: a non-conformity in the manufacture of goods is excluded if its origins are in the materials supplied by the consumer. The consumer's right to subsequent performance, price reduction or termination (art 3(1) Consumer Sales Directive) does not arise in such situation. A similar approach can be seen, for example, in art 14(3)(a) Package Travel Directive in relation to the exclusion of compensation. Art. 106(5) CESL-D generalized this 71 Arts 109, 155(2) and (3) CESL-D; see above, para 20.

261

Chapter 6 Consequences of Non-performance

approach in the acquis in stipulating that the buyer cannot refer to the remedies in art 106 to the extent that he caused the seller's non-performance. In comparison to the Consumer Sales Directive, the CESL approach proposed to exclude the remedies rather than provide that the non-performance / non-conformity requirement is not satisfied.72 Similarly, the CESL denied the innocent party the right to subsequent performance (and damages, but not the other remedies) if the non-performance is excused under art 88 CESL-D (art 104(4) CESL-D).73 The exclusion of the claim to performance due to excused non-performance could, however, result in a lower level of consumer protection than in the Consumer Sales Directive as this does not include excused non-performance as a means of avoiding subsequent performance. 48 cc) Further limitations on the claim to performance can be seen in rules on impossibility corresponding to the doctrine impossibilium nulla obligatio est74, illegality (to the extent not falling within the category of ‘legal’ impossibility), and disproportionality. In this context, art 3(3) Consumer Sales Directive outlines the basic model for European contract law. According to this provision, the consumer can require the seller to repair or replace the non-conforming good unless it is ‘impossible or disproportionate’. Whether the manner of remedying the non-conformity is disproportionate requires consideration of whether the costs for the seller would, when taking into account various criteria, be unreasonable in comparison to the alternative remedy. Article 3(3) Consumer Sales Directive Rights of the consumer 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.

49

The CESL adopted the concepts of impossibility and disproportionality from existing EU law, but attempted further distinctions in art 110(3) and 111. Art 110(3)(a) CESL-D provides impossibility and illegality as general limitations to the claim to performance. It includes impossibility at the time of the conclusion of contract (initial impossibility) as well as afterwards (subsequent impossibility). However, it appears from the wording that illegality is only relevant if it occurs after the conclusion of the contract (‘has become unlawful’).75 The limita72 Zöchling-Jud (n 45) 330. 73 See Chapter 5, para 35. 74 Digests 50, 17, 185.

262

IV. Remedies for the Injured Party

tion to post-contractual illegality is understandable: the illegality at the moment of conclusion would render the application of the CESL highly doubtful as the ineffectiveness of the contract would also encompass the agreement on the CESL.76 The exclusion of the claim to performance concerns each of these contractual obligations that cannot be performed due to impossibility or illegality. The contract as a whole may not be affected and therefore the other obligations – perhaps with necessary changes – are to be performed.77 Where disproportionality is concerned, art 110(3)(b) CESL-D determines the loss of a claim to performance if the performance (including subsequent performance) would be disproportionally burdensome or expensive in relation to the advantage for the injured party. The extent of the performance is thus not relative to the other remedies but only to the advantage the buyer would gain.78 In contrast to art 110 CESL-D, art 111 CESL-D regulates the exclusion of the selected form of subsequent performance in consumer contracts. This so-called ‘relative disproportionality’ restricts the consumer's choice between repair and replacement; it is based on the model in art 3(3) Consumer Sales Directive. However, it is questionable whether the notion of ‘absolute disproportionality’ of performance (as can be seen in art 111(3)(b) CESL-D) is also applicable in consumer sales contracts.79 A two stage test would therefore be necessary in the event of its application to consumer sales contracts under the CESL: firstly, the proportionality of the chosen form of performance (i.e. repair or replacement); secondly, the proportionality of performance in relation to the benefits for the buyer. dd) Impossibility and disproportionality are also limitations to the claim to 50 (subsequent) performance in a services contracts, as is shown by, for example, art 3(3) Package Travel Directive: the organizer does not have to remedy the lack of conformity if it is impossible or entails disproportionate costs. In the latter instance, consideration is to be given to the extent of the lack of conformity and the value of the travel services affected. The proposed Digital Content Directive also provides impossibility, disproportionality, as well as illegality as limitations on remedying, free of charge, the non-conforming digital content. In contrast to the Package Travel Directive, the proposed Digital Content Directive links the disproportionality to the unreasonableness of costs imposed on the supplier, but stipulates that the significance of the non-conformity in relation to the intended purpose as well as the value of the digital content are factors which are to be considered in determining whether costs are unreasonable (art 12(1) Digital Content Directive). In this respect, it can be seen that impossibility and dis75 Cf art III.–3:302(3)(a) DCFR. 76 On the possibility of an analogous application of art 110(3)(a) CESL-D see Schulze CESL/ Zoll art 110 CESL-D para 14; for further criticism see also Lorenz (n 20) 759–760. 77 Schulze CESL/Zoll art 110 CESL-D paras 10, 16. 78 Faust, ‘Das Kaufrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (n 58) 257. 79 For the Consumer Sales Directive see Joined Cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396; on the CESL see Lorenz (n 20) 763.

263

Chapter 6 Consequences of Non-performance

proportionality are relevant limitations in European contract law not only for sales contracts but also for service contracts. Accordingly, the Acquis Principles propose a general rule, which, in addition, takes into account the particular nature of personal services. Article 8:202(3) ACQP Non-monetary obligations 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.

c) Subsequent performance

aa) The buyer is entitled to a remedy free of charge if the non-performance comprises a non-conformity. This principle can be seen in current EU law, in particular in art 3(2) and (4) Consumer Sales Directive (for consumer contracts) and art 13(3) and (5) Package Travel Directive. The Acquis Principles view the approach as a specific form of the innocent party's claim to performance: subsequent performance includes the remedying free of charge of a performance which is not in conformity with the terms regulating the contract (art 8:202(2) ACQP; similarly art III.–3:302(2) DCFR). Accordingly, art 110(2) CESL-D provides that performance ‘includes the remedying free of charge of a performance which is not in conformity with the contract.’ The extent of ‘free of charge’ has been the subject of ECJ case law on the Consumer Sales Directive;80 it covers the costs that are necessary in order to remedy the defect (e.g. delivery costs but also removal and installation costs). 52 The claim to a remedy ‘free of charge’ also includes the exclusion of the buyer's obligation to compensate for the use of the non-conforming goods prior to delivery of the replacement. Such exclusion was initially doubtful under the Consumer Sales Directive because its recitals allowed Member States to permit a reduction in the amount reimbursed to the consumer in order to take account of the use of the goods since delivery.81 However, the ECJ decision in Quelle clarified that the payment of such compensation for use prior to delivery of the replacement is excluded: 51

Case C–404/06 Quelle ECLI:EU:C:2008:231 Article 3 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 is to be interpreted as precluding national legislation under which a seller who has sold consumer goods which are not in conformity may require the consumer to pay compensation for the use of those defective goods until their replacement with new goods.

80 Weber/Putz (n 79). 81 Recital 15 Consumer Sales Directive.

264

IV. Remedies for the Injured Party

The ECJ's decision in Weber/Putz determined that the costs of removing a de- 53 fective good and installing a conforming good also fall within the scope of ‘free of charge’ under art 3 Consumer Sales Directive. As the Court held, even though fault-based claims to recovery of these costs did not come into consideration as neither party to the contract was at fault it is nevertheless justified to bear the removal and installation costs as such costs would have been avoided if the seller had performed correctly.82 The CESL does not contain such a clarification – art 112(1) CESL-D indeed stipulates that the seller not only has a right to take back the replaced item but that it has an obligation to do so at its own expense, but it is questionable whether this includes installation and removal costs (following the earlier ECJ decision in Weber/Putz).83 Art 112(2) CESL-D does however exclude the liability for the buyer to compensate for the use of the good prior to its replacement (thereby following the ECJ decision in Quelle).84 bb) The claim to performance under the Consumer Sales Directive is not sub- 54 ject to an express notification duty.85 The Directive rather affords the Member States with the option to impose a duty on the consumer to inform the seller of the non-conformity within two months of the date the non-conformity was detected (art 5(2) Consumer Sales Directive). Several Member States have refrained from implementing this option (e.g. France and United Kingdom) whereas in this respect others (e.g. Italy and Spain) have a lower standard of consumer protection by imposing a notification duty on the consumer. The proposed CESL selects the consumer-friendly approach by not imposing examination or notification duties on the consumer (art 106(3)(b) CESL-D). In contrast, however, the proposed CESL does follow the general approach in arts 38 and 39 CISG86 by imposing examination and notification duties on the buyer in a B–B contract.87 The notification according to art 122 CESL-D should allow the seller to prepare for possible guarantee claims and, if necessary, offer to cure the non-conformity (cf art 109 CESL-D).88

82 Weber/Putz (n 79) para 57. See Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 181–182. 83 For further detail see Kroll-Ludwigs, ‘Ein optionales Vertragsrecht für Europa’ (2012) GPR 181, 185–186; Lorenz (n 20) 764–765; Weller, ‘Die „Abhilfen“ des Käufers im Kommissionsvorschlag für ein Gemeinsames Europäisches Kaufrecht: Neujustierung des Nacherfüllungsanspruchs im Rechtsvergleich’ (2012) GPR 173, 179. 84 These provisions are only mandatory in consumer contracts, see art 108 CESL-D. 85 Some national legal systems (such as Germany) do not categorize the examination and notification as obligations or duties as the other party has no remedy for non-performance of these acts. 86 On the individual differences see Magnus, ‘CISG vs. CESL’ in Magnus (ed), CISG vs. Regional Sales Law Unification (Sellier 2012) 118–119. 87 Janssen, ‘Die Untersuchungs- und Rügepflicht im deutschen, niederländischen und internationalen Kaufrecht’ (Nomos 2001); Schlechtriem/Schwenzer CISG/Schwenzer art 38 CISG para 6. 88 For more detail on the functions of the examination and notification obligations see Faust (n 78) 270–271; Wiese, ‘Prüfungs- und Mitteilungspflichten nach Artt. 121, 122 GEKR’ in Schmidt-Kessel (n 45) 401.

265

Chapter 6 Consequences of Non-performance 55

The examination and notification requirements in B–B contracts under the proposed CESL regime represent two different legal acts and are therefore always to be considered separately. Accordingly, the proposed CESL places the relevant requirements, time periods, exceptions, and consequences of these respective acts in separate provisions (art 121, 122 CESL-D). Art 121(1) CESL-D merely requires that the examination is to take place within a short period as is reasonable under the circumstances and – in contrast to the CISG – within a maximum period of 14 days. Relevant factors for determining the length of the examination period can include, for example, the type of good or the method of examination. Consequently, a much shorter period is to be calculated for rapidly deteriorating goods than for complex machinery.89 The maximum period generally begins with performance (e.g. delivery),90 though if the contract includes carriage of the goods the period will begin on their arrival at their destination (art 121(2) CESL-D). However, this maximum period appears to be especially problematic in relation to goods requiring complex examination (e.g. if expert analysis is necessary).91 Art 122(1) CESL-D outlines the requirements concerning notification of the non-conformity. In consideration of art 39(1) CISG the content of the notification must thus offer a sufficient basis under the circumstances in order to allow the seller to consider his reaction.92 The time period begins when the goods are supplied or when the buyer discovers or could be expected to discover the lack of conformity, whichever is later.93 The time period is subject to the requirement of ‘reasonableness’; accordingly it is necessary to consider all circumstances, such as the type of good, commercial practices etc.94 Nevertheless, art 122(2) CESL-D has a preclusionary effect in order to protect the seller against claims over an indefinite period of time: the buyer will lose the right to rely on the lack of non-conformity if it does not notify the seller of the non-conformity within two years after the goods have been handed over.95 The statutory guarantee rights are excluded if the buyer does not perform the examination and notification requirements within the time limit. However, such exclusion merely serves to protect the seller who has contracted in good faith. Art 122(6) CESL-D therefore provides that the seller cannot rely on the failure

89 Schlechtriem/Schwenzer CISG/Schwenzer art 38 CISG para 16. 90 However, uncertainty remains concerning the beginning of the time period for early performance, Schmidt-Kessel CESL/Wiese arts 121, 122 CESL-D para 14. 91 See also Schmidt-Kessel CESL/Wiese arts 121, 122 CESL-D paras 20–23. 92 Magnus in Staudinger CISG (de Gruyter 2005) art 39 CISG para 21. 93 No notification obligation will arise for the buyer to notify the seller that not all the goods have been delivered (in delivery by installments) if the buyer has reason to believe that the remaining goods will be delivered (art 122(5) CESL-D). 94 Similarly in the CISG, see Schlechtriem/Schwenzer CISG/Schwenzer art 38 CISG para 16. 95 According to art 122(3) CESL-D the two year period under art 122(2) CESL-D will not apply in relation to an agreement between the parties on the length of time the goods are to remain fit for purpose (e.g. a machine is to be used for five years). Art 122(4) CESL-D provides a second exception in relation to third party rights and claims under art 102 CESL-D.

266

IV. Remedies for the Injured Party

to notify if it is, or could be expected to be aware of the facts relating to the nonconformity and did not disclose these to the buyer.96 cc) Repair or replacement come into consideration as the remedy for non-con- 56 formity in sales contracts. The terms ‘repair’ and ‘replacement’ are used in art 3(2) Consumer Sales Directive correspond and also adopted by art 111(1) CESL-D.97 Art 3(3) Consumer Sales Directive provides the consumer with the choice between these two remedies. In this respect, the goal of consumer protection overrides economic efficiency, namely that the seller will often be in the best position to choose the most appropriate remedy.98 However, art 3(3) Consumer Sales Directive uses impossibility and disproportionality as limitations on these two forms of remedy. Whereas the provision does not define impossibility it does contain three specific criteria in relation to the disproportionality of one remedy vis-à-vis the other: 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.99 The proposed CESL generally adopts for B–C contracts the approach under the Consumer Sales Directives, however in B–B contracts the choice of remedy lies with the seller, as can be ascertained argumentum e contrario from art 111 CESL-D. The consumer's right to choose between repair and replacement is not absolute as art 111(1) CESL-D allows for limitations due to illegality, impossibility, and disproportionality (this is similar to art 110(3) CESL-D, but only in relation to the chosen remedy and not to performance as a whole).100 The answers to the questions of the legal nature of the right to choose between repair and replacement, and the consequences concerning a transition between these two remedies will require consideration of the aim of consumer protection in the Consumer Sales Directive and the CESL. It therefore appears appropriate to allow a consumer to switch between these remedies and to retract the decision as long as the seller has not commenced with performance of the original remedy or has not yet taken any particular measures in order to do so.101 dd) The Consumer Sales Directive contains a hierarchy of remedies that pri- 57 oritizes repair or replacement over price reduction and termination.102 In contrast, the proposed CESL provides a hierarchy of remedies only for B–B contracts thereby allowing a consumer in a B–C contract to choose from all remedies available under the proposed CESL.103 Moreover, the consumer does not 96 For further detail on the problems with this provision see Schmidt-Kessel CESL/Wiese arts 121, 122 CESL-D paras 39–44. 97 On the definitions of these concepts see art 1(2)(f) Consumer Sales Directive; Bianca/ Grundmann EU Sales Directive/Bianca art 3 paras 46 et seq.; Kuba, ‘Nacherfüllung’ in Basedow et al. (eds), Handwörterbuch des Europäischen Privatrechts, vol II (Mohr Siebeck 2009) 1090–1091; Magnus (n 66) 252–253. 98 Schulze CESL/Zoll art 111 CESL-D paras 4, 5; see also Faust (n 78) 258–259. 99 See above, para 48. 100 See above, para 49. 101 See Schulze CESL/Zoll art 111 CESL-D paras 4–5. 102 See above, para 65.

267

Chapter 6 Consequences of Non-performance

need to set an additional period for performance as a pre-condition for termination of the contract. This consumer-friendly approach takes into account the minimum harmonization underlying the Consumer Sales Directive and the right in some Member States for the consumer to immediately terminate the contract without first seeking repair or replacement.104 Art 3(3) Consumer Sales Directive and art 111(2) CESL-D each provide that the seller is to complete the repair or replacement within a reasonable time, failure to do so will, in principle, allow the consumer to seek a reduction of the price or terminate the contract. Requesting either repair or replacement therefore prevents other remedies for a limited time105; the exercise of other remedies will therefore have no effect during this time.106 2. Withholding performance a) Overview 58

Alongside requiring performance, the drafts for European contract law also provide the injured party with the right to withhold performance.107 Such a right has been outlined for European contract law by art 9:201 PECL and art III.– 3:401 DCFR,108 although it is not included in the Consumer Sales Directive. The CESL's consistent separation between the remedies available to the buyer and to the seller has resulted in a mirror image of this right for each of the respective parties (art 113, 133 CESL-D).109 The right is limited to obligations that exist in a synallagmatic relationship (i.e. the interdependency between performance and corresponding performance due to their reciprocal relationship).110 The right to withhold performance in B–B contracts is the only remedy that is not restricted 103 See above, paras 37–38. 104 For example the ‘right to reject’ in the United Kingdom. The right to reject in consumer contracts for goods is now regulated by arts 20 and 22 Consumer Rights Act 2015. See Watson, Das Right to Reject im Consumer Rights Act 2015 (forthcoming). 105 Art 111(2) CESL-D proposes a maximum limit of 30-days. For criticism of the broad scope of this provision and favouring a restrictive interpretation concerning reimbursement of damages for delay Zöchling-Jud (n 45) 334. 106 Although the consumer cannot exercise other remedies after requesting subsequent performance, she is not prevented from withholding its own performance until repair or replacement has been completed (art 111(2) CESL-D). However, the effect of notice of termination given during this time will presumably only be suspended due to the corresponding application of art 109(3) CESL-D; therefore termination will take effect after the time limit has expired and will not require any further actions, Schulze CESL/Zoll art 111 CESL-D para 19. 107 Categorizing the right to withhold performance as a remedy does not accord with, for example, the German approach. According to § 273 BGB the right to withhold performance is designed as a defence. In relation to the CESL, the right to withhold performance could be placed under ‘excused non-performance’. 108 Art 58 CISG is similar in function. 109 The European Parliament has proposed a comprehensive right to withhold performance for consumer sales contracts, see European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159) amendment 200. 110 Schulze CESL/Zoll art 113 CESL-D para 2.

268

IV. Remedies for the Injured Party

by the right to cure.111 Moreover, according to art 106(6) CESL-D, the right can generally be exercised in conjunction with other rights. The link between withholding performance and the performance by the other party arises from the wording of art 113(1) CESL-D, thus the claim to subsequent performance can be implied. Nevertheless, the right to withhold performance can also be exercised together with termination or price reduction. b) Requirements

The right to withhold performance under the CESL has been conceived for 59 two different situations: on the one hand it is a right for the injured party who is to perform at the same time or after the other party (arts 113(1), 133(1) CESLD); on the other hand it is a right for the injured party who is to perform before the other party (arts 113(2), 133(2) CESL-D). In the former case, the other party has not performed its contractual duty. The right to withhold performance thus releases the injured party from advance performance (contrary to the contract) and counteracts the risk that the other party can evade its obligation without consequence. In contrast, the right to withhold performance in the latter case is founded on the basis of the uncertainty of future performance by the other party. In order to withhold performance the injured party must have an – objective112 – reason for believing that the other party will not perform at the time the performance is due. The right to withhold performance therefore ends when this belief no longer exists; the effect of suspending performance therefore also ends. Furthermore, under art 133(2) CESL-D the buyer can avert the exercise of this right if it gives adequate assurance of due performance or provides adequate security.113 c) Consequence

According to the CESL, the direct consequence of withholding performance 60 is to entitle the injured party not to perform its own contractual obligations until the other party has performed in conformity with the contract (arts 113(1), 133(1) CESL-D). Moreover, it has the effect of preventing the other party from exercising a remedy due to non-performance (in particular, the other party cannot terminate the contract due to non-performance). Withholding performance also impacts on the transfer of risk: according to art 144(1) CESL-D the risk is not passed to the buyer if it does not perform its obligation to take delivery (art 129 CESL-D) because it has exercised its right to withhold performance.

111 Art 106(2)(a) CESL-D. 112 Schmidt-Kessel CESL/Fehrenbach art 133 CESL-D para 9. 113 On the problems concerning the distinction between the two see Schmidt-Kessel CESL/ Fehrenbach art 133 CESL-D para 10; Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702) 814–815. A corresponding right of aversion is not foreseen for the seller under art 113(2) CESL-D; SchmidtKessel CESL/Keiler art 113 CESL-D para 1.

269

Chapter 6 Consequences of Non-performance

Consequently, the buyer is not liable for loss or damage to the goods as long as it is entitled to refuse to take delivery. 3. Termination a) Overview

The sets of rules on European contract law contain different approaches and terminology in relation to the right to terminate a contract due to non-performance. For instance, arts 9:301 et seq. PECL use the term ‘termination’ (whereas art 49 CISG refers to ‘avoidance’); art 3 Consumer Sales Directive affords a right to ‘rescind’, whereas art 8:301 ACQP and art 18 Consumer Rights Directive refer to ‘termination’. The CESL uses ‘termination’114 and stipulates that the parties can, subject to more detailed provisions, terminate the contract if the other party has not performed an obligation.115 62 The right to terminate affords the injured party with a unilateral right to end the performance obligations of both parties. This far-reaching consequence justifies the remedy's extensive requirements in comparison to the right to request performance and the right to withhold performance.116 In essence, two approaches have developed in European contract law in order to determine the additional requirements of the unilateral right to terminate the contract for non-performance.117 One approach binds the remedy to the requirement of fundamental non-performance (including subsequent non-performance); the other requires an additional period for performance and in principle only allows termination after this additional period has expired. 63 The notion of fundamental non-performance as ground for unilateral termination first found footing in European contract law through the PECL. Art 9:301 PECL models itself on art 49(1)(a) CISG that allows the buyer to ‘avoid’ the contract if the non-performance amounts to a fundamental breach of contract. Art III.–3:502(1) DCFR also follows this approach and is underpinned by the concept that termination is justified if the other party has fundamentally deviated from the contractual obligations and thus greatly disappoints the injured party's expectations. However, circumstances in which the non-performance does not 61

114 This is the heading used for Chapter 11, Section 5 (arts 114 et seq. CESL-D) and Chapter 13, Section 4 (art 134 et seq. CESL-D); see arts 106(1)(c), 155, 157 CESL-D. 115 See (1)(c) to arts 106, 131, 155, 157 CESL-D. The CESL uses the concept of termination in other contexts and therefore uses it both in relation to ex tunc and ex nunc termination, for criticism see Wendehorst, ‘Rücktritt („Beendigung“) im Entwurf für ein Gemeinsames Europäisches Kaufrecht’ in Schmidt-Kessel (n 45) 371–372. 116 See below, paras 71–72, for the differences concerning consumer contracts. 117 See Kiene, Vertragsaufhebung und Rücktritt des Käufers im UN-Kaufrecht und BGB (Nomos 2010) 68; Schlechtriem/Schroeter (n 65) paras 465–466; Schwenzer, ‘The Danger of Domestic Pre-Conceived Views with Respect to the Uniform Interpretation of the CISG: the Question of Avoidance in the Case of Non-Conforming Goods and Documents’ (2005) VUWLR 795, 799–800.

270

IV. Remedies for the Injured Party

have such an extensive impact on the legitimate expectations the injured party may have due to the content of the contract are not covered.118 In contrast, the Consumer Sales Directive has not adopted the notion of fun- 64 damental non-performance but rather introduced the additional period model into the acquis communautaire (see art 3(5) Consumer Sales Directive119). Under this approach the injured party has the right to terminate the contract only after the additional period has expired and performance has not been tendered.120 In other words, the party in breach has not used its ‘second chance’. Art 18(2) Consumer Rights Directive follows a similar approach: in the event of late delivery the consumer can terminate the contract if it has set an additional period of time appropriate to the circumstances and the seller still has not delivered. The substantial nature of the non-performance of contractual duties is not of most significance for this approach as, in principle, every non-performance will give rise to the possibility to terminate if there is no performance within the additional time. However, an exception does exist in relation to ‘minor’ non-conformities (art 3(6) Consumer Sales Directive), a much lower standard than ‘fundamental non-performance’.121 Nonetheless, it is unclear whether the ‘minor’ standard is equivalent to the ‘insignificant’ standard in art 114(2) CESL-D or whether it represents a stricter requirement.122 Moreover, it is problematic that variations in protection across the Member States arise due to the influence of national perceptions in determining the extent of the non-conformity.123 The hierarchical approach in the Consumer Sales Directive provides that the 65 right to subsequent performance precedes the right to terminate the contract. The transition to termination is therefore prevented during the reasonable time for performance and in such instances only becomes possible once this period has expired. Superiority in the hierarchy is therefore afforded to the performance of contractual obligations through subsequent performance, whereas termination takes second place. 118 See Huber, ‘Modellregeln für das Europäische Kaufrecht’ (2008) ZEuP 709, 726–727; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 409; Schulze CESL/Zoll art 87 CESL-D paras 33–37. 119 According to this provision the right to terminate also exists when the consumer has no claim to subsequent performance (under the applicable criteria) or when the seller has not provided the remedy without causing significant inconvenience to the consumer. 120 See §§ 437 No. 2, 323(1) BGB. A much discussed point in German law is whether the requirement for the consumer to set an additional period for performance is in conformity with the Consumer Sales Directive. See Leible, ‘Kaufvertrag’ in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010), para 96; MüKo BGB/Westermann (2016) § 437 para 9a. 121 Bianca/Grundmann EU Sales Directive/Bianca art 3 paras 41–45; Schwartze, ‘Das künftige Sachmängelgewährleistungsrecht’ (2000) ZEuP 544, 567; Schmidt-Kessel CESL/Wendehorst art 114 CESL-D paras 6–7. 122 For example, the term ‘mineur’ is used in in the French versions of the Consumer Sales Directive and the CESL; whereas the German language versions use ‘geringfügig’ and ‘unerheblich’ respectively. 123 See, for example, Case C–32/12 Duarte Hueros ECLI:EU:C:2013:128 (Opinion of AG Kokott), para 57.

271

Chapter 6 Consequences of Non-performance 66

In spite of the priority afforded under the Consumer Sales Directive to subsequent performance, the Directive expands the scope of situations in which termination is possible by foregoing a requirement of fundamental non-performance (in contrast to the CISG). The Consumer Sales Directive intends to protect the consumer. Although this represents a broader scope than the CISG, it nonetheless reflects the changes in international trade as the costs of returning the goods are now considerably lower than at the time the CISG was drafted (due to reduction in prices in international freight shipping). Furthermore, the extension corresponds to the better conditions for judicial enforcement and execution of restitutionary measures due to judicial cooperation in the European legal community (in comparison to the difficulties that the CISG has to approach on a global scale124).125 b) Requirements

67

aa) The various rights to termination in current EU law generally require the non-performance of a contractual obligation.126 This key element of the right to terminate is however subject to further requirements and different forms in the relevant directives.127 Where sales law is concerned, the two most important circumstances granting the right to terminate a contract are contained in the Consumer Sales Directive and the Consumer Rights Directive. Alongside non-performance, art 3 Consumer Sales Directive stipulates two further requirements: no subsequent performance within a reasonable additional period and a non-conformity that is not minor. Art 18(2) Consumer Rights Directive contains the requirements for termination due to non-delivery in distance sales and off-premises contracts. In the absence of an agreement to the contrary, these requirements are split across two stages: the seller has not delivered the goods without undue delay, at the latest within 30 days after the conclusion of the contract; the seller has not delivered the goods within the (subsequent) additional reasonable period of time set by the consumer. Article 3(5) Consumer Sales Directive Rights of the Consumer The consumer may require an appropriate reduction of the price or have the contract rescinded:

124 Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ (2007) ZEuP 130, 140–141. 125 German law has used the approach in the Consumer Sales Directive not only for consumer sales but as the general scheme for contract law; the revocation, which in German law corresponds to termination of the contract, depends on the period for subsequent performance not the requirement of a fundamental breach (§§ 323 et seq. BGB; for defects in sales contracts §§ 434, 437, 440, 323, 326(5) BGB). 126 The right to withdraw is to be considered as lex specialis and therefore does not belong in the general rules on contract. 127 Aubert de Vincelles/Rochfeld (eds), L’Acquis communautaire, Les sanctions de l’inexécution du contrat, (Economica 2006); Contract II/Pisulinski/Zoll/Szpunar arts 8 :301–8 :303.

272

IV. Remedies for the Injured Party – – –

if the consumer is entitled to neither repair nor replacement, or if the seller has not completed the remedy within a reasonable time, or if the seller has not completed the remedy without significant inconvenience to the consumer.

Article 18 Consumer Rights Directive 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. (…)

bb) The requirement of an additional period for performance is not only a fea- 68 ture of sales contracts but also of package travel contracts. Art 13(6) Package Travel Directive provides that the traveller is entitled to terminate the package travel contract (without paying a termination fee) or request price reduction where the organizer fails to remedy the (substantial) lack of conformity within a reasonable period set by the traveller. However, it may not be necessary to set an additional time limit e.g. where an immediate remedy is required.128 The proposed Digital Content Directive also subjects the consumer's right to 69 terminate a contract for the supply of digital content to a failure to remedy the non-conformity within a reasonable time (art 12(3)(b) Digital Content Directive). In line with the approach under the Consumer Sales Directive the Digital Content Directive does not require the consumer to set the time period through notice to the supplier; furthermore it does not exclude the possibility for the consumer and the supplier to agree on a set time frame.129 The proposal outlines three situations in which the right to terminate the contract is not subject to a failure to remedy the non-conformity within a reasonable time: the remedy is impossible, disproportionate or unlawful; the remedy would cause significant inconvenience to the consumer; or it is clear that the supplier will not remedy the non-conformity. It is, however, not clear whether the latter exception refers to the supplier's refusal to remedy the non-conformity or whether it also encom128 See art 13(4) and recital 34 Package Travel Directive. 129 The Council proposes to express this possibility in a recital to the Digital Content Directive, see footnote 55 in file 8800/17 (8 May 2017) available online under http://data.consilium.europa.eu/doc/document/ST-8800-2017-INIT/en/pdf (accessed 11 July 2017) hereinafter referred to as ‘Digital Content Directive – Council’.

273

Chapter 6 Consequences of Non-performance

passes circumstances in which it is apparent from the outset that the supplier will not be able to remedy the non-conformity within a reasonable time.130 In this regard there is a notable difference to the corresponding provision in art 9(3) (d) Online Sales Directive. Furthermore, the right to terminate under the proposed Digital Content Directive is only available to the consumer if the lack of conformity ‘impairs functionality, interoperability and other main performance features’ (art 12(5) Digital Content Directive). The provision gives a non-exhaustive list of examples of ‘main performance features’, namely accessibility, continuity and security. Although this list of requirements does provide some clarity there is some uncertainty as to the relationship between to the requirements of conformity in art 6(1)(b)–(d) Digital Content Directive.131 Moreover, the proposed Digital Content Directive appears to deviate from the approach in the Consumer Sales Directive and the Package Travel Directive but only bears superficial resemblance to the CISG only superficial: rather than subjecting the right to terminate to the extent of the breach (i.e. the ‘fundamental breach’ approach as under the CISG) by listing specific elements the Digital Content Directive appears to link the right to terminate to the ‘fundamental nature’ of the term irrespective of the extent of the breach.132 The consumer is, however, entitled to immediate termination of the contract if the supplier fails to supply the digital content immediately after the conclusion of the contract, or by the time agreed between the parties (art 11 Digital Content Directive); this appears to apply even in the event of a minor delay.133 70 The Consumer Sales Directive and the Consumer Rights Directive outline the basic approach applied in other areas of European contract law to distinguish between the termination of contract for non-performance and for defective performance. In principle, termination in both instances is subject to affording the seller with a reasonable, additional period for performance, though exceptions apply with regard to non-performance by the seller. However, the Consumer Sales Directive, the Package Travel Directive, the Digital Content Directive and the On-

130 See in this respect the proposed changes in art 12(3) Digital Content Directive – Council (n 129). 131 For criticisms see ELI, Statement of the European Law Institute on the European Commission's proposed Directive on the Supply of Digital Content to Consumers COM (2015) 634 final (July 2016) 29, available online under http://www.europeanlawinstitute.eu/fileadmin/ user_upload/p_eli/Publications/ELI_Statement_on_DCD. pdf (accessed 11 July 2017); Schulze, ‘Supply of Digital Content – A New Challenge for European Contract Law’ in De Franceschi (ed.), European Contract Law and the Digital Single Market (Intersentia 2016) 140. 132 See in this respect art 12(5) Digital Content Directive – Council (n 129) in which the nonexhaustive list is replaced by an exclusion of the right to terminate in the event of a minor breach. 133 For criticism see ELI Statement (n 131) 27–28. Art 11 Digital Content Directive – Council (n 129) proposes to allow immediate termination only in situations in which a specific time is of the essence to the consumer or it is clear that the supplier will not perform at all. The approach therefore is consistent with the right to terminate for non-delivery under art 18(2) Consumer Rights Directive.

274

IV. Remedies for the Injured Party

line Sales Directive show inconsistencies with regard to the extent of the breach that permits termination: ‘where the lack of conformity is not minor’ (art 3(6) Consumer Sales Directive), ‘substantially affects the performance’ (art 13(6) Package Travel Directive), restriction of termination right to main performance features (art 12(5) Digital Content Directive) and, perhaps most significantly, no minimum threshold for the non-conformity under the Online Sales Directive (as expressed in recital 29 Online Sales Directive). The removal of this threshold may represent an increase in the level of consumer protection and can contribute to increasing consumer confidence when contracting cross-border, yet it is an incoherency at European level that can result in differing levels of protection visà-vis non-conforming goods purchased domestically in-store or online. cc) The CESL stipulates the reasons for termination in three provisions that 71 only partially overlap with the current regime: termination due to non-performance (art 114 CESL-D), termination for delay in delivery after notice fixing additional time for performance (art 115 CESL-D) and termination for anticipated non-performance (art 116 CESL-D). These provisions also apply to the customer of a related service contract (art 115(1) CESL-D), though in such contracts art 158 CESL-D allows the customer to give notice at any time that the performance (including further performance) is no longer required even where there is no ground for termination. The termination due to non-performance under art 114(1) CESL-D covers all 72 types of non-performance,134 although it has to be fundamental in nature (except in B–C contracts). Art 87(2) CESL-D outlines the term ‘fundamental’ non-performance in more detail. The right to terminate the contract under the CESL has been broadened in relation to consumer contracts (also in comparison to the Consumer Sales Directive). According to art 114(2) CESL, the consumer can terminate the contract if the non-conformity of the goods is minor without, however, the non-performance being ‘fundamental’.135 The CESL therefore favours the consumer by refraining both from a higher standard for termination and priority to subsequent performance (art 106(3)(a) CESL-D)136 even though termination – in comparison to requiring performance and withholding performance – ends the parties' contractual agreement.137 It merely places a limitation on instances in which the non-conformity is minor.138 As the proposed CESL should not fall short of the national expectations concerning consumer protection, it has therefore deviated from the approach in the Consumer Sales Directive. Further134 See above, paras 20–21. 135 Similarly, art 155(4) CESL-D allows the consumer to terminate a related services contract for non-conformity without imposing this additional requirement. 136 See above, para 65. 137 For criticism see Schopper (n 43) 134–135; see also Schmidt-Kessel CESL/Wendehorst art 114 CESL-D para 7; cf Lorenz (n 113) 770. 138 See above, para 67 for the interaction betwen this criteria with fundamental and insignificant breach, respectively. As pointed out by AG Kokott in Duerte Hueros, the case would have provided an ideal opportunity for the ECJ to rule on the interpretation of ‘minor’ see ECLI:EU:C:2013:128 para 57.

275

Chapter 6 Consequences of Non-performance

more, it also offers better protection to the commercial buyer than both the CISG and PECL. 73 As under art 18 Consumer Rights Directive139, the CESL also requires that termination for late delivery is subject to an additional time for performance (art 115 CESL-D). The culmination of both approaches thus opens the possibility for the injured party to terminate the contract either without additional time but with fundamental non-performance (arts 114(1), 134 CESL-D), or due to non-performance within an additional time140 but without fundamental non-performance (‘delay in delivery’; arts 115, 135 CESL-D). In contrast to art 114 CESL-D, art 115 CESL-D only covers delayed delivery and not defective performance.141 However, the contract can be terminated according to art 114 CESL-D if the delayed delivery can be considered fundamental.142 This would particularly arise where time is of the essence.143 The buyer sets an additional period for delivery though notice to the seller.144 The Consumer Rights Directive requires the period to be ‘appropriate’ (art 18(2) Consumer Rights Directive), whereas the CESL outlines that the period is to be ‘reasonable’ (art 115(1), 135(1) CESL).145 Despite the differences in terminology each period requires objective consideration of the circumstances in order to afford the seller with a genuine possibility to perform. However, the CESL requirements do deviate from the Consumer Rights Directive: the length of the additional period is regarded as reasonable if the seller does not object to it without undue delay. Furthermore, the seller has the possibility to terminate the contract if the buyer does not perform its contractual obligations. However, the additional period in a B–C contract must not end before 30 days have passed (art 135(2) CESL-D). Furthermore, art 116 CESL-D146 entitles the buyer to terminate the contract if the seller has already indicated that it will not perform (‘anticipated non-performance’). In such instances the termination will be justified if the non-performance would satisfy the aforementioned standards for termination (art 116 CESL-D). One can neither expect the buyer to wait for the non-performance nor are there other objective reasons for first waiting for non-performance to arise before granting the buyer the right to terminate.147 A similar approach also applies if it is clear that,

139 See above, para 59. 140 See Schulze CESL/Zoll art 115 CESL-D para 4; with regard to the relevant time see Chapter 5, para 19. 141 Schmidt-Kessel CESL/Wendehorst art 115 CESL-D para 4. 142 Schulze CESL/Zoll art 115 CESL-D para 6. 143 Schmidt-Kessel CESL/Wendehorst art 114 CESL-D para 5. 144 Art 18(2) Consumer Rights Directive outlines out three exceptions: seller’s ‘refusal to deliver the goods, 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 tothe conclusion of the contract, that delivery by or on a specified date is essential’. 145 No such distinction is made in the German language versions of the Consumer Rights Directive and CESL. Each text uses the term ‘angemessen’. 146 Corresponding to art 9:304 PECL; art III.–3:504 DCFR.

276

IV. Remedies for the Injured Party

despite the absence of notice by the seller, the non-performance will arise, for example because of bankruptcy c) Notice of termination

The provisions in the relevant directives and in the other sets of rules of Euro- 74 pean contract law provide that the mere existence of reasons permitting termination does not lead to termination ipso iure. The characteristic of termination as a formative right148 rather requires the right to be exercised in order for termination to be effective.149 The injured party is therefore free to elect to maintain the contract despite the possibility to terminate (as expressed in art 18 Consumer Rights Directive ‘the consumer shall be entitled’ or in arts 114 et seq. CESL-D by ‘A buyer may terminate the contract’). If the injured party elects to terminate the contract it will have to send notice to the other party.150 As regards the time frame for notice, the PECL used the limitation of a ‘reasonable time’ in consideration of the other party's interests in legal certainty and the aim of avoiding disputes (art 9:303(2) PECL). The CESL has followed this model though the ‘reasonable time’ does not begin from when buyer became, or could be expected to have become, aware of the non-performance, but rather also from when the right arose; the later circumstance will be relevant in determining whether notice was given within a reasonable time (art 119(1) CESL-D).151 Furthermore, later termination will also be possible in a consumer contract or if no performance whatsoever has been tendered (art 119(2) CESL-D). d) Examination and notification duties

The right to terminate the contract (or exercise other remedies such as (subse- 75 quent) performance) may further first require the buyer to have examined the goods and notified the seller of the non-conformity. Art 5(2) Consumer Sales Directive affords the Member States with an option to provide such duties in sales contracts.152 The CESL proposes a consumer-friendlier option as its examination and notification duties do not apply to consumer contracts (art 106(3)(a) CESL-D). By contrast, the proposed CESL follows the approach under the CISG as the commercial buyer's right to rely on the non-conformity in order to

147 Lando/Beale (n 118) 417; Samoy/Dang Vu/Jansen, ‘Don’t Find Fault, Find a Remedy’ (2011) ERPL 855, 866; Schulze CESL/Zoll art 116 CESL-D para 1; also DCFR Full Edition 867 et seq. 148 See above, para 2. 149 Chen-Wishart/Magnus, ‘Termination, Price Reduction, and Damages’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 667. 150 See, for example, art 118 CESL-D; corresponding to art 9:303 PECL; art 8:302 ACQP; art III.–3:507 DCFR. 151 Corresponding to the seller's loss of the right to terminate (art 139 CESL-D); see Schulze CESL/Dannemann art 139 CESL-D paras 7–13. 152 See above, para 54.

277

Chapter 6 Consequences of Non-performance

terminate the contract is subject to the examination and notification requirements under arts 121 and 122 CESL-D (art 106(2)(b) CESL-D). e) Consequences

For the most part, current EU law does not contain detailed rules on the consequences of termination153 and therefore regulation is left to national law.154 Nonetheless, the limited provisions in the directives can exercise influence on important aspects surrounding the legal consequences of termination. For example, the ECJ decision in Quelle stipulated that the seller can only obtain compensation for the use of the goods if the contract is terminated.155 77 In contrast, the proposed CESL contains a comprehensive rule on how European contract law could regulate the consequences of termination. Art 8 CESLD contains general rules for all types of termination of contract as well as specific rules for termination due to non-performance or anticipated non-performance. Restitution is subject to the rules in arts 172 et seq. CESL-D which contain uniform rules for avoidance and termination of contract.156 76

Article 8 CESL-D 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. (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.

According to art 8(1) CESL-D, termination (either in whole or in part157) ends the primary contractual rights and obligations of the parties. This does not mean that the original contractual legal relationship between the parties ceases to exist, but rather results in its change to a restitutionary relationship that focuses on the restitution of the performances received. Art 8(1) CESL-D therefore provides for the continuation of contractual rights and obligations resulting from the contract that operate even after termination, such as the provisions concerning consequences of breach (including restitution), for example, arbitration and jurisdiction clauses.158 Likewise, the obligation will remain in relation to payments due 153 Relatively detailled provisions on the consequences of termiantion are now contained in Digital Content Directive, in particular art 13(2) (especially refraining from the use of data, data retrieval and deleting copies etc.). 154 For example, in German law § 437 No. 2 in conjunction with §§ 346 et seq. BGB. 155 Case C–404/06 Quelle ECLI:EU:C:2008:231 para 39; for more detail see above, para 52. 156 See below, paras 101–105. 157 For the scope of termination in divisible contracts arts 117 and 137 CESL-D; for mixed contracts see art 9(2) CESL-D. 158 Schulze CESL/Zoll art 8 CESL-D para 7.

278

IV. Remedies for the Injured Party

and to damages for non-performance before the contract was terminated (art 8(2) CESL-D); this includes, for example, interest on later payments and damages for prescribed claims. The injured party who terminates the contract for subsequent non-performance may also demand damages in lieu of performance (art 8(2) CESL-D). 4. Price reduction a) Overview

Price reduction is a remedy of considerable importance in practice. It allows 78 for a relatively simple balance of the parties' respective interests by reducing the price paid for the promised performance in proportion to the actual performance received. Art 9:401 PECL and art III.–3:601 DCFR provide price reduction as a general remedy for European contract law, as is the tendency in the development of the modern law of obligations. European contract law therefore continues with a tradition that, in national legal systems, can be traced back to the civil law principle actio quanti minoris159. The tradition also expressed in international sales law (art 50 CISG), yet neither of these systems determines the form and interpretation of the European rules. Its adoption in the acquis communautaire is represented by art 3(5) Consumer Sales Directive160 (for sales law) and, inter alia, art 14(1) Package Travel Directive (for travel law161). The proposed CESL provides the right to price reduction for each contract type falling within its scope (arts 120, 155 CESL-D). Art 12(3) and (4) Digital Content Directive also afford the consumer the remedy of price reduction for non-conforming digital content. A disputed aspect of the right to price reduction in European contract law is 79 whether it is a formative right, as has been shown in the discussions surrounding the proposed CESL.162 As the concept of such right at European level does not necessarily accord with national perceptions (such as in German law in which the right cannot be retracted after it has been exercised) it may therefore be possible to allow the injured party to choose to exercise another remedy even after price reduction has been requested.163 Contention aside, the effective exercise of the right to price reduction also requires – as for termination164 (art 10 CESL-D) – the injured party to give notice to the other party; however – in contrast to termination – the CESL does not contain an explicit reference to this require159 Lando/Beale (n 118) 430; Zimmermann, Law of Obligations (Clarendon 1996) 318. 160 See above, para 59. 161 See also art 8(1)(a) Denied Boarding Regulation; art 17(1) Rail Passenger Regulation; art 19(1) Ship Passenger Regulation; art 19(2) Coach Passenger Regulation; art 8:301(4) ACQP. 162 See Lorenz (n 113) 789; cf Faust (n 78) 264. 163 Such an issue is also controversial, favouring this ius variandi Lorenz (n 113) 789; Schulze CESL/Zoll art 120 CESL-D para 3. 164 See above, para 66. In comparison, the agreement by the creditor is not required, see Zoll Schulze CESL/Zoll art 120 CESL-D para 3..

279

Chapter 6 Consequences of Non-performance

ment.165 The notice guarantees that the party in breach is informed of the legal reason for non-payment and the reduction (or alternatively the obligation to make partial reimbursement of payments received) and can take the appropriate measures. b) Requirements and exclusion 80

In principle, the right to price reduction requires non-conformity of performance, as illustrated by Art 3(1) Consumer Sales Directive (sales law) and art 14(1) Package Travel Directive (services law). Although the latter provision provides that the traveller is entitled to price reduction for any period in which there was a lack of conformity it also contains an exception in the event that the organizer can attribute the lack of conformity to the traveller. Article 14(1) Package Travel Directive Price reduction and compensation for damages Member States shall ensure that the traveller is entitled to an appropriate price reduction for any period during which there was lack of conformity, unless the organiser proves that the lack of conformity is attributable to the traveller.

81

The proposed CESL also provides the remedy of price reduction for sales contracts and contracts for (related) services. Art 155(1)(d) uses the broader concept of ‘non-performance of an obligation’ for related services and is thereby applicable to other types of contract. Furthermore, the CESL also stipulates acceptance of performance in sales contracts (art 120(1) in conjunction with arts 123, 129 CESL-D). In contrast to termination under arts 114 and 115 CESL-D, the remedy of price reduction is neither subject to fundamental non-performance nor to an additional period and therefore is a simpler and quicker remedy than termination. The requirements of examination and notification in B–B contracts (arts 121, 122 CESL-D) remain applicable and can therefore exclude the right to price reduction.166 The right is not excluded by excused non-performance under art 88 CESL-D (and therefore differs from the right to performance and to damages; see art 106(4) CESL-D).167 Nevertheless, despite its broader application vis-à-vis other remedies, price reduction is excluded if the injured party is responsible for the non-conformity (art 106(5) CESL-D). c) Consequences

82

Price reduction results in a change to the content of the contract. Various directives entitle the injured party to an ‘appropriate’ reduction of price (art 3(2) and (5) Consumer Sales Directive; art 14(1) Package Travel Directive). Art 12(4) Digital Content Directive contains a more precise basis for calculating

165 Schmidt-Kessel CESL/Schmidt-Kessel art 120 CESL-D para 16 with further references. 166 See above, para 55. 167 On the debtor's possibility to cure, see above, paras 30–31.

280

IV. Remedies for the Injured Party

the extent of the reduction.168 The asking price is reduced according to the ratio between the reduced value of the non-conforming performance and the hypothetical value of conforming performance (relative calculation).169 The reduced price can be calculated using the formula: Reduced price = agreed price X

actual value of performance tendered hypothetical value of conformity

To some extent the proposed CESL follows the DCFR's rules on the conse- 83 quences of price reduction. As art III.–3:601(2) DCFR, art 120(2) CESL-D also allows recovery of the excess payment in the event that an amount greater than the reduced price (as calculated by the above formula) has already been paid. The reimbursement is subject to the provisions in Chapter 12 CESL-D, for example concerning form and place of payment (art 90 CESL-D). The same must also apply for the rules concerning non-performance of monetary obligations.170 Price reduction may have an effect similar to damages and thus exercising both rights would allow double recovery of the loss. Art 120(3) CESL-D therefore provides that the buyer can only claim damages for further losses and not for loss already compensated by the reduction in price. The rule reflects the general exclusion of a combination of incompatible remedies (art 106(6) CESL-D) though claims to price reduction and damages would otherwise be excluded under this general rule without the need for specificity in a separate provision.171 5. Damages and interest a) Overview

The right to claim damages in the acquis communautaire has mainly de- 84 veloped in relation to non-contractual liability. Contributions to the development have been made by various pieces of legislation (as well as ECJ decisions) above all on the basis of art 340(2) TFEU.172 However, the Consumer Sales Directive does not contain any provisions on damages, whereas other contract law directives are merely limited to individual points and specific topics, such as the claim to interest on late payments in B–B contracts. The Acquis Principles therefore contain few basic rules on damages due to the limited basis in the acquis at the time of drafting (see arts 8:401 et seq. ACQP). Rules on contractual 168 See also art III.–3:601(1) DCFR and art 120(1) CESL-D. 169 Schulze CESL/Zoll art 120 CESL-D para 4; for criticism of this method of calculation with regard to other types of breach see Faust (n 78) 264–265. 170 Schulze CESL/Zoll art 120 CESL-D para 5. 171 Lorenz (n 113) 790. 172 Koziol/Schulze (eds), Tort Law of the European Community (Springer 2008); Magnus, ‘The Damages Rules in the Acquis communautaire, in the Acquis Principles and in the DCFR’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 211; Remien (ed), Schadensersatz im europäischen Privat- und Wirtschaftsrecht (Mohr Siebeck 2012); Wurmnest, Grundzüge eines europäischen Haftungsrechts (Mohr Siebeck 2003).

281

Chapter 6 Consequences of Non-performance

damages are now included in the Package Travel Directive. The rules are however limited and concern the requirements and limits of this particular remedy: Article 14 Package Travel Directive Price reduction and compensation for damages (…) (2) The traveller shall be entitled to receive appropriate compensation from the organiser for any damage which the traveller sustains as a result of any lack of conformity. Compensation shall be made without undue delay. (3) The traveller shall not be entitled to compensation for damages if the organiser proves that the lack of conformity is: (a) attributable to the traveller; (b) attributable to a third party unconnected with the provision of the travel services included in the package travel contract and is unforeseeable or unavoidable; or (c) due to unavoidable and extraordinary circumstances. (…)

85

The proposal for a Digital Content Directive does not seek to provide comprehensive rules on damages for breach of a duty in a contract for the supply of digital content. As is apparent from art 14(2) Digital Content Directive, the Member States are to regulate the details surrounding the exercise of the right to damages. Art 14(1) Digital Content Directive rather merely outlines that the supplier is liable for economic damage caused to the consumer's ‘digital environment’173 resulting from non-performance (failure to supply) or defective performance (lack of conformity).174 The rules regarding the requirements and the scope of other forms of damage (e.g. personal injury, damage to property or pure economic loss) therefore remain subject to national law. This appears to be problematic not only from the perspective of consumer protection but also as the proposed full harmonization can lead to inconsistencies and difficulties in determining the borderline between the types of harm.175 The Digital Content Directive therefore illustrates the problems and shortcomings that arise from the considerable differences between national laws on damages and the lack of coherent European law in this area. It is however highly doubtful whether the final version Digital Content Directive will contain any provisions on damages or will leave this area of law in the domain of the Member States.176 b) Damages in the CESL

86

aa) Part VI CESL on ‘Damages and Interest’ represents the first entire legislative draft at EU level for damages due to non-performance of contractual obligations. It is based mainly on arts 9:501 et seq. PECL (as inspiration for art III.– 173 This includes ‘hardware, digital content and any network connection to the extent that they are within the control of the user’ (art 2 No. 8 Digital Content Directive). 174 See Martens, ‘Consequential Loss’ in Schulze/Staudenmayer/Lohsse, Contracts for the Supply of Digital COntent: Regulatory Challenges and Gaps (Nomos 2017) 155 et seq. 175 ELI Statement (n 131) 32. 176 The Council proposes to delete art 14 Digital Content Directive entirely without replacement. See note 64 of Digital Content Directive – Council (n 129).

282

IV. Remedies for the Injured Party

3:701 DCFR). The CESL provisions on damages follow these models by opting against rules tailored for individual types of contract and instead adopting an overarching approach as a general contract law for the different types of contract covered by the CESL (and thus allowing the possibility of application to other types of contract). Although the CESL contains a ‘distinction’ due to separate provisions affording the right to damages in sales contracts and service contracts, the content and limitation of damages are contained in the general rules (arts 159 et seq. CESL-D) rather than specifically for each type of contract. These general rules concern, in particular, the general measure of damages, the standards of excused non-performance and foreseeability, the limitations due to loss attributable to the injured party, substitute transactions, and current market value.177 Furthermore, separate sections contain rules on interest for late payments in general and specifically for B–B transactions. These rules are based on the Late Payment Directive and in part on the Acquis Principles178 (arts 166 et seq. CESL-D) bb) The claim to damages requires the non-performance of a contractual obli- 87 gation (art 159(1) CESL-D). Damages are therefore available for non-delivery, delivery of non-conforming goods as well as every other form of non-performance. These are merely examples and therefore the breach of other obligations will entitle the injured party to claim damages, for example due to the breach of good faith and fair dealing (art 2(2) CESL-D), failure to give notice of the impediment (art 88(3) CESL-D) as well as the breach of the pre-contractual information duties, though further clarification is required in relation to the individual circumstances.179 The claim to damages is however excluded if the non-performance is excused 88 (arts 106(4), 159(1) CESL-D) and is thus subject to the same limitation as the claim for performance180. The CESL therefore follows an approach outlined by art 9:501 PECL181 (following art 79 CISG) for European contract law. The traditional fault-based approach to liability in continental European laws is not merely modified by the concept of a ‘presumed fault’182 but is rather replaced by the common law approach of objective fault. This basis therefore allows for the possibility to exclude damages on the grounds of excused non-performance.183 Al-

177 On Part VI CESL see generally Baeck, ‘Damages and interest under the CESL proposal: not too different from Belgian law’ in Claeys/Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 255 et seq.; Lehmann, ‘Damages and Interest’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 243 et seq; Schmidt-Kessel/Silkens ibid 130–132. 178 Arts 8:404; 8:406 ACQP. 179 For more detail see Schulze CESL/Mozina art 159 CESL-D paras 8–9; on the inclusion of contractual obligations vis-à-vis protecting physical integrity and other losses through reference to art 149 CESL-D see Schmidt-Kessel CESL/Remien art 159 CESL-D para 4. 180 See above, para 46. 181 See also art III.–3:701 DCFR. 182 As in German law since 2002 through the second sentence of § 280(1) BGB.

283

Chapter 6 Consequences of Non-performance

though the doctrinal starting-point differs, the approach leads to a large extent to the same or similar results as ‘presumed fault’. The party in breach must nonetheless prove excused non-performance within the boundaries of art 159 CESL-D.184 89 cc) The damages cover the economic and non-economic losses that have arisen due to the non-performance and are recoverable under art 2(c) CESLReg-D. The definition of damages under art 2(g) CESL-Reg-D distinguishes between ‘loss’ and ‘injury or damage’. In light of this distinction and the sole reference to ‘loss’ in art 159(1) CESL-D one can therefore infer that ‘injury or damage’ are not covered within this contractual claim as they do not appear to fall under the term ‘loss’.185 Nominal damages (franc symbolique; symbolischer Schadensersatz) are also excluded from the requirement of ‘loss’.186 The proposed CESL does not contain more precise details on the notion of ‘economic loss’ covered by art 2(c) CESL-Reg-D. However, this term will cover all financial losses, such as loss of income or profit, loss in value of property, loss of property etc.187 Art 159(2) CESL-D expressly stipulates that damages will also include the future losses that the injured party could expect to incur. This provision is linked to the concept of future loss in English law and art 9:501(2)(b) PECL188. It refers to losses that are expected at the time damages are calculated by the court but which have not yet occurred.189 90 Damages are also to be paid in respect of lost profits. Despite the distinction between lost profits and loss suffered, art 159(2) CESL-D nonetheless includes the former in the scope of recoverable damages. The CESL does not contain an explicit rule in relation to when a profit is to be deemed as lost; the reference to the standard in art 159(2) CESL-D offers an approach which will ease the burden of proof in this respect.190 The injured party thus only needs to outline the circumstances and to prove that a profit would have otherwise been likely under such circumstances. 91 European contract law has recognized the recovery of non-economic loss long before the work on the proposed CESL. The ECJ decision in Leitner191 awarded damages for loss of enjoyment of a package holiday. The Acquis Prin183 For criticism see Faust, ‘Leistungsstörungsrecht’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 180–181; Kieninger, ‘Allgemeines Leistungsstörungsrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 210, 213–214; Lorenz (n 113) 795. 184 Schulze CESL/Mozina art 159 CESL-D para 6. 185 The compensation for such loss thus remains within the scope of national tort law. This is not especially convincing as damages for ‘suffered loss’ as non-economic law are to be provided according to art 2(c) CESL-Reg-D (see below, para 81). 186 Schulze CESL/Mozina art 159 CESL-D para 3. 187 See also art III.–3:701 DCFR. 188 See also art III.–3:701(2) DCFR. 189 DCFR Full Edition 918; Lando/Beale (n 118) 436. 190 Schulze CESL/Mozina art 160 CESL-D para 12. 191 Case C–168/00 Leitner ECLI:EU:C:2002:163.

284

IV. Remedies for the Injured Party

ciples developed this into a general rule in which damages cover non-economic loss ‘only to the extent that the purpose of the obligation includes the protection or satisfaction of such interests’ (art 8:402(4) ACQP). The proposed CESL does not however adopt the same approach as the Acquis Principles in generalising the decision in Leitner. The non-economic loss recoverable under the CESL indeed comprises pain and suffering, but Art 2(c) CESL-Reg-D excludes other non-economic loss such as impairment of quality of life and loss of enjoyment.192 This distinction may therefore result in, for example, psychological afflictions due to disappointment related to a defective product being classified as non-recoverable loss – ‘pain’ and ‘suffering’ are to be understood as physical pain or exceptionally extensive psychological harm.193 Damages may be available for the suffering caused in respect of the death of a relative (e.g. spouse or child) caused by the defective product.194 The general standards for the compensation of non-economic losses under art 159 CESL-D in conjunction with art 2(c) CESL-Reg-D require adjustments in order to be applicable to other types of contract falling outside the scope of the CESL that are specifically concerned with ensuring specific forms of ‘enjoyment’ (such as package travel contracts and their aim of holiday enjoyment). As long as these are regulated in European contract law (such as in the Package Travel Directive), the non-economic loss is rather to be considered as recoverable in relation to the purpose of the rules; this also applies in cases that would not fall under art 2(c) CESL-Reg-D.195 dd) The claim for damages due to economic or non-economic loss is only jus- 92 tified if such loss results from the non-performance of a contractual obligation by the other party (art 159(1) CESL-D). In accordance with the development of the acquis communautaire196 it is necessary for a causal link to exist between the non-performance and the loss for which damages are claimed. The new version of the Package Travel Directive therefore provides for compensation of damage sustained by the traveller ‘as a result of any lack of conformity’ (art 14(2) Package Travel Directive). The proposed Digital Content Directive also provides compensation for damage ‘caused by a lack of conformity with the contract’. The causation arises if the loss would not have occurred without the non-performance (conditio sine qua non). With the exception of foreseeability of loss (art 161 CESL-D), the CESL does not include any additional restrictions (in particular the requirement of ‘adequate’ causation, as is foreseen in several national laws)197 in relation to limiting the amount of recoverable loss. 192 For criticism see Kieninger (n 183) 215–216; Remien, ‘Schadensersatz und Zinsen nach EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 507–508; on the questions concerning differentiation Schulze CESL/Wendehorst art 2 CESL-Reg-D paras 7–8. 193 Kieninger (n 183) 217; Schulze CESL/Mozina art 160 CESL-D para 12. 194 Schulze CESL/Mozina art 160 CESL-D para 18; cf Kieninger (n 183) 217. 195 For loss of enjoyment based on the Package Travel Directive see Leitner (n 191). 196 See Magnus (n 172) 220; Weitenberg, Der Begriff der Kausalität in der haftungsrechtlichen Rechtsprechung der Unionsgerichte (Nomos 2014). 197 Lorenz (n 113) 795; Schulze CESL/Mozina art 159 CESL-D para 5.

285

Chapter 6 Consequences of Non-performance

dd) Due to the general rule under art 2(g) CESL-Reg-D, damages under art 159 CESL-D are to be paid in monetary form. The CESL does not acknowledge a claim to restitution-in-kind – in this respect its remedy of performance takes on a function similar to other laws concerning damages as a form of restitution-in-kind. The CESL therefore follows an approach outlined by the CISG.198 However, this does not contain an indication whether the damages for economic loss can be based on the cost of creating the circumstances that would have arisen without the harmful event (cost of restitutio in integrum) or is solely based on compensating the loss in value. With respect to the former type of damages, it would appear that art 2(g) CESL-Reg-D does not state anything to the contrary and, in addition, the recovery of such costs for substitute transactions (actual or fictitious) is expressly outlined in art 164, 165 CESL-D as a means of calculating the concrete damages. It is of course lacking a correspondingly clear rule for, in particular, costs of repair and for resolving non-economic losses.199 However, a uniform approach on the concept of damages may require that the recovery of the costs for restoring the status quo ante can also not generally be excluded. Legislative clarification of such an important question would be desirable in relation to whether, for example, the principle of proportionality (which also applies to subsequent performance200) can also be applied (such as in the case of ‘total constructive loss’ in which the costs of restoring the status quo ante would greatly exceed the value of the goods). 94 The extent of the compensation for the loss suffered by the non-performance is measured in accordance with the principle of total reparation (and the socalled ‘differential method’) whereby the injured party is put into the situation it would have been in if the obligation had been performed in accordance with the contract.201 The injured party is to be put as close as possible into this position if the total reparation cannot be achieved (art 160 CESL-D). The proposed CESL adopts the approach from art 9:502 PECL, art 8:402(1) ACQP and art III.–3:702 DCFR; moreover it also serves as a model for recent European legislation. Art 14(1) Digital Content Directive provides that the ‘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.’202 According to these principles the injured party can claim the en93

198 See also art 9:502 PECL; art III.–3:702 DCFR. For more detail see DCFR Full Edition 924; Lando/Beale (n 118) 438–439. Art 74 CISG. On the CISG approach see Huber/Mullis, The CISG (Sellier 2007) 269–270; Schlechtriem/Schwenzer CISG/Schwenzer art 74 CISG para 17. 199 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 23. 200 See above, para 47. 201 Schmidt-Kessel CESL/Remien art 160 CESL-Reg-D para 1; Schulze CESL/Mozina art 160 CESL-D para 1. 202 See also European Commission, ‘Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union’ COM (2013) 404 final, art 2(2).

286

IV. Remedies for the Injured Party

tire difference between the amount to be paid under the contract and the expenditure resulting from the non-conformity to the extent that this is necessary to satisfy the expectation interest (e.g. as is outlined by art 164 CESL-D for substitute transactions and art 165 CESL-D for fictitious substitute transactions concluded after termination). The injured party can also demand damages for further loss (see arts 164–165 CESL-D) if these restorative damages do not cover the entire loss recoverable under art 2(c), (g) CESL-Reg-D. Art 161 CESL-D limits the extent of the recoverable loss to the foreseeable 95 loss, which therefore serves as an additional requirement (alongside inexcused non-performance) for a claim to damages.203 The rule in art 161 CESL-D is not based on approaches from the acquis communautaire204 but rather follows art 9:503 PECL and art III.–3:703 DCFR, which can each be traced back to the second sentence of art 74 CISG.205 However, the CESL does differ from these European sets of rules (and also national laws206) as it does not provide an exception for either intentional non-performance or for gross negligence.207 Similarities can be observed in the CESL's application of subjective (i.e. the loss the debtor foresaw) and objective (i.e. the loss the debtor could be expected to have foreseen) criteria. One will observe that the CESL has refrained from applying ‘reasonably’208 to the objective arm of the foreseeability standard thereby avoiding the unnecessary use of this undefined term without expressing a difference in function.209 The party in breach will not be liable if the injured party has contributed to 96 the non-performance (or its consequences) or has not taken appropriate steps to mitigate the loss even though such steps were possible. The acquis communautaire only contains limited instances of this approach.210 Nevertheless, the Acquis Principles have derived the principle that ‘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’ (art 8:403 ACQP). The general rules in arts 162–163 CESL-D are based on the

203 204 205 206 207

See above, para 68. Schulze CESL/Mozina art 161 CESL-D para 2. On the development see Kieninger (n 183) 205, 214. Art 1150 Code Civil. On the discussion concerning the exceptions in drafting the Feasibility Study see Expert Group on a Common Frame of Reference in European Contract Law, ‘Synthesis of the Tenth Meeting, 17–18 February 2011’ 3 available online under http://ec.europa.eu/justice/contract/ files/tenth-meeting_en.pdf (accessed 11 July 2017). 208 Cf art III.–3:703 DCFR. 209 Under art 161 CESL-D the loss had to have been foreseen at the time the contract was concluded. This standard does however cause a problem in relation to the lack of an exception for intentional non-performance: price increases may make it easier for the seller to enter into a more profitable contract with another party if the foreseeability requirement also applies when damages are calculated with the aid of a substitute transaction according to arts 164–165 CESL-D (for a contrasting view see Schmidt-Kessel CESL/Remien art 164 CESL-D para 2). Legislative clarification of this point would be desirable. 210 Contract II/Magnus art 8:403 para 1; DCFR Full Edition 934; Magnus (n 172) 223–224.

287

Chapter 6 Consequences of Non-performance

PECL and DCFR. 211 Art 162 CESL-D determines that the extent of the damages will be reduced in relation to the extent of the injured party's contribution to the non-performance or consequences. However, the CESL's system will afford the injured party with the possibility to excuse its actions through analogous application of art 88 CESL-D.212 In addition, the recoverable loss will also be reduced if the injured party has not, contrary to the requirement of good faith and fair dealing (art 2 CESL-D), taken steps to mitigate its loss (art 163(1) CESLD);213 such steps can include, for example, making repairs, taking measures to secure safety, or concluding contracts (for instance a hire contract or sales contract for a substitute). The steps are to be ‘reasonable’ thus allowing for distinctions to be made between the experience and financial capability of both different types of parties (in particular businesses and consumers).214 Taking such reasonable steps to mitigate the loss may result in additional costs for the injured party and therefore not necessarily serve as incentive for mitigation. Consequently, art 163(2) CESL-D provides that the injured party is entitled to recover the costs reasonably incurred in taking mitigating steps, which need not be successful. This provision extends the notion of co-operation between the parties (art 3 CESL-D) with respect to the financial burden for acts undertaken by one party to support the performance of the other party's contractual obligations. c) Interest 97

aa) Current EU contract law does not contain an overarching rule on interest on late payments. The European legislator has instead focused on several specific areas of considerable economic importance for the internal market: payment services and late payment in commercial transactions. The Late Payment Directive seeks to combat late payment in commercial transactions because of the negative effects on solvency of the debtor (particularly if the business is an SME), especially in times of economic crisis.215 The Directive states that low interest rates and slow redress procedures in many Member States do not provide a sufficient basis for discouraging breach by late payment.216 It therefore seeks to promote a ‘culture of prompt payment’217 by linking periods for payment with claims to interest and compensation for costs incurred.218 Arts 3 and 4 Late Payment Directive particularly set out the conditions for an interest claim 211 Art 9:504 PECL and art III.–3:704 DCFR for art 162 CESL-D, which, within the CESL, generally accords with arts 106(5), 131(3) CESL-D; art 9:505 PECL and art III.–3:705 DCFR for art 163 CESL-D. 212 Schmidt-Kessel CESL/Remien art 162 CESL-D para 2; cf Koch, ‘Schadensersatz und Rückabwicklung’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 225, 233. 213 On the question whether preventable loss should be deducted from the damages claim (see art 77 CISG) or is to be determined by considering both amounts see Koch (n 212) 234. 214 Schulze CESL/Mozina art 163 CESL-D paras 3–4. 215 See recitals 3 et seq. Late Payment Directive. 216 Recital 12 Late Payment Directive. 217 Recital 12 Late Payment Directive.

288

IV. Remedies for the Injured Party

in transactions between businesses and between businesses and public authorities. In order to make a claim the creditor must have performed its own contractual obligations (art 3(1)(a); art 4(1)(a) Late Payment Directive) and has not received the payment on time: the timely nature of the successful performance by the debtor is therefore key,219 though it will not have to pay interest if it is not responsible for the delay (art 3(1)b); art 4(1)(b) CESL-D). The time for payment will be subject to the agreement under the contract, though the time periods in art 3(3)(b) or art 4(3) Late Payment Directive will apply in the absence of such an agreement or in a contract between a business and public authority, respectively. It is not necessary for the creditor to remind the debtor. Moreover, contract terms that are grossly unfair to the creditor will be unenforceable or will form the basis of a damages claim (art 7(1) Late Payment Directive). Such an approach shall protect the creditor against unfair contract terms220, which includes standard as well as negotiated terms.221 The Acquis Principles have used the Late Payment Directive as a basis for its 98 own provisions (arts 8:405 et seq. ACQP) but have also determined that the acquis communautaire does not contain a sufficient basis for a general rule for interest on late payments. A reference is instead made to the corresponding rule in the DCFR, which was drafted on the basis of comparisons of national laws.222 Article III.–3:708 DCFR 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 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.

bb) The CESL has followed the approach in the DCFR by including general 99 rules for interest on late payments (arts 166–167 CESL-D). These rules extend the preceding CESL section on damages and are also supplemented by a further section containing specific rules for late payments in B–B contracts. According to art 166(1) CESL-D, the creditor will generally have a claim to interest when the payment is delayed; notice need not be given. The amount of interest is generally calculated on the basis of the interest rate set by the European Central Bank (in Member States whose currency is the euro) plus two percentage points (art 166(1), (2) CESL-D). The creditor is thus afforded a form of abstract damages which will not only typically compensate for the losses suffered (though

218 Furthermore, according to art 10 Late Payment Directive the Member States are to ensure that an enforceable title can be obtained within 90 calendar days if the debt or aspects of the procedure are undisputed. 219 Case C–306/06 01051 Telekom ECLI:EU:C:2008:187. 220 Recital 28 Late Payment Directive; see Chapter 4, paras 32 –33. 221 Heiderhoff, Europäisches Privatrecht (4rd edn, C.F. Müller 2016) para 413. 222 DCFR Full Edition 945.

289

Chapter 6 Consequences of Non-performance

without the need to provide evidence thereof), but will also skim-off the advantages the debtor may have obtained through the late payment, and have a deterring effect.223 The creditor may recover any damages for further loss through application of the provisions on damages (art 166(3) CESL-D). However, these strict rules only apply to late payments by consumers if the performance is not excused. The interest does not start to accrue until 30 days after notice issued by the creditor that specifies the obligation to pay interest, and the interest rate. The interest on late payment may not be added to the capital to produce more interest. Moreover, contract terms on higher interest rates or on earlier accrual will not be binding on the consumer if the terms would be unfair under art 83 CESLD (art 167(1)–(4) CESL-D). 100 The CESL's specific rules on late payments by businesses (arts 168–171 CESL-D) are closely based on the Late Payment Directive as well as on art 8:406 ACQP and art III.–3:710 DCFR. A claim to interest will arise under art 168(1) CESL-D if the business224 delays the payment of a price due under a contract for the delivery of goods, supply of digital content or provision of related services, unless the late payment is excused under art 88 CESL-D. The scope of the rules therefore covers payments due under the contract, but not claims to damages or reimbursements; interest claims under these latter circumstances are subject to art 166 CESL-D.225 The interest rate is stipulated in art 168(5) CESLD and adopts the approach under art 166(2) CESL-D, but with the application of eight (as opposed to two) percentage points. In general, the time for performance is subject to the contract; art 168(2) and (3) CESL-D will apply if there is no contract term on the time for payment. The maximum time for payment will generally be 60 days (art 168(4) CESL-D) though it is possible to exceed this statutory time limit if the parties have expressly agreed otherwise and the agreement is not unfair according to art 170 CESL-D. There is therefore a rebuttable presumption that a longer period for payment is unfair under art 170 CESL-D. Unfair contract terms on payment dates, time periods, and interest rates will not be binding.226 Moreover, the rules on late payment by businesses are mandatory and can therefore neither be excluded nor varied (art 171 CESL-D).227 6. Restitution 101

In many instances the right to terminate the contract will arise after one or both parties to the contract have performed in some manner (e.g. payment of the price, delivery of non-conforming goods). Rules are thus needed to stipulate the 223 224 225 226

Schulze CESL/Mozina art 166 CESL-D para 3. ‘Business’ (‘trader’) is defined in art 2(e) CESL-Reg-D. For criticism see Schulze CESL/Mozina art 168 CESL-D para 3. According to art 170(2) CESL-D contract terms will be presumed to be unfair if they provide for a time or period for payment or a rate of interest that is less favourable to the creditor than regulated by the CESL-D. Art 170(3) CESL-D stipulates that terms will always be unfair if they exclude interest for late payment or compensation for recovery costs. 227 For more detail see Kieninger (n 183) 222–223.

290

IV. Remedies for the Injured Party

requirements, extent, and manner in which the recipient is to return the performance received, to compensate for any benefits obtained, and whether it can claim reimbursement for expenditures in relation to the performance (e.g. for placing the good in storage). The approach under current EU law is to very much allow the Member States to regulate these issues even though the requirements and risks of restitution have considerable influence on price calculation and the differences in national laws can increase the transaction costs. Even the Consumer Sales Directive does not contain any express rules on restitution despite providing termination as a remedy. One can therefore see that, where the consequences of termination and avoidance are concerned, the acquis communautaire falls greatly below the level the Consumer Rights Directive has achieved for restitution following withdrawal.228 The proposed CESL attempts to overcome this current deficit by including a 102 separate part on restitution (Part VII) after its main parts on obligations and remedies (Parts IV and V), and damages and interest (Part VI). When compared to the DCFR229 and many national laws one can however observe a different approach under the CESL: Part VII is overarching in its application as it regulates not only restitution following termination but also restitution after avoidance due to defects in consent. A uniform set of rules shall thus cover two different legal matters. On the one hand it concerns the legal relationship that arises between the parties after their contractual relationship has been terminated (art 8 CESLD).230 On the other hand it extends to cover the contract's retrospective invalidity resulting from avoidance (art 54(1) CESL-D) due to mistake, fraud, threat, and unfair exploitation (arts 48 et seq. CESL-D).231 Contrastingly, the DCFR's rules on restitution following termination are contained in the section on termination (art III.–3:510 et seq. DCFR) whereas the effects of avoidance are regulated by its rules on unjust enrichment (arts II.–7:212, VII.–5:101 et seq. DCFR). A similar ‘double track approach’ is also present in some national laws, for example in the German Civil Code: the restitution following revocation (which corresponds to termination under the CESL) is subject to specific rules under §§ 346 et seq. BGB, whereas the rules on unjust enrichment (§§ 812 et seq. BGB) are important for the restitutionary consequences of avoidance. The 228 See Chapter 3, para 140. See however the similarities in UK law between the rules concerning the restitution following the exercise of the right of withdrawal and of the right to reject, Watson, Das Right to Reject im Consumer Rights Act 2015 (forthcoming). 229 Art III.–3:510 DCFR on restitution following termination and Book VII (unjustified enrichment) on restitution in the event of void or avoided contracts; for criticism see Wendehorst, ‘Bereicherungsrecht’ in Schulze/v. Bar/Schulte-Nölke (eds) Der akademische Entwurf für einen gemeinsamen Referenzrahmen (Mohr Siebeck 2008) 215, 237; on the status of the discussions relating to the CESL see Bargelli, Il sinallagma rovesciato (Guiffrè 2010). 230 See above, para 77. 231 See Chapter, 3 para 112. However, restitution following withdrawal is regulated separately in arts 44–45 CESL-D; on the deficiencies in the relationship between these two regimes see Schulze CESL/Schulze art 44 CESL-D para 11; on a possible analogous application of arts 172 et seq. CESL-D to other circumstances in which restitution is concerned see SchmidtKessel CESL/Wendehorst art 172 CESL-D para 2.

291

Chapter 6 Consequences of Non-performance

CESL's innovative ‘single track’ approach for both areas will require further consideration with regard to the future development. However, one should also bear in mind the improvements to various individual aspects that European Parliament has suggested, which generally overlap with proposals from and the ELI Position Paper and other academic comment.232 103 The proposed CESL's core provision on restitution comprises the general obligation for each party (following termination or avoidance) to return what has been received from the other party, including any natural or legal fruits that have been derived from what was received (art 172(1), (2) CESL-D). The general rule therefore principally aims at establishing the status quo ante.233 Art 173 CESLD provides for the payment of monetary value where the received performance (including natural and/or legal fruits) cannot be retuned. The payment of the monetary value is also foreseen in relation to the use of the goods (art 174(1) CESL-D) though only if the recipient has caused the basis for the avoidance or termination, if it was aware of the ground for avoidance or termination before it began to use the goods or it would be inequitable (under the listed circumstances) to allow free use of the goods. Art 174(2) CESL-D provides the counterpart to payment for use, namely the payment of interest in respect of monies to be returned. However, it is subject to whether the other party is obliged to pay for use or the recipient has given cause for avoidance due to fraud, threat or unfair exploitation. The extent of the compensation due to the recipient because of the expenditure incurred on the goods or digital content is generally measured on the basis of the benefit to the other party, though this is excluded when the recipient knew or could be expected to have known of the grounds for avoidance or termination at the time the expenditure was made (art 175 CESL-D). The performance of the repayment or restitution obligations under Part VII is however subject to equitable standards allowing these obligations to be modified in situations in which the performance would be grossly inequitable (art 176 CESL-D). Such a possibility has received widespread support because of its contribution to ensuring a just approach in the individual case.234 Nonetheless, the incredibly 232 ELI, Statement on the Proposal for a Regulation on Common European Sales Law, COM (2011) 635 final (2013) 29–30 107–108. The statement is available online under http://www. europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/S-2-2012_Statement_on_t he_Proposal_for_a_Regulation_on__a_Common_European_Sales_Law.pdf (accessed 11 July 2017); European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159) amemdments 223–246; Schmidt-Kessel CESL/ Wendehorst art 172 CESL-D paras 4–5; Schulze CESL/Lehmann art 172 CESL-D paras 61– 67. 233 Schulze CESL/Lehmann art 172 CESL-D para 2. An exception concerns performance in instalments or parts as the parties do not have to return what was received if they have fully performed their contractual obligations or the price remains payable under art 8(2) CESL-D (art 172(3) CESL-D); for criticism see Schmidt-Kessel CESL/Wendehorst art 172 CESL-D paras 10–11. 234 Schmidt-Kessel CESL/Wendehorst art 176 CESL-D para 2; Schulze CESL/Lehmann art 176 CESL-D paras 13–18.

292

IV. Remedies for the Injured Party

broad scope and vague terminology of art 176 CESL-D do cause problems in relation to legal certainty. The proposal requires clarification of important practical questions concerning the place of performance and other aspects in relation to restitution.235 The analogous application of the provisions on primary contractual obligations236 could be of some assistance in resolving this issue, though clarification would nevertheless be preferable. The proposed Digital Content Directive includes a number of new aspects 104 concerning restitution following the termination of a contract for the supply of digital content. The Commission has been faced with the new challenges posed not only by the nature of digital content but also the supply of data as counterperformance. The provisions in Art 13 Digital Content Directive therefore attempt to provide possible solutions to the questions posed by the supply of digital content: Article 13 Digital Content Directive The consumer’s right to terminate the contract (…) (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 accessible 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. (…)

235 On this and other questions see Looschelders, ‘Das allgemeine Vertragsrecht des Common European Sales Law’ (2012) 212 AcP 518, 674; Schmidt-Kessel CESL/Wendehorst art 176 CESL-D para 4. 236 See Schulze CESL/Zoll art 93 CESL-D para 5.

293

Chapter 6 Consequences of Non-performance 105

The provisions on restitution in the Digital Content Directive represent a development of considerable practical importance in unchartered territory. The European Commission's proposals will therefore require intense discussion. This will concern not only the broader, general issue of the relationship with data protection law237 but also a number of specific questions (e.g. the extent of the consumer's claim for restitution of data that may have already been sold to a third party, and whether under some circumstances the supplier should be able to claim compensation for use).

237 See the contributions by Weber and Zoll in Schulze/Staudenmayer/Lohsse (n 174) 179 et seq., 189 et seq.

294

Chapter 7 Preclusion and Prescription Literature: Grabitz/Hilf/Nettesheim, Das Recht der EU (60th edn, C.H. Beck 2016); Martínez Velencoso/O’Flynn, ‘The Rules on Prescription’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 287; Philippe, ‘CESL: change of circumstances and prescription’ in Claeys/Feltkamps (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law (Intersentia 2013) 299; Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012); Vaquer/ Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38; Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012).

I. Acquis Communautaire

The acquis communautaire contains incomplete and limited rules concerning 1 the consequences of the expiration of time limits for exercising, limiting or enforcing rights. The European legislator only takes such measures when, in light of the area of law it is shaping, it is considered necessary to do so. A decisive aspect is therefore not a comprehensive regulation of time limits, but rather the nature of the time-limited right. Searching the present acquis for extensive and generalizable provisions on such time limits would as such be to no avail. Nonetheless, some aspects of the acquis communautaire contain near-complete regulation of time-limited rights, in particular the time limits on withdrawal rights. Article 9(1) Consumer Rights Directive Right of withdrawal 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. Article 10 Consumer Rights Directive 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.

These provisions of the Consumer Rights Directive serve as a good example 2 for such a time limit for preclusion (corresponding rules are also to be found in other directives in which a withdrawal right is provided). The right to withdraw ceases to remain available once the withdrawal period has expired. The business does not have to refer to the expiration of the time limit, but the court is to consider this ex officio. Art 10 Consumer Rights Directive defines the circumstances under which the withdrawal period can be extended. As these provisions are ful-

295

Chapter 7 Preclusion and Prescription

ly harmonized there is thus no scope for the application of consumer-friendlier national rules on the expiration of the time limit (e.g. in light of good faith and fair dealing).1 In contrast, a minimum harmonization directive would allow the application of consumer-friendlier rules (e.g. as was possible before the Consumer Rights Directive repealed the Distance Selling Directive).2 3 The Consumer Sales Directive contains similar fragmented regulation of time periods restricting consumer rights:3 Article 5 Consumer Sales Directive 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. (…)

4

The Consumer Sales Directive is a minimum harmonization directive4 and therefore the national legislator may increase the level of consumer protection when implementing the rules into national law.5 The Consumer Sales Directive excludes the seller's liability after a two-year period has passed from the time of delivery and outlines a rule concerning the conflict with national limitation periods6 (limitation cannot occur before the two-year period under the Directive has expired).7 Furthermore, an additional restriction of the consumer's rights can also be seen in the two-month period in which the consumer is to inform the seller of the non-conformity (art 5(2) Consumer Sales Directive); Member States may choose to include this requirement.8 Although the Directive merely outlines these time limits without including more detail, the minimum standard indeed affords the Member States with considerable scope to shape these limitations as various different legal constructs. The expiration of the time limit could thus preclude the application of the rights under the Directive or exclude their enforceability due to an objection by the seller. Whether the right expires at the end of the time period or is transformed into an obligatio naturalis remains in

1 Recital 2 Consumer Rights Directive. 2 Art 14 Distance Selling Directive; see Micklitz in Grabitz/Hilf (eds), Das Recht der Europäischen Union (40th edn, C.H.Beck 2009) Sekundärrecht Vor A.2, 85/577/EWG und 97/7/EG – Systematischer Teil para 27. 3 See Bianca/Grundmann EU Sales Directive/Hondius art 5. 4 Art 8(2) Consumer Sales Directive, see Bianca/Grundmann EU Sales Directive/Stijns/van Gerven art 7 paras 2–5; Micklitz (n 2) Sekundärrecht A.15, 1999/44/EG, art 8 para 5. 5 MüKo BGB/Micklitz (2012) Vorbemerkung §§ 13, 14 para 32. 6 Art 5 Consumer Sales Directive. 7 See Magnus in Grabnitz/Hilf (n 2) Sekundärrecht A.15, 1999/44/EG, art 5 paras 3–16; Bianca/ Grundmann EU Sales Directive/Hondius art 5 paras 3–9. 8 See art 5(2) Consumer Sales Directive ‘Member States may provide that…’.

296

I. Acquis Communautaire

the hands of the national legislator. However, this does not mean that the European legislator has not used the Consumer Sales Directive to develop a self-supporting concept to regulate limitation periods. 5 The proposed Online Sales Directive contains a similar provision: Article 5 Online Sales Directive 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. (…)

In contrast to the Consumer Sales Directive, full harmonization is proposed for the Online Sales Directive. Its adoption would therefore result in a mandatory two-year prescription period. The Member States could also provide further time limits in relation to the consumer's remedies, yet these must take the twoyear period in art 14 into consideration (the time limit for claims may not end before the time limit for the lack of conformity has expired). As the two-year time limit is subject to full harmonization, the rule on time limits may prevent an extension of the time period in which to exercise the remedies. The proposed Digital Content Directive does not contain a rule either on 6 preclusion or on prescription. As the following clarifies, this was not an oversight by the Commission: Recital 36 Digital Content Directive (…) 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. (…)

A further fragmented rule concerning an important aspect of prescription can 7 also be seen in the ADR Directive: Article 12 ADR Directive 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.

This provision of the ADR Directive allows the Member States to select the 8 means to prevent prescription from denying access to justice. However, the ADR Directive does not determine whether prevention should be in the form of renewal, suspension, postponement or even a pure procedural solution. Further explanation of the meaning of ‘prescription’ in the context of the ADR Directive 297

Chapter 7 Preclusion and Prescription

will therefore be necessary. Moreover, the required autonomous interpretation in accordance with European law does not extend to clarification of whether national legislation allows the debtor to withhold performance after the period has expired or whether the right at issue is extinguished. It is uncertain whether this provision also applies to those time periods based on EU law and, for example, limits a withdrawal right when ADR proceedings enquire into the validity of the withdrawal. However, as these time periods are conclusively regulated for the Consumer Rights Directive, art 12 ADR Directive is not applicable in matters involving consumers. II. Proposal for Comprehensive European Rules

The provisions on prescription in the proposed CESL are contained in its Chapter 18. The chapter was conceived to be at least as complete as the rules of prescription in national codifications influenced by pandectism9 (such as the German BGB10 or the Polish Civil Code). It is based relatively closely on the model adopted by the DCFR (arts III.–7:101 et seq. DCFR).11 10 Art 178 CESL-D stated the rights subject to prescription: 9

Article 178 CESL-D 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.

According to this provision, prescription affects the right to enforce performance and the ‘ancillary’ rights. The latter are not defined12 and thus there was uncertainty as to the individual rights it was to include.13 In any event, ‘ancillary’ would comprise all other claims that are not classified as performance,14 for example, damages, right to payment of interest etc. The article does not rep9 See Stellungnahme des Deutschen Notarvereins vom 7.12.2011 at 28–31, in particular 30, available under http://www.dnotv.de/_files/Dokumente/Stellungnahmen/STNDNotVGemeins amesEuropischesKaufrechtl.pdf (accessed 11 July 2017). 10 On the pandectic notion of prescription in German law see Markesinis/Unberath/Johnston, The German Law of Contract (2nd edn, Hart 2006) 436–489; Windscheid/Kipp, Lehrbuch des Pandektenrechts (Scientia 1984) §§ 105–113. 11 Ernst, ‘Das Verjährungsrecht des (D)CFR’ in Remien (ed), Verjährungsrecht in Europa – zwischen Bewährung und Reform (Mohr Siebeck 2011) 67; Schulze CESL/Møgelvang-Hansen art 178 CESL-D para 5; Zöchling-Jud, ‘Verjährungsrecht’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 255. On prescription in the DCFR DCFR Full Edition 1139–1206. For comparisons to national law see Martínez Velencoso/O’Flynn, ‘The Rules on Prescription’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 289 et seq.; Philippe, ‘CESL: change of circumstances and prescription’ in Claeys/Feltkamps (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law (Intersentia 2013) 299 et seq. 12 Schmidt-Kessel CESL/Müller art 178 paras 4–5; Schulze CESL/Møgelvang-Hansen art 178 CESL-D para 8. 13 Vaquer/Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38, 43–45.

298

II. Proposal for Comprehensive European Rules

resent a complete rule as the prescription of other rights may be extracted from art 185 CESL-D on the effects of prescription. 11

Article 185(1) CESL-D Effects of prescription 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.

According to this provision, the remedies are lost if performance can be refused because the prescription period has expired. However, a problem exists in respect of the unclear relationship to art 178 CESL-D,15 particularly the uncertainty surrounding the scope of the ‘ancillary’ rights16 (especially formative rights such as termination17 and price reduction18). The CESL proposes two types of prescription periods – the so-called ‘short’ 12 and ‘long’ period of prescription. The short period resembled the two-year period in the Consumer Sales Directive. Article 179 CESL-D 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.

The distinction between a short and long prescription period is also reflected 13 in the different points at which the respective periods should begin: Article 180 CESL-D 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.

Under the CESL, the short period is to commence ad scientiae, with the subjective knowledge being decisive (‘has become or could be expected to have become’). It is to be assumed that this also includes the awareness of the debtor's identity. In comparison, the long period is to be subject to objective circum14 Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 530. 15 Vaquer/Arroyo (n 13) 56. 16 Schmidt-Kessel CESL/Müller art 178 CESL-D para 4. 17 Zöchling-Jud (n 11) 256. 18 Müller (n 14) 531.

299

Chapter 7 Preclusion and Prescription

stances, thereby rendering irrelevant the creditor's actual (or expected) awareness of these circumstances.19 The long period is to begin from the time performance is due as this represents the starting point for potential claims. 14 The CESL outlines various possibilities to modify the end of the prescription period. It provides that the period can be suspended (i.e. it does not continue to run during this time and will resume once the circumstances causing suspension cease to exist), postponed (i.e. the period will continue but will end at a later date) or renewed (i.e. the period starts again). Article 181 CESL-D 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.

According to this provision, the prescription period is to be suspended in instances in which the parties initiate formal proceedings to resolve the dispute.20 Uncertainty surrounds the extent to which the procedural laws of the Member States are to be considered21 (e.g. if the claim is rejected due to non-payment of fees and, under national law, the failed submission cannot be viewed retrospectively as initiating proceedings). It is rather to be presumed that art 181 CESL-D does not represent an entire rule and that the national procedural rules will also influence the moment at which suspension will take effect. 16 A postponement the prescription period is foreseen for two entirely different situations. The first is associated with the aforementioned group of dispute resolution methods22; it concerns the necessary23 extension of the prescription period due to the start24 of negotiations between the parties (i.e. the informal attempt to resolve the dispute):25 15

19 Schmidt-Kessel CESL/Müller art 180 CESL-D paras 2–3; Schulze CESL/Møgelvang-Hansen art 180 CESL-D para 1; Vaquer/Arroyo (n 13) 48. 20 Schmidt-Kessel CESL/Müller art 181 CESL-D para 2; Schulze CESL/Møgelvang-Hansen art 181 CESL-D paras 1–2. 21 This is rejected by Müller (n 14) 535–536. 22 Müller (n 14) 539–540. 23 Suspending expiration and the length thereof are assessed in Schmidt-Kessel CESL/Müller art 182 CESL-D para 5.

300

II. Proposal for Comprehensive European Rules Article 182 CESL-D 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.

The second instance of postponement is founded on the need to protect per- 17 sons lacking legal capacity:26 Article 183 CESL-D 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.

Such rules can only function in conjunction with the Member States’ laws on 18 capacity. However, it would be necessary to determine whether the notion of incapacity under art 183 CESL-D also concerns a person who is of limited capacity according to national law.27 Renewal was the final approach to modification of the prescription period un- 19 der the CESL. It applies in relation to the acknowledgement of debt: Article 184 CESL-D 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.

The CESL does not contain any further definition of ‘acknowledgement’ as used in its art 184.28 The provision indeed includes a list of actions that are to be viewed as acknowledgement, though this has been subject to concerns. For instance, a part payment does not necessarily have to be considered as an expression of the debtor's acknowledgement of the obligation to pay the remainder.29 Art 184 CESL-D rather gives a basis for presumed acknowledgement if the debtor has performed one of the listed acts, though presumed acknowledgement is a notion that could have been expressed more clearly. The renewal of the short period of prescription is a similar example of inappropriate wording.

24 On the starting point for negotiations see Schmidt-Kessel CESL/Müller art 182 CESL-D para 4. 25 Schulze CESL/Møgelvang-Hansen art 182 CESL-D. 26 Müller (n 14) 541. 27 Vaquer/Arroyo (n 13) 43. 28 Vaquer/Arroyo (n 13) 54. 29 Müller (n 14) 542.

301

Chapter 7 Preclusion and Prescription

III. Conclusions 20

The present acquis communautaire contains only a series of approaches to regulate the consequences of an expiration of time limits on particular rights. However, the separate ‘islands’ are converging. The proposed CESL outlined the development towards a near complete regulation of prescription in EU law. Despite the failures surrounding the CESL, its role in the future development in this area ought not to be neglected: it can serve as an important source of inspiration for national legislators and, under different political circumstances, for the European Union.

302

Chapter 8 Outlook The legislation and jurisprudence of the 19th and 20th centuries exercised 1 considerable influence on the legal concepts and principles in the law of the Member States. However, almost all of the aspects covered in this book have indicated that European contract law is more innovative in response to the demands of 21st century contracting. These new approaches are not apparent at first glance as they are often only contained in individual legislative provisions. Nonetheless, issues ranging from the pre-contractual information duties to the restitution following withdrawal or termination have defined these aspects even further due to the efforts to not only bring greater coherency to European contract law but also to move away from ‘fragmentation’ by aiming at ‘systemization’. Several innovations are based on suggestions for modern contract law (not 2 just in Europe, but in many parts of the world) stemming from the CISG. However, European contract law has not simply ‘copied’ such models but has exhibited great creativity in developing several of them in light of the social and economic tasks underlying European integration. In so doing they have been applied to entirely new areas of law, most especially in the development of consumer law. The Consumer Sales Directive has adopted the CISG model (such as the concept of conformity and the remedial structure) for consumer law, i.e. for a field not included in the CISG and one which is presently not regulated worldwide but only in individual world ‘regions’. The inclusion of consumer law at European level corresponds to its place in modern contract law – and the development of CISG approaches for consumer law – and to the need to realize the internal market's potential where trade with consumers is concerned. Several directives and the proposed CESL therefore aim at a development that eases crossborder transactions (also with consumers) and allows consumers to partake in the advantages offered by the internal market (and linking market participation with a high level of consumer protection). However, European contract law has not just developed CISG concepts but 3 has also spawned innovative approaches of its own. This does not just include the focus on new regulatory areas and objectives, such as consumer law and the protection of SMEs or (more recently) promoting sustainable consumption, but rather the new perspectives for underlying concepts in contract law. For example, this can be seen with respect to the conclusion of contract as greater attention is given to the various phases of formation (from pre-contractual duties to withdrawal rights) than in traditional contract law. Furthermore, the focus on modern ‘mass contracting’ and its link to standardized formation, content, and performance is particularly characteristic of European contract law. Whereas this feature of modern contract practice is hardly reflected by specific provisions in the CISG, the acquis communautaire has for many years taken account of the actual significance of non-negotiated contracts, which have practically become 303

Chapter 8 Outlook

the ‘normal case’ in practice. The Unfair Terms Directive was a decisive step in this direction. The proposed CESL has focused more on this approach and particularly highlights that legal answers to the ‘mass contracting’ phenomenon cannot solely affect consumer law but must also encompass non-negotiated B–B contracts. 4 The rapid development of e-commerce in the 21st century has presented a further challenge for contract law that could not have been considered by either the CISG or the national legislators. The possibility of online trading has caused standardization to reach a new level in contract practice. European contract law, which has for the most part arisen during the time of this ‘electronic revolution’ was (and is) more able than older laws to adapt to these new developments. Accordingly, the initial focus of European contract law was generally not on a traditional face-to-face or written conclusion of contract but rather contained rules for e-commerce, e-signature, and contracts concluded via the Internet. 5 The proposed CESL has not been restricted to online contracts. It instead goes much further – as one of the first projects worldwide – by indicating that contract law must consider the new markets for digital content and the necessity of specific provisions for regulating contracts for digital content. The proposed CESL has therefore paved a way for the future development of European contract law whereby academic and legislative proposals will include legal answers to the challenges of the digital revolution. One will not be able to find these answers in the national framework since the new technologies cannot be contained within national borders. From this perspective the proposed CESL may have been withdrawn yet it represents the result of the 30-year development of European contract law but also as a bridge to a new phase in this development. 6 However, the attempt features a number of shortcomings. This is hardly surprising when one considers that the proposal was drafted in a very short space of time on the basis of earlier research that lacks specific approaches for the supply of digital content. Not only are several of the proposal's details questionable, but a series of structural issues will have to be reconsidered in order to obtain a European contract law that corresponds as a whole to the new challenges of the ‘digital revolution’. For instance, one will have to give greater consideration to whether and how the different forms of supply or use of digital content (including e.g. ‘streaming’) can be included in the traditional definitions and distinction between sales and service contracts, or whether new categories are necessary. One can ask the question, for example, whether and in any case in which manner the ‘Internet of Things’ requires new rules on contractual obligations and liability, on the relationship to tort law, and perhaps to ‘machine-to-machine’ conclusion of contract, also. Similarly, questions may also be linked to ‘share economy’ and the issue of whether the traditional concept of the consumer ensures sufficient protection in relation to online platforms for services that are not provided by businesses.

304

Chapter 8 Outlook

The further development of European contract law in light of these new is- 7 sues and questions may soon form a crucial task for academics, legislators and judges. European law therefore has an advantage over many national laws as the former is a ‘law in progress’ and has not become encased in a long-established system and corresponding codification. It will therefore be easier to integrate the answers to the new challenges of the ‘digital age’ in the process of systematizing European law. The result of this development of future European legislation can at best create a law of contract that combines the efforts at coherency with adequate new solutions for the issues in the digital field. The supply of digital content has incredible economic potential and, by its 8 very nature, digital content can easily travel cross-border along the information superhighway. From an internal market perspective, the Digital Content Directive is therefore one of the most important legislative projects of the 21st century. Accordingly, the proposal is perhaps the most important legislative project in the field of European contract law. However, the nature of digital content also raises fundamental questions on the relationship between contract law and other areas of law. For example, further light needs to be cast on relationship between contract and licensing law (and ‘intellectual property’ in general) due to the ease by which digital content can be copied, multiplied and distributed. Furthermore, digital content may require and generate user data in order to function, and thus matters of data protection law will have to be considered. Nonetheless, despite the need for improvement this proposal contains several approaches that indicate such a development towards assimilation with other areas of contract law. The Digital Content Directive adopts elements central to European sales law (e.g. ‘conformity’ and the remedial structure). These elements are developed further and extended by provisions that into account the features of digital content (e.g. expanding the concept of conformity to include interoperability, accessibility and integration into the digital environment). The Digital Content Directive is therefore developing overarching elements of European contract law by transferring elements from sales law to the supply of digital content. This method is not an exception particular to digital content but can also be seen in other areas of services law, as illustrated by the use of the concept of conformity and the remedial structure in the Package Travel Directive. Ultimately, the new approaches show how concepts from European sales law can lead to a general law of contract. The legislative process surrounding the Digital Content Directive is neither 9 complete nor is it foreseeable whether further legislation will take the same direction. The withdrawal of the proposal by the European Commission bears the risk that all that has been achieved in relation to overarching concepts and a system will be lost. In particular, the sole focus on the ‘digital agenda’ can once again lead to isolated and fragmented rules on one exclusive area instead of considering the coherency of contract law as a whole. The new path would lead

305

Chapter 8 Outlook

back to the old deficiencies and weaknesses in EU law, as has been clearly shown in the discussions on ‘minimum’ and ‘full’ harmonization. 10 The Digital Content Directive does however show that a new stage in the discussions on European contract law can also – at least in the long term – offer the chance to bring together the experiences and approaches with the requirements of the ‘digital age’ to devise a contract law for the 21st century. What stood out at the end of 20th century still applies in the ‘digital’ 21st century: it would be an anachronism if one internal market and one Internet were available to businesses and consumers yet, alongside various national laws, not one common contract law.

306

Index Acquis commun 1 21; 3 56 Acquis communautaire 1 16, 21; 3 56 f. – innovations 1 57 Acquis Principles – development of 1 47 ff. Action Plan 1 50 actio quanti minoris 6 78 ADR – prescription 7 7 ff., 16 Advertising 3 67, 78 ff., 83 f.; 6 3 – misleading 3 108 Burden of proof 5 14; 6 28 Cause 3 62, 126 CESL – contract types 2 59 ff. – development of 1 52 ff., 58 f. – digital content 1 57; 2 63 f. – Feasibility Study 1 53 f. – interest 6 99 ff. – private international law 1 58 – scope 1 55; 2 59 ff.; 3 85 Charter of Fundamental Rights 1 31 CISG 1 44 ff. Codification 1 3 Commercial agency 2 39 f., 72 – good faith 2 100 Commercial agents – protection of 2 131 Commercial practices – directive 1 43 – good faith 2 101 Common core 1 21 Common Frame of Reference 1 50 Conclusion of contract – information 3 6 f. Confidentiality 3 27 Conformity 2 11 ff.; 5 3, 9, 36; 6 13, 18 ff. – criteria 5 5, 10 ff.; 6 3 – negative quality 2 11 ff. – terminology 6 3 Consensus 2 16 ff., 28 ff.; 3 58 Consent 3 53, 77, 94 – defects in 3 97 ff. – e-commerce 3 101 Consideration 3 62 – inertia selling 2 10; 3 95

Consumer 2 124 ff.; 3 4 f. – asymmetry 3 32 – average 3 37 – concept 2 123 – confidence 3 122 – credit 2 48 f. – definition 2 126 ff. – informed 3 12 – sales 2 43 ff. Consumer credit – contract 2 48 f. Consumer protection 1 31 f.; 5 38 – directives 1 37 – dual use 2 125 ff. Contract – acceptance 3 51, 54, 59, 64 ff., 68, 69 f. – adaptation of 3 99 f. – advisory services 2 51 – agreement 3 58 – ancillary 3 147 f. – avoidance of 3 46, 93, 97, 111 ff.; 6 10, 77, 102 ff. – breach of 6 1 ff. – carriage 5 23 f. – certainty 3 61 – CESL 2 59 ff. – commercial agency 2 39 f., 72 – concept of 2 1 ff. – conclusion of 2 27 ff.; 3 49 ff., 71 – conformity 5 3 – consensus 2 28 f. – consumer credit 2 48 f. – content 2 95 ff.; 3 61; 4 42 – cross-border 1 57 – digital content 2 60 ff. – distance 3 123 f. – dual use 2 125 ff. – d’adhesion 4 23 – electronic 3 76 – form 3 63 – framework 2 50 – freedom of 2 83 ff.; 3 50 – guarantee 2 54 – instalment 3 147 – intention 2 34; 3 53 – invitatio ad offerendum 3 66 f. – long-term 5 39 – mixed 2 61, 69 ff. – modification of 5 31 – notice 3 67, 70 – offer 3 51, 54, 59, 64 ff., 68 – off-premises 3 123 – parties 2 124 ff.

307

Index – – – – – – – – –

performance of 5 8 pre-contractual statements 3 78 ff. preparatory statements 3 66 privity 3 84 sale 2 43 ff., 60 ff. services 2 52 ff., 60 ff.; 3 146; 5 18, 39 severable 6 77 standardization 3 52 termination 2 76; 3 141, 147 f.; 5 31, 44 ff.; 6 2, 23, 27 f., 101 – terms 4 1 ff. – timeshare 2 41 f. – unilateral promise 3 87 ff. – withdrawal period 3 128 Co-operation 2 111 – duty of 3 5, 21 Copyright – digital content 2 66 f. Culpa in contrahendo 3 14 ff., 22, 26 ff., 114 Cure 6 8 – CESL 6 37 ff. – DCFR 6 36 Damages 6 6, 7 f., 16, 83, 84 ff. – calculation 6 86, 94 f. – causation 6 92 – good faith 3 26 – lost profits 6 90 – nominal 6 89 – restitution 6 93 ff. Data – counter-performance 1 62; 6 104 – personal 1 64 – protection 1 63 ff.; 5 49 DCFR – development of 1 51 – interest 6 98 – juridical act 2 3 Delivery 5 3 f., 9, 15 ff.; 6 22, 32 – carriage 5 23 f. – concept of 5 13 – costs 3 143 – late 6 64 – non-performance 6 42, 67 – performance 5 13 ff. – risk 5 35 f. – time 5 28 f. Digital Agenda 1 60 Digital content 1 60 ff., 62; 3 57; 8 5 – CESL 1 57; 2 63 f. – conformity 5 13 – copyright 2 66 f. – counter-performance 5 15 f. – definition 2 65 308

– digital environment 5 14; 6 85 – passing of risk 5 35 – remedies 6 12 – scope 2 82 – supply 2 68; 5 25, 37, 41 f. Directive 1 16 f., 27, 31 ff., 32 ff.; 2 2 – consumer protection 1 37 – E-Commerce 1 39 – gold plating 1 36 – non-discrimination 1 41 – SME 1 38 Dispute resolution – legislation 1 43 – prescription 7 5, 6 Distance communication 3 74 Dual use 2 125 ff. Duty – co-operation 3 21 ECHR 1 18 e-commerce 1 32, 57; 2 31; 3 76 – directives 1 39 – information 3 7 effet utile 3 72, 89 Estoppel 2 108; 3 22, 25 EULA 5 12 European Coal and Steel Community 1 23 Examination 6 8, 54 ff., 75, 81 Fair trading – information duties 3 36 ff. Feasibility Study – CESL 1 53 f. Formative rights 3 127; 6 2, 74, 79; 7 11 Framework contract 2 50 Fraud – CESL 3 111 Freedom of contract 1 30; 2 83 ff.; 3 63, 97; 5 1 – contract terms 2 95 ff. – right of withdrawal 3 126 Geo-blocking 1 61; 2 121 Good faith 2 98 ff.; 3 1 ff., 12, 17 ff.; 4 9, 28 f., 30, 32, 37 f.; 5 21; 6 96; 7 2 – Acquis Principles 3 29 ff. – breach of 3 28 ff. – CESL 3 19 ff. – commercial agency 2 100 – commercial practices 2 101 – damages 3 26 – DCFR 3 25 ff. – fair dealing 2 99; 3 21 f., 25 ff.

Index – information duties 3 24 ff. – right of withdrawal 3 31, 144 – terms 4 8, 59, 68 Goods – characteristics of 3 81 – specific 5 34 – unascertained 5 34 Guarantee 3 79, 88; 6 54 Harmonization 1 24, 27 ff., 36; 2 92; 4 32 – full 1 34 ff., 52, 61; 3 18, 117; 4 12, 76 f.; 6 21; 7 2 – minimum 1 34 ff., 52; 2 94; 3 51; 4 12; 7 2 f. Incapacity – prescription 7 17 f. INCOTERMS 5 23 Inertia selling 2 19 ff.; 3 51, 57, 90 ff. – mistake 3 93 Information – Acquis Principles 3 43 ff., 46 – asymmetry 3 4 f., 32 – breach of duty 3 9 f., 45 ff., 75, 139, 143 – CESL 3 19 ff., 39 ff. – conclusion of contract 3 76 f. – confidentiality 3 27 – DCFR 3 43 ff., 46 – distance communication 3 75 – duty 3 1 ff., 6 ff., 18 – e-commerce 3 7, 101 f. – exception 3 35 – fair trading 3 36 ff. – financial transactions 3 13 – form 2 38; 3 80 – function 3 33 – good faith 3 24 ff. – harmonization 3 34 – liability 3 14 ff. – overload 3 12 – pre-contractual 3 32 ff., 36 ff., 39 ff., 43 ff. – right of withdrawal 3 45, 47, 138 f. – services 3 34 – standardized 3 38 Installation 6 3 Insurance 1 42 Intellectual property 5 9 Interest 6 6, 84 ff., 97 ff. – CESL 6 99 ff. – DCFR 6 98 – rates 6 99 f.

Internal market 1 1 f., 28, 32 ff., 36, 44, 52, 61 – discrimination 2 119 Interpretation 1 25; 7 8 – contra proferentum 4 18 ff., 45 ff. – terms 4 21 Invitatio ad offerendum 3 66 f. – inertia selling 3 92 Ius commun 1 21 Juridical act 2 1 ff. Legitimate expectations 2 7 ff.; 3 46, 78, 81, 84, 99 f.; 5 12, 21; 6 3, 63 Letter of intent 3 72 Liability 6 16, 31 – compensation for use 3 144; 6 52 – diminished value 3 144 – fault 6 9, 88 – non-contractual 1 26 – pre-contractual 3 14 ff. Long-term contracts 5 39 ff. – termination 5 44 ff. Loss 3 114 – economic 6 89, 92 – foreseeability of 6 86, 92, 95 f. – mitigation of 6 96 – non-economic 6 89, 91 f. – Profits 6 90 Løfteteori 3 88 Mandatory law 2 86; 3 32; 5 1, 38; 6 52 – consumer protection 2 88 ff. – right of withdrawal 3 133 Mistake – advertising 3 108 – CESL 3 110 ff. – DCFR 3 105 – e-commerce 3 101 f. – inertia selling 3 93 – unfair commercial practices 3 106 ff. Mixed contract 2 61, 69 ff. – absorption theory 2 72, 75 ff. – combination theory 2 72, 75 ff. – termination 2 76 Non-conformity 6 20 f., 45 Non-discrimination 1 31 ff.; 2 112 ff.; 3 50 – directives 1 41 – employment 2 116 Non-mandatory law 4 19; 5 1, 38 Non-performance 6 6, 32 – Acquis Principles 6 14 – anticipated 6 77

309

Index – – – – –

CESL 6 25 ff. definition of 6 14 ff. delivery 6 42, 67 excused 6 6, 8, 29 ff., 81, 86, 88 fundamental 5 8; 6 6, 25 ff., 27 f., 42, 62 ff. – intentional 6 95 f. Notice 2 31 ff.; 3 67, 70; 6 74, 79 – avoidance 3 111 f. – dispatch theory 2 35 f. – electronic 2 37 f. – receipt theory 2 33, 35 – right of withdrawal 3 135 ff. – termination 5 44 ff. Notification 6 8, 54 ff., 75, 81 nullité absolue 3 113 Obligation – examination 6 8 – notification 6 8 Offer – revocation 3 129 – right of withdrawal 3 129 Optional instrument 1 52 Package travel – remedies 6 12 Pacta sunt servanda 2 87; 3 116, 122; 5 49 Pandectism 2 2; 7 9 Passenger rights 1 28; 6 24 Pavia Draft 1 45 Payment 5 15 ff., 19, 26 ff.; 6 45 – interest 6 84 ff., 97 ff. – late 4 58 ff.; 6 97 ff. – obligation 6 100 – reimbursement of 3 143 Payment services 1 40; 2 94a PECL – structure 1 44 Performance – additional period 5 28; 6 23, 32, 57, 62 – breach 6 1 ff. – conditional 5 32 – delivery 6 32 – illegal 6 48 – impossible 6 48 – late 6 16, 23 – manner of 5 21 – obligation 5 1 ff. – payment 5 26 ff. – place of 5 13, 21 ff. – remedy 6 4, 26, 32 ff., 39 ff., 56, 57 – right of withdrawal 3 128 – service 5 18

310

– – – –

subsequent 6 49 ff., 51 ff. third party 5 17 time of 5 21, 28 ff.; 6 100 withholding 6 7 f., 36, 57, 58 ff., 61; 7 11 PICC 1 46 Possession 5 9, 13, 36 f. Pre-contractual statements 3 78 ff. – CESL 3 82 f. – third parties 3 83 ff. Prescription – CESL 7 9 ff. – dispute resolution 7 16 – effects of 7 11 – incapacity 7 17 f. – long period 7 12 ff. – short period 7 12 ff. Price reduction 6 57 – notice 6 79 Primary law 1 16, 29 ff.; 2 115 – CESL 1 58 – conclusion of contract 3 50 – services 2 53 Private international law 1 28 – CESL 1 58 Prosumer 2 123 Public statements 5 5 Real time communication 3 75 Redress 2 94 Regulation 1 16 f., 28 Remedies 5 20 – Acquis Principles 6 5 – Avoidance 3 46, 93, 97, 111 ff. – CESL 6 6 f. – combination 6 58, 83 – damages 3 97, 114 ff.; 6 7 f., 84 ff.; 7 11 f. – disproportionality 6 50 – exclusion of 6 47 – hierarchy 6 4, 8, 57, 65 – impossibility 6 50 – non-performance 6 1 ff. – performance 5 1; 6 4, 7 f., 26, 32 ff., 39 ff., 56, 57 – price reduction 6 7 f., 57 f., 78; 7 11 – proportionality 6 48 – rescission 6 4, 32 – selection 6 56 – termination 3 93; 5 1, 28, 43 ff.; 6 2, 4, 7 f., 10, 23, 27 f., 32, 57, 58, 61 ff., 101; 7 11 – withholding performance 6 7 f., 36, 58 ff., 61; 7 8, 11

Index Restitutio in integrem 6 93 Restitution 6 52, 77, 101 ff. – CESL 6 102 ff. – damages 6 93 ff. – data 6 104 – right of withdrawal 3 140 Right of withdrawal 2 87; 3 93, 97 f., 103, 116 ff.; 7 8 – ancillary contract 3 147 f. – compensation for use 3 144 – diminished value 3 144 – distance contract 3 123 – effect 3 140 ff., 141 f. – exceptions 3 125, 146 – exercise 3 128, 135 ff., 148 – extension 3 139; 7 1 – freedom of contract 3 126 – functions 3 120 – good faith 3 31, 144 – information 2 38; 3 45, 47, 138 f. – mandatory rules 3 133 – notice 2 35 f. – offer 3 129 – off-premises contract 3 123 – preclusion 7 1 – service contract 3 146 – structure 3 119, 127 – termination 3 141 – withdrawal period 3 128 Risk – carrier 5 38 – consumer contract 5 35 – passing of 5 33 ff.; 6 60 Sale – contract 2 43 ff. – definition of 2 62 Schuman Plan 1 23 Service – advisory 2 51 – contract 2 52 ff. – definition of 2 53 – directive 1 43 – non-performance 6 11, 13 – related 2 62 – right of withdrawal 3 146 – scope 2 54 f. SME – CESL 1 55

– directives 1 38 Software 2 66 Sources 1 7 Substitute transactions 6 86 Termination 3 130; 6 57, 61 ff. – mixed contract 2 76 – notice 6 74 Terminology 1 14 ff. Terms – Acquis Principles 4 60 ff. – black list 4 15, 30, 69, 74, 77, 82 – CESL 4 78 ff. – consequence of unfairness 4 48 ff. – contract 4 1 ff. – control of 2 95 ff.; 4 42 – DCFR 4 70 ff. – fairness 4 16 – general clause 4 5, 8, 18 ff., 27 ff., 67, 80 – good faith 2 98 ff.; 4 8, 30 ff., 32 ff., 59, 68 – grey list 4 15, 27 ff., 69, 74, 77, 82 – interpretation 4 18, 21, 45 – jurisdiction 4 31, 36, 53 f. – non-negotiated 4 63 ff., 76, 78 f. – payment 4 58 ff. – preservative reduction 4 49 ff. – single use 4 23, 26, 61, 65, 79 – standard 3 52, 64; 4 18 ff., 23, 61, 63 ff., 65, 72 f. – transparency 4 6, 39 ff., 44, 70 ff., 78 f. – unfair 1 32; 4 1 ff. Third party – performance 5 17 – statements 3 83 ff., 99 Threat – CESL 3 111 Timeshare 2 41 f. Unfair commercial practices 3 106 ff. – inertia selling 2 20 Unfair exploitation – CESL 3 111 Unilateral promise 3 55 ff., 87 ff.

311