European Contract Law 9781509941810, 9781509941803

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Foreword Many fields of European contract law have changed considerably in recent years and indeed since the second edition of this book. The legislative responses to digitalization have resulted in several directives and regulations, changing the shape of the acquis communautaire: Digital Content Directive, Sale of Goods Directive, Modernization Directive, Platform Regulation, Portability Regulation, and the Geo-blocking Regulation. European contract law thus not only covers new topics but is also influenced by new concepts and principles (such as the role of data in contracting, the features of digital content, control of contract terms in B–B contracts). European case law surrounding contract law has also experienced considerable developments (especially in the field of unfair contract terms). A new edition of ‘European Contract Law’ is therefore necessary due to the demand for structured insights into the extensive contract law acquis as well as the rapid and broad development of European contract law itself. Accordingly, it was necessary to revise and update the second edition (2018) to accurately present the structure of modern EU contract law, its law on unfair terms, performance obligations and the consequences of breaches thereof. In light of the changes to contract law from, above all, the new challenges presented by digitization, this third edition strives to fulfil an aim already outlined in the foreword to the first edition: to allow legal scholars and practitioners, 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 concepts in contract law. In so doing it serves 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 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 No. DEC-2012/04/A/HS5/00709. The content and structure are based on the third German edition of ‘Europäisches Vertragsrecht’ (Nomos 2021) and take into account developments prior to 1 December 2020. The authors kindly thank Dr. Jonathon Watson, without whom this adapted English language version would not have been possible.

December 2020

Reiner Schulze/Fryderyk Zoll

V

Abbreviations AcP ADR AG AGB Art. B–B B–C Bd. BGH BGHZ

BT-Drucks. CESL CESL-Reg CIEU CJEU CMLR Commentaries on European Contract Laws Contract II

CRD CSD CUP DCD DCFR Full Edition

DNotZ EC ECJ ECLI ECR ECtHR ed(s)

Archiv für die civilistische Praxis Alternative Dispute Resolution Advocate General Allgemeine Geschäftsbedingungen; general terms and conditions Article(s) Business-to-Business Business-to-Consumer Band; volume Bundesgerichtshof; German Federal Court of Justice Entscheidungen des Bundesgerichtshofs in Zivilsachen; decisions of the German Federal Court of Justice (Civil Law) Bundestagsdrucksache; Bundestag document Common European Sales Law (Draft Annex I) Common European Sales Law (Draft Regulation) Contratto e impresa/europa Court of Justice of the European Union Common Market Law Review Zimmermann/Jansen (eds), Commentaries on European Contract Laws (OUP 2018) 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) Consumer Rights Directive Consumer Sales Directive Cambridge University Press Digital Content Directive 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)

XI

Abbreviations

edn EEC e.g. ELI EP ERCL ERPL et al. etc. et seq. EU EuCML EUI EULA EU Sales Directive EuZW EWS FEDSA German Civil Code GPR Handbuch Europarecht HanseLR HK-BGB HZ ibid. i.e. IMCO IWRZ JR JURI JZ LQR M-EPLI MJ MLR MMR

XII

Edition European Economic Community Exempli gratia; for example European Law Institute European Parliament European Review of Contract Law European Review of Private Law Et alia; and others Et cetera; and the rest Et sequentia; and the following European Union Journal of European Consumer and Market Law European University Institute End User Licence Agreement Bianca/Grundmann (eds), EU Sales Directive: Commentary (Intersentia 2002) Europäische Zeitschrift für Wirtschaftsrecht Europäisches Wirtschafts- und Steuerrecht Federation of European Direct Selling Associations Dannemann/Schulze (eds), German Civil Code – Commentary (C.H. Beck 2020) European Union Private Law Review Schulze/Janssen/Kadelbach (eds), Europarecht – Handbuch für die deutsche Rechtspraxis (4th edn, Nomos 2020) 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

Abbreviations

mn. MüKo BGB

Margin number Münchener Kommentar zum Bürgerlichen Gesetzbuch: BGB (C.H. Beck) n Footnote No. Number NJW Neue Juristische Wochenschrift NVwZ Neue Zeitschrift für Verwaltungsrecht ODR Online Dispute Resolution OJ Official Journal of the European Union OUP Oxford University Press Oxf J Leg Stud Oxford Journal of Legal Studies Para. Paragraph(s) PTD Package Travel Directive QB Queen's Bench Division RabelsZ Rabels Zeitschrift für ausländisches und internationales Privatrecht Reg Regulation RGZ Entscheidungen des Reichsgerichts in Zivilsachen; Decisions of the Reich Court (Civil Law) RIDC Revue internationale de droit comparé Riv.Dir.Civ. Rivista di Dirritto Civile RTD Civ. Revue Trimestrielle de Droit Civil SGD Sale of Goods Directive Schlechtriem & Schwenzer Schwenzer (ed), Schlechtriem & Schwenzer: Commentary CISG on the UN Convention on the International Sale of Goods (4th edn, OUP 2016) Schmidt-Kessel CESL Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014) Schulze CESL Schulze (ed), Common European Sales Law – Commentary (Nomos 2012) SE Societas Europaea SI Statutory Instrument SME Small and Medium-sized Enterprise UTD Unfair Terms Directive VUWLR Victoria University of Wellington Law Review WM Wertpapier-Mitteilungen ZEuP Zeitschrift für Europäisches Privatrecht ZIP Zeitschrift für Wirtschaftsrecht ZJS Zeitschrift für das Juristische Studium ZRP Zeitschrift für Rechtspolitik ZVglRWiss Zeitschrift für Vergleichende Rechtswissenschaft XIII

Legislation and Other Sources ABGB ACQP

ADR Directive

AGB-Gesetz 1976

BGB BW CFR CISG Coach Passenger Regulation

Commercial Agents Directive Common European Sales Law Consumer Credit Directive

Consumer ODR Regulation

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 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 [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 Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law COM(2011) 635 final. 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 [2013] OJ L165/1

XV

Legislation and Other Sources

Consumer Rights Directive; CRD

Consumer Sales Directive; CSD

CoPECL Cultural Objects Directive

DCFR

Denied Boarding Regulation

Digital Content Directive; DCD

Distance Marketing of Financial Services Directive

Distance Selling Directive

Doorstep Selling Directive

ECHR

XVI

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 Common Principles of European Contract Law 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 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) 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 Directive (EU) 2019/770 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the supply of digital content and digital services [2019] OJ L136/1 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/EC and Directives 97/7/EC and 98/27/EC [2002] OJ L271/16 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 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 European Convention on Human Rights

Legislation and Other Sources

Ecodesign Directive

E-Commerce Directive

eDIAS Regulation

EGBGB Employment Equality Directive GDPR

Gender Directive

Geo-blocking Regulation

Insurance Distribution Directive Late Payment Directive

Late Payment Directive (2000) Life Assurance Directive

Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products [2009] OJ L285/10 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 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 Einführungsgesetz zum Bürgerlichen Gesetzbuche; Introductory Act to the German Civil Code Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation [2000] OJ L303/16 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 L119/1 (General Data Protection Regulation) 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 Regulation (EU) 2018/302 of the European Parliament and of the Council of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC [2018] OJ L60I/1 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 XVII

Legislation and Other Sources

Markets in Financial Instruments Directive; MiFID

Misleading and Comparative Advertising Directive Modernization Directive

Mortgage Credit Directive

ODR Regulation

OR Package Travel Directive; PTD

Package Travel Directive (1990) Payment Services Directive

PECL

PEL PICC

XVIII

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 (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules [2019] OJ L328/7 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 L163/1 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 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

Legislation and Other Sources

Platform Regulation

Portability Regulation

Racial Equality Directive

Rail Passenger Regulation

Rome I Regulation

Sale of Goods Directive; SGD

Services Directive

Ship Passenger Regulation

Solvency II Directive

TEU TFEU Timeshare Directive

Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services [2019] OJ L186/57 Regulation (EU) 2017/1128 of the European Parliament and of the Council of 14 June 2017 on cross-border portability of online content services in the internal market [2017] OJ L168/1 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 (EU) 2019/771 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC, and repealing Directive 1999/44/EC [2019] OJ L136/28 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 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance [2009] OJ L335/1 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, longterm holiday product, resale and exchange contracts [2009] OJ L33/10

XIX

Legislation and Other Sources

Unfair Commercial Practices Directive; UCPD

Unfair Terms Directive; UTD UWG

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Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-toconsumer 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 Court of Justice Joined cases C–43/59, 45/59 and 48/59 Von Lachmüller ECLI:EU:C:1960:37 C–6/64 Costa/E.N.E.L. ECLI:EU:1964:66 C–11/70 Internationale Handelsgesellschaften ECLI:EU:C:1970:114 C–106/77 Simmenthal II ECLI:EU:C:1978:49 C–66/81 Pommerehnke ECLI:EU:C:1982:130 C–215/88 Casa Fleischhandel ECLI:EU:C:1989:331 C–362/88 GB INNO BM ECLI:EU:C:1990:102 C–26/91 Handte/TMCS ECLI:EU:C:1982:130 C–91/92 Faccini Dori ECLI:EU:C:1994:292 C–24/95 Aclan Deutschland ECLI:EU:C:1997:163 C–269/95 Benincasa ECLI:EU:C:1997:337 C–45/96 Dietzinger ECLI:EU:C:1998:11 C–51/97 Réunion européenne ECLI:EU:C:1998:509 Joined cases C–240/98–244/98 Océano ECLI:EU:C:2000:346 Joined cases C–240/98–244/98 Océano ECLI:EU:C:2000:346 Joined cases C–240/98–244/98 Océano ECLI:EU:C:2000:346 Joined cases C–240/98–244/98 Océano ECLI:EU:C:2000:346 C–203/99 Veedfald ECLI:EU:C:2001:258 C–478/99 Commission/Sweden ECLI:EU:C:2002:281 C–481/99 Heininger ECLI:EU:C:2001:684 C–481/99 Heininger ECLI:EU:C:2001:684 C–96/00 Gabriel ECLI:EU:C:2002:436 C–96/00 Gabriel ECLI:EU:C:2002:436 C–168/00 Leitner ECLI:EU:C:2002:163 C–168/00 Leitner ECLI:EU:C:2002:163 C–334/00 Tacconi ECLI:EU:C:2002:68 (AG Geelhoed) C–400/00 Club-Tour ECLI:EU:C:2015:538 C–464/01 Gruber ECLI:EU:C:2005:32 C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 C–70/03 Commission/Spain ECLI:EU:C:2004:505 C–336/03 easyCar ECLI:EU:C:2005:150 C–144/04 Mangold ECLI:EU:C:2005:709 C–144/04 Mangold ECLI:EU:C:2005:709 C–295/04 Manfredi ECLI:EU:C:2006:461 C–168/05 Mostaza Claro ECLI:EU:C:2006:675 C–180/06 Ilsinger ECLI:EU:C:2009:303 C–306/06 01051 Telekom ECLI:EU:C:2008:187 C–306/06 01051 Telekom ECLI:EU:C:2008:187 C–404/06 Quelle ECLI:EU:C:2008:31 C–412/06 Hamilton ECLI:EU:C:2008:215 C–427/06 Bartsch ECLI:EU:C:2008:517 C–434/07 Harms ECLI:EU:C:2010:285 C–489/07 Messner ECLI:EU:C:2008:98 (AG Trstenjak)

Ch mn. 3

3

1 1 1 1 2 3 1 3 3 1 2 1 4 4 4 4 6 4 3 3 1 3 6 6 1 5 2 4 4 4 1 1 2 6 4 3 1 6 6 3 1 1 3

25 25 25 25 161 6 30 126 3 48 88 30 9 30 et seq. 56 72 107 27 45 140 48 64 107 114 30 5 161 9 33 et seq. 46 31 31 148 107 57 65 38 121 71 45 31 30 144 XXI

List of Cases

C–489/07 Messner ECLI:EU:C:2009:502 C–489/07 Messner ECLI:EU:C:2009:502 C–555/07 Kücükdeveci ECLI:EU:C:2010:21 C–40/08 Asturcom Telecomunicaciones ECLI:EU:C:2009:615 C–147/08 Römer ECLI:EU:C:2011:286 C–243/08 Pannon GSM ECLI:EU:C:2009:350 C–484/08 Caja de Ahorros ECLI:EU:C:2010:309 C–511/08 Heinrich Heine ECLI:EU:C:2010:189 Joined cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396 Joined cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396 C–76/10 Pohotovost´ ECLI:EU:C:2010:65 C–292/10 G ECLI:EU:C:2010:142 C–360/10 SABAM ECLI:EU:C:2012:85 C–415/10 Meister ECLI:EU:C:2012:217 C–453/10 Pereničová ECLI:EU:C:2012:144 C–453/10 Pereničová ECLI:EU:C:2012:144 C–472/10 Invitel ECLI:EU:C:2012:242 C–472/10 Invitel ECLI:EU:C:2012:242 C–472/10 Invitel ECLI:EU:C:2012:242 C–602/10 SC Volksbank România ECLI:EU:C:2012:443 C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 C–49/11 Content Services ECLI:EU:C:2012:419 C–49/11 Content Services ECLI:EU:C:2012:419 C–49/11 Content Services ECLI:EU:C:2012:419 C–134/11 Blödel-Pawlik AG ECLI:EU:C:2012:98 C–283/11 Sky Österreich ECLI:EU:C:2013:28 C–335/11 HK Danmark ECLI:EU:C:2013:222 C–555/11 EEAE ECLI:EU:C:2013:668 C–604/11 Genil 48 ECLI:EU:C:2013:344 C–32/12 Duarte Hueros ECLI:EU:C:2013:128 (AG Kokott) C–32/12 Duarte Hueros ECLI:EU:C:2013:637 C–57/12 Femarbel ECLI:EU:C:2013:517 C–184/12 Unamar ECLI:EU:C:2013:663 C–209/12 Endress ECLI:EU:C:2013:864 C–361/12 Carratù ECLI:EU:C:2013:830 C–565/12 Crédit Lyonnais ECLI:EU:C:2014:190 C–592/12 Napoli ECLI:EU:C:2014:128 C–26/13 Kásler ECLI:EU:C:2014:282 C–26/13 Kásler ECLI:EU:C:2014:282 C–26/13 Kásler ECLI:EU:C:2014:282 C–26/13 Kásler ECLI:EU:C:2014:282 C–51/13 Nationale-Nederlanden Levensverzekering Mij ECLI:EU:C:2015:286 C–143/13 Matei ECLI:EU:C:2015:127 C–143/13 Matei ECLI:EU:C:2015:127 C–430/13 Baradics ECLI:EU:C:2014:32 C–449/13 Consumer Finance ECLI:EU:C:2014:2464 C–537/13 Šiba ECLI:EU:C:2015:14 C–537/13 Šiba ECLI:EU:C:2015:14 XXII

2 3 1 4 1 4 4 3 6 6 1 1 1 1 1 4 1 4 4 1 1 4 2 3 3 1 1 1 1 1 6 1 1 1 1 1 1 1 1 4 4 4 1

135 145–146 31 58 31 36–37 78 144 61 70 37 39 39 41 37 52 37 36 et seq. 60 37 37 50–51 58–59 76 139–140 37 30 41 38 43 86 37 43 38 42 41 37 41 37 41 et seq. 51 78 42

1 4 1 1 1 2

37 78 37 37 37 162

List of Cases

C–497/13 Faber ECLI:EU:C:2015:357 C–497/13 Faber ECLI:EU:C:2015:357 C–497/13 Faber ECLI:EU:C:2015:357 C–83/14 CEZ Razpredelenie Bulgaria ECLI:EU:C:2015:480 C–83/14 CEZ Razpredelenie Bulgaria ECLI:EU:C:2015:480 C–96/14 Van Hove ECLI:EU:C:2015:262 C–96/14 Van Hove ECLI:EU:C:2015:262 C–96/14 Van Hove ECLI:EU:C:2015:262 C–104/14 Federconsorzi ECLI:EU:C:2015:125 C–110/14 Costea ECLI:EU:C:2015:538 C–110/14 Costea ECLI:EU:C:2015:538 C–338/14 Quenon ECLI:EU:C:2015:795 C–377/14 Radlinger ECLI:EU:C:2016:283 C–484/14 McFadden ECLI:EU:C:2016:689 C–555/14 IOS Finance ECLI:EU:C:2017:121 C–42/15 Home Credit Slovakia ECLI:EU:C:2016:842 C–119/15 Biuro podróży ECLI:EU:C:2016:987 C–119/15 Biuro podróży ECLI:EU:C:2016:987 C–127/15 Verein für Konsumenteninformation ECLI:EU:C:2016:934 C–149/15 Whatelet ECLI:EU:C:2016:840 C–149/15 Whatelet ECLI:EU:C:2016:840 C–149/15 Whatelet ECLI:EU:C:2016:840 C–360/15 X ECLI:EU:C:2018:44 C–434/15 Asociación Profesional Elite Taxi ECLI:EU:C:2017:981 C–434/15 Asociación Profesional Elite Taxi ECLI:EU:C:2017:981 Joined cases C–511/15 and C–512/15 Horžić ECLI:EU:C:2016:787 C–568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main ECLI:EU:C:2017:154 C–668/15 Jyske Finans ECLI:EU:C:2017:27 C–668/15 Jyske Finans ECLI:EU:C:2017:27 C–48/16 ERGO Poist’ovňa ECLI:EU:C:2017:377 C–48/16 ERGO Poist’ovňa ECLI:EU:C:2017:377 C–133/16 Ferenschild ECLI:EU:C:2017:541 C–133/16 Ferenschild ECLI:EU:C:2017:541 C–143/16 Abercrombie & Fitch Italia ECLI:EU:C:2017:566 C–186/16 Andriciuc and Others ECLI:EU:C:2017:703 C–186/16 Andriciuc and Others ECLI:EU:C:2017:703 C–247/16 Schottelius ECLI:EU:C:2017:638 C–247/16 Schottelius ECLI:EU:C:2017:638 C–247/16 Schottelius ECLI:EU:C:2017:638 C–270/16 Ruiz Conejero ECLI:EU:C:2018:17 C–320/16 Uber France ECLI:EU:C:2018:221 C–542/16 Länsförsäkringar Sak Försäkringsaktiebolag and Others ECLI:EU:C:2018:369 C–643/16 American Express ECLI:EU:C:2018:67 C–645/16 CMR ECLI:EU:C:2018:262 Joined cases C‑54/17 und C‑55/17 Wind Tre ECLI:EU:C:2018:710 C–105/17 Kamenova ECLI:EU:C:2018:808 C–287/17 Česká pojišťovna ECLI:EU:C:2018:707 C–287/17 Česká pojišťovna ECLI:EU:C:2018:707

1 2 6 1 2 1 2 4 1 1 2 1 1 1 1 1 1 4 1 1 2 5 1 1 1 1 1

37 164 34 41 152 37 30–31 78 38 37 163 38 37 39 38 37 37 60 37 37 165 9 43 39 43 37 37

1 2 1 6 1 6 1 1 4 1 2 5 1 1 1

41 151 38 43 37 46 41 37 3 37 69 9 41 43 38

1 1 3 1 1 6

40 38 94 37 38 121 XXIII

List of Cases

C–332/17 Starman ECLI:EU:C:2018:721 C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 C–452/17 Zako ECLI:EU:C:2018:935 Joined cases C–473/17 and C–546/17 Repsol Butan ECLI:EU:C:2019:308 C–485/17 Verbraucherzentrale Berlin ECLI:EU:C:2018:642 C–485/17 Verbraucherzentrale Berlin ECLI:EU:C:2018:642 C–521/17 SNB-React ECLI:EU:C:2018:639 C–649/17 Amazon EU ECLI:EU:C:2019:576 C–681/17 slewo ECLI:EU:C:2019:225 C–681/17 slewo ECLI:EU:C:2019:225 C–681/17 slewo ECLI:EU:C:2019:225 Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 C–18/18 Glawischnig-Piesczek ECLI:EU:C:2019:821 C–52/18 Fülla ECLI:EU:C:2019:447 C–52/18 Fülla ECLI:EU:C:2019:447 C–52/18 Fülla ECLI:EU:C:2019:447 C–58/18 Schyns ECLI:EU:C:2019:467 C–125/18 Gómez del Moral Guasch ECLI:EU:C:2020:138 C–125/18 Gómez del Moral Guasch ECLI:EU:C:2020:138 C–131/18 Gambietz ECLI:EU:C:2019:306 C–143/18 Romano ECLI:EU:C:2019:701 C–143/18 Romano ECLI:EU:C:2019:701 C–154/18 Horgan ECLI:EU:C:2019:113 C–163/18 Aegean Airlines ECLI:EU:C:2019:585 C–260/18 Dziubak ECLI:EU:C:2019:819 C–260/18 Dziubak ECLI:EU:C:2019:819 C–260/18 Dziubak ECLI:EU:C:2019:819 C–292/18 Breyer ECLI:EU:C:2018:997 C–331/18 Pohotovost´ ECLI:EU:C:2019:665 C–349/18 Kanyeba ECLI:EU:C:2019:936 C–355/18 Rust-Hackner ECLI:EU:C:2015:1123 C–355/18 Rust-Hackner ECLI:EU:C:2015:1123 C–383/18 Lexitor ECLI:EU:C:2019:702 C–390/18 Airbnb Ireland ECLI:EU:C:2019:1112 C–390/18 Airbnb Ireland ECLI:EU:C:2019:1112 C–397/18 Nobel Plastiques Ibérica ECLI:EU:C:2019:703 C–419/18 Profi Credit Polska ECLI:EU:C:2019:930 C–452/18 Ibercaja Banco ECLI:EU:C:2020:536 C–452/18 Ibercaja Banco ECLI:EU:C:2020:536 C–679/18 OPR Finance ECLI:EU:C:2020:167 C–66/19 Kreissparkasse Saarlouis ECLI:EU:C:2020:242 XXIV

1 1 2 3 3 1 1

37 37 60 76 139 38 43

1 3 1 1 1 3 3 1

37 125–126 39 37 37 127 145 37

2

38

3

92

1 1 6 6 1 1 4 1 1 2 1 1 1 4 4 1 1 2 1 3 1 1 1 1 1 1 4 1 3

39 37 65 68–69 37 37 43 38 37 61 41 37 37 48–49 53 37 37 45 42 140 37 39 43 41 37 37 49 37 140

List of Cases

C–290/19 Home Credit Slovakia ECLi:EU:C:2019:1130 C–465/19 B&L Elektrogeräte ECLI:EU:C:2019:1091 C–465/19 B&L Elektrogeräte ECLI:EU:C:2019:1091 C–529/19 Möbel Kraft ECLI:EU:C:2020:846 C–529/19 Möbel Kraft ECLI:EU:C:2020:846

1 1 3 1 3

37 37 125–126 37 127

General Court T–24/90 Automec ECLI:EU:T:1992:97 T-203/96 Embassy Limousines ECLI:EU:T:1998:302 T-307/1 François ECLI:EU:T:2004:180

2 3 6

108 30 107

National courts Germany BGH, 30.5.2011, VIII ZR 70/00 BGH, 16.3.2016, VIII ZR 146/15 LG München I, 1.3.2018, 12 O 730/17

6 3 3

80 123 76

United Kingdom Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 Walford v Miles [1992] 2 AC 128

3 3

90 16

XXV

CHAPTER 1 FOUNDATIONS Literature: von Bar/Clive (eds), DCFR Full Edition (Sellier 2009); Basedow/Hopt/Zimmermann (eds), The Max Planck Encyclopedia of European Private Law (OUP 2012); Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020); Jansen/Zimmerman (eds), Commentaries on European Contract Laws (OUP 2018); 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/Janssen/Kadelbach (eds), Europarecht – Handbuch für die deutsche Rechtspraxis (4th edn, Nomos 2020); Schulze/Staudenmayer (eds), EU Digital Law – Commentary (Nomos 2020); Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010). I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. European contract law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Aim and structure of this book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Sources and literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Contract law as part of European private law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Dualism of national and supranational law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Contract law in the acquis communautaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Types of rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Primary law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Directives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Selected legislation and case law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Coherency of European contract law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Academic approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Commission Action Plan and the Common Frame of Reference . . . . . . . . . 3. The CESL as a codification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Focus on the Digital Single Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Reshaping contract law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 4 7 13 13 23 28 28 29 32 37 44 44 50 52 61 61 62 72

I. Introduction 1. European contract law Contract law is the central legal instrument for market organization and thereby for 1 the provision of all forms of goods and services in market societies. In this respect, one cannot overlook that the economic and political integration in Europe since the mid-20th century has resulted in one of the world’s largest internal markets. 1 In addition, the EU internal market offers almost 445 million consumers the possibility to acquire goods and services from 27 EU Member States without customs fees or other similar charges. The benefits therefore concern 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 lacks 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 changes than 2 may seem 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. Ex1 Approximately 3061 billion euro in goods were traded in 2019, see https://ec.europa.eu/eurostat/statis tics-explained/index.php?title=International_trade_in_goods (last accessed 9 December 2020).

1

Chapter 1 Foundations

amples include the EU-wide 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. Although 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 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, therefore face 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 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 for cross-border sales contracts. The Commission has since withdrawn this proposal due to its rejection by a number of Member States. However, at almost the same time one can observe the efforts towards preparing and drafting legal responses to the pressing challenges for the internal market resulting from the rapidly developing digitalization in the field of contract law. More specifically, new European legislation with a particularly broad scope (e.g. the Digital Content Directive, which in principle covers all contracts with consumers for the supply of digital content and digital services, irrespective of the traditional categorization as sale, hire, etc.).7 European contract law has therefore not ceased in its development,8 but rather seems to have gained new momentum through the digital revolution and its necessary innovative responses and the inclusion of further aspects are linked to the development of existing core concepts and princi-

2 See Press Release from 11 October 2011, available online under http://europa.eu/rapid/press-release_I P-11-1175_en.htm (last accessed 9 December 2020). 3 COM(2011) 635 final, 1–4. 4 See mn. 47 et seq. 5 See mn. 51. 6 See mn. 52 et seq. 7 See mn. 61 et seq. 8 Schulze/Staudenmayer (eds), Digital Revolution, Challenges for Contract Law in Practice (Nomos 2016).

2

I. Introduction

ples.9 It can therefore be stated that for the foreseeable future European contract law will remain a law in progress, both at academic as well at legislative level.

2. Aim and structure of this book This book intends to allow scholars, practitioners and students to participate in the 4 development of European contract law. Its primary aim is therefore to explain 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 refers to the key provisions in EU law, the decisions of the European courts, as well as to 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, considerable 5 attention is paid to the concepts, rules and doctrines of overarching relevance for contract law. Secondly, emphasis is placed on sales law and 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 breadth of the new legislative responses to digitalization, the legal framework in EU law relation to consumer contracts (B–C) and commercial contracts (B–B) features prominently throughout this book. Following an introduction to the foundations and components of European contract 6 law the chapters of this book are structured according to the ‘life cycle’ of a contract: conclusion, content and rules concerning unfair terms, performance duties, non-performance (including non-conforming performance) and consequences, and prescription. Each section focuses on the EU law in force and the underlying principles and central concepts. Particular attention is also directed towards the new legislation concerning contract law in the digital single market10, and the possible consequences for the further development of European contract law. The chapters of this book also refer to the Commission’s proposal for a Common European Sales Law as well as to the earlier preparatory studies. Each chapter features an overview of standard literature on the topic; whereas the footnotes contain references to further literature. The text also includes extracts from key documents and processes in the development of European contract law.

3. Sources and literature a) Sources 7

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

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); 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;

9 Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695. 10 In particular the Digital Content Directive, the Sale of Goods Directive, as well as the Platform Regulation.

3

Chapter 1 Foundations

–

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). The citation begins with the case reference number, followed by 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.

8

bb) The Digital Content Directive 2019/770, the Sale of Goods Directive 2019/771 and the Platform Regulation 2019/1150 belong to the most important legislation for contract law. The Digital Content Directive, as well as several other EU provisions responding to the challenges of digitalization, are explained in-depth in Schulze/Staudenmayer (eds), EU Digital Law – Commentary (Nomos 2020). The new legislation refers greatly to concepts and approaches outlined in 2011 in the European Commission’s proposal for a Common European Sales Law. The proposal 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). Schulze (ed), Common European Sales Law (CESL) – Commentary (Nomos 2012)11 contains a more detailed explanation of the proposal’s content. Further publications on this topic 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); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014)12. 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)13, the Principes du Droit Européen du Contrat 14, the Principles of the Existing EC Contract Law (Acquis Principles)15, and the Draft Common Frame of Reference (DCFR)16. These sets of rules exercised some influence on the content and structure of the CESL and several other pieces of legislation, however they do not (or only minimally) consider the changes to contract practice and EU law as a result of digitalization. A comprehensive, systematic overview of the provisions of several of such sets of rules together with a commentary and critical analysis may be found in Jansen/Zimmermann (eds), Commentaries on European Contract Laws (OUP 2018).

11 References to the comments in this publication are cited as ‘Schulze CESL/contributor’ followed by the relevant article. 12 References to the comments in this publication are cited as ‘Schmidt-Kessel CESL/contributor’ followed by the relevant article. 13 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). 14 Association Henri Capitant/Société de Législation Comparée (eds), Projet de Cadre Commun de Référence, Principes Contractuels Commun (Société de Législation Comparée 2008). 15 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. 16 von Bar/Clive (eds), DCFR Full Edition (Sellier 2009).

4

II. Contract law as part of European private law

b) Literature 10

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

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 the topic 11 of European contract law: – – – – –

Alpa/Andenas, Fondamenti del diritto privato europeo (Giuffrè 2005) Beale/Fauvarque-Cosson/Rutgers/Vogenauer, Cases, Materials and Text on Contract Law (3rd edn, Hart 2019) Kadner-Graziano, Comparative Contract Law (2nd edn, Edward Elgar 2019) 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 under http://eur-lex.europa.eu/n-lex/. cc) The Max Planck Encyclopaedia of European Private Law (Basedow/Hopt/Zimmer- 12 mann (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 has been subject to increasing attention from academia and 13 European institutions17 since the 1980s. Subsequent studies by the ‘Commission for European Contract Law’18 and early policy documents19 placed this area of law at the centre of discussions surrounding concepts, methods and content of European private law.20 Early research was linked and extended by other legal disciplines:21 civil law (alongside national law) also focused increasingly on European private law and its influence on national law,22 European law (whose initial main focus on public law was criti17 Initially the European Parliament with the Resolution on action to bring into line the private law of the Member States [1989] OJ C158/400. 18 Chaired by the comparative lawyer, Ole Lando; on the creation of the Commission see Lando/Beale, Principles of European Contract Law – Parts I & II (Kluwer 1999) xi. 19 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. 20 On the current status and perspectives see Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011). 21 As was already noted at an earlier stage by Basedow et al., ‘Editorial’ (1993) ZEuP 3. 22 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

5

Chapter 1 Foundations

cized in 1964 by Walter Hallstein23), comparative law,24 private international law,25 and legal history.26 b) Variations 14

The new field of research was, however, confronted by the absence of a uniform 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’. 15 aa) Firstly, European private law may be understood as the private law of the 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.27 European private law was initially expressed as ‘Community private law’,28 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 Lisbon29. The use in this book of ‘European private law’ and ‘European contract law’ will adopt this meaning, unless stated otherwise. 16 ‘European contract law’ used in this context comprises the acquis communautaire in contract law.30 The relevant rules belong partly to EU primary law and partly to EU sec(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. 23 Hallstein, ‘Angleichung des Privat- und Prozessrechts in der Europäischen Wirtschaftsgemeinschaft’ (1964) RabelsZ 211. 24 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). 25 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) mn. 63–64a; Rauscher, Internationales Privatrecht (4th edn, C.F. Müller 2012) mn. 89–92. 26 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); PadoaSchioppa, 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). 27 Hallstein, ‘Angleichung des Privat- und Prozessrechts in der Europäischen Wirtschaftsgemeinschaft’ (1964) RabelsZ 211. 28 Müller-Graff, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999); Schulze, ‘Allgemeine Grundsätze und europäisches Privatrecht’ (1993) ZEuP 442; Smits, ‘A European Private Law as a Mixed Legal System’ (1998) MJ 328. 29 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. 30 On the notion 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,

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ondary law. EU primary law31 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)32. 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.33 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. Regulations are binding in their entirety and are directly applicable in all Member 17 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 only to the Member States. Accordingly, directives do not 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).34 The Member States can therefore choose to implement European rules into national law in a manner that causes the least friction. In private law matters, the European legislator tends to prefer the directive as the form for the legislation. bb) Secondly, in a broad sense European private law also encompasses provisions of 18 international conventions that apply in the Member States but do not apply to the European Union as an institution,35 for example the ECHR and its effects on fields of private law, for instance privacy rights, liberty, and family law.36 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.37 Furthermore, European private law is occasionally linked to international uniform 19 law that applies not only in the bulk of European countries 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.38 Moreover, many national laws in Europe, and indeed reforms of national civil codes, have been based on the CISG.39 At European ‘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 (22nd edn, C.H. Beck 2020) § 6 mn. 6–7, § 8 mn. 3; Streinz, Europarecht (11th edn, C.F. Müller 2019) mn. 101. 31 See Nowak, Europarecht nach Lissabon (Nomos 2011) I mn. 3; Streinz, Europarecht (11th edn, C.F. Müller 2019) mn. 3, 453 et seq.; Woods/Watson, Steiner &Woods EU Law (12th edn, OUP 2014) 18. 32 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). 33 For more detail on the concept of primary law and the function of ECJ jurisprudence in this context see Haratsch/Koenig/Pechstein, Europarecht (12th edn, Mohr Siebeck 2020) mn. 383 et seq.; Herdegen, Europarecht (22nd edn, C.H. Beck 2020) § 8 mn. 4 et seq. 34 For more detail on the effect of directives and their (exceptional) direct effect see Haratsch/Koenig/ Pechstein, Europarecht (12th edn, Mohr Siebeck 2020) mn. 400 et seq.; Horspool/Humphreys, European Union Law (8th edn, OUP 2014) 166–168; Handbuch Europarecht/König, Gesetzgebungsakte mn. 44–71. 35 For example Müller-Graff, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999); Schulze, ‘Allgemeine Grundsätze und europäisches Privatrecht’ (1993) ZEuP 442; Schulze, ‘Le droit privé commun européen’ (1995) RIDC 7. 36 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 mn. 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. 37 Herdegen, Europarecht (22nd edn, C.H. Beck 2020) § 1 mn. 1–2; Handbuch Europarecht/Schulze/ Kadelbach, Zur Einführung mn. 37; Smits, The Making of European Private Law: Toward a Ius Commune Europaeum as a Mixed Legal System (Intersentia 2002) 6–7.

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level the work by the ‘Commission on European Contract Law’40, the Consumer Sales Directive (the most important 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.41 Accordingly, the CISG is to be at least considered as a prime source of inspiration for the broader notion of European contract law. 20 cc) Thirdly, comparative law approaches lead to an understanding of European 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 law42 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’43. 21 However, the results of comparative research on European private law can be 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’.44 The ‘evaluative’ approach towards obtaining common legal content45 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.46 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,47 but also with partial inclusion of further historically-founded characteristics of European private law.48 Occasionally the notion of the 38 38 European countries have ratified the CISG since it was passed in 1980, however not the United Kingdom. An overview of the member states is available online under https://uncitral.un.org/en/texts/sale goods/conventions/sale_of_goods/cisg/status (accessed 9 December 2020). 39 Such as the Netherlands in drafting the Nieuw Burgerlijk Wetboek, Germany in its 2002 modernization of the law of obligations, France in its 2016 reform of contract law, and many eastern European countries in the transition to the market economy; Bien/Borghetti (eds), Die Reform des französischen Vertragsrechts (Mohr Siebeck 2018); Ferrari, The CISG and its Impact on National Legal Systems (Sellier 2008); Hartkamp/Tillema/Ter Heide, Contract Law in the Netherlands (Kluwer 2011); Meyer, ‘UNKaufrecht 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. 40 See 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). 41 Schulze, ‘The New Shape of European Contract Law’ (2015) EuCML 139–144. 42 Müller-Graff, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999) 130. 43 Kötz/Flessner, European Contract Law, vol I (Clarendon 1998). 44 ‘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 (eds), Precontractual Liability in European Private Law (CUP 2009); Zimmermann/Whittaker (eds), Good Faith in European Contract Law (CUP 2000). 45 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. 46 See the extensive publication by Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009); see also Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 mn. 2. For a comparison of contract laws in Europe see Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016). 47 Zimmermann, Law of Obligations (Clarendon 1996).

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‘acquis commun’49 is used to refer to the common stock of 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. dd) Fourthly, in an overarching respect the concept of European private law ultimately 22 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.50

2. Dualism of national and supranational law a) Origins The origin of EU private law – and therein of European contract law – has led to a 23 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.51 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 195052 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 Community53 allowed this supranational common law to stand alongside the different laws of the (then six) Member States. The dualism of national and supranational law has since become characteristic for European integration. Even after the further development from the European Community to the European Union54 the notion of a new monism does not come into serious consideration – either in the form of a return to the absolutism of national law or as suppression of national law through a European legal monism.55

48 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, ‘Allgemeine Grundsätze und europäisches Privatrecht’ (1993) ZEuP 442, 447– 457. 49 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. 50 Müller-Graff, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999) 14– 17; Schulze, ‘Allgemeine Grundsätze und europäisches Privatrecht’ (1993) ZEuP 442. 51 Schulze, ‘Contours of European Private Law’ in Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011) 3–8; Schulze, ‘Nuevos rasgos del Derecho privado en Europa’ (2015) Revista de Derecho Privado (Publicación Centenario) 139–166. 52 Schuman Declaration – 9 May 1950, available online under http://europa.eu/about-eu/basic-informa tion/symbols/europe-day/schuman-declaration/index_en.htm (last accessed 9 Dcember 2020); see Fontaine, Eine neue Ordnung für Europa (Publications Office of the European Union 1990). 53 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:119 51K/TXT (last accessed 9 December 2020). 54 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). 55 See also Hesselink, ‘Contract theory and EU Contract Law’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 533–534.

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24

The development of a supranational law initially appeared to be a matter 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.56 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:57 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

25

An independent source of law58 can therefore be seen not only with regard to public law but also in relation to broad aspects of private law subject to EU legislation.59 Where conflicts between national and EU law arise, EU law will prevail due to its superiority.60 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 achieve this goal due to their variations, e.g. in relation to core terms such as ‘competition’, ‘service’ or ‘sales contract’61. EU concepts must therefore be interpreted independently of national approaches and thus as a part of an independent supranational legal system.62 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.63 56 Hallstein, ‘Angleichung des Privat- und Prozessrechts in der Europäischen Wirtschaftsgemeinschaft’ (1964) RabelsZ 211. 57 Overviews on each of these fields are given in Handbuch Europarecht; Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011); Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010). 58 C–6/64 Costa ECLI:EU:C:1964:66; C–106/77 Simmenthal II ECLI:EU:C:1978:49. 59 For more detail see Borchardt, Die rechtlichen Grundlagen der Europäischen Union (6th edn, UTB 2015) 81–94; Handbuch Europarecht/Ehlers, Verhältnis des Unionsrechts zu dem Recht der Mitgliedstaaten mn. 6–8; Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 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 mn. 7–8. 60 C–6/64 Costa ECLI:EU:C:1964:66; C–11/70 Internationale Handelsgesellschaften ECLI:EU:C: 1970:114; C–106/77 Simmenthal II ECLI:EU:C:1978:49; see Craig/de Búrca, EU Law (6th edn, OUP 2015) 266–315; Handbuch Europarecht/Ehlers, Verhältnis des Unionsrechts zu dem Recht der Mitgliedstaaten mn. 9–10. 61 See C–66/81 Pommerehnke ECLI:EU:C:1982:130 para. 19–20. 62 Handbuch Europarecht/Ehlers, Verhältnis des Unionsrechts zu dem Recht der Mitgliedstaaten mn. 104; Reich, Understanding EU Law (2nd edn, Intersentia 2005) 49–50; Schulte-Nölke/Schulze, Europäische Rechtsangleichung und nationale Privatrechte (Nomos 1999). 63 Basedow, ‘Der Europäische Gerichtshof und das Privatrecht’ (2010) 210 AcP 157; Handbuch Europarecht/Borchardt, Auslegung, Rechtsfortbildung und Rechtsschöpfungmn. 19–22; Stuyck, ‘The ECJ as a motor of private law’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law

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c) Interdependency between national and supranational law EU laws may appear at first glance to be very independent legislative acts, though 26 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’64 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.65 Moreover, Art. 340(2) TFEU even expressly provides that the non-contractual 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. In contrast, the development of national private laws is greatly influenced by EU law, 27 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.66 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 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.67 European contract law (especially the Consumer Sales Directive) has also exercised considerable influence on the legislative reforms of contract law in Germany (2002) and France (2016); one may describe these as a ‘European–German’ and ‘European–French’ contract law, respectively.68 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.69 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.70

(CUP 2010) 101, 110–114. On the role of courts in general see Smits, ‘The future of contract law in Europe’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 554–556. 64 Rodriguez Iglesias, ‘Gedanken zum Entstehen einer Europäischen Rechtsordnung’ (1999) NJW 1. 65 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. 66 See mn. 32 et seq. 67 Some Member States (e.g. Germany) 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 CRD). 68 Schulze, ‘Les divergences franco-allemandes dans la théorie du contrat’ (2013) 4 RDC 1720, 1741; Schulze, ‘Vertragsverhandlungen – eine kurze Einführung’ in Bien/Borghetthi (eds), Die Reform des französischen Vertragsrechts (Mohr Siebeck 2018) 3, 9. 69 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. 70 Schulze, ‘The New Shape of European Contract Law’ (2015) EuCML 139, 141.

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III. Contract law in the acquis communautaire 1. Types of rules 28

Contract law is of central importance for the internal market. As such it is not 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 Regulation71 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 law72 for distribution contracts and now also the Portability Regulation, the Geo-blocking Regulation and the Platform Regulation with regard to legal issues presented by digitalization).

2. Primary law 29

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 market73) 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 law74 – and has a footing in EU primary law. Freedom of contract is underpinned by the fundamental freedoms in Art. 28 et seq. TFEU75 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 provi71 See Ferrari/Leible, Rome I Regulation (Sellier 2009); Handbuch Europarecht/Staudinger, Sekundärrecht als Quelle des Internationalen Privatrechts mn. 6–35. 72 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); Handbuch Europarecht/Mäger, Kartellrecht mn. 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. 73 For criticism see Cygan, ‘A step too far? Constitutional objections to harmonisation of EU consumer and contract law’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 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. 74 See Chapter 2 mn. 83 et seq.; Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 233–234. 75 The freedoms are the free movement of goods (Art. 28 et seq., 34 et seq. TFEU), free movement of services (Art. 56 et seq. TFEU), freedom of establishment (Art. 49 et seq. TFEU), free movement of workers (Art. 45 et seq. TFEU), and free movement of capital and payments (Art. 63 et seq. TFEU).

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sions (in particular, Art. 2 and Art. 3(2) TEU and Art. 6 et seq. CFR).76 Freedom of contract has also received judicial acknowledgment in ECJ decisions.77 The protection against discrimination in relation to the conclusion and content of 31 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 ECJ78 requires specificity of the principle of non-discrimination by means of a directive. 79 The legislative basis for anti-discriminatory 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 values enshrined in Art. 10 TFEU and Art. 21 and 23 CFR. Consumer protection – to the extent to which one considers this a principle of EU law80 – is also based on EU primary law (Art. 12, 169 TFEU and Art. 38 CFR). These aforementioned examples may increase 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 Art. 10 et seq. CFR.

3. Directives a) Development Secondary law on aspects of contracts has developed primarily through directives 32 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.81 Since the 1980s, consumer protection legislation has rapidly extended to core areas of contract law, such as content of contracts (Unfair Terms Directive) consequences of non-performance and non-conforming performance (Consumer Sales Directive, now the Sale of Goods Directive, Consumer Rights Directive, and Digital Content 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 features82 can be seen in contract law directives that (alongside consumer protection) also cover numerous policy areas each often linked to the ob76 Contract II/Schulze Art. 4:101 mn. 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, Gemeinsames Privatrecht in der Europäischen Gemeinschaft (2nd edn, Nomos 1999) 7, 9, 28–34; Reich, ‘Zur Theorie des Europäischen Verbraucherrechts’ (1994) ZEuP 381. 77 For example, C–26/91 Handte ECLI:EU:C:1992:268 para. 15; C–51/97 Réunion européenne ECLI:EU: C:1998:509 para. 17; see also AG Geelhoed, C–334/00 Tacconi ECLI:EU:C:2002:68 para. 55; C–434/08 Harms ECLI:EU:C:2010:285; C–283/11 Sky Österreich ECLI:EU:C:2013:28 para. 42. 78 C–144/04 Mangold ECLI:EU:C:2005:709; C–427/06 Bartsch ECLI:EU:C:2008:517; C–555/07 Kücükdeveci ECLI:EU:C:2010:21; C–147/08 Römer ECLI:EU:C:2011:286. 79 Chapter 2 mn. 144 et seq. 80 Such as in C–336/03 easyCar ECLI:EU:C:2005:150 para. 21; cf Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 267–268. 81 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., European Consumer Law (2nd edn, Intersentia 2014) 38 et seq.

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jective of promoting the internal market e.g. protection and promotion of SMEs, promotion of information society services and, in particular, e-commerce and the use of online intermediaries (platforms), payment services and protection against discrimination. 83 b) Fragmentation 33

Contract law in the acquis communautaire is thus heavily based on legislation passed over the course of many decades, in the context of different areas, and to 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.84 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 proposal85 intended to give a new, single structure to four consumer law directives,86 whereas the final version of the Directive only summarizes two of the original four directives and is, in this respect, only of limited success.87 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 initial approach adopted for many directives was to often 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 to ensure 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 EU, however selling goods or providing services in the internal market requires businesses to draft their contract terms, calculate their prices, and devise their methods of sale and supply 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. 35 The EU legislator has since adopted a change in approach by selecting full harmonization over minimum harmonization. This transition can be seen in a number of more 82 Schulze, ‘Contours of European Private Law’ in Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011) 3; Schulze, ‘The CESL's Innovative Features – A Brief Overview’ (2013) CIEU 485. 83 For more detail see mn. 38 et seq. 84 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 (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 8. 85 COM(2008) 614 final. 86 Originally eight directives, see COM(2006) 744 final, 3. 87 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.

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recent consumer protection directives88 – for instance, the Distance Marketing of Financial Services Directive, the new versions of the Consumer Credit, Package Travel, and Timeshare Directives, the Consumer Rights Directive, the Digital Content and the Sale of Goods Directives. 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),89 however the level of consumer protection may not exceed or be lower than the level foreseen by the directive. Full harmonization therefore obtains farreaching harmonization of the content of national laws and thus offers a better solution than minimum harmonization for easing cross-border transactions. Nevertheless, full harmonization excludes the possibility for consumer-friendlier national rules and can therefore lower the level of protection previously afforded to consumers under national law. Furthermore, a problem particular to full harmonization appears to be the lack of 36 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 was seen in the discussion surrounding the Consumer Rights Directive. 90 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, at the time the proposed full harmonization of the control of unfair contract terms and guarantees in consumer sales appeared to have been perceived as an extensive intrusion into the national legal systems. One may now see that this perception has changed with respect to consumer guarantees due to the full harmonization via the new Sale of Goods Directive. It therefore remains to be seen whether the transition from minimum to full harmonization will continue to such an extent in the future. The shift is most likely to be seen in the legal issues surrounding digitalization 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 and harmonization through regulations is not already sought (e.g. recently for geo-blocking, portability, and online intermediaries91). 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. 88 Not, however, for the Mortgage Credit Directive. On the shift to full harmonization in consumer law directives see Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 40–42. 89 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. 90 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. 91 See mn. 71.

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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 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) marks the starting point, though this Directive has since been repealed by the Consumer Rights Directive. The following overview contains a selection of key directives as well as recent ECJ decisions. –

–

–

16

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: C–453/10 Pereničová ECLI:EU:C:2012:144 C–472/10 Invitel ECLI:EU:C:2012:242 C–618/10 Banco Español de Crédito ECLI:EU:C:2012:349 C–26/13 Kásler ECLI:EU:C:2014:282 C–143/13 Matei ECLI:EU:C:2015:127 C–537/13 Šiba ECLI:EU:C:2015:14 C–96/14 Van Hove ECLI:EU:C:2015:262 C–110/14 Costea ECLI:EU:C:2015:538 C–119/15 Biuro podróży ECLI:EU:C:2016:987 C–186/16 Andriciuc and Others ECLI:EU:C:2017:703 C–125/18 Gómez del Moral Guasch ECLI:EU:C:2020:138 C–260/18 Dziubak ECLI:EU:C:2019:819 C–452/18 Ibercaja Banco ECLI:EU:C:2020:536 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). ECJ decision: C–143/18 Romano ECLI:EU:C:2019:701 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: C–76/10 Pohotovosť ECLI:EU:C:2010:685 C–602/10 SC Volksbank România ECLI:EU:C:2012:443 C–565/12 Crédit Lyonnais ECLI:EU:C:2014:190 C–449/13 Consumer Finance ECLI:EU:C:2014:2464 C–377/14 Radlinger ECLI:EU:C:2016:283 C–42/15 Home Credit Slovakia ECLI:EU:C:2016:842 C–127/15 Verein für Konsumenteninformation ECLI:EU:C:2016:934 Joined cases C–511/15 and C–512/15 Horžić ECLI:EU:C:2016:787 C–58/18 Schyns ECLI:EU:C:2019:467 C–331/18 Pohotovost´ ECLI:EU:C:2019:665 C–383/18 Lexitor ECLI:EU:C:2019:702

III. Contract law in the acquis communautaire

–

–

–

–

C–419/18 Profi Credit Polska ECLI:EU:C:2019:930 C–679/18 OPR Finance ECLI:EU:C:2020:167 C–290/19 Home Credit Slovakia ECLI:EU:C:2019:1130 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). ECJ decisions: C–568/15 Zentrale zur Bekämpfung unlauteren Wettbewerbs Frankfurt am Main ECLI:EU:C:2017:154 C–105/17 Kamenova ECLI:EU:C:2018:808 C–332/17 Starman ECLI:EU:C:2018:721 C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 C–485/17 Verbraucherzentrale Berlin ECLI:EU:C:2018:642 C–649/17 Amazon EU ECLI:EU:C:2019:576 C–681/17 slewo ECLI:EU:C:2019:225 Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 C–465/19 B&L Elektrogeräte ECLI:EU:C:2019:1091 (order) C–529/19 Möbel Kraft ECLI:EU:C:2020:846 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). 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): C–134/11 Blödel-Pawlik AG ECLI:EU:C:2012:98 C–430/13 Baradics ECLI:EU:C:2014:32 (order) C–163/18 Aegean Airlines ECLI:EU:C:2019:585 C–292/18 Breyer ECLI:EU:C:2018:997 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.92

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–

–

–

Digital Content Directive (Directive (EU) 2019/770 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the supply of digital content and digital services [2019] OJ L136/1). The Digital Content Directive forms the heart of consumer protection in the area of the supply of digital content and digital services. Moreover, it outlines European contract law in the age of digitalization. The scope and content of the Digital Content Directive correlates with the Sale of Goods Directive. Sale of Goods Directive (Directive (EU) 2019/771 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the sale of goods, amending Regulation (EU) 2017/2394 and Directive 2009/22/EC, and repealing Directive 1999/44/EC [2019] OJ L136/28). The Sale of Goods 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 (Directive 1999/44/EC): C–32/12 Duarte Hueros ECLI:EU:C:2013:637 C–497/13 Faber ECLI:EU:C:2015:357 C–149/15 Whatelet ECLI:EU:C:2016:840 C–133/16 Ferenschild ECLI:EU:C:2017:541 C–247/16 Schottelius ECLI:EU:C:2017:638 C–52/18 Fülla ECLI:EU:C:2019:447 Modernization Directive (Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules [2019] OJ L328/7). This Directive supplements and modifies the provisions of numerous earlier directives, in particular with respect to the sanctions and enforcement, the concepts and rules for transactions on online marketplaces, but also other matters. It therefore aims to modernize consumer protection in light of the changes brought by digitalization but without developing an entirely new framework. 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: C–184/12 Unamar ECLI:EU:C:2013:663 C–338/14 Quenon ECLI:EU:C:2015:795 C–645/16 CMR ECLI:EU:C:2018:262 C–48/17 ERGO Poist’ovňa ECLI:EU:C:2017:377 C–452/17 Zako ECLI:EU:C:2018:935

92 For the purposes of the Package Travel Directive (1990) the notion of the consumer under Art. 2 No. 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 PTD.

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III. Contract law in the acquis communautaire

–

–

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: C–104/14 Federconsorzi ECLI:EU:C:2015:125 C–555/14 IOS Finance ECLI:EU:C:2017:121 C–287/17 Česká pojišťovna ECLI:EU:C:2018:707 C–131/18 Gambietz ECLI:EU:C:2019:306 (order) Insurance Distribution Directive (Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution [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): C–555/11 EEAE ECLI:EU:C:2013:668 C–542/16 Länsförsäkringar Sak Försäkringsaktiebolag and Others ECLI:EU:C:2018:369 c) E-Commerce

Three particular pieces of legislation are of importance for promoting information 39 society services, e-commerce and the use of online intermediaries (internet platforms): –

–

–

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: C–292/10 G ECLI:EU:C:2012:142 C–360/10 SABAM ECLI:EU:C:2012:85 C–484/14 McFadden ECLI:EU:C:2016:689 C–434/15 Asociación Profesional Elite Taxi ECLI:EU:C:2017:981 C–521/17 SNB-React ECLI:EU:C:2018:639 C–18/18 Glawischnig-Piesczek ECLI:EU:C:2019:821 C–390/18 Airbnb Ireland ECLI:EU:C:2019:1112 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). For a detailed commentary see Zaccaria/SchmidtKessel/Schulze/Gambino (eds), EU eIDAS Regulation (C.H. Beck 2020). Platform Regulation (Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services [2019] OJ L186/57). This Regulation aims to increase the transparency of internet platforms and to increase the confidence of business users. The Regulation represents the first piece of EU legislation which contains provisions on the content of contract terms in B–B contracts.

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Chapter 1 Foundations

d) Payment services 40

The development of an internal market concerning various important banking 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 (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC). ECJ decision: C–643/16 American Express ECLI:EU:C:2018:67 e) Non-discrimination

41

Several directives serve to protect against discrimination. The relevance of such protection in general contract law is highlighted by the extension beyond 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 decisions: C–83/14 CEZ Razpredelenie Bulgaria ECLI:EU:C:2015:480 C–668/15 Jyske Finans ECLI:EU:C:2017:278 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: C–335/11 HK Danmark ECLI:EU:C:2013:222 C–143/16 Abercrombie & Fitch Italia ECLI:EU:C:2017:566 C–270/16 Ruiz Conejero ECLI:EU:C:2018:17 C–154/18 Hogan & Keegan ECLI:EU:C:2019:113 C–397/18 Nobel Plastiques Ibérica ECLI:EU:C:2019:703 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). 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: C–415/10 Meister ECLI:EU:C:2012:217 C–361/12 Carratù ECLI:EU:C:2013:830 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:

20

III. Contract law in the acquis communautaire

– –

Solvency II Directive (Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance [2009] OJ L335/1). ECJ decisions: C–209/12 Endress ECLI:EU:C:2013:864 C–51/13 Nationale-Nederlanden Levensverzekering Mij ECLI:EU:C:2015:286 C–355/18 Rust-Hackner ECLI:EU:C:2015:1123 g) Others

Furthermore, the acquis communautaire includes legislation which potentially affects 43 contract law, but which was passed to achieve different objectives – from specific purposes such as the return of cultural objects to the wider purpose of freedom of services. Further legislation has been introduced in light of the challenges presented by digitalization, for instance the Portability Regulation (which affords a customer EU-wide access to online content services outside of the home Member State) and the Geo-blocking Regulation (which bans unjustified geo-blocking and similar forms of discrimination). –

–

–

– –

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: C–604/11 Genil 48 ECLI:EU:C:2013:344 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 decisions: C–57/12 Femarbel ECLI:EU:C:2013:171 C–360/15 X ECLI:EU:C:2018:44 C–434/15 Asociación Profesional Elite Taxi ECLI:EU:C:2017:981 C–320/16 Uber France ECLI:EU:C:2018:221 Joined cases C–473/17 and C–546/17 Respol Butan ECLI:EU:C:2019:308 C–390/18 Airbnb Ireland ECLI:EU:C:2019:1112 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). Portability Regulation (Regulation (EU) 2017/1128 of the European Parliament and of the Council of 14 June 2017 on cross-border portability of online content services in the internal market [2017] OJ L 168/1). Geo-blocking Regulation (Regulation (EU) 2018/302 of the European Parliament and of the Council of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC [2018] OJ L 60I/1).

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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)93. These Principles have above all become a model for subsequent 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 law,94 abstain from the use of more extensive notions (such as ‘legal transaction’), and therefore avoid a system based on one individual national tradition. The PECL are based on a comparison of national laws through which ‘common principles’, corresponding tendencies or, ultimately, ‘best solutions’ may be discovered.95 Such an approach allowed for considerable use of the results of comparative studies on sales law undertaken in the 1930s by Ernst Rabel, 96 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), 97 the Lando Commission developed 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

The Pavia Draft of a European Contract Code’98 completed in Pavia by the Academy of European Private Lawyers (headed by Guiseppe Gandolfi) is a further pioneering project for European contract law. 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.99 However, this project does have several weaknesses, such as its lesser focus on the CISG (which was already adopted by numerous European countries) and, despite international contributors, a focus on Italian law rather than a broader comparison. 93 See Lando/Beale (eds), Principles of European Contract Law – Parts I & II (Kluwer 1999); 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. 94 Part III PECL varies in this respect, see Lando et al. (eds), Principles of European Contract Law – Part III (Kluwer 2003). 95 Lando, ‘My life as a lawyer’ (2002) ZEuP 508, 519–520; ‘Smits, European private law and the comparative method’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010); Vogenauer, ‘Gemeineuropäische Methodenlehre’ (2005) ZEuP 234, 253. 96 Rabel, Das Recht des Warenkaufs. Eine rechtsvergleichende Darstellung (2 vols, de Gruyter 1936/1957). 97 Bonnell, An International Restatement of Contract Law (3rd edn, Brill 2004); Zimmermann, ‘Konturen eines Europäischen Vertragsrechts’ (1995) JZ 477, 479. 98 The English, French, German, Italian, and Spanish versions of the ‘European Contract Code’ are available online under http://www.eurcontrats.eu/acd2/ (last accessed 9 December 2020). 99 See, for example, Art. 9 of the Pavia Draft (‘Negotiations with consumers off commercial premises’).

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c) General contract law and commercial law The effects of the PECL and the Pavia Draft on the discussion surrounding European 46 contract law can be seen in the model of a general contract law which entered 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 Germany100 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 prior to the work on the PECL. At European level, the extension of contract law acquis beyond the PECL has, however, allowed for the discovery of 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, a discussion has started on whether a codification of commercial contract law or a codification of business law relevant to the internal market can be important for European integration. In recent years, following an initiative from the Association Henri Capitant101 scholars and practitioners from several European countries have prepared a draft for a European Business Code.102 Its scope is reflected in the topics of the individual books and extends from ‘Market law’ (including competition law) to e-commerce law to company law, securities, enforcement, insolvency, banking and insurance, financial markets, intellectual property as well as aspects of employment law and tax law. At a political level, the German–French parliamentary assembly has initiated a working group on the ‘harmonization of German and French business law and insolvency law’103, which can draw on the preparatory work on a European Business Code. The future development of EU business law including its contract law elements may therefore become a central topic of scholarly and political discussions surrounding European private law and thus may further stimulate the development of European contract law. d) Acquis Principles The aforementioned earlier drafts could however only initially make a small contri- 47 bution 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 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 100 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. 101 The Association Henri Capitant was founded in 1935 by a group of jurists from various Frenchspeaking countries and was directed by Prof. Henri Capitant. For further information see www.henricapita nt.org (in French). 102 See 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. For criticism see d’Avout, ‘Das erstaunliche Projekt eines europäischen Wirtschaftsgesetzbuches’ (2019) ZEuP 653. 103 Available (in German and French) under www.bundestag.de/resource/blob/682444/c10b7f6beef5a9 2290ef1049dbc11ad5/2020_5_wirtschafts_insolvenzrecht-data.pdf (last accessed 9 December 2020).

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law in Europe.104 In this respect, there 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 There have been attempts since the 1990s 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).105 The research, primarily initiated by the ‘Research Group on the Existing EC Private Law’ (Acquis Group), 106 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 may express that an agreement between the parties is necessary for the conclusion of contract; 107 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 dealing108 as a principle of EU contract law that is not specific to one separate field.109 49 The ‘Acquis Group’ thus drafted its ‘Principles of the Existing EC Contract Law (Acquis Principles)’ through this approach.110 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 commercial or consumer contracts.111 Furthermore, the general rules are supplemented by rules that are tailored to the needs of particular contracts or circumstances covered in existing EU law.112 Each chapter 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 preAs an example of this approach see Kötz/Flessner, European Contract Law, vol I (Clarendon 1998). 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/SchulteNölke, ‘Europäisches Vertragsrecht im Gemeinschaftsrecht’ in Schulte-Nölke/Schulze (eds), Europäisches Vertragsrecht im Gemeinschaftsrecht (Bundesanzeiger 2002) 229. 106 On the methods adopted in researching the acquis see Contract II/Dannemann, xxvi–xxviii; Schulze/ Schulte-Nölke, ‘Europäisches Vertragsrecht im Gemeinschaftsrecht’ in Schulte-Nölke/Schulze (eds), Europäisches Vertragsrecht im Gemeinschaftsrecht (Bundesanzeiger 2002) 11; Schulze, ‘European Private Law and Existing EU Law’ (2005) ERPL 3. 107 Also stated in case law see C–269/95 Benincasa ECLI:EU:C:1997:337; C–96/00 Rudolf Gabriel ECLI: EU:C:2002:436. 108 Such as for consumer protection Art. 3(1) UTD; in relation to SMEs Art. 3(1) Commercial Agents Directive. 109 For more detail on this principle and its limitations in EU contract law see Chapter 2 mn. 130 et seq. 110 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. 111 For more detail see Chapter 2 mn. 159 et seq. 112 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. 104

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contractual duties, prohibitions of non-discrimination, withdrawal rights, and non-negotiated contract terms.113 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,114 and change of circumstances.115 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).116 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’117 resulted not only in 50 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.118 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’119 for the future development of a coherent European contract law: the comparison of national laws and the analysis of the acquis communautaire should serve to create a ‘Common Frame of Reference’120 containing overarching principles, definitions, and model rules that will function as a ‘toolbox’121 to improve European legislation. b) Draft Common Frame of Reference The EC Action Plan thus decided in favour of a synthesis of comparative research and 51 the ‘acquis approach’. Two separate research groups122 within an international network (CoPECL-Network123) completed comparative studies and research on the existing EC contract law, respectively, which were ultimately joined together to create an academic Chapters 2, 3, 5 and 6 ACQP. Art. 4:103 et seq. PECL. 115 Art. 6:111 PECL. 116 Art. 4:103 ACQP based on Art. II.–4:201 DCFR; see also Art. 2:201 PECL. 117 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. 118 COM(2003) 68 final, 16. 119 Ibid. 17. 120 Ibid. 16; Staudenmayer, ‘Der Aktionsplan der EG-Kommission zum Europäischen Vertragsrecht’ (2003) EuZW 165. 121 COM(2004) 651 final, 2–3, see also Pasa/Morra (eds), Translating the DCFR and Drafting the CESL (Sellier 2014) 12–13. 122 The Study Group on a European Civil Code, which used a comparative law approach, and the ‘Acquis Group’ (see n 106); see von Bar/Clive/Schulte-Nölke (eds), DCFR – Outline Edition (Sellier 2009) 1. 123 CoPECL, see cordis.europa.eu/publication/project/id/513351 (last accessed 9 December 2020); Eidenmüller et al., ‘The Common Frame of Reference for. European Private Law—Policy Choices and Codification Problems’ (2008) Oxf J Leg Stud 659, 665; von Bar/Schulte-Nölke, ‘Gemeinsamer Referenzrahmen für europäisches Schuld- und Sachenrecht’ (2005) ZRP 165. 113

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‘Draft Common Frame of Reference’.124 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 law125) as well as property law.126 Book II DCFR is particularly noteworthy as a strong blend 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,127 whereas the chapters on representation and the grounds for invalidity128 are based mainly on comparative research. The sections on conclusion of contract, as well as the interpretation, content and the effect of contracts129 are also mostly founded by comparisons of national laws but do include 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 acts 130). Sales law in Book IV A. DCFR is based primarily on existing EU law (in particular the Consumer Sales Directive).131 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 donation132) and therefore with no reference to existing EU law. Despite the criticisms of particular aspects,133 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 52

The European Commission has not used the DCFR as announced in the 2003 Action Plan, namely to create a (political) frame of reference for future legislation. 134 Following the European Parliament and Commission elections in 2009, the Commission instead 124 von Bar/Clive/Schulte-Nölke (eds), DCFR – Outline Edition (Sellier 2009); 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). 125 Book V DCFR Benevolent intervention in another's affairs; Book VI DCFR Non-contractual liability arising out of damage caused to another. 126 For criticism see Eidenmüller et al., ‘The Common Frame of Reference for. European Private Law— Policy Choices and Codification Problems’ (2008) Oxf J Leg Stud 659; 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. 127 Book II Chapter 2, 3 and 5 DCFR. 128 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. 129 Book II Chapters 4, 8 and 9 DCFR. 130 See Chapter 2 mn. 1–5. 131 Book IV Part E DCFR is also strongly based on current EU law (in particular its Chapter 3 on commercial agency contracts). 132 Book IV C and H DCFR. 133 For example, Eidenmüller et al., ‘The Common Frame of Reference for. European Private Law—Policy Choices and Codification Problems’ (2008) Oxf J Leg Stud 659; Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ (2007) ZEuP 130, 137–141; 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) 12. 134 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., European Consumer Law (2nd edn, Intersentia 2014) 62–64.

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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 aimed at devising a set of European contract law rules (in the form of a regulation) that would 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.135 In the Commission’s view, minimum harmonization was not sufficient 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).136 It 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 Experts from academia and practice made the preparations for the optional contract 53 law within a year. The resulting ‘Feasibility Study for a future instrument in European Contract Law’137 was based largely on corresponding sections from the DCFR and other previous academic studies, but also contained its own approaches.138 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 54 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), 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). The proposed CESL’s material scope of application was to comprise contracts for the 55 sale of goods, related services, and the supply of digital content (Art. 5 CESL-Reg). However, its personal scope of application was to cover only B–C contracts and B–B contracts if at least one of these parties is a SME (Art. 7 CESL-Reg). The territorial scope of application was, in principle, limited to cross-border contracts as according to Art. 4 CESL-Reg. However, each Member State would have had the choice to determine Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2013) 197–199. Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE) [2001] OJ L249/1. 137 For further information see https://ec.europa.eu/commission/presscorner/detail/en/IP_11_523 (accessed 9 December 2020); 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. 138 On this study see Schulze/Stuyck (eds), Towards a European Contract Law (Sellier 2011). 135

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whether the CESL may also apply to domestic contracts and to B–B contracts without participation by a SME (Art. 13 CESL-Reg). In fulfilling each of these requirements the parties could have chosen the CESL as the legal basis for their contract (Art. 3 CESLReg) instead of national law. However, valid application of the CESL to the contract would have required satisfaction of the additional criteria under Art. 8 et seq. CESLReg.139 In comparison to the CISG, the CESL would therefore 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 had to agree on the application of the CESL to their contract.140 d) Codification character 56

The substantive rules in the annex covered the phases in the ‘life cycle’141 of the contract: from conclusion to content, to obligations of the parties and remedies for 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

139 For criticism of the higher standards under Art. 8(2) and 9 CESL-Reg for consumer contracts see CESL Schmidt-Kessel CESL/Schmidt-Kessel Art. 8, 9 CESL-Reg mn. 19–27; Schulze CESL/Wendehorst Art. 3 CESL-Reg mn. 2–3; Wagner, ‘Transaktionskostensenkung durch Europäisches Kaufrecht?’ (2012) ZEuP 455. 140 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/Schulte-Nölke, Art. 3 CESL mn. 2–3. 141 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.

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Structure of the proposed CESL Part VII Restitution Chapter 17 Restitution Part VIII Prescription Chapter 18 Prescription Legislative work on European contract law thus reached a new level: the object was 57 no longer a series 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 aspects of contract law. It was 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 proposed codification not only included new matters (e.g. defects in consent142, defects in performance of related service contracts143 and prescription144) but also a series of innovations that have developed in the acquis communautaire145: 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 terms146 or the use of model instructions147), taking into account modern forms of communication (in particular e-commerce), the inclusion of the pre-contractual phase and information duties148 and the stipulation of content.149 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. In this respect, as well as for particular concepts and several individual provisions, the CESL set the foundation for legislative initiatives which followed some years later in the course of the ‘Digital Single Market Strategy’.150 e) Legislative process and withdrawal The legislative process for the CESL was accompanied from the outset by a lively aca- 58 demic and political discussion on the concept of a CESL and on its individual provisions,151 i.a. the selection of Art. 114 TFEU as the legal basis (for which the Commission and European Parliament had good reasons152) and thus the sufficient consideration of Especially avoidance due to mistake, threat, fraud, and unfair exploitation, see Art. 48 et seq. CESL. Part V CESL (Art. 147 et seq. CESL). 144 Part VIII CESL (Art. 178 et seq. CESL). 145 Schulze, ‘The CESL's Innovative Features – A Brief Overview’ (2013) CIEU 485, 495–497. 146 Chapter 8 CESL (Art. 79 et seq. CESL). 147 Annex 1 and 2 CESL. 148 Chapter 2 CESL (Art. 13 et seq. CESL). 149 In particular Art. 69 CESL. 150 Schulze, ‘Die Digitale-Richtlinie – Innovation und Kontinuität im europäischen Vergleich’ (2019) ZEuP 695, 698 et seq.; see mn. 72 et seq. 151 The following chapters contain criticisms of individual provisions. 152 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. Drawing the same conclusion see i.a. Moser, ‘Der Kommissionsvorschlag für eine Verordnung über ein Gemeinsames Europäisches Kaufrecht’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 7; 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, ‘Der Kommissionsvorschlag für eine Verordnung zum Gemeinsamen Europäischen Kaufrecht’ (2011) NJW 3491, 3495; cf, for example, Basedow, ‘Art. 114 AEUV als Rechtsgrundlage eines optionalen EUKaufrechts: Eine List der Kommission?’ (2012) EuZW 1; Max Planck Institute for Comparative and Inter142

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the principles of subsidiarity and proportionality,153 and the CESL’s nature as a ‘second contract law regime within the national law of each Member State’154 and the relationship to the Rome I Regulation.155 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,156 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. 59 The European Parliament did not join the Internal Market Committee (IMCO) in its objections to the CESL157 but rather shared the view of the Legal Affairs Committee (JURI)158 that the project should, in principle, be approved.159 The European Parliament did suggest a series of changes to the proposed CESL, which include initially limiting the scope of application160 and which built on suggestions from academia and legal practice (e.g. concerning the scope of application, avoidance for defects in consent, remedies and restitution).161 60 Strong objections and concerns surrounding the CESL raised by several Member States162 and the Council prompted the newly elected Commission to remove the proposed CESL from its ‘Work Programme 2015’163. At least for the time being, the Comnational Private Law, ‘Policy Options for Progress Towards a European Contract Law: Comments on the issues raised in the Green Paper from the Commission of 1 July 2010, COM(2010) 348 final’ (2011) RabelsZ 371. 153 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. 154 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 (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 7–8. 155 COM(2011) 635 final, 19; see Fornasier, ‘»28.« versus »2. Regime« – Kollisionsrechtliche Aspekte eines optionalen europäischen Vertragsrechts’ (2012) RabelsZ 401; Hesselink ‘How to opt into the Common European Sales Law? Brief comments on the Commission's proposal for a regulation’ in Claeys/ Feltkamp (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 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., European Consumer Law (2nd edn, Intersentia 2014); Stadler, ‘Anwendungsvoraussetzungen und Anwendungsbereich des Common European Sales Law’ (2012) 212 AcP 473, 475–484. 156 On the national perceptions regarding the CESL see, for example, the contributions in De Cristofaro/De Franceschi (eds), Consumer Sales in Europe (Intersentia 2016). 157 Opinion of the Committee on the Internal Market and Consumer Protection for the Committee on Legal Affairs, A7-0301/2013. 158 Report on the proposal for a Regulation of the European Parliament and of the Council on a Common European Sales law, A7-0301/2013. 159 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). 160 Ibid. amendment 2, Recital 9. 161 See Art. 4, 5, 7, 48, 50 a, 106, 107, 172, Art. 172a CESL; 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.europeanlawin stitute.eu/projects-publications/completed-projects-old/proposed-cesl/ (last accessed 9 December 2020).

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mission has therefore abandoned the project to codify European sales law, but already in 2015 announced that the proposed CESL would be replaced with legislative measures ‘in order to fully unleash the potential of e-commerce in the Digital Single Market’ 164. The development of European contract law has since, to some extent, formed part of the Commission’s digital agenda.165 Irrespective of the formal effect the Commission’s statement of withdrawal and modified proposals will have on the legislative process, it is nevertheless not to be expected that the CESL will be revived. 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.

V. Focus on the Digital Single Market 1. Overview The beginning of new phase, in which the challenges of digitalization have greatly in- 61 fluenced the development of European contract law, was marked by proposals for regulations concerning portability166 and geo-blocking167, but especially by the proposals for the Digital Content Directive168 and for the Sale of Goods Directive169. According to the (similar) wording of each proposal, each Directive shall contribute to the faster growth of the Digital Single Market.170 The provisions of each Directive shall adopt a full harmonization approach (with some exceptions171) with correlations between their respective scope and content. More significantly, however, through their combination of continuity and innovation, these twin Directives outline European contract law in light of the challenges presented by digitalization. Beyond these two Directives, the Modernization Directive modifies several provisions in consumer contract law in order to accommodate modern practices and legal issues, including those brought about by digitalization. In this respect, the Platform Regulation is also noteworthy as it responds to the increasing importance of online intermediaries for internal market trade, notably with provisions concerns contract terms in B–B contracts.

2. Legislation a) Supply of digital content and digital services The Digital Content Directive is of considerable important for contract practice and 62 contract law in the EU.172 In principle, it covers all types of B–C contracts which concern 162 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’. 163 COM(2014) 910 final. 164 Ibid. Annex II, No. 60. 165 COM(2015) 192 final. 166 COM(2015) 627 final. 167 COM(2016) 289 final. 168 COM(2015) 634 final. 169 COM(2015) 635 final. 170 COM(2015) 634 final, 1. 171 In particular Art. 11(2) DCD (limitation periods for non-conformity), Art. 11(2) SGD (extension of the reversal of burden of proof) and Art. 12 SGD (introduction of notification obligation). The Digital Content Directive does not contain corresponding provisions for the reversal of the burden of proof or a notification obligation and thus follows the full harmonization approach more extensively.

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the supply of digital content or digital services, irrespective of their traditional categorization as sale, service, hire, etc. This applies not only when the consumer pays a price but also in providing personal data to the trader as counter-performance (Art. 3(1) DCD). The Directive therefore uses its scope of application to move away from the restrictions imposed by the traditional types of contract and, furthermore, takes into account the importance of data in the digital economy.173 Accordingly, the Directive covers the millions of contracts concluded for applications on computers or smartphones, for the streaming of films, music, etc. 63 The central elements of the Digital Content Directive concern the trader’s performance obligations, the remedies for the consumer and the modification of the digital content or digital service. The main performance obligation is referred to simply as the ‘supply of the digital content or digital service’ (Art. 5 DCD). In contrast to the Consumer Sales Directive and to the new Sale of Goods Directive, Art. 5 DCD states the obligation for the trader to perform (by supplying the digital content or digital service). Art. 11 DCD regulates the consequences of a failure to supply; Art. 12(1) and Art. 13 DCD concern the burden of proof and the applicable remedies for the consumer, respectively. 64 Art. 6–10 DCD regulate the conformity of the digital content or digital service. Art. 7 DCD concerns the subjective requirements for conformity with Art. 8 DCD stipulating the objective requirements (which apply in addition to the subjective requirements). Art. 9 DCD includes the incorrect integration of the digital content or digital service as a specific aspect of non-conformity. Art. 10 DCD determines the rights for the consumer in the event of restrictions resulting from the violation of third-party rights. These provisions are to some extent based on the proposed CESL but further develop the notion of conformity with regard to the demands surrounding the supply of digital content and digital services.174 The provisions are especially innovative as they incorporate ‘updates’ and distinguish between single supply (or a series) and continuous supply over a period of time. These new concepts are expressed in more detail in the Directive. 175 65 The consequences of non-conforming performance (‘lack of conformity’) follow the structure of the Directive and are regulated after the consequences of non-performance:176 liability in Art. 11(2) and (3) DCD, burden of proof in Art. 12(2)–(5) DCD and the remedies for the consumer in Art. 14 DCD. Unlike the Consumer Sales Directive, the reversal of the burden of proof in the event of a lack of conformity is extended to one year (Art. 12(2) DCD). The structure of the remedies (including prioritizing rectification of the non-conformity) corresponds with the approach set by the Consumer Sales Directive, though with differences that take into account the particular characteristics of digital content and digital services. For example, Art. 14(1) and (2) DCD favour

172 See, for example, Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695; Sein/Spindler, ‘The new Directive on Contracts for the Supply of Digital Content and Digital Services – Part 1’ (2019) ERCL 257, Part 2 (2019) ERCL 365; Staudenmayer, ‘Die Richtlinie zu den digitalen Verträgen’ (2019) ZEuP 663; Staudenmayer, ‘The Directives on Digital Contracts – First steps towards the Private Law of the Digital Economy’ (2020) ERPL 219. 173 See Lohsse/Schulze/Staudenmayer (eds), Trading Data in the Digital Economy (Nomos 2017). See also De Franceschi, La circolazione dei dati personali tra privacy e contratto (Edizioni Scientifiche Italiane 2017). 174 See EU Digital Law/Schulze/Staudenmayer, Introduction mn. 6 and the comments by Staudenmayer under Art. 6 DCD mn. 4 et seq. 175 Ibid. Introduction mn. 22 and the comments by Staudenmayer under Art. 8 DCD mn. 110 et seq., 132 et seq.; Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 713 et seq. 176 See mn. 63.

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the broader expression ‘brought into conformity’ over the distinction between ‘repair’ and ‘replacement’. Art. 15–18 DCD concern the exercise and obligations related to a termination of the 66 contract for the failure to supply or for the failure to supply in conformity with the contract. Art. 15 DCD states that the consumer exercises the right to terminate via a corresponding statement to the trader. Art. 16–18 DCD set out the obligations for the trader and consumer in the event of termination. Here the nature of digital content and digital services has also resulted in innovative approaches vis-à-vis restitution, e.g. the right to prevent any further use of the digital content or digital service (Art. 16(5) DCD) and the obligation to refrain from using the digital content or digital service (Art. 17(1) DCD). Art. 19 DCD is certainly a new feature of the legal landscape. According to this provi- 67 sion ,the trader may, under particular circumstances, modify the digital content or digital service. Although this provision is closely linked to the trader’s obligation to ‘update’ the digital content or digital service (Art. 7 and 8 DCD), it allows the trader to modify the content or service beyond what is necessary to maintain conformity, e.g. to supply a new version.177 b) Sale of goods The Sale of Goods Directive not only represents a shift from minimum harmoniza- 68 tion of consumer guarantees under the Consumer Sales Directive to their full harmonization but also includes changes to consumer protection in light of digitalization. In stark deviation from the Commission’s original proposal in 2015, the Sale of Goods Directive does not apply only in instances of ‘online sales’, but its scope covers the ‘online’ and ‘offline’ sale of goods.178 In contrast to the Digital Content Directive the scope of the Sale of Goods Directive rests on the classification of the contract as a sales contract (including contracts for the supply of goods to be manufactured or produced).179 The Sale of Goods Directive also applies to digital content or digital services where two requirements are satisfied: the digital content or digital service is incorporated in or inter-connected with goods in such a way that the goods would not be able to perform their functions without such content or service and the content or service is provided with the goods under the sales contract. 180 If these requirements are not fulfilled, the Digital Content Directive will apply.181 The Sale of Goods Directive thus applies to the sale of a smartphone including the pre-installed applications according to the sales contract (e.g. the operating system), but the Digital Content Directive will apply to any applications subsequently downloaded and installed on the smartphone.182 In contrast, the Digital Content Directive – not the Sale of Goods Directive – applies where the tangible medium which serves exclusively as a carrier for digital content, e.g. the sale of a DVD. 183

177 For detail see EU Digital Law/Wendland, Art. 19 DCD; Staudenmayer, ‘Auf dem Weg zum digitalen Privatrecht – Verträge über digitale Inhalte’ (2019) NJW 2497, 2501. 178 See the Opinion of the European Economic and Social Committee on the ‘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 – 2015/0287 (COD)) and the ‘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 — 2015/0288 (COD)) [2016] OJ C264/57. 179 Art. 3(1) and (2) SGD. 180 In case of doubt, this is to be presumed according to and Art. 3(4) DCD and Art. 3(3) SGD. On the distinction, see Chapter 2 mn. 102 et seq. 181 Art. 3(4) in conjunction with Art. 2 No. 3 DCD; Art. 3(2) in conjunction with Art. 2 No. 5(b) SGD. 182 See Recitals 21 and 22 DCD for this and other examples. 183 Art. 3(4)(a) SGD.

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69

The provisions on conformity and the consumer’s remedies mainly follow the approach under the Consumer Sales Directive. However, there are distinctions, 184 such as the new notion of ‘durability’185 as an objective requirement for conformity, the one year period for the reversal of the burden of proof,186 and the details concerning the conditions for termination.187 The Sale of Goods Directive extends beyond the Consumer Sales Directive by aligning with the Digital Content Directive in taking account of new developments in contract practice brought about by digitalization, for instance the update obligation in Art. 7(3) DCD188 but also the extension in Art. 8 DCD of the rule on incorrect installation to cover the installation instructions provided by the supplier of the digital content or digital service.189 The correlation between the rules of the Sale of Goods Directive and those of the Digital Content Directive therefore illustrates how the Sale of Goods Directive also contributes to creating a consumer contract law for the digital era. c) Modernization Directive

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The 2019 Modernization Directive is a further step by the European legislator towards meeting the demands of modern contracting. The Directive modifies and adds to a number of existing directives in order to improve enforcement and to modernize EU consumer protection rules.190 For enforcement, the Directive further defines and expands the sanctions for infringing the implementation requirements under several directives, including the Unfair Terms Directive191 and the Unfair Commercial Practices Directive.192 Where modernization is concerned, the Directive adapts the terminology and content of earlier directives to the changes brought by digitalization and adopted in later legislation. Examples include the extension of ‘product’ to include digital content and digital services,193 consideration of the role of online intermediaries or ‘online marketplaces’ and ranking in modern commercial practice,194 aligning the definitions of goods, digital content, compatibility, functionality and interoperability under the Consumer Rights Directive in order to be consistent with the respective definitions under the Digital Content Directive (and Sale of Goods Directive, where applicable),195 changing the provisions on the scope and the obligations of the trader,196 and extending the application of pre-contractual information obligations to online marketplaces.197

For more detail see Chapters 5, 6 and 7. Art. 7(1)(d) in conjunction with Art. 2 No. 13 SGD. 186 Art. 11(1) SGD. 187 Art. 13(4) SGD. 188 See Art. 8(2) DCD. 189 See Art. 9 DCD. 190 On the proposal, see Twigg-Flesner, ‘Bad Hand? The “New Deal” for EU Consumers’ (2018) GPR 166. 191 Art. 1 Modernization Directive. 192 Art. 3 Modernization Directive, including damages and other remedies for consumers in relation to unfair practices. 193 Amending Art. 2(1)(c) UCPD. 194 Inter alia, the introduction of Art. 2(1)(m) and (n), and Art. 7(4)(f) and (4a) UCPD and Art. 2(1) No. 17 and 18 CRD. 195 Art. 4 Modernization Directive, amending and introducing Art. 2(1) No. 3, 5, 6, 16, 19–21 CRD. 196 e.g. Art. 3(1) and (1a), Art. 5(1)(e) and (g), Art. 6(1)(r) and (g) CRD, amended and introduced by Art. 4 Modernization Directive. 197 Art. 4 Modernization Directive, introducing Art. 6a CRD. 184

185

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d) Online intermediaries The further development of European contract law as a result of digitalization is not 71 limited to consumer law. Commercial contracts (i.e. B–B contracts) have also been subject to the developments, more specifically through the Platform Regulation. This Regulation concerns, for instance, online intermediation services, online search engines as well as online software application services and online social media services. The Regulation aims foremost to increase the transparency of contract terms and business models in the use of such of such online intermediaries by businesses. For instance, Art. 3 Platform Regulation provides that terms and conditions should not only be drafted in plain and intelligible language and be easily accessible but they should also contain specific information. Whereas the scope of the Unfair Terms Directive covers only the control of terms in consumer contracts, the Platform Regulation now ventures into the control of contract terms in the commercial context. Two aspects of the transparency requirement are particularly innovative: the obligation to give reasons if the provision of the online intermediation service is restricted, suspended or terminated (Art. 4 Platform Regulation) and the obligation to set out and give reasons for the main parameters determining ranking of search engine results (Art. 5 Platform Regulation). A similar obligation also exists for any differentiated treatment given by the online intermediary service or online search engine in relation to goods or services (Art. 7 Platform Regulation). Furthermore, intermediary services (with some exceptions) are obliged to provide for an internal system for handling the complaints of business users (Art. 11 Platform Regulation) and to identify mediators (Art. 12 Platform Regulation). Moreover, particular organizations or associations, and public bodies have the right to take action before the competent courts for breaches of the Regulation (Art. 14 Platform Regulation). However, despite these new additions to the acquis, the Platform Regulation does not include provisions concerning the liability of the online intermediary as the (often dominating) third party in the contractual relationship and at the conclusion of contract between the commercial users and their customers.198 Nonetheless, the European Commission has recently published a proposal for a Regulation on contestable and fair markets in the digital sector (Digital Markets Act).199

3. Reshaping contract law When viewing the EU legislation passed since the 2015 Digital Single Market Strate- 72 gy, one can see how contract law has been reshaped. Such change also includes the considerable development of instruments and methods but also of the subject matter of contracts. This section gives a broad outline with further detail given later in the book. The increasing importance of the internet and of e-commerce in the 20th century 73 brought about changes in the instruments and methods of contracting. This concerns the means of communication in preparing, concluding and performing not only individually-negotiated contracts but also for mass contracts. Aligning European contract law with this change is mostly directed at utilising the potential of the new means of communication to strengthen the internal market and to promote cross-border trade whilst at the same time continuing to protect consumers and SMEs. Early important measures include the Distance Selling Directive (later repealed by the Consumer Rights Directive), 198 More extensive, ELI, ‘Model Rules on Online Platforms’ (2019). See also Schulte-Nölke, ‘Plattformverträge und Vertrauensschutz’ in Blaurock/Maultzsch (eds), Vertrauensschutz im digitalen Zeitalter (Nomos 2020) 167. 199 COM(2020) 842 final. The proposal was published in the final stages of preparation of this volume and thus there are only brief references to the proposal.

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the Electronic Signatures Directive (repealed by the eIDAS Regulation) and the E-Commerce Directive (to be amended by a ‘Digital Services Act’200). 74 Since the transition to the 21st century, digitalization has made considerable inroads in effecting changes in contract practice and impacted on the development of European contract law at legislative, judicial and scholarly level. Methods and instruments of contracting are now affected by the technological advancements in the field of artificial intelligence and its use in contracting.201 In concluding contracts ‘machine-to-machine’, artificial intelligence determines not only the conclusion of contracts with particular partners but can also adapt the content to the market. Artificial intelligence can choose the content of the contract without the need for human intervention and even when the decision was not even initially foreseeable for the operator (‘black box effect’ 202). However, the use of artificial intelligence in contract performance and in response to breaches has also resulted in fundamental changes. This is especially noticeable in so-called ‘self-executing contracts’, for instance credit or insurance contracts which can prevent the use of the object purchased using credit or subject to an insurance policy (e.g. preventing the use of a car if insurance premiums have not been paid). The same also applies to ‘autonomous’ services such as the payment of compensation for delayed or cancelled flights. However, these new developments appear to rather be expressed in the cautionary approaches adopted in legal practice and associated case law rather than in EU legislative measures. 75 Digitalization has effected changes in contract practice, yet it is the changes in the subject-matter of contracts which have received the most attention in European legislation. This can be clearly seen in the focus on data as counter-performance – an issue that is also characteristic of the Digital Content Directive and key to determining the scope of its application. Art. 2 No. 1 DCD defines digital content as data produced or supplied in digital form, whereby Art. 2 No. 2 DCD uses the notion of data to define digital services. As the subject-matter of contracts data also plays a central role in the Sale of Goods Directive, the Modernization Directive and in other legal instruments.203 Furthermore, the Digital Content Directive clearly expresses that data is not just important for performance obligations in modern contracts but is also a core part of the obligation to provide counter-performance for the digital content or digital service supplied. 204 Contract law thus reflects the economic importance of data and its role in the ‘digital economy’ and thereby poses questions of the protection of rights to data, ensuring access to data as well as the relationship to data protection law.205 76 The focus on data as the subject-matter of the contract is closely linked to the development of general contract law. In contrast to the Consumer Sales Directive and the Sale of Goods Directive, the Digital Content Directive has designed its system of performance obligations by including the performance obligation in the form of supplying the 200 See Proposal for a Regulation of the European Parliament and of the Council on a Single Market for Digital Services (Digital Services Act) and amending Directive 2000/31/EC, COM(2020) 825 final. 201 On the following see Lohsse/Schulze/Staudenmayer, ‘Data as Counter-Performance – Contract Law 2.0? An Introduction’ in Lohsse/Schulze/Staudenmayer (eds), Data as counter-performance – Contract Law 2.0? (Nomos 2020) 7. 202 See the contributions by Spindler and Zech in Lohsse/Schulze/Staudenmayer (eds), Liability for Artificial Intelligence and the Internet of Things (Nomos 2019). 203 See mn. 68 et seq. 204 Art. 3(1) DCD; see Lohsse/Staudenmayer/Schulze (eds), Data as Counter-Performance – Contract Law 2.0? (Nomos 2020). 205 See Lohsse/Staudenmayer/Schulze (eds), Trading Data in the Digital Economy (Nomos 2017). In the context of the relationship between consumer law and data protection law, see Helberger/Zuiderveen Borgesius/Reyna, ‘The perfect match? A closer look at the relationship between EU consumer law and data protection law’ (2017) CMLR 1427.

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digital content or digital service and links it in the same context to the notion of conformity. The Digital Content Directive also adopts the same approach to the rules on nonperformance and non-conforming performance.206 Furthermore, the Directive transfers concepts such as conformity and principles such as the hierarchy of remedies from the field of consumer sales law to a more general level that, in principle, includes a broader spectrum of contract types. Other concepts that were applying for specific contract types (in particular to consumer sales under the Consumer Sales Directive) therefore lose their exclusivity and becoming more general in application, such as the reversal of the burden of proof and the trader’s right of redress. The law surrounding guarantees in sales has therefore given rise to the development of a general law on contractual performance which applies directly to all types of contract, including digital content and digital services, and whose principles may also become of further relevance in the future. The new shape of European contract law also features several innovations in response 77 to the technological advancements through digitalization and the changes in contract practice. The central role played by online intermediation services for the ‘digital single market’ is reflected in the development of the principle of transparency, the new rules on ranking and the adoption of the control of contract terms in the B–B field.207 The Digital Content Directive has contributed greatly to reshaping contract law.208 This applies to fundamental concepts such as ‘digital content’, ‘digital services’ and the ‘supply’ (the pendant to ‘delivery’ in sales law) as well as innovative approaches such as the requirements for supply209, the specific exclusions and the right to retrieve non-personal data210, and the consumer’s obligation to refrain from using the digital content (or service) or making it available to third parties.211 The new contract law also features various structural aspects, such as the provisions 78 on the interdependence between the digital content or digital service and its digital environment, the ‘update’ obligation and the distinction between single performance and performance over a period of time. The interdependence between different digital content and digital services, as a characteristic of digitalization, is expressed in the Digital Content Directive (and in part in the Sale of Goods Directive) in the performance criteria functionality, interoperability and compatibility212 as well as in the provision on the integration of digital content and digital services into the digital environment.213 The ‘update’ obligation may be viewed as a response to the rapid technological developments and thus as a significant part of the development of contract law in the digital age.214 It extends the requirements for conformity215 and is linked to the distinction between single performance and performance over a period of time, a further structural feature that also impacts on liability, burden of proof, and restitution.216 Although one can identify several new features of European contract law in the digi- 79 tal age, the innovative approaches in recent legislation are merely the first steps in defin206 Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 721–722. 207 See mn. 70 et seq. 208 On the following, Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 721 et seq. 209 Art. 5(2) DCD. 210 Art. 16(3) and (4) DCD. 211 Art. 17(1) DCD. 212 Art. 7 and Art. 8(1) DCD. 213 Art. 9 DCD. 214 See Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 722. 215 Art. 7(d), Art. 8(2) and (3) DCD. 216 Art. 11(2) and (3), Art. 12(2) and (3), Art. 16(1) DCD.

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ing the new legal landscape. They will not only need further consideration as to their form but will also require additions through further legislation. One open question concerns, for example, whether commercial contracts for digital content are equally worthy of protection as consumer contracts.217 It appears questionable that the harmonization of remedies has continued to exclude damages, although its form in national law represents a heavy burden for the trader as well as an effective instrument for the consumer.218 The desired increase on cross-border transactions may well be burdened by the lack of EU rules on force majeure, impossibility, etc.219 – whereas harmonization is full for some areas of contract law, it is certainly far from complete. A further point to consider, and a final example, is whether the often dominant influence of online intermediaries on the conclusion and content of contracts also requires a corresponding development of the contractual or pre-contractual liability for online intermediaries. 220 80 European contract law is once again proving to be a ‘law in a changing society’. 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 law221 and privacy rights, but also on data protection 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.

217 Beale, ‘The future of European contract law in the light of the European Commission’s proposals for Directives on digital content and online sales’ (2016) Revista de Internet, Derecho y Politica 3; Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 702. 218 Schulze, ‘Die Digitale-Inhalte-Richtlinie – Innovation und Kontinuität im europäischen Vertragsrecht’ (2019) ZEuP 695, 720–721, 723. 219 Ibid. 707–708, 723; EU Digital Law/Schulze, Art. 5 DCD mn. 31. 220 See mn. 71; ELI, ‘Model Rules on Online Platforms’ (2019). See also the recent proposal for a Digital Markets Act, COM(2020) 842 final. 221 See Boehm, ‘Herausforderungen von Cloud Computing-Verträgen: Vertragstypologische Einordnung, Haftung und Eigentum an Daten’ (2016) ZEuP 358; Spindler, ‘Contract Law and Copyright – Regulatory Challenges and Gaps’ in Schulze/Staudenmayer/Lohsse (eds), Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017) 211 et seq.; see also the contributions to Lohsse/ Schulze/Staudenmayer (eds), Trading Data in the Digital Economy: Legal Concepts and Tools (Nomos 2017).

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CHAPTER 2 CORE ELEMENTS Literature: von Bar/Clive, Principles, Definitions and Model Rules of European Private Law, DCFR (Full Edition) (Sellier 2009); Busch/Dannemann/Schulte-Nölke/Wiewiórowska-Domagalska/Zoll (eds), Discussion Draft of a Directive on Online Intermediary Platforms. Commentary (Jagiellonian University Press 2019); Busch/Schulte-Nölke/Wiewiórowska-Domagalska/Zoll, ‘The Rise of the Platform Economy: A New Challange for EU Consumer Law?’ (2016) 1 EuCML 3; Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016); Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020); Howells/Wilhelmsson/TwiggFlesner, 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; Jansen/Zimmermann (eds), Commentaries on European Contract Laws (OUP 2018); Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Service (Contract II) (Sellier 2009); Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schulze (ed), Common European Sales Law (CESL) – Commentary (Nomos 2012); Schulze/Staudenmayer/Lohsse (eds), Contracts for the Supply of Digital Content: Regulatory Challenges and Gaps (Nomos 2017); Schulze/ Staudenmayer (eds), EU Digital Law – Commentary (Nomos 2020); Zoll, Rękojmia: odpowiedzialność sprzedawcy (C.H. Beck 2018). I. Concept of contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Contract and juridical act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Contract as consensus ad idem? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Contract and notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Types of contract in the acquis communautaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Specific circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Increase in contract types in the acquis communautaire . . . . . . . . . . . . . . . . . . III. Mixed contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Freedom of contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Default and mandatory law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Limitations on contract drafting by controlling contract terms . . . . . . . . . . . 4. Good faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Non-discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Party status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Consumers and other protected parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Notion of the consumer in the acquis communautaire . . . . . . . . . . . . . . . . . . . . 3. Other protected parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 32 52 63 63 82 96 108 108 114 127 130 144 158 159 159 161 167

I. Concept of contract 1. Contract and juridical act The concept of contract1 naturally forms the heart of European contract law as it al- 1 lows private individuals to give binding effect to their own matters and to their relationship with others. 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 therefore faces a choice between either referring all rules to abstract concepts of juridical acts and treating the con1 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.

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tract as a particular case thereof or principally regulating the contract and possibly allowing for contractual rules to be applicable to other juridical acts.3 2 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 has practical reasons as the concept of a juridical act is a theoretical approach that is not used in many legal systems;5 whereas 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 notion. 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’: 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’ 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 mn. 56–65. 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 mn. 28–43. 5 See Schmidt, ‘Der „juridical act“ im DCFR: Ein nützlicher Grundbegriff des europäischen Privatrechts?’ (2010) ZEuP 304, 305, 307, who refers to the variation in the spread of this concept across the different European legal systems. 6 Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 mn. 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 (Sellier-de Gruyter 2018) C. Das Rechtsgeschäft mn. 1. 10 See Schmidt, ‘Der „juridical act“ im DCFR: Ein nützlicher Grundbegriff des europäischen Privatrechts?’ (2010) ZEuP 304, 304–305; Whittaker/Riesenhuber, ‘Conceptions of Contract’ in Dannemann/ Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 6137–159; 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).

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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 instead played by the notion of ‘contract’.13 ‘Juridical act’ is indeed used in the different situations in which contractbased 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 considerable influence of the DCFR, the proposed CESL did not adopt 5 the notion of a juridical act.16 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 are rather just considered an extension of the rules for the contract. Whereas the DCFR and the proposed CESL adopt a traditional concept of contract,18 6 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 cannot 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 long-term 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 has had 7 considerable influence on the notion of contract in the Member States.23 Such influence Zoll, ibid. DCFR Full Edition 125; Staudinger BGB/Schiemann (Sellier-de Gruyter 2018) C. Das Rechtsgeschäft mn. 2. 13 Schmidt, ‘Der „juridical act“ im DCFR: Ein nützlicher Grundbegriff des europäischen Privatrechts?’ (2010) ZEuP 304, 320. 14 DCFR Full Edition 339–340. 15 Schmidt, ‘Der „juridical act“ im DCFR: Ein nützlicher Grundbegriff des europäischen Privatrechts?’ (2010) ZEuP 304, 311. 16 Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 mn. 50, who labels the scope of the CESL as concerning ‘contractual situations’and § 4 mn. 59, in which the CESL is referred to as an ‘optional second system of contract law’. 17 Schulze, ‘Europäisches Vertragsrecht – die Zeit ist reif für die Gesetzgebung’ (2011) EuZW 569, 570; Schulze/Wilhelmsson, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’ (2008) ERCL 154, 165. 18 DCFR Full Edition 170; Schmidt-Kessel CESL/Gebauer Art. 30 CESL-Reg mn. 1, 6. 19 Contract II/Schulte-Nölke/Zoll Introductory Part xxv. 20 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. 21 See § 1 mn. 60; COM (2014) 910 final, Annex 2, No. 60. 22 Tamm/Tonner, ‘Vom Scheitern des Gemeinsamen Europäischen Kaufrechts im Rahmen des digitalen Binnenmarktes’ (2015) EWS 241, 246. 23 Wiedmann/Gebauer in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010) Ch. 1 mn. 2. 11 12

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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, EU 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 reasonable 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 reasonable 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 reasonably expected from the customer in relation to her declaration.28 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 reasonable expectations. The intention will be decisive because it, under other circumstances surrounding the contract, forms the requirement of the ‘reasonable 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.29 8 The concept of reasonable expectations can be identified in a number of sources of European contract law. 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.

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 Chapter 3 mn. 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 Zoll, Rękojmia: odpowiedzialność sprzedawcy (C.H. Beck 2018) Chapter II § 1.II; Południak-Gierz, Wady oświadczenia woli w umowach zawieranych na internetowym rynku konsumenckim (C.H. Beck 2020) Chapter 1. § 3.V.2. 29 Busch, Informationspflichten im Wettbewerbs- und Vertragsrecht (Mohr Siebeck 2008) 57–58.

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Art. 6(5) CRD 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. 30 The distinction between these two types of declaration is increasingly fading.31 The communicated information forms the basis of an expectation regarding the content of the contract and the performance. The provision does not refer to reasonable expectations as a standard, yet it is the concept of reasonable expectations that provides the reason for the information becoming part of the legal relationship between the parties. The concept of reasonable expectations was already especially apparent in the Con- 9 sumer Sales Directive (emphasis added). 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 reasonable expectations by referring to the quality of the performance the consumer can reasonably expect. However, the legislator also emphasizes that the presumption (Art. 2 CSD) does not restrict the principle of freedom of contract. Although the Consumer Sales Directive has now since been repealed by the Sale of 10 Goods Directive it is nonetheless important to note the inclusion of two principles of contract law: freedom of contract and the principle of reasonable expectations. 32 The notion of reasonable expectations alters traditional contract law by distancing itself from the model of conclusion via two corresponding statements of intention. It is the consumer’s reasonable expectation which influences the content of the legal relationship. This distinction between European contract law and the traditional general contract law of the Member States is still underestimated. The notion of reasonable expectations means that a degree of standardized judgement takes the place of the corresponding statements of intention as the source of the legal relationship. Such judgement determines what the consumer should receive under the circumstances which give rise to the reasonable expectations, but also includes the declarations by the parties.33 The legislator therefore creates a new perspective for freedom of contract which, from the typical perspective, arises from an idealistic view where the parties can satisfy their needs by freely making decisions that ultimately converge when reaching an agreement. This role is now played by the reasonable expectations, which attempts to combine freedom of contract with the demands of a fair market.34 See Schwenzer/Hachem/Kee, Global Sales and Contract Law (OUP 2014) mn. 10.51. Busch, Informationspflichten im Wettbewerbs- und Vertragsrecht (Mohr Siebeck 2008) 58. 32 See Recital 8 CSD, Recitals 26 and 29, Art. 6 and 7 SGD. 33 Zoll, Rękojmia: odpowiedzialność sprzedawcy (C.H. Beck 2018) Chapter II § 1.II; Południak-Gierz, Wady oświadczenia woli w umowach zawieranych na internetowym rynku konsumenckim (C.H. Beck 2020) Chapter 1. § 3.V.2. 34 Zoll, ibid.; Zoll, ‘Problem negatywnego uzgodnienia cech rzeczy sprzedanej — w oczekiwaniu na wspólne europejskie prawo sprzedaży’ (2012) 2 Transformacje Prawa Prywatnego 169. 30

31

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Chapter 2 Core Elements

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 reasonable 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 reasonable expectations. 12 Reasonable expectations in the Digital Content Directive and Sale of Goods Directive still serve as a basis for the contract law contained therein, but the implementation of this concept has changed, as can be seen in Recital 20 DCD. 11

Recital 20 Digital Content Directive (…) Accordingly, in order to meet the expectations of consumers and ensure a clear-cut and simple legal framework for traders of digital content, this Directive should also apply to digital content which is supplied on a tangible medium, such as DVDs, CDs, USB sticks and memory cards, as well as to the tangible medium itself, provided that the tangible medium serves exclusively as a carrier of the digital content. (…)

And accordingly in Recital 21 DCD: Recital 21 Digital Content Directive (…) It should also include those sales contracts which can be understood as covering the supply of specific digital content or a specific digital service because they are normal for goods of the same type and the consumer could reasonably expect them given the nature of the goods and taking into account any public statement made by or on behalf of the seller or other persons in previous links of the chain of transactions, including the producer. (…)

The notion of reasonable expectations contributes in both instances to defining the Directive’s scope of application, thereby serving as a criterion to distinguish between different types of contract. Reasonable expectations therefore gain a new dimension as a factor which not only determines the specific content of the performance but also more generally as determining the nature of the legal relationship between the parties. Recital 13 SGD refers to the concept of reasonable expectations in order to determine 13 the scope of the Directive. Recital 13 Sale of Goods Directive This Directive and Directive (EU) 2019/770 of the European Parliament and of the Council should complement each other. While Directive (EU) 2019/770 lays down rules on certain requirements concerning contracts for the supply of digital content or digital services, this Directive lays down rules on certain requirements concerning contracts for the sale of goods. Accordingly, in order to meet the expectations of consumers and ensure a clear-cut and simple legal framework for traders of digital content or digital services, Directive (EU) 2019/770 applies to the supply of digital content or digital services, including digital content supplied on a tangible medium, such as DVDs, CDs, USB sticks and memory cards, as well as to the tangible medium itself, provided that the tangible medium serves exclusively as a carrier of the digital content. In contrast, this Directive should apply to contracts for the sale of goods, including goods with digital elements which require digital content or a digital service in order to perform their functions.

Here it is clear that the European legislator has used the concept of reasonable expectations as a means to solve the problem of distinguishing between the Digital Content Directive and the Sale of Goods Directive. The legislator has used the consumer’s expec-

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I. Concept of contract

tations and the trader’s need for certainty in order to justify the application of the Digital Content Directive (not the Sale of Goods Directive) to digital content supplied on a tangible medium. 14 Recital 45 DCD outlines the standards for determining conformity: Recital 45 Digital Content Directive In order to be in conformity and to ensure that consumers are not deprived of their rights, for example in cases where the contract sets very low standards, the digital content or digital service should not only comply with the subjective requirements for conformity, but should in addition comply with the objective requirements for conformity set out in this Directive. Conformity should be assessed, inter alia, by considering the purpose for which digital content or digital services of the same type would normally be used. It should also possess the qualities and performance features which are normal for digital content or digital services of the same type and which consumers can reasonably expect, given the nature of the digital content or digital service, and taking into account any public statements on the specific characteristics of the digital content or digital service made by or on behalf of the trader or other persons in previous links of the chain of transactions.

Recital 29 SGD contains similar criteria: Recital 29 Sale of Goods Directive In order to be in conformity, the goods should not only comply with the subjective requirements for conformity but should in addition comply with the objective requirements for conformity set out in this Directive. Conformity should be assessed, inter alia, by considering the purpose for which goods of the same type would normally be used, whether they are supplied with the accessories and instructions that the consumer can reasonably expect to receive or whether they correspond to the sample or model that the seller made available to the consumer. The goods should also possess the qualities and features which are normal for goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statement made by or on behalf of the seller or other persons in previous links of the chain of transactions.

These recitals express a central function of ‘reasonable expectations’. In this case, rea- 15 sonable expectations serve to determine the conformity of what was acquired under the contract (goods, digital content or digital services). The recitals list various factors to be taken into consideration. Recital 45 refers to the expectations regarding the (quality and performance) characteristics of the digital content or digital service which are normal for digital content or digital services of the same type and as such are to be expected by the consumer for the acquired content or service. This recital also emphasizes the influence of public statements made by the trader or by others in earlier parts of the transaction chain. The approach is already familiar to the acquis communautaire through the Consumer Sales Directive and shows the extent to which EU law influences the concept of conclusion of contract.35 Statements made by third parties can therefore determine the content of the contract. In this respect, the corresponding declarations by the parties do not by themselves determine the content of the contract, but rather various different aspects which collectively (together with the declarations of intention) reveal the nature of reasonable expectations. 16

Article 8(1)(b) Digital Content Directive Objective requirements for conformity In addition to complying with any subjective requirement for conformity, the digital content or digital service shall: be of the quantity and possess the qualities and performance features, including in

35

EU Digital Law/Staudenmayer, Art. 7 DCD mn. 11–12.

45

Chapter 2 Core Elements relation to functionality, compatibility, accessibility, continuity and security, normal for digital content or digital services of the same type and which the consumer may reasonably expect, given the nature of the digital content or digital service and taking into account any public statement made by or on behalf of the trader, or other persons in previous links of the chain of transactions, particularly in advertising or on labelling unless the trader shows that: (i) the trader was not, and could not reasonably have been, aware of the public statement in question; (ii) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or (iii) the decision to acquire the digital content or digital service could not have been influenced by the public statement;

This provision allows a reconstruction of the notion of reasonable expectations in its interaction with the statements of intention, measured against the parties’ freedom of choice. It attempts to also consider the trader’s interests and to weaken the effect of reasonable expectations on the content of the contract or to name the circumstances in which the consumer’s reasonable expectations cannot arise with regard to specific content. 17 Art. 8 DCD contains criteria which weaken the effect of statements by third parties. Actually, only Art. 8(1)(b)(i) DCD concerns the clash between the consumer’s reasonable expectations and the attribution of awareness of such expectations to the trader. Such rule already featured in Art. 2(2)(d) CSD and has been adopted in Art. 7(2) SGD. The European legislator emphasizes in Art. 8(1)(b)(iii) DCD (and the corresponding provision in the Sale of Goods Directive) the notion of reasonable expectations. The trader is not liable for public statements that cannot have influenced the consumer’s decision. In principle, Art. 8(1)(b)(ii) DCD is similar, but describes a different scenario in which the consume cannot expect the digital content or digital service to have particular features – it may well be the case that the consumer was not informed of the correction to the earlier statement. Here the legislator protects the trader’s interests in trusting that the corrections remove the effects of public statements. 18 The Digital Content Directive and the Sale of Goods Directive change the system by introducing a clear distinction between the subjective and objective criteria for conformity. Article 6 Digital Content Directive Conformity of the digital content or digital service The trader shall supply to the consumer digital content or a digital service that meets the requirements set out in Articles 7, 8 and 9, where applicable, without prejudice to Article 10. Article 7 Digital Content Directive Subjective requirements for conformity In order to conform with the contract, the digital content or digital service shall, in particular, where applicable: (a) be of the description, quantity and quality, and possess the functionality, compatibility, interoperability and other features, as required by the contract; (b) be fit for any particular purpose for which the consumer requires it and which the consumer made known to the trader at the latest at the time of the conclusion of the contract, and in respect of which the trader has given acceptance; (c) be supplied with all accessories, instructions, including on installation, and customer assistance as required by the contract; and (d) be updated as stipulated by the contract.

46

I. Concept of contract Article 8 Digital Content Directive Objective requirements for conformity (1) In addition to complying with any subjective requirement for conformity, the digital content or digital service shall: (a) be fit for the purposes for which digital content or digital services of the same type would normally be used, taking into account, where applicable, any existing Union and national law, technical standards or, in the absence of such technical standards, applicable sectorspecific industry codes of conduct; (b) be of the quantity and possess the qualities and performance features, including in relation to functionality, compatibility, accessibility, continuity and security, normal for digital content or digital services of the same type and which the consumer may reasonably expect, given the nature of the digital content or digital service and taking into account any public statement made by or on behalf of the trader, or other persons in previous links of the chain of transactions, particularly in advertising or on labelling unless the trader shows that: (i) the trader was not, and could not reasonably have been, aware of the public statement in question; (ii) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or (iii) the decision to acquire the digital content or digital service could not have been influenced by the public statement; (c) where applicable, be supplied along with any accessories and instructions which the consumer may reasonably expect to receive; and (d) comply with any trial version or preview of the digital content or digital service, made available by the trader before the conclusion of the contract. (2) The trader shall ensure that the consumer is informed of and supplied with updates, including security updates, that are necessary to keep the digital content or digital service in conformity, for the period of time: (a) during which the digital content or digital service is to be supplied under the contract, where the contract provides for a continuous supply over a period of time; or (b) that the consumer may reasonably expect, given the type and purpose of the digital content or digital service and taking into account the circumstances and nature of the contract, where the contract provides for a single act of supply or a series of individual acts of supply. (3) Where the consumer fails to install, within a reasonable time, updates supplied by the trader in accordance with paragraph 2, the trader shall not be liable for any lack of conformity resulting solely from the lack of the relevant update, provided that: (a) the trader informed the consumer about the availability of the update and the consequences of the failure of the consumer to install it; and (b) the failure of the consumer to install or the incorrect installation by the consumer of the update was not due to shortcomings in the installation instructions provided by the trader. (4) Where the contract provides for a continuous supply of digital content or digital service over a period of time, the digital content or digital service shall be in conformity throughout the duration of that period. (5) There shall be no lack of conformity within the meaning of paragraph 1 or 2 if, at the time of the conclusion of the contract, the consumer was specifically informed that a particular characteristic of the digital content or digital service was deviating from the objective requirements for conformity laid down in paragraph 1 or 2 and the consumer expressly and separately accepted that deviation when concluding the contract. (6) Unless the parties have agreed otherwise, digital content or a digital service shall be supplied in the most recent version available at the time of the conclusion of the contract.

47

Chapter 2 Core Elements Article 5 Sale of Goods Directive Conformity of goods The seller shall deliver goods to the consumer that meet the requirements set out in Articles 6, 7 and 8, where applicable, without prejudice to Article 9. Article 6 Sale of Goods Directive Subjective requirements for conformity In order to conform with the sales contract, the goods shall, in particular, where applicable: (a) be of the description, type, quantity and quality, and possess the functionality, compatibility, interoperability and other features, as required by the sales contract; (b) be fit for any particular purpose for which the consumer requires them and which the consumer made known to the seller at the latest at the time of the conclusion of the sales contract, and in respect of which the seller has given acceptance; (c) be delivered with all accessories and instructions, including on installation, as stipulated by the sales contract; and (d) be supplied with updates as stipulated by the sales contract. Article 7 Sale of Goods Directive Objective requirements for conformity (1) In addition to complying with any subjective requirement for conformity, the goods shall: (a) be fit for the purposes for which goods of the same type would normally be used, taking into account, where applicable, any existing Union and national law, technical standards or, in the absence of such technical standards, applicable sector-specific industry codes of conduct; (b) where applicable, be of the quality and correspond to the description of a sample or model that the seller made available to the consumer before the conclusion of the contract; (c) where applicable, be delivered along with such accessories, including packaging, (d) be of the quantity and possess the qualities and other features, including in relation to durability, functionality, compatibility and security normal for goods of the same type and which the consumer may reasonably expect given the nature of the goods and taking into account any public statement made by or on behalf of the seller, or other persons in previous links of the chain of transactions, including the producer, particularly in advertising or on labelling. (2) The seller shall not be bound by public statements, as referred to in point (d) of paragraph 1 if the seller shows that: (a) the seller was not, and could not reasonably have been, aware of the public statement in question; (b) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or (c) the decision to buy the goods could not have been influenced by the public statement. (3) In the case of goods with digital elements, the seller shall ensure that the consumer is informed of and supplied with updates, including security updates, that are necessary to keep those goods in conformity, for the period of time: (a) that the consumer may reasonably expect given the type and purpose of the goods and the digital elements, and taking into account the circumstances and nature of the contract, where the sales contract provides for a single act of supply of the digital content or digital service; or (b) indicated in Article 10(2) or (5), as applicable, where the sales contract provides for a continuous supply of the digital content or digital service over a period of time. (4) Where the consumer fails to install within a reasonable time updates supplied in accordance with paragraph 3, the seller shall not be liable for any lack of conformity resulting solely from the lack of the relevant update, provided that: (a) the seller informed the consumer about the availability of the update and the consequences of the failure of the consumer to install it; and.

48

I. Concept of contract (b)

the failure of the consumer to install or the incorrect installation by the consumer of the update was not due to shortcomings in the installation instructions provided to the consumer. (5) There shall be no lack of conformity within the meaning of paragraph 1 or 3 if, at the time of the conclusion of the sales contract, the consumer was specifically informed that a particular characteristic of the goods was deviating from the objective requirements for conformity laid down in paragraph 1 or 3 and the consumer expressly and separately accepted that deviation when concluding the sales contract.

The division between the requirements for conformity is not particularly fortunate. 19 The classifications as ‘subjective’ and ‘objective’ already appear misleading as the classification does not concern the type of agreement between the parties, but rather the extent to which the individual circumstances are to be considered. In actual fact there is no qualitative difference between the ‘subjective’ and ‘objective’ requirements. Both instances concern the circumstances which underpin the consumer’s reasonable expectations. The distinction serves to solve the problem of agreements for products of substandard quality, as seen in Art. 7(5) SGD and Art. 8(5) DCD. The problem concerns agreements between parties for products (be these goods, digital content, etc.) whose quality falls below the objective requirements. Whereas such agreements are an expression of contractual freedom, i.e. the freedom to purchase substandard products, they also do not reflect typical market behaviour. Consequently, there is a high risk that one uses such an agreement to circumvent the mandatory rules in consumer law. It is for this reason that the EU legislator included the requirement of qualified consent in both Directives: the consumer must be informed where the quality deviates from the objective standard and must expressly and separately accept the deviation. The European legislator has quite rightly acknowledged this problem, but not given an adequate solution. The standard of reasonable expectations is influenced by various factors. The requirements referred to in the Directives as ‘subjective’ concern, for example, the agreed description, quality, quantity, functionality, compatibility and interoperability,36 supplemented by the wording ‘as required by the sales contract’. The addition is meaningless as all content concerns the content of the contract itself. However, this arises not just from what is expressed in the contract itself but also from all circumstances which shape the content of the contract. The distinction between the subjective and objective requirements may not be confused with the distinction in German law between the ‘agreed’ and ‘usual’ quality, whereby the ‘agreement’ in § 434(1) BGB refers to the manner in which an aspect becomes part of the contract.37 The ‘objective’ and ‘subjective’ requirements under the Directives do not refer to the nature of the agreement but rather to the extent to which the requirements are specified. It is therefore a somewhat imprecise structural criterion which only serves to simplify the legislative technique by clarifying that the agreement between the parties should not result in exclusions from the objective standard (i.e. the generally expected quality). The only means to deviate from this standard is through qualified consent. a) Requirements for qualified consent The European legislator attempts to protect the consumer by requiring qualified con- 20 sent with regard to the inclusion of contract terms detrimental to the consumer. For example, Art. 22 CRD:

36 37

Art. 7(1)(a) DCD and Art. 6(a) SGD. On § 434 BGB see German Civil Code/Schaub § 434 BGB.

49

Chapter 2 Core Elements 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.

21

Art. 8(5) DCD and Art. 7(5) SGD contain a similar concept in relation to the aforementioned discussion of agreements on substandard quality.38 According to these provisions, such an agreement will be effective where the consumer has given qualified consent. Both Directives require the consumer to have been specifically informed of the deviation from the objective requirements and for the consumer to have expressly and separately accepted such deviation when concluding the contract. 22 The use of qualified consent as a condition for the effectiveness of particularly detrimental contract terms is rooted in early law on unfair contract terms, such as in Italian law which required the customer’s separate, signed consent to detrimental contract terms. The aforementioned provisions of the Digital Content Directive and the Sale of Goods Directive do not contain any formal requirements. Although not directly required by EU law, it is often the trader who will have to prove that the requirements for qualified consent have been fulfilled. 23 In light of the rules concerning qualified consent one can question whether European contract law features a uniform concept of contract. Whereas reasonable expectations contribute to determining the content of the contract, there are also requirements for qualified consent. However, these two approaches are not contradictory. The modern contract à la européen is concluded as a result of the interaction between various factors, several of which are set in legislation (such as qualified consent) which expresses what the counterparty may expect from the contract. 24 Qualified consent may depend on whether the contract has actually been concluded: Article 8(2) Consumer Rights Directive Formal requirements for distance contracts 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.

25

Art. 8(2) CRD requires the trader to not only ensure that the consumer explicitly acknowledges the obligation to pay but to also label the corresponding function which, when activated by the consumer, gives rise to the payment obligation. Non-compliance by the trader will mean that the consumer is not bound the contract. This is a specific sanction whereby the contract will nonetheless be concluded but the consumer is not

38

50

See mn. 18.

I. Concept of contract

bound by it and the trader cannot argue that the contract with the consumer does not exist.39 b) Transparency Several EU directives require contract terms and pre-contractual information to be 26 drafted in a ‘clear and comprehensible manner’ or in ‘plain and intelligible language’. The principle of transparency therefore serves to ensure that a legally-relevant text has the necessary clarity. Its application for pre-contractual information40 and contract terms has allowed it to become an important instrument of consumer protection. Article 5(1) Consumer Rights Directive Information requirements for contracts other than distance or off-premises contracts 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: (…) Article 6(1) Consumer Rights Directive Information requirements for distance and off-premises contract 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: (…) 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. 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 principle of transparency is not merely a feature of EU consumer law, as can be 27 seen in the recent Platform Regulation: Article 3(1)(a) Platform Regulation Terms and conditions Providers of online intermediation services shall ensure that their terms and conditions: are drafted in plain and intelligible language

The principle of transparency may be viewed as a further expression of the con- 28 sumer’s reasonable expectations being of the central features of EU contract law. The content of the contract shall only be influenced by factors that the consumer can expect. Such factors must be sufficiently clear in order to be acknowledged by the consumer. The importance of transparency in relation to unfair terms will be discussed in more 29 detail in Chapter 4.41 However, it also plays a key role in determining the concept of contract under European law and in the process of contract formation (i.e. for conclusion and content of the contract). Difficulties arise from the variation in sanctions for violation of the transparency requirement and therefore the effect on a uniform system of leEU Digital Law/Terryn/Vandenbulcke, Art. 8 CRD mn. 11. Commentaries on European Contract Laws/Kästle-Lamparter, Art 2:404 mn. 5. 41 See Chapter 4 mn. 39 et seq. 39

40

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Chapter 2 Core Elements

gal consequences for the contract. Furthermore, these sanctions fall within a blindspot between national and European law. Nonetheless, it is to be assumed that the information obligation is not performed when the information does not satisfy the given requirements and as such the prescribed sanctions will apply. Contract terms which do not satisfy the requirements will be subject to review and may be considered unfair due to the lack of transparency. EU contract law therefore has the particular feature that the question of transparency does not determine whether a contract has been concluded but is one of the factors in ascertaining the unfair nature of contract terms. 30 It is to be noted that the notion of transparency is constantly changing. The aforementioned examples show that transparency was initially understood as a requirement for legally-relevant texts to be clear and comprehensible. ECJ case law has, however, extended the meaning of transparency from this purely textual level as well as the clarity of the legal consequences resulting from the contract term. C–96/14 Van Hove ECLI:EU:C:2015:262 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 a term of an insurance contract intended to ensure that loan repayments payable to the lender will be covered in the event of the borrower’s total incapacity for work falls within the exception set out in that provision only where the referring court finds: – first, that, having regard to the having regard to the nature, general scheme and the stipulations of the contractual framework of which it forms part, and to its legal and factual context, that term lays down an essential component of that contractual framework, and, as such, characterises it, and, – secondly, that that term is drafted in plain, intelligible language, that is to say that it is not only grammatically intelligible to the consumer, but also that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms, so that that consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it.

31

The decision in Van Hove expresses two elements of transparency: that the term is grammatically intelligible to the consumer and that the consumer is in a position to evaluate the economic consequences42 derived from the contract term. The second aspect actually concerns a problem in continental-European law surrounding defects of consent. One can therefore see the extent to which European contract law impacts on and modifies traditional elements of national legal systems.

2. Contract as consensus ad idem?43 32

The Common European Sales Law proposes the following definition of ‘contract’: Article 2(a) CESL-Reg Definitions ‘contract’ means an agreement intended to give rise to obligations or other legal effects;

33

This definition of contract44 may find support in the numerous directives forming part of the acquis communautaire45. Admittedly, however, none these directives contains a definition of contract comparable with the definition in Art. 2(a) CESL-Reg. 46 This unEU Digital Law/Terryn/Vandenbulcke, Art. 8 CRD mn. 7. An explanation of the concept of contract from the perspective of different legal systems and different stages in legal history is given in Paricio, ‘Der Vertrag – Eine Begriffsbildung’ in Andrés Santos/Baldus/ Dedek (eds), Vertragstypen in Europa: Historische Entwicklung und europäische Perspektiven (Sellier 2011). 42 43

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I. Concept of contract

derstanding of contract underlies the respective definitions of a distance contract (Art. 2(7) CRD) and an off-premises contract (Art. 2(8) CRD), each of which refer to the conclusion of contract. However, as noted above,47 the underlying notion of contract in the acquis is not to be 34 understood merely as a meeting of the minds. Moreover, how European law perceives ‘contract’ does not provide a complete picture of the notion itself.48 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.49 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 con- 35 sumer 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.

Art. 27 CRD refers to the Unfair Commercial Practices Directive in which the prac- 36 tice of delivering unsolicited goods or services with the aim of concluding a contract with a consumer is categorized as an unfair commercial practice.50 This cross-reference is highly characteristic of the new development in contract law – the link between contract law and competition law.51 This can also be seen in Art. 27 CRD 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. 44 For more detail on the concept of contract in the CESL see Schmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 10. 45 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 mn. 37. 46 Schmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 10; Schulze CESL/Wendehorst, Art. 2 CESL-Reg mn. 4. 47 Mn. 2 et seq. 48 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 518–519. 49 Zoll, ‘Die Grundregeln der Acquis Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 109. 50 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’. 51 See Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016).

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Chapter 2 Core Elements

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 CRD provides that in the event of inertia selling the consumer will be exempted from the obligation to provide any counter-performance.52 As noted by Hall/Howells/ Watson, the provision is ‘out of place’ in the structure of the Consumer Rights Directive.53 In this respect, it reflects the legislator’s intention to dissuade a business from adopting such a consumer-unfriendly practice rather than to take a decision on the interpretation of contracts. 38 Art. 27 CRD was at issue in EVN Bulgaria Toplofikatsia: 37

Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 1.

2.

Article 27 of Directive 2011/83/EU […] read in conjunction with Article 5(1) and (5) of Directive 2005/29/EC […] (‘Unfair Commercial Practices Directive’), must be interpreted as not precluding a national law that provides that the owners of an apartment in a building in co-ownership connected to a district heating network are required to contribute to the costs of the consumption of thermal energy by the common parts and the internal installation of the building, even though they did not individually request the supply of that thermal energy and they do not use it in their apartment. Article 13(2) of Directive 2006/32/EC of the European Parliament and of the Council of 5 April 2006 on energy end-use efficiency and energy services […] must be interpreted as not precluding a national law that provides that in a building held in co-ownership the bills for thermal energy consumption by the internal installation are calculated for each property owner in the building in proportion to the heated volume of his or her apartment.

The decision shows the relationship between consumer protection, multi-party relationships and particular types of services. In the particular case the court held that the common good and the supply of distance-heating take precedence over the individual interests of the consumer. 40 The Distance Marketing of Financial Services Directive contains a similar provision: 39

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.

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 52 See Chapter 3 mn. 92 et seq. For further problems see De Cristofaro, ‘Italy’ in De Cristofaro/De Franceschi (eds), Consumer Sales in Europe (Intersentia 2016) 102. 53 Hall/Howells/Watson, ‘The Consumer Rights Directive – An Assessment of its Contribution to the Development of European Consumer Law’ (2012) ERCL 139, 165.

54

I. Concept of contract

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 Selling 41 Directive and in the Distance Marketing of Financial Services Directive as:54 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 in the 42 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(1) DCFR No obligation arising from failure to respond 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 as on 43 corresponding rules in national laws55 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 visà-vis the business.56 In contrast, the Consumer Rights Directive appears to limit this privilege to the ex- 44 emption to tender counter-performance, therefore it remains unclear whether the business can enforce any other rights.57 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.58 A common problem in contract law concerns travel on public transport without hav- 45 ing purchased a ticket (‘fare dodging’) and without the intention of concluding a contract, however the ECJ has responded to this problem in Kanyeba: C–349/18 Kanyeba ECLI:EU:C:2019:936 Article 3(8) of Regulation (EC) No 1371/2007 of the European Parliament and of the Council of 23 October 2007 on rail passengers’ rights and obligations must be interpreted as meaning that a situa-

Contract II/Schulze, Art. 4:106 mn. 1. 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. 56 DCFR Full Edition 259. 57 For more detail see Chapter 3 mn. 96 et seq. 58 Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 406. 54

55

55

Chapter 2 Core Elements tion in which a passenger boards a freely accessible train for the purposes of travel without acquiring a ticket comes within the concept of a ‘transport contract’ for the purposes of that provision.

b) Conclusion of contract as a complex process 46

The Acquis Principles have used the acquis communautaire in order to give greater clarification to the concept of contract: 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.

47

This provision is based on various different sources in the acquis communautaire.59 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 UTD, Art. 7(2) CSD 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) CSD: 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.60 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 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. 48 Art. 21 SGD and Art. 22 DCD correspond to Art. 7 CSD. These provisions also do not indicate the European legislator’s particular approach. The Commission did however attempt to tackle the problem from a different angle in its proposals for the Online Sales Directive and Digital Content Directive.

59 60

56

Contract II/Schulze, Art. 4:101 mn. 1–3. Contract II/Schulze Art. 4:101 mn. 1.

I. Concept of contract Article 21 Sale of Goods Directive Mandatory nature (1) Unless otherwise provided for in this Directive, any contractual agreement which, to the detriment of the consumer, excludes the application of national measures transposing this Directive, derogates from them, or varies their effect, before the lack of conformity of the goods is brought to the seller’s attention by the consumer, shall not be binding on the consumer. (2) This Directive shall not prevent the seller from offering to the consumer contractual arrangements that go beyond the protection provided for in this Directive. Article 22 Digital Content Directive Mandatory nature (1) Unless otherwise provided for in this Directive, any contractual term which, to the detriment of the consumer, excludes the application of the national measures transposing this Directive, derogates from them or varies their effects before the failure to supply or the lack of conformity is brought to the trader’s attention by the consumer, or before the modification of the digital content or digital service in accordance with Article 19 is brought to the consumer’s attention by the trader, shall not be binding on the consumer. (2) This Directive shall not prevent the trader from offering the consumer contractual arrangements that go beyond the protection provided for in this Directive.

The Unfair Terms Directive is not to be considered as a sufficient basis for a particu- 49 lar 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;

These Recitals lack sufficient reference to the existence of a particular European understanding of contract. Recital 12 UTD 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 not sufficient 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 prevalent in 50 the proposal for a Common European Sales Law.61 Art. 30 CESL62 emphasizes, as the 61 62

Schmidt-Kessel CESL/Gebauer, Art. 30 CESL mn. 1–7. For more detail see Chapter 3 mn. 58 et seq.

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Acquis Principles, the necessity to reach an agreement (Art. 30(1)(a) CESL). However, this provision also stipulates the requirements of such an agreement, namely the intention that the agreement shall have legal effect (Art. 30(1)(b) CESL) and sufficient content (Art. 30(1)(c) CESL). 63 In this 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 have meant 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.64 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 several Member States wanted to keep closed. 51 In some instances the acquis communautaire uses the complexities underlying the conclusion of contract in order to protect consumers. Art. 8 CRD is an optional provision which contains a specific process for concluding contracts via telephone. Article 8(6) Consumer Rights Directive Formal requirements for distance contracts Where a distance contract is to be concluded by telephone, Member States may provide that the trader has to confirm the offer to the consumer who is bound only once he has signed the offer or has sent his written consent. Member States may also provide that such confirmations have to be made on a durable medium.

3. Contract and notice 52

The acquis communautaire lacks such a comprehensive concept surrounding the effectiveness of notice. However, a rule on this matter can be seen in the E-Commerce Directive in relation to notice given electronically. Article 11(1) E-Commerce Directive Placing of the order Member States shall ensure, except when otherwise agreed by parties who are not consumers, that in cases where the recipient of the service places his order through technological means, the following principles apply: (…) – the 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.65 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: 63 Schmidt-Kessel CESL/Gebauer, Art. 30 CESL mn. 8, 13; von Bar/Zimmermann, Grundregeln des Europäischen Vertragsrechts, Teil I und II (Sellier 2002) Comment B. on Art. 2:102 PECL, 152. 64 Stürner, Vollharmonisierung im Europäischen Verbraucherrecht (Sellier 2010) 20 et seq. 65 Contract II/Leible/Pisuliński/Zoll, Art. 1:303 mn. 2.

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I. Concept of contract 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.

The Acquis Principles contain two further rules on notice which apply to all state- 53 ments: 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 Group did 54 not considered the single source in the E-Commerce Directive as offering a sufficient basis for a general rule.66 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.67 However, Art. 10 CESL 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.68 The approach is based on the ‘receipt theory’, which features in many national legal systems.69 The concept of notice is accompanied by a revolutionary change as the use of the 55 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.70 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 conContract II/Dannemann, Introduction xlvii. Ibid. 68 Schmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 7; Schulze CESL/Schulte-Nölke, Art. 10 CESL mn. 2. 69 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, Global Sales and Contract Law (OUP 2014) mn. 34.57. 70 Schmidt-Kessel CESL/Müller-Graff, Art. 10 CESL mn. 1; Schulze CESL/Schulte-Nölke, Art. 10 CESL mn. 3. 66

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tract law from individual contracting to standardized, mass contracting.71 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. 56 The moment at which notices become effective is of considerable importance. 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.72 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.73 The developments in communication technology give rise to an increasing amount of 58 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. 57

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).

59

The decision focused on the important question whether the formal requirements concerning the information on the right of withdrawal are fulfilled by merely sending a Contract II/Leible/Pisuliński/Zoll, Art. 1:301 mn. 1. On these concepts see Schwenzer/Hachem/Kee, Global Sales and Contract Law (OUP 2014) mn. 34.55 et seq. 73 Contract II/Møgelvang-Hansen/Terryn/Schulze, Art. 5:101 mn. 5; see also Toncoso, ‘Spain’ in De Cristofaro/De Franceschi (eds), Consumer Sales in Europe (Intersentia 2016) 176. 71

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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,74 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;75 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). The ECJ has also responded to a further question of the pre-contractual information 60 on the right of withdrawal under the Consumer Rights Directive, namely the requirements for such information when limited space (e.g. smartphone display) or time is available due to the nature of the means of communication. This issue is especially relevant in light of the growing use of ‘voice commerce’ (e.g. ‘Alexa’ from Amazon) and how the principle of transparency is to be observed by such technological developments. C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47 The assessment of whether, in a specific case, the means of communication allows limited space or time to display the information, in accordance with Article 8(4) of Directive 2011/83/EU […], must be carried out having regard to all of the technical features of the trader’s marketing communication. In that regard, it falls to the national court to ascertain whether, having regard to the space and time occupied by the communication and the minimum size of the typeface which is appropriate for the average consumer targeted by that communication, all the information set out in Article 6(1) of that directive may objectively be displayed within that communication. Article 6(1)(h) and Article 8(4) of Directive 2011/83 must be interpreted to the effect that, in a situation where the contract is concluded through a means of distance communication which allows limited space or time to display the information, and where a right of withdrawal exists, the trader is required to provide the consumer, on the means of communication in question and before the conclusion of the contract, with information regarding the conditions, time limit and procedures for exercising that right. In such a situation, that trader must provide the consumer with the model withdrawal form, as provided for in Annex I(B) to that directive, by another source in plain and intelligible language.

In Romano, the ECJ was asked whether under the Distance Marketing of Financial 61 Services Directive the standard of the average, reasonably well-informed and reasonably observant and circumspect consumer, and the requirement of clear and comprehensible information are to be interpreted in accordance with EU law or national law. Due to the 74 75

Art. 6(1)(h) and 11(1) CRD. Tamm, Verbraucherschutzrecht (Mohr Siebeck 2011) 153.

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full harmonization effect of the Directive, Member States should interpret the models in a common manner,76 and thus national standards on the communication of statements of intent or information do not apply. C–143/18 Romano ECLI:EU:C:2019:701 2.

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In light of the foregoing considerations, the answer to the second question is that Article 5(1) of Directive 2002/65, read in conjunction with Article 3(1)(3)(a) and Article 6(2)(c) thereof, is to be interpreted as meaning that the obligation upon a supplier who concludes with a consumer a distance contract relating to financial services to communicate to that consumer in a manner which would be clear and comprehensible to an average, reasonably well-informed and reasonably observant and circumspect consumer, in accordance with the requirements of EU law, before the consumer is bound by any distance contract or offer, information concerning the existence of a right of withdrawal is fulfilled where the supplier informs the consumer that the right of withdrawal does not apply to a contract which has been performed in full by both parties at the consumer’s express request before the consumer exercises his right of withdrawal, even though that information is not consistent with national legislation, as interpreted by national case-law, under which, in such circumstances, the right of withdrawal does in fact apply.

Technological developments have increased the significance of tripartite relationships, especially those involving online intermediaries or – to use the wording of the Modernization Directive – ‘online marketplaces’77. Such relationships pose the question of the source of offer and acceptance as well as the responsibility to perform particular obligations. In a typical scenario, the customer uses an online intermediary service to contact the supplier of goods or services, who uses an online intermediary service for this purpose. The notion is simple, yet it creates various uncertainties surrounding the respective roles of each party. For example, the role the intermediary plays vis-à-vis the submission of offer and acceptance.78 Recent European legislation does approach the issue of online intermediaries,79 though there is not yet a rule concerning their role in the communication between the parties. The ELI ‘Model Rules on Online Platforms’ do, however, contain such a rule: Article 16 ELI Model Rules on Online Platforms Duty to provide facilities for informing consumers (1) The platform operator must provide the supplier with facilities for fulfilling the supplier’s information duties towards the customer. (2) Where the platform-supplier contract does not exclude the supplier from using standard terms for the supplier-customer contract, the platform operator must provide a facility which allows the inclusion of these terms.

C–143/18 Romano ECLI:EU:C:2019:701 para. 55. An online marketplace means ‘a service using software, including a website, part of a website or an application, operated by or on behalf of a trader which allows consumers to conclude distance contracts with other traders or consumers’ (see Art. 2(1) No. 17 CRD following the amendments by Art. 4(1)(e) Modernization Directive. Recital 11 Regulation 2019/1150 states ‘Examples of online intermediation services covered by this Regulation should consequently include online e-commerce market places, including collaborative ones on which business users are active, online software applications services, such as application stores, and online social media services, irrespective of the technology used to provide such services.’ 78 On the various roles that a platform could play as a party to the contract see Busch et al., ‘The Rise of the Platform Economy: A New Challenge for EU Consumer Law?’ (2016) EuCML 3, 7–8. 79 Recital 11 Regulation (EU) 2019/1150 (Art. 3(1)(b), (4)(a)(ii), Art. 4(1)(e), (5) Modernization Directive. 76 77

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II. Types of contract in the acquis communautaire

II. Types of contract in the acquis communautaire 1. Specific circumstances European contract law continues to refrain from stipulating contract types. As the di- 63 rectives 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 obligations characteristic of a particular type of contract.80 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. Nonetheless, the various types of contracts covered in the acquis communautaire is increasing and covers an extensive range. In this respect one can also observe two different approaches by the European legislator. For example, whereas Art. 2 No. 1 SGD and Art. 2 No. 5 CRD define a ‘sales contract’, the Digital Content Directive refrains from such specific definitions and instead uses general wording to cover a range of contract types and to leave the national legislator to determine how to implement the Directive in national law. It remains to be seen whether this method is adopted for future directives or whether it is a specific reaction to the diversity of contracts for the supply of digital content or digital services. Recital 12 Digital Content Directive (…) This Directive should also not determine the legal nature of contracts for the supply of digital content or a digital service, and the question of whether such contracts constitute, for instance, a sales, service, rental or sui generis contract, should be left to national law. (…)

a) Commercial agency 64

Article 1(2) Commercial Agents Directive 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 (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 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 car-

80 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.

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Chapter 2 Core Elements ries 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.

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.81 In so doing there should be a reduction in the transaction costs that arise 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.82 b) Timeshare 65

At first glance it may appear that other directives outline sets of rules for particular types of contracts, however a closer look at such directives results in the contrary approach, as demonstrated by the Timeshare Directive: Article 2 No. 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. usufruct83). 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.84 The same function is also performed by the other definitions of contract types con66 tained in the Directive’s list of definitions: ‘long-term holiday product contract’ (Art. 2 No. 1(b)), ‘resale contract’ (Art. 2 No. 1 (c)) and ‘exchange contract’ (Art. 2 No. 1(d)). It 81 See also Müller-Graff, ‘Ein fakultatives Kaufrecht als Instrument der Marktordnung?’ in SchulteNölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 38. 82 Flohr/Pohl in Martinek/Semler (eds), Handbuch des Vertriebsrechts (3rd edn, C.H. Beck 2010) Chapter 4, Der Handelsvertretervertrag. 83 Art. 20 of the Polish Statute from 16 September 2011 on Timeshare, Dziennik Ustaw (Journal of Laws), No. 230, Pos. 1370. 84 Contract II/Schulte-Nölke/Zoll, Introductory Part xxiii, xxv; Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 mn. 28.

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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 activate the protection under the Directive and is independent of the dogmatic structure the national legislator has chosen to cover these types of contract.85 c) Goods, digital content and digital services aa) A somewhat more complex situation arises in relation to the different forms of a 67 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.86 It merely defines ‘consumer goods’ (Art. 1 No. 2(b) CSD), though this is purely to determine the Directive’s scope of application. However, Art. 1 No. 4 CSD contains an extension of the concept of a sales contract which can and must influence the classification of contracts from a national perspective: Article 1 No. 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 68 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.87 It expects that the limitation to the type of goods88 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 the Consumer Sales Directive. 69 The ECJ expressed the limits of the sales contract in its decision in Schottelius: C–247/16 Schottelius ECLI:EU:C:2017:638 44. In the present case, it is apparent from the documents before the Court that Mrs Schottelius and her husband asked Mr Seifert, a contractor, to renovate their swimming pool. For that purpose, they entered into a contract for work with Mr Seifert. Under that contract, the contractor did indeed sell them various goods necessary to renovate that swimming pool, such as, for example, a filtration system featuring a pump. Nevertheless, it is clear that the provision of services for

Recitals 1 and 5 Timeshare Directive. EU Sales Directive/Serrano, Art. 1 mn. 9. 87 Ibid. 88 On consumer goods see ibid. mn. 28–40; Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ (1999) EuZW 485, 486. 85

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Chapter 2 Core Elements the installation of the goods is the principal subject of that contract for work and that the sale of the goods is merely ancillary by comparison with that provision of services.

The decision in Schottelius is also important because the ECJ determines the scope of EU law where national law implements a directive beyond its intended scope of application (‘gold-plating’). It is clear that although the Consumer Sales Directive was used as a model for the German law on contracts to produce a work (‘Werkvertrag’: §§ 631 BGB89), the ECJ does not have jurisdiction. 70 The Sale of Goods Directive provides a detailed definition of a sales contract. Article 2 No. 1 Sale of Goods Directive Definitions ‘sales contract’ means any contract under which the seller transfers or undertakes to transfer ownership of goods to a consumer, and the consumer pays or undertakes to pay the price thereof; Article 3(2) Sale of Goods Directive Scope Contracts between a consumer and a seller for the supply of goods to be manufactured or produced shall also be deemed sales contracts for the purpose of this Directive.

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Art. 2 No. 1 SGD contains a comprehensive definition of a ‘sales contract’ and with 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. Furthermore, a duty to pay the price must also arise for the buyer/consumer. The definition of sales contract under the Sale of Goods Directive cannot be equated with the classification of contract types in civil codes.90 The Directive 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. 72 The DCFR has utilized the results of comparative research in order to synthesize the concept of a sales contract:91 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.

For details see German Civil Code/Fervers, § 631 BGB. See however Commentaries on European Contract Laws/Rüfner, Art 18:101, 1971. 91 DCFR Full Edition 1234. 89

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bb) The definition of ‘price’ plays a decisive role in the definition of a sales contract. 73 The Sale of Goods Directive does not define ‘price’, though in principle it is understood as ‘money’. The Digital Content Directive, however, contains a definition of ‘price’ that extends beyond the traditional understanding as ‘money’. Article 2 No. 7 Digital Content Directive Definitions ‘price’ means money or a digital representation of value that is due in exchange for the supply of digital content or a digital service; between a consumer and a seller for the supply of goods to be manufactured or produced shall also be deemed sales contracts for the purpose of this Directive.

Understanding ‘price’ as also including a ‘digital representation of value’ poses the 74 question whether a contract may constitute a sales contract under the Sale of Goods Directive when the consumer is obliged to make payment in such digital form. This concerns, for example, Cryptocurrencies,92 i.e. means of payment that are often not issued by a monetary authority and are embodied in a network of computers. The Sale of Goods Directive lacks a definition of ‘price’ comparable with the Digital Content Directive. However, as the European legislator worked on both Directives in parallel, it is difficult to imagine that not only the distinction but also the approach were made unknowingly. On the other hand, by refraining from including a definition the European legislator has left scope to the Member States to determine the content of the definition. The principle underpinning the Digital Content Directive may be transferred to the Sale of Goods Directive so that the consumer does not lose protection due to the distinction in the means of payment;93 this would also result in discrimination.94 The problem can therefore be solved by the appropriate transposition of the Directives into national law. Extending the scope of ‘price’ would not constitute a breach of the principle of full harmonization because such extension would not fall within the Directive’s scope of application. cc) The Digital Content Directive also applies to contracts in which the consumer 75 provides or undertakes to provide personal data to the trader: Article 3(1) Digital Content Directive Scope (…) This Directive shall also apply where the trader supplies or undertakes to supply digital content or a digital service to the consumer, and the consumer provides or undertakes to provide personal data to the trader, except where the personal data provided by the consumer are exclusively processed by the trader for the purpose of supplying the digital content or digital service in accordance with this Directive or for allowing the trader to comply with legal requirements to which the trader is subject, and the trader does not process those data for any other purpose.

The European legislator intentionally refrained from framing the obligation to pro- 76 vide personal data as a payment obligation, though seeks to achieve similar effects.95 92 Or ‘virtual currencies’, to use the terminology favoured by the Digital Content Directive, see Recital 23 DCD. The recent proposal for a Regulation on Markets in Crypto-assets uses the term ‘crypto-asset’, which it defines as a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology (Art. 3(1) No. 2 COM(2020) 593 final). 93 Zoll, ‘Die Schuld in einer Kryptowährung als Geldschuld aus der Perspektive des polnischen Privatrechts’ in Welser (ed), Buchgeld und Bargeld. Rechtliche Unterschiede, Vorteile und Risiken nach den Rechtsordnungen der CEE-Staaten (Manz 2020) 127–128. 94 Recital 23 DCD.

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Chapter 2 Core Elements Recital 24 Digital Content Directive Digital content or digital services are often supplied also where the consumer does not pay a price but provides personal data to the trader. Such business models are used in different forms in a considerable part of the market. While fully recognising that the protection of personal data is a fundamental right and that therefore personal data cannot be considered as a commodity, this Directive should ensure that consumers are, in the context of such business models, entitled to contractual remedies. This Directive should, therefore, apply to contracts where the trader supplies, or undertakes to supply, digital content or a digital service to the consumer, and the consumer provides, or undertakes to provide, personal data. The personal data could be provided to the trader either at the time when the contract is concluded or at a later time, such as when the consumer gives consent for the trader to use any personal data that the consumer might upload or create with the use of the digital content or digital service. Union law on the protection of personal data provides for an exhaustive list of legal grounds for the lawful processing of personal data. This Directive should apply to any contract where the consumer provides or undertakes to provide personal data to the trader. For example, this Directive should apply where the consumer opens a social media account and provides a name and email address that are used for purposes other than solely supplying the digital content or digital service, or other than complying with legal requirements. It should equally apply where the consumer gives consent for any material that constitutes personal data, such as photographs or posts that the consumer uploads, to be processed by the trader for marketing purposes. Member States should however remain free to determine whether the requirements for the formation, existence and validity of a contract under national law are fulfilled.

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It was clear from the first proposals for the Digital Content Directive that the provision of data was viewed as counter-performance other than money. However, the European legislator distanced itself from this expression because of the relationship between personal data and fundamental rights. European Data Protection Supervisor Opinion 4/2017 on the Proposal for a Directive of certain aspects concerning contracts for the supply of digital content96 The EDPS welcomes the intention of the legislator to make sure that the so-called ‘free services’ are subject to same protection for the consumers when they do not pay a price for a service or content. However, personal data cannot be compared to a price, or money. Personal information is related to a fundamental right and cannot be considered as a commodity.

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Although the provision of personal data may not be viewed as counter-performance, the classification of such contracts in which the business transfers ownership of goods against the provision of personal data still remains a question. Admittedly, this is by far less common than for the supply of digital content or digital services, yet it may still occur. The issue remains open under the Sale of Goods Directive because it does not define ‘price’ and ultimately it will be a matter for the ECJ. It is notable that the new definition of ‘sales contract’ under the Consumer Rights Directive (following the Modernization Directive) does not refer to ‘price’. Such omission is intentional. The amended version of the Consumer Rights Directive covers contracts for the supply of digital content or digital services when the consumer provides or agrees to provide his personal data.

95 Zoll, ‘Die Schuld in einer Kryptowährung als Geldschuld aus der Perspektive des polnischen Privatrechts’ in Welser (ed), Buchgeld und Bargeld. Rechtliche Unterschiede, Vorteile und Risiken nach den Rechtsordnungen der CEE-Staaten (Manz 2020) 127–128. 96 At mn. 14 therein; available under https://edps.europa.eu/sites/edp/files/publication/17-03-14_opini on_digital_content_en.pdf (accessed 11 December 2020).

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II. Types of contract in the acquis communautaire Article 3(1a) Consumer Rights Directive (amended) Scope This Directive shall also apply where the trader supplies or undertakes to supply digital content which is not supplied on a tangible medium or a digital service to the consumer and the consumer provides or undertakes to provide personal data to the trader, except where the personal data provided by the consumer are exclusively processed by the trader for the purpose of supplying the digital content which is not supplied on a tangible medium or digital service in accordance with this Directive or for allowing the trader to comply with legal requirements to which the trader is subject, and the trader does not process those data for any other purpose.

However, this does not explain why ‘price’ was not included as part of the definition 79 of ‘sales contract’. The Directive’s scope of application varies. The notion of ‘sales contract’ does not determine the scope of the Directive in general, but rather is necessary to determine the application of individual provisions. It is therefore to be asked whether the notion of ‘sales contract’ under the Consumer Rights Directive is to be understood differently than beforehand. In particular, the question is posed whether the Directive’s specific rules for sales contracts also apply to contracts in which a consumer purchases a good using virtual currencies or against the provision of his personal data. d) Consumer credit Similarly, a definition only relevant to the scope of application of a specific directive 80 also features in the Consumer Credit Directive. 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;

In using such a definition, the European legislator attempts to cover all instances in 81 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 The methods of regulating different legally-relevant situations in the acquis commu- 82 nautaire 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.

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Chapter 2 Core Elements Article 4 No. 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. b) Advisory services 83

The increase in European norms regulating specific types of contracts is also shown by the Mortgage Credit Directive, which provides rules on contracts for advisory services. Article 4 No. 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).97 c) Service contracts 84

The European legislator uses the notion of services in a number of further directives.98 From an economic perspective, services play a role of increasing importance.99 Recital 47 Mortgage Credit Directive. 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 UTD; Art. 2 PTD; Art. 3(c) CRD; 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. 99 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; Zoll, ‘Krόtki esej o zmierzchu umowy sprzedaży i przyszłości umów o świadczenie usług, a 97 98

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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.100 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 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.101 85 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 main purpose of this provision does not lie in the regulation of issues of private 86 law but rather serves to structure the freedom to provide services in the EU. 102 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. The Services Directive provides an illustration of this feature with its express reference to the definition of service given in Art. 50 EC Treaty, which has since been replaced by Art. 57 TFEU without any change in content: Article 4 No. 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,103 87 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’ także koniecznej rewolucji prawa cywilnego’ in Dajczak/Dassuj/Labijak (eds), Umowa sprzedaży wspólnota tradycji prawnej, idea unifikacji, uniwersalne problemy praktyczne (Mickiewicza 2013) 34–35. 100 See Zimmermann (ed), Service Contracts (Mohr Siebeck 2010). 101 Wendehorst, ‘Das Vertragsrecht der Dienstleistungen im deutschen und künftigen europäischen Recht’ (2006) 206 AcP 205, 226–227. 102 Tiedje in von der Groeben/Schwarze/Hatje (eds), Europäisches Unionsrecht (7the edn, Nomos 2015) Art. 57 AEUV, mn. 70. 103 Ibid. mn. 73.

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does not extend to contracts whose objects are goods or capital. This negative definition 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. 88 This problem becomes clear when interpreting ‘contracts under which a trader supplies goods or services to a consumer’ – an expression used in many directives.104 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.105 In this case the ECJ was to decide whether a guarantee contract concluded by a private individual (as guarantor) does not fall under the (then applicable) Doorstep Selling Directive since the Directive applied only to contracts for the supply of goods. 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.

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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.106

As in Art. 1(1) Doorstep Selling Directive. 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. 104

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However, this does not mean that the European legislator only uses this general defi- 90 nition 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: Article 2 No. 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;

Following the Modernization Directive, the definition now includes digital services and clarifies that these fall under the notion of service (this is not an obvious consequence and requires further discussion). Article 2 No. 6 Consumer Rights Directive (amended) Definitions ‘service contract’ means any contract other than a sales contract under which the trader supplies or undertakes to supply a service, including a digital service, to the consumer;

This particular definition reflects all of the problems concerning the definition of a 91 service contract. A notable 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.107 In fact the attempt 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.108 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

The DCFR does in fact contain a complex regulation of service contracts and related 92 contracts (e.g. distributorship contracts in Art. 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.109 In this respect, the DCFR therefore only presents an attractive model for the future. 93 Recent EU directives define ‘digital services’. 106 Ibid. 305–307; Zoll, ‘Consumer Notion: Suretyship’ in Terryn/Straetmans/Colaert (eds), Landmark Cases of EU Consumer Law (Intersentia 2013) 73. 107 Whittaker, ‘Contracts for services in English Law and in the DCFR’ in Zimmermann (ed), Service Contracts (Mohr Siebeck 2010) 115, 135; Loos, ‘Service contracts’ in Hartkamp (ed), Towards a European Civil Code (4th edn, Kluwer 2011) 757, 764. 108 See Unberath, ‘Der Dienstleistungsvertrag im Entwurf des Gemeinsamen Referenzrahmens’ (2008) ZEuP 745. 109 De overeenkomst van opdracht in Art. 7:400 BW.

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Chapter 2 Core Elements Article 2 No. 2 Digital Content Directive Definitions ‘digital service’ means (a) a service that allows the consumer to create, process, store or access data in digital form; or (b) a service that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service;

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As a result of changes via the Modernization Directive, the definition of digital services under the Digital Content Directive has been added – via cross-referencing – to the Consumer Rights Directive in a new Art. 2 No. 16 CRD. The concept of digital services is, however, not clear as it is difficult to draw a distinction between digital content and digital services. The European legislator attempts to explain the concept in the Digital Content Directive: Recital 19 Digital Content Directive The Directive should address problems across different categories of digital content, digital services, and their supply. In order to cater for fast technological developments and to maintain the futureproof nature of the notion of digital content or digital service, this Directive should cover, inter alia, computer programmes, applications, video files, audio files, music files, digital games, e-books or other e-publications, and also digital services which allow the creation of, processing of, accessing or storage of data in digital form, including software-as-a-service, such as video and audio sharing and other file hosting, word processing or games offered in the cloud computing environment and social media. As there are numerous ways for digital content or digital services to be supplied, such as transmission on a tangible 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 independently of the medium used for the transmission of, or for giving access to, the digital content or digital service. However, this Directive should not apply to internet access services.

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It can be seen from Recital 19 DCD that the definition of digital services centres around programmes that allow the creation, processing and storage of data in digital form, including software-as-a-service. This includes, for example, video and audio sharing and other forms of file hosting, word processing or games offered in the cloud computing environment or via social media. However, a problem arises when one considers that modern programmes feature different functions and also require a continuous connection with the supplier. In using the term ‘digital service’ (which was not used in the initial proposal) the European legislator seeks to ensure that the Directive’s scope of application is not too narrow. Taking sales law as the basis for the Digital Content Directive (the remedies and description of conformity correspond to the Sale of Goods Directive) could have excluded cloud computing from its scope. The distinction between digital content and digital services is of little relevance for the application of the Directive. Both terms offer appear together so that it is not always necessary to decide whether the subject matter is digital content or a digital service. However, this approach does highlight the considerable difficulty in giving an abstract definition of a service.

III. Mixed contracts 96

The ever-growing number of rules in European contract law causes the aforementioned types of contracts (even with their specific functions) to become more widespread,110 thereby giving rise to the problem of how to treat mixed contracts in the

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acquis communautaire. Art. 2 No. 5 CRD therefore contains the first EU rule concerning this problem. Article 2 No. 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;

The Modernization Directive amends the definition: Article 2 No. 5 Consumer Rights Directive (amended) Definitions ‘sales contract’ means any contract under which the trader transfers or undertakes to transfer ownership of goods to the consumer, including any contract having as its object both goods and services;’

Art. 2(5) CRD regulates how a contract is to be treated when it contains both sale and 97 service elements. At first glance it would appear that this article adopts the absorption theory 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) CRD – 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. The Sale of Goods Directive strives to find a solution to the problem of ‘goods with 98 digital elements’.111 Such type of goods pose the question whether the Sale of Goods Directive or the Digital Content Directive applies.

110 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; 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) mn. 24–43, Introduction, 3, 3–4; Schulze/Stuyck, ‘An Introduction’ in Schulze/Stuyck ibid. 3, 3–8. 111 See De Francheschi, La vendita di beni con elementi digitali (Edizioni Scientifiche Italiane 2019).

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Chapter 2 Core Elements Article 2 No. 5(b) Sale of Goods Directive Definitions ‘goods’ means […] any tangible movable items that incorporate or are inter-connected with digital content or a digital service in such a way that the absence of that digital content or digital service would prevent the goods from performing their functions (‘goods with digital elements’); Article 3(3) Sale of Goods Directive Scope This Directive shall not apply to contracts for the supply of digital content or digital services. It shall, however, apply to digital content or digital services which are incorporated in or inter-connected with goods in the meaning of point (5)(b) of Article 2, and are provided with the goods under the sales contract, irrespective of whether such digital content or digital service is supplied by the seller or by a third party. In the event of doubt as to whether the supply of incorporated or inter-connected digital content or an incorporated or inter-connected digital service forms part of the sales contract, the digital content or digital service shall be presumed to be covered by the sales contract.

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According to Art. 3(3) SGD, a contract will fall within the definition of a sales contract if it the digital content or digital services are incorporated or interconnected with goods and are provided with the goods under the sales contract. Art. 3(3) SGD also contains the presumption whereby in cases of doubt the contract will be considered a sales contract. The provision is problematic in several respects. Firstly, the requirement that the delivery obligation arises from the sales contract is circular because the question is whether a sales contract has been concluded. Furthermore, the concept of ‘goods with digital elements’ is unclear. This concept is based on the fact that it is often not possible to determine which of the good’s functions, which cannot be performed without digital content, should be excluded. For example, a device such as a smartphone112 has vast number of potential functions which depend on different applications – making a telephone call does not represent a necessary function. The provisions are especially troublesome because they are not just concerned with the distinction between contract types and the corresponding application of one of two directives. Moreover, the provisions are needed in order to determine the parties within the legal relationship – is the seller liable for non-conformity of the digital content, or the supplier of the digital content? It may be assumed that this provision will cause considerable problems in the future.

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Recital 16 Sale of Goods Directive In contrast, if the absence of the incorporated or inter-connected digital content or digital service does not prevent the goods from performing their functions, or if the consumer concludes a contract for the supply of digital content or a digital service which does not form part of the contract concerning the sale of goods with digital elements, that contract should be considered to be separate from the contract for the sale of the goods, even if the seller acts as an intermediary of that second contract with the third-party supplier, and could fall within the scope of Directive (EU) 2019/770 if the conditions of that Directive are met. For instance, if the consumer downloads a game application from an app store onto a smart phone, the contract for the supply of the game application is separate from the contract for the sale of the smart phone itself. This Directive should therefore only apply to the sales contract concerning the smart phone, while the supply of the game application should fall under Directive (EU) 2019/770, if the conditions of that Directive are met. Another example would be where it is expressly agreed that the consumer buys a smart phone without a specific operating system and the consumer subsequently concludes a contract for the supply of an operating system from a third party. In such a case, the supply of the separately bought operating system would not form part of the sales

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EU Digital Law/Sénéchal, Art. 2 DCD mn. 17.

III. Mixed contracts contract and therefore would not fall within the scope of this Directive but could fall within the scope of Directive (EU) 2019/770, if the conditions of that Directive are met.

The aforementioned problem is readily apparent in Recital 16 SGD. The European legislator assumes that a contract for applications downloaded via a smartphone do not fall under the sales contract for the smartphone itself. This conclusion cannot automatically be drawn from the aforementioned provisions because it is not possible to determine how to sensibly define the smartphone’s function (e.g. navigation functions are expected of a modern smartphone). 101 The DCFR contains a more traditional approach to regulating mixed contracts: 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 arising from it. However, rules applicable to any elements of the contract falling within another category apply with any appropriate adaptations so far as is necessary to regulate those elements and provided that they do not conflict with the rules applicable to the primary category. (5) Nothing in this Article prevents the application of any mandatory rules.

The DCFR offers a near complete regulation of the contractual relationships. In this 102 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 theory 113 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 authors of the DCFR have selected the method of grouping contracts. 114 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

113 Gawlik, ‘Umowy mieszane. Konstrukcja i ocena prawna’ in Pojęcie umowy nienazwanej, studia cywilistyczne (1971) vol XVIII (Palestra 1974) mn. 5, 25, 30. 114 DCFR Full Edition 13–14.

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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.

103

One can observe under this provision that the relevant contracts are arranged 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 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’.115 104 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.

105

This provision is built on the same principle. The centre circle encompasses the contracts listed in Art. IV. C.–3:101(1), whereas the contracts listed in Art. IV. C.–3:101(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 perfor115 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 mn. 99.

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mance. 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. 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. Article 9 CESL 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 contains a rule exclusively follow- 106 ing 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 lists 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 structure of the CESL, 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-Reg 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 con79

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tract 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: Article 147 CESL 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.

107

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 plays a particular role in relation to the aforementioned problem of mixed contracts. It contains a hidden exception to Art. 9(2) CESL which, for unknown reasons, was not included in Art. 9 CESL. This exception sets out that, in contrast to Art. 9(2) CESL, the termination of the contract leads to the termination of the related service contract. However, one can presume that Art. 9 CESL would regulate all the various combinations between the ‘main contract’ and the related service contract.

IV. Freedom of contract 1. Overview 108

The principle of freedom of contract appears to also be self-evident in the European context.116 It is emphasized in, for example, the DCFR:117 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.

116 See 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. 117 For criticism of the use of party autonomy in the DCFR see Commentaries on European Private Laws/Hosemann, Art 1:102 mn. 23.

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The CESL very clearly states the principle of freedom of contract:118

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Article 1 CESL 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.

The withdrawal of the proposed Common European Sales Law is of considerable sig- 110 nificance 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. 119 It was thus foreseen as a genuine principle of European contract law.120 However, 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.121 It cannot be denied that European law imposes mandatory rules on the Member 111 States and thus often limits contractual freedom.122 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. 123 The extensive effect of European law on the national legal systems does however 112 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 reasonably expect to receive. It is therefore a market perspective whereby the standardization of contracts and products leaves little room for individual freedom to draft the contract as desired. Furthermore, EU law serves to guarantee fair conditions and fair competition.124 For example, as a 118 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 (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 1; Schulze CESL/Schulte-Nölke, Art. 1 CESL-Reg mn. 1. 119 See Schmidt-Kessel, ibid. 2. 120 Ibid.; Herresthal, ‘Zur Dogmatik und Methodik des Gemeinsamen Europäischen Kaufrechts nach dem Vorschlag der Kaufrechts-Verordnung’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 111. In this vein also 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. 121 Herresthal, ibid. 111. 122 Schmidt-Kessel, ‘Der Vorschlag der Kommission für ein Optionales Instrument – Einleitung’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 1, 3; Faust, Der Vorschlag für ein Gemeinsames Europäisches Kaufrecht (2012) Bonner Rechtsjournal 123, 128. 123 Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 7 mn. 943. 124 Schmidt-Kessel, ‘Der Vorschlag der Kommission für ein Optionales Instrument – Einleitung’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 1, 5.

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specific instrument of consumer protection, the right of withdrawal simply allows the consumer to change its decision and to withdraw from the contract.125 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). 126 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 ‘cooling-off ’ period. Ultimately, it is an instrument to guide market behaviour.127 113 Examples of EU legislation which restrict freedom of contract in order to guarantee EU fundamental rights include the Portability Regulation and the Geo-blocking Regulation. Recital 1 Portability Regulation Seamless access throughout the Union to online content services that are lawfully provided to consumers in their Member State of residence is important for the smooth functioning of the internal market and for the effective application of the principles of free movement of persons and services. Since the internal market comprises an area without internal borders relying, inter alia, on the free movement of persons and services, it is necessary to ensure that consumers can use portable online content services which offer access to content such as music, games, films, entertainment programmes or sports events, not only in their Member State of residence but also when they are temporarily present in another Member State for purposes such as leisure, travel, business trips or learning mobility. Therefore, barriers that hamper access to and use of such online content services in such cases should be eliminated. Recital 1 Geo-blocking Regulation In order to realise the full potential of the internal market, as an area without internal frontiers in which the free movement of, inter alia, goods and services is ensured, it is not sufficient to abolish, between Member States, State barriers alone. Such abolition can be undermined by private parties putting in place obstacles inconsistent with internal market freedoms. That occurs where traders operating in one Member State block or limit access to their online interfaces, such as websites and apps, by customers from other Member States wishing to engage in cross-border transactions (a practice known as ‘geo-blocking’). It also occurs when certain traders apply different general conditions of access to their goods and services with respect to such customers from other Member States, both online and offline. Although such different treatment might, in some cases, be objectively justified, in other cases, some traders' practices deny or limit access to goods or services by customers wishing to engage in cross-border transactions, or some traders apply in this regard different general conditions of access, which are not objectively justified.

2. Default and mandatory law 114

In contrast to the DCFR and the proposed CESL, the Acquis Principles do not contain a general rule that expresses the principle of freedom of contract or party autonomy.128 Art. 1:203 ACQP merely contains a rule outlining the requirements for the mandatory nature of rules protecting a consumer:129 125 See Chapter 3 mn. 118 et seq.; Watson, ‘Withdrawal rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241. 126 Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 31 mn. 943. 127 Watson, ‘Withdrawal rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241. 128 Wagner, ‘Zwingendes Vertragsrecht’ in Eidenmüller et al., Revision des Verbraucher-acquis (Mohr 2011) 2, 4.

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IV. Freedom of contract 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 attempts 115 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. 130 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 default rules. Many sources131 of European private law contain similar provisions stipulating the 116 mandatory effect of certain aspects of consumer protection, for example: 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 provision only ascertains that all of the rules arising from the Consumer Rights 117 Directive cannot 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 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.132 According to Grigoleit133 the European legislator does not have the competence to 118 pass default (‘dispositive’) law as provisions of this kind are neither of significance for the creation of the internal market nor do they fall under the competence134 afforded by Art. 114 TFEU.135 However, one cannot accept this view as it is inaccurate for the harContract II/Schulte-Nölke, Art. 1:203 mn. 1. Wagner, ‘Zwingendes Vertragsrecht’ in Eidenmüller et al., Revision des Verbraucher-acquis (Mohr 2011) 2, 49. 131 As in the proposal for a Consumer Rights Directive, see ibid. 4–6. 132 See Chapter 3 mn. 50. 133 Grigoleit, ‘Der Entwurf für ein Gemeinsames Europäisches Kaufrecht; Funktionsbedingungen, EUKompetenz und Perspektiven’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 67. 134 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 mn. 23–36. 135 Grigoleit, ‘Der Entwurf für ein Gemeinsames Europäisches Kaufrecht; Funktionsbedingungen, EUKompetenz und Perspektiven’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 77–81. 129

130

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monization of default law to be of no actual significance for the creation of the internal market. Default 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.136 The harmonization of such law therefore plays an indispensable role in the harmonization of contract law and thus ultimately in creating the internal market. 119 Several directives contain default provisions. The Consumer Sales Directive is 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.

120

The Sale of Goods Directive clearly expresses that, unless stated otherwise (e.g. Art. 10(6)), its provisions are mandatory but deviations are possible when to the benefit of the consumer. Article 10(6) Sale of Goods Directive Liability of the seller Member States may provide that, in the case of second-hand goods, the seller and the consumer can agree to contractual terms or agreements with a shorter liability or limitation period than those referred to in paragraphs 1, 2 and 5, provided that such shorter periods shall not be less than one year. Article 21 Sale of Goods Directive Mandatory Nature (1) Unless otherwise provided for in this Directive, any contractual agreement which, to the detriment of the consumer, excludes the application of national measures transposing this Directive, derogates from them, or varies their effect, before the lack of conformity of the goods is brought to the seller’s attention by the consumer, shall not be binding on the consumer. (2) This Directive shall not prevent the seller from offering to the consumer contractual arrangements that go beyond the protection provided for in this Directive.

The Digital Content Directive adopts a similar approach:

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Article 22 Digital Content Directive Mandatory Nature (1) Unless otherwise provided for in this Directive, any contractual term which, to the detriment of the consumer, excludes the application of the national measures transposing this Directive, derogates from them or varies their effects before the failure to supply or the lack of conformity is brought to the trader’s attention by the consumer, or before the modification of the digital content or digital service in accordance with Article 19 is brought to the consumer’s attention by the trader, shall not be binding on the consumer. (2) This Directive shall not prevent the trader from offering the consumer contractual arrangements that go beyond the protection provided for in this Directive.

136 Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 141; Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 31 mn. 910 et seq.

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122

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 CSD concerns the legal relationships between businesses and protects the final seller from the risk of bearing the costs of consumer protection. However, Art. 4 CSD is not covered by Art. 7 CSD. A literal interpretation of the Consumer Sales Directive allows the argument that the Member States are free to use mandatory or default 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 123 afforded by the Directive. However, according to Art. 8 CSD this only concerns the level of consumer protection. As Art. 4 CSD 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.137 This conclusion would, however, go too far. The teleological interpretation of Art. 4 CSD 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.138 However, it may even be possible that an implementation allowing absolute exclusion of this rule would not violate the Directive. The corresponding provision in the Sale of Goods Directive and the Digital Content 124 Directive is more conclusive:

137 138

On § 478 BGB see German Civil Code/Schaub, § 478 BGB. See also EU Digtial Law/Možina, Art. 20 DCD mn. 1 et seq.

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Chapter 2 Core Elements Article 18 Sale of Goods Directive Right of redress Where the seller is liable to the consumer because of a lack of conformity resulting from an act or omission, including omitting to provide updates to goods with digital elements in accordance with Article 7(3), by a person in previous links of the chain of transactions, the seller shall be entitled to pursue remedies against the person or persons liable in the chain of transactions. The person against whom the seller may pursue remedies and the relevant actions and conditions of exercise, shall be determined by national law. Article 20 Digital Content Directive Right of redress Where the trader is liable to the consumer because of any failure to supply the digital content or digital service, or because of a lack of conformity resulting from an act or omission by a person in previous links of the chain of transactions, the trader shall be entitled to pursue remedies against the person or persons liable in the chain of commercial transactions. The person against whom the trader may pursue remedies, and the relevant actions and conditions of exercise, shall be determined by national law.

125

Both provisions provide that the national legislator may only determine the conditions for pursuing the right of redress; the Consumer Sales Directive was more open in this respect. The new provisions therefore contain a strong basis for the argument that the national legislator may not implement these as default rules. The parties may still be able agree upon equivalent solutions in their contract.139 The dispositive nature of these provisions is primarily expressed in relation to com126 mercial contracts, e.g. Art. 30(1) Payment Services Directive: Article 30(1) Payment Services Directive Scope 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.

Art. 30 Payment Services Directive clearly expresses that, with the exception of consumer protection, all provisions covered by this article are not 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. The rules are ‘self-supporting’, i.e. they have to be implemented into national law as a whole. It therefore does not just require mandatory rules but also a system of default rules to define and shape the area of law. The European legislator has, however, allowed the Member States to waive the dispositive 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 127

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.140 139

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Such as under § 478(2) BGB.

IV. Freedom of contract 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.

This provision plays a specific role in European legislation because it expresses the 128 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.141 It can be considered a paradox that the European legislator appears to be less active 129 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. (…)

140 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, Revision des Verbraucher-acquis (Mohr 2011) 53–107. 141 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.

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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’142 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 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 130

The concept of good faith is not self-evident in EU law.143 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 concept144).145 The European law on this matter has therefore been very restrained146 thus only few directives expressly include the concept of good faith in their provisions. The Unfair Terms Directive 147 describes good faith as:

142 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). 143 Zoll, ‘Die Grundregeln der Acquis Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 114. 144 Brownsword, ‘Regulating Transactions: Good Faith and Fair Dealing’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 88; Howells/Wilhelmsson/TwiggFlesner, Rethinking EU Consumer Law (Routledge 2017) 145 with further references; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 1873 n 114, 1873–1875; Stuyck, ‘Unfair Terms’ in Howells/ Schulze, ibid. 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. 145 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, ibid. 16–39. 146 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 524; Riesenhuber, ibid. 412–510. 147 Riesenhuber, ibid. 402–403, 570.

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IV. Freedom of contract Article 3(1) Unfair Terms Directive 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.

The Unfair Terms Directive plays a central role in spreading the concept of good 131 faith.148 The required implementation into national law has therefore resulted in ‘good faith’ finding its way into the common law;149 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: Article 7(1)(a) 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: 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 represent the 132 European legislator’s first use of the concept: good faith is also explicitly included in the Commercial Agents Directive. Article 3(1) Commercial Agents Directive 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 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,150 a contract of the uberrima fidei.151 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 European 133 law, for instance in the Unfair Commercial Practices Directive:

148 Ibid. 410; Rott, ‘Unfair Contract Terms’ in Twigg-Flesner (ed), EU Consumer and Contract Law (Edward Elgar 2016) 299–300. 149 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. 150 Riesenhuber, System und Prinzipien des europäischen Vertragsrechts (de Gruyter 2003) 403–404. 151 See Burrows (ed), Principles of the English Law of Obligations (OUP 2015) mn. 1.193; Zimmermann/ Whittaker, Good faith in European Contract Law (CUP 2000) 42.

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Chapter 2 Core Elements Article 2(h) UCPD 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;

134

The notion of good faith here is accompanied by the further category of ‘honest market practice’; the notions can be used as an alternative to each another.152 In this respect one must remember that the Directive is addressed to the Member 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: 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.153 ‘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. 135 The ECJ has also referred to the concept of good faith, in particular in its decision in Messner:154 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. 136 The authors of the Acquis Principles have considered that these few traces of claims to good faith provide a sufficient basis for general rules.155 However, it is to be noted that 152 For more detail see Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016) 76 et seq. 153 Brownsword, ‘Regulating Transactions: Good Faith and Fair Dealing’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 91–92. 154 See Rott, The Balance of Interests in Distance Selling Law – Case Note on Pia Messner v Firma Stefan Krüger (2010) ERPL 185.

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the Acquis Principles do not contain a general provision expressing the general application of the principle of good faith.156 Aside from the 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:157 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 have separate rules on good faith arises from a reluctance to give this 137 concept an overly prominent standing within the system adopted by the Acquis Principles. The effect of good faith ought therefore to be selective.158 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 Paper159 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 155 Contract II/Pfeiffer/Ebers, Art. 2:101 mn. 10; Zoll, ‘Die Grundregeln der Acquis Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 113–115. 156 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 524; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 1896–1897. 157 Jansen/Zimmermann, ibid. 510. 158 Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 1896–1897. 159 COM(2006) 744 final,17.

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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.

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The Consumer Rights Directive – which may be considered a consequence of this Green Paper – did not adopt the principle of good faith. It thus appears that Option 2 was followed. 139 The DCFR makes express reference to the principle of good faith: 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. 141 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,160 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. 140

160

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See mn. 134.

IV. Freedom of contract

The CESL uses the principle of good faith as a general rule which applies across its 142 entire system: Article 2 CESL 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 contains a definition of ‘good faith and fair dealing’:

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Article 2(b) CESL-Reg 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.161 Although the definition under Art. 2(b) CESL-Reg 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 on the obligation to co-operate162).163 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 repeats the concept adopted in the DCFR 164 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.

5. Non-discrimination a) Foundation European contract law is heavily influenced by the development of non-discrimina- 144 tion legislation.165 Moreover, it is an important example for the horizontal effect of funSchmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 14, 15. See Schulze CESL/Wendehorst, Art. 2 CESL-Reg mn. 5. 163 Ibid. 164 Schmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 9. 165 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 TwiggFlesner (ed), The Cambridge Companion to European Private Law (CUP 2011) 298. 161

162

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damental rights on private law. The protection against discrimination impacts considerably on the principle of freedom of contract166 – 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.167 In contrast, Lehmann presumes that the principle of non-discrimination is a fundamental principle in civil law codifications.168 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. 145 Non-discrimination plays a particular role in EU law:169 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. 170 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. b) Discrimination due to a personal characteristic 146

A class of persons protected in the acquis communautaire is composed of 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). 171 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. 147 These Directives are anchored in EU primary law: Art. 18 TFEU prohibits discrimination on the basis of EU citizenship whereas Art. 19 TFEU provides the legislative comCommentaries on European Contract Laws/Hossmann, Art1:102 mn. 14. Storme, Vivat academia 2005, No. 126, 3. 168 Lehmann, ‘Diskriminierungsschutz und Vertragsrecht – Entwicklungstendenzen im Rechtsvergleich’ in: Schulze (ed), New Features in Contract Law (Sellier 2009) 67–69. 169 See Schulze (ed), Non-discrimination in European Private Law (Mohr Siebeck 2011); Zoll, ‘Remedies for Discrimination: a Comparison of the Draft Common Frame of Reference and the Acquis Principles’ (2008) ERA Forum Special 87–88. 170 Art. 21 CFR. 171 On non-discrimination legislation in the acquis communautaire see Zoll, ‘Remedies for Discrimination: a Comparison of the Draft Common Frame of Reference and the Acquis Principles’ (2008) ERA Forum Special 87. 166

167

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petence 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 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 (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-discrimination ap- 148 plies 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. 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, […] 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 […]. 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, 149 racial or ethnic origin; Art. II.–2:101 DCFR contains a similar provision.172 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.

172 See also Zoll, ‘Remedies for Discrimination: a Comparison of the Draft Common Frame of Reference and the Acquis Principles’ (2008) ERA Forum Special 87.

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150

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.173 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.174 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 Convention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.

151

C–668/15 Jyske Finans ECLI:EU:C:2017:278 Article 2(2)(a) and (b) of Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin is to be interpreted as not precluding the practice of a credit institution which requires a customer whose driving licence indicates a country of birth other than a Member State of the European Union or of the European Free Trade Association to produce additional identification in the form of a copy of the customer’s passport or residence permit.

In Jyske Finans, the ECJ found no indirect discrimination as the aforementioned requirement applied without distinction to all persons born outside the territory of a Member State of the European Union or the EFTA.175 152 The ECJ outlined in a previous decision the requirements for a discrimination on the basis of ethnic origin: C–83/14 CEZ Razpredelenie Bulgaria ECLI:EU:C:2015:480 1.

2.

The concept of ‘discrimination on the grounds of ethnic origin’, for the purpose of Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin and, in particular, of Articles 1 and 2(1) thereof, must be interpreted as being intended to apply in circumstances such as those at issue before the referring court — in which, in an urban district mainly lived in by inhabitants of Roma origin, all the electricity meters are placed on pylons forming part of the overhead electricity supply network at a height of between six and seven metres, whereas such meters are placed at a height of less than two metres in the other districts — irrespective of whether that collective measure affects persons who have a certain ethnic origin or those who, without possessing that origin, suffer, together with the former, the less favourable treatment or particular disadvantage resulting from that measure. Directive 2000/43, in particular Article 2(1) and (2)(a) and (b) thereof, must be interpreted as precluding a national provision which lays down that, in order to be able to conclude that there is direct or indirect discrimination on the grounds of racial or ethnic origin in the areas covered

173 Riesenhuber, ‘Das Verbot der Diskriminierung aufgrund der Rasse oder der ethnischen Herkunft sowie aufgrund des Geschlechts beim Zugang zu und der Versorgung mit Gütern und Dienstleistungen’ in Leible/Schlachter (eds), Diskriminierungsschutz durch Privatrecht (Sellier 2009) 123, 130. 174 See generally Schiek/Waddington/Bell (eds), Cases, Materials and Text on National, Supranational and International Non-Discrimination Law (Bloomsbury 2007). 175 C–668/15 Jyske Finans ECLI:EU:C:2017:278, para. 29.

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3.

4.

by Article 3(1) of the directive, the less favourable treatment or the particular disadvantage to which Article 2(2)(a) and (b) respectively refer must consist in prejudice to rights or legitimate interests. Article 2(2)(a) of Directive 2000/43 must be interpreted as meaning that a measure such as that described in paragraph 1 of this operative part constitutes direct discrimination within the meaning of that provision if that measure proves to have been introduced and/or maintained for reasons relating to the ethnic origin common to most of the inhabitants of the district concerned, a matter which is for the referring court to determine by taking account of all the relevant circumstances of the case and of the rules relating to the reversal of the burden of proof that are envisaged in Article 8(1) of the directive. Article 2(2)(b) of Directive 2000/43 must be interpreted as meaning that: – that provision precludes a national provision according to which, in order for there to be indirect discrimination on the grounds of racial or ethnic origin, the particular disadvantage must have been brought about for reasons of racial or ethnic origin; – the concept of an ‘apparently neutral’ provision, criterion or practice as referred to in that provision means a provision, criterion or practice which is worded or applied, ostensibly, in a neutral manner, that is to say, having regard to factors different from and not equivalent to the protected characteristic; – the concept of ‘particular disadvantage’ within the meaning of that provision does not refer to serious, obvious or particularly significant cases of inequality, but denotes that it is particularly persons of a given racial or ethnic origin who are at a disadvantage because of the provision, criterion or practice at issue; – assuming that a measure, such as that described in paragraph 1 of this operative part, does not amount to direct discrimination within the meaning of Article 2(2)(a) of the directive, such a measure is then, in principle, liable to constitute an apparently neutral practice putting persons of a given ethnic origin at a particular disadvantage compared with other persons, within the meaning of Article 2(2)(b); – such a measure would be capable of being objectively justified by the intention to ensure the security of the electricity transmission network and the due recording of electricity consumption only if that measure did not go beyond what is appropriate and necessary to achieve those legitimate aims and the disadvantages caused were not disproportionate to the objectives thereby pursued. That is not so if it is found, a matter which is for the referring court to determine, either that other appropriate and less restrictive means enabling those aims to be achieved exist or, in the absence of such other means, that that measure prejudices excessively the legitimate interest of the final consumers of electricity inhabiting the district concerned, mainly lived in by inhabitants of Roma origin, in having access to the supply of electricity in conditions which are not of an offensive or stigmatising nature and which enable them to monitor their electricity consumption regularly.

The Commission is presently working on a proposal for a directive which, following 153 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.176 c) Discrimination as a barrier to the internal market EU law also prohibits discrimination that jeopardizes the internal market. The justifi- 154 cation 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:

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COM(2008) 426 final.

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Chapter 2 Core Elements 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.

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The provision prohibits unequal treatment on the grounds of nationality or place of residence.177 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 Services Directive is hardly compatible with the principles of commercial freedom.178 Nationality as a criterion for discrimination under Art. 20 Services Directive is redundant as this principle is anchored in Art. 19 TFEU. 156 Furthermore, the EU restricts the practice of ‘geo-blocking’, 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 recent Geo-blocking Regulation prohibits discrimination in the following fields: Article 3 Geo-blocking Regulation Access to online interfaces (1) A trader shall not, through the use of technological measures or otherwise, block or limit a customer’s access to the trader’s online interface for reasons related to the customer’s nationality, place of residence or place of establishment. (2) A trader shall not, for reasons related to a customer’s nationality, place of residence or place of establishment, redirect that customer to a version of the trader’s online interface that is different from the online interface to which the customer initially sought 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 of establishment, unless the customer has explicitly consented to such redirection. In the event of redirection with the customer’s explicit consent, the version of the trader’s online interface to which the customer initially sought access shall remain easily accessible to that customer. (3) The prohibitions set out in paragraphs 1 and 2 shall not apply where the blocking or limitation of access, or the redirection is necessary in order to ensure compliance with a legal requirement laid down in Union law, or in the laws of a Member State in accordance with Union law, to which the trader’s activities are subject. In such instances, the trader shall provide a clear and specific explanation to customers regarding the reasons why the blocking or limitation of access, or the redirection is necessary in order 177 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 https://www.europarl.europa.eu/thinktank/de/document.html?reference=IPOL-I MCO_ET%282013%29507456 (accessed 11 December 2020). 178 Ibid. 50.

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IV. Freedom of contract to ensure such compliance. That explanation shall be given in the language of the online interface that the customer initially sought to access. Article 4 Geo-blocking Regulation Access to goods or services (1) A trader shall not apply different general conditions of access to goods or services, for reasons related to a customer’s nationality, place of residence or place of establishment, where the customer seeks to: (a) buy goods from a trader and either those goods are delivered to a location in a Member State to which the trader offers delivery in the general conditions of access or those goods are collected at a location agreed upon between the trader and the customer in a Member State in which the trader offers such an option in the general conditions of access; (b) receive electronically supplied services from the trader, 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, including the selling of copyright protected works or protected subject matter in an intangible form; (c) receive services from a trader, other than electronically supplied services, in a physical location within the territory of a Member State where the trader operates. (2) The prohibition set out in paragraph 1 shall not prevent traders from offering general conditions of access, including net sale prices, which differ between Member States or within a Member State and which are offered to customers on a specific territory or to specific groups of customers on a non-discriminatory basis. (3) Mere compliance with the prohibition set out in paragraph 1 does not, in itself, mean that a trader is under an obligation to comply with non-contractual national legal requirements relating to the respective goods and services of the Member State of the customer or to inform customers about those requirements. (4) 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. (5) 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 from selling the goods or providing the services to certain customers or to customers in certain territories. With respect to the sale of books, the prohibition set out in paragraph 1 shall not prevent 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) A trader shall not, within the range of means of payment accepted by the trader, apply, for reasons related to a customer’s nationality, place of residence or place of establishment, 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, different conditions for a payment transaction, where: (a) the payment transaction is made through an electronic transaction by credit transfer, direct debit or a card-based payment instrument within the same payment brand and category; (b) authentication requirements are fulfilled pursuant to Directive (EU) 2015/2366; and (c) the payments are in a currency that the trader accepts. (2) Where justified by objective reasons, the prohibition set out in paragraph 1 shall not prevent the trader from withholding the delivery of the goods or the provision of the service, until the trader has received confirmation that the payment transaction has been properly initiated. (3) The prohibition set out in paragraph 1 shall not prevent the trader from requesting charges for the use of a card-based payment instrument for which interchange 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, unless the prohibition or limitation of the right to request charges for the use of payment instruments, in accordance with Article 62(5) of Directive (EU)

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Chapter 2 Core Elements 2015/2366, has been introduced in the law of the Member State to which the trader’s operation is subject. Those charges shall not exceed the direct costs borne by the trader for the use of the payment instrument.

157

The Regulation serves to prevent the access to the internal market 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.179

6. Party status 158

Party status (business or consumer) is of key importance for European contract 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.180 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,181 or whose behaviour gives rise to new categories such as ‘prosumers’182. In addition to the 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. 7.

‘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; ‘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 179 See, for example, European Parliament, Briefing Paper on Geo-blocking and discrimination among customers in the EU (July 2016) 9, available online under http://www.europarl.europa.eu/RegData/etudes/ BRIE/2016/ 586620/EPRS_BRI(2016)586620_EN.pdf (accessed 11 December 2020). 180 Gumularz, ‘Ochrona Konusmenta a Fenomen „Rozszerzonej Rzeczywistości” – Nowe Wyzwania Polityki Prawa’ (2013) Transformacje Prawa Prywatnego 39, 40. 181 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 (2nd edn, Intersentia 2014) 52–60. 182 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 Produsage: Futures for UserLed Content Production’ in Sudweeks/Hrachovec/Ess (eds), Proceedings: Cultural Attitudes towards Communication and Technology (Murdoch University 2006) 275–284.

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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 European private law has undergone a development that differs from the develop- 159 ment 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’183). 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.184 The protection of the weaker party first arose in some legal systems by affording protection to tenants and thereafter to consumers;185 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.186 The necessity of increased protection for particular market participants does however raise costs187 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.188 As such it is hardly surprising that the development of European private law has focused on the removal of such differences in national laws.189 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.190 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 183 v. Gierke, Die soziale Aufgabe des Privatrechts (Springer 1889) 10; Markesinsis/Unberath/Johnston, The German Law of Contract (2nd edn, Hart 2006) 45. 184 See Wieacker, Privatrechtsgeschichte der Neuzeit (2nd edn, Vandenhoeck & Ruprecht 1967) 547. 185 See Schlosser, Grundzüge der Neueren Privatrechtsgeschichte Rechtsentwicklungen im europäischen Kontext (10th edn, C.F. Müller 2005) 202–203. 186 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. 187 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. 188 e.g. COM(2006) 744 final, 7 with references to further studies; COM(2010) 348 final, 5. 189 As is made clear in, for example, COM(2002) 208 final; COM (2003) 68 final; COM (2004) 651 final. 190 See Riesenhuber, System und Prinzipien des europäischen Vertragsrechts (de Gruyter 2003) 206.

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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.191 However, this results in problems in relation to ‘dual use’,192 i.e. acting for a purpose that is a combination of commercial and private motivations. 160 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 in, for instance, 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 directives193 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. 194

2. Notion of the consumer in the acquis communautaire 161

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.195 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.196 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, […] 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; – 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

See v. Hippel, Verbraucherschutz (3rd edn, Mohr Siebeck 1981) 3–4. See Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 52–54; Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) 91. 193 A useful overview of the notion of the consumer in earlier EU directives is given in Riesenhuber, System und Prinzipien des europäischen Vertragsrechts (de Gruyter 2003) 251–253. See also Howells/ Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 25 et seq. 194 Recital 1 MiFID. 195 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ (2008) MLR 505, 514. 196 Ibid. 515. 191

192

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V. Consumers and other protected parties 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.197 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 No. 1 CRD has defined the notion of the consumer in the traditional manner, as is frequently the case in the directives: Article 2 No. 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 recitals198 to the Consumer Rights Directive do however contain a more differentiated definition of the consumer. This model of a narrow definition in the legislation199 itself and a broader paraphrasing in the recitals 200 has also been adopted in the Mortgage Credit Directive and Consumer ODR Regulation. 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. Article 4 No. 1 Mortgage Credit Directive Definitions ‘Consumer’ means a consumer as defined in point (a) of Article 3 of Directive 2008/48/EC. 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. Article 4 No. 1(a) Consumer ODR Regulation Definitions ‘consumer’ means a consumer as defined in point (a) of Article 4(1) of Directive 2013/11/EU;

197 More specifically, the application of Art. 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. 198 Recital 17 CRD. 199 See the definition of the ‘consumer’ in Art. 4(a) Consumer ODR Regulation and Art. 4(1) Mortgage Credit Directive. 200 Recital 10 Consumer ODR Regulation and Recital 12 Mortgage Credit Directive.

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Chapter 2 Core Elements 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 a directive.201 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 Consumer ODR 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. 162 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 Šiba: C–537/13 Šiba 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 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. 163 The ECJ held in Costea that: 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 201 A recital in the premable may cast light on the interpreation of a rule but cannot in itself constitute such a rule, 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 mn. 10.

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V. Consumers and other protected parties 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.202 However, the case does raise doubts whether the ECJ touches too greatly on national law as the Court’s decision concerns the decision-making process and, above all, the principle of free evaluation of evidence. The conclusions the court is to draw from the fact that the credit is secured against commercial premises does not concern the notion of the consumer, but rather the conclusions that the national court is to draw from the evidence. This latter question does not fall within the ECJ’s competence. A tendency to favour the classification as a consumer is also apparent in the context 164 of procedural law, as is shown in Faber: 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 of its own motion whether a party qualifies as a consumer.203 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 qualification as a consumer also requires, in principle, the other party to be a 165 trader. Contracts between two parties, neither of whom are acting for purposes related to their business, craft, trade or profession, are not consumer contracts. 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 acts by the intermediary exceed mere commission or, such as in the decision Whatelet, the role as an intermediary is not made apparent: 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 […], 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

See mn. 158. Podszun, Procedural autonomy and effective consumer protection in sale of goods liability: Easing the burden for consumers (even if they aren’t consumers). Comment on Case C-497/13 Froukje Faber v. Autobedrijf Hazet Ochten BV, Judgment of the Court of Justice (First Chamber) of 4 June 2015 (2015) EuCML 152. 202

203

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Chapter 2 Core Elements 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. 166 A sudden change in the development of notion of the consumer can be seen in the Digital Content Directive and the Sale of Goods Directive. Recital 17 Digital Content Directive The definition of a consumer should cover natural persons who are acting outside their trade, business, craft or profession. However, Member States should also remain free to determine, in the case of dual purpose contracts, where the contract is concluded for purposes that are partly within and partly outside the person’s trade, and where the trade purpose is so limited as not to be predominant in the overall context of the contract, whether and under which conditions that person should also be considered a consumer. Recital 22 Sale of Goods Directive The definition of a consumer should cover natural persons who are acting outside their trade, business, craft or profession. However, Member States should also remain free to determine in the case of dual purpose contracts, where the contract is concluded for purposes that are partly within and partly outside the person’s trade, and where the trade purpose is so limited as not to be predominant in the overall context of the contract, whether, and under which conditions, that person should also be considered a consumer.

The wording in each of these Directives clearly contradicts Recital 17 CRD. According to these new Directives (more precisely, the recitals), the regulation of dual-purpose contracts is left to the Member States and is not directly regulated by EU law. This approach is problematic because it is clear that the Member States may extend the scope of protection under the Directives to other parties outside the scope of the Directives. This could potentially have the effect that an extension of consumer protection to dual purpose contracts would also directly extend the application of genuine EU law with all of the underlying principles, e.g. interpretation in accordance with EU law and the requirement to submit questions for preliminary ruling (Art. 267 TFEU). The new wording does, however, mean that the notion of the consumer is no longer uniform in EU law:204 the Consumer Rights Directive, which also concerns aspects of sales law, will have to be interpreted differently than the Sale of Goods and Digital Content Directives. This is not an ideal situation.

3. Other protected parties 167

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.

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EU Digital Law /Sénéchal, Art. 2 DCD mn. 23.

V. Consumers and other protected parties 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 (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 CSD provides a business (who was liable to the consumer) with a right to seek redress from other businesses. In each 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. 205 The Markets in Financial Instruments Directive applies a mixed system under which 168 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.206 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: (…)

The new Directives allow an extension of their scope to parties who are not traders, 169 but are active on online platforms as sellers or service providers. Furthermore, the Directives allow platform operators to always qualify as traders even though they may otherwise not satisfy the requirements in the definition. Recital 18 Digital Content Directive This Directive should apply to any contract whereby the trader supplies or undertakes to supply digital content or digital service to the consumer. Platform providers could be considered to be traders under this Directive if they act for purposes relating to their own business and as the direct contractual partner of the consumer for the supply of digital content or a digital service. Member States

205 On the different national approaches to the regress chain see Ebers/Janssen/Meyer (eds), European Perspectives on Producers’ Liability (Sellier 2009). 206 Recital 31 MiFID.

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Chapter 2 Core Elements should remain free to extend the application of this Directive to platform providers that do not fulfil the requirements for being considered a trader under this Directive. Recital 23 Sale of Goods Directive This Directive should apply to any contract whereby the seller transfers or undertakes to transfer the ownership of goods to the consumer. Platform providers could be considered to be sellers under this Directive if they act for purposes relating to their own business and as the direct contractual partner of the consumer for the sale of goods. Member States should remain free to extend the application of this Directive to platform providers that do not fulfil the requirements for being considered a seller under this Directive.

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This possibility to extend the scope of the definition means that particular contracts may be classified as consumer contracts even though a trader is not party to the contract. As an absolute exception, one is therefore faced with a so-called consumer–consumer contract, whereas normally the notion of the consumer contract always requires a trader to be the other party.207 The Directive solves this by allowing the national legislator to create a legal fiction. However, it is problematic that the solution is contained within the recitals. The national legislator may always extend a directive’s personal scope of application because the parties concerned fall outside the scope of the directive and therefore within the exclusive domain of the national legislator. Sensible interpretation of these recitals may allow the conclusion that application of the legal fiction requires application of EU law and thus uniform interpretation (which may involve requests for preliminary rulings pursuant to Art. 267 TFEU). Article 21(1) ELI Model Rules on Online Platforms Exercise of Rights and Remedies Against the Platform Operator Where Article 19 or Article 20 (1) apply, a customer who is a consumer can exercise against the platform operator all the rights and remedies that would be available against the supplier if the supplier were a business, irrespective of whether the supplier is a business.

Art. 21(1) of the ELI Model Rules on Online Platforms offers an alternative solution to the problem. However, this only concerns the platform’s subsidiary liability that may arise from Art. 19 and 20 of the ELI Model Rules.208

207 For a different solution in the context of online platforms see Rodriguez de las Heras Ballell, in Busch et al. (eds), Discussion Draft of a Directive on Online Intermediary Platforms. Commentary (Jagiellonian University Press 2019) Art. 2 mn. 43–44. 208 ELI Model Rules on Online Platforms, https://www.europeanlawinstitute.eu/fileadmin/user_upload /p_eli/Publications/ELI_Model_Rules_on_Online_Platforms.pdf (accessed 11 December 2020).

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CHAPTER 3 CONCLUSION AND CONTENT OF CONTRACTS Literature: von Bar/Clive (eds), DCFR Full Edition (Sellier 2009); Basedow/Hopt/Zimmermann (eds), The Max Planck Encyclopedia of European Private Law (OUP 2012); 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; 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 2018) 111–138; Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241–265; Zoll, ‘Culpa in Contrahendo in European Contract law – A Useful Concept?’ in Schulze/Perales Viscasillas (eds), The Formation of Contract (Nomos 2016) 41–58. I. Pre-contractual duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Comparative perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Pre-contractual duties and good faith in the acquis communautaire . . . . 4. Pre-contractual duties and good faith in the CESL . . . . . . . . . . . . . . . . . . . . . . . 5. Pre-contractual duties and good faith in the DCFR . . . . . . . . . . . . . . . . . . . . . . 6. Liability under the Acquis Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Information duties in the acquis communautaire . . . . . . . . . . . . . . . . . . . . . . . . 8. Between pre-contractual information duties and fair trading . . . . . . . . . . . . 9. Standardized performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Pre-contractual information duties in the CESL . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Pre-contractual information duties in the Acquis Principles and DCFR 12. Consequences of breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Conclusion of contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Pre-contractual public statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Unilateral promises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Inertia selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Defects in Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Right of withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 14 17 19 25 29 32 36 38 39 43 45 49 49 58 64 80 89 92 99 118 118 122 128 137 141

I. Pre-contractual duties 1. Overview The conclusion of contracts under European private law is understood as a process 1 that begins at an early stage and thus attention towards the the question whether a duty of loyalty exists between the parties even before the contract has been concluded. Present EU law has only focused on particular aspects of pre-contractual duties, in particular determining pre-contractual information duties.1 Nonetheless, EU law is taking

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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 2 The Acquis Principles have used the principle of good faith as a source for 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 general 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 recent Platform Regulation seeks to ensure that contractual relations falling within its scope are conducted ‘in good faith and based on fair dealing’ (Art. 8). 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, i.e. a person who lacks 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 business-

1 See also Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 95 et seq; Riesenhuber, EU Vertragsrecht (Mohr Siebeck 2013) § 7 mn. 16–51. 2 See also Riesenhuber, ibid. mn. 3–15. 3 See Chapter 2 mn. 136 et seq. 4 COM(2006) 744 final, 17–18. 5 See Chapter 2 mn. 98 et seq. 6 For example, joined cases C–43/59, 45/59 and 48/59 von Lachmüller ECLI:EU:C:1960:37; C–24/95 Aclan Deutschland ECLI:EU:C:1997:163. 7 Recital 31, Art. 2(b) CESL-Reg; 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; see the corresponding comments in the SchmidtKessel CESL and Schulze CESL commentaries. 8 See Chapter 2 mn. 142 et seq. 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).

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es.12 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. Modern legal systems ought not fail to take into account the information asymme- 5 tries between the parties. Indeed, the development in many legal systems has shown an increase in the information duties that are imposed on a party 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 duty 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.13 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.14 In EU law, the right to information is considered as one of the most important instru- 6 ments used to strengthen the position of the consumer.15 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.16 A further category of information serves to identify the party to the contract.17 Other information explains the procedure that should lead to the conclusion of the 7 contract. Such information plays a prevailing role when the procedure requires particular knowledge or is technically complex (Art. 8(1) and (2) CRD). 18 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 As is apparent in several provisions of the Platform Regulation, e.g. Art. 3(1)(d), (e), Art. 8(b), Art. 9(d). 13 On the cooperative, individualistic and altruistic systems of contract law see Brownsword, Contract Law. Themes for the Twenty-First Century (2nd edn, OUP 2006). 14 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. 15 See Art. 169 TFEU; C–362/88 GB INNO BM ECLI:EU:C:1990:102 para. 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, Rethinking EU Consumer Law (Routledge 2017) 95. 16 See, for example, Art. 5(1) and Art. 6(1) Consumer Credit Directive; Recital 21 Distance Marketing of Financial Services Directive. 17 See, for example, Art. 13(1)(c), 15(a) CESL. 18 See also Recital 36 CRD; Recital 23 and Art. 3(2) Distance Marketing of Financial Services Directive; Art. 5–7 E-Commerce Directive.

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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 duties 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).19 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,20 though an extension of the withdrawal period belongs to the typical consequences under EU contract law.21 However, this reluctance to set sanctions is waning – sets of rules such as the Acquis Principles and the DCFR provide 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 modify the contract in light of missing or incorrect information: 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.

19 COM(2006) 744 final, 19–20. See also, for example, Art. 5(1)(o), Art. 10(2)(p) Consumer Credit Directive; Recital 43 CRD. 20 As also observed by Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 111. 21 See, for example, Art. 14(1)(b) Consumer Credit Directive; Art. 10 CRD.

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I. Pre-contractual duties 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 allowing the 10 Member States to regulate the sanctions for breach of information duties. The Consumer Rights Directive contains detailed provisions on such sanctions.22 Article 6(6) Consumer Rights Directive Information requirements for distance and off-premises contracts 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 of con- 11 sumer 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: 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

22 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.

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(2)

(3)

(4)

(5) (6)

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. 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. 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. 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 in good time before conclusion of the contract or, where there is no written contract, before the service is provided. 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. 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. 12 The ever increasing number of information duties may indeed be positive, yet it does have the negative effect that consumers are often overwhelmed because they are not able to cope with volume of information.23 The performance of the information duty is 114

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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. (…)

The European legislator has also attempted to expand the pre-contractual duties in 13 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.24 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.

23 See, for example, Ben-Shahar/Schneider, More than you wanted to know – the failure of mandated disclosure (Princeton University Press 2014); Howells, ‘The Potential and Limits of Consumer Empowerment by Information’ (2005) Journal of Law and Society 349; Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 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://w ww.eurofinas.org/uploads/documents/policies/NCB-BRE-Report.pdf (last accessed 11 December 2020). 24 See Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 330.

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Chapter 3 Conclusion and Content of Contracts (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. (…)

2. Comparative perspectives 14

In 1861, the celebrated German scholar, Rudolf von Jhering, published his article ‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen’25 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 precontractual duties 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 precontractual duties. 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 adopted in

25 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.

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the German Civil Code in the course of the modernization of the law of obligations in 2002.26 Jhering’s theory on the liability due to the breach of pre-contractual duties received 15 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.27 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 scepti- 16 cism 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. 28

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 Princi- 17 ples 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.29 Art. 4(2) Distance Selling Directive provided that the principles of good faith in com- 18 mercial 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 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 CRD 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. 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

26 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. 27 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. 28 Walford v Miles [1992] 2 AC 128, 138 per Ackner LJ. 29 For comments on the application of good faith in the acquis communautaire see COM(2006) 744 final, 19–20 and Chapter 2 mn. 130 et seq.

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Chapter 3 Conclusion and Content of Contracts 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; (e) in addition to a reminder of the existence of a legal guarantee of conformity for goods, the existence and the conditions of after-sales services and commercial guarantees, where applicable; (f) the duration of the contract, where applicable, or, if the contract is of indeterminate duration or is to be extended automatically, the conditions for terminating the contract; (g) where applicable, the functionality, including applicable technical protection measures, of digital content; (h) where applicable, any relevant interoperability of digital content with hardware and software that the trader is aware of or can reasonably be expected to have been aware of. (2) Paragraph 1 shall also apply to contracts for the supply of water, gas or electricity, where they are not put up for sale in a limited volume or set quantity, of district heating or of digital content which is not supplied on a tangible medium. (3) Member States shall not be required to apply paragraph 1 to contracts which involve day-to-day transactions and which are performed immediately at the time of their conclusion. (4) Member States may adopt or maintain additional pre-contractual information requirements for contracts to which this Article applies.

4. Pre-contractual duties and good faith in the CESL The aforementioned sources show that good faith has become a part of the 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.30 However, the Commission failed to take account of the sources of EU law31 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. 20 The actual break in the application of good faith as a source of rights and duties 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.32 As already indicated,33 had the proposed CESL not been withdrawn, its principle of good faith would have had influence on the entire acquis communautaire as the principle would have been adopted elsewhere in EU law. 19

30 COM(2006) 744 final, 17–18. On the application of the principle of good faith see Chapter 2 mn. 130 et seq. 31 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. 32 Recital 3, Art. 2(b) CESL-Reg, 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; see the corresponding comments in the SchmidtKessel CESL and Schulze CESL commentaries. 33 See mn. 3.

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The proposed CESL defines the principle of good faith. As under the Unfair Com- 21 mercial Practices Directive34 the principle has been extended to also include ‘fair dealing’. Both concepts are covered under one uniform definition: Article 2(b) CESL-Reg35 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. The CESL places the party under a duty to act in accordance with the principle of 22 good faith and fair dealing (Art. 2(1) CESL). The consequences of breach are outlined in Art. 2(2) CESL 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 is reminiscent of the English estoppel that can prevent or exclude the exercise of rights.36 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 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 pre-contractual phase, though the optional nature of the CESL would mean 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. A notable feature of the CESL is the distinction between the pre-contractual informa- 23 tion duties in B–C and B–B contracts. Art. 13 CESL states information duties for B–C contracts but does not refer to the principle of good faith. 24 However, Art. 23(1) CESL provides: Article 23(1) CESL 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

See Riesenhuber, EU Vertragsrecht (Mohr Siebeck 2013) § 7 mn. 8–11. The European Parliament proposed to restructure Art. 2 CESL-Reg by placing a definition of ‘good faith and fair dealing’ in Art. 2(fe) CESL-Reg, 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. 36 In detail on estoppel, Barnes, The Law of Estoppel (Hart 2020); see also 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. 34

35

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Chapter 3 Conclusion and Content of Contracts 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 he can be sure that he will have correctly performed its information duties;37 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.38 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 25

The DCFR represents an amalgamation of various different sources: where 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. 39 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 CESL40 one can nevertheless see clear differences between the two sets of 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.

See mn. 12–13. Such as under the Platform Regulation. 39 Contract II/Ajani/Schulte-Nölke, Preface xiii–xiv. 40 COM(2011) 636 final, 5–7. 37

38

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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.41 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 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 relation to 27 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.

41 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 mn. 71.

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28

The express regulation of these two issues in the DCFR and its the narrow understanding 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 29

As stated above, the Acquis Principles provide a relatively broad basis for liability due to breach of the duty of good faith.42 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). 30 It has been questioned whether there is actually a sufficient basis in the acquis communautaire for such liability as no source regulates this type of liability directly.43 However, CJEU jurisprudence does provide clear indications that such a basis for liability is not alien to EU law. Such liability for the European Community was affirmed in the decision Embassy Limousines44 in which the non-contractual basis for the liability was derived from the EC Treaty.45 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.46 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.47 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.48 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 32

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.49 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.50 The information duties do not just cover the See Chapter 2 mn. 136. See Jansen/Zimmermann, ‘Restating the Acquis communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law’ (2008) MLR 505, 525. 44 T–203/96 Embassy Limousines ECLI:EU:T:1998:302. 45 The Court based liability on Art. 215(2) EC Treaty, see ibid. para. 45. 46 Jansen/Zimmermann, ‘Restating the Acquis communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law’ (2008) MLR 505, 520–531. 47 Ibid. 527. 48 This has been mentioned in German law, see German Civil Code/Watson, § 355 BGB, mn. 11. 49 Summarized in Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 21 et seq.; Weatherill, EU Consumer Law and Policy (2nd edn, Elgar 2013) 5 et seq. 50 See mn. 4 et seq. 42 43

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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.51 In addition, information duties arise in e-commerce regardless of the status of the parties;52 the mandatory nature of the information duties in this context does however depend on whether the customer is a consumer.53 The mandatory nature of the information duties also depends on the status of the parties in investment contracts. Information duties serve different purposes including, for example, identifying the 33 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 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.54 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 all the 34 information listed in its Art. 21. The notion of a services contract is very broad. 55 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,56 though this Directive distinguishes between information duties in off-premises and distance contracts, and other types of contract. Off-premises and distance contracts are subject to full harmonization57 and therefore the Member States cannot introduce any additional information duties for these types of contracts.58 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-premises or 35 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) CRD). This See Art. 22 Services Directive. See Art. 5–7 E-Commerce Directive. 53 See Art. 10(1) E-Commerce Directive. 54 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) CRD; Art. 17(1) CESL; 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) CRD (on the termination of contracts of undetermined duration); Art. 16(b), Art. 19(3)(e) CESL (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) CRD; Art. 13(1)(g) CESL; on the applicable law Art. 8(1) in conjunction with Art. 9(1) CESL-Reg; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. 55 Cf the definitions in Art. 4 No. 1 Services Directive with the restrictions under the second sentence of Art. 2 Services Directive. 56 Art. 5 and 6 CRD. See Hall/Howells/Watson, ‘The Consumer Rights Directive – An Assessment of its Contribution to the Development of European Consumer Law’ (2012) ERCL 139, 142 et seq.; Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 401 et seq. 57 See Recital 5 CRD. 58 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 (last accessed 11 December 2020). 51

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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.

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

The Unfair Commercial Practices Directive also includes pre-contractual information duties: 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.59 In practice, however, the boundary between individual contract law and fair trading is blurred.60 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. 61 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 Directive62 and the Markets in Financial Instruments Directive63. 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.64

See Art. 1 UCPD. See in particular Durovic, European Law on Unfair Commercial Practices and Contract Law (Bloomsbury 2016). See also Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 49 who comment that the European legislator has not appropriately considered the link between contract law and unfair commercial practices. 61 See mn. 12. 62 See the European standard information for consumer credit in Annex II Consumer Credit Directive. 63 Provided at the end of Art. 19(3) MiFID. 64 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/IPOL-IMCO_ET(2012)475083_EN.p df (accessed 11 December 2020). 59 60

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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;65 only the structure is different. In comparison to the Consumer Rights Directive, the proposed CESL first lists the information duties for distance and off-premises contracts (Art. 13–19 CESL) before the general information duties for other types of contracts (Art. 20 CESL). The proposed CESL does however regulate information duties in B–B contracts (Art. 23 CESL); these information duties are derived from the principle of good faith and fair dealing (Art. 23(1) CESL).66 The information duties in consumer contracts are structured in accordance with the function of the different pieces of information. Accordingly, Art. 13 CESL generally outlines the duty to inform of the subject matter of the contract (a, b), the identity of the business (c), the contract terms (d) as well as the rights of withdrawal (e); Art. 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 (f), ADR mechanisms (g) as well as particular technical aspects relating to digital content (i, j). The technique is somewhat surprising because Art. 20 CESL concerns other types of contract yet almost repeats Art. 13 CESL. As in the Consumer Rights Directive, day-today contracts performed immediately at the time of their conclusion are not subject to the information duties. The pre-contractual information duties in the CESL faced a fundamental problem that is linked to the optional nature of this instrument. The regulation of the pre-contractual phase in the optional instrument creates a paradox – the application of the European sales law would have been subject to selection as the law regulating the contract (Art. 8(1) CESL). 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.67 However, it can be argued that the rights and duties of the parties may be determined retrospectively. This nonetheless posed the question whether the provisions of the optional instrument would therefore be inapplicable if not actually chosen by the parties. The business would 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 is especially important in consumer law because the business is often subject to close monitoring by various different authorities. Although this question was not clarified sufficiently, it can be assumed that the effect of the optional instrument on determining the rights and duties in the pre-contractual phase would have solely depended on the intention to conclude the contract under its regime. In this respect, one can presume the optional instrument would have had a direct effect on the pre-contractual phase.

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11. Pre-contractual information duties in the Acquis Principles and DCFR The Acquis Principles represented the first attempt to structure the pre-contractual 43 information duties in the acquis communautaire. In so doing it included the duties that 65 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. 66 Ibid. 52, noting that good faith probably would not play an important role in this context. 67 Ibid.

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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 principles 68 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; Art. 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 Art. 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.

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;69 these differences also resulted in notable ECJ decisions in cases such as Heininger70 and Hamilton71. The Consumer Rights Directive should now remove these unfounded differences, at least in distance and off-premises contracts. However, one can note that other directives display the tendency to also remove such differences. 46 The Acquis Principles and the DCFR contain detailed rules on the sanctions 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 (to use the terminology favoured by the Acquis Principles) 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-perContract II/Dannemann, Introductory Part xxiii–xxvi. See mn. 118. 70 C–481/99 Heininger ECLI:EU:C:2001:684. 71 C–412/06 Hamilton ECLI:EU:C:2008:215. 68

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formance 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 Consumer Rights Directive includes only few rules outlining the 47 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 contains 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 she has not been informed thereof (Art. 6(6) CRD, in a similar vein Art. 14(1), (2) and (4) CRD); the withdrawal period will be extended if the consumer has not been provided with the information on the right of withdrawal (Art. 10 CRD). The proposed CESL contains more detailed rules than the Consumer Rights Direc- 48 tive: Art. 29(1) CESL 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, the provisions on defects in consent will also apply (Art. 29(3) CESL). Art. 42(2) CESL contains the consequences of a failure to inform the consumer of her 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 proposed 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.72

II. Conclusion of contract 1. Overview a) Introduction The conclusion of a contract gives rise to a legal relationship with specific rights and 49 obligations between the parties. Although increasing consideration is given to the precontractual 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).73 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 especially e-commerce, the use of artificial intelligence and in general the effects of digitalization on contract practice).74 The effects of these new developments concern all European countries. 72 See the Feasibility Study published by the Expert Group on European Contract Law, available online under https://ec.europa.eu/commission/presscorner/detail/en/IP_11_523 (last accessed 11 December 2020). 73 See also mn. 62.

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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 heart of the principle of freedom of contract;75 the principle of non-discrimination is based on Art. 10, 18 and 19 TFEU and Art. 21 CFR as well as the principles for the EU’s individual policy areas (for instance, consumer protection under Art. 38 CFR, which also extends to the conclusion of consumer contracts). 51 However, the law regarding conclusion of contract is of much greater significance within secondary EU law. Many directives contain rules concerning various aspects of conclusion of contract, for instance inertia selling,76 form requirements and electronic confirmation,77 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,78 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). 52 Despite this fragmented nature, EU law on conclusion of contract does display 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 data as ‘counter-performance’.79 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.80 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 often instead use his own standard terms in the hope that these will be accepted by the other party without the need for negotiations. 53 Furthermore, the acquis communautaire is characterized by its focus on pre-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.81 Such a strong link to the formation of intention and the content of the contract 74 See Schulze/Staudenmayer (eds), Digital Revolution: Challenges for Contract Law in Practice (Nomos 2016). 75 For more detail see Chapter 2 mn. 108 et seq. 76 On inertia selling see Art. 27 CRD. 77 Art. 8 CRD; Art. 11(1) E-Commerce Directive. 78 Contract II/Schulze, Art. 4:102 mn. 3. 79 See mn. 74 et seq.; on the rules surrounding data as counter-performance see Chapter 5 mn. 34–35. 80 See Chapter 2 mn. 55, 159.

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thus poses 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 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 therefore 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.82 The defects in contractual intent and the distribution of information risks require re- 54 consideration 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.83 This effect is expressly acknowledged in Art. 6(1) PTD 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.84 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’85 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.86 c) Academic and legislative drafts The principles on conclusion of contract in the acquis communautaire are mainly re- 55 flected in the Acquis Principles.87 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 French Principes Directeurs.88 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 nature89) do not categorize the conclusion 81 See mn. 1 et seq. Busseuil, ‘La Phase précontractuelle – La formation du contrat électronique’ in Rochfeld (ed), L’Acquis Communautaire – Le contrat électronique (Economica 2010) 71. 82 Schulze, ‘The Formation of Contract: New Features and Developments in Contracting’ in Schulze/ Perales Viscasillas (eds), The Formation of Contract (Nomos 2016) 9–24; mn. 99 et seq. 83 See mn. 85 et seq. 84 See mn. 130. 85 Pfeiffer, ‘New Mechanisms for Concluding Contracts’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 161, 167. 86 See mn. 118. 87 Contract II/Schulze et al. on conclusion of contract. 88 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. 89 Art. 2:101 PECL. Art. 2:201 PECL contains a rule on offer and Art. 2:204 PECL on acceptance.

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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.90 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. 56 The synthesis approach adopted by the DCFR was also been followed in the 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 the conclusion of contract.91 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).92 57 The aforementioned innovative approaches in the acquis communautaire 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-conformity93 with features specific to digital content and taking the role of data into account in the rules on termination of contracts94). 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 selling95 or unilateral promises96 cannot be regulated by a law of contract that is only applicable by means of an agreement between the parties. Furthermore, the CESL appears in some respects to have been reluctant to include matters of considerable practical importance, 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. 90 Such as detailed requirements for an offer (Art. 4:103 ACQP) and the binding effect of unilateral promises (Art. 4:109(1) ACQP). 91 For example Art. 8(2) CESL-Reg on 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, and Art. 69 CESL on the effect of pre-contractual statements on the content of the contract. 92 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 (eds), The Draft Common European Sales Law: Towards an Alternative Sales Law? (Intersentia 2013) 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. 93 Art. 6 DCD. On the draft 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. For details on Art. 6 DCD see EU Digital Law/Staudenmayer, Art. 6 DCD. 94 Art. 13 DCD. 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. 95 Art. 27 CRD; previously Art. 9 Distance Selling Directive (which provided the basis for Art. 4:106 ACQP). 96 Art. 2:107 PECL; Art. 4:109 ACQP; Art. II.–1:103 DCFR.

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2. Agreement a) Principle The requirement in European contract law for the formation of a contract and cre- 58 ation of rights and obligations for the parties is an agreement between the parties. 97 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.98 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 law99, 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 contract100 but has used different means to modify and develop the principle, in particular the notion of reasonable expectations.101 The PECL, Acquis Principles and the DCFR102 assisted the CESL in determining its three requirements 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(1) CESL. The provision’s subsequent paragraphs, as well as the further articles in Chapter 3 (Art. 31–39 CESL), substantiate and supplement these three central elements of the conclusion of contract. Article 30(1) CESL Requirements for the conclusion of a contract 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.

b) Requirements aa) The academic and legislative drafts for a European contract law primarily follow 59 the traditional model of conclusion via offer and acceptance.103 Offer and acceptance do not necessarily require express statements but can be inferred from conduct (‘conclusive behaviour’).104 Furthermore, the drafts substantiate the requirement of an agreement to 97 See also Schulze, ‘Formation of Contract’ in DiMatteo/Janssen/Magnus/Schulze (eds), International Sales Law (2nd edn, Nomos 2021) mn. 26 et seq. 98 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). 99 For more detail see Chapter 2 mn. 1 et seq.; see also Commentaries on European Contract Laws/Christandl, Introduction before Art 2:101 mn. 6. 100 Contract II/Schulze, Art. 4:101 mn. 4–6. 101 See Chapter 2 mn. 7 et seq. 102 Art. 2:101 PECL; Art. 4:101 ACQP; Art. II.–4:101 DCFR. 103 See mn. 64. See also Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016) 54 et seq. 104 See Art. 2:204 PECL; Art. II.-4:204 DCFR; Art. 30(2) and Art. 34(1) CESL for the offer. Although Art. 30(2) and 34(1) CESL explicitly refer to the acceptance, the exclusion of such possibility for the offer would not only contradict the values and purpose of Art. 6 and 10 CESL; for criticisms of this double approach and the wording of Art. 30(2) CESL see Schulze CESL/Terryn, Art. 30 CESL mn. 13.

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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). In this context, a typical, yet non-essential, question can be regarded by a party as fundamental for the conclusion of the contract.105 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. 60 bb) Furthermore, the various sets of rules for a European contract law require the parties to intend to be legally bound by their agreement.106 Such a requirement particularly allows a distinction to be drawn between a contractually-binding agreement and a non-binding favour (gentlemenʹs agreement, acte de complaisance).107 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 states that the parties’ statements and conduct are determining factors for ascertaining such an intention in relation to their agreement.108 61 cc) The sufficiency of the content and certainty of the agreement is a further requirement for the conclusion of contract. 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.109 Whereas the wording of Art. 4:101 ACQP is general, Art. 30(1) CESL 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. 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. 110 Following the CESL’s regulatory pattern, however, this requirement would often be satisfied by the seller’s extensive pre-contractual information duties (especially in consumer contracts) under Chapter 2 CESL.111

105 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 mn. 12; DCFR Full Edition 279. 106 See Art. 2:102 PECL; Art. 4:101 ACQP; Art. II.–4:102 DCFR; Art. 30 (1)(b) CESL. 107 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. 108 In general accordance with Art. 2:102 PECL, Art. II.–4:102 DCFR and Art. 30(3) CESL. 109 Compare Art. 2:103(1) PECL, Art. II.–4:103(1) DCFR, Art. 4:101 ACQP and Art. 30(1) CESL. 110 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. 111 Schulze CESL/Terryn, Art. 30 CESL mn. 7–8 with reference to the possibility in B–B contracts to also draw on Art. 14(1) CISG as a source of inspiration.

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c) Additional requirements? aa) The aforementioned sets of rules on European contract law do not contain any 62 additional requirements for the conclusion of a contract; this is expressly stated in Art. 2:101 PECL and Art. II.–4:101 DCFR.112 The focus on an agreement without any additional requirements underpins the Acquis Principles and current EU contract law. 113 Accordingly, the effectiveness of a contract in European contract law depends neither on consideration (such as in the common law), cause (such as in earlier French law) nor causa (as in Spanish law).114 The requirement in European contract law of an agreement now appears to have influenced national law, as can bee seen in the reform of the French law of obligations and its removal of cause requirement.115 bb) The principle of freedom of form features in each of the sets of rules on European 63 contract law.116 Unless stated otherwise, contracts are therefore neither subject to specific formal requirements nor do they have to be evidenced.117

3. Modes a) Offer and acceptance aa) Parties will frequently reach an agreement on the contract through the acceptance 64 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 acceptance. 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. 118 However, EU legislation and ECJ decisions119 also consider a contract to be concluded by means of offer and acceptance;120 Art. 4:102(1) ACQP contains a corresponding rule. 112 In comparison, the lack of additional requirements under the CESL is apparent from its background, see Schmidt-Kessel CESL/Gebauer, Art. 30 CESL mn. 17–18; Schulze CESL/Terryn, Art. 30 CESL mn. 10. 113 Art. 4:101 ACQP; Contract II/Schulze, Art. 4:101 mn. 9. See also Chapter 2 mn. 50. 114 On both concepts Cabrillac, Droit européen comparé des contrats (2nd edn, LGDJ 2016) 39–40; Farnsworth, ‘Comparative Contract Law’ in Reimann/Zimmermann (eds), The Oxford Handbook of Comparative Law (1st edn, OUP 2006) 908–910; Gordley, ‘Consideration’ in Smits (ed), Elgar Encyclopedia of Comparative Law (2nd edn, Edward Elgar 2012) 180; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 76–100, 1049, 1153–1179; Szczerbowski, ‘Formation of Contract’ in Plaza Penadés/ Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 37, 38–39; on consideration Whittaker/Riesenhuber, ‘Conceptions of Contract’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 120, 129–130. 115 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=JORFTEXT0000320049 39&categorieLien=id (accessed 11 December 2020); see also the special edition of the journal Revue des c ontrats (April 2016) on the topic of ‘La réforme du droit des contrats: quelles innovations?’; Schulze/Wick er/Mäsch/Mazeaud (eds), La réforme du droit des obligations en France, 5èmes Journées franco-allemandes (Société de Législation Co 2015); Bien/Borghetti (eds), Die Reform des französischen Vertragsrechts (Mohr Siebeck 2018). 116 Art. 2:101(2) PECL; Art. 1:304 ACQP; Art. II.–106(1) DCFR; Art. 6 CESL. 117 Limitations on the freedom of form are contained in, for example, Art. 19(4) and Art. 25(2) CESL with respect to distance contracts concluded electronically; see mn. 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) CRD). 118 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 Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 176–228, 290–309; Szczerbowski, ‘Formation of Contract’ in Plaza Penadés/ Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 37, 39–41; DCFR Full Edition 294–295. 119 The ECJ made express reference to the conclusion of contract via acceptance of an offer, see C–96/00 Rudolf Gabriel ECLI:EU:C:2002:436 para. 48–49.

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Nevertheless, current EU law is not a fruitful source for detailed provisions on the conclusion of contract via offer and acceptance. In contrast, Art. 2:201 et seq. PECL and accordingly Art. 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). 121 Art. 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 (Art. 31–33 CESL) as well as on the acceptance (Art. 34, 36–38 CESL), time of conclusion of contract (Art. 35 CESL), and conflicting standard terms (Art. 39 CESL). 65 bb) The requirement of a sufficiently definite agreement means that the content of the offer must also be sufficiently definite. Accordingly, the content must be sufficiently clear and precise; the offer must also clearly express the offeror’s intention to be legally bound.122 The ECJ expressed these two requirements for an offer capable of leading to the conclusion of a contract in its decision in Ilsinger:123 C–180/06 Ilsinger ECLI:EU:C:2009:303 54. As regards that condition, it is, of course, conceivable, in the context of Article 15(1)(c) of Regulation No 44/2001, that one of the parties merely indicates its acceptance, without assuming itself any legal obligation to the other party to the contract (see paragraph 51 of the present judgment). However, it is necessary, for a contract to exist within the meaning of that provision, that the latter party should assume such a legal obligation by submitting a firm offer which is sufficiently clear and precise with regard to its object and scope as to give rise to a link of a contractual nature as referred to by that provision. 55. That latter requirement may be regarded as being satisfied only where, in the context of a prize notification, such as that at issue in the main proceedings, there has been a legal commitment contracted by the mail-order company. In other words, the latter must have expressed clearly its intention to be bound by such a commitment, if it is accepted by the other party, by declaring itself to be unconditionally willing to pay the prize at issue to consumers who so request. It is for the national court to determine whether that requirement is fulfilled in the dispute before it.

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However, the acquis communautaire does not contain clear answers to two problems of notable practical importance: the distinction between an offer and other preparatory statements and conduct prior to conclusion of contract,124 and the revocation of an offer prior to acceptance. The importance of the first problem is directly linked to the role played by the offer for the conclusion of a contract. 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, an affirmation by the other party cannot result in the conclusion of a contract. 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 120 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. 121 Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 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 mn. 22. 122 See mn. 60. 123 See Commentaries on European Contract Laws/Christandl, Introduction before Art 2:101 mn. 6. 124 Illmer, ‘Vertragsschluss’ in Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts, vol II (C.H. Beck 2009) 1697.

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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. 67 International sets of rules give different answers to this conflict of interests. 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. 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. Article 31 CESL 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.

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;125 Art. 31 CESL follows these models. However, there are differences between the standards vis-à-vis proposals made, for example, in public advertisements or catalogues, 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 may 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 DCFR is founded by the important role that EU law attributes to public statements in other contexts.126 Moreover, this solution corresponds 125 Some differences can be observed, cf Art. 14(1) CISG with Art. 2:201(1) PECL and Art. II.–4:201(1) DCFR. 126 Contract II/Schulze, Art. 4:103 mn. 1 relating to Art. 2(2)(d), (4) and Art. 6(1) CSD, second sentence of Art. 3(2) PTD; Møgelvang-Hansen, ‘The Binding Effects of Advertising’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 169, 169–179.

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with the values of the Unfair Commercial Practices Directive.127 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). 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:128 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).129 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.130 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 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), i.e. before the contract has been concluded by such conduct. Offers directed at 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) CESL131). Art. 32(3) CESL 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 reasonable reliance 132 and softens the model whereby the offeror is principally bound by its offer. 69 cc) The PECL, DCFR and CESL rules concerning acceptance of the offer 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.133 Silence or inactivity are therefore not excluded as methods of communicating acceptance but require further circumstances in order to have bindFor more detail see Schulze CESL/Terryn, Art. 31 CESL mn. 10. Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 356–363. 129 Ibid. 356–364; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999)166–167; DCFR Full Edition 304–307. 130 See Recital 14 CRD. 131 See also Art. 2:202(2) PECL; Art. II.–4:202(2) DCFR. 132 For more detail see Chapter 2 mn. 10. 133 Art. 2:204 PECL; Art. II.–4:204 DCFR; Art. 34 CESL. 127 128

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ing effect (such as statements during the negotiations, framework agreements or agreements on such form of acceptance).134 The relevant period for acceptance primarily determined within the offer itself.135 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.136 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.137 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.138 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) CESL).139 dd) The acceptance of the offer results in the conclusion of the contract. The state- 70 ment of acceptance must reach the offeror.140 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,141 the relevant point in time is the moment the conduct commences.142 b) Conclusion without offer and acceptance aa) In practice, a contract can be concluded in forms that are not limited to conclu- 71 sion 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 States143 and with the application of the 134 DCFR Full Edition 310–311; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999)169; Schulze CESL/Terryn Art. 34 CESL mn. 5–6. 135 Art. 2:206 PECL; Art. II.–4:206 DCFR; Art. 36 CESL. 136 Art. 2:205(3) PECL; Art. II.–4:205(3) DCFR; Art. 35(3) CESL. 137 Art. 2:207 PECL; Art. II.–4:207 DCFR; Art. 37 CESL. 138 Art. 2:208(1) PECL; Art. II.–4:208(1) DCFR; Art. 38(1) CESL. 139 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 mn. 2–7, 12–13. 140 Art. 2:205(1) PECL; Art. II.-4:205(1) DCFR; Art. 35(1) CESL. The CESL 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); on notice see Chapter 2, mn. 52 et seq. 141 See mn. 59. 142 Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 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.

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CISG144, 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.145 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. Business 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 Understanding,146 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.147 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 acceptance148 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.149 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). 73 Despite the decision by the aforementioned sets of rules to apply the provisions on offer and acceptance to cases in which such distinction cannot be drawn, legal doctrine lacks, however, a sufficient reflection of the consequences which arise in the practice of contract formation. Clarification is necessary with regard to many questions concerning the ‘appropriate adaptation’ 150 in the corresponding application of the provisions (for in143 For example, for Germany Staudinger BGB/Bork (Sellier-de Gruyter 2015) § 146 mn. 7; for Italy: Bianca, Diritto Civile, vol 3: Il contratto (2nd edn, Giuffrè 2015) 238. 144 See Schlechtriem & Schwenzer CISG/Schmidt-Kessel, Introduction to Art. 14–24 mn. 8. 145 Although the Commission’s proposal for a CESL did not take advantage of an opportunity to propose an express rule to accommodate the growing importance of contracts that are not concluded via offer and acceptance, this should not be understood as a rejection of the approaches in the aforementioned sets of rules, but rather as an expression of the reluctance in favour of how this relatively new field can be shaped by doctrine and jurisprudence on the basis of principles arising from Art. 30 et seq. CESL. 146 On these and further instruments before and during the conclusion of contract Cordero-Moss, ‘The Function of Letters of Intent and their Recognition in Modern Legal Systems’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 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. 147 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, ‘Formation of Contract’ in DiMatteo/Janssen/Magnus/Schulze (eds), International Sales Law (2nd edn, Nomos 2021) mn. 69 et seq.; Siems, ‘Unevenly Formed Contracts’: Ignoring the ‘Mirror of Offer and Acceptance’ (2004) ERPL 771 ; van Erp, Contract als Rechtsbetrekking (Willink 1990). 148 See mn. 64. 149 See mn. 53. 150 See Art. 2:211 PECL.

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stance, the revocation of individual statements during the conclusion of contract and the time at which individual contractual duties are created151). c) Conclusion via distance means of communication aa) Present EU contract law does not use a traditional approach to distinguish be- 74 tween contracts concluded in the presence of the parties and contracts concluded in absentia.152 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’153 covers a particularly broad range of means of distance communication that can be used to prepare and conclude the contract, for instance post, telephone, e-mail, and trading websites;154 a necessary approach in order to be future proof in the rapidly developing field of communication technology.155 Although 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.156 bb) The preparation and conclusion of contract often takes place through the use of 75 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 ECommerce 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 Directive, Art. 8(5) CRD and, Art. 19(1) CESL. 157 cc) E-commerce is of considerable importance for the internal market and thus is en- 76 couraged by EU law.158 Conclusion of contract via e-commerce is therefore subject to specific rules on information and formal requirements (Art. 10 and 11 E-Commerce Directive159), with further additional rules for B–C contracts (Art. 8(2)–(7) CRD) and requirements for performance of information duties where there are technical limitations 151 On the question whether a ‘magic 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, ‘New Mechanisms for Concluding Contracts’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 161,165–168; Schulze, ‘The New Challenges in Contract Law’ in Schulze, ibid. 3, 18–19. 152 See, for example, § 130(1), 147 BGB; Art. 4, 5 OR. 153 See Art. 2(a) Distance Marketing of Financial Services Directive; Art. 2(7) CRD; Art. 2(p) CESL-Reg; see also Art. 1(1), Art. 2(e) of the proposal for an Online Sales Directive (COM(2015) 635 final), however the resulting Sale of Goods Directive covers ‘online’ and ‘offline’ contracts, see Chapter 1 mn. 68. 154 Recital 20 CRD. For more detail see Schulze CESL/Wendehorst, Art. 2 CESL-Reg mn. 32–36. 155 See Recital 15 Distance Marketing of Financial Services Directive. 156 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_TA-PROV(2014)0159) amendments 26, 49, 60–61. 157 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). According to Art. 29(1) CESL, the business is liable for every loss suffered by the consumer as a result of the business’ failure to perform this duty. 158 Recital 1 and Art. 1(1) E-Commerce Directive. See also the EU’s proposed ‘Digital Services Act’, COM(2020) 825 final. 159 Art. 4:105 ACQP is very similar, but provides a right to withdraw and a claim to damages as possible sanctions for breach.

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(e.g. the limited number of characters that can be displayed on mobile phones160).161 However, the approaches for the information duties are just one aspect; 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 Services162 with regard to the use of hyperlinks to information on the right of withdrawal,163 and may be the subject of future EU legislation and court decisions.164 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 regulate some of the issues concerning e-commerce.165 However, it remains to be seen whether the user’s confidence in the security, confidentiality, integrity of data as well as the identity of the business partner has sufficiently increased.166 77 dd) Art. 8(6) CRD provides that, where a distance contract 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 has adopted the Consumer Rights Directive’s optional model as a mandatory provision for contracts concluded via telephone. 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.167 d) Conclusion of contract with data as counter-performance 78

The supply of data in the form of digital content or digital services may form the basis of the contractual obligation for one party. In modern contract practice, however, the supply of digital content or digital services may require the counterparty to provide data in return.168 The data provided may have economic value, for instance in customer loyalty schemes or (personalized) advertising, but also in their sale to data brokers who collect and process the data before selling it on to advertising agencies. The Digital Content Directive reflects the economic significance of data by including the supply of personal data alongside the payment of a price. 160 On the criteria for determining limited space or limted time under Art. 8(4) CRD see C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47. 161 Recital 36 CRD. Similar requirements are also provided by Art. 13(3), 19(1) and 25 CESL. 162 C–49/11 Content Services ECLI:EU:C:2012:419. 163 See Chapter 2 mn. 64–65. 164 See C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47, though with regard to an order form in a magazine. At national level, though with EU wide consequences, see the decision of the LG Munich I on the violation of the pre-contractual information duties by the (since withdrawn) ‘Amazon Dash Button’, see Busch, ‘Does the Amazon Dash Button Violate EU Consumer Law?’ (2018) EuCML 78. 165 See Zaccaria/Schmidt-Kessel/Schulze/Gambino (eds), EU eIDAS Regulation (C.H. Beck 2019). 166 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. 167 The inclusions of this requirement in the section on pre-contractual information duties thus expresses the close interaction between the pre-contractual and conclusion phases – though this is not absolutely necessary from a structural perspective. 168 See Chapter 2 mn. 76 et seq. for difficulties in qualifying personal data as counter-performance.

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II. Conclusion of contract Article 3(1) Digital Content Directive Scope This Directive shall apply to any contract where the trader supplies or undertakes to supply digital content or a digital service to the consumer and the consumer pays or undertakes to pay a price. This Directive shall also apply where the trader supplies or undertakes to supply digital content or a digital service to the consumer, and the consumer provides or undertakes to provide personal data to the trader, except where the personal data provided by the consumer are exclusively processed by the trader for the purpose of supplying the digital content or digital service in accordance with this Directive or for allowing the trader to comply with legal requirements to which the trader is subject, and the trader does not process those data for any other purpose. (…)

Payment of a price and the supply of personal data in Art. 3(1) DCD merely deter- 79 mine the Directive’s scope of application. The Modernization Directive now adds Art. 3(1a) to the Consumer Rights Directive in order to make the corresponding changes. However, the provisions themselves express a viewpoint that can be of considerable importance for EU and national law.169 This primarily concerns the nature of the contract as bilateral/synallagmatic.170 Art. 3(1) DCD and Art. 3(1a) CRD may be relevant (albeit indirectly) for the question whether and under which conditions a contract is concluded when a customer does not pay a monetary price, but provides personal data. The conclusion of contract and the validity of contracts still remain in the domain of national law (Art. 3(10) DCD, Art. 3(5) CRD),171 but these provisions of EU law could impact on how national law is interpreted. For instance, in principle consideration is necessary under the common law in order to conclude a valid contract, and therefore the question arises whether personal data satisfies the requirements for valid consideration.172 Indications of or criteria for the intention to be legally bound may also rest on the treatment of personal data under national law.173

4. Pre-contractual public statements a) Statements by a contract party aa) The content of the contract may be determined not only by statements made by 80 the parties before and during the conclusion of the contract but also by pre-contractual public statements made by one of the parties.174 This principle of European contract law first emerged in the 1990s through Art. 2(2(d) and 6(1) CSD and Art. 3(2) PTD (1990) and remains a feature in the repealing Directives: according to Art. 7(1)(d) and 17(1) SGD 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 Art. 6(1) and 5(1) PTD.175 Furthermore, Art. 8(1)(b) DCD applies this principle to the broad scope176 of digital content and digital services. The rules in these Directives 169 See Lohsse/Schulze/Staudenmayer, ‘Data as Counter-Performance – Contract Law 2.0? An Introduction’ in Lohsse/Schulze/Staudenmayer (eds), Data as Counter-Performance – Contract Law 2.0? (Nomos 2020) 7 et seq. 170 See Chapter 5 mn. 35. 171 See Recital 12 Digital Content Direcitve. 172 See Mastura Drahaman, ‘A collision of contract and privacy law in a digital environment’ in Furmston (ed), The Future of the Law of Contract (Routledge 2020) 141, 151 et seq. 173 See mn. 62. 174 For more detail see Møgelvang-Hansen, ‘The Binding Effects of Advertising’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 169, 169–179. 175 The specific rules for brochures under Art. 3(2) PTD (1990) are no longer necessary due to new communication technologies, see Recital 26 PTD.

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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 pre-contractual 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. 81 bb) The binding effect under the Sale of Goods Directive concerns two situations. On the one hand, a guarantee under Art. 17(1) SGD 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. 7(1)(d) SGD determines that public statements made by or on behalf of the seller, are criteria for the (objective) conformity of the goods with the contract; Art. 8(1)(b) DCD contains the corresponding rule for digital content and digital services. However, the seller (referred as under the Digital Content Directive as trader) is not bound by these public statements if he can prove one of the following: he was not (and could not reasonably have been (aware of the public statement; the public statement had been corrected (in the same was as, or in. a way comparable to how it had been made) by the time of conclusion of contract; the public statement could not have influenced the decision to purchase the goods/acquire the digital content or digital service.177 The decisive aspect thereby is not whether the customer was actually aware of the statement but rather whether she could not have been aware thereof (for instance, the advertising statement was made abroad in a foreign publication). 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 customer’s opinion in the individual case – the customer, even when receiving the goods, will often not be aware of the ways and time at which the advertising impacted on the decision to acquire the goods, digital content or digital service. 82 The binding effect of pre-contractual statements in travel law concerns the extensive amount of information the organizer (and retailer) is to provide to the traveller in accordance with Art. 5 PTD. 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 PTD, 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 176 177

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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) PTD). The volume of pre-contractual information does however cast doubt on whether the desired transparency can be obtained in practice. cc) The provisions in the Sale of Goods Directive and in the Package Travel Directive 83 are restricted to the protection of consumers in the purchase of goods and package holidays, respectively.178 The Digital Content Directive extends the protection of the consumer to the supply of digital content or digital services, irrespective of the type of contract concluded. The provisions of the Directives for these specific situations share a common principle: pre-contractual advertising and other public statements on the characteristics of goods, digital content 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 the customer’s decision on the contract and therefore form the basis for a reasonable expectation that the characteristics of the goods, digital content or services under the contract will correspond to the pre-contractual statements made by the trader. The reason for the binding effect of pre-contractual statements in the Sale of Goods Directive, Digital Content Directive, and Package Travel Directive lies therein that the pre-contractual behaviour has generated reasonable expectations in relation to the subject matter of the contract. However, this basis for liability does not exist only in relation to the types of contracts covered by the Directives. The business must be aware that marketing these products through public statements will give rise to reasonable 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.

dd) Art. 69 CESL largely follows this approach.179 Its generalization of the earlier Di- 84 rectives paved the way for the application of the principle in the Digital Content Directive. Art. 69(1) and (2) CESL 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 shall 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 be178 For different approaches under national law see Ruiz ‘The Integration of Advertising Statements into the Content of the Contract’ in Plaza Penadés/Martínez Velencoso (eds), European Perspectives on the Common European Sales Law (Springer 2015) 78 et seq. 179 On the CESL approach, ibid. 75 et seq.

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tween the binding effect of pre-contractual statements and the reasonable expectations assists in explaining the exceptions provided in Art. 69(1) CESL. These follow Art. 2(3) and (4) CSD and Art. 6(1) PTD, albeit with minor differences.180 The public statements could therefore not generate such reasonable 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. Article 69 CESL 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.181 (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) A party to the contract may also be bound by pre-contractual public statements made by a third party. This approach is anchored in the acquis communautaire by Art. 7(1)(d) SGD with regard to pre-contractual public statements (especially in advertising or on labelling) made by the producer or other persons in the previous links of the chain of transactions with regard to the quantity, qualities and other features of the goods;182 Art. 8(1)(b) DCD contains the comparable rule for digital content and digital services. Furthermore, the same principle underpins Art. 6 PTD when the traveller concludes the contract with the retailer (Art. 3 No. 9 PTD) but the organizer has provided the standard information. Art. 69(3) CESL contains a corresponding rule for consumer contracts. 86 The principle of binding effect of pre-contractual public statements has since 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 85

180 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 mn. 5. 181 The German version 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 mn. 20. 182 See also Art. 2(2)(d) CSD.

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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 mass-market products are concerned) but instead (and sometimes even almost entirely) by the producer, importer or a distributor. These measures employed by third 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. bb) The sets of rules on European contract law express the personal scope of applica- 87 tion of the provisions on pre-contractual public statements by third parties differently. In contrast to the broad application of the principle in the PECL and Acquis Principles, the CESL adopts a narrower approach. 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). Art. 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 Sale of Goods Directive and the Digital Content Directive state the binding effect of pre-contractual statements only for consumer contracts. Although this accords with the general limitations on their scope, it does not allow the conclusion that the underlying principle onlys concern consumer contracts. The general relevance of this principle in the acquis communautaire is illustrated by Art. 5 and 6 PTD which substantiate the principle for standard pre-contractual information to be given by the organizer/retailer. According to Art. 3 No. 6 PTD, businesses may also refer to the standard information if they have concluded a contract with an organizer or retailer.183 In contrast, Art. 69(3) CESL expressly restricts the application of the provisions on 88 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.184 A compelling 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 183 In contrast to the approach generally adopted in EU law, the term ‘traveller’ defined in Art. 3 No. 4 PTD includes consumers as well as businesses that have concluded the contract for a commercial purpose or other purpose related to their business (e.g. booking a company trip). 184 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; the extent to which statements by third parties will have binding effect in B–B contracts would depend primarily on the interpretation of ‘engaged’ under Art. 69(2) CESL. For more detail see Schulze CESL/Kieninger, Art. 69 CESL mn. 11; Looschelders/ Makowski, ‘Inhalt und Wirkungen von Verträgen’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012), 227, 238; Wendehorst, ‘Regelungen über den Vertragsinhalt’ in Wendehorst/ Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 87, 94.

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business – this also does not depend on whether the other party is a consumer or a business. This issue was taken into account by the ‘gold plating’ of the Consumer Sales Directive by some national legislators when implementing the Directive into national law.185 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 89

Uncertainty still remains in European law in relation to the questions of the 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-Reg) 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. 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.

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These rules reflect the significance that the unilateral promise has gained both in several Member States as well as in international practice186 (e.g. concerning guarantees, prize notifications,187 securities188 and in relation to contract formation as well as the ‘gradual’ conclusion of contract189). In most European countries, legal doctrine paid relatively little attention to this matter following the 17th and 18th century controversies 185 In Germany with the third sentence of § 434(1) BGB which extended the scope of Art. 2 CSD to all sales contracts, see German Civil Code/Schaub, § 434 BGB mn. 4. 186 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, ‘The Formation of Contract: New Features and Developments in Contracting’ in Schulze/Perales Viscasillas (eds), The Formation of Contract (Nomos 2016) 9–24. 187 See Cauffman, ibid. 264 et seq. 188 Kleinschmidt, ‘Unilateral contract und einseitiges Versprechen’ (2007) Jura 250. 189 For example letter of intent; to such (unilateral and bilateral) statements in conclusion of contract, mn. 72.

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surrounding the theories of contract and promise.190 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).191 Several provisions of EU law are also indicative of the possible binding effect of unilateral promises, for example under Art. 17(1) SGD 192 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.193 Ascertaining this binding effect of guarantees under the Sale of Goods Directive does, however, not present a sufficient basis for the presumption that EU law generally attributes binding effect to unilateral promises.194 b) Protecting the offeror Although the acquis communautaire does not contain a general rule on the binding 91 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 utile 195 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 national 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 are not just im- 92 portant for the concept of contract in European private law196 but also for national conSee mn. 58. 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. 192 See Art. 6(1) CSD. 193 Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ (1999) EuZW 485, 488; Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 11 mn. 35; Twigg-Flesner/Canavan/MacQueen, Atiyah and Adams‘ Sale of Goods (13th edn Pearson 2016) 555–557. 194 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 mn. 1. See also Wiewiórowska-Domagalska, Consumer Sales Guarantees in the European Union (Sellier 2012) 140 et seq. 195 See mn. 72. 196 See Chapter 2 mn. 35 et seq. 190

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tract practice and jurisprudence on obligations. The second indent of Art. 9 Distance Marketing of Financial Services Directive and Art. 27 CRD 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 provide counterperformance). These provisions ‘seek to prevent a trader from imposing a contractual relationship on a consumer to which he or she has not freely consented’.197 They are based on early policy considerations198 indicating the need for a Europe-wide protection of consumers from demands for payment for unsolicited goods.199 The underlying policy considerations as well as the terms of the 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.200 b) Functions 93

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.201 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 on the consumer in respect of the acquisition, retention, rejection or use of the goods (or services).202 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 limited to the imbalance in consumer contracts only. c) Requirements

94

In addition to the notion of the consumer,203 the ‘unsolicited’ performance forms a central requirement in the relevant provisions.204 The ‘unsolicited’ concept will not extend to goods or services that have been delivered or supplied following an offer sent by 197 Joined cases C–708/17 and C–725/17 EVN Bulgaria Toplofikatsia ECLI:EU:C:2019:1049 para. 65 with reference to the opinion of the Attorney General. 198 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). 199 Howells/Weatherill, Consumer Protection Law (2nd edn, Ashgate 2005) 370–371; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 310–322. 200 See Chapter 2 mn. 42 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. 201 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, 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). 202 Contract II/Schulze, Art. 4:106 mn. 5, 9; DCFR Full Edition 257–261. 203 See Chapter 2 mn. 161 et seq. 204 Art. 27 CRD; Art. 9, 2nd indent Distance Marketing of Financial Services Directive.

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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 offerendum:205 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. 206 The goods or services will therefore be unsolicited if the consumer could not foresee such delivery of goods or services. This distinction is based on the general consideration that the performance is deemed unsolicited if it is not tendered on the basis of a decision freely made by the consumer. 207 Performance to be tendered under a contract cannot subsequently become ‘unsolicit- 95 ed’ if 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 laws208).209 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.210 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 not consti- 96 tute ‘consent’.211 In this respect, the provisions strengthen the principle that the agreement between the parties forms the basis of contract.212 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,213 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 may 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 outward 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. 214 bb) Furthermore, the consumer is ‘exempted from the obligation to provide consider- 97 ation’ (Art. 27 CRD) and ‘any obligation’ (Art. 9 Distance Marketing of Financial Services Directive). The concept of ‘consideration’ is not limited to just the reciprocal conSee mn. 66. Contract II/Schulze, Art. 4:106 mn. 8; DCFR Full Edition 258. 207 See joined cases C–54/17 and C–55/17 Wind Tre ECLI:EU:C:2018:710 para. 45 et seq. 208 For example, in Dutch law Art. 3:53(1) BW; in German law § 142 BGB. 209 Contract II/Schulze, Art. 4:106 mn. 8. 210 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). 211 Art. 27 CRD, though already in the second indent of Art. 9 Distance Marketing of Financial Services Directive; second indent of Art. 9 Distance Selling Directive. 212 See mn. 58 et seq. 213 Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 151–160. 214 Contract II/Schulze, Art. 4:106 mn. 9; DCFR Full Edition 259; for German law MüKo BGB/Finkenauer (2018) § 241a mn. 3; cf Casper, ‘Die Zusendung unbestellter Waren nach § 241a BGB’ (2000) ZIP 1602, 1607. 205

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tractual obligations, such as paying 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.215 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 law216 (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).217 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.218 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.219 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. 98 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. 220 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.

7. Defects in Consent a) An alternative concept for protecting against flawed decisions? 99

The law on defects in consent is a major part of the entire concept of private 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 215 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’. 216 DCFR Full Edition 260. 217 See Chapter 2 mn. 35 et seq. with further references. 218 DCFR Full Edition 260. 219 HK-BGB/Schulze (2019) § 241a mn. 7–8. 220 See mn. 59.

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of defects in consent is limited by the need for legal certainty.221 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. 222 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.223 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.224 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 duties225 and the rights of withdrawal226. 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. Tensions exist between these European approaches and traditional laws on defects in 100 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 therefore it is irrelevant whether the consumer had been induced to make a mistake or she simply changed its mind during the withdrawal period;227 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 the 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. European law features an approach that can represent an alternative to rules on de- 101 fects in consent: adjusting the contract in light of the other party’s (consumer or debtor) reasonable expectations.228 It concerns those provisions which cause the information or statement by a third party to become part of the contract: Schulze CESL/Pfeiffer, Art. 48 CESL mn. 1. Ob 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. 223 Martens, ‘Einigungsmängel im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 179, 189; Schmidt-Kessel CESL/Martens, Art. 48 CESL mn. 1. 224 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. 225 See Part 2, Chapter 2 CESL. 226 See Part 2, Chapter 4 CESL. 227 See mn. 118; 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. 228 On the principle of reasonable 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. 221

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Chapter 3 Conclusion and Content of Contracts Article 3 Package Travel Directive (1990) (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.

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At first glance it appears that these provisions have little to do with the 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 reasonable 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

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Current EU law does not contain any rules that fall under the traditional notion 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.

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The E-Commerce Directive has designed this duty as an information duty. However, it concerns a technical possibility to identify and, if necessary, correct the content of notice before it is sent.229 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 229

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duty but rather the responsibility to introduce sanctions for breach remains with the national legislator.230 The Acquis Principles have strived to create a complete rule that contains a sanction 105 for breach, namely a right for the other party to withdraw from the contract:231 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: (…) (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 approach 232 by 106 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.233 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.234 The DCFR has adopted a different approach to the ‘duty to make available a means of 107 correcting input errors’ (Art. II.–7:201(1)(b)(iii) DCFR) by creating a direct link to the regulation of defects in consent: Article II.–7:201(1)(b)(iii) DCFR Mistake A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: the other party caused the contract to be concluded in mistake by failing to comply with a pre-contractual information duty or a duty to make available a means of correcting input errors;

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 Directive,235 at guiding business’ market behaviour. Recital 54 E-Commerce Directive. See Contract II/Lehmann, Art. 4:105. 232 COM(2003) 68 final, 18–25; Schulte-Nölke, ‘Function of Contracts in EC Private Law’ in Schulze/ Ebers/Grigoleit (eds), Informationspflichten und Vertragsschluss im Acquis communautaire (Mohr Siebeck 2003) 85, 93. 233 COM(2003) 68 final, 18–19. 234 Contract II/Lehmann, Art. 4:105 mn. 7. 230

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c) Mistake and protection against unfair commercial practices 108

The European legislator attempts to support the consumer’s decision-making process by prohibiting certain types of unfair commercial practices with a misleading effect: 236 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. (…)

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These provisions are directly attributed to competition law instead of contract law. 237 The Unfair Commercial Practices Directive 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:238 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.

DCFR Full Edition 268. Art. 1 and Recitals 4, 6, 8–10, 12 UCPD; Schmidtke, Unlautere geschäftliche Handlungen bei und nach Vertragsschluss (Utz Verlag 2011) 30. 237 As is the opinion of the German legislator, see BT-Drucks. 16/10145 vom 20.08.2008, 10. 238 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) 69, 77–79. 235

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II. Conclusion of contract 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. (…)

The Misleading and Comparative Advertising Directive also features such preventa- 110 tive measures that shall prevent customers from making their decisions on the basis of mistaken beliefs: Article 1 Directive on Misleading and Comparative Advertising 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.

These aspects of competition law are integral parts of a system that strives to use 111 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 reasonable 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 In consideration of the present acquis communautaire one may be surprised by the 112 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 reasonable expectations. The Commission acted, however, on the assumption that contract law would not be complete without provisions on defects in consent.239 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 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 of the 113 contract: mistake (Art. 48 CESL), fraud (Art. 49 CESL), threat (Art. 50 CESL), and unfair exploitation (Art. 51 CESL). The system is generally based on the DCFR approach, which (in applying the restatements-approach240) strives to synthesize various models.241 A defect in consent under Art. 48–51 CESL allows the contract to be avoided via notice to the other party:

239 On the importance of an avoidance right as a fundamental part of European contract law see Schmidt-Kessel CESL/Martens, Art. 48 CESL mn. 1; Schulze CESL/Pfeiffer, Art. 48 CESL mn. 1–3. 240 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 mn. 27. 241 Martens, ‘Die Regelung der Willensmängel im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ (2011) 211 AcP 845, 853.

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Chapter 3 Conclusion and Content of Contracts Article 52 CESL 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.

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It is apparent from this provision that the entitled party does not have to claim avoidance of the contract in order to extinguish the effects of the contract; a statement to that effect will suffice.242 The specific effects of avoidance on the restitutionary aspects are given in Chapter 17 CESL (see Art. 172 CESL), whereas Art. 54 CESL contains the general effects of avoidance:243 Article 54 CESL 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.

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Art. 54 CESL provides that a voidable contract (e.g. due to mistake) will 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 absolue244 as under French law. A notable aspect is the possibility of partial avoidance under Art. 54(2) CESL which, in 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. 245 According to Art. 48(1)(a) CESL, the mistake must be fundamental 246 – 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 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) 242 Art. 52(1) CESL; on avoidance as a formative right see Schmidt-Kessel CESL/Martens, Art. 52 CESL mn. 1–2; Schulze CESL/Pfeiffer Art. 52 CESL mn. 1, 9–14. 243 On the general effect of avoidance see Schmidt-Kessel CESL/Martens, Art. 54 CESL; Schulze CESL/ Pfeiffer, Art. 54 CESL. 244 See Beckmann, Nichtigkeit und Personenschutz (Mohr Siebeck 1998) 111–112; Bénabent, Droit civil – Les obligations (11th edn, Dalloz 2007) mn. 208; Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion (Mohr Siebeck 1996) 160. 245 Martens, ‘Einigungsmängel im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 179, 196. 246 See Schmidt-Kessel CESL/Martens, Art. 48 CESL mn. 4–7.

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CESL) the remainder of the contract will be effective despite the ineffectiveness of individual terms.247 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. Furthermore, the CESL also proposed damages as the sanction for loss caused by the 116 defect in consent:248 Article 55 CESL 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.249 As noted above,250 some Member States regulate culpa in contrahendo under 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 reduce 117 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 statement 118 of intention without giving any reason (e.g. Art. 9 CRD; Art. 40 CESL). In this respect the right limits the principle of pacta sunt servanda, i.e. that parties are bound to the contract.251 Several European directives252 grant mandatory withdrawal rights in specific 247 Schmidt-Kessel CESL/Möslein, Art. 79 CESL mn. 29; Schulze CESL/Mazeaud/Sauphanor-Brouillaud, Art. 79 CESL mn. 8. 248 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; Schmidt-Kessel CESL/Martens, Art. 55 CESL; Schmidt-Kessel/Silkens, ‘Breach of Contract’ in Plaza Penadés/Martínez Velencoso, ibid. 130–132; Schulze CESL/Pfeiffer Art. 55 CESL. 249 Schulze CESL/Pfeiffer, Art. 55 CESL mn. 1–2. 250 See mn. 15. 251 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.

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situations in which a party (usually a consumer) is typically considered to warrant protection during the conclusion of the contract.253 Consumers were first afforded a right of withdrawal at European level by the 1985 Doorstep Selling Directive.254 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.255 This position has been strengthened through the gradual transition over recent years from minimum to full harmonization of withdrawal rights.256 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. 119 Since 2011, the Consumer Rights Directive has regulated withdrawal rights for distance selling and doorstep selling contracts 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;257 the view of the Council was that full harmonization of these two areas would have had a considerable impact on national legal systems. However, full harmonization was 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 align 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 precisely worded and 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 only covers a section of different systems of (consumer) contract law in the EU. b) Emergence of a general part 120

The rights of withdrawal in the earlier European directives displayed a number of inconsistencies regarding the terminology,258 time periods, exercise of the right as well as the effects thereof, without any ascertainable objective reason for the differences. 259 Sev252 In particular the Consumer Credit Directive, Consumer Rights Directive, Distance Marketing of Financial Services Directive, Timeshare Directive; in contrast to other directives, Art. 186(1) Solvency II Directive provides that not just consumers are entitled to withdraw from life assurance contracts; see Contract II/Schulze, Art. 5:101 mn. 3. 253 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) 151–168. 254 Art. 4 Doorstep Selling Directive used the expression ‘right of cancellation’. 255 An overview of the implementation of EU minimum harmonization directives is given in SchulteNölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008). An updated version is available online under https://ec.europa.eu/consumers/archive/cons_int/safe_shop/acquis/comp_analysis _en.pdf (accessed 11 December 2020). 256 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 in 2011 by the Consumer Rights Directive. 257 See Chapter 1 mn. 33; on the later full harmonization of consumer guarantees through the Sale of Goods Directive see Chapter 1 mn. 68–69.

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eral Member States therefore attempted to overcome the chaos and occasional inconsistencies by creating overarching rules for the withdrawal rights in several or all relevant directives.260 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 approach 121 for distance and off-premises consumer contracts.261 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. 262 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 (Art. 9–16 CRD; Art. 40–46 CESL). 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 presumption that 122 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).263 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.264 The need to protect the weaker party can be based on an asymmetry in information 123 before the conclusion of contract (e.g. when the consumer can not sufficiently inform itself on the quality of the product).265 In this respect, the protection afforded by a with258 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’. 259 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. 260 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). 261 See Schulze/Morgan, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 297. 262 Due to the limited scope of application of the Consumer Credit Directive, Distance Marketing of Financial Services Directive, Solvency II 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. 263 See, for example, Recital 37 CRD, Recital 23 Distance Marketing of Financial Services Directive; Recital 11 Timeshare Directive. 264 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 2018) 111, 128–129 .

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drawal 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’).266 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.267 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.268 b) Increasing confidence 124

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.269 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 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-à-vis particular transactions.270 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.

265 Ibid. 132–134; Micklitz/Stuyck/Terryn, Cases, Materials and Text on Consumer Law (Hart 2010) 240; Terryn, Het herroepingsrecht als instrument van consumentenbescherming (Intersentia 2005) 461–432. 266 See Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241, 256–257. 267 See BGH, 16.3.2016 – VII ZR 146/15. 268 See Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2014) 114. 269 Loos, ‘Rights of Withdrawal’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 237, 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. 270 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’.

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c) Scope A variety of different needs and policy considerations underlie how the legislation has 125 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.271 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.272 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.273 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.274 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 originally in- 126 troduced via separate directives. The Consumer Rights Directive contains the withdrawal rights under the Doorstep Selling Directive and Distance Selling Directive, 275 whereas separate sets of rules continue to provide protection in the other aforementioned situations. These sets of rules also considerably extend the scope of the 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’ premises 276 (e.g. on the street or on public transport277). In such situations, there is typically the risk that the consumer is taken by surprise and concludes a contract unprepared,278 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.279 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’280 for both off-premises and distance sales contracts.

271 Recital 37 CRD. On the application to the rules to a stand at a trade fair see C–485/17 Verbraucherzentrale Berlin ECLI:EU:C:2018:642 and C–465/19 B&L Elektrogeräte ECLI:EU:C:2019:1091. 272 Recital 37 CRD; see also mn. 22. 273 For more detail see Recitals 9 and 11 Timeshare Directive; Loos, ‘Rights of Withdrawal’ in Howells/ Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 237, 246. 274 Recital 27 Consumer Credit Directive; Recital 23 Distance Marketing of Financial Services Directive. 275 See also Art. 40 et seq. CESL. 276 Art. 9(1) in conjunction with Art. 2(8)(a) CRD; 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) CESLReg. 277 As was already provided in German law as part of the ‘gold plating’ of the Doorstep Selling Directive. See also C–91/92 Faccini Dori ECLI:EU:C:1994:292. 278 For example, in consideration of the Directive’s purpose, a contract concluded at a trade fair stand is not to be viewed as ‘off-premises’ when the average consumer could reasonably assume that the trader is carrying out his activity there (C–485/17 Verbraucherzentrale Berlin ECLI:EU:C:2018:642). In contrast, a contract concluded at a trade fair is ‘off-premises’ if the location of the stand was such that access to all traders’ stands was provided (C–465/19 B&L Elektrogeräte ECLI:EU:C:2019:1091). 279 Art. 9(1) in conjunction with Art. 2(7) CRD; Art. 40(1) in conjunction with Art. 2(p) CESL-Reg; 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 (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 237,177–187; see also Neubauer/Steinmetz, ‘Internetauktionen’ in Hoeren/ Sieber/Holznagel, Handbuch Mulitmedia Recht (51st supplement, C.H. Beck 2020) Teil 14 mn. 73–89.

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127

The Directives contain numerous exceptions that restrict the right of withdrawal in the various situations.281 These exceptions particularly aim at avoiding the disproportionate burdens for the business which would arise under specific circumstances, but at the same time finding an appropriate balance between a high level of consumer protection, commercial competition,282 and avoiding the abuse of rights. (e.g. goods created according to the consumer’s specifications could not be resold283) and, furthermore, preventing the risk of abuse (e.g. in relation to goods subject to fluctuating market value).284

3. Features a) Formative right 128

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.285 In light of this objective, a withdrawal right is milder than the ipso iure rescission of the contract, such as is provided in many Member States in situations in which the imbalance between the parties is exploited (e.g. usury, see § 138(2) BGB) or specific formal requirements have not been observed (e.g. § 311b(1) BGB). 286 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 to allow her time 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. 129 bb) A three-tier structure is central to withdrawal rights. Firstly, 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.

280 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. 281 Art. 16 CRD and Art. 40(2), (3) CESL contain extensive exceptions, Art. 6(2) Distance Marketing of Financial Services Directive; see also Art. 5:A–01(3) to (5) ACQP. See also See Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241, 253–258. 282 See C–681/17 slewo ECLI:EU:C:2019:255 para. 39 with reference to Recital 4 CRD. 283 See C–529/19 Möbel Kraft ECLI:EU:C:2020:846, in which the exception applies irrespective of whether the trader has begun to produce the goods. 284 Art. 16(c) CRD; Art. 40(2)(d) CESL. 285 Canaris, ‘Wandlungen des Schuldvertragsrecht – Tendenzen zu seiner „Materialisierung“’ (2000) 200 AcP 276, 344–345; 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, 165–166. 286 In instances of excessive benefit or unfair advantage, under Art. 4:109 PECL the contract is not void, but voidable. On the law in France, Luxembourg and in other countries see Witz, ‘Störung des vertraglichen Gleichgewichts im neuen französischen Schuldrecht’ in Bien/Borghetti (eds), Die Reform des französischen Vertragsrechts (Mohr Siebeck 2018) 119, 126 et seq.; Ancel, ‘Article 1142: violence économique’ (2015) Revue des contrat 747.

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The contract is therefore not definitively effective during the withdrawal period, even 130 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’: 287 the withdrawal period does not prevent the parties from performing their contractual obligations, for example to deliver or to make payment (Art. 9(3) CRD;288 Art. 44(1) and 45(1) CESL). Such an approach thus ensures that, in relation to the claim for performance, the consumer is not in a worse position 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.289 b) Distinction from revocation and termination rights aa) There are a number of differences between the withdrawal rights considered here 131 and the revocation of an offer in the sets of rules on European contract law290 as well as under the different national approaches.291 Withdrawal rights may 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. Art. 12(1) PTD allows the traveller to ‘terminate the package travel contract’. Whereas 132 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 her right to terminate. Furthermore, Art. 12(2) PTD 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.292 Rights of withdrawal differ from other termination rights (such as according to 133 Art. 13(4) SGD and Art. 14(4) DCD 293) 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 and the corresponding national provisions on avoidance or rescission).294 The relevant directives instead provide that the withdrawing party does not have to give a reason for the withdrawal295 – the mere existence of a particular situation will suffice in order for a 287 Contract II/Schulze Art. 5:105 mn. 4; Meller-Hannich, ‘Verbraucherschutz im Schuldvertragsrecht’ (Mohr Siebeck 2005) 155–157; Schulze/Morgan, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 297, 319–320; 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 2018) 111, 133. 288 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) CRD. 289 On the relationship to the duty of acceptance see Watson, Das Right to Reject im Consumer Rights Act 2015 (Nomos 2018) 245–246. 290 See mn. 68. 291 For example, §§ 130, 145 BGB; Art. 1328 Codice Civile. 292 See e.g. Art. 9(2), 16(a) CRD; Martens, ‘Die Regelung der Willensmängel im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ (2011) 211 AcP 845, 854–855; Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241, 256–258. 293 See Chapter 6 mn. 138–139. 294 See mn. 118.

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withdrawal right to compensate for a perceived disadvantage. 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.296 In contrast to rescission rights, actual impairment is not necessary. 134 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 adopted by the Acquis Principles and the DCFR297 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).298 c) Mandatory nature 135

aa) Rights of withdrawal can be granted either voluntarily to the consumer by virtue of freedom of contract or by reason of mandatory legislative provisions. EU 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.299 136 Arguments have been raised against the use of mandatory withdrawal rights in distance contracts,300 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 295 For example, Art. 14(1) Consumer Credit Directive; Art. 9(1) CRD; Art. 6(1) Distance Marketing of Financial Services Directive; Art. 6(1) Timeshare Directive. 296 Eidenmüller, ‘Why withdrawal rights?’ (2011) ERCL 1, 5. 297 Chapter 5 ACQP; Book II Chapter 5 DCFR. 298 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), see German Civil Code/Watson, § 355 BGB mn. 2. 299 cf. in particular Eidenmüller, ‘Why withdrawal rights?’ (2011) ERCL 1, 11–14, who does however favour standardization in relation to the proposed ‘optional’ right of withdrawal. 300 Ibid.; 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.

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less effective than mandatory rights (also due to the general advantages of standardization).301 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 perhaps 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.302 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.

4. Exercise a) Notice 137

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 (a) use the model withdrawal form as set out in Annex I(B); or (b) make any other unequivocal statement setting out his decision to withdraw from the contract. Member States shall not provide for any formal requirements applicable to the model withdrawal form other than those set out in Annex I(B). 301 302

See mn. 133. Eidenmüller, ‘Why withdrawal rights?’ (2011) ERCL 1, 12.

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Chapter 3 Conclusion and Content of Contracts (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 contain general rules for the exercise of the withdrawal right and the withdrawal period, which were designed in order to be applicable to all withdrawal rights.303 The Consumer Rights Directive (and Art. 40–42 CESL) followed this approach by also adopting a uniform 14-day withdrawal period304 (as also in the Timeshare Directive and Consumer Credit Directive) and overarching rules on the exercise of the withdrawal right.305 The Consumer Rights Directive provides 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) CRD). Furthermore, the Consumer Rights Directive gives the consumer two further options for exercising the right of withdrawal: in addition to an unequivocal statement, the consumer may use a model withdrawal form or (if available) submit the withdrawal statement electronically via the business’ website (Art. 11(1) and (3) CRD).306 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.307 b) Dispatch principle 138

The timely exercise of the right of withdrawal does not depend on when the communication of the withdrawal is received by the business but rather on whether the notice of withdrawal is sent within the withdrawal period (e.g. Art. 14(3) Consumer Credit Directive; Art. 11(2) CRD; Art. 41(4) CESL). This rule ensures 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 States) 308 the latter issue is generally subject to the receipt principle (Art. 10(3) CESL; Art. I.–1:109(3) DCFR),309 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 For the most part adopted from Art. II.–5:102–5:103 DCFR. 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 (eds), EC Consumer Law Compendium (Sellier 2008) 347. An updated version is available online under https://ec .europa.eu/consumers/archive/cons_int/safe_shop/acquis/comp_analysis_en.pdf (accessed 11 December 2020). 305 As a result of changes to the Consumer Rights Directive by the Modernization Directive, Member States may extend the withdrawal period to 30 days for contracts concluded in the context of unsolicited visits by a trader to a consumer’s home or excursions organised by a trader with the aim or effect of promoting or selling products to consumers for the purpose of protecting legitimate interests of consumers with regard to aggressive or misleading marketing or selling practices (Art. 9(1a) CRD). 306 See also Art. 41(2) and (3) CESL. 307 See Schulze, ‘The Right of Withdrawal’ in Schulte-Nölke/Tichy (eds), Perspectives for European Consumer Law (Sellier 2010) 13, 20. 308 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. 309 See Chapter 2 mn. 56. 303

304

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right) rests with the consumer (as expressly stipulated in Art. 11(4) CRD; Art. 41(5) CESL). c) Information on the right of withdrawal The requirement of a withdrawal period is very closely linked to the requirement that 139 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 directives310 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.311 The Consumer Rights Directive integrates the duty for the business to inform312 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) CRD). 313 As an example, the catalogue of information duties in the Consumer Credit Directive includes the obligation to inform the consumer on the existence or absence of a right of withdrawal as well as on the withdrawal period, the exercise of the withdrawal right, the repayment obligation (Art. 10(2) (p) Consumer Credit Directive314). Furthermore, both of these directives, as well as others, contain model instructions on withdrawal that can be tailored to requirements of the individual contract315 and, if completed correctly by the business, will fulfil the information duties on withdrawal rights.316 Such an instrument can therefore ease cross-border transactions for businesses by overcoming one aspect of the obstacles posed by different languages. The performance of the information duties317 should compensate for the consumer’s 140 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 decision on the exercise of the withdrawal right. The business therefore has to inform the consumer in a clear and comprehensible manner (Art. 6(1) CRD; cf. ‘clear and concise manner’ under 310 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. 311 According to the ECJ in Content Services (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, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 297, 322–323. 312 Art. 6(6) CRD provides that the consumer is not to bear the costs of return or other charges if the trader has breached the obligation to inform the consumer of such costs. If the contract is concluded through a means of distance communication which allows limited space or time to display the information, the trader is nonetheless to provide the consumer with information regarding the conditions, time limit and procedures for exercising the right, see C–430/17 Walbusch Walter Busch ECLI:EU:C:2019:47. 313 See also Art. 17(1) CESL. 314 See also Art. 10(2)(q) Consumer Credit Directive on the information requirements concerning the withdrawal from linked credit agreements. 315 Annex III 6 Consumer Credit Directive; Annex I CRD; Annex V Timeshare Directive; and also Annex II CESL. 316 Art. 5(1) Consumer Credit Directive, Art. 6(4) CRD, Art. 17(4) CESL. 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). 317 On the extent and type of the notice in e-commerce see C–49/11 Content Services ECLI:EU:C: 2012:419; see Chapter 2 mn. 58–59 and above, mn. 76.

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Art. 10(2) Consumer Credit Directive). It does not suffice to merely refer to the provision of national law which serves to implement the respective directive and which itself also refers to other provisions (a so-called ‘cascade reference’). 318 If the business does not perform this information duty correctly319 (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 at or before the conclusion of contract (Art. 14 (1)(b) Consumer Credit Directive and Art. 6(1) Distance Marketing of Financial Services Directive). 320 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 Heininger321, 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) CRD:322 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.323 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) CRD; Art. 42(2)(b) CESL); 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.324

5. Effect a) Restitution 141

Comprehensive regulation at European level of the consequences of withdrawal is a relatively modern development. The Consumer Rights Directive now adopts such an approach whereas earlier directives instead only provide for specific consequences in relation to their particular area.325 It 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 revocation326, unjust 318 C–66/19 Kreisssparkasse Saarlouis ECLI:EU:C:2020:242 on withdrawal instructions in a consumer credit agreement which referred to § 492(2) BGB (which itself refers to Art. 247 §§ 6–13 of the Introductory Act to the BGB (EGBGB)). 319 This represents a breach of unfair competition law, namely Art. 7(1) UCPD. 320 For life assurance contacts see C–355/18 Rust Hacker ECLI:EU:C:2019:1123, para. 67. 321 C–481/99 Heininger ECLI:EU:C:2001:684 refers 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. 322 See also Art. 42(2)(a) CESL. 323 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 C–481/99 Heininger ECLI:EU:C:2001:684). 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. 324 Koch, ‘Rechte des Unternehmers und Pflichten des Verbrauchers nach Umsetzung der Richtlinie über die Rechte der Verbraucher’ (2014) JZ 758, 760. 325 For example Art. 7 Distance Marketing of Financial Services Directive concerning payment for services performed prior to withdrawal.

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enrichment, or damages327). 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 (Art. 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 (Art. 172 et seq. CESL) 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 The primary effect of the withdrawal is to end the obligations of the parties to per- 142 form the contract (Art. 12(a) CRD; Art. 8(1) Timeshare Directive; Art. 43(a) CESL). The exercise of the withdrawal right therefore releases the parties from their original contractual obligations,328 though it is not expressly regulated whether the legal relationship established by contract between the parties also ends.329 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.330 However, the language in Art. 15(1) Consumer Credit Directive, Art. 15(1) CRD, Art. 11(1) Timeshare Directive and Art. 46(1) CESL 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 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 contract. 143 In this event the consumer will no longer be bound by her offer (Art. 12(b) CRD; Art. 43(b) CESL). 331 This effect restricts the binding nature of the offer – as stipulated in several different national laws332 – and modifies the general provision of Art. 32(3) CESL on the ineffective revocation of an offer.333 326

sion).

As was the approach previously adopted under German law §§ 357, 346 et seq. BGB (former ver-

327 Terryn, ‘The Right of Withdrawal’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 143, 164–165. 328 See also Art. 186(1) Solvency II 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. 329 See also Art. 5:105(1) ACQP; cf Art. II.–5:105(1) DCFR: ‘Withdrawal terminates the contractual relationship …’. 330 For German law see German Civil Code/Watson, § 355 BGB mn. 14 et seq.; Schulze/Morgan, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 297, 330 et seq. 331 ‘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. 332 See mn. 68; § 145 BGB; Ferrari, ‘Offer and acceptance inter absentes’ in Smits (ed), Elgar Encyclopedia of Comparative Law (2nd edn, Edward Elgar 2012) 637–638; Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 362–363. 333 See also Art. II.–4:202(3) DCFR.

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c) Obligations of the parties 144

The restitutionary aspects of withdrawal are subject to the important principle 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) CRD and Art. 40(1) CESL 334). The business is obliged to reimburse all payments received from the consumer, including the costs of delivery (Art. 13(1) CRD; Art. 44(1) CESL).335 The reimbursement is to follow without undue delay (at the latest within a time limit336 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) CRD; Art. 45(1), (2) CESL). 145 The consumer is only liable for the diminished value of the goods if this is the 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.337 This is subject to the requirement that the business must have correctly informed the consumer of the withdrawal right (Art. 14(2) CRD; Art. 45(3) CESL). Furthermore, Art. 45(4) CESL provides that the consumer does not have to pay any compensation for use of the goods during the withdrawal period.338 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 Art. 14(2) CRD 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 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).339 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. 334 See also C–489/07 Messner ECLI:EU:C:2008:98 (AG Trstenjak) para. 79; Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241, 248. 335 See C–511/08 Heinrich Heine ECLI:EU:C:2010:189, which concerned the Distance Selling Directive; Art. 13(2) CRD and Art. 44(2) CESL restrict the reimbursement to the standard delivery costs. 336 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. 337 Recital 47 and Art. 14(2) CRD; but see C–681/17 slewo ECLI:EU:C:2019:255. 338 See also Art. 8(2) Timeshare Directive, according to which the consumer does not have to pay for services provided. 339 The extent to which principles of unjust enrichment can be applied still remains questionable, C– 489/07 Messner ECLI:EU:C:2009:502 para. 26; on the question of recourse to the provisions in Part VII CESL, Weller, ‘Widerrufsrecht bei Fernabsatz- und Haustürgeschäften’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 170.

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The decision in Messner raises a number of points regarding the relationship between 146 the consumer and the business: guaranteeing the consumer’s freedom to exercise the right of withdrawal in her 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 and with regard to the practice of ‘blacklisting’ consumers who frequently exercise their right of withdrawal.340 In principle, freedom of contract allows the business to chose the other party to the contract,341 though such a ‘sanction’ impacts on the consumer’s freedom to exercise the right of withdrawal – a right that ought to protect her freedom of contract. d) Service contracts and contracts for digital content In contrast to sales contracts for goods, the withdrawal from service contracts is 147 linked to the conclusion of contract (Art. 9(2)(a) CRD 342). 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) CRD,343 or services that have been fully performed, Art. 16(a) CRD344). If the consumer does have a right to withdraw from a service contract, she will not have to bear any costs for services rendered if she 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) CRD). Art. 16(m) and Art. 14(4)(b) contain functionally equivalent rules for the supply of digital content. The provisions cover both the full as well as partial supply of digital content during the withdrawal period, though only if the content is not provided on a tangible medium.345 In contrast, 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 ancillary 148 or linked contracts (Art. 15(1) CRD and Art. 46(1), (2) CESL); Art. 15(1) Consumer Credit Directive 346 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 – objec340 See Watson, ‘Withdrawal Rights’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 241, 247–248. 341 See mn. 50. 342 See also Art. 42(1)(e) CESL. 343 See also Art. 40(3)(e) CESL. According to the changes by the Modernization Directive to Art. 16(1) (a) CRD, there is no right of withdrawal after the service contract has been fully performed but, if the contract places the consumer under an obligation to pay, only if the performance has begun with the consumer’s prior express consent and acknowledgement that he will lose his right of withdrawal once the contract has been fully performed by the trader. 344 Pursuant to the Modernization Directive, Art. 16 CRD will be amended to include a rule whereby the Member States may provide that the consumer loses the right of withdrawal after a service, in which the consumer has specifically requested a visit from the trader for the purpose of carrying out repairs, has been fully performed provided that the performance has begun with the consumer’s prior express consent. 345 See EU Digital Law/Terryn/Vandenbulcke, Art. 16 DCD mn. 6 et seq. 346 On ancilliary services related to the credit agreement, see Art. 14(4) Consumer Credit Directive.

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tively – 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).347 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 resulting from the differences in application, the Acquis Principles contain one general definition of linked contracts.348 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. (…)

149

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) CRD; Art. 46(1) CESL). Furthermore, Art. 46(2) CESL provides that the provisions on termination following withdrawal shall also apply to the ancillary contract.

347 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. 348 In principle this adopts Art. II.–5:106(2)(d) DCFR.

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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/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009); Howells/Wilhelmsson/TwiggFlesner, Rethinking EU Consumer Law (Routledge 2017); 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; 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); Steinmetz/ Calais-Auloy, Droit de la consommation (10th edn, Dalloz 2020); Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016); Willett, Fairness in Consumer Contracts: The Case of Unfair Terms (Ashgate 2007); Wolf/Lindacher/Pfeiffer (eds), AGB-Recht (7th edn, C.H. Beck 2020); 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Unfair Terms Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Unfair terms in the Acquis Principles and DCFR . . . . . . . . . . . . . . . . . . . . . . . . . 4. Unfair terms in the CESL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Comparative law foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Development in German law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Control of terms under the French system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. English and Scandinavian systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Unfair Terms Directive as a compromise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. General clause and the list of unfair terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V. Late Payment Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI. Acquis Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII. DCFR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII. Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX. The exclusion of unfair terms from the Consumer Rights Directive . . . . . . . . . X. CESL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 4 13 14 17 18 23 24 26 27 61 63 73 78 80 81

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 con- 1 tract in the EU Member States and is an area subject to broad legislation at European level.1 The Unfair Terms Directive is one of the most important legal instruments in European contract law. The modern2 reality of economic activity is that consumer contracts not subject to the Unfair Terms Directive are very much an exception. It plays a notable role in practice, as is illustrated by the volume of case law. The relatively large amount of decisions is not due to a disproportionately high number of deficiencies con1 For example, Rutgers, ‘Unfair Terms in Consumer Contracts’ in Vogenauer/Gullifer (eds), English and European Perspectives on Contract and Commercial Law, Essays in Honour of Hugh Beale (Hart 2014) 279, 280. 2 On the long history see Hellwege/Miller, ‘Control of Standard Contract Terms’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 423.

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cerning the Directive, but is 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 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.3 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.4 However, the recent Platform Regulation contains provisions concerning the control of contract terms in B–B contracts, an important step in the development of European contract law.5 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.6 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 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 4

The 1993 Unfair Terms Directive is the result of a compromise between several legal traditions, though primarily the French and German.7 Consequently, the Directive features inconsistencies resulting from these very different approaches. 8 3 On the difficulties, especially in English law, see Howells/Watson, ‘Comparative Law in Consumer Litigation’ in Andenas/Fairgrieve (eds), Courts and Comparative Law (OUP 2015) 621. 4 On the judicial control of contract terms in B–B contracts see Pfeiffer/Wais (eds), Judicial Review of B2B Contracts (C.H. Beck 2021). 5 See Chapter 1 mn. 71. 6 See, for example, C–186/16 Andriciuc and Others ECLI:EU:C:2017:703. 7 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. 8 See Nebbia, Unfair Contract Terms in European Law (Hart 2007) 3; Ranieri, ibid. 405 with further references.

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Art. 3 UTD contains the ‘general clause’ that stipulates the principles for the control 5 and thus the heart of the Directive. Art. 3(1) anchors the standard by which the unfairness is determined. Art. 3(2) provides that negotiated terms are excluded from the control. Clauses that reflect mandatory statutory or regulatory provisions are also not subject to control (Art. 1(2)). Art. 4 UTD describes the additional criteria that are to be considered when determin- 6 ing 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) UTD regulates the consequences of unfair terms. Art. 6(2) contains a con- 7 flict of laws provision that protects the consumer against contracting out of the protection afforded by the 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 UTD 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 a two-part annex: 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 the ‘general clause’9 in Art. 3, which defines 8 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 this provision. The rule is substantiated by a 9 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 European standards and the extent to which national standards should determine the outcome.10

9 Commentaries on European Contract Laws/Jansen, Art 6:202 mn. 2; Stuyck, ‘Unfair Terms’ in Howells/ Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116. 10 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 Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 438–448; Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 202.

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c) Relationship to German law 10

At first glance it would appear that the structure underpinning the Unfair Terms Directive resembles the solution adopted in German law.11 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.12 Similarities aside, there are of course a number of differences to the 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 to develop a more coherent European contract law.13 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.14 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 and as such the Member States may maintain or introduce national rules that exceed the minimum level of protection granted by the Directive.15 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.16 This proposal was ultimately rejected during the legislative process;17 Art. 8 UTD therefore continues to afford the Member States with the freedom to introduce rules with a higher level of consumer protection. 12 Following a consultation period, the Commission published in 2008 its proposal for a Consumer Rights Directive.18 The proposal contained new provisions on the control of contract terms,19 yet reflected to a remarkable extent the provisions contained in the Unfair Terms Directive.20 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.21 However, the discussions surrounding Nebbia, Unfair Contract Terms in European Law (Hart 2007) 119. §§ 305–310 BGB; for details see German Civil Code/Fries, §§ 305 et seq. 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. 13 COM(2006) 744 final, 14, 18–20. 14 Ibid. 20–21. 15 Recital 12 UTD. However, it will be difficult to introduce full harmonization without harmonization of contract law, see Commentaries on European Contract Laws/Jansen, Introduction before Art 6:201 mn. 15. 16 COM (2006) 744 final, 14. 17 See mn. 80. 18 COM (2008) 614 final. 19 Ibid. 3. 20 Ibid. 11. 21 Ibid. 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, ‘Unfair Terms’ in Howells/ Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116, 128 et seq.; Twigg11

12

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the proposal maintained that it would hardly be possible to use full harmonization to implement important aspects into national law.22 The general view favoured the exclusion of unfair contract terms legislation from the scope of full harmonization;23 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.24 The scope of the control of terms under the Unfair Terms Directive only concerns consumer law 25 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 Late Payment Directive) only applies to agreements on, inter alia, dates or periods of payment which are grossly unfair.26 This control also covers negotiated terms, which is surprising because the control of individually negotiated contract terms is not foreseen for consumer contracts. Moreover, this distinction in approach may serve as an example for the lack of coherency in EU law. More recently, the Platform Regulation has introduced rules concerning the transparency of terms as well as certain requirements on the content thereof, though this Regulation only applies to a relatively narrow type of B–B contract.27

3. Unfair terms in the Acquis Principles and DCFR The groups working on the Acquis Principles and the DCFR also attempted to revise 13 European law on unfair contract terms; each contain rules inspired by the acquis communautaire. The same (and clear) source of inspiration nevertheless resulted in a number of variations between the Unfair Terms Directive and the rules in the Acquis Principles and DCFR. Moreover, there are significant differences 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.28 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 The proposed CESL contains provisions concerning the control of unfair contract 14 terms29 and generally expands on the design outlined by the Unfair Terms Directive.30 Flesner/Metcalf, ‘The proposed Consumer Rights Directive – less haste, more thought?’ (2009) ERCL 368, 388. 22 Wendland refers to this problem of full harmonization in Eckpfeiler des Zivilrechts (6th edn, Sellier-de Gruyter 2018) mn. 10 et seq. 23 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. 24 See mn. 14–16 Chapter 1 mn. 52 et seq. 25 See Art. (1)(1) UTD; for an 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 mn. 207 (cf § 10 mn. 2, 6 where Riesenhuber does not criticize the scope of the Unfair Terms Directive and only discusses the issue of negotiation). 26 Art. 3(3) Late Payment Directive (2000); Art. 7 Late Payment Directive. 27 See Chapter 1 mn. 71. 28 Commentaries on European Contract Laws/Jansen, Introduction before Art 6:201 mn. 15.

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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 ‘non-negotiated’ requirement (Art. 86(1)(a) CESL). 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 accompanied by lists of particular terms (Art. 83–85 CESL). Article 83 CESL 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 negotiated31 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.

15

The CESL contains lists of ‘grey’ (presumed unfair; Art. 84 CESL) and ‘black’ (always unfair; Art. 85 CESL) terms and therefore follows the approach adopted by the original proposal for a Consumer Rights Directive. Although the lists of prohibited terms do not apply to B–B contracts, the CESL provides for the control of terms in such contracts, which is also based on a general clause (Art. 86 CESL); 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 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.

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As an optional instrument, the proposed CESL would have been relevant for the control of contract terms once selected by the parties to form the basis of the contract. Moreover, according to Stürner32 the instrument would rather also have been of importance for the interpretation of the Unfair Terms Directive. The list of unfair terms under Chapter 8 CESL. Loos, ‘Standard Contract Terms Regulation in the Proposal for a Common European Sales Law. Comment to Jansen’ (2012) ZEuP 776, 778; Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 10 mn. 2. 31 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. 29

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the CESL could have been used to substantiate and give further detail to the content of the general clause under Art. 3(1) UTD. 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 it was precisely this potential outcome which contributed to the demise of the proposed CESL.

II. Comparative law foundations The Unfair Terms Directive is based on a compromise between two different concepts 17 underlying the control of contract terms.33 In short, 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 received less attention during the legislative process surrounding the Unfair Terms Directive.

1. Development in German law German law developed a concept of standard terms, i.e. pre-formulated contract 18 terms designed for repeated use. 34 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.35 In comparison, the other party is faced with much higher costs if she 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, legal doctrine and case law developed the concept until the German legislator stepped in36 – this was of course at a time when the control of unfair contract terms lay entirely 32 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. 33 Nebbia, Unfair Contract Terms in European Law (Hart 2007) 34; 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. 34 On the German law of standard terms see German Civil Code/Fries, §§ 305 et seq. BGB. 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. 35 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 mn. 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’.

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with the national legislator. The control served to limit the user’s factual one-sided freedom to draft the contract37 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.38 The legislation implemented the control on three principal levels: control of inclusion39, control by contra proferentem interpretation40 and control of content 41, with the latter being the heart of this system. A general clause represented the central basis for the fairness control: 42 § 9(1) AGB-Gesetz 1976 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.43

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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;44 the terms in the second list could not be subject to assessment so that, at least in theory, they should lead to clear-cut results. 45 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 courts used the two lists of prohibited terms as a guideline. Substantiation of the general clause was therefore to be found in default law, which reflected the legislative view of justice.46 Controlling the inclusion of standard terms should ensure that the customer could 20 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. 21 Furthermore, the system was supplemented by a traditional rule on interpretation (in dubio contra proferentem),47 whereby any doubts in the interpretation of the term would give rise to an interpretation against the user and, accordingly, in favour of the customer. 22 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 func-

36 See Micklitz, ‘Some Reflections on Cassis de Dijon and the control of Unfair Contract Terms in Consumer Contracts’ in Collins, ibid. 19, 25–26, 28–29. 37 Hommelhoff/Wiedemann, ‘Allgemeine Geschäftsbedingungen und unausgehandelte Klauseln in Verbraucherverträgen. Grundsätzliches zur Transformation der EG-Klauselrichtlinie ins deutsche Recht’ (1993) ZIP 562, 565; Kötz, Vertragsrecht (2nd edn, Mohr Siebeck 2012) § 6 mn. 244. 38 Kötz, ibid. § 6 mn. 243–245. 39 § 2 AGB-Gesetz 1976, § 305 BGB. 40 § 5 AGB-Gesetz 1976, § 305c (2) BGB. 41 §§ 9–11 AGB-Gesetz 1976, §§ 307–309 BGB. 42 § 9 AGB-Gesetz 1976, § 307 BGB. 43 Original: ‘Bestimmungen in Allgemeinen Geschäftsbedingungen sind unwirksam, wenn sie den Vertragspartner des Verwenders entgegen den Geboten von Treu und Glauben unangemessen benachteiligen.’. 44 § 10 AGB-Gesetz 1976, § 308 BGB. 45 § 11 AGB-Gesetz 1976, § 309 BGB. 46 Stoffels, Gesetzlich nicht geregelte Schuldverträge: Rechtsfindung und Inhaltskontrolle (Mohr Siebeck 2001) 98–100. 47 § 5 AGB-Gesetz 1976, § 305c(2) BGB.

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tion as a point of reference in helping one to grasp the development of this area of law in the EU.

2. Control of terms under the French system Although it is clear that German law influenced the structure of the Unfair Terms Di- 23 rective, 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,48 whereby the factual imbalance between the parties results in the weaker party being unable to influence the drafting process49 – 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 it50 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.51 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 develop- 24 ment 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.52 The control of content (due to the weaker party’s inability to influence the term) was discussed in the context of conclusion of contract.53 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. The Scandinavian legal tradition adopts a further approach that is based on the ex- 25 tensive competence of the courts to control all contracts irrespective of the status of the parties (e.g. as business or consumer) and whether or not the terms were negotiated. 54 HK-BGB/Schulte-Nölke Vorbemerkung zu §§ 305–310 mn. 6. For more detail see Brock, Der Schutz der Verbraucher vor mißbräuchlichen Klauseln im französischen Privatrecht (BWV 1998) 53–55; Nebbia, Unfair Contract Terms in European Law (Hart 2007) 34; Nobis, Missbräuchliche Vertragsklauseln in Deutschland und Frankreich (Nomos 2005) 60–61. 50 Brock, ibid. 5–6; Nobis, ibid. 92. 51 The control is rather focused on the consumer see Steinmetz/Auloy, Droit de la consommation (10th edn, Dalloz 2020) 204; also Aubert, Le contrat. Droit des obligations (4th edn, Dalloz 2010) 82–84; see also Brock, ibid. 5–6; Nebbia, Unfair Contract Terms in European Law (Hart 2007) 38–40. 52 For an overview of English law see Devenny, ‘England & Wales’ in Pfeiffer/Wais (eds), Judicial Review of B2B Contracts (C.H. Beck 2021). 53 See Nebbia, Unfair Contract Terms in European Law (Hart 2007) 46–48; Micklitz, ‘Some Reflections on Cassis de Dijon and the control of Unfair Contract Terms in Consumer Contracts’ in Collins (ed), Standard Contract Terms in Europe (Wolters Kluwer 2008) 19, 27–28; Willett, ‘The Directive of Unfair Terms in Consumer Contracts and its Implementation in the United Kingdom’ (1997) ERPL 223. 54 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 48

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III. Unfair Terms Directive as a compromise 26

The first proposals for the Unfair Terms Directive focused greatly on the French model55 for the control of contract terms.56 All terms not directly concerning the primary contractual obligations could be subject 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 singleuse terms,57 but (in contrast to French law58) negotiated terms would be excluded from the scope of the control.59 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 take sufficient account of party autonomy.

IV. General clause and the list of unfair terms 27

A general clause60 on the unfairness criteria is at the centre of the control of contract terms. Art. 3(1) UTD 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) UTD. The substantiation is assisted by a socalled ‘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) UTD 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 nature of this list is therefore limited and need not be implemented by the Member States,61 as confirmed by the ECJ in Commission v Sweden.62 On the whole, national legislation has included the list, though sometimes with variations in content in order to accommodate national requirements.

(eds), European Perspectives on the Common European Sales Law (Springer 2015) 94 et seq. See also the corresponding national reports in Pfeiffer/Wais (eds), Judicial Review of B2B Contracts (C.H. Beck 2021). 55 See Callais-Auloy/Steinmetz, Droit de la consommation (10th edn, Dalloz 2020) mn. 176–196. 56 See also Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 197, 204; Howells/Wilhelmsson/Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017) 133 et seq.; 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. 57 See also Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 197, 204. 58 Callais-Auloy/Steinmetz, Droit de la consommation (10th edn, Dalloz 2020) mn. 179. 59 Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008) 197, 204; 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. 60 See mn. 8–9. 61 See, however, Rutgers, ‘Unfair Terms in Consumer Contracts’ in Vogenauer/Gullifer (eds), English and European Perspectives on Contract and Commercial Law, Essays in Honour of Hugh Beale (Hart 2014) 279, 284 and the differing ECJ case law on the importance of the list. 62 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116, 119.

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IV. General clause and the list of unfair terms 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: is the sub- 28 stantiation of the general clause (Art. 3(1) UTD) actually a matter belonging to the acquis communautaire? Is the principle of good faith in Art. 3(1) UTD 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? It was initially clear that there was absolute unawareness of the need for such a dis- 29 tinction. 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) UTD 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 subject to interpretation by the ECJ. The decision in Océano shows that the ECJ initially understood its competence to 30 that effect.63 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 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 DCFR64 and the Acquis Principles65. 63

Ibid. 120.

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This decision does not allow the conclusion that agreements on jurisdiction are always prohibited.66 The ECJ 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) UTD. This would rather imply that the ECJ does not entirely exclude the possibility for additional consideration by applying the general clause. However, there is no doubt that the ECJ categorically states its view in relation to the incompatibility between jurisdiction clauses and the principle of good faith. 32 The aforementioned view gives rise to a number of questions on theoretical as well as practical aspects. Can the ECJ fill a concept such as good faith with content that is generally binding across the EU? 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 the EU? 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.67 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 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:68 if the approach were correct the ECJ 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 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: 31

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?

Art. II.–9:409 and II.–9:410 DCFR. Art. 6:304 and 6:305 ACQP. 66 Zoll, ‘Die Grundregeln der Acquis-Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 113. 67 For German law see German Civil Code/Schulze, § 241 BGB; 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, The German Law of Contract (2nd edn, Hart 2006) 119 et seq. 68 See Zoll, ‘Die Grundregeln der Acquis-Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ (2008) GPR 106, 113. 64

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The ECJ responded:

34

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 ECJ emphasized in Freiburger Kommunalbauten that it does not have the competence to assess the contract term in light of the principle of good faith.69 Additionally, it could not also substantiate the principle of good faith for the whole of the EU. However, the ECJ 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 ECJ 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’70. 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’71. The ECJ therefore attempts to divide the terms into two categories: firstly, terms that are so clearly in violation of the principle 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.72 A problem exists in relation to criteria that are to be applied to defining the first 35 group of terms prohibited across the EU. The approach is, in principle, understandable as the EU 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 domestic 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 always be un- 36 fair 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 See C–237/02 Freiburger Kommunalbauten ECLI:EU:C:2004:209 para. 21–24. Ibid. para. 23. 71 Ibid. 72 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. 69

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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) UTD. 73 In so doing the ECJ distanced itself further from its opinion in Océano, namely on the absolute unfairness of a jurisdiction clause. 37

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 jurisdiction 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.74 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: 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.75 The role of transparency is not to be underestimated in relation to the control of un39 fair terms, as is expressed in Unfair Terms Directive: See C–243/08 Pannon ECLI:EU:C:2009:350 para. 32; see also C–472/10 Invitel ECLI:EU:C:2012:242. Commentaries on European Contract Laws/Jansen, Art 6:201 mn. 15. However, Jansen accepts that the ECJ lessens the role of the national courts. 75 For a detailed clarification of the principle of transparency in Polish law see Luzak, ‘Doprecyzowanie zasady transparentności w polskim prawie konsumenckim’ (2020) 1 Studia Prawa Prywatnego 43–60. 73

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IV. General clause and the list of unfair terms 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 second 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 term. It 40 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.76 However, the distinction between conclusion, stipulation of content, and performance is less defined in modern contract law.77 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 expressed 41 in the ECJ decision Kásler:78 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: 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.

76 Pflug, ‘Allgemeine Geschäftsbedingungen und „Transparenzgebot“’ (1992) Die Aktiengesellschaft 1, 17–18. 77 Zoll, ‘Der immer werdende Vertrag’ in Stelmach/Schmidt (eds), Die Rolle des Rechts in der Zeit der wirtschaftlichen Krise (Wolters Kluwer 2013) 139. 78 Rott, ‘Unfair Contract Terms’ in Twigg-Flesner (ed), Research Handbook on EU Consumer and Contract Law (Edward Elgar 2016) 295.

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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 reasonable expectations is therefore apparent in this context. 42 The control of content does not extend to terms concerning the main subject matter of the contract, as is clearly shown by Art. 4(2) UTD. 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 price’ (iustum pretium) is a task for the market, not the courts.79 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 2007–2008 financial crisis, 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: 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 narrowing. One has to consider that the main performance obligations often lack transparency in complex contracts.80 As such, the problem of a doctrinal marginalization of such terms is less acute. Interpretation of the term is necessary in order to allow examination. The Unfair 44 Terms Directive contains only the principle of a consumer-friendly interpretation:

79 See, however, Commentaries on European Contract Laws/Jansen, Art 6:205 mn. 1, 7 et seq. Jansen maintains that it is not obvious that the terms on main performance obligations are not subject to control. 80 e.g. the decision in C–125/18 Gómez de Moral Guasch ECLI:EU:C:2020:138 in which the ECJ expands on Käsler and holds in para. 51 that ‘the term in question must be formally and grammatically intelligible to the consumer, but also that an average consumer, who is reasonably well-informed and reasonably observant and circumspect, is in a position to understand the specific functioning of the method used for calculating that rate and thus evaluate, on the basis of clear, intelligible criteria, the potentially significant economic consequences of such a term on his or her financial obligations’.

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IV. General clause and the list of unfair terms 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 traditional rule in the control of terms81 – the consumer shall 45 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 approach82 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.83 The ECJ decision in Commission v Spain concerned the question whether the Unfair 46 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. 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 process. Consequently, it is suggested to conduct a dual process combined with a control of the content of 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. 84 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.85 The requirement of a consumer-friendly interpretation 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 the interpretation of Art. 5 UTD more difficult instead of correcting its misleading wording. 47 Art. 6(1) UTD 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

Jansen, ‘Klauselkontrolle im europäischen Privatrecht’ (2010) ZEuP 69, 72–73. I.e. a procedure in which the pre-drafted term is examined irrespective of whether it has actually become a term of the contract. 83 Gorzko, Reguła contra proferentem a granice oświadczeń woli w prawie cywilnym (C.H. Beck 2019) Chapter V § 3.III. 84 Ulmer in Ulmer/Brandner/Hensen, AGB-Recht (12th edn, Otto Schmidt 2016) § 5 mn. 7–8. 85 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. 81

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Chapter 4 Unfair Contract Terms 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 nonbinding nature of the term.86 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. 48

C–260/18 Dziuback ECLI:EU:C:2018:819 4. Article 6(1) of Directive 93/13 must be interpreted as precluding unfair terms contained in a contract from being upheld where their removal would entail that contract being annulled and the court takes the view that that annulment would give rise to unfavourable effects for the consumer, if the latter has not consented to them being upheld.

The decision in Dzuiback clearly shows the asymmetry in the sanction. The ECJ nevertheless views unfair terms (without which the contract cannot be maintained) as nonbinding even where this would have unfavourable effects for the consumer. However, the consumer has the right to subsequently consent to the term and thus to uphold the contract. In such cases, the effectiveness of the contract rests on the consumer’s decision. 49

C–452/18 Ibercaja Banco ECLI:EU:C:2020:536 1. Article 6(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as not precluding a term in a contract concluded between a seller or supplier and a consumer, which might be found by a court to be unfair, from being the subject of a novation agreement between that seller or supplier and that consumer, whereby the consumer waives the effects that would result from that term being found to be unfair, provided that that waiver is the result of the consumer’s free and informed consent, which it is for the national court to verify. 2. Article 3(2) of Directive 93/13 must be interpreted as meaning that a term in a contract concluded between a seller or supplier and a consumer for the purpose of amending a potentially unfair term in a previous contract concluded between them or for the purpose of dealing with the consequences of that other term being unfair may itself be regarded as not having been individually negotiated and, where appropriate, be found to be unfair.

Ibercaja Banco further develops the essence of the decision in Dzuiback by setting the limits on the parties’ decision to determine the fate of the contract. The parties may determine their contractual relationship through a novation agreement, even if the contract contained an unfair term. Such subsequent agreements are, however, subject to limitations: in principle they may be subject to control unless the amendment to the unfair term was not individually negotiated. However, the opposite is to be presumed. 50 It is in this context that the question arises whether European law prohibits the socalled ‘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. 86 Pfeiffer in Wolf/Lindacher/Pfeiffer (eds), AGB-Recht Kommentar (6th edn, C.H. Beck 2013) Part 7 Art. 6 mn. 3.

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IV. General clause and the list of unfair terms 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 […] 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.

The prohibition of a preservative reduction is also justified from the perspective of 51 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.87 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: 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 solve the problem. The ECJ has rejected a preservative reduc- 52 tion 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. 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.

Dziuback concerned the question whether national law can replace a non-binding 53 unfair term using general principles, e.g. whether the national court may use the principle of good faith to fill the gap created by a term that is no longer binding. C–260/18 Dziuback ECLI:EU:C:2018:819 3.Article 6(1) of Directive 93/13 must be interpreted as precluding gaps in a contract caused by the removal of the unfair terms contained in that contract from being filled solely on the basis of national provisions of a general nature which provide that the effects expressed in a legal transaction are to be supplemented, inter alia, by the effects arising from the principle of equity or from established customs, which are neither supplementary provisions nor provisions applicable where the parties to the contract so agree.

The Court correctly recognized that the case would concern a variation on preserva- 54 tive reduction. Deciding differently would have the effect that the consumer could not 87

C–618/10 Banco Español de Crédito SA ECLI:EU:C:2012:349 para. 69.

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predict the effect of the contract at the time of its conclusion. This would also contradict the essence of the principle of transparency. 55 Many ECJ decisions concern the question of the procedural enforceability of 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 ex officio 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. 88 56 Océano is the first decision in the series. The case concerned the question 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 thus 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. A similar decision can be seen in Mostaza Claro. The case concerned the effectiveness 57 of an arbitration clause that was not objected to in arbitration proceedings. 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. 58 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. 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 con-

88

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See also Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 161–162.

IV. General clause and the list of unfair terms sequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause.

The Unfair Terms Directive also stipulates a duty for the Member States to provide an 59 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.

The Directive does not specify a particular form of this procedure at national level 60 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 would be in breach of the Directive if decisions from such proceedings were binding in general. 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.89 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.

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

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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 61

The acquis communautaire does not just contain rules concerning the regulation of unfair terms in B–C contracts but also provides for the control of 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; 90 such control applied irrespective of whether the term was individually negotiated.91 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.92 However, this appears to be quite out of touch with everyday reality as, in practice, both areas cannot be strictly separated from one another.93 The Late Payment Directive joins both areas together. 62 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). Art. 3(3) Late Payment Directive 2000. Inferred e contrario from Art. 3(3) Late Payment Directive 2000 and Art. 7 Late Payment Directive. 92 Art. 3(2) UCPD. 93 On this question see also Leistner, Richtiger Vertrag und lauterer Wettbewerb (Mohr Siebeck 2007) 450–454. 90

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VI. Acquis Principles 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 (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 coherency 63 within the acquis communautaire,94 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 includ- 64 ing 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). 95 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 and now in part throught the Platform Regulation.96 The 94 See Contract II/Dannemann, Introductory Part vi, xxv; see also 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. 95 This ‘Grey-Rule’ is taken from Art. II.–4:209 DCFR. 96 See Chapter 2 mn. 129 et seq.

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criteria concerning the control under the Late Payment Directive have therefore also influenced the corresponding criteria in the Acquis Principles. 65 The Acquis Principles structure the control in accordance with the traditional approach, namely by providing for control in relation to three different aspects: inclusion97, interpretation98 and, most importantly, content99. 66 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,100 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 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). 68 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 Principles therefore show the uncertainties underlying the development in this area of law. The control of contract terms is based on a 67

Art. 6:201 ACQP. Art. 6:203 ACQP. 99 Art. 6:301–6:306 ACQP. 100 Contract II/Pfeiffer/Ebers, Art. 6:101 mn. 10. 97

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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 the fa- 69 miliar 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), 101 which 70 refers to criteria taken from the Unfair Terms Directive: 102 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 creates a 71 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:103 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,104 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 of con- 72 tract parties. The Acquis Principles provides two lists of prohibited 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.105 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 PrinciOn the general clause see Contract II/Pfeiffer/Ebers, Art. 6:301. Ibid. mn. 1, 12. 103 Ibid. mn. 14. 104 See mn. 61–62; Chapter 2 mn. 129 et seq., 167. 105 Contract II/Pfeiffer/Ebers, Art. 6:304 mn. 1. 101

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ples 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.106 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 73

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.107 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). 74 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.108 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 term in a B–C contract is whether the consumer had a real opportunity to become acquainted with the term.109 This provision can be traced back to the concept of presumed unfairness descended from the Unfair Terms Directive110 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 beIbid. mn. 4; Art. 6:305 ACQP. von Bar/Clive/Schulte-Nölke (eds), DCFR Outline Edition (Sellier 2009) 7. 108 Hellwege/Miller, ‘Control of Standard Contract Terms’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 423, 465. 109 See, however, Ben-Shahar, 'The Myth of the Opportunity to Read in Contract Law' (2009) 1 ERCL 15, in which Ben-Shahar views that the consumer does not want to read the terms so that improved access to the terms would not actually increase the consumer's knowledge. 110 Recital 20 UTD. 106 107

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come 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. 111 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.112 The DCFR therefore also differs from the Acquis Principles as these have followed the Directive in this respect (Art. 6:101(4) ACQP).113 Surprisingly, the DCFR has – in contrast to the Acquis Principles – restricted the con- 75 trol 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 terms. 76 Both general clauses are distinguished by the additional requirement of deviation from ‘good commercial practice’ introduced for B–B contracts. 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.114 The DCFR also adopts a similar approach to the Acquis Principles by including two 77 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, 111 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116, 127. 112 Art. 3(2) UTD. 113 In this respect the CESL has adopted the DCFR system (Art. II.–1:110(4) DCFR, Art. 7(5) CESL) 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. 114 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 116, 126.

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these two lists are only applicable to consumer contracts. The DCFR and Acquis Principles are therefore identical in this respect, also.

VIII. Reform The 2007 Green Paper on the Review of the Consumer Acquis also included the control of contract terms.115 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) UTD). 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.116 Furthermore, for several contracts (e.g. for insurance117) this results in – from a policy perspective – an undesirable limitation on the extent of the unfairness test. Consequently, the Commission considered abolishing this requirement. 79 However, the Commission above all considered a step concerning a general 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. 78

COM(2006) 744 final, 18–20. On the issue of the main subject matter of the contract see 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. 117 See C–96/14 Van Hove ECLI:EU:C:2015:262. 115

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IX. The exclusion of unfair terms from the Consumer Rights Directive The Commission presented its proposal for a Directive on Consumer Rights in 80 2008.118 The proposal covered the regulation of unfair contract terms that have indeed repealed the Unfair Terms Directive,119 though differences between the two were minimal. The general solutions were maintained and only the non-negotiated 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. 120 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 harmonization – 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 mandatory norms which would have restricted the freedom of contract but which would have not just been applicable to non-negotiated terms? The general criticism121 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 The content of the control of contract terms in the proposed CESL resembles most of 81 all the corresponding content of the Acquis Principles.122 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.123 The inclusion test is regulated in Art. 70 CESL–D, this overlaps entirely with the rule in Art. 6:201 ACQP.124 Article 70 CESL 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. (…)

COM(2008) 614 final. Ibid. Recitals 1 and 2. 120 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 128. 121 See, for example, the criticism from Graf, ‘Richtlinienentwurf und Allgemeine Geschäftsbedingungen’ in Jud/Wendehorst (eds), Neuordnung des Verbraucherprivatrechts in Europa? (Manz 2009) 143–144. 122 Schulze CESL/Kieninger, Art. 70 CESL mn. 3. 123 Ibid. mn. 2. 124 On the inclusion in the CESL see Möslein, ‘Kontrolle vorformulierter Vertragsklauseln’ in SchmidtKessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 255, 274; Schmidt-Kessel CESL/ Looschelders/Makowsky, Art. 70 CESL; see also Schulze CESL/Kieninger, Art. 70 CESL mn. 2. 118

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The proposed CESL distinguishes between the control in B–C contracts (Art. 83 CESL)125 and the control in B–B contracts (Art. 86 CESL),126 and thereby covers all the circumstances covered in the CESL’s proposed personal scope of application (Art. 7(1) CESL-Reg127). However, non-negotiated terms are not subject to the test,128 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). The notion of standard terms does not play a role if one does not abstain from presuming the non-negotiation of standard terms. The requirement of non-negotiated terms is also maintained in B–C contracts (Art. 83(1) CESL). 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).129 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. 83 The core of the test comprises the general clauses (Art. 83 and 86 CESL) 130, which are regulated separately for both groups of contracts (B–B and B–C). 82

Article 83 CESL 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 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.

See mn. 14. See mn. 15. 127 On the personal scope of application see also Möslein, ‘Kontrolle vorformulierter Vertragsklauseln’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 255, 266; Schulze CESL/ Mazeaud/Sauphanor-Brouillaud, Art. 83 CESL. 128 Möslein, ibid. 267; Schmidt-Kessel CESL/Looschelders/Mankowsky, Art. 70 CESL mn. 1; Schulze CESL/Kieninger, Art. 70 CESL mn. 1. 129 On the exceptions under Art. 80 CESL see Möslein, ibid. 270–272. 130 See mn. 14–15. 125

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The significant imbalance between the rights and obligations of the parties which 84 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.131 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.132 The wording of the general clause in Art. 83(1) CESL–D varies from the correspond- 85 ing 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)133 and a grey (Art. 85 CESL)134 list. However, the black list is much longer than its counterparts in the DCFR and Acquis Principles.135 The control of terms in the proposed CESL did not expanded on several of the 86 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.

131 Hellwege/Miller, ‘Control of Standard Contract Terms’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 423, 452; Schulze CESL/Mazeaud/Sauphanor-Brouillaud, Art. 83 CESL mn. 7. 132 Möslein, ‘Kontrolle vorformulierter Vertragsklauseln’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 255, 284. 133 On the prohibited terms under Art. 84 CESL see Schmidt-Kessel CESL/Möslein, Art. 84 CESL mn. 10–20; Schulze CESL/Mazeaud/Sauphanor-Brouillaud, Art. 84 CESL. 134 On the prohibited terms under Art. 85 CESL see Schmidt-Kessel CESL/Möslein, Art. 85 CESL mn. 4–11. 135 Schulze CESL/Mazeaud/Sauphanor-Brouillaud, Art. 84 CESL mn. 3.

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CHAPTER 5 PERFORMANCE OBLIGATIONS Literature: von Bar/Clive (eds), DCFR Full Edition (Sellier 2009); 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; Jansen/Zimmermann (eds), Commentaries on European Contract Laws (OUP 2018); 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); Twigg-Flesner, ‘Conformity of Goods and Digital Content/Digital Services’ in Arroyo Amayuelas/Cámara Lapuente (eds), El derecho privado en el nuevo paradigma digital (Marcial Pons 2020) 49. I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Fragmented regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. The development of a general conceptual basis . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Performance obligation and claim for performance . . . . . . . . . . . . . . . . . . . . . . . 4. Performance in long-term contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Forms of performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Counter-performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Conformity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Basic features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Subjective criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Objective criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Installation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Integration into the digital environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Third-party rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Non-digital services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Modification and termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 2 6 7 9 9 10 11 14 32 37 37 41 42 47 51 52 54 57 58 58 60

I. Introduction 1. Fragmented regulation A contract founds the obligation for one or both parties to perform for the other or a 1 third party; the content of these obligations can be very diverse.1 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.2 Accordingly, mandatory rules in national law often only apply 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 1 For an overview of the history and concept of performance see Commentaries on European Contract Laws/Martens, Introduction before Art 7:101 mn. 1 et seq. 2 See Chapter 1 mn. 30; on the recognition of this principle in the Member States see DCFR Full Edition 131–132.

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(such as time and place) as well as default obligations in individual types of contract, which supplement the parties’ contractual agreement should such terms not have been specifically stipulated in the contract.3 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 to extending the scope of mandatory rules in national law on performance obligations. Furthermore, despite the fragmented approach, the new European legislation on the supply of digital content and digital services has strengthened the earlier approaches from consumer sales law4 in developing overarching concepts for performance obligations and breach thereof.

2. The development of a general conceptual basis a) Acquis Principles and Common European Sales Law 2

aa) The fragmented rules at the turn of the century served as the basis for the attempt by the Acquis Principles to develop an overarching conceptual basis for performance obligations in the acquis communautaire.5 The Acquis Principles structure such individual provisions of the acquis communautaire in an overarching manner which is 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 (Art. 7:H–03 et seq. ACQP). The Acquis Principles therefore generalize the rules derived from 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. However, at the time the Acquis Principles were drafted, EU law lacked a sufficient foundation to expound the performance obligations not only for the different types of service contracts but also for the supply of digital content and digital services. The acquis has since developed in both respects, in particular through the revised version of the Package Travel Directive.6 However, it is above all the Digital Content Directive, the Sale of Goods Directive and the Modernization Directive which have considerably extended and developed the acquis communautaire through the performance obligations in contracts for the supply of digital content or digital services.7 3 bb) The CESL could also not take such developments into account. Nonetheless, it extended beyond the EU law at the time by attempting to integrate the supply of digital content into its provisions on performance and breach. The structure proposed by the CESL summarized the performance obligations for the delivery of goods and the supply of digital content in its Part IV and for related services in its Part V. 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 more detail see Chapter 2 mn 114 et seq. In the interests of brevity, we have excluded a detailed discussion of further areas. For extensive details on, for example, financial services see Lehmann/Kumpan (eds), European Financial Services Law (Nomos 2019). 5 e.g. Art. 21(1) MiFiD, Art. 59(1) Payment Services Directive, Art. 3 and 5 Commercial Agents Directive; see Contract II/Aubert de Vincelles/Machnikowski/Pisulinski/Rochfeld/Spzpunar/Zoll, Art. 7:101 mn. 2. 6 See Chapter 2 mn. 84 et seq. 7 See mn. 11, 37 et seq. 3

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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 line with the approach 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. 8 The catalogue of the seller’s main obligations forms the peak of the provisions 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.9 The ‘main obligations’ under Art. 91 CESL includes the obligation to deliver the goods or to supply the digital content as well as the obligation to perform in conformity with the contract. Alongside delivery (which under Art. 94(2) CESL requires the transfer of physical possession or control), the ‘main obligations’ also include the transfer of ownership of goods, including the tangible medium on which the digital content is supplied. Article 91 CESL 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.

b) Legislation The tendency in recent EU legislation to develop a general conceptual basis for per- 4 formance obligations has been partially influenced by the aforementioned set of rules, but above all by the CISG. The Consumer Sales Directive already introduced the notion of conformity, as modelled on the CISG,10 as a central concept in European consumer sales law. However, its scope was limited (as also under the Sale of Goods Directive) to regulating the seller’s obligation to perform in conformity with the contract, whereas the CISG also regulates the nature of the delivery obligation (Art. 31 et seq. CISG). Initially, the seller’s delivery obligation in a consumer contract remained in the domain of national law until the Consumer Rights Directive (Art. 18 CRD). The delivery obligation and the obligation to perform in conformity have thus become two concepts central to the acquis in the field of sales law. The breach of both of these forms of a contractual obligation may be understood, in a broad sense, as non-performance of an obligation. However, a distinction can be drawn in light of the underlying obligations: failure to deliver is a breach of the obligation to deliver or, in general, no performance whatsoever breaches the obligation to perform (a non-performance in a narrow sense). In contrast, the per8 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. 9 ‘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 will often be considered ‘fundamental’ under Art. 87(2) CESL, however this does not mean that the breach of such obligations will always be considered ‘fundamental’. 10 See Chapter 1 mn. 19.

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formance is not in conformity with the contract when the goods, albeit delivered, do not correspond to the terms of the contract (or when a different type of performance does not correspond to the contract terms; ‘non-conforming performance’). In this respect, EU consumer sales law has developed a two-pronged approach to performance obligations and breach. This approach allows a distinction to be drawn between the consequences of non-performance in the narrow sense and non-conforming performance. 5 More recent directives have adopted this conceptual basis for other areas outside of consumer sales. One can thus see how concepts from sales law could outline core features of a general European contract law. For example, Art. 13 PTD11 transfers the notion of conformity to service contracts and its definition of ‘lack of conformity’ means a failure to perform (i.e. non-performance) or the improper performance (i.e. non-conforming performance) (Art. 3 No. 13 PTD).12 Moreover, Art. 5 and 6 DCD contain provisions on the supply obligation and the obligation to supply in conformity with the contract. These provisions apply irrespective of the distinction between contract types and in principle apply to all contracts for the supply of digital content or digital services. The approach therefore removes the concepts from the context of sales law and turns them into concepts that are not applicable to one specific type of contract. In other words, the concepts reflect a general contract law.13 A similar development may also be observed for the legal consequences of non-performance and non-conforming performance: the Digital Content Directive generalizes principles and concepts from consumer sales law to create an approach that does not distinguish between contract types. Whereas in consumer sales law the delivery obligation and the obligation to perform in conformity are each founded in two separate directives,14 the Digital Content Directive brings these two forms of performance obligations (as well as the consequences of breach) together in one set of rules.15 This results in a framework for European contract law in the area of performance obligations and breach which, despite the fragmented rules, can make a significant contribution to ensuring coherency in this field of law.

3. Performance obligation and claim for performance 6

The performance obligations in the rules of European contract law have not necessarily resulted in affording the injured party with a corresponding primary contractual right to receive 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-European legal tradition, which in principle affords the injured party with a claim for performance in natura, and the Common law, in which specific performance is a discretionary, equitable remedy.16 The CISG has already paved the way to frame the claim for performance as a remedy (Art. 45 et seq. CISG). The PECL continued this approach for European contract law – the claim for 11 On the notion of package travel, see C–400/00 Club Tour ECLI:EU:C:272 (the decision concerns the Package Travel Directive (1990) but is still relevant in relation to the new version of the Package Travel Directive). 12 See Chapter 6 mn. 9 et seq. 13 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) 127, 142–143; Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695. 14 On the one hand, in the Consumer Rights Directive and, on the other, in the Consumer Sales Directive (now the Sale of Goods Directive); see mn. 4. 15 See Chapter 6 mn. 26–27. 16 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 mn. 53–54.

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performance is the first in a series of remedies (Art. 9:101, 9:102 PECL). 17 Accordingly, the performance obligations in European contract law can – even without a primary claim for performance – form the basis for the (subsequent) performance as a remedy alongside others (such as termination and price reduction). The acquis follows this approach for non-conforming performance in consumer sales law and also in the supply of digital content or digital services. However, for non-performance in the narrow sense, European consumer sales law only provides termination, not the claim for (subsequent) performance.18 It is doubtful whether a claim for performance arises with regard to the supply of digital content or digital services.19

4. Performance in long-term contracts Performance obligations often do not consist of one individual act of performance. 7 Many different types of commercial and consumer contracts often stipulate performance over long periods of time, such as the delivery of goods or the provision of various different types of services (including financial services and payment systems). The contract terms are often based on the provisions of national law traditionally reserved for the individual act of performance and indeed such laws formed the basis of the comparisons used in the development of European contract law. For instance, very few provisions of the PECL refer to the specific characteristics of long-term contracts. 20 In contrast, the acquis communautaire contains a number of specific, yet fragmented, rules concerning contracts for long-term performance. Indeed, two directives regulating two such types of long-term contract were passed at an early stage in the development of the contract law acquis: the Commercial Agents Directive and the 1987 Consumer Credit Directive 21. In this respect, the provisions on long-term contracts may be viewed as the starting point for the development of European contract law. 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 different degrees. For example, Art. 5(1)(f) CRD provides specific information duties for contracts of indeterminate duration or which are to be extended automatically, without express reference to long-term contracts. Numerous other directives (especially those concerning services) are designed for such types of contracts, which are common in practice (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. 22 In addition, the Sale of Goods Directive and the Digital Content Directive have further developed the notion of long-term performance (especially with regard to conformity) by distinguishing between a ‘single act of supply or a series of individual acts of supply’ and ‘continuous supply over a period of time’.23 This distinction is relevant not only for the provisions on conformity and liability for non-conformity but also for Art. 19 DCD, a provision specific to the modification of the digital content or digital service where it is supplied over a period of time.24 See also Art. III.–3:301, III.–3:302 DCFR and Art. 155(1)(a) CESL. For details see Chapter 6 mn. 24–25, 91 et seq. 19 See Chapter 6 mn. 56. 20 In particular, Art. 9:302 PECL concerning contracts to be performed in parts. 21 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. 22 For an overview see Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 443–444. 23 See mn. 31. 17

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8

Provisions for contracts which provide for performance over a long period of time therefore concern the performance obligations and breach as well as other matters such as information duties and formal requirements.25 Such provisions often aim to protect a party dues to the long-term nature of the contract and its burdens, which may well be difficult to recognise. The academic sets of rules on European contract law paid particular attention to the specific features of such contracts when they are terminated by notice (Art. III.–1:109(2) DCFR).26 However, it is necessary to draw attention to the other issues as well as the development of common terminology and systematic classification: different types of contract are used not only in contract practice but national legal traditions also vary. For example, German legal terminology distinguishes between framework contracts (Rahmenverträge) for complex relationships, contracts for services to be provided over a long period of time, and contracts for successive deliveries (Sukzessivlieferungsverträge). The latter type of contract may concern the delivery in instalments of a set amount (Ratenlieferungsvertrag) or the delivery of an indetermined total amount over an indefinite period of time (echte Dauerschuldverhältnisse, or ‘genuine continuing obligations’).27 The discussion surrounding such contracts also concerns the broader notion of ‘relational contracts’ and the complex links between multiple long-term contracts, namely ‘network contracts’.28 Further research on the differences between the different legal traditions and academic approaches will bring greater clarity to the nature of long-term obligations in European contract law.

II. Performance 1. Overview 9

Art. 18(1) CRD and Art. 5 DCD play a highly significant role concerning the regulation of performance obligations in specific areas of contract law covered by the acquis communautaire. These provisions contain the central requirement for the trader to perform, i.e. to deliver the goods to the consumer or to supply the digital content or digital service to the consumer. The provisions therefore not only determine a primary obligation under the contract but also serve as a basis for liability. Failure to perform this primary obligation constitutes non-performance in the narrow sense (in contrast to nonconforming performance). Several provisions of other directives also concern the nature of the performance obligation29 or require an obligation to perform, though without determining the content (e.g. Art. 5 et seq. SGD on the obligation to deliver goods in conformity with the contract, which form the basis of liability for non-conforming performance).30 However, although the European consumer directives require the trader to deliver, they do not subject the trader to the obligation to transfer ownership to the consumer (in contrast to, for instance, Art. 30 CISG and Art. 91 CESL). Whereas the definition of a ‘sales contract’ under Art. 2 No. 5 CRD and Art. 2 No. 1 SGD does indeed express the transfer of ownership as a core element of a sales contract, 31 national laws determine the mode of transfer. The European legislator therefore takes into account the See mn. 47 et seq. For example, Art. 3(2)(b) and 4(2)(b) Commercial Agents Directive; Art. 5 and 6 Consumer Credit Directive; Art. 13 et seq. Mortgage Credit Directive. 26 See mn. 63 et seq. 27 See German Civil Code/Schulze, Introduction to §§ 311–360 mn. 17. 28 See MacNeil, ‘Relational Contract: What we do and do not know’ (1985) Wisconsin Law Review 483; Teubner (ed), Networks as Connected Contracts (Bloomsbury 2011). 29 See mn. 14 et seq. 30 See mn. 37 et seq. 24

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different forms of transfer of ownership under the laws of the Member States. 32 In particular, concepts such as the consensus principle33 or the German law principles of abstraction and separation34 remained unaffected.35

2. Delivery Art. 18(1) CRD is central to the performance of the delivery obligation in consumer 10 sales contracts. The provision applies when a good is to be delivered to the consumer and applies in conjunction with Art. 5 et seq. SGD with regard to delivery of goods not in conformity with the contract. Art. 18(1) CRD determines the scope of the delivery obligation under the Directive together with the time and the nature of the delivery to the buyer.36 In this respect, the provision combines the functions of a rule on delay and non-performance. Art. 18 CRD also provides the legal consequences for non-delivery. 37 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.

3. Supply Art. 5 DCD contains the obligation for the trader to supply the digital content or digi- 11 tal service.38 Whereas the performance obligations in European consumer sales law are spread across the Consumer Rights Directive and Sale of Goods Directive, the Digital Content Directive covers both the obligation to supply and the obligation to supply the digital content or digital service in conformity with the contract. The Digital Content Directive sets out the supply obligation in Art. 5 DCD before addressing conformity in Art. 6 et seq. DCD. The first sentence of Art. 5(1) DCD concerns the supply obligation itself, whereas the second sentence determines the point in time for the supply. Art. 5(2) DCD contains the criteria for performing the supply obligation.39 In the event of nonperformance pursuant to Art. 5, Art. 11(1) and 13 DCD determine the trader’s liability and list the consumer’s remedies, respectively. Although these provisions only apply to consumer contracts, the underlying approaches and concepts are to be considered for future rules on the performance obligations in the supply of digital products.40 31 On the notion of a contract of sale as an autonomous concept of EU law, C–247/16 Schottelius ECLI: EU:C:2017:638 (preceding the Sale of Goods Directive); see Chapter 2 mn. 69. On the concept of seller in EU law, C–149/15 Whatelet ECLI:EU:C:2016:840. 32 On these different models of transfer of ownership, as well as others, see Ferrari, ‘Vom Abstraktionsprinzip und Konzensualprinzip vom Traditionsprinzip’ (1993) ZEuP 52; van Erp, ‘Comparative Property Law’ in Reimann/Zimmermann (eds), The Oxford Handbook of Comparative Law (2 nd edn, OUP 2019) 1031; van Erp/Akkermanns (eds), Cases, Materials and Text on Property Law (Hart 2012). 33 The transfer of ownership is part of the sales contract itself, as e.g. under French law. 34 Trennungs- und Abstraktionsprinzip, whereby the sales contract is separate from the transfer of ownership. See German Civil Code/Dannemann/Schulze, Introduction mn. 41–42. 35 As also under Art. 30 CISG and Art. 91 CESL despite these provisions considering the transfer of ownership. 36 The delivery obligation was previously outlined in Art. 7(1) Distance Selling Directive. See also mn. 14 et seq. 37 See Chapter 6 mn. 24–25, 88, 91 et seq. 38 Art. 5 DCD does not apply to a tangible medium which serves exclusively as a carrier of digital content (Art. 3(3) DCD). 39 See mn. 16 et seq., 26 et seq.

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Chapter 5 Performance Obligations Article 5 Digital Content Directive Supply of the digital content or digital service (1) The trader shall supply the digital content or digital service to the consumer. Unless the parties have agreed otherwise, the trader shall supply the digital content or digital service without undue delay after the conclusion of the contract. (2) The trader shall have complied with the obligation to supply when: (a) the digital content or any means suitable for accessing or downloading the digital content is made available or accessible to the consumer, or to a physical or virtual facility chosen by the consumer for that purpose; (b) the digital service is made accessible to the consumer or to a physical or virtual facility chosen by the consumer for that purpose.

12

The provisions of the Digital Content Directive describe the notion of supply as the specific form of the primary obligation to be performed by the supplier of the digital content or digital service. Recital 41 refers to this obligation as ‘the main contractual obligation’.41 Depending on the terms of the contract, the supply may be in the form of a single act, a series of individual acts, or continuous over a period of time.42 Whereas the Commission’s initial proposal, supply was defined as ‘providing access to digital content or making digital content available’43, the final version of the Digital Content Directive does not define the notion of supply or the obligation to supply in order to render the Directive ‘future proof ’ vis-à-vis new technology. Supply should therefore be as broad as possible in order to cover all forms of transfer and providing access. This includes, for example, the supply on tangible media, downloading or streaming to the device, or granting access to the use of social media.44 Digital content or digital services are always the object of supply. According to Art. 2 No. 1 DCD, digital content means data produced and supplied in digital form. Under Art. 2 No. 2 DCD, digital services are either services which allow the consumer to create, process, store or access data in digital form or which allow the sharing of with data in digital form uploaded or created by the consumer or other users of that service. Examples of digital content falling under the Digital Content Directive include computer programmes, video files, audio files and e-books; examples of digital services include services which allow the creation of, or storage of data in digital form, including video and audio sharing, word processing, and social media.45 13 The Digital Content Directive therefore extends the performance obligation to service contracts falling within the Directive’s scope (Art. 3 DCD); other types of services are excluded. According to Art. 3(5)(a) DCD, this also applies when a trader uses digital means to produce the result of the service or to deliver or transmit the outcome to the consumer (e.g. when an architect uses software to design a building or when a lawyer sends a client digital copy of documents). At the same time, however, Art. 5 DCD clarifies that the performance obligation is not limited to sales contracts, but is rather based 40 Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 702; see also Beale, ‘Scope of application and general approach of the new rules for contracts in the digital environment’ (2016) 5, 26, available online under https://op.europa.eu/en/publication-detail/-/publication/0cc9d941-c291-11e6-a6db-01aa75ed7 1a1 (last accessed 11 December 2020). 41 Whereas the Dutch, French and Spanish versions of the Directive use the expressions ‘voornaamste contractuele verbintenis’, ‘la principale obligation’ and ‘la principal obligation’, respectively, the German version of the recital refers to the obligation as ‘die wichtigste Vertragspflicht’, i.e. the most important contractual obligation (emphasis added). 42 See mn. 47 et seq. 43 Art. 2 No. 10 COM(2015) 634 final. 44 See Recital 19 DCD. 45 For further examples, ibid.

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on an underlying concept that applies to service contracts and thus constitutes a feature of general contract law.

4. Forms of performance a) Overview In addition to the basic obligation to perform, the laws of the Member States often 14 contain detailed rules concerning time, place, and manner of performance in order to clearly determine the debtor’s performance obligations and the requirements for the creditor’s remedies in the event of non-performance. The acquis communautaire also contains a number of provisions on these matters (mostly in consumer sales law and for the supply of digital content or digital services), though these do not form part of a complete regulatory basis. In some instances the gaps in these rules may be filled by reference to general provisions and principles in the acquis communautaire, for instance good faith and reasonable consumer expectations.46 Due to the incomplete nature of this area of EU law, the Acquis Principles had to partly refer to the results of the comparative approach in the PECL and DCFR in order to close the relevant gaps.47 The proposed CESL followed these drafts so that its chapters on obligations of the parties contain a broader set of rules for the forms of performance. Admittedly, it was unable answer all questions arising in relation to performance due to the many different types of clauses that exist in practice. b) Type and place of performance aa) The acquis communautaire does not contain any general requirements on place 15 and type of performance, though the Consumer Rights Directive contains a key starting point for the delivery of goods 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) CRD states that the seller delivers the goods by transferring the ‘physical possession’ or ‘control’ of the goods to the consumer. Whereas is clear from the language that the notion of physical possession refers to the actual delivery of the goods,48 the concept of ‘control’ refers to constructive delivery whereby the consumer either has access to the goods or the ability to resell them.49 The Consumer Rights Directive does not contain an express provision concerning the place at which the possession or control is transferred to the consumer.50 bb) Art. 5 DCD does not contain an exhaustive list of types of supply or a general des- 16 cription in order to accommodate future technological possibilities.51 Nonetheless, Art. 5(2) DCD states general criteria which determine whether and when a trader has performed the obligation to supply. For this purpose, the criteria are underpinned by notion that the supply obligation is performed when the digital content or digital service has reached the sphere of the consumer and the trader need not undertake any further action in order to allow the consumer to use the digital content or digital service in acSee Chapter 2 mn. 7 et seq. 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. 48 ‘[T]ransferring the physical possession of the goods’, the French and German versions of the Directive also include such clear language ‘transférant la possession physique’ and ‘physischen Besitz … überträgt’, respectively. 49 Recital 51 CRD. 50 Zöchling-Jud, ‘Acquis-Revision, Common European Sales Law und Verbraucherrechterichtlinie’ (2012) 212 AcP 550, 568. 51 See mn. 12. 46 47

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cordance with the contract.52 It is therefore decisive that the digital content or digital service is made available or accessible to the consumer (or a physical or virtual facility chosen by the consumer for that purpose).53 This provides the basis for the distinction between the performance of the supply obligation with respect to digital content and to digital services.54 17 Art. 5(2)(a) DCD provides, in different respects, two alternative forms of performance of the obligation to supply. Firstly, the digital content can either be the direct object of supply or the supply refers to a ‘means’ that allows the consumer access to or to download the digital content. For the first variant, the trader can, for example, install the software on the consumer’s computer. With respect to the second variant, the notion of ‘means’ is to be understood broadly in accordance with the principle of medium neutrality.55 For example, it comprises the use of social media or creating access to online platforms where the digital content can be downloaded. Art. 5(2) DCD does not prioritise the use of one variant over the other. The trader may therefore choose between either method if the contract does not state otherwise or if one of the variants is not excluded or, under the circumstances, is not unreasonable in light of the purpose of the contract or the nature of the digital content. 18 Secondly, the digital content or the ‘means’ for access or downloading can either be made available to the consumer (i.e. to the device) or to a ‘physical or virtual facility’ chosen by the consumer (e.g. an online platform or a cloud). It may suffice in such instances for the trader to supply the digital content to this facility. The trader should not be liable for acts or omissions by the third-party operator of such facility. The trader will have therefore performed the obligation when the third party has received the digital content.56 The key requirement for this second method of performance of the supply obligation is, however, that the consumer has ‘chosen’ the physical or virtual facility for that purpose. The choice of facility must be made by the consumer through a conscious and autonomous decision. Accordingly, the consumer will not have selected the facility where it has been offered by the trader as the only possibility to receive the digital content.57 19 Thirdly, Art. 5(2)(a) DCD distinguishes between ‘is made available’ and ‘[is made] accessible’ as methods to supply the digital content. ‘Is made available’ concerns situations of permanent supply to the consumer. Similar to a sales contract, a degree of permanent control over the digital content is transferred to the consumer. 58 The trader can make the digital content available by, for example, sending the consumer a link allowing the digital content to be downloaded. In contrast, ‘is made accessible’ applies in situations in which the consumer does not receive a permanent right but rather access for a particular period of time, for instance via a streaming subscription (e.g. for software, music, films, etc.). Recital 41 DCD. EU Digital Law/Schulze, Art. 5 DCD mn. 23. Art. 5(2)(b) DCD. See ibid. mn. 28. However, neither the Digital Content Directive nor other rules in the acquis contain such an express and sophisticated rule for the performance by a third party. According to Art. 92 CESL, a seller may entrust performance to another person, unless personal performance by the seller is required by the contract terms; however, the seller remains responsible for performance. 54 The following corresponds in part to EU Digital Law/Schulze, Art. 5 DCD. 55 Grünberger, ‘Verträge über digitale Güter’ (2018) 218 AcP 213, 236–237; Wendland, ‘Sonderprivatrecht für Digitale Güter’ (2019) ZVglRWiss 191, 206 et seq. 56 Recital 41 DCD. 57 If the physical or virtual facility is under the trader’s control or contractually linked to the trader, or the only choice offered to the consumer by the trader, the physical or virtually facility cannot be considered to be chosen by the consumer, ibid. See Sein/Spindler, ‘The new Directive on Contracts for the Supply of Digital Content and Digital Services – Scope of Application and Trader’s Obligation to Supply – Part 1 (2019) ERCL 257, 277–278; EU Digital Law/Schulze, Art. 5 DCD mn. 26. 58 Wendland, ‘Sonderprivatrecht für Digitale Güter’ (2019) ZVglRWiss 191, 208. 52 53

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Unlike ‘is made available’, where the permanent nature allows for a sales contract analogy, making the digital content ‘accessible’ is better compared with a hire agreement due to the consumer’s temporary right of use. In this respect, the inclusion of this method of performance underlines the importance of a right of use (which has received little attention in European legislation) alongside sale and services (in a narrow sense) for European contract law.59 In contrast, according to Art. 5(2)(b) DCD, the trader can only perform the obliga- 20 tion to supply digital services by making the service accessible to the consumer or to a physical or virtual facility chosen by the consumer for that purpose. The aforementioned comments on these facilities and performance by a third party apply accordingly. However, due to their nature, ‘making available’, i.e. the permanent transfer of the digital content, and the use of a ‘means’ to access or download the digital content, do not apply to digital services. cc) The acquis communautaire therefore contains provisions which determine the 21 performance obligation for the delivery of goods and for the supply of digital content or digital services. A further central aspect for the delivery of goods is the transfer of the physical possession or control of the goods (Art. 18(1) CRD). The supply of digital content or digital services also features a similarly central aspect whereby the digital product is to reach the consumer's sphere of influence and no further action is required by the trader in order to enable the consumer to use the digital product. Both therefore feature the key criteria of control over the subject matter of the control which is afforded by access for this purpose. 60 Although the possibility of use is at the core of the supply of digital content or digital services, a sales contract differs greatly because the use of the goods follows as the owner thereof (in contrast to a hire contract). The supply of digital content does not require the consumer to become the owner of such content. The digital content can still be supplied to the consumer for a set period of time, thereby drawing parallels to a hire contract.61 These differences arise due to the nature of the subject-matter, though general provisions on the type of performance and the fulfilment thereof may nonetheless be expected (in any case in a very abstract form) for European contract law. dd) In general, the CESL merely proposed to extend approaches from consumer sales 22 law on the type of delivery and in the process did not take sufficient account of the features of digital content. However, the CESL does greatly extend beyond current EU law by linking the rules on the type of delivery with different rules for the place of delivery under various situations. Art. 93 CESL distinguishes between three different circumstances if the place of delivery is not stipulated or cannot otherwise be determined (e.g. no reference to the INCOTERMS62 in B–B contracts): (i) the place of delivery in a distance or off-premises 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. (ii) In other cases the place of delivery will depend on whether the sales contract includes the carriage of the goods by a carrier.63 Following the provisions of the CISG, a carrier is independent of the seller, for example not an employee. Under such circumstances the place of delivery will be the nearIbid. Recital 51 CRD. See mn. 15. 61 See mn. 19. 62 Schmidt-Kessel CESL/Remien, Art. 93 CESL mn. 2. The INCOTERMS (International Commercial Terms) 2020 contain fundamental rules on the obligations for buyers and sellers, see https://iccwbo.org/re sources-for-business/incoterms-rules/incoterms-2020/ (accessed 11 December 2020). 63 Following the provisions of the CISG, a carrier is independent of the seller, for example not an employee. See Schlechtriem & Schwenzer CISG/Widmer-Lüchinger, Art. 31 CISG mn. 22–23; Schmidt-Kessel CESL/Remien, Art. 93 CESL mn. 2. 59 60

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est collection point of the first carrier. (iii) 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 (ii) nor a consumer contract under the above requirements in (i). In contrast, if such a consumer contract exists, an obligation to deliver at the consumer’s residence is provided as this is more favourable to the consumer. 23 Art. 94 CESL stipulates how the seller is to perform its delivery obligation 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; as also provided under Art. 18(1) CRD). 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 her to take over the goods from the carrier (Art. 94(1)(b) CESL). Art. 96 CESL 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).64 24 ee) National laws often contain provisions concerned the type and place of performance for monetary obligations, whereas the acquis communautaire is limited to regulating particular aspects thereof.65 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. 25 The Acquis Principles concerning this topic are thus restricted to referring to Art. III.–2:101 DCFR66 as a model to fill this particular gap. The CESL also follows the approach in the DCFR. Art. 125 CESL 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. Art. 124 CESL contains the details on the means of payment, which are based in part on Art. 7:108 PECL and Art. III.–2:109 DCFR.67 As under Art. 19 CRD, Art. 124(4) CESL restricts the extent of the seller’s 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.68 The consumer may therefore only be burdened with the actual costs that arise for the business, thereby prohibiting the business from, for example, imposing the payment of lump sum processing charges.69 c) Time 26

aa) In European contract law, the agreement between the parties – and thus the principle of freedom of contract – forms the main basis for determining the due date for per64 Furthermore, Art. 94(2) CESL 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 Art. 93–94 CESL) who was indicated by the consumer or the buyer in accordance with the contract. 65 For example, Art. 7 Distance Marketing of Financial Services Directive; Art. 13, 19 and 22 CRD; Art. 25 Mortgage Credit Directive. 66 Based in part on Art. 31(c), 57 CISG and Art. 7:101 PECL. 67 For details see mn. 36; Schmidt-Kessel CESL/Schaub, Art. 124 CESL mn. 4 et seq. 68 Art. 90(1) CESL extends the scope of these provisions beyond the payment of the purchase price to other payments, See Schulze CESL/Zoll, Art. 90 mn. 1–4. 69 This point has been left open, see Lorenz, Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law (2012) 212 AcP 702, 806.

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formance (see Art. 18(1) CRD, Art. (5)(1) DCD). Outside of consumer law, however, Art. 3(5) Late Payment Directive considerably restricts this principle for the benefit of the creditor in requests for payment. In the interests of SMEs in particular, the provision prevents the use of contract terms to excessively extend the claim to interest for late payment. Accordingly, there must be an express agreement if a period for payment is to exceed 60 days following receipt of performance. Furthermore, an express agreement may not be grossly unfair to the creditor within the meaning of Art. 7 Late Payment Directive. Whether an agreement is grossly unfair depends on all circumstances of the case and the question whether it is a gross deviation from good commercial practice, contrary to good faith and fair dealing. A contract term which excludes interest for late payment will always be considered as grossly unfair, whereas a term which excludes compensation for recovery costs will be presumed to be grossly unfair (Art. 7(2) and (3) Late Payment Directive). Where the parties have not made an express agreement on the due date for perfor- 27 mance, many directives state that the debtor is to perform without any undue delay. This applies, inter alia, for the sale of goods and for the supply of digital content or digital services. Art. 18(1) CRD 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 developed 70 the 30-day period not only in relation to the notion of delivery and the right to termination after non-performance in an additional period71 but also in relation to a time period for delivery. For consumer contracts for the supply of digital content or digital services, Art. 5(1) DCD requires the trader to supply the digital content or digital service without undue delay after the conclusion of the contract, unless agreed otherwise. Although the original proposal used the term ‘immediately’, the effect in practice is minimal. 72 The decision to use ‘without undue delay’ also accords with the use in other directives. 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. The Acquis Principles thus frame the obligation for the debtor to perform without undue delay, unless agreed otherwise, as a general principle of EU contract law (Art. 7:201(1) ACQP). However, this principle is not used in relation to the time available to the trader to effect subsequent performance, but rather a ‘reasonable time’ (Art. 14(3) DCD; Art. 14(1)(b) SGD). Despite its use, the directives do not provide further detail on the meaning of ‘without 28 undue delay’. § 121 BGB defines ‘without undue delay’ (unverzüglich) as ‘without culpable delay’,73 which may serve as a starting point, but is of course not binding on European law. 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.74 bb) The CESL follows the approach adopted by the Acquis Principles in Art. 7:201 29 ACQP75 (deviating from Art. 33 CISG as well as from the complex rules in Art. III.– 2:102 and IV.A.–2:202 DCFR76). The CESL does not explain the meaning of ‘without un70 71

seq.

The 30-day period for delivery was originally provided under Art. 7(1) Distance Selling Directive. For further detail on the concept of delivery see above, mn. 3; for termination see Chapter 6 mn. 82 et

72 According to Recital 41 DCD the expression 'without undue delay' provides a certain degree of flexibility. 73 See German Civil Code/Wais, § 121 BGB mn. 3. 74 Contract II/Aubert de Vincelles et al., Art. 7:201 mn. 10.

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due delay’,77 but does contains specific rules on the time of payment, namely at the moment of performance for which payment is due (Art. 90(1), 126(1), 153(2) CESL). In addition, it contains a general rule for performing the payment obligation, which is to be distinguished from the time at which payments are due. The former does not concern the question when the debtor has to perform, but when the debtor may perform. One may 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 he has a legitimate interest in doing so.78 30 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) PTD, though with restrictions. According to Art. 11(1)(b), 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) PTD). Changes to the departure or arrival times are considered significant if, for example, they cause significant inconvenience or additional costs to the traveller.79 31 Furthermore, performance or aspects of performance may be conditional. Accordingly, there are particular features in relation to performance over a period of time or with various ‘layers’. For example Art. 7(5) PTD 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 travel 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).

5. Counter-performance a) Protecting the creditor 32

Numerous provisions of EU contract law on performance obligations mostly (or indeed only) concern the counter-performance by the creditor. As for many other rules in the acquis such provisions often aim to protect one of the parties for policy reasons. With regard to counter-performance, a party may therefore be protected in the role either as the debtor or creditor. For example, the Commercial Agents Directive is one of the first pieces of legislation which was passed with the aim of protecting SMEs. The parties under this Directive are the self-employed commercial agent, who is to be protected, and the principal. Chapter III (Art. 6–12) Commercial Agents Directive is dedicated to the remuneration the commercial agent is to receive for the performance of the 75 In contrast to Art. 7:201 ACQP, however, Art. 95(1) CESL 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 ibid. mn. 8. 76 For details on the provisions concerning time of performance (in particular in consumer contracts) in the academic drafts for European contract law and in EU consumer directives, see Commentaries on European Contract Laws/Martens, Art 7:102 mn. 1 et seq. and Art 7:102-1 mn. 1 et seq. 77 On the controversial doctrinal views 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, 167; Lorenz, Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law (2012) 212 AcP 702, 721; Schmidt-Kessel CESL/Remien, Art. 95 CESL mn. 1; Schulze CESL/ Zoll, Art. 95 CESL mn. 8. 78 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. 79 Recital 33 PTD.

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activities (Art. 3 and 4). Art. 6 determines the calculation of the remuneration, whereas Art. 7 and 8 set out the conditions under which the commercial agent is entitled to receive commission. Furthermore, Art. 17 Commercial Agents Directive regulates the circumstances under which the commercial agent is entitled to receive an indemnification or compensation after termination of the agency contract –a much discussed compromise which takes account of the different traditions amongst the Member States. 80 The provisions of the Commercial Agents Directive therefore ensure the claims to remuneration which the commercial agent is to receive as counter-performance for the activities undertaken (supplemented by the post-contractual claims to indemnity or compensation). b) Protecting the debtor In contrast, EU consumer legislation does not focus primarily on protecting the party 33 claiming remuneration for performance (e.g. the seller of goods or the supplier of digital content), but rather on protecting the consumer. Nonetheless, the consumer is required to tender counter-performance for the performance received by the trader. Although European consumer law does contain specific and detailed provisions on this obligation for the consumer, albeit from the perspective of consumer protection, 81 the obligation is often based on the principle of freedom of contract or provisions of national law. The European legislation often does not strive to create a comprehensive rule, but focuses on limiting or removing counter-performance obligations in the interests of the consumer, for instance in providing for a reduction of the price paid for defective goods or in the context of passenger rights in travel law (e.g. reduction of ticket price, free hotel accommodation, etc.). Aspects of the consumer’s obligation in a sales contract are also limited in order to protect the consumer: Art. 19 CRD prohibits traders from charging consumers fees that exceed the costs borne by the trader for the use of a means of payment. c) Protecting the provider of personal data Art. 3(1) DCD and Art. 3(1a) CRD acknowledge modern market practices by using 34 the consumer’s counter-performance obligation as a factor for their application. 82 The provisions shall guarantee that the consumer is protected by the Directive irrespective whether the counter-performance is the payment of a price or the supply of personal data.83 The Directives therefore take into account the important economic significance of data in modern day transactions.84 In this respect, the provision of data corresponds to 80 Handbuch Europarecht/Pertot/Schmidt-Kessel, ‘Handelsrecht – Unternehmensrecht’ mn. 151 et seq. On the transposition into national law see Study Group on a European Civil Code, Commercial Agency, Franchise and Distribution Contracts (Sellier 2006) 205 et seq.; see also Saenger/Schulze (eds), Der Ausgleichsanspruch des Handelsvertreters (Nomos 2000). 81 See for example the provisions on early repayment and on the calculation of the annual percentage rate of charge in Art. 16 and 19 Consumer Credit Directive. 82 For detail see Lohsse/Schulze/Staudenmayer (eds), Data as Counter-Performance – Contract Law 2.0? (Nomos 2020); on the earlier discussion concerning the application of the notion ‘data as counter-performance’ to the Consumer Rights Directive and to other fields, see Mischau, ‘Daten als „Gegenleistung“ im neuen Verbrauchervertragsrecht’ (2020) ZEuP 335; in particular in B–B contracts, see Fries, ‘Data as Counter-Performance in B2B Contracts’ in Lohsse/Schulze/Staudenmayer, ibid. 251 et seq. 83 In contrast to the original proposal (Art. 3(1) COM(2015) 634 final), the Digital Content Directive no longer requires the consumer to ‘actively provide’ counter-performance in the form of personal data or any other data. For criticism see European Data Protection Supervisor, ‘Opinion 4/2017 on the Proposal for a Directive on certain aspects concerning contracts for the supply of digital content’ (March 2017) 12; 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) 127, 140–141. 84 See Chapter 3 mn. 78–79.

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the payment of a price, however it does not mean that the rights to personal data are equal to property (or quasi-property) rights. In contrast to the transfer of property, the transfer of data often does not result in a loss to the transferring party; in principle, data can be reproduced without any loss in value.85 The approach in the new legislation recognises, however, that the provision of data, like the payment of a price, is the transfer of something of value and the trader (as the recipient of this counter-performance) is as such subject to the same obligations under the Directives as would arise if the consumer were to pay a price as counter-performance. Accordingly, the rights under the Directives are available to the consumer who provides personal data as counter-performance. 35 However, this obligation for the trader (and entitlement for the consumer) is not matched by an equivalent obligation for the consumer to provide data as counter-performance (and no equivalent corresponding claim for the trader). The extent to which the consumer is bound under the contract is instead greatly restricted by data protection law: the consumer (as the data subject) may at any time withdraw the consent to the processing of the personal data (Art. 7(3) GDPR). The exercise of this right by the consumer therefore means the loss in value of any data that has been or is to be provided. From an economic perspective, the withdrawal of consent is comparable to the withdrawal from a consumer contract due to the uncertainty for the trader, though in a consumer contract the uncertainty ends as the withdrawal right may only be exercised within a particular time frame.86 According to the purpose of Art. 7(3) GDPR, the consumer cannot be obliged to provide personal data (irrespective of the withdrawal affects the remainder of the contract87). The interaction between consumer protection and data protection therefore has a particular effect on the reciprocity where personal data is provided in return for digital content or digital services.88 d) Common European Sales Law 36

In contrast to the fragmented rules of the acquis communautaire, Art. 123 CESL proposed a list of the ‘main obligations of the buyer’ in sales contracts and contracts for digital content,89 corresponding to the 'main obligations of the seller' in Art. 91 CESL. By proposing to regulate the details of these obligations, there was the attempt to provide rules which were as complete as possible. Such ‘main obligations of the buyer’ 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. Payment is to be made as indicated by the contract terms or, where there are no such terms, by any means used in the ordinary course of business at the place of payment (Art. 124(1) CESL).90 Where taking delivery is concerned, Art. 129 CESL provides that the buyer has 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 he has access.91 The buyer can only refuse to accept early delivery 85 For details see Lohsse/Schulze/Staudenmayer (eds), Trading Data in the Digital Economy: Legal Concepts and Tools (Nomos 2017). 86 See Chapter 3 mn. 147. 87 For detail on this contentious issue, Schmidt-Kessel, 'Right to Withdraw Consent to Data Processing – The Effect on the Contract' in Lohsse/Schulze/Staudenmayer (eds), Data as Counter-Performance – Contract Law 2.0? (Nomos 2020) 127. 88 For further interactions see also Helberger/Zuiderveen Borgesius/Reyna, ‘The perfect match? A closer look at the relationship between EU consumer law and data protection law’ (2017) 54 CMLR 1427. 89 The customer’s main obligations – payment of the price and provision of access – in a contract for related services are regulated separately (Art. 153–154 CESL). 90 On the costs in consumer contracts according to Art. 124(4) CESL and on place of payment, mn. 25. 91 See also DCFR Full Edition 1328 for the corresponding rule.

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or delivery of a lesser quantity than agreed if she has a legitimate interest in doing so (Art. 130(1), (2) CESL).92 The CESL excludes the application of the payment obligation or the possibility to refuse to accept early delivery or the delivery of the wrong quantity where digital content is not supplied in exchange for the payment of a price (Art. 123(2), 130(6) CESL). The proposed CESL therefore greatly exceeds the structure and extent of rules in the acquis communautaire. However, it did not propose general rules on counter-performance but rather its rules were tied to the type of contract concluded.

III. Conformity 1. Basic features Despite some differences, the Sale of Goods Directive and the Digital Content Direc- 37 tive use the same basic conceptual framework for the conformity of performance. Both Directives use and develop approaches from the Consumer Sales Directive both for the core concept of conformity and for supplementing concepts (such as ‘reasonable expectations’). Beyond these, however, both Directives also feature a considerable amount of new concepts, especially with regard to the conformity of digital content and digital services (such as ‘updates’ and the integration into the digital environment). The concept of conformity thus serves as common basis for determining the performance obligations and rights in two exceptionally important areas of European consumer contract law: the sale of goods, and the supply of digital content and digital services. Although for nondigital services, the concept only extends to specific areas, such as travel law, 93 the broader importance of this concept is nevertheless clear as travel law does not apply only to consumer contracts.94 In the new Directives, the further development of the concept of conformity and its 38 constituent parts (such as the combination of objective and subjective criteria) is characterized by their application beyond sales contracts to all types of contracts. Whereas the Consumer Sales Directive followed the approach in the CISG and applied the concepts specifically to contracts for the sale of goods, the Sale of Goods Directive and the Digital Content Directive follow the approach in the CESL and apply and develop the concepts with respect to the supply of digital content and digital services. For this purpose the Digital Content Directive applies the concepts not only to the sale of digital content but also to any type of contract for the supply of digital content or digital services.95 Such overarching application of the notion of conformity to different types of contracts does, however, feature in some national laws, such as in Germany where concepts from the CISG and from European consumer contract law feature in the general law of obligations.96 Understanding conformity as an overarching concept within general contract 92 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 mn. 13, 19–20. 93 See mn. 56. 94 According to Art. 3 No. 6 PTD, ‘traveller’ means any person who is seeking to conclude a contract, and thus may also be a person travelling for business purposes. Art. 2 No. 4 PTD (1990) used the term ‘consumer’, however with a definition similar to ‘traveller’ under Art. 3 No. 6 PTD. 95 See mn. 12. 96 See, e.g., § 323 BGB following the 2002 reform of the law of obligations, see German Civil Code/ Oehm, § 323 BGB mn. 3. On the recent reforms in France see Bien/Borghetti (eds), Die Reform des französischen Vertragsrechts (Mohr Siebeck 2018), in particular the contributions by Dubarry, ‘Grundsätze des neuen französischen Leistungsstörungsrechts’ 165 and Remien, ‘Leistungsstörungen nach der Réforme du droit des contrats in deutscher und europäischer Sicht’ 181.

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law (or within the general law of obligations) could contribute to reform discussions in other Member States precisely because it has now taken shape at EU level for the broad spectrum of contracts for digital content and digital services; contracts which are indeed of considerable economic significance.97 39 The rules concerning the relationship between subjective and objective criteria98 for conformity constitute one of the most important changes to consumer sales law. As in the Consumer Sales Directive, the new Directives contain subjective criteria (i.e. as agreed by the parties) and the objective criteria (i.e. as determined by law). The subjective criteria result from Art. 6 SGD and Art. 7 DCD. The objective criteria of fitness for normal use, reasonable consumer expectations and the update obligations are found in Art. 7 SGD and Art. 8 DCD.99 Further provisions concern the installation of goods and the integration of digital content or digital services (Art. 8 SGD; Art. 9 DCD) as well as third-party rights (Art. 9 SGD; Art. 10 DCD). However, in comparison to the Consumer Sales Directive, the new Directives place more emphasis on the objective criteria because these are generally defined as additional requirements (Art. 7(1) SGD; Art. 8(1) DCD). They are thus also to be considered if the parties agree on a lower standard of conformity. In this respect, the new provisions follow the model proposed by the CESL and not the original proposal which prioritized the subjective criteria.100 However, the Directives do take into account the need to allow such agreements (e.g. in the sale of ‘Grade B goods’) by providing an exception: deviations from the objective requirements for conformity are (only) permitted if, at the time of the conclusion of the contract, the consumer was specifically informed of such deviation and expressly and separately (i.e. in a separate declaration) accepted such deviation (Art. 7(5) SGD; Art. 8(5) DCD). 101 This approach aims to ensure that the objective standards are not imposed on the parties against their will, but at the same time protects the consumer from concluding an agreement without sufficient information. 40 A further distinction to the Consumer Sales Directive concerns the manner of the regulation. In contrast to Art. 2(2) CSD, the new Directives do not embed the requirements for conformity within the framework of a legal presumption but instead determine the aspects giving rise to these requirements. Firstly, they state the overarching rule that the trader must deliver or supply in accordance with the particular standards as set out in the Directive (Art. 5 SGD; Art. 6(1) DCD). The rule forms the starting point for the subjective criteria (Art. 6 SGD; Art. 7 DCD) followed by the objective criteria (Art. 7 et seq. SGD; Art. 8 et seq. DCD).

2. Subjective criteria 41

Article 7 Digital Content Directive Subjective requirements for conformity In order to conform with the contract, the digital content or digital service shall, in particular, where applicable:

Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 710. On the problems surrounding these terms see Chapter 2 mn. 19. 99 On the further objective requirements under Art. 7(1) SGD and Art. 8(1) DCD see mn. 46. 100 Critical of the proposal, ELI, ‘Statement on the European Commission’s proposed Directive on the Supply of Digital Content to Consumers’ (2016) 18–19; 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) 127, 135. 101 On the overlap between the new rule with current practice, Bach, ‘Neue Richtlinien zum Verbrauchsgüterkauf und zu Verbraucherverträgen über digitale Inhalte’ (2019) NJW 1705, 1708. 97

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III. Conformity (a) be of the description, quantity and quality, and possess the functionality, compatibility, interoperability and other features, as required by the contract; (b) be fit for any particular purpose for which the consumer requires it and which the consumer made known to the trader at the latest at the time of the conclusion of the contract, and in respect of which the trader has given acceptance; (c) be supplied with all accessories, instructions, including on installation, and customer assistance as required by the contract; and (d) be updated as stipulated by the contract.

The subjective requirements for conformity are initially determined by a non-exhaustive list of characteristics (Art. 6(a) SGD; Art. 7(a) DCD). 102 Alongside the traditional features (description, quantity and quality), the Directives include three additional features which primarily concern digital content and digital services: functionality,103 compatibility,104 and interoperability.105 The performance is only in conformity if it meets the corresponding contractual requirements. In addition, the performance must also be fit for the purpose intended by the consumer (Art. 6(b) SGD; Art. 7(b) DCD) and must also, as required by the contract, be provided with accessories, instructions and customer assistance, and be updated (Art. 6(c), (d) SGD; Art. 7(c), (d) DCD).

3. Objective criteria a) Fitness for intended use 42

Article 8(1) Digital Content Directive Objective requirements for conformity In addition to complying with any subjective requirement for conformity, the digital content or digital service shall: (a) be fit for the purposes for which digital content or digital services of the same type would normally be used, taking into account, where applicable, any existing Union and national law, technical standards or, in the absence of such technical standards, applicable sector-specific industry codes of conduct; (b) be of the quantity and possess the qualities and performance features, including in relation to functionality, compatibility, accessibility, continuity and security, normal for digital content or digital services of the same type and which the consumer may reasonably expect, given the nature of the digital content or digital service and taking into account any public statement made by or on behalf of the trader, or other persons in previous links of the chain of transactions, particularly in advertising or on labelling unless the trader shows that: (i) the trader was not, and could not reasonably have been, aware of the public statement in question; (ii) by the time of conclusion of the contract, the public statement had been corrected in the same way as, or in a way comparable to how, it had been made; or (iii) the decision to acquire the digital content or digital service could not have been influenced by the public statement;

102 In detail, Twigg-Flesner, ‘Conformity of Goods and Digital Content/Digital Services’ in Arroyo Amayuelas/Cámara Lapuente (eds), El derecho privado en el nuevo paradigma digital (Marcial Pons 2020) 49, 58 et seq., 73 et seq. 103 Defined as the ability of the digital content or digital service to perform its functions having regard to its purpose (Art. 2 No. 9 SGD; Art. 2 No. 11 DCD). 104 Defined as the ability of the digital content or digital service to function with hardware or software with which digital content or digital services of the same type are normally used, without the need to convert the digital content or digital service (Art. 2 No. 8 SGD; Art. 2 No. 10 DCD). 105 Defined as the ability of the digital content or digital service to function with hardware or software different from those with which digital content or digital services of the same type are normally used (Art. 2 No. 10 SGD; Art. 2 No. 12 DCD).

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where applicable, be supplied along with any accessories and instructions which the consumer may reasonably expect to receive; and (d) comply with any trial version or preview of the digital content or digital service, made available by the trader before the conclusion of the contract.

In addition to the subjective requirements, the performance must also satisfy the objective requirements pursuant to Art. 7 SGD and Art. 8 DCD. 106 Each Directive first lists the ‘fitness-for-purpose test’, whereby the goods or digital content or digital service must be fit for the purpose for which such products would normally be used (Art. 7(1)(a) SGD; Art. 8(1)(a) DCD). The new provisions therefore follow the approach outlined by Art. 2(1)(c) CSD. However, the new Directives add to this underlying rule by referring to technical standards and applicable sector-specific industry codes of conduct. In light of potential technological advances, this reference may ease a continuous development of the standards for conformity, which are often reflected in such non-legal rules rather than in legislation. Such outsourcing of regulatory competence is, however, often unproblematic for the internal market with regard to the legitimation of the rule-making body and also to the influence of such technical standards and codes of conduct often set by global players. b) Reasonable consumer expectations 43

Alongside fitness for usual purpose, reasonable consumer expectations are a core objective criterion for the conformity of goods as well as for digital content and digital services (Art. 7(1)(d) SGD; Art. 8(1)(b) DCD). The standard for the reasonable expectations is to be determined objectively, taking account of the nature and purpose of the good, the digital content or digital service, the circumstances of the case and the usages and practices of the parties.107 Public statements by the seller of the goods or the supplier of the digital content or digital service, in particular statements made in advertising or on labelling, also require consideration.108 In comparison to Art. 2(2)(d) CSD, the provision in the new Directives is more clearly worded as it not only includes the trader or his representative but also other links in the contractual chain. Accordingly, it is clear that producers109 as well as all intermediaries fall under the provision. 44 The reasonable consumer expectations are relevant for conformity to the extent they refer to the quantity, qualities and performance features normal for products of the same type (Art. 7(1)(d) SGD; Art. 8(1)(b) DCD). Although the list of performance features is extensive, it is merely a list of examples and therefore not exhaustive. However, interoperability has intentionally only been included as a subjective criterion.110 45 Art. 7(1)(d) SGD also lists durability as an additional criterion for conformity, whereby goods must have the ability to maintain their required functions and performance through normal use (Art. 2 No. 13 SGD). This form of contractual conformity is particu106 In detail, Twigg-Flesner, ‘Conformity of Goods and Digital Content/Digital Services’ in Arroyo Amayuelas/Cámara Lapuente (eds), El derecho privado en el nuevo paradigma digital (Marcial Pons 2020) 49, 62 et seq., 74 et seq. 107 Recital 24 SGD; Recital 46 DCD. See also Chapter 2 mn. 7 et seq. 108 For detail and on the restrictions in cases in which the trader was not, and could not reasonably have been, aware of the public statement in question, the public statement had been corrected or could not have influenced the consumer, Chapter 2 mn. 17. 109 Unlike the Digital Content Directive, the Sale of Goods Directive makes express reference to the producer as a previous link the chain of transactions (Art. 7(1)(d) SGD); the Digital Content Directive does, however, include the producer of the digital content or digital service, see EU Digital Law/Staudenmayer, Art. 8 DCD mn. 64. 110 Art. 6(a) SGD and Art. 7(a) DCD in contrast to Art. 7(1)(d) SGD and Art. 8(1)(b) DCD; see ibid. mn. 47–48.

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larly noteworthy as an innovative approach under the Sales of Goods Directive which is not only a new feature of European contract law but is also a feature that has been adopted irrespective of the challenges of digitalization. In particular, it is aimed at promoting sustainable consumption patterns and a circular economy and thus pursues objectives that are also to be served by implementing measures for Art. 15 Ecodesign Directive using other legal instruments. However, the Sale of Goods Directive has not adopted further concepts to promote sustainability, such as stockpiling spare parts 111 and ‘reparability’. 112 Furthermore, the inclusion of durability as a criterion for conformity represents an innovation compared to traditional principles of sales law because it deviates from the principle that the time of delivery is decisive for the existence of conformity (Art. 10(1) SGD). In contrast, the satisfaction of the durability requirement depends on the future developments and thus the requirement applies throughout a period of time which commences upon delivery.113 c) Innovation Art. 7(1)(b), (c) SGD and Art. 8(1)(c), (d) DCD also require the goods, digital content 46 or digital service to correspond to a sample or model (or trial version or preview) as well as their delivery/supply with any accessories and instructions which the consumer may reasonably expect to receive.114 According to Art. 8(6) DCD, digital content or digital services must, unless agreed otherwise, be supplied in the most recent version available at the time of the conclusion of the contract.115

4. Updates The provisions on updates make a significant contribution to adapting the concept of 47 conformity to the changing needs of contract practice under digitalization. ‘Updates’ ensure that the digital content or digital service can continue to be used safely over time. If the contract contains update obligations, the performance thereof thus falls within the subjective requirements for conformity.116 However, update obligations also feature in the objective requirements under Art. 7(3) SGD and Art. 8(2) DCD, thereby ensuring that the consumer is protected in the absence of corresponding terms under the contract. The inclusion of update obligations as a requirement of conformity concerns not only contracts for the continuous supply of digital content or digital services over a period of time (such as streaming or other quasi-hire agreements) but also applies to contracts for single supply (such as the sale of goods with digital elements or other quasisale contracts).117 In such cases and in contrast to the traditional sale of consumer goods,118 the trader must provide updates to maintain conformity beyond the perfor111 This does not fall within the scope of the Sale of Goods Directive and is thus not covered by the full harmonization. Recital 33 SGD clarifies that the Directive should not oblige sellers to ensure the availability of spare parts throughout a period of time as an objective requirement for conformity. Moreover, the Directive should not affect other provisions of national law which oblige the seller or other link in the chain of transactions to ensure that spare parts are available or to inform consumers about such availability. 112 For criticism, Kieninger, ‘Recht auf Reparatur („Right to Repair“) und Europäisches Vertragsrecht’ (2020) ZEuP 274. 113 See also mn. 47 et seq. 114 See EU Digital Law/Staudenmayer, Art. 8 DCD mn. 71 et seq., 84 et seq. 115 Ibid. mn. 104 et seq. 116 See mn. 41. 117 For detail on updates in relation to goods with digital elements see, Twigg-Flesner, ‘Conformity of Goods and Digital Content/Digital Services’ in Arroyo Amayuelas/Cámara Lapuente (eds), El derecho privado en el nuevo paradigma digital (Marcial Pons 2020) 49, 69–70.

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mance of the primary obligation. Under both types of contract, the obligation to ensure conformity is thus not limited to one particular point in time, but extends across a period of time. The trader performs the update obligation by supplying updates (including security updates) which are necessary for the digital content or digital service to remain in conformity with the contract. The supply of such updates will often also require regular monitoring of the technological developments in order to determine whether an update is necessary. The update obligation is therefore a secondary requirement in the supply of digital content or digital services that aims at maintaining conformity for a period of time and can thus be understood as a continuous obligation.119 48 Two types of obligations are imposed upon the trader in order to ensure conformity throughout the period for performance. On the one hand, the trader must inform the consumer of the updates that are necessary to keep the digital content or digital service in conformity. Accordingly, the consumer is made aware not only of the need to update but also of the possibility to update and can then decide whether or not to install the update. On the other hand, the trader is to supply the consumer with the necessary updates (Art. 7(3) SGD; Art. 8(2) DCD).120 Should the trader fail to supply the necessary updates, the digital content or digital service will no longer be in conformity with the contract and thus the trader will be liable pursuant to Art. 10 SGD or Art. 11 DCD. The same applies if the trader supplies the update, but the digital content or digital service is no longer in conformity after installation (e.g. the update removes a feature which was agreed in the contract).121 The responsibility to install the update rests, however, with the consumer. The trader is therefore not liable if he has performed the aforementioned obligations pursuant to Art. 7(3) SGD or Art. 8(2) DCD yet the consumer does not install the necessary update.122 A two-pronged approach to the trader’s obligation therefore applies to the update: his (secondary) obligation to supply the update are combined with the information obligation to inform the consumer about the update.123 In this respect, one can also observe the effects of digitalization on European contract law. The information obligations in the acquis primarily targeted the pre-contractual phase or the conclusion of the contract, whereas under the new Directives information obligations now play a significant role in ensuring conformity well after the contract has been concluded. 49 The time frame for the obligations to inform and to supply depends on a distinction that is of far-reaching importance for contracts for the supply of digital content or digital services: the continuous supply over a (defined or undefined) period of time and the single act of supply or a series of individual acts of supply. For the former (e.g. subscription contracts), the digital content or digital service must be in conformity throughout the period (Art. 8(4) DCD). Accordingly, the period of time for the supply of the digital content or digital service is the benchmark for the duration of the update obligation. On this 118 See Art. 3(1) CSD (‘any lack of conformity which exists at the time the goods were delivered’) and Art. 10(1) SGD. 119 See Wendehorst, ‘Aktualisierungen und andere digitale Dauerleistungen’ in Stabentheiner/Wendehorst/Zöchling-Jud (eds), Das neue Gewährleistungsrecht für Waren, digitale Inhalte und digitale Dienstleistungen (Manz 2019) 111, 118. 120 For details see EU Digital Law/Staudenmayer, Art. 8 DCD mn. 111 et seq. 121 Recitals 28 and 30 SGD; Wendehorst, ‘Aktualisierungen und andere digitale Dauerleistungen’ in Stabentheiner/Wendehorst/Zöchling-Jud (eds), Das neue Gewährleistungsrecht für Waren, digitale Inhalte und digitale Dienstleistungen (Manz 2019) 111, 118 with reference to the question whether a reversal of the burden of proof is appropriate if, after the updates have been installed, further non-conformities arise which are typical consequences of the update (e.g. problems with interoperability). 122 For details see EU Digital Law/Staudenmayer, Art. 8 DCD mn. 149 et seq. 123 As rules to the contrary are lacking, the information could be provided at the same time as the supply, Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 713.

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basis, according to Art. 8(2)(a) DCD there is thus an overlap between the period for the performance of the primary supply obligation and the secondary update obligation (whereas under Art. 7(3)(a) in conjunction with Art. 10(2), (5) SGD this only applies for continuous supply longer than two years, whereas for shorter periods the two-year guarantee period applies). In contrast, for contracts for the single supply or a series of individual acts of supply, the primary supply obligation is not over a period of time but at a particular point in time (e.g. by making a file available for download) and thus the period for performance. The period for the performance of the primary obligation therefore cannot serve as the basis for the update obligation. Instead, the Directives refer to what the consumer may reasonably expect with regard to the type and purpose of the digital content or digital service, the circumstances and nature of the contract (Art. 7(3)(a) SGD; Art. 8(2)(b) DCD). In this respect, the consumer’s reasonable expectations may be determined by whether in light of the purpose of the digital content or digital service the time period would be equal to the liability period for lack of conformity or could extend beyond that period, which may be the case with regard to security updates.124 This distinction between single acts of supply or a series of individual acts over a peri- 50 od of time belongs to the structural features of European contract law responding to digitalization.125 It is relevant not only for the aforementioned provisions on updates but also for liability and consequences of termination (Art. 10(1) and (2) SGD; Art. 11(2) and (3), 16(1) DCD). The distinction in contracts for digital content and digital services provides a different type of classification alongside the traditional divisions in the civil codes of the Member States and alongside the usual comparison between the sale of goods and service contracts in EU law. The expression ‘single act of supply’ is not to be understood as the single exchange of performances as in the sale of goods because it is directed at intangible objects. The ‘continuous supply over a period of time’ is not comparable with a service contract as understood in national or EU law. ‘Continuous supply’ can, for instance, comprise contractual relationships which resemble a hire contract, 126 or contracts with a fixed period of time or a fixed total quantity. Moreover, ‘continuous’ supply in this sense does not have to be long term in nature.127 In this respect, the distinction between a single act of supply and continuous supply over a period of time is concerns concepts that are particular to European contract law in accommodating the supply of digital content and digital services.

5. Installation In addition to the above criteria for conformity, Art. 8 SGD has adopted Art. 2(5) 51 CSD128 concerning incorrect installation and incorrect instructions (the so-called ‘IKEA-clause’), and extended the scope to include goods with digital elements. According to Art. 8 SGD, the goods will not be in conformity with the contract if a lack of conformity results from the incorrect installation by the seller or due to shortcomings in the instructions provided by the seller.

Recital 47 DCD. On the following, see Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 715–715. 126 Wendland, ‘Sonderprivatrecht für Digitale Güter’ (2019) ZVglRWiss 191, 210 et seq. 127 Recital 57 DCD. 128 See also Art. 101 CESL. 124

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Chapter 5 Performance Obligations Article 8 Sale of Goods Directive Incorrect installation of the goods Any lack of conformity resulting from the incorrect installation of the goods shall be regarded as lack of conformity of the goods, if: (a) the installation forms part of the sales contract and was carried out by the seller or under the seller’s responsibility; or (b) the installation, intended to be carried out by the consumer, was done by the consumer and the incorrect installation was due to shortcomings in the installation instructions provided by the seller or, in the case of goods with digital elements, provided by the seller or by the supplier of the digital content or digital service.

6. Integration into the digital environment 52

53

Art. 9 DCD expands upon the underlying principle that the trader can bear the responsibility for acts beyond the supply of the product. Under the Digital Content Directive, the incorrect integration of the digital content or digital service into the consumer’s digital environment may also constitute a non-conformity of the digital content or digital service. This extension of the requirements for conformity takes account of the relationship between the use of the digital product and the hardware or software used by the consumer. In this respect, Art. 9 DCD reflects the interdependency arising from the technological advances. This interdependency is expressed in other areas of the Directive, in particular in the criteria functionality, interoperability and compatibility (Art. 7 and 8(1) DCD). The integration of the digital content or digital service into the consumer’s digital environment is therefore not to be viewed as an external aspect belonging to the consumer's sphere of influence, but can also constitute part of the trader’s responsibility to supply in conformity with the contract.129 Article 9 Digital Content Directive Incorrect integration of the digital content or digital service Any lack of conformity resulting from the incorrect integration of the digital content or digital service into the consumer’s digital environment shall be regarded as lack of conformity of the digital content or digital service if: (a) the digital content or digital service was integrated by the trader or under the trader’s responsibility; or (b) the digital content or digital service was intended to be integrated by the consumer and the incorrect integration was due to shortcomings in the integration instructions provided by the trader.

Similar to the Sale of Goods Directive, Art. 9 DCD provides two circumstances in which the trader bears the responsibility for a lack of conformity resulting from incorrect integration: the incorrect integration by the trader or under his responsibility, or incorrect integration by the consumer due to incorrect instructions supplied by the trader. Incorrect integration under the responsibility of the trader is to be assumed in situations in which the consumer is supplied with digital content which is automatically installed on the consumer’s device.130 However, Art. 9 DCD does not detail the scope of the ‘digital environment’. This will require a reference to the general standards of fitness for purpose and reasonable consumer expectations (Art. 8(1) DCD).131 Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 712. Bach, ‘Neue Richtlinien zum Verbrauchsgüterkauf und zu Verbraucherverträgen über digitale Inhalte’ (2019) NJW 1705, 1706, 1708. 131 See mn. 43–44. 129

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7. Third-party rights Whereas the consumer’s digital environment may present a technical barrier to the 54 use of the digital content or digital service, the use also depends on overcoming legal barriers, i.e. the rights of third parties. Digital content and digital services are typically protected by copyright law and thus lawful use by the consumer requires a license. The Digital Content Directive does not contain provisions on the issue of such licenses, but is rather without prejudice to EU and national law on copyright and related rights (Art. 3(9) DCD). The lawful use of the digital content or digital service thus depends on rules that exist outside the scope of the Directive. The consumer can receive the corresponding license from the trader as a sub-license or through transfer. However, consumers will often conclude an ‘End-User-License-Agreement’ (EULA) directly with the rightholder. In light of this division between the supply contract and the license agreement, 55 Art. 10 DCD (and Art. 9 SGD) shall ensure that the requirements for conformity are not undermined by third party rights under copyright law. In particular, reasonable consumer expectations under Art. 7 and 8 DCD serve as the standard for determining the type and scope of use that is in conformity with the contract. The trader can influence these expectations by supplying the consumer with sufficient information on the terms of the license. 132 If the protection of the third party prevents or limits the use of the digital content or digital service contrary to the consumer’s reasonable expectations when concluding the contract with the trader, a non-conformity will thus arise. In such instances the consumer is in principle entitled to exercise the remedies under the Digital Content Directive against the trader. In contrast, the Digital Content Directive and the Sale of Goods Directive do not pro- 56 vide the consumer with a claim against the third party whose rights limit or prevent the use of the digital content or digital service, yet who is not a party to the supply contract under the Directive. The effects of the non-conformity may, however, be experienced by the third party in the form of a regress claim by the trader (Art. 20 DCD). 133 European contract law therefore continues to adopt the approach developed by Art. 4 CSD for the sale of goods according to which the consumer does not have an ‘action directe’ (i.e. a direct claim) against the party actually responsible for the non-conformity. The consumer must instead bring the claim against the other party to the contract who can then claim against earlier links in the contractual chain (including the producer or rightholder). The Directives therefore avoid bringing contract law within the domain of copyright law (or more generally intellectual property law). However, it is questionable whether the strict separation can be maintained dues to the effects of licensing on consumer contract law. It may therefore be possible that the problems illustrated here (including also the nature of data rights134) require a reconsideration of the relationship between contract law and intellectual property in European private law.

8. Non-digital services Beyond digital services in the Digital Content Directive and Sale of Goods Directive, 57 the notion of conformity in service contracts has become part of the acquis communautaire through its use in package travel contracts. The Package Travel Directive 135 determines the content and scope of performance obligations, in particular through the interEU Digital Law/Rosenkranz, Art. 10 DCD 6, 41 et seq. Ibid. mn. 4. 134 See mn. 34 and Chapter 1 mn. 75. 135 Note that the Package Travel Directive is not specific to consumer contracts. See mn. 37. 132

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pretation of a ‘lack of conformity’ (Art. 3 No. 13 PTD), as well as in the provisions on the binding effect of pre-contractual information and the content of the contract (Art. 6 and 7 PTD). These provisions are closely linked to the Directive’s rules on the responsibility for performance and the consequences of a lack of conformity, with the notion of a ‘lack of conformity’ playing a central role (especially in Art. 13(2)–(4), (6) and Art. 14 PTD136). As in the provisions on digital services, the use of this notion in the Package Travel Directive137 expresses the important position achieved by ‘conformity’ and ‘nonconformity’ in the acquis communautaire for both sales and service contracts.

IV. Modification and termination 1. Modification a) Overview 58

In principle, the binding effect of the agreement138 excludes subsequent modification to the content and scope of the contractually-agreed obligations without concluding a new agreement. The right to make such a unilateral change may, however, be granted by law or within the contract itself. The acquis communautaire contains provisions concerning both aspects, which are of considerable importance in practice (especially for consumer protection139), but which do not regulate the matter exhaustively. Legislative provisions in EU law which entitle a party to modify the terms of the agreement concern above all the rights in the event of non-conforming performance (e.g. price reduction).140 Such rights are the most important types of ‘formative rights’141 in the acquis. With regard to contractual rights, Art. 11 PTD142 and Art. 19 DCD contain rules for contracts falling within their scope of application. b) Digital content or digital services

59

Beyond the provision of ‘updates’ to ensure conformity,143 Art. 19(1) DCD allows the trader under certain circumstances to modify the digital content or digital service to be supplied for a continuous period of time.144 However, Art. 19(1) Digital Content limits the scope of this possibility in order to protect the consumer.145 A corresponding term in the contract will not suffice unless the contract allows and provides a ‘valid reason’ for such a modification.146 The modification may not be made without additional cost to the consumer and the consumer must also be informed in a clear and comprehensible manner of the modification. Moreover, pursuant to Art. 19(2)–(4) DCD the consumer may terminate the contract if the modification has a negative impact on the access or See in particular Recital 34 PTD. See Chapter 6 mn.10. 138 See Chapter 3 mn. 58 et seq. 139 In this respect see Point 1(j) of the Annex to the Unfair Terms Directive. This provision states that a contract term may be regarded as unfair where it enables the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract. 140 See Chapter 6 mn. 50 et seq. 141 See Chapter 3 mn. 128. 142 See mn. 30. 143 See mn. 47 et seq. 144 For criticism of the lack of rules concerning single supply, Bach, ‘Neue Richtlinien zum Verbrauchsgüterkauf und zu Verbraucherverträgen über digitale Inhalte’ (2019) NJW 1705, 1707. 145 For details see EU Digital Law/Wendland, Art. 19 DCD. 146 Such as to adapt the digital content or digital service to a new technical environment, see Recital 75 DCD. 136

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use of the digital content or digital service, unless the impact is only minor. In this respect, Art. 19 DCD strives to balance the interests of the trader and of the consumer with regard to a modification of the performance obligations: the Directive acknowledges and limits the possibility for the trader but at the same time affords the consumer with the right to terminate the contract; in this respect, an extensive deviation from the original contract allows the consumer to terminate the contract directly.

2. Termination a) Overview The termination of contract is a means by which performance obligations are brought 60 to an end. Usually, performance obligations will end through their performance, as detailed, for example, in Art. 5(2) DCD. A performance obligation or an entire contract may be brought to an end by an agreement between the parties, or directly by law or through a formative right, prior to performance. The consumer’s termination right under Art. 19(2) DCD is just one of several examples in the acquis, whereby such unilateral rights to terminate the contract predominately feature in the context of irregularities in performance, but not only as a remedy for the consumer in the event of non-performance or non-conforming performance. For instance, Art. 12(2) PTD grants the traveller the right to terminate the package travel contract before the start of the package without paying any termination fee in the event of unavoidable and extraordinary circumstances occurring at the place of destination or its immediate vicinity and significantly affecting the performance of the package, or which significantly affect the carriage of passengers to the destination. The importance of this provision has been seen in the termination of a vast number of package travel contracts in the wake of the COVID-19 pandemic. Due to the superiority of EU law, the provisions of the Directive prevented national legislation which would have allowed the organiser to provide the traveller with a credit voucher for future travel instead of refunding any payments made for the package. The Package Travel Directive therefore tackles an issue that may be understood as a particular instance of extraordinary circumstances. Although this is not generally regulated in the acquis, it is considered in Art. 6:111(2) PECL, Art. III.–1:110(2) DCFR and Art. 89 CESL. Where performance becomes excessively onerous because of an exceptional change of circumstances, Art. 89 CESL provides that the parties have to enter into negotiations with a view to adapting or terminating the contract; if the parties cannot reach an agreement then termination is to be determined by a court. EU contract law also uses the expression ‘termination’ in relation to ending long-term 61 contracts.147 However, the use of this term in the context of a long-term contract is misleading because the rules for terminating contracts are typically designed for a single exchange of performance and the corresponding restitution obligations – such rules are not suited to long-term contracts. In particular, some types of long-term contracts do not stipulate the scope of the performance obligation. As such, if the contract may be terminated due the breach of a single obligation, such breach cannot be spread across all obligations. In such instances, termination must only have ex nunc effect without the return of performances in natura or in a corresponding amount of money. The right for a party to terminate with such an effect may be included in the contract or be available by law where there is a sufficiently important reason to terminate the contract. In contrast to termination due to non-performance or other important reason the termination of a 147 However, the German version of Art. 55 Payment Services Directive uses ‘Kündigung’ in contrast to the term ‘Beendigung’ used in the Digital Content Directive and the Sale of Goods Directive.

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long-term contract does not require such a reason but is often subject to a time limit. 148 Such form of termination is commonly referred to as ‘ordinary’ or ‘standard’ termination. 62 ‘Standard’ termination rights feature, for example, in commercial agency contracts – Art. 15 Commercial Agents Directive regulates the termination periods for each party and is flanked by the commercial agent’s claim for indemnity or compensation (Art. 17 Commercial Agents Directive).149 Art. 13(1) Consumer Credit Directive stipulates that the consumer 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. 150 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).151 b) Acquis Principles, DCFR and CESL 63

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.

64

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 conOn this (lesser considered) type of termination see Chapter 6 mn. 83. See mn. 32. 150 See Reich/Micklitz/Rott/Tonner, European Consumer Law (2nd edn, Intersentia 2014) 223. 151 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. 148

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tract 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) – the provision is however supplemented by more general rules in Art. 8 CESL152 for the different types of termination and also by the provision on divisible obligations in Art. 117 CESL. It will be necessary to consider whether this division or an individual rule is preferable for longterm 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 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.

152

See Chapter 6 mn. 138.

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CHAPTER 6 BREACH AND REMEDIES Literature: von Bar/Clive (eds), DCFR Full Edition (Sellier 2009); DiMatteo/Janssen/Magnus/Schulze (eds), International Sales Law: Contract, Principles & Practice (2nd edn, Nomos 2021); Grabitz/Hilf/ Nettesheim (eds), Das Recht der Europäischen Union (68th edn, C.H. Beck 2019); Howells/Wilhelmsson/ Twigg-Flesner, Rethinking EU Consumer Law (Routledge 2017); Jansen/Zimmermann (eds), Commentaries on European Contract Laws (OUP 2018); Research Group on the Existing EC Private Law (Acquis Group), General Provisions, Delivery of Goods, Package Travel and Payment Service (Contract II) (Sellier 2009); Reich et al., European Consumer Law (2nd edn, Intersentia 2014); 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 Kaufrecht (Sellier 2012); Schulze (ed), Common European Sales Law – Commentary (Nomos 2012); Schulze/Staudenmayer (eds), EU Digital Law – Commentary (Nomos 2020); Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ (2012) ZEuP 797. I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Innovative approaches in the acquis communautaire . . . . . . . . . . . . . . . . . . . . . 2. Approaches to the system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Liability for non-performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Strict liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Burden of proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Statutory limitations and exclusion of liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Contractual exclusion of liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Withholding performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Price reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Damages and interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. Restitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Sale of Goods Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Digital Content Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. DCFR and CESL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Redress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 5 12 12 13 28 32 33 40 46 50 50 52 78 82 100 107 125 125 127 128 138 140

I. Introduction 1. Innovative approaches in the acquis communautaire The consequences of breach1 of contractual obligations and in particular the legal re- 1 sponses (remedies) are central parts of the law of contract. The sanctions for breach give the injured party the possibility to react; the threat of sanctions also has a preventative effect to induce a party to perform its obligations and therefore ensure the performance of the contract. Although a number of EU directives focus mainly on particular contractual obligations, it is usually the Member States who remain responsible for the issues concerning breach and for providing the corresponding sanctions. Accordingly, there is a great variation in the measures that have been adopted to secure the objectives of the 1 The term ‘breach’ is used as a collective term to describe the different acts or omissions that represent a deviation from the contractual obligation due.

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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.2 Nonetheless, a series of directives3 and regulations4 contain express rules on the liability for breach and the remedies that are available to the injured party, even though comprehensive regulation is not always intended. Despite its fragmented nature, EU legislation has given key features to the development of this area of law. Consequently, several Member States have undertaken a number of extensive changes to traditional approaches that have occasionally extended beyond the foreseen scope of the European legislation. 2 EU law on the breach of contract has indeed initiated or promoted a number of developments, including the emergence of overarching requirements for the breach of contractual obligations as the starting point for to several or all remedies available to the injured party. The concept of (non-)conformity outlined in Art. 3 CSD (inspired by the CISG and the PECL) serves as the basis. The model adopted by the Consumer Sales 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. Later, Art. 18 CRD and Art. 5 and 11 DCD continued and extended the approach under the Consumer Sales Directive by including rules on non-performance alongside the rules non-conforming performance. 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 status of a claim to performance as a remedy was a new approach for many Member States. A further innovative aspect concerned the priority of repair or replacement over the remedies of price reduction and termination.5 In addition, the injured party’s right to terminate the contract did not require a court decision in order to be exercised, as was required in some Member States; Art. 18 CRD also follows a similar approach to the Consumer Sales Directive. Withdrawal rights therefore 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. In this respect the directives – as the CISG and the PECL – have shifted the focus to a different model: the legislator affords a party the power to create, modify or end a legal relationship through unilateral acts (so-called ‘formative rights’).6 3 The new European rules have had considerable impact on the notion of defect in sales law. On the one hand this concerns the integration of defect into the more general concepts of conformity and non-conformity.7 However, on the other hand Art. 7 SGD – 2 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. 3 These include, above all, the Commercial Agents Directive, Consumer Rights Directive, Digital Content Directive, Late Payment Directive, Package Travel Directive, Payment Services Directive, and the Sale of Goods Directive. 4 For example, Denied Boarding Regulation, Rail Passenger Regulation, Ship Passenger Regulation, Coach Passenger Regulation. 5 See mn. 52 et seq. 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) 183, 185–187. 7 See Chapter 5 mn. 4, 37 et seq.

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building on the Consumer Sales Directive – expands the traditional national criteria for conformity by including pre-contractual public statements made by the seller and third parties.8 The notion of defect in the sale of goods is not limited to the physical integrity of the good but rather also includes the installation instructions and installation by the seller (see Art. 8 SGD following Art. 2(5) CSD). This concept of defect thus expresses that the contractual obligations take into account the other party’s reasonable expectations.9 Such change in perspective towards the reasonable expectations can be seen throughout the provisions on contractual obligations in relation to breach and therefore places the criteria in a new context. The legislation responding to the challenges to digitalization under the ‘Digital Single 4 Market Strategy’ have led to further innovation in contract law, as is shown by two new approaches to breach. On the one hand, the provisions which, for the purposes of liability, take into account the dependence of digital content and digital services on their digital environment, extend far beyond the installation provisions in sales law, which already included particular interactions with the good in the liability for non-conformity. This applies in particular to the liability of the supplier for incorrect integration according to Art. 9 and 11 DCD, but is also expressed in the lists of subjective and objective conformity criteria (including the characteristics of functionality, interoperability and compatibility).10 On the other hand, the liability for failing to supply updates is an innovation with extensive systemic and practical importance for contract law.11 Furthermore, the extension of liability due to the update obligation is also linked with a distinction by the criteria and consequences of liability between single performance and continuous performance over a period of time (inter alia with regard to the burden of proof and unwinding the contract12) and also introduces a new structural element in European contract law.13

2. Approaches to the system a) Sales law in the acquis communautaire Despite their innovative features, the European rules on breach have been subject to a 5 piecemeal development for specific circumstances and are thus far from forming a complete system. Nevertheless, they do provide a starting point for a partial systemization. The aforementioned provisions of consumer sales law, which the Sale of Goods Directive has adopted from the Consumer Sales Directive and which the Digital Content Directive has extended in scope, have made an important contribution by providing a foundation for a partial systemization with, 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 sales into repair and replacement, and the equal ranking of termination and price reduction as remedies.14 Not only have some Member States implemented these 8 See Chapter 3 mn. 82–83 See also Art. 8 DCD. The Package Travel Directive also contains a similar approach in relation to statements from organizers and retailers, see Recital 26 PTD. 9 See Chapter 2 mn. 7 et seq. 10 Art. 7 and 8(1) in conjunction with Art. 11 DCD and Art. 6 and 7 in conjunction with Art. 10 SGD. 11 Art. 7(d) and 8(2) in conjunction with Art. 11 DCD and Art. 6(d) and 7(3) in conjunction with Art. 10 SGD. See Chapter 5 mn. 47 et seq. 12 See mn. 36–37. 13 Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 713–714, 722. 14 See mn. 17 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 mn. 1–2; Schmidt-Kessel, ‘Remedies for Breach of Contract in Euro-

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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 and also in part in France).15 b) Acquis Principles 6

The Acquis Principles developed their approach to structuring European contract law concerning breach on the basis of the Consumer Sales Directive, other relevant directives and associated European case law prior to 2010. This includes, in particular, the use of overarching principles on the requirements and exercise of remedies, their relationship to one another (including also damages and interest), as well as the extension of general principles through specific rules for certain fields (e.g. the delivery of goods or for particular services).16 The Acquis Principles have outlined the possibilities for coherent development of the acquis communautaire, but the gaps in current EU contract law prevent the further step of drafting a complete system of European law on breach. 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 itself.17 c) CESL

7

Beyond these academic drafts, the proposed Common European Sales Law challenged the European legislator to develop 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.18 The remedies for parties to a service contract were to be regulated separately, however in one general section on remedies.19 The proposed separation into types of contracts and parties expresses that the remedies in each case are possible reactions to the breach of the contractual obligations stipulated in the preceding sections. The approach does, however, result in repetitions and frequent cross-references, particularly to the earlier chapter on general terms 20 which concerns the requirements of various remedies (such as non-performance, fundamental non-performance and excused non-performance), as well as to later21 rules on damages and interest – these latter aspects have general effect on each type of contract pean Private Law – Principles of European Contract Law, Acquis Communautaire and Common Frame of Reference’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 183, 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. 15 See mn. 2 and Chapter 1 mn. 27. 16 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. 17 Art. 8:201 and 8:202 ACQP on monetary and non-monetary obligations, respectively, corresponding to Art. 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. 18 Chapter 11 the remedies for the buyer (Art. 106 et seq. CESL) follow the obligations of the seller in Chapter 10; the remedies of the seller in Chapter 13 (Art. 131 et seq. CESL) follow the obligations of the buyer in Chapter 12. 19 Chapter 15, Section 4 (Art. 155 et seq. CESL). 20 Chapter 9 (Art. 87 et seq. CESL). 21 Chapter 16 (Art. 159 et seq. CESL).

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and party, yet are positioned after specific rules. Art. 106(1) CESL outlines the basic structure of the list of remedies available to the buyer in the event of a non-performance of an obligation by the seller.22 The remedies available to the buyer comprise the request for performance, withholding performance, termination, price reduction, and damages.23 Art. 106(6) CESL regulates the general relationship between the remedies by stipulating their cumulative application under the requirement ‘not incompatible’.24 Article 106 CESL 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.

However, the CESL’s chapters on remedies do not regulate all consequences resulting 8 from the exercise of remedies. In particular, Art. 8 CESL 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 (Art. 172 et seq. CESL). 25 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.26 Accordingly, the provisions are removed from the chapter on de22 Corresponding provisions for the seller, the customer in a service contract, and the service provider are contained in Art. 131, 155, 157 CESL. 23 For more detail on each of these remedies see mn. 50 et seq. 24 Separate rules on the specific relationship between the individual remedies are foreseen in, for instance, Art. 8(2) CESL (termination and damages), Art. 120(3) CESL (price reduction and damages), and Art. 8(1) CESL (exclusionary effect of termination). 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) 111, 132–133. On Art. III.–3:102 DCFR see DCFR Full Edition 777– 778. 25 See mn. 125 et seq. 26 §§ 346 et seq. §§ 812 et seq. BGB. See the corresponding explanations in German Civil Code.

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fects in consent and from the parts on remedies and – in adhering to the ‘life cycle’ of the contract27 – placed before prescription in the penultimate chapter of the CESL. d) Services The developments in services law over recent years have outlined approaches for systematization in relation to the law surrounding breach. The CESL laid the foundation by including provisions on related services contracts and, moreover, applying structures developed for sales law to the services sector, yet without comprehensive regulation or consideration of the latter’s features. Above all, Package Travel Directive and the 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. 10 Both the Package Travel Directive as well as Digital Content Directive contain a catalogue of remedies comprising (as under the system in the CESL) subsequent performance, price reduction, and termination (as well as damages under the Package Travel Directive.28 However, each have their own particular features.29 The Package Travel Directive takes the particular nature of the contract into account as it does not provide repair or replacement as the means for subsequent 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) PTD). 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 identifiable (e.g. ‘self-help’ in Art. 13(4) PTD, the transition to price reduction or termination in Art. 12(2) and (3)(b) PTD as well as in Art. 14(4)(b) DCD). 11 As for the notion of conformity,30 concepts outlined primarily in sales law for the structure of remedies are also transferred to service contracts. Future developments will indicate the relevance of these concepts beyond the scope of the directives noted here. One can at the least consider that the adoption and adaption of these concepts for particular types of service contracts can also contribute to the development of a general concept of the law on breach which includes service contracts and continues the approach for sales contracts, thus strengthening the coherency of European contract law. 9

II. Liability for non-performance 1. Overview 12

The liability for non-performance of contractual obligations is a core feature of European contract law, as well as of national law. For the acquis communautaire, the first questions are whether and how the circumstances and criteria surrounding liability can be conceptualized in an overarching manner. This is followed by closer consideration of the individual legal consequences resulting from this liability, in particular the remedies, as well as the unwinding of failed contracts.31 This development of European contract law has been influenced by different legal traditions, which are also reflected in the comRecitals 6, 26 CESL. Art. 13 and 14 PTD; Art. 11 and 14 DCD. 29 For example, Art. 13(3), (5) and (6) PTD and Art. 14(2), (4) and (5) DCD. 30 Chapter 5 mn. 37 et seq. 31 See mn. 50 et seq., 125 et seq.

27 28

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promises adopted in some provisions. In the common law tradition, ‘breach of contract’ is a central concept.32 It has found its way into international sales law via Art. 25 CISG and also into the discussions on European contract law.33 In contrast, continental European legal systems usually distinguish between the contract (as a legal transaction) and the obligations arising from the contract, so that the basis of the liability is the non-performance or breach of contractual obligations.34 However, the nature and scope of the obligations in question differ across the individual legal systems. With regard to the systematization of EU contract law, the acquis features particular approaches towards a system of remedies for non-performance of particular obligations. These include above all the performance obligations in sales contracts, in contracts for the supply of digital content and digital services, and some other contracts for services (especially package travel contracts). However, despite their growing importance in the acquis, the information obligations during the performance of the contract35 have remained largely without a comparable set of European instruments to regulate the legal consequences for breach. There is not necessarily an independent claim to performance of these information obligations and thus breach may give rise to different legal consequences than for those obligations for which EU law stipulates (subsequent) performance. On the other hand, liability for so-called duties of protection36 plays hardly any role in European contract law.

2. Structure a) Competing approaches Against this background, it is possible to distinguish between three main approaches 13 to structure the circumstances which, in the acquis communautaire, establish the liability for non-performance and form the basis for the corresponding remedies: the classification of several different types of breach, the combination of all such possibilities in a uniform set of criteria, and the distinction between non-performance and non-conforming performance within the framework of an overarching concept of liability. While the Acquis Principles and the CESL proceeded from the concept of a uniform set of criteria, the more recent developments in the acquis show a tendency to distinguish between non-performance and non-conforming performance. b) Classification approach aa) The classification of individual specific types of breach allows for individual legal 14 consequences. How breach is classified is often linked to individual types of breach or the reasons for such (therefore also called cause approach). However, as in national law, the facets of breach can also be of quite different nature in the acquis communautaire (e.g. delay in performance, impossibility, general failure to perform for a majority of

32 See Cartwright, Contract Law: An Introduction to the English Law of Contract for the Civil Lawyer (3rd edn, Bloomsbury 2016) § 12.I. 33 For example, the proposal to develop the concept to ‘breach of obligation’, Zoll, ‘The Remedies for Non-Performance’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Selllier 2009) 199. 34 On the questions arising for the academic drafts on European private law, see Schulze, ‘The Academic Draft of the CFR and the EC Contract Law’ in Schulze, ibid. 3 et seq. 35 For example, the supplier’s obligation to provide information on updates; Chapter 5 mn. 48–49. 36 German law refers to such obligations as Schutzpflichten. These duties of protection go beyond the performance of the contractual obligations and related information obligations and are aimed at the consideration of the other party’s other rights and interests, see for example § 241(2) BGB and the corresponding comments in German Civil Code/Schulze, § 241 BGB mn. 8–9.

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creditors37 or non-performance vis-à-vis the individual creditor, failure to perform in conformity, etc.). 15 The Late Payment Directive serves as an example for such specification of conditions and legal consequences of a type of breach. In view of current challenges, it has turned its attention to one aspect of a ‘classic’ subject of legal doctrine: default by the debtor (mora debitoris)38 with regard to cash payments. The Directive was enacted to combat late payments in commercial transactions because they significant impair the liquidity of creditors – particularly SMEs – especially in times of economic crisis.39 In contrast, it intends to promote a ‘shift to a culture of prompt payment’40. In view of this objective, the Directive is limited to regulating a one specific type of breach: the late payment of monies due. This specific type of breach shapes the form of the Directive in accordance with its objective. It stipulates that the legal consequences of late payment already arise when a payment has not been made within the contractual or statutory period of payment, provided that the creditor has fulfilled his contractual and legal obligations and unless the debtor is not responsible for the delay (Art. 2 No. 4, 3(1) Late Payment Directive).41 In particular, the Late Payments Directive does not provide for a demand for performance or similar notification by the creditor to the debtor (in contrast to other legislation concerning the non-performance of contractual obligations, including non-conforming performance, in particular the consumer protection directives).42 16 bb) A distinct example of classification of types of breach can be seen in the various travel law regulations on passenger rights, for example 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 breach, such as denied boarding (Art. 4), cancellation (Art. 5), and delay (Art. 6) and provides different consequences for each. The European legislator could not be content with a general clause due to the strict liability and specific type of performance.

For example, the cancellation of a flight; see mn. 16. On the importance for European contract law, Lein, Die Verzögerung der Leistung im europäischen Vertragsrecht (Mohr Siebeck 2015). 39 See Recitals 3 et seq., 7 et seq. Late Payment Directive. 40 Recital 12 Late Payment Directive. 41 See mn. 120 et seq. 42 On the question of the compatibility of this rule with the model of a uniform criterion, see Commentaries on European Contract Laws/Kleinschmidt, Art 8:101 mn. 12. 37 38

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c) Uniform approach aa) At the other end of the spectrum is a uniform approach which does not draw dis- 17 tinctions between the different types of breach. Broadly speaking, this uniform approach can be characterized as a breach or non-performance of contractual (performance) obligations. However, the Package Travel Directive, which features this approach, does not use this term. Instead, it extends the concept of lack of conformity beyond non-conforming performance (referred to as ‘improper performance’) to non-performance so that its scope of application covers both. Article 3 No. 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

18

The Payment Services Directive also features a uniform concept of breach: Article 89(1) Payment Services Directive Payment service providers’ liability for non-execution, defective or late execution of payment transactions Where a payment order is initiated directly by the payer, the payer’s payment service provider shall, without prejudice to Article 71, Article 88(2) and (3), and Article 93, be liable to the payer for correct execution of the payment transaction, unless it can prove to the payer and, where relevant, to the payee’s payment service provider that the payee’s payment ser-vice provider received the amount of the payment transaction in accordance with Article 83(1). In that case, the payee’s payment service provider shall be liable to the payee for the correct execution of the payment transaction. (…)

bb) The academic drafts for European contract law also generally adopt the uniform 19 approach. However, in contrast to the Package Travel Directive, they do not extend the notion of a lack of conformity, but rather form the basis for the notion of non-performance. Following the approaches under the DCFR and PECL, the Acquis Principles define 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.

cc) The CESL developed this uniform approach by presenting the possibility, for the 20 first time, to include the law on breach of contract in a proposal with a near-complete system of contract law. Art. 87 CESL is the central provision: Article 87 CESL Non-performance and fundamental non-performance (1) Non-performance of an obligation is any failure to perform that obligation, whether or not the failure is excused, and includes: (a) non-delivery or delayed delivery of the goods; (b) non-supply or delayed supply of the digital content; (c) delivery of goods which are not in conformity with the contract; (d) supply of digital content which is not in conformity with the contract;

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Chapter 6 Breach and Remedies (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.

21

Art. 87 CESL combines the overarching approach a homogenized concept of nonperformance43 with a list of examples of types of non-performance. The list of examples also serves to provide 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 narrower sense as the term for entire non-performance and failure to perform.46 However, it does clarify that the entire non-performance also falls under the uniform concept of non-performance. Accordingly, the right to require performance is included as one of several remedies. 47 The CESL therefore does not distinguish between primary and secondary contractual rights. However, Art. 87(2) CESL proposes the introduction of an additional category of ‘fundamental non-performance’48, which corresponds to ‘fundamental breach’ in the CISG49.50 This additional category would serve to crease an additional hurdle to termination for non-performance, although in principle the uniform approach under the CESL would make all remedies available for each type of breach.51 d) Distinction between non-performance and non-conforming performance

22

aa) The more recent development of the acquis communautaire features, however, a tendency to proceed neither from a broad spectrum of individual cases of breach nor from a monolithic, uniform approach. Sales law and the supply of digital content and digital services instead highlight the importance of the distinction between two types of non-performance: non-performance in the narrower sense, whereby there is no delivery or supply, and non-conforming performance in the sense that the debtor has performed, but not in conformity with the terms of the contract. This distinction is linked to the difference between the obligation to perform and the obligation to perform in conformity with the contract.52 However, it is not aimed at the separate consideration of both as43 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 mn. 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 mn. 4. 47 Zöchling-Jud, ‘Rechtsbehelfe des Käufers im Entwurf eines Gemeinsamen Europäischen Kaufrechts’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 327, 332. 48 Schmidt-Kessel CESL/Schmidt-Kessel/Kramme, Art. 87 CESL mn. 12. 49 Art. 25 CISG; see Schlechtriem & Schwenzer CISG/Schroeter, Art. 25 CISG. 50 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, 110; cf Schmidt-Kessel CESL/Schmidt-Kessel/Kramme, Art. 87 CESL mn. 13. 51 In accordance with Art. 3(6) CSD, Art. 114(2) CESL provided an exception to this additional requirement for consumer sales contracts and consumer contracts for digital content. Furthermore, Art. 106(4) CESL excluded the claim to performance and to damages in cases of ‘excused non-performance’ according to Art. 88 CESL; see mn. 111.

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pects, but rather allows for non-performance and non-conforming performance to be understood as complementary concepts within the framework of terminology that includes both for the basis and legal consequences in the event of either. bb) The Consumer Sales Directive had already outlined this approach at an early 23 stage. It expresses to an equal extent the distinction between non-conforming performance and non-performance as well as the influence of an overarching concept of contractual liability: 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 concept of non-performance even though it concerns a specific case of defective or non-performance, namely the lack of conformity.53 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 54 and its uniform notion of breach.55 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. cc) In 2011, the European legislator took an important step towards the completion of 24 this system through Consumer Rights Directive. Art. 18 CRD provides the obligation of timely delivery and the right to terminate the contract for non-performance of this obligation.56 The consumer may terminate the contract if the trader has failed to fulfil his obligation to deliver the goods at the agreed time or within the 30-day limit set out in Art. 18(1) CRD. In this respect, the provision refers to a starting point in which the debtor has not performed at the agreed time and, as such, is in default. However, it not only covers the failure to perform in this period but also imposes the delivery obligation even before this period. Furthermore, the right to terminate the contract applies both where the trader has not yet performed and where there is no performance at all. The right to terminate thus covers all situations of non-performance (including cases in which not merely a temporary but also a sustained non-performance was foreseeable from the outset). In this context, Art. 18(2) CRD provides for a second stage, whereby the consumer can only terminate the contract if the trader fails to perform within an additional period of time set by the consumer; such additional period of time may not be required in some situations. 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.

See Chapter 5 mn. 9. EU Sales Directive/Bianca, Art. 3 mn. 3. 54 Ibid. Introduction mn. 21. 55 Schlechtriem & Schwenzer CISG/Müller-Chen, Art. 45 CISG mn. 5. 56 See mn. 94. 52 53

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Chapter 6 Breach and Remedies (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. (…)

25

Art. 18(1) and (2) CRD thus contain an overarching rule for delivery and the consequences of non-performance in different circumstances and for different reasons. Although the starting point is framed as default, the provision covers non-performance in each of these different forms and exists alongside the provisions on non-conforming performance. This functional context began in combination with the Consumer Sales Directive, but has continued to remain with the Sale of Goods Directive and its concept of non-conformity. However, it is nonetheless difficult to recognize because two separate directives contain the provisions concerning both types of breach – non-performance and non-conforming performance. Article 10 Sale of Goods Directive Liability of the seller (1) The seller shall be liable to the consumer for any lack of conformity which exists at the time when the goods were delivered and which becomes apparent within two years of that time. Without prejudice to Article 7(3), this paragraph shall also apply to goods with digital elements. (2) In the case of goods with digital elements, where the sales contract provides for a continuous supply of the digital content or digital service over a period of time, the seller shall also be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within two years of the time when the goods with digital elements were delivered. Where the contract provides for a continuous supply for more than two years, the seller shall be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the sales contract. (3) Member States may maintain or introduce longer time limits than those referred to in paragraphs 1 and 2. (…)

26

dd) The overarching conceptual structure and the differences between the two types of breach have become clearer via the Digital Content Directive. The liability for the failure to supply the digital content or digital services (i.e. non-performance) and for nonconforming performance are covered in a single directive. The central provision on liability combines both types of the performance obligation with the corresponding rules on the consequences of breach: the obligation to supply with the remedy for the failure to supply (Art. 11(1), 13 DCD) and the obligation to perform in conformity with the contract with the remedies for lack of conformity (Art. 11(2), (3), 14 DCD). In line with the inclusion of different types of contracts for the supply of digital content and digital services, the concept of non-conformity57 also extends to non-conforming performance 57 On the additional distinction between single supply and continuous supply within a period of time see mn. 30–31 and Chapter 5 mn. 49–50.

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in contracts that, in national law, are regarded as, for example contracts to produce a work or hire contracts.58 Despite these separate provisions for the two types of breach, the link between non- 27 performance and non-conforming performance is especially apparent in the interplay between the concepts and the structure of their legal consequences in the Digital Content Directive. Both types of breach entitle the consumer to terminate the contract. In principle, this right only arises on a ‘second level’ after the consumer has had the opportunity to receive subsequent performance (‘hierarchy of remedies’; Art. 13, 14(3), (4) DCD).59 The provisions on exercise and the obligations following termination apply in both instances (Art. 15 et seq. DCD). The differences can be seen in the details of subsequent performance as well as the transition to termination of the contract (e.g. the failure to supply ‘without undue delay’ upon request as opposed to ‘within a reasonable time’ after notification of the lack of conformity; Art. 5(1), 14(3) DCD). 60 They are also evident in the inclusion of price reduction as a further remedy for non-conformity and are also reflected in the provisions on termination (see Art. 16(1) DCD). The distinction between non-performance and non-conforming performance in European contract law is therefore not only determined historically by the fact that these types of breach were regulated at different times for the sales of goods but it also eases the appropriate consideration of the parties’ interests by allowing for different legal consequences.

3. Time The distinction between non-performance and non-conforming performance may 28 also serve to determine the point in time at which the liability for breach arises. In principle, the relevant point in time for non-performance is the moment at which the performance is due;61 this moment is the starting point for the provisions on liability. If the parties have not agreed on the due date, the conclusion of contract may serve as the basis. Where digital content or a digital service is not supplied, Art. 11(1) DCD refers to the provisions on supply, including the due date (Art. 5(1) DCD). Due to these provisions, the requirement to supply ‘without undue delay’ after the conclusion of contract forms the typical starting point for the provisions on liability (unless the parties have agreed otherwise). In particular, the requirements for remedies for a failure to supply are linked to this requirement. According to Art. 13(1) DCD, if the trader does not supply the digital content or digital service without undue delay after the conclusion of the contract or at the time agreed by the parties, the consumer shall call upon the trader to supply the digital content or digital service. If the trader fails to do so without undue delay or within an additional period of time, the consumer may terminate the contract. Art. 18(1) and (2) CRD apply in instances of non-performance (non-delivery) in sales contracts, also taking the moment of conclusion of contract as the basis: the trader must deliver the goods without undue delay, but not later than 30 days from the conclusion of the contract. If the trader does not deliver the goods to the consumer at the agreed time or within this 30-day period, the consumer shall call upon the trader to deliver within an additional period of time; failure to do so will allow the consumer to terminate the contract.

58 See Chapter 5 mn. 19; Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 709–710; Wendland, ‘Sonderprivatrecht für Digitale Güter’ (2019) ZVglRWiss 191, 206. 59 See mn. 88, 91. 60 See mn. 89. 61 See Chapter 5 mn. 26 et seq.

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29

In contrast, the relevant point in time for liability for non-conforming performance is generally the moment of performance. For the delivery of goods, Art. 10(1) SGD provides that the delivery of the goods also serves to determine the duration of the liability. The liability covers any non-conformity which exists at the time when the goods were delivered and which becomes apparent within two years of that time.62 The limitation periods under national law shall ensure that such limitation period allows the consumer to exercise the remedies for any non-conformity which becomes apparent within this two-year period (see Art. 10(4) SGD). The limitation of liability to non-conformities which become apparent within two years from delivery is, however, a minimum standard as Art. 10(3) SGD permits the Member States to introduce or maintain longer time limits. Article 10 Sale of Goods Directive Liability of the seller (1) The seller shall be liable to the consumer for any lack of conformity which exists at the time when the goods were delivered and which becomes apparent within two years of that time. Without prejudice to Article 7(3), this paragraph shall also apply to goods with digital elements. (…) (3) Member States may maintain or introduce longer time limits than those referred to in paragraphs 1 and 2. (4) If, under national law, the remedies provided for in Article 13 are also subject to a limitation period, Member States shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 13 for any lack of conformity for which the seller is liable pursuant to paragraphs 1 and 2 of this Article, and which becomes apparent within the period of time referred to in those paragraphs. (…)

30

For the single supply or a series of individual acts of the supply of digital content or digital services, Art. 11(2) DCD links the liability to the moment of supply, which also serves as the starting point for the duration of liability. As Art. 10(4) SGD, Art. 11(2) also provides a minimum two-year period. Article 11(2) Digital Content Directive Liability of the trader Where a contract provides for a single act of supply or a series of individual acts of supply, the trader shall be liable for any lack of conformity under Articles 7, 8 and 9 which exists at the time of supply, without prejudice to point (b) of Article 8(2). If, under national law, the trader is only liable for a lack of conformity that becomes apparent within a period of time after supply, that period shall not be less than two years from the time of supply, without prejudice to point (b) of Article 8(2). If, under national law, the rights laid down in Article 14 are also subject or only subject to a limitation period, Member States shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that exists at the time indicated in the first subparagraph and becomes apparent within the period of time indicated in the second subparagraph. (…)

31

The Directives contain specific rules for the continuous supply of digital content or digital services over a period of time. These rules also follow the principle that the moment of performance is relevant for determining liability. However, these rules do not set a particular point in time but rather a period of time. The liability provision in the Digi62 Art. 10(5) and (6) SGD do allow the Member States to provide for exceptions and variations (e.g. for second-hand goods).

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tal Content Directive is thus inserted into an overarching structure which Art. 8(2) DCD outlined for non-conformity.63 Under Art. 11(3) DCD, the liability extends to each lack of conformity which occurs or becomes apparent during the period of time during which the digital content or digital service is to be supplied under the contract. For the sale of goods with digital elements, Art. 10(2) SGD shapes the liability to fit within the model used in sales law (i.e. the delivery of the goods) and modifies this where continuous supply exceeds the standard two-year period (e.g. a navigation system with ‘lifetime’ updates). Article 11(3) Digital Content Directive Liability of the trader Where the contract provides for continuous supply over a period of time, the trader shall be liable for a lack of conformity under Articles 7, 8 and 9, that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the contract. If, under national law, the rights laid down in Article 14 are also subject or only subject to a limitation period, Member States shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that occurs or becomes apparent during the period of time referred to in the first subparagraph. Article 10(2) Sale of Goods Directive Liability of the seller In the case of goods with digital elements, where the sales contract provides for a continuous supply of the digital content or digital service over a period of time, the seller shall also be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within two years of the time when the goods with digital elements were delivered. Where the contract provides for a continuous supply for more than two years, the seller shall be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the sales contract.

4. Strict liability The aforementioned provisions from the acquis communautaire do not require fault 32 for liability, instead favouring a system of strict liability (i.e. ‘objective’ liability). As outlined by Art. 8:101 PECL, European contract law thereby follows the approach under the CISG, which in turn is based on the common law standard rather than the notion of fault-based liability familiar in continental-European legal systems. As a consequence, Art. 8:101 and 8:102 ACQP as well as Art. 106(4) CESL provide, as also in various directives, that the exercise of the remedies does not require fault on the part of the debtor. However, this focus on strict liability for breach under European contract law does not prevent other instruments (in particular the reasons for excluding liability64 and limiting the extent of damages65) from adopting similar functions in order to balance the interests of each party as under a fault-based system of liability.

5. Burden of proof The question of the party bearing the burden of proving breach is of considerable im- 33 portance for enforcing legal rights. However, the acquis communautaire only regulates this particular matter for specific situations. As the rules on burden of proof in other See Chapter 5 mn. 49–50. See mn. 46 et seq. 65 See mn. 118. 63 64

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areas (such as pre-contractual information duties) these provisions are based on the general assumption that the party must prove the fact she seeks to rely on in order to exercise a right.66 The provisions in the directives primarily serve to deviate from this principle by reversing the burden to favour the party who is particularly worthy of protection in such situations. 34 Art. 11 SGD and Art. 12 DCD contain such a reversal of the burden of proof. This provision of the Sale of Goods Directive follows the presumption under Art. 5(3) CSD: any lack of conformity which becomes apparent within six months of delivery of the goods shall be presumed to have existed at the time of delivery. However, Art. 11(2) SGD extends this timeframe to one year and allows the Member States to maintain or introduce a two-year period. In order to enforce his rights, under the general principle the consumer must merely prove a non-conformity that has become apparent within two years from the date of delivery (Art. 10(1) SGD). However, where the presumption applies, the consumer does not have to prove the further criterion that the non-conformity existed at the time of delivery. Proving this aspect is often difficult to prove in retrospect and thus often cannot be proven. Art. 11(1) SGD strengthens the protection for the consumer by reversing the burden of proof: the seller must prove that the non-conformity did not exist at the time of delivery. The seller is therefore obliged to furnish sufficient proof that the reason for the non-conformity is due to circumstances that arose after the delivery of the good to the consumer. In contrast, ‘the consumer is not required to prove the cause of that lack of conformity or to establish that its origin is attributable to the seller’67. In principle, this also applies to goods with digital elements.68 However, where there is continuous supply over a period of time, the rule under Art. 10(2) SGD applies, according to which the liability period corresponds to the length of the particular period of time for supply (and may exceed two years).69 Art. 11(3) SGD adapts the reversal of the burden of proof to this rule: the seller bears the burden of proving that the digital content or digital service was in conformity throughout the entire period of time under Art. 10(2) SGD. 35 Art. 12 DCD determines the burden of proof in a similar direction, but with more detailed and more extensive rules. Recital 59 DCD justifies these rules, inter alia, on the basis that the highly complex nature of digital content and digital services puts the trader is in a better position to assess why the digital content or digital service was not supplied or supplied in conformity. In addition, Recital 59 makes clear that whereas it is for the consumer to provide evidence of the non-conformity, the consumer should not have to prove that the non-conformity existed at the time of supply. In contrast to the Sale of Goods Directive, the Digital Content Directive includes non-performance (i.e. failure to supply) in addition to non-conforming performance.70 Art. 12(1) DCD provides that the trader bears the burden of proving that the digital content or digital service was supplied to the consumer. In the event the trader seeks to enforce his rights (especially regarding the claim to payment), applying the general principle to this distribution of the burden of proof would mean that each party must prove the facts on which it seeks to rely. Although the task of regulating claims by the trader is left to the Member States, Art. 11(1), 13 DCD regulate the reverse situation in which the consumer seeks to enforce rights against the trader due to his non-performance. Under the general principle, in this case Contract II/Twigg-Flesner, Art. 2:207 mn. 1. C–497/13 Faber ECLI:EU:C:2015:357. 68 On the sale of goods with digital elements see De Francheschi, La vendita di beni con elementi digitali (Edizioni Scientifiche Italiane 2019). 69 See mn. 30–31. 70 See Chapter 5 mn. 11. 66

67

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the consumer would have to prove that the trader did not supply the digital content or digital service in accordance with Art. 5 DCD. In deviation, Art. 12(1) places the burden upon the trader due to the consumer’s supposedly weaker position. The Digital Content Directive extends the distinction between single supply and con- 36 tinuous supply over a period of time71 to the burden of proof. In the former instance (which also includes a series of single acts of supply), Art. 12(2) DCD provides that trader bears the burden of proving that the supplied digital content or digital service was in conformity at the time of supply where a lack of conformity becomes apparent within one year from supply. In this respect, the reversal of the burden of proof covers a shorter period of time than the liability under Art. 11(2) DCD (no less than two years after supply). In comparison with the rule concerning goods with digital elements, the time of supply as starting point corresponds with the time of delivery, but unlike Art. 11(2) SGD the Member States may not extend the time period to two years. However, if the contract provides for the continuous supply over a period of time, such period is also relevant as the reversal of the burden of proof covers the non-conformities which become apparent during this period for supply. It does not extend to non-conformities which occur during the period for supply but first become apparent later (even though the trader is liable in accordance with Art. 11(3) DCD). Art. 12(4) DCD excludes a reversal of the burden of proof in both instances if the dig- 37 ital environment 72 of the consumer is not compatible with the technical requirements of the digital content or digital service (e.g. insufficient processing capacity, incorrect operating system, etc.).73 The incompatibility must be due to technical requirements of which the trader informed the consumer in a clear and comprehensible manner before the conclusion of the contract. This exception is nonetheless linked with a reversal of the burden of proof: the trader bears the burden of proving the requirements under Art. 12(4) DCD. Where the trader can furnish proof, the consumer does not benefit from the reversal of the burden of proof under Art. 12(2) and (3) DCD. The burden of proof then follows the general principle and as such the onus is on the consumer to prove the non-conformity. Art. 12(5) DCD places the consumer under an ‘obligation to cooperate’ with the trad- 38 er in order to ascertain whether the cause of non-conformity at the time specified in Art. 11(2) or (3) lay in the consumer’s digital environment. This ‘obligation to cooperate’ is, however, not comparable with the general duty to cooperate under Art. 1:202 PECL (and Art. 3 CESL). According to Art. 1:202 PECL, each party owes to the other a duty to cooperate in order to give full effect to the contract. In contrast, the obligation to cooperate under Art. 12(5) DCD serves the specific purpose of allowing the trader to examine whether he is liable for the non-conformity or can furnish evidence to the contrary. Specifically, the obligation is directed towards the cooperation by the consumer in the use of technical means which would allow the trader to determine the cause of the nonconformity (such as the provision of automatically generated incident reports or with details of the consumer’s internet connection74). However, due to the effect of the principle of proportionality on Art. 12(5) DCD, the consumer is only obliged to cooperate to the extent that is reasonably possible and necessary.75 In particular, the protection of the consumer’s privacy and her personal data are to be considered and as such the obligation is limited to the technically available means which are least intrusive for the consumer.

See Chapter 5 mn. 49–50. See Chapter 5 mn. 52–53. EU Digital Law/Rosenkranz, Art. 9 DCD mn. 24. 73 EU Digital Law/Zoll, Art. 12 DCD mn. 24. 74 Recital 60 DCD. 75 On the objective standard for ‘reasonable’ see Recital 46 DCD and Chapter 2 mn. 7 et seq. 71 72

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Virtual access to the consumer’s digital environment is only permitted under exceptional and duly justified circumstances.76 39 The obligation to cooperate under Art. 12(5) DCD also differs from the information obligations as well as the performance obligations in the acquis communautaire. Unlike information obligations, where the debtor is typically the trader and the obligation specifically concerns the provision of information, the obligation to cooperate may oblige the consumer to give particular information to the trader. In contrast to the performance obligations under Art. 5 and 6 DCD, the failure to cooperate is not linked to liability for non-performance which would allow the other party recourse to particular remedies (as provided in Art. 13 and 14 DCD). The consumer’s failure to cooperate merely excludes the reversal of the burden of proof under Art. 12(2) and (3) DCD which would otherwise be to her benefit. However, this is subject to the further requirement that the trader has fulfilled his information obligation under Art. 12(5) DCD: to inform the consumer in a clear and comprehensible manner of the obligation to cooperate. If the consumer receives this information and fails to cooperate in ascertaining the cause of the non-conformity, the position of the consumer will therefore be as though the trader has proven that – as per Art. 12(4) DCD – the consumer’s digital environment is not compatible with the digital content or digital service. The obligation to cooperate is a particular type of obligation whereby the other party does not have a claim to performance or any other remedies in the event of breach.77 Together with the rules on burden of proof and supplemented by pre-contractual information obligations, the approach taken by the Digital Content Directive can justifiably lessen the considerable weight on the trader with regard to his liability for non-conforming performance.

6. Statutory limitations and exclusion of liability a) Acquis communautaire 40

The role of statutory limitations and exclusions of the debtor’s liability for breach is also of considerable importance in legal practice – concepts such as force majeure or impossibility due to reasons beyond the debtor’s control have gained particular attention as a result of the Covid-19 pandemic. European legislation has taken a piecemeal approach towards limiting and excluding liability; the bulk of the rules and approaches are covered by the laws of the Member States. This also applies to full harmonization directives such as the Digital Content Directive: Recital 14 Digital Content Directive Member States should also remain free, for example, to regulate the consequences of a failure to supply, or of a lack of conformity of, digital content or a digital service, where such failure to supply or lack of conformity is due to an impediment beyond the control of the trader and where the trader could not be expected to have avoided or overcome the impediment or its consequences, such as in the event of force majeure.

However, national laws feature a broad spectrum of different approaches and concepts relating to obstacles to performance.78 This includes not only the exclusion of liability through specific reasons which exclude the typical consequences of breach but Recital 60 DCD. German legal terminology refers to this type of obligation as an Obliegenheit. It is in the interest of the debtor to perform such an obligation in order to be able to exercise particular rights or receive certain benefits, such as the reversal of the burden of proof. 78 See DCFR Full Edition 788–792. 76

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the scope of (functionally equivalent) approaches also extends from the release of the performance obligation (and not first from the liability for non-performance79) to excluding the application of particular remedies. Despite the lack of a uniform structure, EU legislation does contain provisions on the 41 limitation or exclusion of liability in several areas, yet such provisions mostly concern the creditor’s remedies and not liability as a whole. For example, under Art. 13(3) PTD the organizer need not remedy the non-conformity if it is impossible to do so or would entail disproportionate costs. However, the claim to price reduction is only excluded if the non-conformity is attributable to the traveller. According to Art. 14(3) PTD, the claim to compensation for damages is only excluded in such instances, if the non-conformity is attributable to a third party, or is due to unavoidable and extraordinary circumstances. In addition to impossibility and disproportionality, the attribution to the traveller or third party, the foreseeability and avoidability as well as the ‘unavoidable and extraordinary circumstances’ form a conceptual basis for specific limitations of liability across several levels. In consumer contracts, Art. 14(2) DCD and Art. 13(2) and (3) SGD also use impossibility or disproportionality to exclude particular remedies. Neither Directive includes unavoidable extraordinary circumstances, however Art. 5(3) Denied Boarding Regulation does – similar to the Package Travel Directive – use this concept to exclude a particular type of liability (i.e. compensation for cancelled flights). The regulation of other limitations of liability and, above all, the reasons for general 42 exclusions of liability is mostly left to the Member States. As expressly stated in Art. 13(7) SGD, the Member States may regulate whether and to what extent a contribution of the consumer to the lack of conformity affects the consumer’s right to remedies. Art. 12 SGD further provides that Member States may maintain or introduce provisions stipulating that the consumer has to inform the seller of a lack of conformity and, should the consumer fail to do so, the consumer cannot rely on the remedies otherwise available to him. This latter consequence is one of the most important practical consequences of the exclusion of liability.80 In general, one can observe a notable range of reasons for excluding liability which is either regulated by EU law itself or under national law. The approach is mostly piecemeal and lacks an overarching structure which could protect the limited scope of contractual liability under EU law from inconsistencies within the system and variations across the national laws. b) Academic drafts and the CESL aa) The academic drafts on European contract law adopt different approaches to 43 tackling this deficit. As under the Package Travel Directive, the Acquis Principles preclude the exercise of remedies when the breach is attributable to the creditor. The Acquis Principles based the approach on the notion underlying Art. 11(1) and (2) Commercial Agents Directive81 in order to draft a general rule on the exclusion or limitation of remedies.82 Article 8:102 ACQP Exclusion or restriction of remedies The creditor is precluded from exercising remedies against the debtor to the extent that the non-performance is attributable to the creditor.

For example under German law; see German Civil Code/Schulze, § 275 BGB. See SWD(2017) 209, 148–149 for an overview of national laws. 81 On the scope of this rule see C–48/16 ERGO Poist’ovňa ECLI:EU:C:2017:377. 82 Contract II/Magnus, Art. 8:102 mn. 1. 79

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Art. 106(5) CESL furthered this approach with the rule that the buyer may not resort to any of the remedies available to her to the extent that she caused the non-performance by the seller. This does not exclude the liability for non-performance or non-conforming performance, but rather denies the buyer recourse to the remedies. 83 The Acquis Principles do not contain any additional provisions on the release from liability in the event that the reason for the non-performance is beyond the control of the debtor. It would appear that the acquis communautaire did not provide a sufficient basis for a rule resembling Art. 79 CISG. 44 In contrast, Art. 8:108 PECL provides that the ‘excuse due to an impediment’ is to be adopted for European contract law in accordance with the model in Art. 79 CISG; Art. III.–3:104 and Art. 88 CESL follow this approach. However, according to Art. 106 CESL, where non-performance is excused, the buyer may only resort to termination and price reduction. Article 88 CESL 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. (…) Article 106(4) CESL 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.

45

The German translation of excused non-performance (entschuldigte Nichterfüllung) does, however, vary from the English version as the former indirectly (and misleadingly) suggests the concept of fault (Verschulden) as a requirement for liability. The release of the non-performing party rather occurs if the non-performance is due to an impediment beyond its control. It is therefore an objective test.84

7. Contractual exclusion of liability a) Limitation and exclusion by agreement 46

The statutory limitation or exclusion of liability is to be distinguished from contractual limitations or exclusions. Although generally permitted due to the principle of freedom of contract, they must not conflict with the restrictions set in mandatory law. EU law sets such boundaries above all through mandatory provisions serving to protect SMEs (for instance in the Late Payment Directive) and consumers (such as concerning

83 Zöchling-Jud, ‘Rechtsbehelfe des Käufers im Entwurf eines Gemeinsamen Europäischen Kaufrechts’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 327, 330. 84 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, 113−114; Schulze CESL/Zoll, Art. 88 CESL mn. 8.

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contractual liability).85 In this respect, the list of prohibited contract terms under the Unfair Terms Directive plays an important role: Article 3(3) Unfair Terms Directive The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair. Annex Unfair Terms Directive 1.

(…)

Terms which have the object or effect of: (a) excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier; (b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him;

b) Assumption of liability In addition to the contractual limitation or exclusion of the provisions on liability to 47 the extent permitted by law, freedom of contract also allows the parties to assume liability for particular circumstances (e.g. the suitability of goods for a specific purpose). The parties may also extend the modes and time frames of liability beyond those set by legislation, for example the assumption of liability for the existence of certain characteristics (quality guarantee) or the continued existence of certain characteristics over a period of time (durability guarantee). Such assumption may be effected by an agreement between the party assuming liability (guarantor) and the party to whom rights are to be granted. For example, the seller of a washing machine may guarantee its durability for five years (thus exceeding the statutory two-year period for conformity). Such an agreement may be concluded separately or form part of the sales or supply contract. The guarantor may also assume the liability unilaterally – a key example of the legally binding nature of a unilateral promise – in the aforementioned example, it would thus be the manufacturer (not the seller) of the washing machine who guarantees the durability for five years. Art. 17 SGD is the central provision for unilateral and bilateral guarantees. It applies 48 to all commercial guarantees as defined in Art. 2 No. 12 SGD: Article 2 No. 12 Sale of Goods Directive Definitions ‘commercial guarantee’ means any undertaking by the seller or a producer (the guarantor) to the consumer, in addition to the seller’s legal obligation relating to the guarantee of conformity, to reimburse the price paid or to replace, repair or service goods in any way if they do not meet the specifications or any other requirements not related to conformity set out in the guarantee statement or in the relevant advertising available at the time of, or before the conclusion of the contract;

Art. 17(1) SGD regulates the scope of the binding nature of the guarantee on the 49 guarantor and, where applicable, the producer: 85 See, as one examples, the limitation on exclusions of contractual liability through setting a one-year minimum liability period for second-hand goods in Art. 10(6) in conjunction with Art. 21(1) SGD (previously in Art. 5(1) in conjunction with Art. 7(1) CSD, see C–133/16 Ferenschild ECLI:EU:2017:541).

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Chapter 6 Breach and Remedies Article 17(1) Sale of Goods Directive Commercial guarantees Any commercial guarantee shall be binding on the guarantor under the conditions laid down in the commercial guarantee statement and associated advertising available at the time, or before the conclusion, of the contract. Under the conditions laid down in this Article and without prejudice to any other applicable provisions of Union or national law, where a producer offers to the consumer a commercial guarantee of durability for certain goods for a certain period of time, the producer shall be liable directly to the consumer, during the entire period of the commercial guarantee of durability for repair or replacement of the goods in accordance with Article 14. The producer may offer to the consumer more favourable conditions in the commercial guarantee of durability statement. If the conditions laid out in the commercial guarantee statement are less advantageous to the consumer than those laid down in the associated advertising, the commercial guarantee shall be binding under the conditions laid down in the advertising relating to the commercial guarantee, unless, before the conclusion of the contract, the associated advertising was corrected in the same way or in a comparable way to that in which it was made.

Art. 17(2) SGD regulates the form (durable medium), transparency (plain and intelligible language), and the minimum content of the guarantee statement, which pursuant to Art. 17(2)(a) shall include the clear statement that the consumer is entitled by law to remedies from the seller free of charge86 in the event of a lack of conformity of the goods and that those remedies are not affected by the commercial guarantee. These provisions show that Art. 17 SGD serves to protect the consumer with regard to the design of commercial guarantees. Freedom of contract serves foremost as the legal basis for the use of such guarantees. However, their use for the purposes of supply and marketing of products by the seller, producer or other third party ought not be driven by the interests of such parties, but should be based on a balance of interests which takes into account the consumer’s reasonable expectations surrounding a guarantee as an additional base for liability alongside the legal guarantee.

III. Remedies 1. Overview 50

In the event a party does not perform its contractual obligation, particular remedies may be available to the injured party. The term ‘remedies’ has made its way into European contract law through the CISG (see Art. 45 et seq. CISG) and the PECL (e.g. Art. 8:101 PECL). The Digital Content Directive and the Sale of Goods Directive have made several changes to the system of remedies under the Consumer Sales Directive, which include accommodating the effects of digitalization on contract practice. Both Directives will therefore set the basic framework for the present development of remedies in the acquis communautaire. 51 As will be discussed in detail below, the system of remedies under both Directives prioritizes the (subsequent87) performance of the obligation as the first tier of remedies (‘hierarchy of remedies’). This status is ensured in particular by the requirement of an additional period for performance before allowing the transition to other remedies. Under the Digital Content Directive and Sales of Goods Directive, termination and price reduction are available to the consumer as second-tier remedies. Neither Directive contains provisions on damages, thus leaving the provisions on this remedy to national law. See mn. 68 et seq. The expression ‘subsequent performance’ is used in the context of non-conforming performance, whereas ‘performance’ is used in relation to non-performance. 86

87

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However, rules on damages do feature in other EU legislation (in particular the Package Travel Directive), in the CESL and in the academic drafts on European contract law. In addition, the CESL also provides a right to withhold performance.

2. Performance a) Foundations aa) The right to performance under European contract law is not designed as a ‘pri- 52 mary’ claim to performance, in contrast to ‘secondary’ rights for non-performance (as in Germany and in other continental-European Member States). By falling under the remedies, the claim to performance in European contract law follows the approach under the CISG.88 Where the debtor does not perform of an obligation, the creditor may in principle first claim performance. The PECL outlined this notion of performance as a remedy for European contract law and became a core element of European consumer sales law via Art. 3 CSD (albeit in the form of subsequent performance). Art. 13(1)–(3) SGD now contain the central provisions on subsequent performance in consumer sales contracts. Article 13 Sale of Goods Directive Remedies for lack of conformity (1) In the event of a lack of conformity, the consumer shall be entitled to have the goods brought into conformity or to receive a proportionate reduction in the price, or to terminate the contract, under the conditions set out in this Article. (2) In order to have the goods brought into conformity, the consumer may choose between repair and replacement, unless the remedy chosen would be impossible or, compared to the other remedy, would impose costs on the seller that would be disproportionate, taking into account all circumstances, including: (a) the value the goods would have if there were no lack of conformity; (b) the significance of the lack of conformity; and (c) whether the alternative remedy could be provided without significant inconvenience to the consumer. (3) The seller may refuse to bring the goods into conformity if repair and replacement are impossible or would impose costs on the seller that would be disproportionate, taking into account all circumstances including those mentioned in points (a) and (b) of paragraph 2. (…)

The Sale of Goods Directive thus grants the buyer of a non-conforming good a claim 53 to have the goods brought into conformity (subsequent performance) via repair or replacement of the non-conforming good. It therefore does not refrain from including an enforceable claim to performance in natura. In contrast to many continental-European legal systems, the Directive does not afford the buyer with a ‘primary right’ but rather a remedy in the event of non-conforming performance. Due to this approach, the obligation to perform in conformity with the contract is not mirrored by a right to demand performance in conformity with the contract. An enforceable right to conforming performance with the contract is rather to be found as one of several ‘remedies’ for nonconforming performance. By following this approach adopted by the CISG, the Consumer Sales Directive and now the Sale of Goods Directive could integrate the approaches from common law jurisdictions (which generally do not feature a primary right to performance) and civil law jurisdictions. Under the Sale of Goods Directive, the right to have the goods brought into confor- 54 mity only concerns a remedy for non-conforming performance. The Sale of Goods Di88

See Chapter 5 mn. 4.

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rective (and the Consumer Sales Directive beforehand) does not provide for the remedy of performance in the event the trader fails to deliver the good to the consumer (nonperformance). The Consumer Rights Directive closes this gap with its provisions on the delivery obligation and the consumer’s right to terminate the contract should the trader fail to deliver after the consumer has set an additional period.89 However, this does not allow one to infer a judicially-enforceable right to performance in natura: it is rather left to the Member States to maintain or introduce a claim to performance under national law.90 Accordingly, Recital 53 CRD ranks the right to enforce the performance of the contract amongst the ‘other remedies’ the consumer has under national law. 55 Unlike the Sale of Goods Directive, the two-pronged approach91 under the Digital Content Directive includes the remedies for breach in the form of non-performance and non-conforming performance. For the latter, the Digital Content Directive follows the approach under the Sale of Goods Directive (and therefore underlying approach under the Consumer Sales Directive) by including a catalogue of remedies with the right to subsequent performance as the primary remedy (Art. 14(1)–(3) DCD). 92 For non-performance, the consumer’s right to claim performance is included in the ‘remedies’ as follows: Article 13 Digital Content Directive Remedy for the failure to supply (1) Where the trader has failed to supply the digital content or digital service in accordance with Article 5, the consumer shall call upon the trader to supply the digital content or digital service. If the trader then fails to supply the digital content or digital service without undue delay, or within an additional period of time, as expressly agreed to by the parties, the consumer shall be entitled to terminate the contract. (2) Paragraph 1 shall not apply, and the consumer shall be entitled to terminate the contract immediately, where: (a) the trader has declared, or it is equally clear from the circumstances, that the trader will not supply the digital content or digital service; (b) the consumer and the trader have agreed, or it is clear from the circumstances attending the conclusion of the contract, that a specific time for the supply is essential for the consumer and the trader fails to supply the digital content or digital service by or at that time. (…)

56

It is clear from Art. 13(1) DCD that the consumer must first demand performance before being entitled to terminate the contract (unless Art. 13(2) applies). However, it is questionable whether the consumer is afforded a (judicially) enforceable claim to performance. At least at first glance, the partial overlap with Art. 18 CRD (from which such a claim does not arise) does not support this. In contrast to Recital 53 CRD, Recital 61 DCD does not designate the claim to performance as part of the law of the Member States. The general focus of the Digital Content Directive towards combining the remedies for breach in one set of rules may also indicate that this is included in the scope its Art. 13. In this case, the purpose of ensuring a high level of consumer protection would suggest that the entitlement to call upon the trader to supply the digital content or digital service should not merely be regarded as a requirement for termination but rather should be afforded its own significance as an enforceable right to claim performance 93 (similar to Art. 46 CISG94). See mn. 88 et seq. See Chapter 5 mn. 6. 91 See mn. 22 et seq. 92 However, without the particular features for sales contracts; see mn. 63. 89

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bb) The positioning of the claim to performance in the structure of the Digital Con- 57 tent Directive mostly follows the approach outlined by the CISG, PECL and thereafter the DCFR and CESL. This especially concerns the understanding of performance as a remedy and the inclusion of rules for non-performance and non-conforming performance in one set of rules with an overarching approach. However, in following Art. III.– 3:302 DCFR, the entitlement to require performance under Art. 106(1) and 110 CESL is clearly devised for non-performance in general. Furthermore, the CESL also favours the DCFR approach by extending beyond the directives by integrating each type of nonconforming performance and non-performance under the single term ‘non-performance’95.96 This forms the basis for the inclusion of subsequent performance as a particular type of performance in its catalogue of remedies (see Art. 106(1) CESL). 97 Furthermore, in contrast to the Digital Content Directive and the Sale of Goods Directive, the CESL uses this general concept not just for consumer contracts and for the seller’s and buyer’s obligations.98 In addition, it includes obligations for service providers and also for customers of such services (Art. 87(1), 147(1); 106, 131, 155, 157 CESL). As the Directives, on a conceptual level the CESL remains on the central path between common law and civil law as it recognizes the right to performance only as a remedy. However, it designs this as an enforceable remedy for non-performance in general and generalizes the remedy to apply to non-performance in sales contracts and service contracts. b) Requirements and exclusion aa) The debtor may only seek the remedies of performance or subsequent perfor- 58 mance when the respective conditions for liability have been satisfied. In such instances, the remedy will entitle the debtor to require the creditor to perform in accordance with the contract. Where there is failure to supply under a contract for digital content or a digital service, Art. 13 in conjunction with Art. 5 and 11 DCD afford the consumer with such a right, albeit not explicitly.99 For non-conforming performance, however, the requirements are spread across Art. 14(1) and (2) in conjunction with Art. 11(2) and (3) and Art. 5 DCD, as well as Art. 13(1) and (2) in conjunction with Art. 10 and 5 et seq. SGD. However, the debtor is not entitled to seek subsequent performance if the liability is excluded100 or if exceptions apply to the remedy. The Digital Content Directive and the Sale of Goods Directive contain two specific exceptions: impossibility and disproportionality. Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 706–707. The judicial enforcement of this claim is limited by Art. 28 CISG to common law jurisdictions; there is no evidence of such distinction in the Digital Content Directive. 95 See mn. 20–21. 96 Schmidt-Kessel, ‘Der Torso des allgemeinen Leistungsstörungsrechts, Art. 87–90 GEKR’ in SchmidtKessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 287, 292; 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, 108–109; Schulze CESL/Zoll, Art. 87 CESL mn. 3. 97 For more detail see EU Sales Directive/Grundmann, Art. 2 mn. 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/Twigg-Flenser/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. 98 However, performance as a remedy is not the same in B2C and B2B contracts. In particular, a right to cure (mn. 75 et seq.) and notification obligation (Art. 106(2) and (3) CESL) are foreseen in B2B contracts. For B2C contracts, the consumer has a right to choose between repair and replacement (Art. 111 CESL). 99 See mn. 56. 100 See mn. 40 et seq. 93

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Chapter 6 Breach and Remedies Article 14 Digital Content Directive Remedies for lack of conformity (1) In the case of a lack of conformity, the consumer shall be entitled to have the digital content or digital service brought into conformity, to receive a proportionate reduction in the price, or to terminate the contract, under the conditions set out in this Article. (2) The consumer shall be entitled to have the digital content or digital service brought into conformity, unless this would be impossible or would impose costs on the trader that would be disproportionate, taking into account all the circumstances of the case including: (a) the value the digital content or digital service would have if there were no lack of conformity; and (b) the significance of the lack of conformity. (…) Article 13 Sale of Goods Directive Remedies for lack of conformity (1) In the event of a lack of conformity, the consumer shall be entitled to have the goods brought into conformity or to receive a proportionate reduction in the price, or to terminate the contract, under the conditions set out in this Article. (…) (3) The seller may refuse to bring the goods into conformity if repair and replacement are impossible or would impose costs on the seller that would be disproportionate, taking into account all circumstances including those mentioned in points (a) and (b) of paragraph 2. (…)

bb) As a result of these provisions, impossibility and disproportionality serve a dual function as specific exclusions of subsequent performance. On the one hand they prevent the consumer from receiving performance in conformity with the contract; thereby resulting in the discontinuation of the contractual obligations. However, on the other hand they allow the consumer direct recourse to the second-tier remedies (Art. 14(4)(a) in conjunction with Art. 14(2) DCD; Art. 13(4)(a) in conjunction with Art. 13(3) SGD). 60 The Digital Content Directive and the Sale of Goods Directive attribute differing functions to impossibility. Under Art. 14(2) DCD impossibility is designed as an exception (‘unless…’) to the general rule that the consumer is entitled to have the digital content or digital service brought into conformity. In comparison, under Art. 13(3) SGD the seller may use impossibility as a means to refuse to bring the goods into conformity. Both provisions can be traced back to Art. 3(3) CSD and express the principle impossibilium nulla obligatio est101. They cover both impossibility at the moment the contract was concluded (‘initial impossibility’) and impossibility which arises after the conclusion of the contract (‘subsequent impossibility’).102 However, impossibility under both provisions only arises if it is not possible to bring the goods, digital content or digital service in conformity with the contract (e.g. where the good is unique or a server failure prevents the streaming of a live event). These are to be distinguished from situations in which only one possible means to remedy the non-conformity is impossible103 (e.g. a good is irreparable but not irreplaceable). 61 It may not be impossible to bring about conformity, however subsequent performance may nonetheless be excluded if it were to place a disproportionate burden on the creditor. According to Art. 13(3) SGD and Art. 14(2) DCD, the disproportionality refers to the costs that would arise in order to bring the goods, digital content or digital service 59

Dig. 50, 17, 185. See Schulze CESL/Zoll, Art. 110 CESL mn. 10. 103 See mn. 67. 101 102

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into conformity.104 Both provisions set the standard for a lack of proportionality through two criteria; the value of the goods, digital content or digital service would have if there were no lack of conformity and the significance of the lack of conformity. In addition, both provisions require the circumstances of the case to be taken into account. The claim to subsequent performance is excluded if, according to this standard, the costs of each possible form of subsequent performance in the particular case are disproportionate (a so-called ‘absolute lack of proportionality’ in contrast to a ‘relative lack of proportionality’ where one form of subsequent performance is disproportionate in comparison to another105). For example, the costs of repairing a unique good or defective software would be considerable higher than the value of the good or digital content when in conformity.106 Such an ‘absolute’ lack of proportionality was not a clear exclusion under the Consumer Sales Directive; the ECJ held in Weber/Putz107 that recognition by national law108 was not in conformity with the Consumer Sales Directive. Art. 13(3) SGD and Art. 14(2) DCD therefore reflect not only the decision to provide a clear rule on ‘absolute’ lack of proportionately but also extend this means to exclude subsequent performance beyond sales law. cc) Impossibility and disproportionality are also limitations to the claim to (subse- 62 quent) performance in a service contract. For example, under Art. 3(3) PTD, the organizer does not have to remedy the lack of conformity if it is impossible or entails disproportionate costs. In the latter instance, the extent of the lack of conformity and the value of the travel services affected are to be taken into consideration. It can therefore be seen that impossibility and disproportionality are relevant limitations in European contract law not only for sales contracts but also for service contracts. Accordingly, the Acquis Principles contain a general rule that, 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) Particular types of performance The claim to performance differs not only with regard to non-performance and non- 63 conforming performance but subsequent performance also varies between sales contracts and other types of contracts. In the event of non-performance, the claim to performance is directed at the performance of the obligation to deliver or supply. For example, if the trader does not supply the digital content or digital service either without undue delay after the conclusion of the contract or at the agreed time, the consumer may resort 104 On the distinction between this absolute disproportionality under Art. 13(3) SGD in contrast to ‘relative’ disproportionality see mn. 66. 105 See mn. 67. 106 Accordingly, Recital 49 SGD provides that ‘the seller should be allowed to refuse to bring the goods into conformity if both repair and replacement are impossible, or they would impose disproportionate costs on the seller. The same should apply if either repair or replacement is impossible and the alternative remedy would impose disproportionate costs on the seller.’. 107 Joined cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396. 108 In Germany under § 439(3) BGB, which has since been amended. See German Civil Code/Schaub, § 439 BGB mn. 20.

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to the remedy for failure to supply under Art. 13 DCD.109 However, if the performance is not in conformity with the contract, the claim to subsequent performance aims to remedy the non-conformity, for example under Art. 14(1) and (2) DCD. Under the Digital Content Directive, the general scope of the remedy as ‘to have the […] brought into conformity’ is not further defined for particular types of contracts or technology. As such, the nature of subsequent performance in contracts for the supply of digital content or digital services exhibits flexibility in relation to the contractual nature of the supply and technological possibilities. The choice of the method to bring the digital content or digital service into conformity rests with the trader,110 who often has greater knowledge and experience, and who must also bear the consequences of a failed attempt to bring the digital content or digital service into conformity (Art. 14(4)(c) DCD). However, Art. 14(3) DCD does limit the trader’s choice of method: conformity is to effected not only within a reasonable time but also free of charge and without any significant convenience to the consumer.111 64 In contrast to contracts for the supply of digital content or digital services, the definition of a sales contract is clear112 and as such it is possible to state specific means to bring about conformity. Following Art. 3(2) CSD, Art. 13(2) SGD provides repair and replacement as alternative means to remedy the lack of conformity of a good. Article 13(2) Sale of Goods Directive Remedies for lack of conformity In order to have the goods brought into conformity, the consumer may choose between repair and replacement, unless the remedy chosen would be impossible or, compared to the other remedy, would impose costs on the seller that would be disproportionate, taking into account all circumstances, including: (a) the value the goods would have if there were no lack of conformity; (b) the significance of the lack of conformity; and (c) whether the alternative remedy could be provided without significant inconvenience to the consumer.

65

Subsequent performance in a sales contract therefore refers to either the repair or the replacement of the non-conforming good. Art. 14(2) SGD provides that the consumer shall make the goods available to the seller and that the seller shall take back the goods at his own expense. However, the Sale of Goods Directive does not indicate the place at which the repair or replacement is to take place. Although, in principle, this is for the Member States to determine,113 the decision in Fülla114 held that the Consumer Sales Directive contains several underlying criteria: C–52/18 Fülla ECLI:EU:C:2019:447 (…) That place must be appropriate for ensuring that they can be brought into conformity free of charge, within a reasonable time and without significant inconvenience to the consumer, taking into account the nature of the goods and the purpose for which the consumer required the goods. (…)

66

Art. 13(2) SGD allows the consumer to choose between repair or replacement. In this respect, the goal of consumer protection overrides economic efficiency, namely that the On the question whether this provides an enforceable right to performance, see mn. 56. Recital 63 DCD. 111 See mn. 68 et seq. 112 See the definitions of a sales contract and of goods in Art. 2 No. 1 and 5 SGD. 113 Recital 56 SGD. 114 C–52/18 Fülla ECLI:EU:C:2019:447. 109

110

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seller will often be in the best position to determine whether repair or replacement is the more appropriate approach.115 However, Art. 13(2) SGD also sets limitations on the choice if under the circumstances either repair or replacement is impossible or disproportionate. For instance, although it may be impossible to repair a particular good, it may be easily replaced because it has been mass-produced. In turn, it may not be possible to replace a unique item, but the non-conformity is reparable or, as a further example, it may be legally impossible to replace a particular good due to a trade embargo with the country of manufacture (‘legal impossibility’). For the purposes of the provision, there will be a lack of proportionality if the costs of repair would impose costs on the seller that would be disproportionate compared to the cost of replacement, and vice versa (‘relative lack of proportionality’ in contrast to an ‘absolute’ lack of proportionality).116 The same criteria as for ‘absolute’ lack of proportionality are to be considered as well as whether the alternative remedy could be provided without significant inconvenience to the consumer. The set of criteria is not exhaustive, however, as the circumstances of the case are also to be taken into account. Depending on the circumstances, the consumer may thus be denied from having the trader repair the non-conforming good if the costs of repair are much higher than the cost of replacement; the replacement may be excluded if, for example, the transport costs would be considerably higher in relation to the ease of repair. d) Free of charge and the avoidance of significant inconvenience aa) Bringing the goods, digital content or digital service into conformity with the 67 contract must occur free of charge and without significant inconvenience to the consumer.117 A similar approach towards a remedy ‘free of charge’ can also be seen in Art. 13(5) PTD. Accordingly, the Acquis Principles provide the general principle that 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). Art. 110(2) CESL follows this approach in providing that performance ‘includes the remedying free of charge of a performance which is not in conformity with the contract.’ bb) The requirements of ‘free of charge’ and ‘without significant inconvenience’ gen- 68 erally serve similar purposes: they should prevent the creditor from enduring and accepting additional burdens in relation to receiving performance in conformity with the contract. In particular, the requirements should also prevent such burdens from causing the creditor to refrain from seeking subsequent performance. The notion ‘free of charge’ therefore covers all costs which are necessary in order to bring the goods into conformity. In this regard, Art. 2 No. 14 SGD lists the examples of the cost of postage, carriage, labour or materials – a list that builds on Art. 3(4) CSD, in light of the decision in Fülla: C–52/18 Fülla ECLI:EU:C:2019:447 Article 3(2) to (4) of Directive 1999/44 must be interpreted as meaning that the consumer’s right to the bringing of goods, acquired under a distance contract, into conformity ‘free of charge’ does not include the seller’s obligation to pay the cost of transporting those goods, for the purposes of bringing them into conformity, to the seller’s place of business, unless the fact that the consumer must advance

115 Schulze CESL/Zoll, Art. 111 CESL mn. 4, 5; see also Faust, ‘Das Kaufrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 251, 258–259. 116 See mn. 61; Recital 48 SGD. 117 Art. 14(1) SGD; Art. 14(3) DCD.

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69

Where the avoidance of significant inconvenience is concerned, Art. 14(1)(c) SGD and Art. 14(3) DCD refer to the nature of and purpose for which the consumer required the good, digital content or digital service. For example, the return of large or heavy goods to the seller may constitute a significant inconvenience: C–52/18 Fülla ECLI:EU:C:2019:447 40. It follows therefrom, first, that the place where the goods are to be made available to the seller to be brought into conformity cannot be chosen in such a way as not to represent any inconvenience for the consumer, since that availability normally requires some investment from the consumer in terms of time and effort involving the packaging and delivery of the goods, but a significant inconvenience, as the Advocate General noted in point 68 of his Opinion, understood as a burden likely to deter the average consumer from asserting his rights. (…) 43. Thus, in certain cases, by reason both of the nature of the goods, especially if they are very heavy, large, particularly fragile or where there are particularly complex requirements for their dispatch, and of their intended use by an average consumer, in particular involving their prior installation, their dispatch to the place of business of the seller might constitute, for that consumer, a significant inconvenience contrary to the requirements set out in the third subparagraph of Article 3(3) of Directive 1999/44. 44. In other cases, it may be assumed, by contrast, that dispatch to the place of business of the vendor of compact goods, which require neither special handling nor a particular means of transport, is not likely to constitute a significant inconvenience for that consumer.

If the non-conformity cannot be remedied without significant inconvenience to the consumer, the consumer will be entitled to either terminate the contract or receive a price reduction (Art. 13(4)(d) SGD; Art. 14(4)(e) DCD 118).119 cc) The decision in Weber/Putz determined that the costs of removing a defective 70 good and installing a conforming good also fall within the scope of ‘free of charge’ under the Consumer Sales Directive. As the ECJ 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 for the seller to bear the removal and installation costs as such costs would have been avoided if the seller had performed correctly.120 Art. 14(3) SGD reflects this decision: Article 14(3) Sale of Goods Directive Repair or replacement of the goods Where a repair requires the removal of goods that had been installed in a manner consistent with their nature and purpose before the lack of conformity became apparent, or where such goods are to be replaced, the obligation to repair or replace the goods shall include the removal of the non-conforming goods, and the installation of replacement goods or repaired goods, or bearing the costs of that removal and installation.

118 Compare this, however, to Recital 65 DCD: ‘where the trader has failed to bring the digital content or digital service into conformity within a reasonable time, free of charge and without causing significant inconvenience to the consumer, the consumer should be entitled to the remedies of price reduction or termination of the contract.’. 119 See mn. 84 et seq. 120 Joined cases C–65/09 and C–87/09 Weber/Putz ECLI:EU:C:2011:396 para. 57. See Reich et al., European Consumer Law (2nd edn, Intersentia 2014) 181–182.

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dd) ‘Free of charge’ also excludes the buyer’s obligation to compensate for the normal 71 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.121 However, the ECJ decision in Quelle122 clarified that the payment of such compensation for use prior to delivery of the replacement is excluded. This decision is now reflected in Art. 14(4) SGD, which limits the extent of use to ‘normal use’. Article 14(4) Sale of Goods Directive Repair or replacement of the goods The consumer shall not be liable to pay for normal use made of the replaced goods during the period prior to their replacement.

e) Consequences The creditor may seek (subsequent) performance from the debtor if the aforemen- 72 tioned criteria are fulfilled and the recourse to the remedy is not excluded. The legal consequences of subsequent performance do not arise ipso iure. Where the debtor fails to deliver the good supply the digital content or digital service, Art. 18(2) CRD and Art. 13(1) DCD requires the creditor to call upon the debtor to deliver or supply. In the event of non-conforming performance, Art. 14(3) DCD and Art. 14(1)(b) SGD are less clear with regard to the creditor’s request for subsequent performance as these provisions merely refer to the moment at which the creditor informs the debtor the non-conformity. However, such notice suffices to start the period in which the debtor is to remedy the non-conformity; the Directives do not require the creditor to set a time period or to inform the debtor thereof. Informing the debtor of the non-performance or non-conformity marks the start of 73 the reasonable time for (subsequent) performance. This period serves a dual function. On the one hand, the debtor has to (subsequently) perform in natura within this period, i.e. to deliver the goods (Art. 18(2) CRD) or to supply the digital content or digital service (Art. 13(1) DCD); or to remedy the non-conformity (Art. 14(3) DCD; Art. 13(1), (2) and 14 SGD). The remedy thus gives the creditor the possibility to assert and, if necessary, enforce her claim.123 On the other hand, the end of the reasonable period marks the transition to the second-tier remedies of termination and, for non-conforming performance, price reduction (Art. 13(1) and 14(1)(b) DCD; Art. 13(4)(a) SGD). The end of the period is therefore an important step for the creditor who seeks termination or price reduction. For the debtor, the reasonable period offers an additional chance to perform his contractual obligations and receive the counter-performance – this chance no longer remains once the reasonable period has lapsed. The reasonable period commences when the creditor has informed the debtor. The 74 length of the period varies in instances of non-performance and non-conformity. If digital content or a digital service is not supplied in accordance with Art. 5 DCD, it is to be supplied ‘without undue delay’124 unless the parties have agreed upon an additional period (Art. 13(1) DCD). However, according to Recital 61 DCD, in the event of non-performance ‘the obligation of the trader to supply the digital content or digital service without Recital 15 CSD. C–404/06 Quelle ECLI:EU:C:2008:231. 123 On the question whether this applies under the Digital Content Directive see mn. 56. 124 See Chapter 5 mn. 27 et seq. 121 122

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undue delay should mean having to supply it immediately’ because the supply in digital form often should not require additional time. In the case of non-delivery of a good, Art. 18(2) CRD merely refers to an ‘additional period of time’, however Recital 52 CRD clarifies that the period is to be reasonable. Where the good is not in conformity with the contract, Art. 14(1)(b) SGD provides that the seller must repair or replace the goods within a reasonable period of time. The requirement of a ‘reasonable’ period is flexible and therefore allows for consideration of the individual circumstances, in particular given the range of digital content and digital services.125 According to Art. 8:301 ACQP, this requirement can generally serve to determine the time for (subsequent) performance. The provision on the supply of digital content or digital services ‘immediately’ therefore reflects be a special provision due to the nature of how digital content and digital services are supplied. f) Right to cure? 75

aa) (Subsequent) performance as a remedy for the creditor is not to be confused with the debtor’s right to cure.126 Whether current EU contract law actually contains such a right for the debtor is highly doubtful. It would be inappropriate to speak of a ‘right to cure’ in the event of non-performance in those situations covered by Art. 18(2) CRD or Art. 13 DCD because the performance in such cases is lacking. For non-conforming performance, it is for the creditor to decide whether the debtor is to be given the second opportunity to perform in conformity. The creditor (i.e. the consumer under the Digital Content Directive and Sale of Goods Directive) can ‘activate’ the remedy by informing the debtor of the non-conformity and demanding subsequent performance. There is no provision for the debtor (i.e. the seller or trader) to claim that he may ‘cure’ the nonconformity on his own initiative. Accordingly, the debtor may not, for example, determine the period for subsequent performance or require that the buyer make the nonconforming goods available for the purpose of repair or replacement. 76 However, from the seller’s perspective a right to cure that may be exercised independently of the remedy of subsequent performance could be very desirable, especially with regard to the possibility of repair. Without such a right to cure, the buyer may request the replacement of the good, which may result in a much greater loss for the seller. 127 From the buyer’s perspective, a right for the seller to cure the non-conformity would be a disadvantage because it could undermine the right to choose between repair and replacement, and hinder the transition to the second-tier remedies of price reduction or termination. Neither the Sale of Goods Directive nor the Digital Content Directive has introduced a right to cure, which is in line with their aim to ensure a high level of consumer protection. The Directives rather pay greater attention to balancing the respective interests of the trader and consumer (in particular through the ‘absolute’ lack of proportionality, which does not prevent the termination of the contract). 77 bb) The CESL features a right to cure, though this is reserved for B2B-contracts. Art. 106(2)(a) CESL provides that, where the buyer is a trader, the buyer’s rights to exercise any remedy (except withholding of performance) are subject to cure by the seller. In contrast, according to Art. 106(3)(a) CESL the remedies for a consumer are not subject to the seller’s right to cure.128 Art. 106 CESL was inspired by Art. III.-3:202 DCFR. Recital 64 DCD. On the function and different forms of the right to cure in national law and international sets of rules see Commentaries on European Contract Laws/Kleinschmidt, Art 8:104 mn. 1 et seq. 127 See, for example, Mak, Performance-Oriented Remedies in European Sale of Goods Law (Hart 2009) 64 et seq; Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ (2012) ZEuP 797, 809–810. 125

126

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III. Remedies Article III.-3:202 DCFR Cure by debtor: general rules (1) The debtor may make a new and conforming tender if that can be done within the time allowed for performance. (2) If the debtor cannot make a new and conforming tender within the time allowed for performance but, promptly after being notified of the lack of conformity, offers to cure it within a reasonable time and at the debtor’s own expense, the creditor may not pursue any remedy for nonperformance, other than withholding performance, before allowing the debtor a reasonable period in which to attempt to cure the non-conformity. (…)

Although European legislation and the CESL have not adopted this approach for consumer contracts, the question still remains whether it will play a role in future provisions beyond consumer law.

3. Withholding performance a) Acquis communautaire Where the debtor has not yet performed, he generally cannot demand counter-per- 78 formance from the creditor, unless the latter is required to perform in advance. In bilateral contracts this principle is a consequence of the exchange of performances (‘do ut des’) and is an important instrument in balancing the interests of the parties in the event of non-performance. It relieves the debtor of the burden to perform in advance (unless agreed otherwise) and counters the risk that the debtor simply refrains from performing his obligation without any consequences. Withholding performance first featured in the acquis communautaire at most through Art. 3(1)(c) Late Payment Directive (2000) (now Art. 3(1) Late Payment Directive).129 However, it is now a part of sales law through Art. 13(6) SGD. Article 13(6) Sale of Goods Directive Remedies for lack of conformity The consumer shall have the right to withhold payment of any outstanding part of the price or a part thereof until the seller has fulfilled the seller’s obligations under this Directive. Member States may determine the conditions and modalities for the consumer to exercise the right to withhold the payment.

The buyer is thus entitled to withhold payment of any outstanding part of the price or 79 a part thereof until the seller has fulfilled his obligations. This right to withhold performance refers to the seller’s obligations under the Sale of Goods Directive and thereby concerns, in particular, the obligation of subsequent performance in the event of a nonconformity. However, the wording and purpose of the provision also includes other obligations under the Directive and can therefore be relevant in relation to restitution. Nevertheless, the Directive refers expressly to national law with respect to the conditions and 128 Wagner, ibid. 825; Zoll, ‘Das Dienstleistungsrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 279, 284. The decision not to include the right to cure in a consumer contract under the CESL attracted considerable criticism. 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. 129 On the meanings of this provision see Contract II/Machnikowski/Szpunar, Art. 8:304 mn. 1.

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modalities of the right. In line with the general tendency under the Directive, the right to withhold performance under the Directive is only available to the consumer, thereby contributing to the objective of increasing the level of consumer protection. The right to withhold performance pursuant to the Sale of Goods Directive is therefore not a general right. However, the right does contribute to the acquis, which a decade ago was considered by the Acquis Principles to lack a sufficient basis to formulate a general rule. 130 b) Academic drafts and the CESL 80

Prior to the Sale of Goods Directive, the academic drafts for a European contract law had already outlined a rule on withholding performance on the basis of Art. 9:201 PECL, which designs the right to withhold performance as a remedy for the debtor. In this respect, the rule stands alongside other remedies such as performance, termination, etc., 131 although it only provides temporary protection until the other party has performed.132 Art. III.–3:401 DCFR used Art. 9:201 PECL as a foundation for its detailed, albeit complicated rule. The corresponding rule in the CESL is more concise, but due to its consistent separation between the remedies available to the buyer and to the seller resulted in a mirror image of this right for each of the respective parties (Art. 113, 133 CESL). The right is limited to obligations that exist in a bilateral relationship (i.e. the interdependency between performance and corresponding performance due to their reciprocal relationship).133 The right to withhold performance under the CESL covers 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 (Art. 113(1), 133(1) CESL); on the other hand it is a right for the injured party who is to perform before the other party (Art. 113(2), 133(2) CESL). 81 The CESL contains comprehensive provisions on the legal consequences of withholding performance; this is in stark contrast to the Sale of Goods Directive, which in the interest of consumer protection concerns only one aspect of the consequences. According to the CESL, the direct consequence of withholding performance is to entitle the injured party not to perform its own contractual obligations until the other party has performed in conformity with the contract (Art. 113(1), 133(1) CESL). 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 the risk is not passed to the buyer if she does not perform its obligation to take delivery (Art. 129 CESL) because she has exercised its right to withhold performance. Consequently, the buyer is not liable for loss or damage to the goods as long as she is entitled to refuse to take delivery.

4. Termination a) Overview 82

The right to terminate the contract allows one party to unilaterally end the performance obligations of both parties. There may be different reasons for such a right, which are each subject to different rules – the provisions on termination due to non-performance are to be distinguished from termination due to a modification of the digital conIbid. See, in comparison, German law, in which the right to withhold performance is a defence (§ 320 BGB: Defence of unperformed contract); see German Civil Code/Oehm, § 320 BGB. 132 See Commentaries on European Contract Laws/Boosfeld, Art 9:201 mn. 1. 133 Schulze CESL/Zoll, Art. 113 CESL mn. 2. 130 131

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tent or digital service (Art. 19(2) DCD) or due to a change of circumstances (Art. 6:111(2) PECL; Art. 89 CESL), or the termination of long-term contracts or contracts for an indefinite period (e.g. Art. 15 Commercial Agents Directive) as well as from a contractual right of termination. The Consumer Rights Directive, the Digital Content Directive and the Sale of Goods 83 Directive describe the right to end the contract for non-performance or non-conforming performance as ‘termination’. In contrast, Art. 3(5) CSD used ‘rescission’ to describe the right to end the contract due to non-conformity. ‘Termination’ is also used in Art. 16 Commercial Agents Directive where a party may immediately end the agency contract where the other party has failed to carry out all or part of his obligations or where exceptional circumstances arise.134 Art. 13(6) PTD also uses ‘termination’ to describe the right for the traveller to end the package travel contract for non-conforming performance. The English135 language versions of the Acquis Principles, PECL and CESL are consistent in their use of ‘termination’ to describe the act of ending the contract for non-performance or non-conforming performance, though not always with the same legal effects.136 Art. 49 CISG, however, uses the term ‘avoidance’. b) Termination after an additional period aa) As the right to terminate has the extensive consequence of ending the perfor- 84 mance obligations of both parties, it is understandable that the right is subject to greater requirements than the right to request (subsequent) performance and the right to withhold performance. In essence, two approaches have developed in the academic drafts of European contract law in order to determine the additional requirements of the unilateral right to terminate the contract for non-performance. 137 One approach binds the remedy to the requirement of fundamental non-performance (including subsequent non-performance); the other instead requires an additional period for performance and in principle only allows termination after this additional period has expired. The notion of fundamental non-performance as a ground for unilateral termination 85 first found footing in European contract law through the PECL. Art. 9:301 PECL is modelled on Art. 49(1)(a) CISG, which 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 have such an extensive impact on the reasonable expectations the injured party may have due to the content of the contract are not covered.138 However, the Commercial Agents Directive leaves the regulation to the law of the Member States. In the German language versions, however, Art. 9:301 et seq. PECL (and Art. 49 CISG) refer to ‘Vertragsaufhebung’, whereas Art. 8:301 ACQP uses ‘Rücktritt’; the CESL refers to a ‘Beendigung des Vertrages’. 136 See (1)(c) to Art. 106, 131, 155, 157 CESL. 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 in SchmidtKessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 371, 371–372. 137 See Kiene, Vertragsaufhebung und Rücktritt des Käufers im UN-Kaufrecht und BGB (Nomos 2010) 68; 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. 138 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 mn. 33–37. 134

135

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The Consumer Sales Directive did not adopt the notion of fundamental non-performance but instead introduced the additional period model into the acquis communautaire (see Art. 3(5) CSD): the injured party has the right to terminate the contract only after the additional period has expired and subsequent performance has not been tendered.139 In other words, the party in breach has not used its ‘second chance’. The Consumer Rights Directive, Digital Content Directive and the Sale of Goods Directive also follow this approach. The 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. 14(6) DCD;140 Art. 13(5) SGD), a much lower standard than ‘fundamental non-performance’.141 Nonetheless, it is unclear whether the ‘minor’ standard is equivalent to the ‘insignificant’ standard in Art. 114(2) CESL or whether it is stricter. 142 87 In spite of the priority the aforementioned Directives afford to subsequent performance, the Directives expands the scope of situations in which termination is possible by foregoing a requirement of fundamental non-performance (in contrast to the CISG). The Directives intend 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 scale143).144 88 bb) For sales law, Art. 18(1) and (2) CRD and Art. 13(4)(a) in conjunction with Art. 14(1) SGD constitute the most important provisions which allow for termination of the sales contract. The provisions of the Sale of Goods Directive stipulate two further requirements for termination: no subsequent performance within a reasonable additional period and a non-conformity that is not minor. The additional period commences when the consumer informs the seller of the non-conformity; no further actions are necessary. According to the Directive, the consumer thus need not set the seller a specific period for subsequent period.145 Art. 18(2) CRD contains the requirements for termination due to non-delivery in sales contracts. In the absence of an agreement to the contrary, these requirements are split across two stages: (i) the seller has not delivered the 86

139 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 German Civil Code/Schaub, § 437 BGB, mn. 12; Leible, ‘Kaufvertrag’ in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010), mn. 96. 140 According to this provision, the debtor bears the burden of proving that the non-conformity is minor. Furthermore, the provision does not cover contracts in which the consumer has not paid a price but has provided personal data; see EU Digital Law/Gsell, Art. 14 DCD mn. 67 et seq. 141 EU Sales Directive/Bianca Art. 3 mn. 41–45; Schwartze, ‘Das künftige Sachmängelgewährleistungsrecht’ (2000) ZEuP 544, 567; Schmidt-Kessel CESL/Wendehorst, Art. 114 CESL mn. 6–7. On the problem that variations in protection across the Member States arise due to the influence of national perceptions in determining the extent of the non-conformity see for example, C–32/12 Duarte Hueros ECLI: EU:C:2013:128 (Opinion of AG Kokott) para. 57. 142 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. 143 Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ (2007) ZEuP 130, 140–141. 144 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); for details on these provisions see the corresponding comments in German Civil Code.

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goods without undue delay, at the latest within 30 days after the conclusion of the contract; (ii) the seller has not delivered the goods within the (subsequent) additional reasonable period of time set by the consumer. This additional period begins with the request by the consumer to the trader to deliver within the additional period. Article 13(4) Sale of Goods Directive Remedies for lack of conformity The consumer shall be entitled to either a proportionate reduction of the price in accordance with Article 15 or the termination of the sales contract in accordance with Article 16 in any of the following cases: (a) the seller has not completed repair or replacement or, where applicable, has not completed repair or replacement in accordance with Article 14(2) and (3), or the seller has refused to bring the goods into conformity in accordance with paragraph 3 of this Article; (b) a lack of conformity appears despite the seller having attempted to bring the goods into conformity; (c) the lack of conformity is of such a serious nature as to justify an immediate price reduction or termination of the sales contract; or (d) the seller has declared, or it is clear from the circumstances, that the seller will not bring the goods into conformity within a reasonable time, or without significant inconvenience for the consumer. Article 14(1)(b) Sale of Goods Directive Repair or replacement of the goods Repairs or replacements shall be carried out within a reasonable period of time from the moment the seller has been informed by the consumer about the lack of conformity; and 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 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.

Art. 14(3) and (4) DCD contain provisions similar to the Sale of Goods Directive in 89 relation to termination for non-conforming performance. However, for non-performance, Art. 13(1) DCD does not refer to a ‘reasonable’ additional period, but rather ‘without undue delay’ as often the supply of digital content or a digital service should not require additional time. cc) The requirement of an additional period for performance also features in relation 90 to package travel contracts. Art. 13(6) PTD provides that the traveller is entitled to ter145 It is controversial whether national provisions, which require the consumer to set an additional period, is in conformity with the Directive. See §§ 437 No. 2, 323(1) BGB and German Civil Code/Schaub, § 437 BGB mn. 12.

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minate 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.146 In this respect, the Package Travel Directive sets a higher threshold than ‘not minor’ under the Digital Content Directive and the Sale of Goods Directive. Despite this distinction, the acquis communautaire has adopted the principle that the creditor may terminate the contract due to a non-conformity if the debtor had the possibility for subsequent performance within an additional period. c) Further requirements 91

The debtor may be entitled to terminate the contract without waiting for the additional period to end. For non-performance, such right is an exception to the general requirements for the creditor to (i) first request performance and (ii) for the debtor to fail to perform within the additional period (Art. 18(2) CRD; Art. 13(2) DCD). For nonconforming performance, however, the failure to remedy the non-conformity within an additional period is one of a series of factors which allows the creditor to terminate the contract immediately. However, the right is limited by the extent of the non-conformity: with the exception of digital content or digital content supplied in exchange for the consumer’s personal data, the non-conformity may not be minor (Art. 14(6) DCD; Art. 13(5) SGD). However, not only do structural differences exist between the requirements under the Digital Content Directive and the Sale of Goods Directive but there are also differences in relation to termination for non-performance. 92 Impossibility or disproportionality. The creditor may terminate the contract immediately if bringing the goods, digital content or digital service in conformity with the contract is impossible or disproportionate147. This arises directly from Art. 14(4)(a) DCD and Art. 13(4)(a) SGD through the reference to the trader’s right to refuse to tender subsequent performance in the case of impossibility or disproportionality. In contrast, Art. 13(2) DCD and Art. 18(2) CRD do not contain an equivalent rule for non-performance, but leave the matter to national law.148 93 Anticipatory breach. Immediate termination of the contract is also permitted where the trader has declared, or it is equally clear from the circumstances, that he will not deliver the good or supply the digital content or digital service, or will not remedy the nonconformity within an additional period and without significant inconvenience (Art. 13(2)(a) and 14(4) DCD; Art. 13(4)(d) SGD; Art. 18(2) CRD, though with the narrower wording ‘where the trader has refused to deliver’). 94 Fixed date transaction. In the event of non-performance the creditor may immediately terminate the contract if the parties have agreed or it is clear from the circumstances that timely performance is essential (Art. 13(3)(b) DCD). Art. 18(2) CRD contains a similar rule, but with the additional element that the consumer has informed the trader prior to the conclusion of the contract that delivery by or on a fixed date is essential. However, this reference to a (unilateral) declaration in addition to the agreement and surrounding circumstances does not necessarily means an extension in scope. Such declaration can rather fall within the scope of the Digital Content Directive via the formation of contract from which it is possible to determine that timely supply by a fixed date is essential. The agreement or notification of a specific time is indicated by terms such as ‘at the latest’ or ‘on the…’. 146 However, it may not be necessary to set an additional time limit e.g. where an immediate remedy is required, see Art. 13(4) and Recital 34 PTD. 147 On such ‘absolute’ disproportionality see mn. 61. 148 See mn. 40, 61.

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Serious non-conformity. Similar to the justification for termination due to non-perfor- 95 mance in a fixed-date transaction, the severity of the non-conformity may allow the creditor to terminate the contract immediately (Art. 14(4)(d) DCD; Art. 13(4)(c) SGD). The degree of non-conforming performance may thus have a substantial impact on the creditor’s reasonable expectations. A central aspect for determining the seriousness of the non-conformity is that the creditor cannot maintain confidence in the ability of the debtor to bring the goods, digital content or digital service into conformity.149 The inclusion of a serious non-conformity in the EU system of remedies does not aim at an assimilation with the CISG.150 The serious nature of the non-conformity under the Directives serves an entirely different purpose that the requirement of fundamental breach under the CISG. Unlike the latter, the serious nature of the non-conformity is not the central requirement for termination. It rather offers a further possibility to terminate the contract immediately. Failed attempt at subsequent performance. The creditor may terminate the contract 96 immediately if the debtor has already attempted to remedy the non-conformity and such attempt fails (Art. 14(4)(c) DCD; Art. 13(4)(b) SGD). However, such right of immediate termination depends on the circumstances of the individual case. The creditor may have to accept further attempts if, for example, the non-conforming goods are particularly complex or expensive.151 The repeat appearance of the same non-conformity will often cast doubt on whether the debtor is able to remedy the non-conformity;152 the resulting lack of confidence in the debtor will justify immediate termination. d) Partial termination Art. 16(2) SGD concerns the partial termination of a sales contract. Under this provi- 97 sion, the buyer may terminate part of the sales contract if the non-conformity only concerns a part of the goods delivered under the contract. However, the buyer may also terminate the contract in relation to other goods which were acquired together with the non-conforming goods where the buyer cannot be reasonably expected to keep only the conforming goods. For example, where the buyer purchases a smartphone together with accessories that are only compatible with that particular model, it may not be reasonably expected for the buyer to keep the accessories without the smartphone. e) Notice The provisions in the relevant directives and in the other sets of rules of European 98 contract law provide that the mere existence of reasons permitting termination does not lead to termination ipso iure. As a formative right,153 termination must be exercised in order to have effect.154 The injured party is therefore free to elect to maintain the contract despite the possibility to terminate (as expressed in, for example, Art. 18 CRD and Art. 13(1) SGD through the wording ‘the consumer shall be entitled’). The right to ter149 For example, where the non-conformity seriously affects the ability of the consumer to make normal use of the goods and the creditor cannot expect repair or replacement to remedy the non-conformity (Recital 52 SGD or where the debtor supplies an anti-virus program that is itself infected with a virus (Recital 65 DCD). 150 Schulze, ‘Die Digitale-Inhalte-Richtlinie’ (2019) ZEuP 695, 719. 151 See Recital 52 SGD. Compare, however, the wording ‘the trader’s attempt’ under Art. 14(4)(c) DCD with ‘seller having attempted’ under Art. 13(4)(b) SGD; see EU Digital Law/Gsell, Art. 14 DCD mn. 52. 152 Ibid. 153 See mn. 2. 154 Chen-Wishart/Magnus, ‘Termination, Price Reduction, and Damages’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 667.

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minate is exercised through a statement notifying the other party of the decision to terminate the contract (Art. 15 DCD; Art. 16(1) SGD).155 There are no specific formal requirements – the statement may be made through conclusive behaviour where, under the circumstances, it clearly expresses the decision to terminate the contract. f) Consequences 99

Termination ends the performance obligations under the contract; any outstanding obligations therefore do not need to be performed. Performance tendered under the contract, as well as any other benefits acquired, will have to be restored to the other party – the same applies in instances of partial termination. The restitution following termination is regulated in part by EU law and in part by national law (depending on the extent of the EU rules).156

5. Price reduction a) Overview 100

aa) The hierarchy of remedies in EU contract law places price reduction alongside termination as second-tier remedies for non-conforming performance. With the exception of the threshold ‘minor’, the requirements for price reduction are generally the same as for termination, as shown by Art. 14(4) DCD and Art. 13(4) SGD. In contrast, Art. 13 and 14 PTD contain separate and partially differing requirements for termination and price reduction. In addition, whereas price reduction and termination are alternatives under the Digital Content Directive and Sale of Goods Directive, price reduction and termination may be cumulated under Art. 13(6) PTD. Price reduction is a remedy of considerable importance in practice as it can easily balance the parties’ respective interests by reducing the price paid for the promised performance in proportion to the actual performance received. 101 bb) Art. 9:401 PECL and Art. III.–3:601 DCFR foresee price reduction as a general remedy for European contract law, as is the tendency in the development of the modern law of obligations.157 In adopting price reduction, European contract law continues with a tradition that, in national legal systems, can be traced back to the civil law principle actio quanti minoris158; this tradition is also expressed in international sales law (Art. 50 CISG), yet neither of these systems determines the form and interpretation of the European rules. Although the common law tradition does not recognize price reduction in relation to defective goods as a specific legal institution, similar results may be achieved by a claim to damages. However, the approaches lead to different results if the value of the performance is reduced in relation to the non-conformity but the creditor has suffered no loss and thus does not have a claim to damages (e.g. where the non-conforming 155 See also the academic drafts on European contract law, e.g. Art. 9:303 PECL, Art. 8:302 ACQP, Art. III.–3:507 DCFR and Art. 118 CESL. According to Art. 115(3) and Art. 135(3) CESL, notice of termination is not necessary if the notice on the additional period provides for automatic termination. In following Art. 9:303(2) PECL, Art. 119 CESL provides that, unless in cases of non-performance, the (nonconsumer) buyer loses the right to terminate if notice of termination is not given within a reasonable time from when the right arose or the buyer became, or could be expected to have become, aware of the nonperformance, whichever is later. 156 See mn. 125 et seq. 157 See Art. 1223 Code civil following the recent reforms of the French law of obligations. German law contains separate rules on price reduction in particular contracts, e.g. sale (§ 441 BGB), hire (§ 536 BGB) and contracts to produce a work (§ 638 BGB), for details see the comments in German Civil Code. 158 Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 430; Zimmermann, Law of Obligations (Clarendon 1996) 318.

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good could be resold without a loss). The acquis communautaire adopted price reduction at a relatively early stage (Art. 3(5) CSD for sales law).159 The CESL proposes price reduction for sales contracts, contracts for digital content, and contracts for related services (Art. 120, 155 CESL). cc) A disputed aspect of the right to price reduction in European contract law is 102 whether it is a formative right, as was seen in the discussions surrounding the CESL.160 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.161 Contention aside, exercising the right to price reduction requires the creditor to give notice to the debtor. The notice guarantees that the party in breach is informed of the legal reason for nonpayment and the reduction (or alternatively the obligation to make partial reimbursement of payments received) and can take the appropriate measures. b) Requirements and exclusion Price reduction generally requires non-conforming performance. The requirements 103 in sales contracts and in contracts for digital content or digital services are the same as for termination (Art. 14(4) DCD; Art. 13(4) SGD), though price reduction is not excluded if the non-conformity is minor. Art. 13(5) and (6) and Art. 14(1) PTD contain the requirements for price reduction in package travel contracts; price reduction may be sought in conjunction with subsequent performance or termination, and is limited if the non-conformity is attributable to the traveller. Furthermore, Art. 14(1) PTD considers the time frame of the non-conformity and the application of price reduction to any period during which there was a non-conformity. Art. 14(5) DCD adopts this approach for digital content or digital services supplied over a period of time (e.g. a streaming subscription162), though only in relation to digital content or digital services supplied against the payment of a price. 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. Article 14(5) Digital Content Directive Remedies for lack of conformity The reduction in price shall be proportionate to the decrease in the value of the digital content or digital service which was supplied to the consumer compared to the value that the digital content or digital service would have if it were in conformity

159 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. 160 Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 789; cf Faust, ‘Das Kaufrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 251, 264. 161 Such an issue is also controversial, favouring this ius variandi Lorenz, ibid. 789; Schulze CESL/Zoll, Art. 120 CESL mn. 3. 162 See Chapter 5 mn. 49–50.

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Chapter 6 Breach and Remedies Where the contract stipulates that the digital content or digital service shall be supplied over a period of time in exchange for the payment of a price, the reduction in price shall apply to the period of time during which the digital content or digital service was not in conformity.

c) Consequences 104

Price reduction changes the content of the contract. According to Art. 14(1) PTD (and earlier under Art. 3(2) and (5) CSD), the claim is directed at an ‘appropriate’ reduction in price. In line with the approach under Art. III.–3:601 DCFR and Art. 120(1) CESL, Art. 14(5) DCD and Art. 15 SGD set out the method for calculating the reduction in price. Article 15 Sale of Goods Directive Price reduction The reduction of price shall be proportionate to the decrease in the value of the goods which were received by the consumer compared to the value the goods would have if they were in conformity.

Accordingly, the price is reduced on the basis of the ratio between the reduced value of the non-conforming performance and the hypothetical value of conforming performance (relative calculation).163 The reduced price can be calculated using the formula: Reduced price = agreed price x

actual value of performance tendered hypothetical value of conformity

d) CESL The provisions on price reduction under the CESL are more precise than under the Directives. In contrast to termination under Art. 114 and 115 CESL, price reduction under the CESL is neither subject to fundamental non-performance nor to an additional period and therefore is a simpler and quicker remedy than termination. The right is not excluded by excused non-performance under Art. 88 CESL (and therefore differs from the right to performance and to damages; see Art. 106(4) CESL).164 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). Price reduction may be excluded in B–B contracts if the examination and notification obligations are not satisfied (Art. 121, 122 CESL). 106 To some extent the proposed CESL follows the DCFR’s rules on the consequences of price reduction. As Art. III.–3:601(2) DCFR, Art. 120(2) CESL 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, for example concerning form and place of payment (Art. 90 CESL). The same must also apply for the rules concerning non-performance of monetary obligations.165 Price reduction may have an effect similar to damages and thus exercising both rights would allow double recovery. Art. 120(3) CESL therefore provides 105

163 Schulze CESL/Zoll, Art. 120 CESL mn. 4; for criticism of this method of calculation with regard to other types of breach see Faust, ‘Das Kaufrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012) 251, 264–265. 164 On the debtor’s possibility to cure, see mn. 44. 165 Schulze CESL/Zoll, Art. 120 CESL mn. 5.

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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) though claims to price reduction and damages would otherwise be excluded under this general rule without the need for specificity in a separate provision.166

6. Damages and interest a) Damages in the acquis The right to claim damages in the acquis communautaire has mainly developed in re- 107 lation 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.167 However, damages for non-contractual and contractual liability follow the principle of being fully compensatory rather than punitive.168 The Package Travel Directive includes rules on contractual damages, but these are narrow 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. (…)

The Package Travel Directive allows the award of damages for the loss of enjoyment of a package holiday.169 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 (Art. 8:401 et seq. ACQP). These rules refer to sources in the acquis which favour strict liability for damages, albeit with certain grounds for exoneration.170 Neither the Digital Content Directive nor the Sale of Goods Directive contain any 108 provisions on damages. Although Art. 14 of the proposal for a Digital Content Directive outlines that the supplier is liable for economic damage caused to the consumer’s ‘hard166 Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 790. 167 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). 168 See Heiderhoff, Europäsiches Vertragsrecht (5th edn, C.F. Müller 2020) mn. 297, referring to C– 295/04 Manfredi ECLI:EU:C:2006:461 and C–203/99 Veedfald ECLI:EU:C:2001:258, mn. 32 regarding the enforcement of provisions in Member States which award punitive damages. 169 C–168/00 Leitner ECLI:EU:C:2002:163. 170 Contract II/Magnus, Art. 8:401 mn. 12.

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ware, digital content and any network connection to the extent that they are within the control of the user (the ‘digital environment’), even this attempt to include a very limited rule on damages as a remedy in relation to the supply of digital content failed during the legislative process. Nonetheless, Recital 73 DCD makes a notable contribution to the development of principles concerning damages under European contract law. Recital 73 Digital Content Directive The principle of the liability of the trader for damages is an essential element of contracts for the supply of digital content or digital services. Therefore, the consumer should be entitled to claim compensation for detriment caused by a lack of conformity or a failure to supply the digital content or digital service. The compensation should put the consumer as much as possible into the position in which the consumer would have been had the digital content or digital service been duly supplied and been in conformity. As such a right to damages already exists in all Member States, this Directive should be without prejudice to national rules on the compensation of consumers for harm resulting from infringement of those rules.

However, on the assumption that such a claim for damages already exists in all Member States, the European legislator seeks to justify the exclusion of rules on damages. This is not entirely convincing due to the differences in national laws with regard to the aims of the Directive.171 For example, the level of consumer protection would vary if compensation for loss and consequential loss is fault-based and/or whether the consumer bears the burden of proving loss. Different rules on damages in the Member States present an obstacle to cross-border transactions as it becomes difficult or impossible for a trader to calculate the extent of damages in the event of non-performance or non-conforming performance. The lack of harmonization on the law of damages thus constitutes a considerable deficit for both consumer protection and for the smooth functioning of the internal market. b) CESL 109

aa) In contrast, 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 Art. 9:501 et seq. PECL (as inspiration for Art. III.–3:701 DCFR). The CESL’s provisions on damages follow these models by opting against rules tailored for individual types of contract and instead favouring 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 (Art. 159 et seq. CESL) 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. 172 Furthermore, separate sections contain rules on interest for late payments in general and

See Schulze, ‘Die Digitalen-Inhalte-Richtlinie’ (2019) ZEuP 695, 720–721. 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, ‘Breach of Contract’ in Plaza Penadés/Martínez Velencoso, ibid. 111, 130– 132. 171

172

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specifically for B–B transactions. These rules are based on the Late Payment Directive and in part on the Acquis Principles173 (Art. 166 et seq. CESL) bb) The claim to damages requires the non-performance of a contractual obligation 110 (Art. 159(1) CESL). Damages are therefore available for non-delivery, delivery of nonconforming 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), failure to give notice of the impediment (Art. 88(3) CESL) as well as the breach of the pre-contractual information duties, though further clarification is required in relation to the individual circumstances.174 The claim to damages is however excluded if the non-performance is excused 111 (Art. 106(4), 159(1) CESL) and is thus subject to the same limitation as the claim for performance. The CESL therefore follows an approach outlined by Art. 9:501 PECL 175 (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’176 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.177 Although 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.178 cc) The damages cover the economic and non-economic losses that have arisen due to 112 the non-performance and are recoverable under Art. 2(c) CESL-Reg. The definition of damages under Art. 2(g) CESL-Reg distinguishes between ‘loss’ and ‘injury or damage’. In light of this distinction and the sole reference to ‘loss’ in Art. 159(1) CESL, 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’.179 Nominal damages (franc symbolique; symbolischer Schadensersatz) are also excluded from the requirement of ‘loss’. 180 The proposed CESL does not contain more precise details on the notion of ‘economic loss’ covered by Art. 2(c) CESL-Reg. However, this term will cover all financial losses, such as loss of income or profit, loss in value of property, loss of property, etc.181 Art. 159(2) CESL 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) PECL182. It refers to losses that are expected at the time damages are calculated by the court but which have not yet occurred.183 Art. 8:404; 8:406 ACQP. For more detail see Schulze CESL/Možina, Art. 159 CESL mn. 8–9; on the inclusion of contractual obligations vis-à-vis protecting physical integrity and other losses through reference to Art. 149 CESL see Schmidt-Kessel CESL/Remien, Art. 159 CESL mn. 4. 175 See also Art. III.–3:701 DCFR. 176 As in German law since 2002 through the second sentence of § 280(1) BGB. 177 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) 205, 210, 213–214; Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 795. 178 Schulze CESL/Možina, Art. 159 CESL mn. 6. 179 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 (see mn. 114). 180 Schulze CESL/Možina, Art. 159 CESL mn. 3. 181 See also Art. III.–3:701 DCFR. 173 174

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113

Damages are also to be paid in respect of lost profits. Despite the distinction between lost profits and loss suffered, Art. 159(2) CESL 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 offers an approach which will ease the burden of proof in this respect.184 The injured party thus only needs to outline the circumstances and to prove that a profit would have otherwise been likely under such circumstances. 114 European contract law recognized the recovery of non-economic loss long before the work on the proposed CESL. The ECJ decision in Leitner185 awarded damages for loss of enjoyment of a package holiday. The Acquis Principles 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 excludes other noneconomic loss such as impairment of quality of life and loss of enjoyment.186 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.187 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.188 The general standards for the compensation of non-economic losses under Art. 159 CESL in conjunction with Art. 2(c) CESL-Reg 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.189 115 dd) The claim for damages due to economic or non-economic loss is only justified if such loss results from the non-performance of a contractual obligation by the other party (Art. 159(1) CESL). In accordance with the development of the acquis communautaire190 it is necessary for there to be a causal link between the non-performance and the loss for which damages are claimed. The Package Travel Directive therefore provides for See also Art. III.–3:701(2) DCFR. DCFR Full Edition 918; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 436. 184 Schulze CESL/Možina, Art. 160 CESL mn. 12. 185 C–168/00 Leitner ECLI:EU:C:2002:163. 186 For criticism see 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) 205, 215–216; Remien, ‘Schadensersatz und Zinsen nach EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 503, 507–508; on the questions concerning differentiation Schulze CESL/Wendehorst, Art. 2 CESL-Reg mn. 7–8. 187 Kieninger, ibid. 217; Schulze CESL/Možina, Art. 160 CESL mn. 12. 188 Schulze CESL/Možina, Art. 160 CESL mn. 18; cf Kieninger, ibid. 189 For loss of enjoyment based on the Package Travel Directive see C–168/00 Leitner ECLI:EU:C: 2002:163. 190 See 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, 220; Weitenberg, Der Begriff der Kausalität in der haftungsrechtlichen Rechtsprechung der Unionsgerichte (Nomos 2014). 182

183

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compensation of damage sustained by the traveller ‘as a result of any lack of conformity’ (Art. 14(2) PTD). The proposal for a Digital Content Directive also provided compensation for damage ‘caused by a lack of conformity with the contract’.191 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), the CESL does not include any additional restrictions (in particular the requirement of ‘adequate’ causation, as is foreseen in several national laws)192 in relation to limiting the amount of recoverable loss. dd) Due to the general rule under Art. 2(g) CESL-Reg, damages under Art. 159 CESL 116 are to be paid in money. 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.193 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 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 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.194 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. If such a rule were adopted, 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 performance195) 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). The extent of the compensation for the loss suffered by the non-performance is mea- 117 sured in accordance with the principle of total reparation (and the so-called ‘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.196 The injured party is to be put as close as possible into this position if the total reparation cannot be achieved (Art. 160 CESL). 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. The proposal for a Digital Content Directive provided 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.’197 According to these principles the injured party can claim the entire difference between the amount to be paid under the contract and the See Recital 44 COM(2015) 634 final. Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 795; Schulze CESL/Možina, Art. 159 CESL mn. 5. 193 See also Art. 9:502 PECL; Art. III.–3:702 DCFR. For more detail see DCFR Full Edition 924; Lando/ Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 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 mn. 17. 194 Schmidt-Kessel CESL/Schmidt-Kessel, Art. 2 CESL-Reg mn. 23. 195 See mn. 61. 196 Schmidt-Kessel CESL/Remien, Art. 160 CESL-Reg mn. 1; Schulze CESL/Možina, Art. 160 CESL mn. 1. 197 Art. 14(1) COM(2015) 634 final; see also Art. 2(2) COM(2013) 404 final. 191

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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 for substitute transactions and Art. 165 CESL for fictitious substitute transactions concluded after termination). The injured party can also demand damages for further loss (see Art. 164–165 CESL) if these restorative damages do not cover the entire loss recoverable under Art. 2(c), (g) CESL-Reg. 118 Art. 161 CESL limits the extent of the recoverable loss to the foreseeable loss, which therefore serves as an additional requirement (alongside non-excused non-performance) for a claim to damages.198 The rule in Art. 161 CESL is not based on approaches from the acquis communautaire199 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. 200 However, the CESL does differ from these European sets of rules (and also national laws 201) as it does not provide an exception for either intentional non-performance or for gross negligence.202 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’203 to the objective arm of the foreseeability standard thereby avoiding the unnecessary use of this undefined term without expressing a difference in function. 204 119 The party in breach will not be liable if the injured party has contributed to the nonperformance (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.205 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 Art. 162–163 CESL are based on the PECL and DCFR.206 Art. 162 CESL 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 affords the injured party with the possibility to excuse her actions through analogous application of Art. 88 CESL.207 In addition, the recoverable loss will also be reduced if the injured party See mn. 111. Schulze CESL/Možina, Art. 161 CESL mn. 2. 200 On the development see 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) 205, 214. 201 Art. 1150 Code Civil. 202 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’. 203 Cf Art. III.–3:703 DCFR. 204 Under Art. 161 CESL 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 Art. 164–165 CESL (for a contrasting view see Schmidt-Kessel CESL/ Remien, Art. 164 CESL mn. 2). Legislative clarification of this point would be desirable. 205 Contract II/Magnus, Art. 8:403 mn. 1; DCFR Full Edition 934; 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, 223–224. 206 Art. 9:504 PECL and Art. III.–3:704 DCFR for Art. 162 CESL, which, within the CESL, generally accords with Art. 106(5), 131(3) CESL; Art. 9:505 PECL and Art. III.–3:705 DCFR for Art. 163 CESL. 207 Schmidt-Kessel CESL/Remien, Art. 162 CESL mn. 2; cf Koch, ‘Schadensersatz und Rückabwicklung’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 225, 233. 198

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has not, contrary to the requirement of good faith and fair dealing (Art. 2 CESL), taken steps to mitigate her loss (Art. 163(1) CESL);208 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). 209 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 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) 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 aa) Current EU contract law does not contain an overarching rule on interest on late 120 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. 210 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.211 It therefore seeks to promote a ‘culture of prompt payment’212 by linking periods for payment with claims to interest and compensation for costs incurred.213 Art. 3 and 4 Late Payment Directive set out the conditions for an interest claim in B– 121 B transactions and in transactions between businesses and public authorities. The amount of interest rate is calculated on the basis of a reference rate determined in accordance with Art. 3(2) Late Payment Directive. 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.214 In B–B contracts, the date or period for payment is determined by reference to the contract between the parties. Art. 3(3)(b) Late Payment Directive contains the rules where the date or period for payment is not fixed in the contract. Article 3 Late Payment Directive Transactions between undertakings (1) Member States shall ensure that, in commercial transactions between undertakings, the creditor is entitled to interest for late payment without the necessity of a reminder, where the following conditions are satisfied: 208 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, ibid. 234. 209 Schulze CESL/Možina, Art. 163 CESL mn. 3–4. 210 See Recitals 3 et seq. Late Payment Directive. 211 Recital 12 Late Payment Directive. 212 Ibid. 213 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. 214 C–306/06 01051 Telekom ECLI:EU:C:2008:187.

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the creditor has fulfilled its contractual and legal obligations; and the creditor has not received the amount due on time, unless the debtor is not responsible for the delay. (2) Member States shall ensure that the applicable reference rate: (a) for the first semester of the year concerned shall be the rate in force on 1 January of that year; (b) for the second semester of the year concerned shall be the rate in force on 1 July of that year. (3) Where the conditions set out in paragraph 1 are satisfied, Member States shall ensure the following: (a) that the creditor is entitled to interest for late payment from the day following the date or the end of the period for payment fixed in the contract; (b) where the date or period for payment is not fixed in the contract, that the creditor is entitled to interest for late payment upon the expiry of any of the following time limits: (i) 30 calendar days following the date of receipt by the debtor of the invoice or an equivalent request for payment; (ii) where the date of the receipt of the invoice or the equivalent request for payment is uncertain, 30 calendar days after the date of receipt of the goods or services; (iii) where the debtor receives the invoice or the equivalent request for payment earlier than the goods or the services, 30 calendar days after the date of the receipt of the goods or services; (iv) where a procedure of acceptance or verification, by which the conformity of the goods or services with the contract is to be ascertained, is provided for by statute or in the contract and if the debtor receives the invoice or the equivalent request for payment earlier or on the date on which such acceptance or verification takes place, 30 calendar days after that date.

Where interest for late payment becomes payable in commercial transactions in accordance with Art. 3 or 4 Late Payment Directive, Art. 6 Late Payment Directive provides a minimum fixed sum payment of 40 euro as compensation for recovery costs; the debtor may also be entitled to claim reasonable compensation for any recovery costs exceeding the fixed sum (e.g. legal expenses).215 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 terms216, which includes standard as well as negotiated terms.217 122 bb) The Acquis Principles have used the Late Payment Directive as a basis for its own provisions (Art. 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.218 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.

215 On the relationship between the fixed sum and claims for additional compensation see C–287/17 Česká pojišťovna ECLI:EU:C:2018:707. 216 Recital 28 Late Payment Directive; see Chapter 4, mn. 61–62. 217 Heiderhoff, Europäisches Privatrecht (5th edn, C.F. Müller 2020) mn. 413. 218 DCFR Full Edition 945.

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cc) The CESL has followed the approach in the DCFR by including, for the first time, 123 general rules for interest on late payments, which extend beyond the scope of the Late Payment Directive (Art. 166–167 CESL). 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, 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). The creditor is thus afforded a form of abstract damages which will not only typically compensate for the losses suffered (though 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.219 The creditor may recover any damages for further loss through application of the provisions on damages (Art. 166(3) CESL). However, these strict rules only apply to late payments by consumers if the performance is not excused. The interest does not begin 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 CESL (Art. 167(1)–(4) CESL). The CESL’s specific rules on late payments by businesses (Art. 168–171 CESL) are 124 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 if the business 220 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. 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.221 The interest rate is stipulated in Art. 168(5) CESL and adopts the approach under Art. 166(2) CESL, 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 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) 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. There is therefore a rebuttable presumption that a longer period for payment is unfair under Art. 170 CESL. Unfair contract terms on payment dates, time periods, and interest rates will not be binding.222 Moreover, the rules on late payment by businesses are mandatory and can therefore neither be excluded nor varied (Art. 171 CESL).223

Schulze CESL/Možina, Art. 166 CESL mn. 3. Art. 2(e) CESL-Reg defines ‘business’ (‘trader’). 221 For criticism see Schulze CESL/Možina, Art. 168 CESL mn. 3. 222 According to Art. 170(2) CESL 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. Art. 170(3) CESL stipulates that terms will always be unfair if they exclude interest for late payment or compensation for recovery costs. 223 For more detail see 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) 205, 222–223. 219

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IV. Restitution 1. Overview a) Regulated aspects 125

The unravelling of contracts may be necessary in various legal contexts. With regard to the acquis communautaire, this concerns in particular the termination of a contract due to non-performance,224 non-conforming performance,225 or modification of the contract.226 Other matters included in the CESL and in the academic drafts for European contract law, are, inter alia, others the rescission due to mistake, threat, fraud or unfair advantage227 and the termination of a contract due to an extraordinary change of circumstances. Although such circumstances may bring the contract to an end, the parties may have nevertheless already performed their contractual obligations. Rules are thus needed to determines the 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). Digitalization also presents new challenges, particularly as new rules are necessary in order to tackle new questions such as the effect on any data provided by one party to the other. b) Development of the acquis

126

In general, the approach under current EU law was 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 fell greatly below the level the Consumer Rights Directive has achieved for restitution following withdrawal.228 The Consumer Sales Directive did develop initial approaches for sales law, which the Sale of Goods Directive continues to maintain. However, the new rules on restitution under the Digital Content Directive are far more comprehensive. Furthermore, in contrast to their provisions on performance obligations, both the Digital Content Directive and the Sale of Goods Directive contain provisions concerning the obligations of both parties in the event the contract is terminated. In this respect, both Directives place greater emphasis on the mutual obligations in the event of termination rather than the performance of the contract.

2. Sale of Goods Directive 127

Art. 16(3) SGD sets some basic rules for restitution following the termination of a sales contract, but leaves the Member States to define the obligations in more detail. The buyer (the consumer) is obliged to return the goods to the seller and the seller to refund the purchase price to the buyer. The reciprocal nature of these obligations is particularly See mn. 82 et seq. See mn. 88 et seq. 226 See Chapter 5 mn. 58. 227 See Chapter 3 mn. 112 et seq. 228 See Chapter 3 mn. 141. 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 (Nomos 2018) 224. 224

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expressed in the fact that the obligation to refund the purchase price presupposes that the buyer has returned the goods. Although in principle it is for the Member States to determine the modalities of reimbursement and return, the Directive expressly lays down one modality: the seller is to bear the costs of return. This is to avoid the consumer, as the buyer, from being deterred from exercising her right to terminate the contract due to the risk of incurring costs. Article 16(3) Sale of Goods Directive Termination of the sales contract Where the consumer terminates a sales contract as a whole or, in accordance with paragraph 2, in relation to some of the goods delivered under the sales contract: (a) the consumer shall return to the seller, at the seller’s expense, the goods; and (b) the seller shall reimburse to the consumer the price paid for the goods upon receipt of the goods or of evidence provided by the consumer of having sent back the goods. For the purposes of this paragraph, Member States may determine the modalities for return and reimbursement.

3. Digital Content Directive a) Significance The provisions of the Digital Content Directive extend beyond the previous rules in 128 the acquis as they cover the consequences of termination in three situations: failure to supply (non-performance), non-conformity of the digital content or digital service, and modification of the contract. For these situations, the Digital Content Directive also contains detailed rules on the mutual obligations upon termination of the contract. Such rules are not only much more detailed than the Sale of Goods Directive but also do not leave the regulation of the modalities of return and reimbursement to Member States. Although their application is limited to B–C contracts for digital content or digital services, the rules are based in part on concepts which may be of importance beyond this area and which are therefore also worth considering for the further development of European contract law. b) Price reimbursement Art. 16(1) DCD anchors the principle that the performances received must be re- 129 turned after termination of the contract: the supplier of the digital content or digital services is obliged to reimburse all sums paid under the contract. In the case of the supply of goods with digital elements, there is a corresponding obligation to refund the price as in the case of the purchase of goods in accordance with Art. 16(3) SGD. However, in contrast to the Sale of Goods Directive, the Digital Content Directive contains detailed provisions on the modalities of this reimbursement (which also apply to the reimbursement in the event of a price reduction). According to these provisions, the trader shall refund the amount paid free of charge and without delay, but in any case within 14 days from when he is informed of the consumer’s decision to terminate the contract (Art. 18(1) and (3) DCD). In doing so, the trader shall use the same means of payment that the consumer used to pay the price (unless expressly agreed otherwise, but without charging the consumer any fees for the refund; Art. 18(2) DCD).

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c) Proportional reimbursement 130

However, the obligation to reimburse the price is subject to particular rules where, in contracts for supply over a period of time, the digital content or digital service was in conformity for a period of time. In such instances, Art. 16(1) DCD provides that the the trader shall reimburse the consumer only for the proportionate part of the price paid corresponding to the period of time during which the digital content or digital service was not in conformity.229 The termination of contracts for continuous performance is therefore based on considerations similar to those for price reduction.230 The consumer is therefore not liable to pay for any use made of the digital content or digital service in the period, prior to the termination of the contract, during which the digital content or the digital service was not in conformity (Art. 17(3) DCD). Where the trader has received advance payment, he must not only reimburse the amount corresponding to the period of non-conformity but also any part that would have remained had the contract not been terminated. d) Return of tangible medium

131

For restitution, the only overlap between the supply of digital content and the sale of goods concerns the supply on a tangible medium (e.g. a USB-stick or DVD). In such cases, Art. 17(2) DCD states that the consumer shall return the tangible medium to the trader. As for the return of goods, the trader is to bear the costs of return. However, in contrast to the Sale of Goods Directive, Art. 17(2) DCD obliges the consumer, upon request by the trader, to return the tangible medium without undue delay. Such a request is to be made within 14 days of the day on which the trader is informed of the consumer’s decision to terminate the contract. e) Prohibition of use and denied access

132

aa) Where digital content is not supplied on a tangible medium, the issue of its return to the trader becomes more problematic.231 Digital content or digital services can also be made available via download or streaming and thus the Digital Content Directive has adapted to these approaches in order to determine rules appropriate to the termination of contract in such circumstances: Article 17(1) Digital Content Directive Obligations of the consumer in the event of termination After the termination of the contract, the consumer shall refrain from using the digital content or digital service and from making it available to third parties.

The consumer may therefore no longer continue to use, for example, editing software if she has terminated the contract in accordance with Art. 14(4) and 15 DCD. Although the word ‘refrain’ suggests an omission, the consumer must also not act to make the digital content or digital service available to third parties (e.g. deleting the digital content, or rendering the digital content or digital service inaccessible232). However, the consumer 229

data).

This applies only in cases in which the consumer has paid a price (i.e. not only supplied personal

See also Art. 14(1) PTD. On the general question of the availability of data after termination and the tensions with data protection see Cámara Lapuente, ‘Termination of the Contract for the Supply of Digital Content and Services, and Availability of Data: Rights of Retrieval, Portability and Erasure in EU Law and Practice’ in Lohsse/ Schulze/Staudenmayer (eds), Data as Counter-Performance – Contract Law 2.0? (Nomos 2020) 161. 230

231

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should also refrain from using the digital content or digital service and from making it available to third parties, for instance by deleting the digital content or any usable copy or rendering the digital content or digital service otherwise inaccessible. Art. 16(5) DCD strives to counter the clear problem that it is difficult for the trader to 133 verify the consumer’s compliance with Art. 17(1) DCD. Accordingly, the trader is permitted to take measures that prevent the further use of the digital content or digital service (e.g. by disabling the user account). Article 16(5) Digital Content Directive Obligations of the trader in the event of termination The trader may prevent any further use of the digital content or digital service by the consumer, in particular by making the digital content or digital service inaccessible to the consumer or disabling the user account of the consumer, without prejudice to paragraph 4.

bb) The Digital Content Directive applies the instrument of the prohibition of use not 134 only to the consumer but also, in particular circumstances, to the trader. If the consumer has provided digital content (such as images, video files or files created on mobile devices233) to the trader, Art. 16(3) DCD states that the trader shall, in principle, refrain from using such content after termination of the contract; however this only applies to non-personal data. With regard to personal data, Art. 16(2) DCD refers to the GDPR, which applies to any personal data processed in connection with contracts covered by the Digital Content Directive and which prevails in the event of conflicts between the Directive and the GDPR (Art. 3(8) DCD). Art. 16(3) DCD lists various exceptions to the prohibition on the use of non-personal data in order to avoid unnecessary expense for both parties and to take account of the principle of proportionality. Article 16(3) Digital Content Directive Obligations of the trader in the event of termination The trader shall refrain from using any content other than personal data, which was provided or created by the consumer when using the digital content or digital service supplied by the trader, except where such content: (a) has no utility outside the context of the digital content or digital service supplied by the trader; (b) only relates to the consumer’s activity when using the digital content or digital service supplied by the trader; (c) has been aggregated with other data by the trader and cannot be disaggregated or only with disproportionate efforts; or (d) has been generated jointly by the consumer and others, and other consumers are able to continue to make use of the content.

f) Restitution of data In addition to the obligation to refrain from using any content other that personal da- 135 ta, Art. 16(4) DCD obliges the trader, at the request of the consumer, to make available to the consumer any such content which was provided or created by the consumer when using the digital content or digital service.234 For example, the trader must make available any text data provided by the consumer when using a translation program. Failing Recital 72 DCD. Recital 69 DCD. 234 However, this only applies if the exceptions listed under Art. 16(3) DCD do not apply. Recital 71 DCD provides that the obligation should be without prejudice to the trader’s right not to disclose certain content in accordance with applicable law. 232

233

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to ensure access to data could deter the consumer from exercising the right to terminate the contract in the event of a lack of conformity. In this respect, the right to recover data serves to safeguard the right to terminate the contract.235 136 Art. 16(4) DCD also specifies the modalities for retrieval of the digital content and thereby ensure the effectiveness of the right. Article 16(4) Digital Content Directive Obligations of the trader in the event of termination (…) The consumer shall be entitled to retrieve that digital content free of charge, without hindrance from the trader, within a reasonable time and in a commonly used and machine-readable format.

‘Free of charge’ refers to all costs specifically related to the retrieval of the content. However, it does not extend to costs that are caused by the consumer’s digital environment; the trader therefore does not have to bear the costs of the consumer’s internet connection, for example.236 g) Starting points for a coherent law of restitution 137

The provisions of the Package Travel Directive, the Sale of Goods Directive and, above all, the Digital Content Directive, feature a number of starting points for the development of terminology and principles of European contract law extending beyond the scope of these Directives and contributing to coherent future rules. Such starting points include, in particular, the obligation to return tangible objects received from the other party under the contract; the obligation to refund the price paid; the relationship of these obligations to each other; and refunding a proportionate cost of services provided over a period of time. In addition, there is the principle of free return of goods for consumers. The Digital Content Directive may further contain concepts and principles that are suitable for determining the general legal consequences of the termination of contracts. For example, it will be necessary to consider the approaches such as the prohibition of use and making available to third parties; the trader’s right to prevent future use, and the right to recover digital content that the recipient made available to the other party.

4. DCFR and CESL 138

The CESL proposed a comprehensive set of rules for restitution, which extend far beyond the approaches in the acquis, but without consideration of the particular needs in the supply of digital content and digital services. When compared to the DCFR237 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 CESL). On the other hand it extends to cover the contract’s retrospecRecital 70 DCD. Recital 71 DCD. 237 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/von 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). 235

236

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tive invalidity resulting from avoidance (Art. 54(1) CESL) due to mistake, fraud, threat, and unfair exploitation (Art. 48 et seq. CESL).238 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 (Art. 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. 239 The CESL’s innovative ‘single track’ approach for both areas will require further consideration with regard to the future development.240 The proposed CESL’s core provision on restitution comprises the general obligation 139 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). The general rule therefore principally aims at establishing the status quo ante.241 Art. 173 CESL provides for the payment of monetary value where the received performance (including natural and/or legal fruits) cannot be returned. The payment of the monetary value is also foreseen in relation to the use of the goods (Art. 174(1) CESL) 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 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. 242 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). Such a possibility has received widespread support because of its contribution to ensuring a just approach

238 See Chapter 3 mn. 113. However, restitution following withdrawal is regulated separately in Art. 44– 45 CESL; on the deficiencies in the relationship between these two regimes see Schulze CESL/Schulze, Art. 44 CESL mn. 11; on a possible analogous application of Art. 172 et seq. CESL to other circumstances in which restitution is concerned see Schmidt-Kessel CESL/Wendehorst, Art. 172 CESL mn. 2. 239 On these provisions, see the comments in German Civil Code. 240 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, 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) amendments 223–246; Schmidt-Kessel CESL/Wendehorst, Art. 172 CESL mn. 4–5; Schulze CESL/Lehmann, Art. 172 CESL mn. 61–67; 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_the_Proposal_for_a_Regulation_on__a_Common_European_Sales_Law.pdf (accessed 4 December 2020). 241 Schulze CESL/Lehmann, Art. 172 CESL mn. 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 (Art. 172(3) CESL); for criticism see Schmidt-Kessel CESL/Wendehorst, Art. 172 CESL mn. 10–11. 242 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).

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in the individual case. 243 Nonetheless, the incredibly broad scope and vague terminology of Art. 176 CESL cause problems in relation to legal certainty.244

5. Redress 140

The rules on liability in European consumer contract law primarily concern the relationship between the parties to a B–C contract, i.e. a consumer and the business (generally referred to in European contract law as the ‘trader’ or more specifically as ‘seller’ under Sale of Goods Directive). Accordingly, the consequences of the liability for non-conforming performance burden this commercial partner, who must, for example, bear the cost of a repair or replacement good. However, although the non-conformity is attributed to this party, an act or omission by an earlier link in the chain of contracts may have caused the non-conformity. For example, a defective drain pump in the washing machine sold to the consumer may be due to a manufacturing defect and thus attributable to manufacturer, or structural deformities are consequence of incorrect storage by the wholesaler. Although the strict liability provisions of European consumer protection law result in the liability of the final trader to the consumer, they must not result in the trader bearing liability whereby earlier links in the chain of contracts are protected by milder liability provisions under national civil or commercial law. EU legislation has therefore included the redress of the trader who is liable under a consumer contract against the previous links in the contractual chain. Article 20 Digital Content Directive Right of redress Where the trader is liable to the consumer because of any failure to supply the digital content or digital service, or because of a lack of conformity resulting from an act or omission by a person in previous links of the chain of transactions, the trader shall be entitled to pursue remedies against the person or persons liable in the chain of commercial transactions. The person against whom the trader may pursue remedies, and the relevant actions and conditions of exercise, shall be determined by national law. Article 18 Sale of Goods Directive Right of redress Where the seller is liable to the consumer because of a lack of conformity resulting from an act or omission, including omitting to provide updates to goods with digital elements in accordance with Article 7(3), by a person in previous links of the chain of transactions, the seller shall be entitled to pursue remedies against the person or persons liable in the chain of transactions. The person against whom the seller may pursue remedies and the relevant actions and conditions of exercise, shall be determined by national law.

141

The Digital Content Directive and the Sale of Goods Directive primarily serve the purpose of consumer protection, yet their provisions on redress extend beyond consumer contracts in order to protect the trader from unreasonable burdens brought about in increasing the level of consumer protection. In this respect, however, the Directives 243 Schmidt-Kessel CESL/Wendehorst, Art. 176 CESL mn. 2; Schulze CESL/Lehmann, Art. 176 CESL mn. 13–18. 244 Clarification is required with regard to important practical questions concerning the place of performance and other aspects in relation to restitution, see Looschelders, ‘Das allgemeine Vertragsrecht des Common European Sales Law’ (2012) 212 AcP 518, 674; Schmidt-Kessel CESL/Wendehorst, Art. 176 CESL mn. 4; The analogous application of the provisions on primary contractual obligations could be of some assistance in resolving this issue, see Schulze CESL/Zoll, Art. 93 CESL mn. 5.

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are limited to maintaining the basis rule introduced by Art. 4 CSD that the trader is entitled to seek redress against the person or persons liable in the chain of (commercial 245) transactions. The inclusion of updates (referred to expressly in Art. 18 SGD, but a requirement for conformity under the Digital Content Directive246) clarifies that the extension of the requirements for conformity also apply to the redress of the last seller/ trader. The details of the right of redress are left to the Member States. In particular, the Member States are free to determine the links in the (commercial) contractual chain from whom the last seller/trader may seek redress. The Member States can therefore, for example, provide for redress ‘along the contractual chain’ (so that each link in the contractual chain is only entitled to claims against the respective preceding link). However, the Member States may choose to allow direct claims against the party responsible (in particular direct claims of the last seller against the manufacturer), thereby circumventing the principle of privity of contract.247 A combination of both approaches is also possible. However, all variants are claims within the contractual chain that leads from the last trader back to the producer. A distinction must be made between claims by the consumer against earlier links in the contractual chain. This concerns in particular direct claims of the consumer against the manufacturer. Such an ‘action directe’, such as under French law, does not fall within the scope of the Directives. It can therefore exist in addition to the liability regime under the Directives,248 but has not yet become a feature of European contract law.

245 According to Recital 78 DCD ‘it is important to ensure that the trader has appropriate rights vis-àvis different persons in the chain of transactions in order to be able to cover the liability towards the consumer. Such rights should be limited to commercial transactions and they should therefore not cover situations where the trader is liable towards the consumer for the lack of conformity of digital content or a digital service that is composed of or built upon software which was supplied without the payment of a price under a free and open-source licence by a person in previous links of the chain of transactions.’. 246 See Chapter 5 mn. 47 et seq. 247 See Chapter 3 mn. 86. 248 See Recital 63 SGD.

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CHAPTER 7 PRECLUSION AND PRESCRIPTION Literature: Jansen/Zimmermann (eds), Commentaries on European Contract Laws (OUP 2018); 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. Proposal for comprehensive European rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 11 22

I. Acquis communautaire The acquis communautaire contains incomplete and limited rules concerning the 1 consequences of the expiration of time limits for exercising, limiting or enforcing rights. 1 The European legislator only takes such measures when, in light of the area of law concerned, 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. 2 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 for such 2 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

1 On the development see Kleinschmidt, 'Einheitliche Verjährungsregeln für Europa? Zu den Gewährleistungsfristen im Vorschlag für ein Gemeinsames Europäisches Kaufrecht' (2013) 213 AcP 538. 2 Müller, 'Die Verjährung im EU Kaufrecht' (2012) GPR 11.

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expiration of the time limit, but the court is to consider this ex officio. Art. 10 CRD defines the circumstances under which the withdrawal period can be extended. As these provisions are fully harmonized there is thus no scope for the application of consumerfriendlier national rules on the expiration of the time limit (e.g. in light of good faith and fair dealing). 3 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).4 3 The Consumer Sales Directive contains similar fragmented regulation of time periods restricting consumer rights:5 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 directive6 and therefore the national legislator may increase the level of consumer protection when implementing the rules into national law. 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 periods 7 (limitation cannot occur before the two-year period under the Directive has expired).8 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) CSD); Member States may choose to include this requirement.9 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 the hands of the national legislator.10 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. 3

Recital 2 CRD. Art. 14 Distance Selling Directive; see Micklitz in Grabitz/Hilf (eds), Das Recht der Europäischen Union (70th edn, C.H. Beck 2020) Sekundärrecht Vor A.2, 85/577/EWG und 97/7/EG – Systematischer Teil mn. 27. 5 See EU Sales Directive/Hondius, Art. 5. 6 Art. 8(2) CSD, see EU Sales Directive/Stijns/van Gerven, Art. 7 mn. 2–5; Micklitz in Grabitz/Hilf (eds), Das Recht der Europäischen Union (70th edn, C.H.Beck 2020) Sekundärrecht A.15, 1999/44/EG, Art. 8 mn. 5. 7 Art. 5 CSD. On the function of this period as an allocation of the risk that the non-conformity is revealed and the liability arises again see Kleinschmidt, 'Einheitliche Verjährungsregeln für Europa? Zu den Gewährleistungsfristen im Vorschlag für ein Gemeinsames Europäisches Kaufrecht' (2013) 213 AcP 538, 544; Commentaries on European Contract Laws/Zimmermann, Art 14:501. 8 See Magnus in Grabitz/Hilf (eds), Das Recht der Europäischen Union (70th edn, C.H.Beck 2020) Sekundärrecht A.15, 1999/44/EG, Art. 5 mn. 3–16; EU Sales Directive/Hondius Art. 5 mn. 3–9. 9 See Art. 5(2) CSD: ‘Member States may provide that…’. 4

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5

The proposed Online Sales Directive contained a similar provision: Article 5 COM(2015) 634 final 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, the Online Sales Directive proposed full harmonization, which – if the proposed rule had been adopted – would have resulted in a mandatory two-year prescription period. The Member States could have also provided further time limits in relation to the consumer’s remedies, yet these would have to take the two-year 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 would have prevent an extension of the time period in which to exercise the remedies. The Sale of Goods Directive and the Digital Content Directive regulate the time peri- 6 ods which limit the exercise of the remedies: Article 10 Sale of Goods Directive Liability of the seller (1) The seller shall be liable to the consumer for any lack of conformity which exists at the time when the goods were delivered and which becomes apparent within two years of that time. Without prejudice to Article 7(3), this paragraph shall also apply to goods with digital elements. (2) In the case of goods with digital elements, where the sales contract provides for a continuous supply of the digital content or digital service over a period of time, the seller shall also be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within two years of the time when the goods with digital elements were delivered. Where the contract provides for a continuous supply for more than two years, the seller shall be liable for any lack of conformity of the digital content or digital service that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the sales contract. (…)

Art. 10(1) SGD regulates the two-year period following the delivery of the goods, yet 7 does not determine the nature of this period. Art. 10(2) SGD, a new rule, solves the problem of contracts for goods with digital elements in which there is an obligation to continuously supply the digital content or digital service. The two year liability period also applies to the digital content or digital service, unless the contract provides that the digital content or digital service is to be supplied for a period longer than two years. In this latter case, the seller is liable throughout the period of supply. The Sale of Goods Directive allows the Member States to maintain or introduce longer limitation periods, however with the exception that only the remedies under the Directive may be limited by a limitation period. A combination of the period under Art. 10 SGD (e.g. the twoyear standard period) and a national limitation period may arise, but only under the

10 On the general tendency by national and European legislators to reject the obligatio naturalis, see Commentaries on European Contract Laws/Zimmermann, Art 14:501 mn. 1. Recent Polish law has, however, developed in a different direction so that the court has to consider by its own motion the prescription of the consumer’s claim (Art. 117(2)(1) ZGB).

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condition that the national limitation period does not prevent the consumer from exercising the remedies under the cases given in Art. 10(1) and (2) SGD. Although the Sale of Goods Directive pursues full harmonization (Art. 4 SGD), the Member States may nonetheless maintain or introduce longer periods than provided by the Directive. 8

Article 11 Digital Content Directive Liability of the trader (…) (2) Where a contract provides for a single act of supply or a series of individual acts of supply, the trader shall be liable for any lack of conformity under Articles 7, 8 and 9 which exists at the time of supply, without prejudice to point (b) of Article 8(2). If, under national law, the trader is only liable for a lack of conformity that becomes apparent within a period of time after supply, that period shall not be less than two years from the time of supply, without prejudice to point (b) of Article 8(2). If, under national law, the rights laid down in Article 14 are also subject or only subject to a limitation period, Member States shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that exists at the time indicated in the first subparagraph and becomes apparent within the period of time indicated in the second subparagraph. (3) Where the contract provides for continuous supply over a period of time, the trader shall be liable for a lack of conformity under Articles 7, 8 and 9, that occurs or becomes apparent within the period of time during which the digital content or digital service is to be supplied under the contract. If, under national law, the rights laid down in Article 14 are also subject or only subject to a limitation period, Member States shall ensure that such limitation period allows the consumer to exercise the remedies laid down in Article 14 for any lack of conformity that occurs or becomes apparent during the period of time referred to in the first subparagraph.

In principle, Art. 11 DCD uses a different approach to provide a similar solution. The second sub-paragraph of Art. 11(3) DCD does not set any limitation period but rather determines the minimum length of a national limitation period. In essence, there is no difference in this regard between the Digital Content Directive and the Sale of Goods Directive. 9 A further fragmented rule concerning an important aspect of prescription can 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.

10

This provision of the ADR Directive allows the Member States to select the 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 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 un-

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certain 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 does not apply in matters involving consumers.

II. Proposal for comprehensive European rules The provisions on prescription in the proposed CESL are contained in its Chapter 18. 11 The chapter was conceived to be at least as complete as the rules of prescription in national codifications influenced by pandectism11 (such as the German Civil Code12 or the Polish Civil Code). It is based relatively closely on the model adopted by the DCFR (Art. III.–7:101 et seq. DCFR).13 Art. 178 CESL determines the rights subject to prescription: 12 Article 178 CESL 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 defined14 and thus there was uncertainty as to the individual rights to be included.15 In any event, ‘ancillary’ would comprise all other claims that are not classified as performance,16 for example, damages, right to payment of interest, etc. The article does not represent a complete rule as the prescription of other rights may be extracted from Art. 185 CESL on the effects of prescription.

11 See Stellungnahme des Deutschen Notarvereins vom 7.12.2011 at 28–31, in particular 30, available under http://www.dnotv.de/_files/Dokumente/Stellungnahmen/STNDNotVGemeinsamesEuropischesKaufr echtl.pdf (last accessed 11 December 2020). 12 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. 13 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 mn. 5; Zöchling-Jud, ‘Verjährungsrecht’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 255. On prescription in the DCFR, see DCFR Full Edition 1139– 1206. For comparisons to national law, 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. 14 Schmidt-Kessel CESL/Müller, Art. 178 mn. 4–5; Schulze CESL/Møgelvang-Hansen, Art. 178 CESL mn. 8. 15 Vaquer/Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38, 43–45. 16 Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 530.

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13

Article 185(1) CESL 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,17 particularly the uncertainty surrounding the scope of the ‘ancillary’ rights18 (especially formative rights such as termination19 and price reduction20). 14 The CESL proposes two types of prescription periods – the so-called ‘short’ and ‘long’ period of prescription. The short period resembles the two-year period in the Consumer Sales Directive. Article 179 CESL 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.

15

The distinction between a short and long prescription period is also reflected in the different points at which the respective periods should begin: Article 180 CESL 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 circumstances, thereby rendering irrelevant the creditor’s actual (or expected) awareness of these circumstances. 21 The long period is to

17 Vaquer/Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38, 56. 18 Schmidt-Kessel CESL/Müller, Art. 178 CESL mn. 4. 19 Zöchling-Jud, ‘Verjährungsrecht’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 255, 256. 20 Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 531. 21 Schmidt-Kessel CESL/Müller, Art. 180 CESL mn. 2–3; Schulze CESL/Møgelvang-Hansen, Art. 180 CESL mn. 1; Vaquer/Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38, 48.

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begin from the time performance is due as this represents the starting point for potential claims. The CESL outlines various possibilities to modify the end of the prescription period. 16 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 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 17 which the parties initiate formal proceedings to resolve the dispute.22 Uncertainty surrounds the extent to which the procedural laws of the Member States are to be considered23 (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 does not represent an entire rule and that the national procedural rules will also influence the moment at which suspension will take effect. A postponement the prescription period is foreseen for two entirely different situa- 18 tions. The first is associated with the aforementioned group of dispute resolution methods24; it concerns the necessary25 extension of the prescription period due to the start26 of negotiations between the parties (i.e. the informal attempt to resolve the dispute): 27 Article 182 CESL 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 com-

22 Schmidt-Kessel CESL/Müller, Art. 181 CESL mn. 2; Schulze CESL/Møgelvang-Hansen, Art. 181 CESL mn. 1–2. 23 This is rejected by Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 535–536. 24 Ibid. 539–540. 25 Suspending expiration and the length thereof are assessed in Schmidt-Kessel CESL/Müller, Art. 182 CESL mn. 5. 26 On the starting point for negotiations see ibid. mn. 4. 27 Schulze CESL/Møgelvang-Hansen, Art. 182 CESL.

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Chapter 7 Preclusion and Prescription munication made in the negotiations or since one of the parties communicated to the other that it does not wish to pursue the negotiations.

19

The second instance of postponement is founded on the need to protect persons lacking legal capacity:28 Article 183 CESL 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.

20

Such rules can only function in conjunction with the Member States’ laws on capacity. However, it would be necessary to determine whether the notion of incapacity under Art. 183 CESL also concerns a person who is of limited capacity according to national law.29 21 Renewal was the final approach to modification of the prescription period under the CESL. It applies in relation to the acknowledgement of debt: Article 184 CESL 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. 184.30 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.31 Art. 184 CESL 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.

III. Conclusions 22

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 EU. 28 Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 541. 29 Vaquer/Arroyo, ‘Prescription in the Proposal for a Common European Sales Law’ (2013) ERCL 38, 43. 30 Ibid. 54. 31 Müller, ‘Die Verjährung im EU-Kaufrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 529, 542.

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CHAPTER 8 OUTLOOK Almost all of the fields covered in this book show the innovative features of European contract law. This can already be seen at an early stage in its development, in comparison to the concepts and principles which influenced national codifications and legal systems during the 19th and 20th centuries. Issues such as pre-contractual information duties, withdrawal rights, structure of remedies for non-conforming performance as well as the final seller’s right of redress show the influence of the new approaches in European contract law on developments in the EU Member States. Beyond this, however, the recent challenges emerging from digitalization have again resulted in innovations with considerable importance both for legal practice and on a doctrinal level. The new approaches are mostly anchored in concepts that developed within earlier EU legislation. However, their effect on contract law in light of the economic and technological impact of the ‘digital revolution’ is certainly not minimal. The role of data in the notion and process of formation of contract is a new aspect which extends beyond the introduction of pre-contractual information duties and withdrawal rights as an early response to the changes in the ‘digital age’. The Unfair Terms Directive already acknowledged the importance of standardized contracts in contract practice and the demand for control over contract terms in modern contract law, but only for consumer contracts. European legislation turns with the Platform Regulation to a key form of contracting in a core area of the ‘digital economy’. At the same time, this Regulation shows that the control of contract terms is not merely an instrument of consumer protection, but may be appropriate in a commercial context. The Consumer Sales Directive represented a milestone in the development of European sales law, especially the provisions on conformity and liability for non-conformity, as well as the hierarchy of remedies. Recent legislation not only extends these early concepts and structures to digital content but also to digital services. Moreover, the legislative provisions reform the relationship between subjective and objective requirements for conformity and take into account new performance features such as functionality and compatibility. In particular, they introduce new concepts and principles, such as the post-contractual ‘update’ obligations and the corresponding information duties, the distinction between single performance and continuous performance over a period of time, the liability for non-conforming integration into the digital environment, and the modification rights under the contract. Furthermore, the inclusion of durability as a criterion for conformity reflects environmental concerns and thus a further challenges for 21st century contract law. Similar comments also apply to the exercise and consequences of termination, as another example. The Digital Content Directive and the Sale of Goods Directive extend far beyond the Consumer Sales Directive by expressly stating that the right to end the contract is exercised by notice to the other party (thus removing the requirement for a court decision, as was required in some Member States). Furthermore, the Digital Content Directive covers the consequences of termination by determining the obligations for the parties, including new concepts such as the right to retrieve content or the prohibition on further use. These consequences are not limited to termination for cause (failure to perform or for non-conforming performance) but are extended where the other party exercises a right to terminate without cause. The further development of European contract law over the past years (and indeed in the years to come) give rise to new challenges and opportunities for the legal development in the Member States. The Member States are faced with the task to use their legis303

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Chapter 8 Outlook

lation and case law in line with the objectives of European legislation in order to contribute to realizing the potential of the ‘digital single market’ for the benefit of consumers and businesses. However, at the same time the European provisions can inspire modernization of national laws. They can extend beyond their intended scope of application and stimulate the further development and potentially also the further approximation of national laws. In light of the cross-border nature of the technological and economic developments, this is at least as clear as at the time of the modernization of the law of obligations in Germany and France, both of which were influenced by European developments. 6 The new features in European contract law do, however, require legal science to develop the underlying concepts and approaches. This concerns the integration of European provisions into national laws and to allow them to blossom, but at the same time it also concerns the academic discussions surrounding European contract law. Academic drafts such as the PECL, the Acquis Principles, and the DCFR have many features that were characteristic of contract law at the turn of the century. However, they do not pay sufficient attention to the consequences of digitalization on contract law. For example, they do not tackle the issues surrounding role of data, ‘update’ obligations, liability for incorrect integration into the digital environment, modification rights, or compatibility and durability as criteria for conformity. It is clear that these academic drafts lack the themes and principles that have become central to European contract law and are, despite their continued importance, thus an inadequate reflection of modern European contract law. If these drafts are to continue to accompany the development of European contract law, revisions and redrafts will be required as much as the changes to textbooks and inclusion of new research topics. 7 The European legislator has certainly been productive over the past years, however the legislation has not given satisfactory answers to all of the questions posed by the technological and economic changes, for instance B–B contracts for digital content and also the protection of SMEs in such contracts. Further examples include the absence of rules which excuse performance, not to mention the lack of harmonization of the law of damages, both of which result in considerable uncertainties for consumers and businesses alike. The new rules on online intermediaries focus mainly on transparency for commercial users, yet comparable protection and rules on liability are lacking for consumer contracts. Further clarification is also needed for the relationship between licenses and contract law and the relationship between contractual rights and quasi-property rights over data. The same also applies to the effects on the contract if the consent to process data is withdrawn. ‘Machine-to-Machine’ contracting and the associated questions on consent (and defects thereof) and agency also require approaches beyond the national framework, especially in consideration of the numerous cross-border contracts in the ‘Internet of Things’. This also applies to self-executing contracts and their ambivalent role as an instrument that may greatly benefit or hinder customer rights. And lastly, as a final example, the variety of issues arising from the use of artificial intelligence, such as the questions concerning contractual autonomy, as well as the relationship between contractual and non-contractual liability. 8 Finding suitable solutions to these questions may become a crucial task for academics, legislators and judges in the coming years. 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 into its step-by-step development and for its principles and structure to reflect 21st century demands. This mostly concerns the various consequences of digitalization on contract law, but may also cover further extensive changes 304

Chapter 8 Outlook

due to policy goals (e.g. durability of consumer goods as pursuing environmental goals). As the three recent proposals for regulations concerning crypto-assets, on a single market for digital services, and on digital markets show, the current legislative developments a building a framework for modern digital law which will have implications for private law beyond the scope of contract law. The downside to this potential in the development of European contract law is indeed 9 the lack of comprehensive legislation with a uniform structure. The withdrawal of the proposed Common European Sales Law resulted in the continuation of the piecemeal approach to European contract law. The shift in the field of contract law from minimum to full harmonization directives or the increased use of regulations does increase legislative uniformity but does not solve the problems concerning the coherency of the harmonized law. It is likely that this will not change in the near future. Under these circumstances it will – as in the past decades – remain a challenge for politicians, scholars and judges to work towards the coherency of European rules. Academic drafts presenting the principles and structure of European contract law will therefore have to focus not only on the application of European rules and corresponding provisions of national law, as well as the accompanying case law, but will also have to avoid the inconsistencies and regulatory deficits via future legislation. As the Digital Content Directive and Sale of Goods Directive have indicated, the new 10 stage in the development of 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, no one common contract law.

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Index Bold numbers refer to chapters, normal ones to margin numbers. Accessories 5 41, 46 Acquis commun 1 21, 3 56 Acquis communautaire 1 16, 21, 3 56 f. – innovations 1 57 Acquis Principles – control of terms 4 84 f. – development 1 47 ff. – good faith 2 136, 3 29 ff. – information 3 43 ff., 46 – performance 5 2 – remedies 6 6 – termination 5 63 – terms 4 63 ff. actio quanti minoris 6 101 Additional period 6 84 f. ADR – prescription 7 9 ff., 18 Advertising 3 67, 80 ff., 85 f., 6 3 – misleading 3 110 Artificial intelligence 3 49 Avoidance 6 83 – CESL 6 8 Breach – anticipatory 6 93 – burden of proof 6 33 ff. – classification approach 6 14 ff. – excused 6 44 – non-conformity 6 22 ff. – non-performance 6 22 ff. – time 6 28 ff. – uniform approach 6 17 ff. Burden of proof 6 33 ff. – digital environment 6 37 – digital products 6 35 ff. Cause 3 62, 128 CESL – avoidance 6 8 – consent, defects in 3 112 ff. – counter-performance 5 36 – damages 3 116 ff., 6 109 ff. – delivery 5 22 f. – development of 1 52 ff., 58 f. – digital content 1 57 – Feasibility Study 1 53 f. – fraud 3 113 – good faith 2 142 f. – information duties 3 39 ff. – interest 6 123 f. – notice 3 113 – performance 5 3 – pre-contractual statements 3 84 f. – prescription 7 11 ff. – price reduction 6 105 f. – private international law 1 58

– remedies 6 7 – restitution 6 138 ff. – scope 1 55, 3 87 – termination 5 64, 6 8 – terms 4 81 ff. – threat 3 113 – unfair exploitation 3 113 – unfair terms 4 14 ff. – withholding performance 6 80 f. Change of circumstances 5 60 Charter of Fundamental Rights 1 31 CISG 1 19, 44 ff. Codification 1 3 Commercial agency 2 64, 102 – good faith 2 132 Commercial agents – protection of 2 167 Commercial practices – directive 1 43 – good faith 2 133 Common core 1 21 Common Frame of Reference 1 50 Common law – specific performance 5 6 Compensation – for loss 6 71 – for use 6 71 Conclusion of contract – information 3 6 f. – telephone 2 51 Confidentiality 3 27 Conformity 1 64 f., 2 11 ff., 5 37 ff., 6 11 – accessories 5 46 – criteria 6 3 – digital products 5 41 – durability 1 69 – fitness for use 5 42 – installation 5 39 f., 51 – instructions 5 46, 51 – integration 5 39 f., 52 f. – modification 1 67 – negative quality 2 11 ff., 5 39 – objective 2 18 ff., 5 39, 42 ff. – package travel 5 57 – reasonable expectations 5 43 – sample 5 46 – subjective 2 18 ff., 5 39, 41 – terminology 6 3 – third parties 5 39 f. – third party rights 5 54 ff. – updates 5 47 ff. Consensus 2 32 ff., 47 ff., 3 58 Consent 3 53, 77, 96 – defects 3 99 ff.

307

Index – e-commerce 3 103 – qualified 2 20 ff. Consideration 3 62 – inertia selling 3 97 Consumer 2 159 ff., 3 4 f. – asymmetry 3 32 – average 3 37 – concept 2 158 – confidence 3 124 – credit 2 80 f. – definition 2 161 ff. – dual use 2 160 ff. – informed 3 12 – sales 2 67 ff. Consumer credit 2 80 f. Contract – acceptance 3 51, 54, 59, 64 ff., 68 ff. – adaptation 3 101 f. – advisory services 2 83 – agreement 3 58 – ancillary 3 148 f. – avoidance 3 46, 95, 99, 113 ff., 6 8 – breach 6 1 ff. – certainty 3 61 – commercial agency 2 64, 102 – concept 2 1 ff. – conclusion 2 46 ff., 3 49 ff., 71 – consensus 2 47 f. – consumer credit 2 80 f. – content 2 127 ff., 3 61, 4 42 – cross-border 1 57 – distance 3 125 f. – dual use 2 160 ff. – electronic 3 76 – form 3 63 – framework 2 82 – freedom of 2 108 ff., 3 50 – guarantee 2 88 – instalment 3 148 – intention 2 55, 3 53 – invitatio ad offerendum 3 66 f. – long-term see Long-term contract – mixed 2 96 ff. – modification 5 58 ff. – notice 3 67, 70 – offer 3 51, 54, 59, 64 ff., 68 – off-premises 3 125 – parties 2 159 ff. – pre-contractual statements 3 80 ff. – preparatory statements 3 66 – privity 3 86 – sale 2 67 ff., 98 ff. – service 2 84 ff., 3 147, 5 8 – standardization 3 52 – termination 2 106, 3 142, 148 f., 6 2 – terms 4 1 ff. – timeshare 2 65 f. – unilateral promise 3 89 ff. – withdrawal period 3 130 Contrat d’adhesion 4 23

308

Co-operation 2 143, 5 14, 6 38 f. – duty of 3 5, 21 Counter-performance 5 32 ff. – CESL 5 36 – data 3 78 f., 5 34 f. – inertia selling 2 37 Cryptocurrency 2 74 Culpa in contrahendo 3 14 ff., 22, 26 ff., 116 Cure see Subsequent performance – right 6 75 ff. Damages 3 116 ff., 6 7, 41, 107 ff. – calculation 6 109, 117 f. – causation 6 115 – CESL 3 116 ff., 6 109 ff. – economic loss 6 108 – good faith 3 26 – lost profits 6 113 – nominal 6 112 – restitution 6 116 ff. Data 1 62, 75, 2 75 ff., 5 34 f. – counter-performance 3 78 f. – denied access 6 132 ff. – personal 5 34 f. – prohibition to use 6 132 ff. – restitution 6 135 f. – user 6 134 DCFR – development of 1 51 – good faith 2 139 ff., 3 25 ff. – information 3 43 ff. – interest 6 122 – juridical act 2 3 – mistake 3 107 – mixed contracts 2 101 ff. – restitution 6 138 ff. – termination 5 64 – terms 4 73 ff., 84 ff. Default law 4 19, 5 1 Delivery 5 4, 10, 21 f., 6 24 – CESL 5 22 f. – concept 5 15 – costs 3 144 – performance 5 15 ff. Digital Agenda 1 60 Digital content 1 62 ff. – CESL 1 57 – download 5 17 ff. – right of withdrawal 3 147 – supply 5 16 ff. Digital environment 6 38 f., 108 – burden of proof 6 37 – integration 5 52 f. Digital products 1 60 ff., 3 57 – burden of proof 6 35 ff. – conformity 5 41 – modification 1 67, 5 59 – price reimbursement 6 129 f. – remedies 6 9 f. – subsequent performance 6 63

Index – tangible medium 6 131 – termination 6 128 – updates 5 47 ff., 59 Digital service 1 62 ff.; see Digital products Directive 1 16 f., 27, 31 ff., 2 2 – gold plating 1 36 Disproportionality 6 58 ff. – absolute 6 61, 66, 76 – relative 6 61, 66 – termination 6 92 Dispute resolution – legislation 1 43 Distance communication 3 74 Duties of protection 6 12 e-commerce 1 32, 57, 2 52, 3 76 – directives 1 39 – information 3 7 effet utile 3 72, 91 Estoppel 2 140, 3 22, 25 EULA 5 54 European Business Code 1 46 Fair trading – information duties 3 36 ff. Fault 6 32 Force majeure 6 40 Formative right 3 129, 6 2, 7 13 Framework contract 2 82 Fraud – CESL 3 113 Freedom of contract 1 30, 2 19, 108 ff., 3 63, 99, 5 1, 6 46 – contract terms 2 127 ff. – right of withdrawal 3 128 Geo-blocking 1 61, 2 156 Good faith 2 130 ff., 3 1 ff., 12, 17 ff., 4 9, 28 f., 30, 32, 37 f., 53, 5 2, 6 119, 7 2 – Acquis Principles 2 136, 3 29 ff. – breach 3 28 ff. – CESL 2 142 f., 3 19 ff. – commercial agency 2 132 – commercial practices 2 133 – damages 3 26 – DCFR 2 139 ff., 3 25 ff. – fair dealing 2 131, 3 21 f., 25 ff. – information duties 3 24 ff. – right of withdrawal 3 31, 145 – terms 4 62, 71, 84 Goods – characteristics of 3 83 – with digital elements 2 98 ff., 7 7 Guarantee 3 81, 90, 6 47 ff. – content 6 49 – reasonable expectations 6 49 Harmonization 1 24, 27 ff., 36, 2 118, 4 32 – full 1 34 ff., 52, 61, 3 18, 119, 4 12, 79 f., 7 2

– minimum 1 34 ff., 52, 2 122 f., 3 51, 4 12, 7 2 f. Impossibility 6 40 f., 58 ff. – initial 6 60 – legal 6 66 – subsequent 6 60 – termination 6 92 Incapacity – prescription 7 19 f. Inertia selling 2 35 ff., 3 51, 57, 92 ff. – mistake 3 95 Information – Acquis Principles 3 43 ff. – asymmetry 3 4 f., 32 – breach 3 45 ff., 140, 144 – breach of duty 3 9 f., 75 – CESL 3 19 ff., 39 ff. – conclusion of contract 3 76 f. – confidentiality 3 27 – DCFR 3 43 ff. – distance communication 3 75 – duty 3 1 ff., 18 – e-commerce 3 7, 103 f. – exception 3 35 – fair trading 3 36 ff. – financial transactions 3 13 – form 2 59 ff., 3 82 – function 3 33 – good faith 3 24 ff. – harmonization 3 34 – liability 3 14 ff. – obligations 3 6 ff. – overload 3 12 – pre-contractual 3 32 ff., 36 ff., 43 ff. – right of withdrawal 3 45, 47, 139 f. – services 3 34 – standardized 3 38 Installation 6 3 Instructions 5 41, 46 Insurance 1 42 Intellectual property 5 54 Interest 6 7, 120 ff. – CESL 6 123 f. – DCFR 6 122 – late payment 5 26 – rates 6 123 f. Internal market 1 1 f., 28, 32 ff., 36, 44, 52, 61 – discrimination 2 154 Interpretation 1 25, 7 10 – contra proferentum 4 18 ff., 44 ff. – terms 4 21 Invitatio ad offerendum 3 66 f. – inertia selling 3 94 Ius commun 1 21 Juridical act 2 1 ff. Late Payment Directive 6 120 f.

309

Index Liability 2 171, 6 4 – assumption 6 47 ff. – compensation for use 3 145 – diminished value 3 145 – exclusion 6 40 ff., 46 ff., 58 – fault 6 111 – limitation 6 40 ff. – non-contractual 1 26, 6 107 – objective 6 32 – pre-contractual 3 14 ff. – strict 6 32 – third party 5 18 – time 6 28 ff. Limitation period 6 29 ff. – remedies 7 6 ff. Long-term contract 5 7 ff. Loss 3 116 – economic 6 112, 115 – foreseeability 6 109, 115, 118 f. – mitigation 6 119 – non-economic 6 112, 114 f. – profits 6 113 Løfteteori 3 90 Mandatory law 3 32, 5 1 Mandatory rules 2 111 – consumer protection 2 114 ff. – right of withdrawal 3 135 Mistake – advertising 3 110 – DCFR 3 107 – e-commerce 3 103 f. – inertia selling 3 95 – unfair commercial practices 3 108 ff. Mixed contract 2 96 ff. – absorption theory 2 102, 105 ff. – combination theory 2 102, 105 ff. – DCFR 2 101 ff. – termination 2 106 Modification 1 67, 5 7, 58 ff. Non-conformity – serious 6 95 – substantial 6 90 Non-delivery 6 28 Non-discrimination 1 31 ff., 2 144 ff., 3 50 – directives 1 41 – employment 2 148 Non-performance 1 63, 5 4 ff., 14, 6 7 – excused 6 7, 109, 111 – fundamental 6 7, 84 f. – intentional 6 118 f. – not minor 6 88 ff. – remedies 6 1 ff. – service contract 6 9 ff. Notice 2 52 ff., 3 67, 70 – avoidance 3 113 f. – dispatch theory 2 56 f. – electronic 2 58 f. – receipt theory 2 54, 56

310

– right of withdrawal 3 137 ff. nullité absolue 3 115 Offer – revocation 3 131 – right of withdrawal 3 131 Online intermediaries 1 61, 71, 2 27, 169 Optional instrument 1 52 Package travel – conformity 5 57 – remedies 6 9 f. – termination 3 132, 6 90 Pacta sunt servanda 2 112, 3 118, 124 Pandectism 2 2, 7 11 Pavia Draft 1 45 Payment – interest 6 120 ff. – late 4 61 ff., 5 26, 6 120 ff. – obligation 6 124 – reimbursement of 3 144 Payment services 1 40, 2 126, 5 24 Performance 1 63, 5 9 ff., 6 52 ff. – Acquis Principles 5 2 – additional period 6 73 f. – breach 6 1 ff. – CESL 5 3 – claim for 5 6 – delivery 5 10 – due date 5 7 f. – in good time 5 31 – long-term contract 5 7 f. – obligation 5 1 ff. – payment 5 24 – place of 5 15 – remedy 6 5 – right of withdrawal 3 130 – supply 5 11 ff., 16 ff. – time of 5 26 ff., 6 124 – type of 5 14 ff. – withholding 6 78 ff., 7 13 – without undue delay 5 27 ff. PICC 1 46 Portability 1 61 Possession 5 15, 23 – physical 5 21 Pre-contractual information 2 26 – sanctions 2 29 Pre-contractual statements 3 80 ff. – CESL 3 84 f. – third parties 3 85 ff. Prescription – CESL 7 11 ff. – dispute resolution 7 18 – effects of 7 13 – incapacity 7 19 f. – long period 7 14 ff. – short period 7 14 ff.

Index Price 2 73 f. – data 3 78 f. – reimbursement 6 129 f. Price reduction 6 27, 100 ff. – calculation 6 104 – CESL 6 105 f. – consequences 6 104 – exercise 6 102 – requirements 6 103 Primary law 1 16, 29 ff., 2 147 – CESL 1 58 – conclusion of contract 3 50 – services 2 85 ff. Private international law 1 28 – CESL 1 58 Property 5 34 – transfer 5 9 Prosumer 2 158 Quality – agreement on 2 19 ff. Reasonable expectations 2 7 ff., 28, 3 46, 58, 80, 83, 86, 101 f., 5 37, 43, 55, 6 3, 95 – Guarantee 6 49 Reasonable time 6 74 Redress 2 122, 6 140 ff. Regulation 1 16 f., 28 Remedies 6 50 ff. – Acquis Principles 6 6 – additional period 6 28 – avoidance 3 46, 95, 99, 113 ff. – CESL 6 7 f. – damages see Damages – digital products 6 9 f. – disproportionality see Disproportionality – exclusion 6 41 – hierarchy 6 5, 51 – impossibility see Impossibility – limitation 7 6 ff. – non-performance 6 1 ff. – package travel 6 9 f. – performance 6 5, 52 ff. – price reduction 7 13 – rescission 6 5 – subsequent performance 6 52 ff. – termination see Termination – withholding performance 7 10, 13 Rescission – restitution 6 125 Restitutio in integrem 6 116 Restitution 6 8, 125 ff. – CESL 6 138 ff. – damages 6 116 ff. – data 6 135 f. – DCFR 6 138 ff. – right of withdrawal 3 141 – tangible medium 6 131

Right of withdrawal 2 112, 3 95, 99 f., 105, 118 ff., 7 10 – ancillary contract 3 148 f. – compensation for use 3 145 – digital content 3 147 – diminished value 3 145 – distance contract 3 125 – effect 3 141 ff. – exceptions 3 127, 147 – exercise 3 130, 137 ff., 149 – extension 3 140, 7 1 – freedom of contract 3 128 – functions 3 122 – good faith 3 31, 145 – information 2 59 f., 3 45, 47, 139 f. – mandatory rules 3 135 – notice 2 56 f. – offer 3 131 – off-premises contract 3 125 – preclusion 7 1 – service contract 3 147 – structure 3 121, 129 – termination 3 142 – withdrawal period 3 130 Schuman Plan 1 23 Service – advisory 2 83 – contract 2 84 ff. – definition of 2 85 ff. – digital 2 93 – directive 1 43 – information 3 34 – limitations on remedies 6 62 – non-performance 6 9 ff. – right of withdrawal 3 147 – scope 2 88 f. Sources 1 7 Subsequent performance 6 27, 52 ff. – additional period 6 73 f. – choice of approach 6 63 f. – digital products 6 63 – failed attempt 6 96 – free of charge 6 67 ff. – removal and installation costs 6 70 – repair 6 53, 64 ff. – replacement 6 53, 64 ff. – sales contracts 6 64 – significant inconvenience 6 67 ff. Substitute transactions 6 109 Supply 5 11 ff., 16 ff. – without undue delay 5 27 Termination 3 132, 5 60 ff., 6 2, 5, 24, 27, 82 ff. – Acquis Principles 5 63 – additional period 6 84 – anticipatory breach 6 93 – CESL 5 64, 6 8 – consequences 1 66, 6 99 – DCFR 5 64 – digital products 6 128 – disproportionality 6 92

311

Index – fixed-date transaction 6 94 – impossibility 6 92 – long-term contracts 5 61 – mixed contract 2 106 – notice 6 98 – ordinary 5 61 f. – package travel 6 90 – partial 6 97 – reimbursement 6 129 f. – restitution 6 125 – serious non- conformity 6 95 – standard 5 61 f. Terms – Acquis Principles 4 63 ff., 84 f. – black list 4 15, 30, 72, 77, 80, 85 – CESL 4 14 ff., 81 ff. – consequence of unfairness 4 47 ff. – contract 4 1 ff. – control 2 127 ff., 4 42 – DCFR 4 73 ff., 84 ff. – fairness 4 16 – general clause 4 5, 8, 18 ff., 27 ff., 70, 83 – good faith 2 130 ff., 4 30 ff., 62, 71, 84 – grey list 4 15, 27 ff., 72, 77, 80, 85 – interpretation 4 18, 21, 44 – jurisdiction 4 31, 36, 56 f. – non-negotiated 4 66 ff., 79, 81 f.

312

– payment 4 61 ff. – preservative reduction 4 50 ff. – single use 4 23, 26, 64, 68, 82 – standard 3 52, 64, 4 18 ff., 23, 64, 66 ff., 75 f. – transparency 4 6, 39 ff., 73 ff., 81 f. – unfair 1 32, 4 1 ff. Third party – liability 5 18 – rights 5 39, 54 ff. – statements 2 17, 3 85 ff., 101 Threat 3 113 Timeshare 2 65 f. Trader – definition 2 169 – liability 5 18 Transparency 2 26 ff., 4 54 Unfair commercial practice 3 108 ff. – inertia selling 2 36 Unfair exploitation – CESL 3 113 Unilateral promise 3 55, 57, 60, 89 ff. Updates 1 64, 5 47 ff. Withholding performance 6 80 f.