European Contract Law 9781509995622, 9781509900428

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Foreword Contract law is at the centre of the development of European private law. Thirty years of European directives and CJEU jurisprudence have contributed to the growth of an extensive acquis communautaire with its innovative approaches and increasing influence on the laws of the Member States. Furthermore, drafts such as the Principles of European Contract Law and legislative projects such as the European Commission's Proposal for a Common European Sales Law have also contributed to the conceptual development and structure of this new area of law. The development of European contract law requires contributions from jurists across Europe, therefore this volume intends to allow practitioners, students and scholars to participate in an ever growing, dynamic and highly interesting area of modern law. In order to do so the volume provides fundamental information about the content, methods and objectives of European legislation in the field of contract law and explains the interaction between the legislator, judges and academics during the creation of European contract law. It particularly attempts to show European contract law's characteristics as supranational law as well as the innovative features vis-à-vis traditional concepts in contract law. Above all, the volume strives to guide jurists along an often unfamiliar path and to promote an understanding of the characteristics of a new legal development. The focus on the features of this development as well as the resulting structures is all the more important as this volume has been published at a time of great uncertainty regarding the next legislative steps in European private law. The European Commission has announced that it will retract its Proposal for a Common European Sales Law and will instead take other measures; though as yet no light has been cast on the form or scope of these measures. It is however likely that future legislation will relate to issues on online trading and ‘digital contracts’. These recent developments may cause the reader to ask whether the Common European Sales Law's key role in this volume on European contract law is now superfluous. However, this concern is unfounded as the volume was not conceived with the intention to illustrate the individual doctrinal features of European private law but rather to depict how the legal system is developing and the important contributions made by the various different legal sources. The emerging acquis communautaire is involved in a tense relationship with the laws of the Member States, the EU legislator, the EU courts as well as academic drafts – above all in the form of comprehensive proposals aiming at greater coherency in European contract law. The Common European Sales Law indeed reflected a new stage in the development of a European contract law, though similar comments also apply to proposals such as the Draft Common Frame of Reference, the ‘Acquis Principles’ and many others. The volume attempts to show how a system arises from the dialogue between the different sources; in this respect it is not limited to current legislation. It V

Foreword

adopts a method employed by the ‘Acquis Group’ which seeks to use fragmented European sources in order to create a system. The system is vastly different from the legal systems of the Member States which, however, also influence the development of a system of common European law. It will be seen from this volume that the development has certainly been dynamic, yet its path has taken many twists and turns. The Common European Sales Law will not vanish without a trace as it will have long-term influence on the features of the European legal landscape and will serve as a ‘reference’ for the future development of European private law. The volume is based on the many discussions between the authors and their work together on a number of research projects. Its content and structure are based on the German edition (Nomos, April 2015) though with several additions (in particular on interpretation, change of circumstances, and an ‘outlook’) and updates. The Chapters 1, 3 I and IV, 5, 6 I and IV, 8 were written by Reiner Schulze and Chapters 2, 3 II and III, 4, 6 II and III, 7 by Fryderyk Zoll. These latter chapters formed part of the project ‘Made in Europe – European Legal Standards of Quality of Services Performed under the Competitive Conditions of the Global Market. The Model Solutions for Law of Obligations Oriented on Services’. The project was funded by the Narodowe Centrum Nauki (National Science Centre) under the decision no. DEC-2012/04/A/HS5/00709. The authors would like to take this opportunity to once again thank their research assistants, Darja Bäßler, Benedikt Beierle, Sven Coerdes, Johannes Fiukowski, Benjamin Hassing, Julia Henning, Monika Kubela, Jana Schulte, and Claudia Switenko for their contribution to the German version and therefore in providing the basis for this English version. The authors especially thank Jonathon Watson for preparing the English version; the full responsibility remains however with the authors. September 2015

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Reiner Schulze Fryderyk Zoll

List of Cases European Court of Justice Case C–6/64 Costa [1964] ECR 585, 594 1 25 Case C–11/70 Internationale Handelsgesellschaften [1970] ECR 1125 1 25 Case C–106/77 Simmenthal II [1978] ECR 629 1 25 Case C–66/81 Pommerehnke [1982] ECR 1363 1 25 Case C–26/91 Handte [1992] ECR I–3967 1 30 Case C–269/95 Benincasa [1997] ECR I–3767 1 47 Case C–45/96 Dietzinger [1998] ECR I–1199 2 46 Case C–51/97 Réunion européenne [1998] ECR I–6511 1 30 Case C–208/98 Berliner Kindl [2000] ECR I– 1741 1 37 Joined Cases C–240/98–244/98 Océano [2000] ECR I–4941 4 4, 4 25, 4 29, 4 31 Case C–478/99 Commission v Sweden [2002] ECR I–4147 4 22 Case C–481/99 Heininger [2001] ECR I–9945 3 101, 3 160 Case C–96/00 Rudolf Gabriel [2002] ECR I– 6367 1 47, 3 18 Case C–168/00 Leitner [2002] ECR I–2631 1 37, 6 81 Case C–334/00 Tacconi [2002] ECR I–7357 1 30 Case C–400/00 Club-Tour [2002] ECR I–4051 1 37 Case C–442/00 Rodríguez Caballero [2002] ECR I–11915 2 147 Case C–473/00 Cofidis [2002] ECR I–10875 1 37 Case C–464/01 Gruber [2005] ECR I–439 2 138 Case C–264/02 Cofinoga [2004] ECR I–2157 1 37, 4 4, 4 28, 4 29 Case C–70/03 Commission v Spain [2004] ECR I–7999 2 152 Case C–336/03 easyCar [2005] ECR I–1947 1 31 Case C–144/04 Mangold [2005] ECR I–9981 1 31, 2 147 Case C–252/06 Commission v Germany [2006] ECR I–140 1 38 Case C–306/06 Telekom [2008] ECR I–1923 6 87 Case C–404/06 Quelle [2008] ECR I–2685 1 37, 6 42, 6 68 Case C–412/06 Hamilton [2008] ECR I–2695 3 101 Case C–427/06 Bartsch [2008] ECR I–7245 1 31

Case C–453/06 01051 Telecom [2008] ECR I– 1923 1 38 Joined Cases C–261/07 and C–299/07 VTB-VAB/ Galtea [2009] ECR I–2949 1 43 Case C–298/07 deutsche internet versicherung [2008] ECR I–7841 1 39 Case C–489/07 Messner [2009] ECR I–7315 2 127, 3 164, 3 165 Case C–555/07 Kücükdeveci [2010] ECR I–365 1 31 Case C–137/08 VB Pénzügyi Lízing [2010] ECR I–10847 1 37, 4 31 Case C–147/08 Römer [2011] ECR I–3591 1 31 Case C–243/08 Pannon [2009] ECR I–4713 1 37, 4 31 Case C–304/08 Plus Warenhandelsgesellschaft [2010] ECR I–217 1 43 Case C–434/08 Harms [2010] ECR I–4431 1 30 Case C–484/08 Caja de Ahorros [2010] ECR I– 4785 1 37, 4 49 Case C–511/08 Heinrich Heine [2010] ECR I– 3047 3 164 Case C–522/08 Telekommunikacja Polska [2010] ECR I–2079 1 43 Case C–540/08 Mediaprint [2010] ECR I–10909 1 43 Joined Cases C–585/08 C–144/09 Pammer/Hotel Alpenhof [2010] ECR I–12527 1 37 Joined Cases C–65/09 and C–87/09 Weber/Putz [2011] ECR I–5257 1 37, 6 40, 6 41, 6 42 Case C–203/09 Volvo Car Germany [2010] ECR I–10721 1 38 Case C–236/09 Test-Achats [2011] ECR I–773 1 41 Case C–76/10 Pohotovosť [2010] ECR I–11557 1 37 Case C–292/10 G [2012] ECR I–nyr 1 39 Case C–415/10 Meister [2012] ECR I–nyr 1 41 Case C–472/10 Invitel [2012] ECR I–nyr 1 37,4 31 Case C–602/10 SC Volksbank România [2012] ECR I–nyr 1 37 Case C–618/10 Banco Español de Crédito [2012] ECR I–nyr 1 37, 1 43, 4 31 Case C–49/11 Content Services [2012] ECR I– nyr 2 29, 2 30, 3 30, 3 159, 3 160 Case C–128/11 UsedSoft [2012] ECR I–nyr 2 65 Case C–134/11 Blödel-Pawlik AG [2012] ECR I–nyr 1 37 Case C–283/11 Sky Österreich [2013] ECR I–nyr 1 30 Case C–335/11 HK Danmark [2013] ECR I–nyr 1 41

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List of Cases Case C–555/11 EEAE [2013] ECR I–nyr 1 38 Case C–32/12 Duarte Hueros [2013] ECR I–nyr 1 37, 6 56 Case C–57/12 Femarbel [2013] ECR I–nyr 1 43 Case C–184/12 Unamar [2013] ECR I–nyr 1 38 Case C–361/12 Carratù [2013] ECR I–nyr 1 41 Case C–262/12 Citroën Belux [2013] ECR I–nyr 1 43 Case C–26/13 Kásler [2014] ECR I–nyr 1 37, 4 49 Case C–143/13 Matei [2015] ECR I–nyr 4 49 Case C–96/14 van Hove [2015] ECR I–nyr 1 37, 4 49

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General Court Case T–203/96 Embassy Limousines [1998] ECR II–4239 3 84 Member States Germany RGZ 161, 323 2 39 BGHZ 63, 306 2 39 United Kingdom Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 3 43 Walford v Miles [1992] 2 AC 128 3 66

Abbreviations ABGB AcP ACQP ADR ADR Directive

AGB Art(s) Bd. BGB BGHZ BT-Drucks. BW CESL CESL-D CESL-Reg-D CISG CJEU CMLR Code Civil Codice Civile Commercial Agents Directive Consumer Credit Directive Consumer ODR Regulation

CoPECL Consumer Rights Directive Consumer Sales Directive

Cultural Objects Directive

CUP

Allgemeines bürgerliches Gesetzbuch; Austrian Civil Code Archiv für die civilistische Praxis Principles of the Existing EC Contract Law (Acquis Principles) Alternative Dispute Resolution Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes Allgemeine Geschäftsbedingungen; general terms and condititions Articles(s) Band; volume Bürgerliches Gesetzbuch; German Civil Code Entscheidungen des Bundesgerichtshofs in Zivilsachen; Decisions of the German Federal Court of Justice (Civil Law) Bundestagsdrucksache; Bundestag document Burgerlijk Wetboek; Dutch Civil Code Common European Sales Law Common European Sales Law (Draft Annex I) Common European Sales Law (Draft Regulation) United Nations Convention on Contracts for the International Sale of Goods Court of Justice of the European Union Common Market Law Review French Civil Code Italian Civil Code Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to selfemployed commercial agents Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes Common Principles of European Contract Law Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees Directive 2014/60/EU of the European Parliament and of the Council of 15 May 2014 on the return of cultural objects unlawfully removed from the territory of a Member State Cambridge University Press

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Abbreviations DCFR Distance Marketing of Financial Services Directive DNotZ EC ECHR ECJ E-Commerce Directive

ECR ECtHR Ed(s) Edn EEC E.g. EGBGB Employment Equality Directive EP ERCL ERPL E-Signature Directive

Etc. Et seq. EU EUI EuZW EWS Gender Directive

GPR HK-BGB HZ i.e. INCOTERMS Insurance Mediation Directive JR

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Draft Common Frame of Reference Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services Deutsche Notar-Zeitschrift European Community European Convention on Human Rights European Court of Justice 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 European Court Reports European Court of Human Rights Editor(s) Edition European Economic Community Exempli gratia; for example 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 European Parliament European Review of Contract Law European Review of Private Law Directive 1999/93/EC of the European Parliament and of the Council of 13 December 1999 on a Community framework for electronic signatures Et cetera; and the rest Et sequential; and the following European Union European University Institute Europäische Zeitschrift für Wirtschaftsrecht Europäisches Wirtschafts- und Steuerrecht 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 European Union Private Law Review Bürgerliches Gesetzbuch – Handkommentar Historische Zeitschrift Id est; that is International Commercial Terms Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation Juristische Rundschau

Abbreviations JZ Late Payment Directive

Late Payment Directive 2000 Life Assurance Directive Markets in Financial Instruments Directive MJ MLR MMR Mortgage Credit Directive

MüKo n No. NJW nyr ODR OJ OR OUP Package Travel Directive Para(s) Payment Services Directive

PECL PEL PICC QB RabelsZ Racial Equality Directive

Reg RGZ RIDC Riv.Dir.Civ.

JuristenZeitung Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions Directive 2000/35/EC of the European Parliament and of the Council of 29 June 2000 on combating late payment in commercial transactions Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments Maastricht Journal of European and Comparative Law Modern Law Review Multimedia und Recht 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 Münchener Kommentar zum Bürgerlichen Gesetzbuch Footnote Number Neue Juristische Wochenschrift Not yet reported Online Dispute Resolution Official Journal of the European Union Obligationenrecht; Swiss Law of Obligations Oxford University Press Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours Paragraph(s) Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market Principles of European Contract Law Principles of European Law Principles for International Commercial Contracts Queenʹs Bench Division Rabels Zeitschrift für ausländisches und internationales Privatrecht Council Directive 2000/43/EC of 29 June 2000 implementing the principle of equal treatment between persons irrespective of racial or ethnic origin Regulation Decisions of the Reich Court (Civil Law) Revue internationale de droit comparé Rivista di Dirritto Civile

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Abbreviations Rome I Regulation

RTD Civ. Schmidt-Kessel CESL Schulze CESL SE Services Directive

SI SME TEU TFEU Timeshare Directive

Unfair Commercial Practices Directive UN UNIDROIT Principles UWG VUWLR ZEuP ZIP ZJS ZRP

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Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations Revue Trimestrielle de Droit Civil Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014) Schulze (ed), Common European Sales Law – Commentary (Nomos 2012) Societas Europaea Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market Statutory Instrument Small and medium-sized enterprise Treaty on the European Union Treaty on the Functioning of the European Union Directive 2008/122/EC of the European Parliament and of the Council of 14 January 2009 on the protection of consumers in respect of certain aspects of timeshare, long-term holiday product, resale and exchange contracts Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market United Nations UNIDROIT Principles of International Commercial Contracts Gesetz gegen den unlauteren Wettbewerb; German Unfair Competition Act Victoria University of Wellington Law Review Zeitschrift für Europäisches Privatrecht Zeitschrift für Wirtschaftsrecht Zeitschrift für das Juristische Studium Zeitschrift für Rechtspolitik

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

I. Introduction 1. European contract law

Contract law is the central legal instrument for market organization and there- 1 fore for the provision of all forms of goods and services in market societies. In this context one can therefore not overlook that the economic and political integration in Europe since the mid-20th century has led to the creation of one of the world's largest internal markets on which goods with a total value of approximately 2800 billion Euros are traded annually.1 In addition, the EU internal market offers almost 500 million consumers the possibility to acquire goods and services from 28 EU Member States without customs fees or other charges. The benefits therefore affect all EU citizens. In other parts of the world, from China to the United States, such common markets of comparable size have long had at their disposal a common trade law (such as the Uniform Commercial Code in the USA) or a common contract law. In contrast, the European internal market is lacking a comparable legal answer to the economic potential that can be reached by removing internal barriers. The law of contract in Europe has certainly been subject to many more 2 changes than may be apparent at first glance; indeed one may be initially unaware of how or even the extent to which European law impacts on the law of contract in each of the Member States. A selection of examples includes the EUwide application of the same requirements for the consumer's withdrawal from a distance contract or the same minimum rights available to consumers in relation to defective products; contracts concerning payment transactions and rules on electronic signatures follow a uniform model; consumer credit contracts feature the same central provisions; air passengers have the same rights if their flight is cancelled or delayed; and businesses in all EU Member States can, in principle, demand interest on late payments (30 days after billing, at the latest). Each of these aspects, as well as many others, have indeed 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 1 Commission, 20 Years of the European Single Market (Publications Office of the European Union 2012) 8; available online under http://ec.europa.eu/internal_market/publications/docs/20 years/achievements-web_en.pdf accessed 24 April 2015.

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Chapter 1 Foundations

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 small and medium-sized enterprises (SME) 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 Regulation3 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.4 3 EU legislation and court decisions, not to mention academic practice, are therefore facing considerable challenges in the field of contract law. The challenges concern not only the incoherency of the numerous legislative provisions but also the need for a complete and functioning set of rules for cross-border contracts. In one respect, academic drafts such as the Acquis Principles (ACQP)5 and the Draft Common Frame of Reference (DCFR)6 outlined possibilities for a coherent European contract law. In a second respect, the European Commission has used these drafts as sources of inspiration for the proposed Common European Sales Law (CESL) – a proposal for a codification of a law of contract that can be chosen by the parties to a cross-border sales contract. The development in this area is not at an end; European contract law will for the foreseeable future rather remain law in progress, both at academic as well at legislative level. 2. Aim and structure of this book 4

This book intends to allow scholars, practitioners and students to participate in the development of European contract law. Its primary aim is therefore to 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 will refer to the key provisions in EU law, the decisions of the European courts, and underlying principles and objectives in European contract law. International uniform law (in particular the 2 See Press Release from 11.10.2011, available online under http://europa.eu/rapid/press-release_ IP-11-1175_en.htm accessed 24 April 2015. 3 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) [2008] OJ L177/6. 4 Commission, ‘Proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law’ COM (2011) 635 final, 1–4. 5 See below, paras 46–48. 6 See below, para 50.

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I. Introduction

ECHR and the CISG) as well as comparative studies on the similarities and differences in national laws will also be considered to the extent necessary for understanding EU law and how it has developed so far. In light of this aim the book will focus on three main aspects. Firstly, consid- 5 erable attention will be paid to the concepts, rules and doctrines of overarching relevance for contract law. Secondly, emphasis will be placed on sales law due to its prominent role in the internal market and in one of the most significant legislative projects thus far in the area of European contract law, namely the project for a Common European Sales Law (CESL). Finally, in accordance with the present development of EU contract law and the structure of the CESL, the legal framework in EU law relation to consumer contracts (Business-to-Consumer; B–C) and commercial contracts (Business-to-business; B–B) will feature prominently throughout this book. Following an introduction to the foundations and components of European 6 contract law the chapters of this book are thereafter structured according to the ‘life cycle’ of a contract: conclusion, determination of content and rules concerning unfair terms, performance duties, non-performance and consequences, and prescription. Each section includes not only the applicable EU law and the underlying principles and central concepts but also the relevant provisions of the proposed CESL and its possible consequences on the development of European contract law. Each chapter begins with an overview of standard literature on the topic; whereas the footnotes contain references to further literature. Extracts from key documents and processes in the development of European contract law are also included in the text. 3. Sources and literature a) Sources

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

7

– The EU Treaties, i.e. the Treaty on the European Union (TEU), Treaty on the Functioning of the European Union (TFEU) and the Charter of Fundamental Rights of the European Union (Charter of Fundamental Rights); EU regulations and, in particular, EU directives concerning contract law. EU legislation is published in the Official Journal of the European Union (OJ): legislation is contained in the ‘L series’; whereas information and notices can be found in the ‘C series’. The Official Journal can be accessed via the website http://eur-lex.europa.eu; – Decisions of the European Court and of the Court of Justice of the European Union (CJEU). The decisions are published in the European Court Reports (ECR). Citation of the source begins with the case reference number, the short title, the year, the ECR volume (since 1990) and the page number. The ECR volume number is indicated in roman numerals. Decisions from both

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Chapter 1 Foundations

European courts can be accessed via the websites http://eur-lex.europa.eu and http://curia.europa.eu. bb) The European Commission's proposal for a Common European Sales Law is published in COM (2011) 635 final and, inter alia, in Staudenmayer, Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law (C.H. Beck 2012). More detailed explanation of the proposal's content can be found in Schulze (ed), Common European Sales Law (CESL) – Commentary (Nomos 2012)7. Further publications on this subject include: Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013); Deshayes, Le droit commun européen de la vente – Examen de la proposition de règlement du 11 octobre 2011 (Société de législation comparée 2012); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014) 8. 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)9, the Principes du Droit Européen du Contrat10, the Principles of the Existing EC Contract Law (Acquis Principles)11, and the Draft Common Frame of Reference (DCFR)12. 8

b) Literature

aa) Further textbooks on European contract law include:

10

– Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) – Twigg-Flesner (ed), Cambridge Companion to European Union Private Law (CUP 2010) 11

bb) The following works adopt a comparative law perspective – in part – on the topic of European contract law: – Alpa/Andenas, Fondamenti del diritto privato europeo (Giuffrè 2005) – Kötz/Flessner, European Contract Law vol I (Clarendon 1998) – Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009)

7 References to the comments in this publication are cited as ‘Schulze CESL/contributor’ followed by the relevant article. 8 References to the comments in this publication are cited as ‘Schmidt-Kessel CESL/contributor’ followed by the relevant article. 9 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). 10 Association Henri Capitant des Amis de la Culture Juridique Française, Société de Législation Comparée (eds), Projet de Cadre Commun de Référence, Principes Contractuels Commun (Société de Législation Comparée 2008). 11 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. 12 v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009).

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II. Contract Law as Part of European Private Law

In addition, further information on the implementation of consumer contract directives into national law can be obtained online under http://www.eu-consumer -law.org/. Additional information on Member State law can be obtained via http://eur-lex.europa.eu/n-lex/. cc) The Max Planck Encyclopaedia of European Private Law (Basedow/ 12 Hopt/Zimmermann (eds), OUP 2012) is a highly useful point of reference for various aspects of European contract law. II. Contract Law as Part of European Private Law 1. Concept a) Overview

European contract law became subject to increasing attention from academia 13 and European institutions13 since the 1980s. Subsequent studies by the ‘Commission for European Contract Law’14 and early policy documents15 placed this area of law at the centre of discussions surrounding concepts, methods and content of European private law.16 Early research was linked and extended by other legal disciplines:17 civil law (alongside national law) focused increasingly on European private law and its influence on national law;18 European law (whose

13 Initially the European Parliament with the Resolution on action to bring into line the private law of the Member States [1989] OJ C158/400. 14 Chaired by the comparative lawyer, Ole Lando; on the creation of the Commission see Lando/ Beale (n 9) xi; later Lando et al. (n 9). 15 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. 16 On the current status and perspectives see Schulze/Schulte-Nölke (eds), European Private Law – Current Status and Perspectives (Sellier 2011). 17 As was already noted at an earlier stage by Basedow et al., ‘Editorial’ [1993] ZEuP 3. 18 For early references to ‘Europeanization’ see Aubry, L’influence du droit communautaire sur le droit français des contrats (PU Aix-Marseille 2000); Beale, ‘The “Europeanisation” of Contract Law’ in Halson (ed), Exploring the Boundaries of Contract (Dartmouth 1994) 23– 24; Coing, Europäisches Privatrecht, vol II (C.H. Beck 1985); Lewis, ‘A Common law fortress under attack: is English law being Europeanized?’ [1995] Columbia Journal of European Law 1, 1–2; Markesinis, ‘Learning from Europe and Learning in Europe’ in Markesinis (ed), The Gradual Convergence (Clarendon1994) 1–2; Mengoni, ‘L’Europa dei codici o un codice per l’Europa?’ in Accademia Nazionale dei Lincei (ed), Il codice civile. Convegno del cinquantenario dedicato a Francesco Santoro Passarelli (Atti dei convegni Lincei 106 1994) 87–88; Schulze, ‘Le droit privé commun européen’ [1995] RIDC 7; Schulze, ‘A century of the Bürgerliches Gesetzbuch: German Legal Uniformity and European Private Law’ [1999] The 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.

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initial main focus on public law was criticized in 1964 by Walter Hallstein19), comparative law20, private international law21, and legal history22, also. b) Variety of concepts

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 and 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.23 European private law was initially expressed as ‘Community private law’,24 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 Lisbon25. 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.26 The relevant rules belong partly to EU primary law and 14

19 Hallstein, ‘Angleichung des Privat- und Prozessrechts in der Europäischen Wirtschaftsgemeinschaft’ [1964] RabelsZ 211. 20 For example Gorla, Diritto comparato e diritto comune europeo (Giuffrè 1981); Kötz/Flessner, European Contract Law, vol I (Clarendon 1997); 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). 21 Dicey, Morris and Collins on The Conflict of Laws (15th edn, Sweet & Maxwell 2012) 11– 12; Rogerson, Collier’s Conflict of Laws (4th edn, CUP 2013) 8–9; von Hoffmann/Thorn, Internationales Privatrecht (9th edn, C.H. Beck 2007) paras 63–64a; Rauscher, Internationales Privatrecht (4th edn, C.F. Müller 2012) paras 89–92. 22 For earlier references see Cavanna, Storia del diritto moderno in Europa (Giuffrè 1982); Coing, ‘Das Recht als Element der europäischen Kultur’ [1984] HZ 1; Coing, Europäisches Privatrecht Vol. I and II (C.H. Beck 1985/1989); Delmas-Marty/Muir Watt/Ruiz Fabri (eds), Variations autour d’un droit commun. Première rencontres de l`UMR de droit comparé de Paris (Société de législation comparée 2002); Padoa-Schioppa, Italia ed Europa nella storia del diritto (Il Mulino 2003); Robinson/Fergus/Gordon, European Legal History (3rd edn, OUP 2005); Schulze, Europäische Rechts- und Verfassungsgeschichte, Ergebnisse und Perspektiven der Forschung (Duncker & Humblot 1991); Schulze, ‘La renaissance de l’idée de Jus commune’ in Delmas-Marty/Muir Watt/Ruiz Fabri ibid 181; Watkin, The Europeanisation of Law (Biicl 1998); Wieacker, A History of Private Law in Europe (OUP 1996). 23 n 19. 24 Müller-Graff (n 15); Schulze (n 15); Smits, ‘A European Private Law as a Mixed Legal System’ [1998] MJ 328. 25 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community [2007] OJ C306/01 see now consolidated versions [2012] OJ C326/01. 26 On the concept of the acquis communautaire see Benacchio/Pasa, A Common Law for Europe (Central European University Press 2005) 20–22; Craig/de Búrca, EU Law (5th edn, OUP 2011) 14–15; Herdegen, Europarecht (16th edn, C.H. Beck 2014) § 6 paras 6–7, § 8 para 3; Streinz, Europarecht (9th edn, C.F. Müller 2012) para 100.

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partly to EU secondary law. EU primary law 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 (Charter of Fundamental Rights).27 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.28 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 17 Member States (art 288 TFEU), as such they resemble laws at national level. Directives, however, are addressed neither to individual citizens nor to other private parties but rather just to the Member States. Accordingly, directives do not in principle have direct effect as they first require implementation into national law. In so doing the national legislator has the choice of form and method of transposition in order to achieve the result intended by the directive (art 288 TFEU).29 The Member States can therefore choose to implement European rules into national law in a manner which causes the least friction between the two legal orders. In private law one will observe that the European legislator favours the directive as the preferred legislative instrument. bb) Secondly, in a broad sense European private law also encompasses provi- 18 sions of international conventions that apply in the Member States but do not apply to the European Union as an institution.30 An ideal illustration is the European Convention on Human Rights and its effects on fields of private law, for instance privacy rights, liberty, and family law.31 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.32

27 See Nowak, Europarecht nach Lissabon (Nomos 2011) I para 3; Streinz ibid para 63; Steiner/ Woods, EU Law (11th edn, OUP 2012) 18. 28 For more detail on the concept of primary law and the function of ECJ jurisprudence in this context see Haratsch/Koenig/Pechstein, Europarecht (9th edn, Mohr Siebeck 2014) paras 367–375; Herdegen (n 26) § 8 paras 4–32. 29 For more detail on the effect of directives and their, exceptional, direct effect see Haratsch/ Koenig/Pechstein ibid paras 384–403; Horspool/Humphreys, European Union Law (7th edn, OUP 2012) 166–168; König, ‘Gesetzgebungsakte’ in Schulze/Zuleeg/Kadelbach (eds), Europarecht (3rd edn, Nomos 2015) paras 44–71. 30 For example Müller-Graff (n 15); Schulze (n 15); Schulze ‘Le droit privé commun européen’ (n 18). 31 van Dam, ‘European Tort Law’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 161–162; Meyer-Ladewig in Meyer-Ladewig (ed), Europäische Menschenrechtskonvention (3rd edn, Nomos 2011) art 8 paras 1–2; Windel, ‘Die Bedeutung der Europäischen Menschenrechtskonvention für das Privatrecht’ [2011] JR 323; see also, for example, Zaunegger v Germany (2009) ECtHR App no 22028/04 on custodial rights for illegitimate children. 32 Herdegen (n 26) § 1 paras 6–11; Schulze/Kadelbach, ‘Zur Einführung’ in Schulze/Zuleeg/ Kadelbach (n 29) 37.

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Furthermore, European private law is occasionally linked to international uniform law that is not just applicable in the vast part of Europe but also worldwide. Such a link can be especially seen with respect to the UN Convention on Contracts for the International Sale of Goods (CISG)33, which is the uniform sales law on cross-border contracts in the majority of European countries.34 Moreover, many national laws in Europe, and indeed reforms of national civil codes, have been based on the CISG.35 At European level the work by the ‘Commission on European Contract Law’36, 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 used the CISG as a guideline for several fundamental aspects. 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 law37 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’38 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 volume on ‘European Contract Law’39. 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’.40 The ‘evaluative’ approach towards obtaining 19

33 United Nations Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980. 34 36 European states have ratified the CISG since it was passed in 1980, however not, i.a., Portugal and the United Kingdom. The text of the CISG is available online under http://www.unc itral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html accessed 21 July 2014. 35 Such as the Netherlands in drafting the Nieuw Burgerlijk Wetboek, Germany in its 2002 modernization of the law of obligations, and many eastern European countries in the transition to the market economy; Ferrari, The CISG and its Impact on National Legal Systems (Sellier 2008); Hartkamp/Tillema/Ter Heide, Contract Law in the Netherlands (Kluwer 2011); Meyer, ‘UN-Kaufrecht in der deutschen Anwaltspraxis’ [2005] RabelsZ 457; in Romania: Bojin, ‘The Law of Obligations in Romania’ in Schulze/Zoll (eds), The Law of Obligations in Europe (Sellier 2013) 377; Schwenzer/Hachem, ‘The CISG – A Story of Worldwide Success’ in Kleinemann (ed), CISG Part II Conference (iustus 2009) 119, 125. 36 See n 9. 37 Müller-Graff (n 15) 130. 38 See n 9. 39 Kötz/Flessner (n 20). 40 ‘The Trento Common Core Project’. The research network was created in 1993 at the University of Trento and headed by Rudolf B. Schlesing; publications have included, for example, Cartwright/Hesselink, Precontractual Liability in European Private Law (CUP 2009); Zimmermann/Whittaker, Good Faith in European Contract Law (CUP 2000).

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common legal content41 is also accompanied by rather descriptive statements of the many differences in laws in Europe which are based on an understanding of European contract law in a geographical context.42 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,43 but also with partial inclusion of further historically-founded characteristics of European private law.44 More recent literature refers to the notion of the ‘acquis commun’45 in order 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 22 ultimately serves to describe the differences between the three aforementioned definitions, yet equally as complementary sources or elements contributing to the development of this area of law.46 2. Dualism of national and supranational law a) Origins

The origin of EU private law – and therein of European contract law – has led 23 to a fundamental change in private law in Europe. The creation of a supranational community in the latter half of the 20th century resulted in a dualism of national and supranational private law. Ultimately, this dualism removed the monistic concept of national law which – linked with the idea of the nation state – had previously prevailed in many European countries during the 18th and 19th centuries as opposing the variety of different laws and jurisdictions.47 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 195048 gave rise to the 41 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. 42 This direction is also followed by, for example, the extensive publication by Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009); see Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 para 2. 43 Zimmermann, Law of Obligations (Clarendon 1996). 44 See Grossi, Das Recht in der europäischen Geschichte (C.H. Beck 2010); Schulze, ‘Vom Ius commune bis zum Gemeinschaftsrecht’ in Schulze (ed), Europäische Rechts- und Verfassungsgeschichte (Duncker & Humblot 1991) 3; Schulze (n 15) 447–457. 45 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. 46 Müller-Graff (n 15) 14–17; Schulze (n 15). 47 Schulze, ‘Contours of European Private Law’ in Schulze/Schulte-Nölke (n 16) 3–8; Schulze, ‘Nuevos rasgos del Derecho privado en Europa’ (2015) Revista de Derecho Privado (Publicación Centenario) 139–166.

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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 Community49 allowed this supranational common law to stand alongside the different laws of the (then six) Member States. Since this time the dualism of national and supranational law has become characteristic for European integration. Even after the further development from the European Community to the European Union50 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. 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 became 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.51 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:52 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 law53 can therefore be seen not only with regard to public law but also in relation to broad aspects of private law subject to EU legislation54. Where conflicts between national and EU law arise, EU law will prevail due to its superiority;55 EU law (including interpretation by the CJEU) in 48 Schuman Declaration – 09.05.1950, available online under http://europa.eu/about-eu/basic-inf ormation/symbols/europe-day/schuman-declaration/index_en.htm accessed 28 April 2015; see Fontaine, Eine neue Ordnung für Europa (Publications Office of the European Union 1990). 49 Treaty establishing the European Coal and Steel Community 18 April 1951, available online under http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:11951K/TXT accessed 28 April 2015. 50 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). 51 Hallstein (n 19). 52 Overviews on each of these fields are given in Schulze/Zuleeg/Kadelbach (n 29); Schulze/ Schulte-Nölke (n 16); Twigg-Flesner (n 31). 53 Case C–6/64 Costa [1964] ECR 585, 594; Case C–106/77 Simmenthal II [1978] ECR 629.

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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’56. EU concepts must therefore be interpreted independently of national approaches and thus as a part of an independent supranational legal system.57 Such autonomous interpretation of EU law – including private law – is ensured by the CJEU (art 267 TFEU) and the binding nature of its decisions on the courts and authorities of the Member States.58 c) Interdependency between national and supranational law

EU laws may appear at first glance to be very independent legislative acts, 26 though merely looking at the result fails to take into account that the legislation has not developed in isolation from national laws. With this in mind one can rather view the EU as a ‘community of law’59 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.60 Moreover, art 340(2) TFEU even expressly provides that the noncontractual liability of the EU is to follow in accordance with the general principles common to the laws of the Member States. The development of suprana-

54 For more detail see Borchardt, Die rechtlichen Grundlagen der Europäischen Union (5th edn, UTB 2012) 81–86; Ehlers, ‘Verhältnis des Unionsrechts zu dem Recht der Mitgliedstaaten’ in Schulze/Zuleeg/Kadelbach (n 29) paras 6–8; Heiderhoff, Europäisches Privatrecht (3rd edn, C.F. Müller 2012) para 8; Oppermann/Classen/Nettesheim, Europarecht (6th edn, C.H. Beck 2014) 20–23; Streinz/Pechstein, EUV/AEUV (2nd edn, C.H. Beck 2012) art 1 paras 7–8. 55 Costa (n 53); Case C–11/70 Internationale Handelsgesellschaften [1970] ECR 1125; Simmenthal II (n 53); see Craig/de Búrca (n 26) 256–301; Ehlers ibid paras 9–10. 56 See Case C–66/81 Pommerehnke [1982] ECR 1363, paras 19–20. 57 Ehlers (n 54) para 104; Reich, Understanding EU Law (2nd edn, Intersentia 2005) 49–50; Schulte-Nölke/Schulze, Europäische Rechtsangleichung und nationale Privatrechte (Nomos 1999). 58 Basedow, ‘Der Europäische Gerichtshof und das Privatrecht’ (2010) 210 AcP 157; Borchardt, ‘Auslegung, Rechtsfortbildung und Rechtsschöpfung’ in Schulze/Zuleeg/Kadelbach (n 29) paras 19–22; Stuyck, ‘The ECJ as a motor of private law’ in Twigg-Flesner (n 31) 101, 110– 114. 59 Rodriguez Iglesias, ‘Gedanken zum Entstehen einer Europäischen Rechtsordnung’ [1999] NJW 1. 60 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.

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tional law can therefore be greatly influenced by pre-existing solutions and approaches at national level. 27 On the other hand, the development of national private laws is greatly influenced by EU law, above all through the favoured use of directives as the legislative instrument. Many areas of national private law have thus been harmonized throughout Europe due to the implementation of directives containing EU rules.61 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 voluntarily use rules or principles from European directives in similar areas of law that not fall within directive's actual scope of application. Such an approach can therefore be adopted in order to avoid contradictions in national law.62 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.63 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.64 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, regulations have so far played a relatively lesser role, though they are the preferred form of legislation for European private international law and procedural law – in particular, the Rome I Regulation65 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 Regulations on passenger rights in air and train travel66 and the exemptions to competition law67 for distribution contracts). An 61 See below, para 31. 62 Some Member States (e.g. Germany) have extended the scope of the protection under the Doorstep Selling Directive to include contracts concluded on the street or on public transport although these were not covered under the Directive (see recital 22, Consumer Rights Directive). 63 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. 64 Schulze (n 47). 65 See Ferrari/Leible, Rome I Regulation (Sellier 2009); Staudinger, ‘Sekundärrecht als Quelle des Internationalen Privatrechts’ in Schulze/Zuleeg/Kadelbach (n 29) paras 6–35. 66 Regulation (EC) 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

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optional instrument, such as the proposed Common European Sales Law, would however be able to give greater importance to regulations as an instrument of future EU legislation and therefore for harmonization of laws – alongside approximation via directives – in European contract law.68 2. Primary law

Although primary law regulates the EU's competences (in particular 29 art 114(1) TFEU as the general provision on harmonization measures serving the development of the internal market) 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 which are to be considered in the interpretation and systematization of secondary law. The principle of freedom of contract is a central principle of contract law – as 30 well as in European private law69 – and has a basis in EU primary law. Freedom of contract is underpinned by the fundamental freedoms in arts 28 et seq. TFEU70 and is inseparably linked with the ‘principle of an open market economy with free competition’ (see art 119(1) TFEU). It is viewed as a necessary requirement in order to give full effect to the fundamental freedoms and, furthermore, is based on additional primary law provisions (in particular, arts 2 and 3(2) TEU and arts 6 et seq. Charter of Fundamental Rights).71 Freedom of contract has also received judicial acknowledgment in ECJ decisions.72

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68 69 70

71

denied boarding and of cancellation or long delay of flights, and repealing Regulation 295/91 [2004] OJ L46/1; Regulation (EC) 1371/2007 of the European Parliament and of the council of 23 October 2007on rail passengers' rights and obligations [2007] OJ L315/14. For example Commission Regulation (EU) No 316/2014 (technology transfer agreements) [2014] OJ L93/17; Commission Regulation (EU) No 1218/2010 (specialization agreements) [2010] OJ L335/43; Commission Regulation (EU) No 1217/2010 (research and development agreements) [2010] OJ L335/36; Commission Regulation (EU) No 461/2010 (motor vehicle sector) [2010] OJ L129/52; Commission Regulation (EU) No 330/2010 (vertical agreements); Mäger, ‘Kartellrecht’ in Schulze/Zuleeg/Kadelbach (n 29) paras 120–165; Martinek, Franchising: Grundlagen der zivil- und wettbewerbsrechtlichen Behandlung der vertikalen Gruppenkooperation beim Absatz von Waren und Dienstleistungen (R. v. Decker 1987); Wijckmans/Tuytschaever, Vertical Agreements in EU Competition Law (2nd edn, OUP 2011) 87, 197–243. See below, para 51. Heiderhoff (n 54) para 223. The freedoms are the free movement of goods (arts 28 et seq., 34 et seq. TFEU), free movement of services (arts 56 et seq. TFEU), freedom of establishment (arts 49 et seq. TFEU), free movement of workers (arts 45 et seq. TFEU), and free movement of capital and payments (arts 63 et seq. TFEU). Contract II/Schulze art 4:101 para 3 Lorenz, Der Schutz vor dem unerwünschten Vertrag (C.H. Beck 1997) 22; Müller-Graff, ‘Gemeinsames Privatrecht in der Europäischen Gemeinschaft – Ansatzpunkte, Ausgangsfragen, Ausfaltungen’ in Müller-Graff (n 15) 7, 9, 28–34; Reich, ‘Zur Theorie des Europäischen Verbraucherrechts’ [1994] ZEuP 381.

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The protection against discrimination in relation to the conclusion and content of contracts is a further highly important general principle anchored in EU primary law. Nonetheless, if there is contradictory Member State law the (complex and controversial) jurisprudence of the ECJ73 requires specificity of the principle of non-discrimination by means of a directive.74 The legislative basis for antidiscriminatory measures is however provided by numerous provisions in primary law, in particular art 19 TFEU and art 157 TFEU (equal pay) as well as the values enshrined in art 10 TFEU and arts 21 and 23 Charter of Fundamental Rights. Consumer protection – to the extent to which one considers this a principle of EU law75 – is also based on EU primary law (arts 12, 169 TFEU and art 38 Charter of Fundamental Rights). These aforementioned examples may cause an increase in the future significance of the Charter of Fundamental Rights in order to determine the EU principles and underlying ideas relevant to contract law. This concerns, above all, the fundamental protection of human dignity (art 1 Charter of Fundamental Rights), the protection of personal data (art 8 Charter of Fundamental Rights), the freedom to choose an occupation (art 15 Charter of Fundamental Rights), the freedom to conduct a business (art 16 Charter of Fundamental Rights), the right to property (art 17 Charter of Fundamental Rights), as well as the freedoms anchored in arts 10 et seq. Charter of Fundamental Rights. 3. Directives a) Development

32

Secondary law on aspects of contracts has primarily developed through directives 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.76 Since the 1980s consumer protection legislation has rapidly extended to core areas of contract law, such as control of unfair contract terms (in the 1993 Unfair Terms Directive) and guarantees in sales contracts (in the 1999 Consumer Sales Directive), though limited to consumer contracts. These directives brought numerous new features to several Member States, for 72 Case C–26/91 Handte [1992] ECR I–3967, para 15; Case C–51/97 Réunion européenne [1998] ECR I–6511, para 17; see also Case C–334/00 Tacconi [2002] ECR I–7357, Opinion of AG Geelhoed, para 55; Case C–434/08 Harms [2010] ECR I–4431; Case C–283/11 Sky Österreich [2013] ECR I–nyr, para 42. 73 Case C–144/04 Mangold [2005] ECR I–9981; Case C–427/06 Bartsch [2008] ECR I–7245; Case C–555/07 Kücükdeveci [2010] ECR I–365; Case C–147/08 Römer [2011] ECR I–3591. 74 Chapter 2 paras 145–149. 75 Such as in Case C–336/03 easyCar [2005] ECR I–1947, para 21; cf Heiderhoff (n 54) para 258. 76 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 – now since repealed by the Consumer Rights Directive – as well as the Package Travel Directive.

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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 features77 can be seen in contract law directives which (alongside consumer protection) also cover numerous policy areas each often linked to the objective of promoting the internal market e.g. protection and promotion of SMEs, promotion of information society services and, in particular, e-commerce, payment services and protection against discrimination78. b) Fragmentation

The contract law acquis communautaire is thus strongly based on legislation 33 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.79 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 proposal80 intended to give a new, single structure to four consumer law directives,81 whereas the final version of the Directive only summarizes two of the original four directives and is, in this respect, only of limited success.82 c) Minimum and full harmonization

The directives, especially those serving consumer protection, are subject to 34 two different levels of harmonization which have resulted in variations in uniformity across the field of contract law. The original approach adopted for many directives was to set EU-wide minimum standards but to allow the Member 77 Schulze (n 47); Schulze, ‘The CESL's Innovative Features – A Brief Overview’ [2013] Contratto e impresa/Europa 485. 78 For more detail see below, paras 38–43. 79 Eidenmüller et al., ‘Der Gemeinsame Referenzrahmen für das Europäische Privatrecht’ [2008] JZ 529, 529–530; Honsell, ‘Die Erosion des Privatrechts durch das Europarecht’ [2008] ZIP 621, 630; Schulze, ‘European Private Law and Existing EU Law’ [2005] ERPL 3, 4; Twigg-Flesner, ‘Introduction’ in Twigg-Flesner (n 31) 1, 8. 80 Commission, ‘Proposal for a Directive of the European Parliament and of the Council on consumer rights’ COM (2008) 614 final. 81 The original intention concerned eight directives, see Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 3. 82 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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States to set higher standards in their national laws (‘minimum harmonization’). This approach in relation to consumer protection primarily aims at the objective of ensuring a high level of protection (art 169 TFEU) as it combines a common high (minimum) standard for the whole of the EU with the possibility for individual Member States to choose to maintain or introduce a higher level of consumer protection. However, minimum harmonization does little to serve the aim of internal market development (art 114 TFEU) and cross-border trade because it does not overcome the obstacles resulting from the variations in national laws. The European legislation does indeed set a minimum standard across the European Union, however selling goods or providing services in the internal market requires businesses to draft their contract terms, calculate their prices, and devise their sales methods in accordance with the individual levels of protection in the national laws. In light of this issue one may doubt the effectiveness of minimum harmonization in achieving internal market objectives. 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 recent consumer protection directives83 – for instance, the Distance Marketing of Financial Services Directive, the new versions of the Consumer Credit and Timeshare Directives, and the Consumer Rights Directive. Art 288(3) TFEU continues to afford the Member States the freedom of choice and form for the implementation (individual legislative acts, consumer code or civil code),84 however the level of consumer protection may not exceed or be lower than the level foreseen by the directive. Full harmonization therefore obtains far-reaching harmonization of the content of national laws and thus offers a better solution than minimum harmonization for easing cross-border transactions. Nevertheless, full harmonization does exclude the possibility for consumer-friendlier national rules and can therefore lower the level of protection previously afforded to consumers in a Member State. 36 Furthermore, a problem particular to full harmonization appears to be the lack of scope available to Member States when aligning national law with European standards. Such an issue may prove to be an obstacle in relation to the voluntary ‘gold-plating’ of directives, as has been shown by the discussion surrounding the Consumer Rights Directive 85. Extensive criticism of this Directive ultimately re83 Not, however, for the Mortgage Credit Directive. 84 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. 85 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.

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III. Contract Law in the Acquis Communautaire

sulted in a reduction of its scope of application to relatively narrow and clearly definable matters not closely interlinked with other matters of national law (in particular, provisions on information duties and withdrawal rights, which have often been established in national law on the basis of EU legislation rather than previous national legal traditions). In contrast, the proposed full harmonization of the control of unfair contract terms and consumer sales appears to have been perceived as an extensive intrusion into the national legal systems. It therefore remains questionable whether the transition from minimum to full harmonization will continue to such an extent in the future. 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 with its advantages for the internal market and its possible disadvantages for the level of consumer protection and respect for individual Member States' legal systems. 4. Overview of key directives a) Consumer protection

The contract law acquis developed relatively early in the area of consumer 37 protection and has since become quite extensive. The starting point was the 1985 Doorstep Selling Directive (Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L372/31), which has since been repealed by the Consumer Rights Directive. The following overview contains a selection of current key directives and corresponding ECJ decisions. – Package Travel Directive (Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours [1990] OJ L158/59). ECJ decisions: C–168/00 Leitner [2002] ECR I–2631 C–400/00 Club-Tour [2002] ECR I–4051 Joined Cases C–585/08 and C–144/09 Pammer/Hotel Alpenhof [2010] ECR I–12527 C–134/11 Blödel-Pawlik AG [2012] ECR I–nyr The concept of consumer under the Package Travel Directive covers ‘the person who takes or agrees to take the package’ (art 2(4)). Such a person may thus be a business – the Directive's notion of the consumer therefore varies from the standard established in later European legislation.86 – 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 86 See Chapter 2 para 139.

17

Chapter 1 Foundations

–

–

–

–

18

Terms Directive in relation to the development of European (consumer) contract law. ECJ decisions: C–473/00 Cofidis [2002] ECR I–10875 C–237/02 Freiburger Kommunalbauten [2004] ECR I–3403 C–243/08 Pannon [2009] ECR I–4713 C–137/08 VB Pénzügyi Lízing [2010] ECR I–10847 C–484/08 Caja de Ahorros [2010] ECR I–4785 C–76/10 Pohotovosť [2010] ECR I–11557 C–472/10 Invitel [2012] ECR I–nyr C–618/10 Banco Español de Crédito [2012] ECR I–nyr C‑26/13 Kásler [2014] ECR I–nyr C–96/14 van Hove [2015] ECR I–nyr Consumer Sales Directive (Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L171/12). The Consumer Sales Directive covers a central aspect of irregularities in contract performance and is thus of considerable significance for doctrine and legal practice in the field of European contract law. ECJ decisions: C–404/06 Quelle [2008] ECR I–2685 Joined Cases C–65/09 and C–87/09 Weber/Putz [2011] ECR I–5257 C–32/12 Duarte Hueros [2013] ECR I–nyr Distance Marketing of Financial Services Directive (Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC [2000] OJ L271/16). Consumer Credit Directive (Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC [2008] OJ L133/66). ECJ decisions: C–208/98 Berliner Kindl [2000] ECR I–1741 C–264/02 Cofinoga [2004] ECR I–2157 C–76/10 Pohotovosť [2010] ECR I–11557 C–602/10 SC Volksbank România [2012] ECR I–nyr 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

III. Contract Law in the Acquis Communautaire

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 and the Distance Selling Directive (Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts [1997] OJ L144/19). – Mortgage Credit Directive (Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 [2014] OJ L60/34). b) Small and medium-sized enterprises

The following directives seek to provide support and protection to SMEs in 38 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–203/09 Volvo Car Germany [2010] ECR I–10721 C–184/12 Unamar [2013] ECR I–nyr – 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 (‘Late Payment Directive 2000’). ECJ decisions: C–453/06 01051 Telecom [2008] ECR I–1923 (relating to Late Payment Directive 2000) – Insurance Mediation Directive (Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [2002] OJ L9/3). ECJ decisions: C–252/06 Commission v Germany [2006] ECR I–140 C–555/11 EEAE [2013] ECR I–nyr

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Chapter 1 Foundations

c) E-Commerce 39

Two directives are of particular importance for promoting information society services and especially e-commerce: – 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); repealed by 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. – 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–298/07 deutsche internet versicherung [2008] ECR I–7841 C–292/10 G [2012] ECR I–nyr 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 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). 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 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). – 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). – 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).

20

III. Contract Law in the Acquis Communautaire

– 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–236/09 Test-Achats [2011] ECR I–773 C–415/10 Meister [2012] ECR I–nyr C–335/11 HK Danmark [2013] ECR I–nyr C–361/12 Carratù [2013] ECR I–nyr f) Insurance contracts

The development of the internal market for several forms of insurance and, in 42 part, customer protection is served by, inter alia, the following directive relevant to contract law: – Life Assurance Directive (Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance [2002] OJ L345/1). g) Others

Furthermore, the acquis communautaire includes directives with a potential 43 impact on contract law, but which were passed to achieve different objectives. Although the spectrum is wide, from the very specific purpose of the return of cultural objects to the broader purpose of freedom of services, and alternative dispute resolution, there are particular aspects that may also have implications for contract law although this may not be apparent from the nature of the individual directive. – 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). – Unfair Commercial Practices Directive (Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market [2005] OJ L149/22). – ECJ decisions: Joined Cases C–261/07 and C–299/07 VTB-VAB/Galtea [2009] ECR I– 2949 C–304/08 Plus Warenhandelsgesellschaft [2010] ECR I–217 C–540/08 Mediaprint [2010] ECR I–10909 C–522/08 Telekommunikacja Polska [2010] ECR I–2079 C–618/10 Banco Español de Crédito [2012] ECR I–nyr 21

Chapter 1 Foundations

C–262/12 Citroën Belux [2013] ECR I–nyr – Services Directive (Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market [2006] OJ L376/36). ECJ decision: C–57/12 Femarbel [2013] ECR I–nyr – ADR Directive (Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC [2013] OJ L165/63)87. – 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) 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)88. These Principles have above all become a model for later research on European contract law as they include the most important aspects of general contract law structured according to the potential sequence of contractual events (i.e. the ‘life cycle of the contract’ from conclusion and effectiveness, to interpretation, content and the effects, to performance and remedies for non-performance). The first two parts of the PECL are limited to contract law89, abstain from the use of more extensive notions (such as ‘legal transaction’), and therefore avoid a system based on one individual national tradition. The basis for the PECL was formed by a comparison of national laws through which ‘common principles’, corresponding tendencies or, ultimate87 With respect to dispute resolution one can also note Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR) [2013] OJ L165/1. 88 See n 9; 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. 89 Part III PECL varies in this respect, see n 9.

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IV. Coherency of European Contract Law

ly, ‘best solutions’ could be discovered.90 Such an approach allowed for considerable use of the results of comparative studies on sales law undertaken in the 1930s by Ernst Rabel91, and the CISG, which was based on Rabel's comparative studies. In coordination with parallel work on the UNIDROIT Principles on International Commercial Contracts92, the Lando Commission developed, however, the CISG model into a general contract law that is generally applicable to all types of contract without regulating a specific contract type. b) Pavia Draft

A further pioneering project for European contract law is the ‘Pavia Draft of a 45 European Contract Code’93 headed by Guiseppe Gandolfi and completed in Pavia by the Academy of European Private Lawyers. In contrast to the PECL the ‘Pavia Draft’ included several provisions of European consumer law in the general contract law and is designed to include supplementary rules for specific types of contract. However, significant weaknesses of this project are its lesser focus on the CISG (which had already adopted by numerous European countries) and, despite international contributors, a focus on Italian law rather than a broader comparison. c) Acquis Principles

The aforementioned drafts could however only initially make a small contri- 46 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 in-depth focus on the features of the new supranational law in Europe.94 In this respect there thus appears to have been a development of two parallel worlds of European contract law: on the one hand an expanding but incoherent acquis communautaire, and different, systematic drafts of an ideal European contract law far from the reality of a supranational law, on the other.

90 Lando (n 88) 519–520; ‘Smits, European private law and the comparative method’ in TwiggFlesner (n 31); Vogenauer (n 41) 253. 91 Rabel, Das Recht des Warenkaufs. Eine rechtsvergleichende Darstellung (2 vols, de Gruyter 1936/1957). 92 Bonnell, An International Restatement of Contract Law (3rd edn, Brill 2004); Zimmermann, ‘Konturen eines Europäischen Vertragsrechts’ [1995] JZ 477, 479. 93 The English version of the ‘Pavia Draft’ is included in Radley-Gardner/Zimmermann/Beale (eds), Fundamental Texts on European Private Law (Hart 2003) 439. 94 As an example of this approach see Kötz/Flessner (n 20).

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Chapter 1 Foundations

Since the 1990s there have been attempts to bridge the gap between legal science and applicable law by seeking guiding principles and overarching concepts in EU primary law and legislation on contract law (i.e. the contract law acquis communautaire).95 The research, primarily initiated by the ‘Research Group on the Existing EC Private Law’ (Acquis Group),96 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.97 For example, several directives from various areas can express that an agreement between the parties is necessary for the conclusion of contract,98 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 dealing99 as a principle of EU contract law which is not specific to one particular sector.100 48 The ‘Acquis Group’ thus drafted its principles of the existing EC contract law (Acquis Principles) through this approach.101 The Acquis Principles are generally quite broad and therefore allow for application to various different types of contracts, in this respect they represent – as the PECL – a general law of contract. However, the Acquis Principles also consider that EU law affords specific rights and duties to particular categories of contract parties and thus limit the scope of application of several principles, for instance to B–B or B–C contracts.102 Furthermore, the general rules are supplemented by rules that are tailored to the needs of particular contracts or circumstances covered in existing EU law.103 Each individual chapter in the Acquis Principles contains the general and specific rules (in this order) for a particular subject matter e.g. pre-contractual duties, conclusion of contract etc. The chapters are structured to reflect the 47

95 Grundmann, ‘Europäisches Schuldvertragsrecht – Struktur und Bestand’ [2000] NJW 14; Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003); Schulze/Ajani (eds), Gemeinsame Prinzipien des Europäischen Privatrechts (Nomos 2003); Schulze/Ebers/Grigoleit (eds), Informationspflichten und Vertragsschluss im Acquis communautaire (Mohr Siebeck 2003); Schulze/Schulte-Nölke, ‘Europäisches Vertragsrecht im Gemeinschaftsrecht’ in Schulte-Nölke/Schulze (eds), Europäisches Vertragsrecht im Gemeinschaftsrecht (Bundesanzeiger 2002) 229. 96 Heiderhoff (n 54) para 20. 97 On the methods adopted in researching the acquis see Contract II/Dannemann xxvi–xxviii; Schulze/Schulte-Nölke (n 95) 11; Schulze (n 79). 98 Also stated in case law see Case C–96/00 Rudolf Gabriel [2002] ECR I–6367; Case C– 269/95 Benincasa [1997] ECR I–3767. 99 Such as for consumer protection art 3(1) Unfair Terms Directive; in relation to SMEs art 3(1) Commercial Agents Directive. 100 For more detail on this principle and its limitations in EU contract law see Chapter 2 paras 122–135. 101 n 11; Schulze, ‘I Principi Acquis. Situazione attuale e prospettive future della ricerca’ in De Cristofaro (ed), I « Principi » del diritto comunitario dei contratti, Acquis communautaire e diritto privato europeo (Giappichelli 2009) 1. 102 For more detail see Chapter 2 paras 136–137. 103 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.

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IV. Coherency of European Contract Law

‘life cycle of the contract’. However, although the chapters are structured in a manner similar to the PECL, the Acquis Principles focus on the matters of considerable significance for EU contract law but which were not (or to a much lesser extent) considered by the PECL, for instance pre-contractual duties, prohibitions of non-discrimination, withdrawal rights, and non-negotiated terms.104 Nevertheless, in comparison to the PECL the Acquis Principles do however 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,105 and change of circumstances106. 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).107 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’108 resulted not 49 only in increased academic attention to EU contract law but, notably, 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.109 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’110 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’111 containing overarching principles, definitions, and model rules that will function as a ‘toolbox’112 for the improvement of European legislation.

104 105 106 107 108 109 110 111 112

Chapters 2, 3, 5 and 6 ACQP. arts 4:103 et seq. PECL. art 6:111 PECL. art 4:103 ACQP based on art II.–4:201 DCFR; see also art 2:201 PECL. Commission, ‘A more coherent European contract law: an action plan’ COM (2003) 68 final. ibid 16. ibid 17. ibid 16; Staudenmayer, ‘Der Aktionsplan der EG-Kommission zum Europäischen Vertragsrecht’ [2003] EuZW 165. Commission, ‘European Contract Law and the revision of the acquis: the way forward’, COM (2004) 651 final, 2–3, see also Pasa/Morra (eds), Translating the DCFR and Drafting the CESL (Sellier 2014) 12–13.

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Chapter 1 Foundations

b) Draft Common Frame of Reference 50

The EC Action Plan thus decided in favour of a synthesis of comparative research and the ‘acquis approach’. Two separate research groups113 within an international network (CoPECL-Network114) completed comparative studies and research on the existing EC contract law, respectively, which were ultimately joined together to create an academic ‘Draft Common Frame of Reference’ (DCFR)115.116 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 law117) as well as property law.118 Book II DCFR is particularly noteworthy as a strong mixture of the Acquis Principles and comparative approach (mostly derived from the PECL) was used to draft rules on the negotiation, conclusion, and content of contracts. In contrast, the comprehensive DCFR primarily used the Acquis Principles as a basis for the rules on non-discrimination, marketing and pre-contractual duties, and the right of withdrawal119, whereas the chapters on representation and the grounds for invalidity120 are based mainly on comparative research. The sections on conclusion of contract, as well as the interpretation, content and the effect of contracts121 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 acts122). Sales law in Book IV A. DCFR is strongly based on existing EU law (in particular the Consumer Sales Directive).123 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 donation124) and therefore with 113 The Study Group on a European Civil Code, which used a comparative law approach, and the ‘Acquis Group’ (see n 88); see v. Bar/Clive/Schulte-Nölke (eds), DCFR – Outline Edition (Sellier 2009) 1. 114 CoPECL, see http://www.copecl.org/ accessed 14 July 2014; v. Bar/Schulte-Nölke, ‘Gemeinsamer Referenzrahmen für europäisches Schuld- und Sachenrecht’ [2005] ZRP 165. 115 v. Bar/Clive/Schulte-Nölke (n 93); v. Bar/Clive (n 12) Vols I–VI. 116 Vaquer Aloy/Bosch Capdevila/Paz Sánchez González (eds), Derecho Europeo de Contratos, Libros II y IV del Marco Común de Referencia (Atelier Libros 2012). 117 Book V DCFR Benevolent intervention in another’s affairs; Book VI DCFR Non-contractual liability arising out of damage caused to another. 118 For criticism see Eidenmüller et al. (n 79); Schulze, ‘The Academic Draft of the CFR and the EC Contract Law’ in Schulze, ‘Common Frame of Reference and Existing EC Contract Law’ (2nd edn, Sellier 2009) 3, 11–12. 119 Book II Chapter 2, 3 and 5 DCFR. 120 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. 121 Book II Chapters 4, 8 and 9 DCFR. 122 See Chapter 2 paras 1–5. 123 Book IV Part E DCFR is also strongly based on current EU law (in particular its Chapter 3 on commercial agency contracts). 124 Book IV C and H DCFR.

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V. Proposed Codification

no reference to existing EU law. Despite the criticisms of particular aspects125 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. V. Proposed Codification 1. Optional instrument a) Concept

The European Commission has not used the DCFR as announced in the 2003 51 Action Plan, namely to create a (political) frame of reference for future legislation. Since the European Parliament and Commission elections in 2009 the Commission has instead turned its attention to a project named in the Action Plan as a possible second step after the completion of a Common Frame of Reference: the development of an optional instrument. Such a project is aimed at devising a set of European contract law rules (in the form of a regulation) which will be available to parties as an additional option to existing national contract laws. The Commission's change in direction from the Common Frame of Reference project to an optional instrument cannot be viewed separately from the discussion surrounding the possibilities and limitations of approximation of laws via minimum or full harmonization.126 In the Commission's view, minimum harmonization was not sufficiently able to overcome the obstacles to the internal market which 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. On the other hand 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 Company127 It opened 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

The preparations for the optional contract law were made within a year by ex- 52 perts from academia and practice. The result – the ‘Feasibility Study for a future instrument in European Contract Law’128 – was largely based on corresponding sections from the DCFR and other previous academic studies but also contained 125 For example Eidenmüller (n 79); Schulze (n 118) 12; Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ [2007] ZEuP 130, 137–141. 126 Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2013) 197–199. 127 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) [2001] OJ L249/1.

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Chapter 1 Foundations

its own approaches.129 However, in contrast to the preceding sets of rules the study only outlined the application of the planned contract law to sales contracts and related service contracts. In particular, it determined the performance and consequences of non-performance specifically for these types of contracts. Nonetheless, further parts of the ‘Feasibility Study’ followed the models of the PECL, Acquis Principles and the DCFR and were thus drafted as a general contract law that could be applied to other types of contract (this especially applied to the pre-contractual duties, conclusion of contract, defects in consent, and content of contract). The ‘Feasibility Study’ thus pointed the proposed regulation in the direction of a sales law yet retained the approach of preceding academic works, namely a general contract law as a basis for future inclusion of other types of contracts into European contract law 2. Commission proposal a) Scope of application

The European Commission presented its proposal (based on the Feasibility Study) for a regulation in November 2011 and thereby initiated the legislative process for a Common European Sales Law. The substantive rules are mainly contained in an annex (‘CESL-D’) to the planned regulation (‘CESL-Reg-D’). The actual text of the regulation is limited mostly to definitions, rules on the scope of application and the optional nature of the instrument. 54 The proposed regulation's material scope of application comprises contracts for the sale of goods, related services, and the supply of digital content (art 5 CESL-Reg-D). However, the proposal is for the CESL to only apply to B–C contracts and in B–B contracts if at least one of these parties is a SME (art 7 CESL-Reg-D).130 The territorial scope of application is, in principle, limited to cross-border contracts according to art 4 CESL-Reg-D. However, each Member State shall have the choice to determine whether the CESL may also apply to domestic contracts and to B–B contracts without participation by a SME (art 13 CESL-Reg-D). The fulfilment of each of these requirements allows the parties to select the CESL as the legal basis for their contract (art 3 CESL-Reg-D) instead of national law. However, valid application of the CESL to the contract requires that the additional criteria under arts 8 et seq. CESL-Reg-D are also fulfilled.131 53

128 Available online under http://ec.europa.eu/justice/contract/files/feasibility_study_final.pdf accessed 14 July 2014; 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. 129 On this study see Schulze/Stuyck (eds), Towards a European Contract Law (Sellier 2011). 130 See Chapter 2 paras 14–15 for more detail on the (unintended) inclusion of other contract parties and other questions regarding the scope of the instrument. 131 For criticism of the higher standards under arts 8(2) and 9 CESL-Reg-D for consumer contracts see CESL Schmidt-Kessel CESL/Schmidt-Kessel arts 8, 9 CESL-Reg-D paras 19–27; Schulze CESL/Wendehorst art 3 CESL-Reg-D paras 2–3; Wagner, ‘Transaktions-

28

V. Proposed Codification

The CESL shall therefore – in comparison to the CISG – not be applicable ipso iure as long as the parties have not agreed otherwise. The proposed regulation therefore favours an ‘opt-in’ and not an ‘opt-out’ approach. The parties to a planned contract must therefore always come to an agreement if they want the CESL to govern their contract.132 b) Structure

The substantive rules contained in the annex are contained in 186 articles that 55 are divided across 18 chapters. All phases in the ‘life cycle’133 of the contract are covered: from conclusion to content, to obligations of the parties and remedies for non-performance, non-performance, restitution, and prescription. Structure of the proposed CESL Part I Introductory provisions Chapter 1 General principles and application Part II Making a binding contract Chapter 2 Pre-contractual information Chapter 3 Conclusion of contract Chapter 4 Right to withdraw in distance and off-premises contracts between traders and consumers Chapter 5 Defects in consent Part III Assessing what is in the contract Chapter 6 Interpretation Chapter 7 Contents and effects Chapter 8 Unfair contract terms Part IV Obligations and remedies of the parties to a sales contract or a contract for the supply of digital content Chapter 9 General provisions Chapter 10 The seller's obligations Chapter 11 The buyer's remedies Chapter 12 The buyer's obligations Chapter 13 The seller's remedies Chapter 14 Passing of risk Part V Obligations and remedies of the parties to a related service contract Chapter 15 Obligations and remedies of the parties Part VI Damages and interest Chapter 16 Damages and interest Part VII Restitution Chapter 17 Restitution Part VIII Prescription Chapter 18 Prescription

kostensenkung durch Europäisches Kaufrecht?’ [2012] ZEuP 455; for details on the scope of application see Chapter 2 paras 96–121. 132 For criticism see Lando, ‘CESL or CISG?’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 15, 18–19; Schulze CESL/SchulteNölke art 3 CESL paras 2–3. 133 See the explanatory memorandum COM (2011) 635 final (n 4) 4 as well as recitals 6 and 26.

29

Chapter 1 Foundations 56

Legislative work on European contract law has thus reached a new level: the object is no longer a multitude of individual legal acts from various ‘sectors’ and ‘policy areas’, but rather a set of rules with its own system and coherent terminology for large elements of contract law. It is therefore the first time that EU legislative bodies are occupied with a codification of contract law. In comparison to the CISG, which has outlined international standards for modern sales law since its ratification in 1980, this new codification includes new matters such as defects in consent (especially avoidance due to mistake, threat, fraud, and unfair exploitation134), the defects in performance of (related) service contracts135 and prescription136. Moreover, the proposed CESL also includes (and has expanded on) a series of innovations that have developed in the acquis communautaire,137 for example the inclusion of consumers in uniform law on crossborder sale of goods, the change in perspective from the traditional focus of negotiated contracts to standardized contracts (highlighted by the provisions on non-negotiated terms138 or the use of model instructions139), the consideration of modern forms of communication (in particular e-commerce), the inclusion of the pre-contractual phase and information duties140 and the stipulation of content141. Furthermore, the CESL has its own new features by including – as one of the first sets of rules worldwide – specific provisions on the supply of digital content in the system of sales law. 3. Legal basis and legislative process

57

The legislative process for the CESL has been accompanied from the outset by a lively academic and political discussion on the concept of a CESL and on its individual provisions. The discussions have indeed focused on the scope of application and the rules of this planned sales law; however, the most controversial aspect has been the selection of art 114 TFEU as the legal basis (for which the Commission and European Parliament have good reasons142) and thus the 134 135 136 137 138 139 140 141 142

30

arts 48 et seq. CESL-D. Part V CESL-D (arts 147 et seq. CESL-D). Part VIII CESL-D (arts 178 et seq. CESL-D). Schulze (n 77) 495–497. Chapter 8 CESL-D (arts 79 et seq. CESL-D). Annex 1 and 2 CESL-D. Chapter 2 CESL-D (arts 13 et seq. CESL-D). In particular art 69 CESL-D. COM (2011) (n 4) 635 final, 8–9; European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159); also Opinion of the Council Legal Service 7139/12. The same conclusion has also been reached by, inter alia, Moser, ‘Der Kommissionsvorschlag für eine Verordnung über ein Gemeinsames Europäisches Kaufrecht’ in Remien/Herrler/Limmer (n 132); Micklitz/Reich, The Commission Proposal for a ‘Regulation on a Common European Sales Law (CESL)’ – Too Broad or Not Broad Enough? (EUI LAW Working Paper 2012) 4–11; Micklitz/Reich, ‘Wie ,,optional‘‘ ist ein ,,optionales‘‘ EU-Vertragsrecht’ [2011] EWS 113–115; Staudenmayer (n 128) 3495; cf, for example, Basedow, ‘Art. 114 AEUV als Rechtsgrundlage eines optionalen EUKaufrechts: Eine List der Kommission?’ [2012] EuZW 1; Max Planck Institute for Compar-

V. Proposed Codification

sufficient consideration of the principles of subsidiarity and proportionality.143 An especially notable point appears to be the critical comments on the problem of labelling the CESL as a ‘second contract law regime’144 and the relationship to the Rome I Regulation.145 The European Parliament has not joined the Internal Market Committee (IM- 58 CO) in its objections to the CESL146 but rather shares the view of the Legal Affairs Committee (JURI)147 that the project should, in principle, be approved.148 The European Parliament has expressed a series of changes to the proposed CESL, which include initially limiting the scope of application to distance contracts.149 A series of further proposed changes indicate that the European Parliament has paid considerable attention to suggestions from academia and legal practice (e.g. concerning the scope of application, avoidance for defects in consent, remedies and restitution).150 The recently elected Commission has however announced a revision that it will present instead of the current version of the CESL. The revised version should above all be directed towards the aim of realizing the potential of online trading in the ‘digital single market’151 At this time it is therefore not possible to predict whether, when, and with what content, a European codification of sales law will enter into force. If this were to become binding law in the form of a regulation for an optional instrument it would therefore form a second core part of the acquis communautaire alongside directives on the approximation of optional, uniform European law. Irrespective of the out-

143

144 145

146 147 148 149 150

151

ative and International 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. 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 (n 16) 89, 92; cf BTDrucks. 17/8000 vom 30.11.2011; Riesenhuber, ‘Der Vorschlag für ein „Gemeinsames Europäisches Kaufrecht“ – Kompetenz, Subsidiarität, Verhältnismäßigkeit’ [2012] EWS 7. COM (2011) 635 (n 4) final, recital 9. ibid 19; see Fornasier, ‘»28.« versus »2. Regime« – Kollisionsrechtliche Aspekte eines optionalen europäischen Vertragsrechts’ (2012) RabelsZ 401; 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; Stadler, ‘Anwendungsvoraussetzungen und Anwendungsbereich des Common European Sales Law’ (2012) 212 AcP 473, 475– 484. Opinion of the Committee on the Internal Market and Consumer Protection for the Committee on Legal Affairs, A7-0301/2013. Report on the proposal for a Regulation of the European Parliament and of the Council on a Common European Sales law, A7-0301/2013. EP Legislative Resolution (n 142). ibid amendment 2, recital 9. See arts 4, 5, 7, 48, 50 a, 106, 107, 172, art 172a CESL-D; ibid; 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 available online under https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/S-2-2012_St atement_on_the_Proposal_for_a_Regulation_on__a_Common_European_Sales_Law.pdf 27–29, 112–114, 308–320 accessed 5 January 2015. Commission, ‘Work Programme 2015: A new start’ COM (2014) 910 final, 6; Annex 2, 12.

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Chapter 1 Foundations

come of the further legislative process, the CESL thus reflects the status of European contract law as, for the first time, a draft codification at legislative level. In this respect it will certainly be a source of inspiration for future European and national legislation (and jurisprudence) and as a common point of reference for academic discussion. It therefore gains an outstanding role in the development of European contract law.

32

Chapter 2 Core Elements Literature: Adams, Ökonomische Theorie des Rechts – Konzepte und Anwendungen (2nd edn, Peter Lang 2004); Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ [2008] MLR 505; Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames europäisches Kaufrecht – Kommentar (Sellier 2014); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales gemeinsames Kaufrecht (Sellier 2012); Schulze/ Wilhelmsson, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’ [2008] ERCL 154; Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); v. Bar/Clive, Principles, Definitions and Model Rules of European Private Law, DCFR (Full Edition) (Sellier 2009).

I. Concept of Contract 1. Contract and juridical act

The concept of contract1 naturally forms the heart of European contract law 1 as it allows private individuals to give binding effect to their own matters and to their relationship with others. In this respect seeking to regulate the obligations arising from legal acts always gives rise to the question of the level of abstractness to be used: on the level of a contract or, more broadly, on the level of a ‘juridical act’. 2 The legislator is therefore faced with a choice between either referring all rules to abstract concepts of juridical acts and treating the contract as a particular case thereof or principally regulating the contract and possibly allowing for contractual rules to be applicable to other juridical acts. The European legislator has adopted the second approach: the contract forms 2 the core of the directives and regulations which regulate the European law of obligations.3 This indeed has practical reasons as the concept of a juridical act is a theoretical approach which is not used in many legal systems;4 in turn the notion of a contract is widely understood (and is the most frequent form of a juridical act) thereby allowing for European rules to instead be attached simply and clearly to this category. Where European private law is concerned one has to 1 Paricio, ‘Der Vertrag – Eine Begriffsbildung’ in Andrés Santos/Baldus/Dedek (eds), Vertragstypen in Europa: Historische Entwicklung und europäische Perspektiven (Sellier 2011) 11; Kähler, ‘Zum Vertragsbegriff in Europarecht’ in Arnold (ed), Grundlagen eines europäischen Vertragsrechts (Sellier 2013) 79; Schulze/Wilhelmsson, ‘From the Draft Common Frame of Reference towards European Contract Law Rules’ [2008] ERCL154. 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, 120–126. 3 A list of European legislation focusing on contracts can be found in Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 1 paras 26–38. 4 See Schmidt, ‘Der „juridical act“ im DCFR: Ein (nützlicher) Grundbegriff des europäischen Privatrechts’ [2010] ZEuP 307, who refers to the variation in the spread of this concept across the different European legal systems.

33

Chapter 2 Core Elements

bear in mind that it has not been styled as a comprehensive system; European directives have not aimed at creating a complete European system5 but merely supplement the contract law of the Member States.6 By comparison, the German legal system – influenced by pandectism7 – adopts the model of a juridical act (‘Rechtsgeschäft’) due to its role in creating a comprehensive legal system.8 3 The DCFR has, however, now attempted to use the notion of a juridical act for European contract law9 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 does however show the DCFR's uncertainty regarding the position of the juridical act within its system. The DCFR first defines ‘contract’ and not ‘juridical act’ even though the reverse would have been more appropriate as the latter is more abstract10. Nevertheless, the order of the two concepts is justfied as ‘juridical act’ in the DCFR is seldom used independently as the central role is instead played by the notion of ‘contract’.11 ‘Juridical act’ is indeed used in the different situations in which contract-based rules are applicable to other juridical acts (e.g. in art II.–4:301 DCFR)12 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.

5 Kähler, ‘Zum Vertragsbegriff in Europarecht’ in Arnold (n 1) 80; Limmer, ‘Europäisierung des Vertragsrechts’ [2012] DNotZ-Sonderheft 59, 60. 6 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) 555, 556; Zoll, ‘Die Vertragstypen im Vorschlag für das Gemeinsame Europäische Kaufrecht – die Bestimmung des Anwendungsbereichs eines Optionalen Instruments durch die Typisierung von Verträgen’ in Festschrift für Müller-Graff Müller-Graff (forthcoming). 7 See Fröde, Willenserklärung, Rechtsgeschäft und Geschäftsfähigkeit (Mohr Siebeck 2012) 127; Hattenhauer, Einseitige private Rechtsgestaltung: Geschichte und Dogmatik (Mohr Siebeck 2011) 78, 85–86; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 128–150, especially 135. 8 Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 1. 9 See Schmidt (n 4) 304–305; Whittaker/Riesenhuber (n 2) 137–159. 10 v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009) 125; Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 2. 11 Schmidt (n 4) 317. 12 v. Bar/Clive (n 10) 339–340.

34

I. Concept of Contract

Despite the DCFR's considerable influence the proposed CESL does not 5 adopt the notion of a juridical act.13 The current version of the DCFR has rather been ‘recontractualized’ by the Common European Sales Law.14 Art 12 CESL-D concerns unilateral statements or conduct, but these are rather just considered an extension of the rules for contracts. 2. Contract as consensus ad idem?15

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

6

Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (a) ‘contract’ means an agreement intended to give rise to obligations or other legal effects; (…)

This definition of contract16 corresponds to the understanding in the acquis 7 communautaire,17 even though not one of the numerous directives contains a definition of contract that would be comparable with the definition in art 2(a) CESL-Reg-D.18 One can however extract from many directives the requirement of consensus between the parties at the time the contract is concluded.19 This understanding of contract underlies the respective definitions of a distance contract (art 2(7) Consumer Rights Directive) and an off-premises contract (art 2(8) Consumer Rights Directive), each of which refer to the conclusion of contract. The Consumer Rights Directive contains further provisions which take consensus as the basis for the conclusion of a contract. a) Contract and inertia selling

The implicit requirement of consensus is especially clear in relation to the 8 rule on inertia selling in art 27 Consumer Rights Directive:

13 Riesenhuber (n 3) para 50, who labels the scope of the CESL as concerning ‘contractual situations’and § 4 para 59, in which the CESL is referred to as an ‘optional second system of contract law’. 14 Schulze, ‘Europäisches Vertragsrecht – die Zeit ist reif für die Gesetzgebung’ [2011] EuZW 569, 570; Schulze/Wilhelmsson (n 1) 165. 15 An explanation of the concept of contract from the perspective of different legal systems and different stages in legal history is given in Paricio (n 1). 16 For more detail on the concept of contract in the CESL see Schmidt-Kessel CESL/SchmidtKessel art 2 CESL-Reg-D para 10. 17 Commission, ‘A Common European Sales Law to facilitate cross-border transactions in the single market’ COM (2011) 636 final, 10; Schmidt-Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D para 37. 18 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 10; Schulze CESL/Wendehorst art 2 CESL-Reg-D para 4. 19 See Chapter 3 para 10.

35

Chapter 2 Core Elements 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 Consumer Rights Directive refers to the Unfair Commercial Practices Directive in which the delivery of unsolicited goods or services with the aim of concluding a contract with a consumer is categorized as an unfair commercial practice. This article therefore expresses the understanding of a contract as the declaration of agreement by both parties.20 10 An express rule on inertia selling was first provided by art 9 Distance Selling Directive. This Directive has since been repealed by the Consumer Rights Directive which has, moreover, further developed the original European rule by explicitly including the consequences for breach. Art 27 Consumer Rights Directive now provides that in the event of inertia selling the consumer will be exempted from the obligation to provide any consideration;21 however at the same time there is no legal clarity regarding the sanction.22 Prior to the Consumer Rights Directive many authors considered that no duties could arise for the consumer receiving unsolicited goods or services. Many even favoured the exclusion of restitution of the goods through proprierty claims and also through claims for unjust enrichment.23 The Acquis Principles (which attempt to reproduce the content of the various, scattered rules in the acquis communautaire) outline the rule on inertia selling as: 9

Article 4:106 ACQP Unsolicited goods or services If a busines delivers unsolicited goods or services to a consumer, no obligation arises from the consumer's failure to respond.

11

The DCFR is even clearer in expressing that no obligations for the consumer will arise in the event that it receives unsolicited goods or services:24

20 21 22 23

For more detail see Chapter 3 para 49. Staudinger BGB/Olzen (2014) § 241a para 53. Online-Kommentar BGB/Bamberger/Roth/Sutchet, § 241a para 9, accessed 1 November 2014. Altmeppen, ‘Unbestellte Leistungen: Die Kampfansage eines „Verbraucherschutzes“ an die Grundlagen der Privatautonomie’ in Grenzow/Grunewald/Schulte-Nölke (eds), Festschrift für Friedrich Graf von Westphalen (Otto Schmidt 2010) 1, 8–9; Baur/Stürner, Sachenrecht (18th edn, C.H. Beck 2009) § 11 para 26b; Flume, ‘Vom Beruf unserer Zeit für die Gesetzgebung’ [2000] ZIP 1427; MüKo BGB/Finkenauer (2012) § 241a paras 29–33, especially para 33; Olzen (n 21). 24 Olzen ibid para 54.

36

I. Concept of Contract Article II.–3:401 DCFR No obligation arising from failure to respond (1) If a business delivers unsolicited goods to, or performs unsolicited services for, a consumer: (a) no contract arises from the consumer's failure to respond or from any other action or inaction by the consumer in relation to the goods and services; and (b) no non-contractual obligation arises from the consumer's acquisition, retention, rejection or use of the goods or receipt of benefit from the services. (…)

The text adopted by the DCFR is based on the acquis communautaire as well 12 as on corresponding rules in national laws25 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,26 the rule clarifies that the consumer can destroy the delivered good without liability arising vis-à-vis the business. In contrast, the wording of the Consumer Rights Directive appears to limit 13 this privilege to the exemption to pay consideration,27 therefore it remains unclear whether the business can enforce any other rights.28 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 as far as to regulate all the details in order to allow the national legislator more regulatory options for the consequences of inertia selling. Such differences are however of very little relevance for the notion of contract. It is rather made clear in all of the aforementioned provisions that the concept of contract in EU law requires consensus between the parties as its foundation.29 b) Complex process of conclusion of contract

The Acquis Principles have used the acquis communautaire in order to give 14 greater clarification to the concept of contract:30 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.

25 Jansen/Zimmermann, ‘Was ist und wozu der DCFR?’ [2009] NJW 3401, 3402; SchulteNölke, ‘Arbeiten an einem europäischen Vertragsrecht – Fakten und populäre Irrtümer’ [2009] NJW 2161; Staudinger BGB/Martinek (2014) A. BGB aktuell 2014/2015 para 196. 26 v. Bar/Clive (n 10) 260. 27 art II.–3:401 DCFR is to be used in order to interpret the notion of consideration used in the Consumer Rights Directive, see Olzen (n 21) para 54. 28 For more detail see Chapter 3 para 50. 29 v. Bar/Clive (n 10) 259. 30 See Chapter 3 para 10

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Chapter 2 Core Elements

This article is based on various different sources in the acquis communautaire.31 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 art 9 Distance Marketing of Financial Services Directive, art 7(2) Consumer Sales Directive as well as recital 10 Unfair Terms Directive as additional sources. The requirement of consensus as the foundation for a contract is more prevalant in the proposed CESL.32 Art 30 CESL-D33 emphasizes, as the Acquis Principles, the necessity to reach an agreement (art 30(1)(a) CESL-D). However, this article also stipulates the requirements of such an agreement, namely the intention that the agreement shall have legal effect (art 30(1)(b) CESL-D) and sufficient content (art 30(1)(c) CESL-D).34 16 Jurists from legal systems in continental Europe are familiar with this model of contract. However, the acquis communautaire has introduced its own innovative elements that have resulted in clear changes to the concept of contract. The acquis communautaire has particularly included instruments and legal institutions which, on the one hand, strive to protect the weaker party's freedom to make its own decisions, yet on the other hand also take into account the legitimate expectations of both parties. 17 The former of these objectives includes the comprehensive pre-contractual duties for the business,35 the consumer's right to withdraw,36 and ultimately the transparency and incorporation requirements in relation to contract terms.37 The focus on the parties' legitimate expectations is served by the provisions stipulating that public statements (or other ‘external’ statements e.g. advertisements) by the business or other persons in the distribution chain are part of the contract. Although these principles and provisions will be considered in more detail below, one can highlight here that they have caused profound changes to the traditional notion of contract. The conclusion of contract can no longer be merely characterized by the consensus achieved between the parties; it is rather a much more complex process. A certain characteristic of contracting is the extensive relationship between the pre-contractual phase, the formal conclusion of contract, and the performance and breach which are now more prevalent than before in the national legal systems. This procedural nature is underpinned by a particular feature of EU law which can be distinguished from most national legal systems: 15

31 32 33 34

Contract II/Schulze art 4:101 paras 1–3. Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 1–7. For more detail see Chapter 3 paras 10–17. Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 8, 13; v. Bar/Zimmermann, Grundregeln des Europäischen Vertragsrechts, Teil I und II (Sellier 2002) Comment B. on art 2:102 PECL, 152. 35 Faust, ‘Generalklauselartige Aufklärungspflicht’ in Eidenmüller et al. (eds), Revision des Verbraucher-acquis (Mohr Siebeck 2011) 201; Grigoleit, ‘Die Aufklärungspflichten des acquis’ in Eidenmüller et al. ibid 224. 36 Eidenmüller, ‘Widerrufsrecht’ in Eidenmüller et al. ibid 109. 37 Jansen, ‘Klauselkontrolle’ in Eidenmüller et al. ibid 53, 60–61.

38

I. Concept of Contract

European contract law places mass contracting in the foreground as this form of contracting is considered to represent the rule in practice,38 whereas individually-negotiated contracts are viewed as an exception. There is thus a very farreaching change in the concept of contract due to a reduction in the role played by statements of intention in forming the foundation of a contract. The explanation does not lie in, for instance, the anti-liberal attitude of EU contract law but rather in its market-orientated approach. The European legislator drafts legislation mainly from the perspective of a functioning market that shall be consumer friendly.39 The consumer's legitimate expectation of conforming performance is to be protected. This concept of legitimate expectations is shaped by various factors, such as the information that has been given (and likewise not given) statements by particular third parties as well as specific, expected characteristics of the good or service. The consumer should have the possibility to reconsider its decision (right of withdrawal) and the business may not use unfair commercial practices to influence the consumer's contractual decision. Within this system the parties' individual behaviour regarding the conclusion of the contract plays a lesser role than the standard behaviour of market participants. The traditional concepts of contract law and these new tendencies collide in 18 the CESL. Chapter 5 CESL regulates the defects in consent arising from the individual nature underlying the concept of contract,40 whereas the market-orientated concept is represented by the pre-contractual duties,41 the consumer's right to withdraw,42 the effects of public statements on the content of the contract, and the rules concerning unfair contract terms. Nevertheless, despite this interaction the development of contract law is clearly pointing in the direction of primarily regulating typical behaviour of market participants. Describing the contract as consensus between the parties does not mean that 19 the acquis communautaire implements the ‘mirror image’ rule. The present sources of European contract law do not principally regulate the process leading to conclusion of contract as current directives only supplement national law in specific matters; it is for the Member States to answer the questions concerning the conclusion of contract. As the proposed CESL strives to achieve a law of contract that is as complete as possible it indeed adopts a different approach by including comprehensive rules on conclusion of contract.43 Using the CISG for inspiration the CESL also views the so-called ‘modified acceptance’ (acceptance with additional or different contract terms subject to the requirements in

38 Andrés Santos, ‘Einleitung’ in Andrés Santos/Baldus/Dedek (n 1) 1. 39 Herresthal, ‘Zur Dogmatik und Methodik des Gemeinsamen Europäischen Kaufrechts’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2014) 85, 86–87, 88–89. 40 Schmidt-Kessel CESL/Martens art 47 CESL-D. 41 Schmidt-Kessel CESL/Wichmann arts 13–17 CESL-D. 42 See Schulze, ‘Die Widerrufsrechte im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (n 39) 151. 43 Herresthal (n 39) 90–91; Riesenhuber (n 3) § 4 para 59.

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art 38(3) and (4) CESL-D) not as a new offer (the basic rule in art 38(1) CESL-D) but rather as acceptance, provided there is no material alteration to the terms of the offer. This approach means that the acceptance can differ from the content of the offer44 and consequently the conclusion of the contract under these circumstances is not explained by consensus between the parties. The concept of agreement therefore does not always require the parties to be in absolute agreement. Through this process the silent acceptance by the original offeror of the alterations can only be viewed as artificial; this will often not correspond to the actual circumstances. However, this proposed approach has faced criticism especially in relation to distance contracts, for which the CESL was primarily drafted (and may ultimately be restricted to45). Such contracts are generally mass contracts in which there is little room for the concept of modified acceptance; this is even more prevalent in online-transactions as the technical limitations further restrict the possibility of a modified acceptance. 20 Art 39 CESL-D focuses on a further problem of considerable signifance for the concept of contract and likewise highlights the extent to which this concept has detached from the original notion: conflicting standard contract terms (‘battle of the forms’).46 Although the standard terms used by each party may conflict with each other the contract will nonetheless be concluded rather than perceived as failed due to a lack of agreement (unless the restrictions in art 39(2) CESL-D apply). This solution to the conflict between differing standard terms attempts to consider the pre-formulated contract terms as the theoretical recognition and approval by the recipient and to accord this phenomenon with the fundamental requirement of consensus. The contract is therefore concluded without the inclusion of the conflicting standard terms into the content of the contract. Consensus is therefore achieved by separating the conflicting terms from the content of the contract and thus using unconventional means to satisfy the requirement of an ‘agreement’. 21 In comparison, the acquis communautaire does not include this solution. The relevant legislation, namely the Unfair Terms Directive, does not contain any comparable rule as the use of standard terms by a consumer is quite inconceivable. The CESL – following art II.–4:209 DCFR – now includes this rule. 3. Contract and notice 22

The pandectistic notion of a juridical act incorporates to a considerable extent the concept of a statement of intent (‘Willenserklärung’).47 In comparison, the CESL has replaced this ‘statement of intent’ with the notion of ‘notice’.48 44 For more detail see Chapter 3 para 23. 45 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 26. 46 See Schmidt-Kessel CESL/Weller art 39 CESL-D paras 1–2; see also Schroeter in Schwenzer (ed), Schlechtriem and Schwenzer: Commentary on the UN Convention on the International Sale of Goods (3rd edn, OUP 2010) art 19 paras 31–51 with further references.

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I. Concept of Contract Article 10 CESL-D Notice (1) This Article applies in relation to the giving of notice for any purpose under the rules of the Common European Sales Law and the contract. ‘Notice’ includes the communication of any statement which is intended to have legal effect or to convey information for a legal purpose. (2) A notice may be given by any means appropriate to the circumstances. (3) A notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. (4) A notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee's place of business or, where there is no such place of business or the notice is addressed to a consumer, to the addressee's habitual residence; (c) in the case of a notice transmitted by electronic mail or other individual communication, when it can be accessed by the addressee; or (d) when it is otherwise made available to the addressee at such a place and in such a way that the addressee could be expected to obtain access to it without undue delay. The notice has reached the addressee after one of the requirements in point (a), (b), (c) or (d) is fulfilled, whichever is the earliest. (5) A notice has no effect if a revocation of it reaches the addressee before or at the same time as the notice. (6) In relations between a trader and a consumer the parties may not, to the detriment of the consumer, exclude the application of paragraphs 3 and 4 or derogate from or vary its effects.

The acquis communautaire lacks such a comprehensive concept surrounding 23 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 E-Commerce Directive Placing of the order (1) (…) – 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 that the obligation arises 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.49 As a consequence the Acquis Principles have avoided the development of a general rule on notice so that these principles are limited to the following situation:

47 Ranieri (n 7) 128–150; Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 6; Schmidt, Der Vertragsschluss (Mohr Siebeck 2013) 24–26. 48 Schmidt-Kessel CESL/Müller-Graff art 10 CESL-D para 1. 49 Contract II/Leible/Pisuliński/Zoll art 1:303 para 2.

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Chapter 2 Core Elements 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.

24

Beyond this the Acquis Principles indeed contain two further rules on notice which are applicable to all statements: Article 1:301 ACQP Means of notice Notice may be given by any means appropriate to the circumstances. Article 1:302 ACQP Effectiveness of notice (1) The notice becomes effective when it reaches the addressee, unless it provides for a delayed effect. (2) The notice reaches the addressee: (a) when it is delivered to the addressee; (b) when it is delivered to the addressee's place of business, or, where there is no such place of business or the notice does not relate to a business matter, to the addressee's habitual residence; (c) when it is otherwise made available to the addressee at such a place and in such a way that the addressee could reasonably be expected to obtain access to it without undue delay.

These rules are however indicated as ‘grey rules’ in order to clarify that the editors of the Acquis Principles have not considered the source in the E-Commerce Directive as, by itself, offering a sufficient basis for a general rule. The editors were 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.50 However, art 10 CESL-D has taken this rule from art 11(1) E-Commerce Directive as a model for a general rule on the requirements for effectiveness of notice.51 The approach is based on the ‘receipt theory’, which features in many national legal systems.52 26 The concept of notice is accompanied by a revolutionary change as the use of the term ‘notice’ (as opposed to ‘statement of intent’) expresses legally-relevant statements extending beyond indications of contractual intent. The term ‘notice’ not only includes statements of knowledge but also particularly includes information given by one party to the other.53 However, one has to bear in mind that such information is relevant for determining the content of the legal relationship 25

50 ibid. 51 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 7; Schulze CESL/SchulteNölke art 10 CESL-D para 2. 52 See Brinkmann, Der Zugang von Willenserklärungen (Duncker & Humblot 1984) with further references; Staudinger BGB/Singer (2011) § 130 para 39.

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I. Concept of Contract

between the parties. The transition from ‘statement of intent’ to ‘notice’ is thus characteristic for the shift in focus in modern contract law from individual contracting to standardized, mass contracting. 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. A highly important aspect concerns the moment at which notices become ef- 27 fective. 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’54, 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.55 Occasionally the adopted approach results from a combination of individual aspects of each of these two theories. Article 11 Consumer Rights Directive Exercise of the right of withdrawal (…) (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.

Although the aforementioned provision adopts the approach under the dis- 28 patch 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, in this regard, 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 no answer to these questions is given by the Consumer Rights Directive it is therefore for the national legislator to provide a solution. The developments in communication technology give rise to an increasing 29 amount of questions of this kind and it is above all in the modern digital world in which there is a clear need for uniform answers. Where electronic communications are concerned one has to further clarify how the traditional requirements 53 Schmidt-Kessel CESL/Müller-Graff art 10 CESL-D para 1; Schulze CESL/Schulte-Nölke art 10 CESL-D para 3. 54 On this concept see MüKo BGB/Einsele (2012) § 130 para 8; Staudinger BGB/Singer (2011) § 130 para 2. 55 On this concept see Einsele ibid; Anton in Spindler/Schuster (eds) Recht der elektronischen Medien (2nd edn, C.H. Beck 2011) § 130 para 1.

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can be satisfied by modern technology. This question was particularly posed in Content Services. Case C–49/11 Content Services [2012] ECR I–nyr 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).

30

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 hyperlink to a website containing the information (including, as in the facts of this case, the exclusion of the right of withdrawal).56 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, 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 content of this information when given in this form can be easily changed by the service provider 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; 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 may have been based on the former Distance Selling Directive, yet it remains relevant in relation to the Consumer Rights Directive (which is referred to by the ECJ in its decision57 and thus can be viewed as an expression of advance effect of the Directive).

56 cf Online-Kommentar BGB/Bamberger/Roth/Sutchet, § 312j para 14, accessed 1 November 2014 HK-BGB/Schulte-Nölke (2014) § 312j para 2. 57 Case C–49/11 Content Services [2012] ECR I–nyr, para 11.

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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 greatly abstains from stipulating contract types. As the 31 directives generally only have a supplementary effect58 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. The European legislator's59 restraint is primarily based on the link in European contract law to specific circumstances in which the weaker party (in many cases the consumer60) is to be protected. It is only in rare instances in which the acquis communautaire comes close to typifying contracts. a) Commercial agency Article 1 Commercial Agents Directive [Scope] (…) (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. (…) Article 3 Commercial Agents Directive [Rights and obligations of the commercial agent] (1) In performing has activities a commercial agent must look after his principal's interests and act dutifully and in good faith. (2) In particular, a commercial agent must: (a) make proper efforts to negotiate and, where appropriate, conclude the transactions he is instructed to take care of; (b) communicate to his principal all the necessary information available to him; (c) comply with reasonable instructions given by his principal. Article 6 Commercial Agents Directive [Remuneration] (1) In the absence of any agreement on this matter between the parties, and without prejudice to the application of the compulsory provisions of the Member States concerning the level of remuneration, a commercial agent shall be entitled to the remuneration that commercial agents appointed for the goods forming the subject of his agency contract are customarily allowed in the place where he carries on his activities. If there is no such customary practice a commercial agent shall be entitled to reasonable remuneration taking into account all the aspects of the transaction. (…)

58 Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Riesenhuber (n 6) 55–58; Zoll, ‘A Need for a New Structure for European Private Law’ (n 6) 555, 556. 59 On the European legislator's reluctance in relation to typification of contracts see Zoll, ‘Typisierung von Verträgen’ (n 6). 60 Staudinger BGB/Schiemann (2012) C. Das Rechtsgeschäft para 240.

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Chapter 2 Core Elements 32

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 contract61 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.62 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 arising 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.63 b) Timeshare

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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. Such an example is given by the Timeshare Directive: Article 2 Timeshare Directive Definitions (1) For the purposes of this Directive, the following definitions shall apply: (a) ‘timeshare contract’ means a contract of a duration of more than one year under which a consumer, for consideration, acquires the right to use one or more overnight accommodation for more than one period of occupation (…)

This definition of a timeshare contract does not serve to typify a particular contract. A ‘timeshare contract’ can cover many different types of contract which 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. usufruct). The European legislator therefore did not intend for the Directive to provide the parties with a complete model that would ease the conclusion of

61 Flohr/Pohl in Martinek/Semler (eds), Handbuch des Vertriebsrechts (3rd edn, C.H. Beck 2010) Chapter 4, Der Handelsvertretervertrag. 62 Müller-Graff, ‘Ein fakultatives Kaufrecht als Instrument der Marktordnung?’ in SchulteNölke et al. (n 39) 21, 38; Zoll, ‘Typisierung von Verträgen’ (n 6). 63 Flohr/Pohl (n 61); Zoll ibid.

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II. Types of Contract in the Acquis Communautaire

timeshare contracts,64 but rather that the special – in the Directive's view – legally-relevant situation should induce particular protective measures.65 The same function is also performed by the other definitions of contract types 34 contained in the Directive's list of definitions: ‘long-term holiday product contract’ (art 2(1)(b)), ‘resale contract’ (art 2(1)(c)) and ‘exchange contract’ (art 2(1)(d)). It may appear that the terms for these contracts correspond to a traditional manner of legislative typification of contracts, though this is misleading. Naming particular elements of these contracts merely serves to provide points of reference to allow the Directive's protection to be activated and is independent of the dogmatic structure the national legislator has chosen to cover these types of contract. c) Consumer sales

A somewhat more complex situation arises in relation to the different forms 35 of a sales contract given in EU law. These primarily stem from two directives that have been passed at different stages in the development of European contract law. It is characteristic that the first of these two directives – the Consumer Sales Directive – does not contain a definition of a sales contract. It merely defines ‘consumer goods’ (art 1(2)(b)), though this is purely to determine the Directive's scope of application. However, art 2(4) Consumer Sales Directive does contain an extension of the concept of a sales contract which can and must influence the classification of contracts from a national perspective: Article 1 Consumer Sales Directive Scope and definitions (…) (4) Contracts for the supply of consumer goods to be manufactured or produced shall also be deemed contracts of sale for the purpose of this Directive. (…)

The European legislator has therefore decided to extend the scope of sales lia- 36 bility to contracts in which the performance of production-related obligations have been agreed, though the technical aspects of the implementation into national law remain with the national legislator. Irrespective of the variations in implementation at national level, one can nonetheless observe that the European legislator has opted to take a type of contract that may (in the broad sense) be categorized as a service 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.66 It expects that the limitation to the type of goods67 defined in the Directive will eliminate the greatest differences be64 Zoll ibid. 65 Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Limmer (n 5) 60–61; Riesenhuber (n 3) § 1 para 28; Zoll ibid.

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Chapter 2 Core Elements

tween the various systems of sales contracts. These differences can above all be found 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 which has been derived from the comparative research undertaken when drafting this Directive. 37 The DCFR has utilized the results of comparative research in order to synthesize the concept of a sales contract:68 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.

38

The European legislator has now, more than 10 years after the Consumer Sales Directive, defined a sales contract for the purposes of the Consumer Rights Directive:69 Article 2 Consumer Rights Directive Definitions For the purpose of this Directive, the following definitions shall apply: (…) (5) ‘sales contract’ means any contract under which the trader transfers or undertakes to transfer the ownership of goods to the consumer and the consumer pays or undertakes to pay the price thereof, including any contract having as its object both goods and services; (…)

39

However, this definition does not repeat the generally well-known and widespread notion of a sales contract. Furthermore, it contains a far-reaching extension of the scope of the notion by also including mixed contracts.70 The European legislator therefore sets out – irrespective of the relationship between the sales and service elements – the application of the ‘absorption theory’71. Ac66 Serrano in Bianca/Grundmann (eds), EU Sales Directive: Commentary (Intersentia 2002) art 1 para 9. 67 On the concept of consumer goods see ibid art 1 paras 28–40; Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ [1999] EuZW 485, 486. 68 v. Bar/Clive (n 10) 1234. 69 Bülow/Artz, Verbraucherprivatrecht (4th edn, C.F. Müller 2014) para 221. 70 Zoll, ‘Problem z pojęciem sprzedaży w nowej ustawie o prawach konsumenta – zagadnienie umów mieszanych z obowiązkiem świadczenia usługi’ [2014] Internetowy Kwartalnik Antymonopolowy i Regulacyjny 8, 11. 71 On this theory see BGHZ 63, 306, 307, 309; 2, 94; RGZ 161, 323–325; Bamberger/Roth BGB Kommentar/Gehrlein/Sutschet (2014) § 311 paras 20–21; Gawlik, ‘Umowy mieszane. Konstrukcja i ocena prawna’ in Pojęcie umowy nienazwanej, studia cywilistyczne (1971) vol XVIII (Palestra 1974) no. 5, 25, 30; MüKo BGB/Emmerich, (2012) § 311 para 29; Stoffels, Gesetzlich nicht geregelte Schuldverträge: Rechtsfindung und Inhaltskontrolle (Mohr Siebeck 2001) 154–155.

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cording to the wording of the aforementioned provision the rules on sales law are also to be applied when the service aspect dominates the entire contract and the obligation characteristic of a sales contract plays a lessor role. One must, however, bear in mind that this definition does not represent a uniform definition of sales law for EU law as a whole, but rather is only to be applied in relation to the provisions of the Consumer Rights Directive containing rules concerning sales contracts, above all arts 18 and 20 on delivery and passing of risk, respectively. The definition in art 2(5) Consumer Rights Directive therefore only means that the service elements of a mixed contract do not prevent the application of these two articles. Nevertheless, this does not provide an answer to the question of which further rules are applicable to this type of contract. It may therefore be that – in following the absorption theory – a national law will subject the entire contract to the rules pertinent to service contracts and only the application of these two articles of the Consumer Rights Directive will be unavoidable. The limitation of the application of this definition of sales contract to the scope of the Consumer Rights Directive therefore means that it is not applicable to the notion of sales contract under this Directive. This fact clearly shows that no typification of the contract can be implied even though the contract type has been clearly defined in a directive. The definition merely serves to determine the scope of particular rules and does not intend to provide the parties with a complete model for a complete sales contract. d) Consumer credit

Similarly, a definition only relevant to the scope of application of one direc- 40 tive can also be seen in the Consumer Credit Directive. Article 3 Consumer Credit Directive Defintions For the purposes of this Directive, the following definitions shall apply: (…) (c) ‘credit agreement’ means an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments; (…)

In using such a definition the European legislator is attempting to cover all 41 instances in which it considers that consumers ought to be protected. The definition is broad as it covers various different types of contracts – the decisive element here is whether a deferred payment or other financial accommodation is provided; therefore even sales contracts with deferred payment can fulfil the requirements of this definition.

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2. Increase in contract types in the acquis communautaire a) Framework contract 42

These methods of regulating different, legally-relevant situations in the acquis communautaire present the national legislators with the difficult question of how to integrate these varying models 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 which do not just provide rules for one specific issue but rather comprehensive provisions for an entire field. An example of the latter is the Payment Services Directive, which does not just define a framework contract but regulates it almost entirely. Article 4 Payment Services Directive Definitions For the purposes of this Directive, the following definitions shall apply: (…) (12) ‘framework contract’ means a payment service contract which governs the future execution of individual and successive payment transactions and which may contain the obligation and conditions for setting up a payment account; (…)

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 43

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 Mortgage Credit Directive Definitions For the purposes of this Directive, the following definitions shall apply: (21) ‘Advisory services’ means the provision of personal recommendations to a consumer in respect of one or more transactions relating to credit agreements and constitutes a separate activity from the granting of a credit and from the credit intermediation activities set out in point 5.

Chapter 8 of this 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 ascer50

II. Types of Contract in the Acquis Communautaire

tain 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 financial services contract 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). c) Service contracts

The European legislator uses the concept of services in a number of further 44 directives.72 From an economic perspective services play a role of increasing importance73 which 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.74 The term ‘service’ is therefore to be found in numerous other aspects of EU law, though its very heterogenous use means that it covers (and can encompass) many different types of legal relationships. As a consequence 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. 45 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.

72 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; recitals 2, 4, 5, 11, art 2 (1) Distance Selling Directive; art 1 Doorstep Selling Directive; art 4 and Annex Unfair Terms Directive; art 2 Package Travel Directive; art 3(c) Consumer Rights Directive; art 1(2)(c) Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [2002] OJ L09/03. 73 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, vii-viii. 74 See Zimmermann, Service Contracts (Mohr Siebeck 2010).

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The primary purpose of this provision does not lie in the regulation of issues of private law but rather serves to structure the freedom to provide services in the European Union. Nonetheless, the significance of this provision extends beyond the boundaries of public law: the definition provides the basis for the further development of European services law in its entirety. An illustration of this feature is provided by the Services Directive with its express reference to the definition of service given in art 50 EC Treaty, which has since been replaced without any change in content by art 57 TFEU: Article 4 Services Directive Definitions For the purposes of this Directive, the following definitions shall apply: (1) ‘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, it does contain rules that are of importance for contract law, for example the content of the pre-contractual information to be given by the service provider (art 22(1)) and how it is to be provided (art 22(2)), as well as prohibiting discrimination (art 20). However, these articles do not represent the sole extent to which the Services Directive is relevant to contract law as specific rules can also be seen in the other provisions on the quality of services (Chapter V). The reference to the definition given in primary law is of additional importance for contract law as such a definition expresses that the term ‘service’ does not extend to contracts whose objects are goods or capital. This negative definition 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 which covers nearly all contracts other than sales contracts. 46 This problem becomes clear when interpreting ‘contracts under which a trader supplies goods or services to a consumer’ – an expression used in many directives.75 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 Dietzinger76.77 In this case the ECJ was, inter alia, to decide whether a guarantee 75 As in art 1(1) Doorstep Selling Directive. 76 Case C–45/96 Dietzinger [1998] ECR I–1199; see also Lorenz, ‘Richtlinienkonforme Auslegung, Mindestharmonisierung und der „Krieg der Senate“’ [1998] NJW 2937, 2937–2940.

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contract concluded by a private individual (as guarantor) does not fall under the Doorstep Selling Directive78 because this Directive applies only to contracts for the supply of goods. Case C–45/96 Dietzinger [1998] ECR I–1199 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.

The ECJ's decision expresses that ‘goods and services’ does not serve as a 47 limitation. It does not mean types or groups of contracts but rather that the Court considers the European legislator to have intended to set as wide a scope of application as possible and to clarify that not only sales contracts are covered.79 However, this does not mean that the European legislator only uses this non- 48 specific definition of service. Several directives contain a more precise definition of services in order to give a more definable category of contracts, for example the Consumer Rights Directive: Article 2 Consumer Rights Directive Defintions For the purpose of this Directive, the following definitions shall apply: (…) (6) ‘service contract’ means any contract other than a sales contract under which the trader supplies or undertakes to supply a service to the consumer and the consumer pays or undertakes to pay the price thereof; (…)

77 See Kümmerle, ‘„Güter und Dienstleistungen“ – Vertragstypenbildung durch den EuGH’ in Andrés Santos/Baldus/Dedek (n 1) 295, 305–307. 78 The Doorstep Selling Directive has since been repealed by the Consumer Rights Directive. 79 Kümmerle (n 77) 305–307; Zoll, ‘Consumer Notion: Suretyship’ in Terryn/Straetmans/ Colaert (eds), Landmark Cases of EU Consumer Law (Intersentia 2013) 73.

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Chapter 2 Core Elements 49

This particular definition reflects all of the problems concerning the definition of a service contract. An observable characteristic is its inclusion of the negative element, namely a contract that is not considered a sales contract. It is clear to the legislator that this negative definition is insufficient and therefore there is the – quite unsuccessful – attempt to incorporate a positive aspect by referring to the supply of the service; though this highlights the vicious circle afflicting the definition – idem per idem. Typification of this contract has therefore not been achieved, in fact it lacks criteria that could have provided a clearer definition. Similarly, academic sets of rules such as the DCFR80 have also been unsuccessful in proposing a better and fuller definition of a service contract. 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 (…)

50

The DCFR does in fact contain a complex regulation of service contracts and related contracts (e.g. mandate and distributorship contracts) though this system does not represent European law currently in force. 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.81 In this respect, the DCFR therefore only presents an attractive model for the future. d) Typification of contracts under the CESL

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The European legislator has made an important step towards a complete regulation of contract types through its proposal for a Common European Sales Law. In contrast to directives, the CESL does not intend to supplement national laws but rather to create a complete, directly applicable regulation of the legal relationships between parties, and consequently it adopts an entirely different legislative technique.82 The ‘typificiation’ of contracts in the CESL83 shall function not only as a set of rules for the parties84 but moreover to set the boundaries for effectively selecting the optional instrument as the regulatory basis for the contract.

80 See Unberath, ‘Der Dienstleistungsvertrag im Entwurf des Gemeinsamen Referenzrahmens’ [2008] ZEuP 745. 81 De overeenkomst van opdracht in art 7:400 BW. 82 COM (2011) 636 final (n 17) 7. 83 Schmidt-Kessel CESL/Schmidt-Kessel art 5 CESL-Reg-D paras 1–6. 84 Zoll, ‘Typisierung von Verträgen’ (n 6).

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Art 5 CESL-Reg-D regulates the scope of application of the CESL:

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Article 5 CESL-Reg-D Contracts for which the Common European Sales Law can be used The Common European Sales Law may be used for: (a) sales contracts; (b) contracts for the supply of digital content whether or not supplied on a tangible medium which can be stored, processed or accessed, and re-used by the user, irrespective of whether the digital content is supplied in exchange for the payment of a price. (c) related service contracts, irrespective of whether a separate price was agreed for the related service.

Art 5 CESL-Reg-D endows the typification of contracts with a particular 53 function: the criteria for determining a type of contract shall also be decisive for the application of the CESL. Consequently, the method of typification is faced with a considerable challenge. A type of contract typically does not define the scope of application of legislation but rather offers a guideline from which contracts generally distance themselves.85 The typification of the contract is suitable in order to allow the identification of a group of norms that shall apply to a particular legal relationship. However, the proposed CESL attempts to draw strict boundaries in order to exclude the majority of mixed contracts from its scope. The types or groups of contracts falling in the scope of the CESL are defined 54 as follows: Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (…) (k) ‘sales contract’ means any contract under which the trader (‘the seller’) transfers or undertakes to transfer the ownership of the goods to another person (‘the buyer’), and the buyer pays or undertakes to pay the price thereof; it includes a contract for the supply of goods to be manufactured or produced and excludes contracts for sale on execution or otherwise involving the exercise of public authority; (…) (m) ‘related service’ means any service related to goods or digital content, such as installation, maintenance, repair or any other processing, provided by the seller of the goods or the supplier of the digital content under the sales contract, the contract for the supply of digital content or a separate related service contract which was concluded at the same time as the sales contract or the contract for the supply of digital content; it excludes: (i) transport services, (ii) training services, (iii) telecommunications support services; and (iv) financial services; (…)

Art 2 CESL-Reg-D does not contain a definition of ‘contracts for the supply 55 of digital content’, but rather only defines the notion of ‘digital content’:

85 Andrés Santos (n 38) 4–5; Staudinger BGB/Feldmann/Löwisch (2012) § 311 paras 30–32; Stoffels (n 71) 103.

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Chapter 2 Core Elements Article 2 CESL-Reg-D Defintions For the purpose of this Regulation, the following definitions shall apply: (…) (j) ‘digital content’ means data which are produced and supplied in digital form, whether or not according to the buyer's specifications, including video, audio, picture or written digital content, digital games, software and digital content which makes it possible to personalise existing hardware or software; it excludes: (i) financial services, including online banking services; (ii) legal or financial advice provided in electronic form; (iii) electronic healthcare services; (iv) electronic communications services and networks, and associated facilities and services; (v) gambling, (vi) the creation of new digital content and the amendment of existing digital content by consumers or any other interaction with the creations of other users; (…)

The entire definition of a contract for the supply of digital content can only be achieved by compiling the provision on the CESL's material scope of application86 (art 5(b) CESL-Reg-D) and the aforementioned definition of ‘digital content’87.88 In this instance one also must take into account the double function of these definitions: determining the instrument's scope of application and making available to the parties the possibility of a complete regulation of their contractual relationship. 57 The boundaries of the various contract types have been drawn with varying intensity, though they are clearest in relation to a sales contract. The somewhat cumbersome wording concerning the transfer of ownership89 should clearly indicate that the qualification as a sales contract is not subject to whether the contract under the law of obligations contains an obligation to transfer ownership or whether the proprietary effects take place with the conclusion of the contract. The proprietary effect of the sales contract is not solely determined by the CESL as the solution to the question of transfer of ownership remains with the national legislator.90 Accordingly, the regulation of the sales contract has to be adapted to the multitude of rules at national level. The definition of ‘sales contract’ in art 2(k) CESL-Reg-D leaves several questions unanswered in relation to its scope of application. It is, for example, unclear whether a preliminary contract (as is frequently used in practice in a number of legal systems91) falls within this definition of a sales contract, though this is not unlikely.92 Nevertheless, this 56

86 On the material scope of application see COM (2011) 636 final (n 17) 8. 87 On the difficulties in distinguishing digital content from pure service contracts see SchmidtKessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 46. 88 ibid art 2 CESL-Reg-D paras 63–67. 89 See para 54. 90 Recital 27 CESL. 91 Krajewski in Łętowska (ed), System Prawa Prywatnego, vol 5 (2nd edn, C.H. Beck 2013) § 44 I. 1; Malaurie/Aynès/Stoffel-Munck (eds), Les obligations (3rd edn, LGDJ 2007) 229– 231.

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problem shows exactly the difficulties that are present when using the typification of contracts in order to determine the application of an instrument. Furthermore, the notion of ‘price’ is used to extend the definition of a sales 58 contract under the CESL. Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (…) (i) ‘price’ means money that is due in exchange for goods sold, digital content supplied or a related service provided; (…)

An obligation to pay the purchase price indeed reflects the common under- 59 standing of the buyer's contractual duties in a sales contract. However, the legislative technique employed in relation to the CESL means that an obligation to pay the price also determines the application of the CESL to the contract: if a party does not have to make a monetary payment in relation to the performance by the other party then such a contract (often referred to as a barter agreement) generally does not fall within the scope of the CESL (with the exception of contracts for the supply of digital content, art 5(a) CESL-Reg-D). The CESL will therefore not apply to the sales contract if the requirements are not fulfilled.93 The provisions of the CESL will be absolutely inapplicable – even by analogy – even if they would be appropriate to regulate the circumstances of the contract. The legislator has however changed its approach for related service contracts 60 as here there is no precise description of the essentialia negotii. Such contracts are not types of contract in the narrow sense but are rather to be considered as groups of contracts. As in many other definitions in EU law94 there is the need to refer to the definition of ‘service’. The drafters of the CESL have however attempted to substantiate this abstract and otherwise unsubstantial concept by giving examples of actions that fall under the category of a related service. The number of acts that are listed is limited by the requirement for the service to be related to the goods or digital content supplied under a sales contract or a contract for the supply of digital content. One can therefore see that the drafters have hidden a contract with a strong work and services element within this definition. The list in the definition is not exhaustive though art 2(m) CESL-Reg-D does exclude a number of particular service types as these would otherwise fall under the definition, e.g. training services, which indeed lack the aforementioned work element. These exceptions clearly show that the European legislator has taken into consideration a broad spectrum of possible contracts. The system

92 As favoured by Schlechtriem for the similar situation under the CISG, see Schwenzer (n 46) Intro to arts 14–24 para 66. 93 Schulze CESL/Wendehorst art 5 CESL-Reg-D para 14. 94 See above, paras 44–50.

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for service contracts is therefore not complete as the potential remains for an unlimited number of different forms of contracts. 60a One can ascertain from art 5(c) CESL-Reg-D that the CESL applies to related service contracts in which a separate price was or was not agreed. The wording is the result of an uncertainty concerning the positioning of the related service contract within the proposed legislation. In a formal sense, this contract is designed as a separate type, though in actual fact its link here to the sales contract or contract for the supply of digital content renders it a mixed contract. Consequently, one can observe that the CESL generally does not contain an independent service contract but rather that the service element merely serves as an addition to one of two main types of contracts. 61 It is only with some effort that one can consider a third contract, namely the contract for the supply of digital content, as a type of contract. It is a very heterogenous category that is determined by a specific object, namely digital content. The CESL describes the rights and duties under this contract in a very general manner. Furthermore, the CESL uses the term ‘supply’; this can encompass various different forms of performance such as the ‘access’ to data or a ‘transfer’ which allows data to be saved and retrieved. However, a particular problem arises in this regard as a result of the different language versions: it is not clear whether particular means of affording access to data will be excluded from the scope of the provision. Article 5 CESL-Reg-D Contracts for which the Common European Sales Law can be used (…) (b) contracts for the supply of digital content whether or not supplied on a tangible medium which can be stored, processed or accessed, and re-used by the user, irrespective of whether the digital content is supplied in exchange for the payment of a price. (…) Article 5 CESL-Reg-D Verträge, für die das Gemeinsame Europäische Kaufrecht verwendet werden kann (…) (b) Verträge über die Bereitstellung digitaler Inhalte gleich, ob auf einem materiellen Datenträger oder nicht, die der Nutzer speichern, verarbeiten oder wiederverwenden kann oder zu denen er Zugang erhält, unabhängig davon, ob die Bereitstellung gegen Zahlung eines Preises erfolgt oder nicht. (…)

The English version uses ‘re-used’ in relation to storage and processing, whereas in the German version it is just an alternative. This distinction could lead to different results in relation to streaming. 62 The European Parliament has also recognized the problem concerning the scope of these provisions and has made express reference to cloud computing in its proposed amendments.

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II. Types of Contract in the Acquis Communautaire Amendment 8 95 Proposal for a regulation Recital 17 a (new) Text proposed by the Commission

Amendment (17a) Cloud computing is developing rapidly and has great potential for growth. The Common European Sales Law provides a coherent set of rules adapted to the distance supply, and in particular the supply online, of digital content and related services. It should be possible for those rules to also apply when digital content or related services are provided using a cloud, in particular when digital content can be downloaded from the seller's cloud or temporarily stored in the provider's cloud.

The present wording of the Commission's proposal does not allow for clear 63 boundaries to be drawn for contracts for the supply of digital content. A noteworthy point is however the theory that the category of supply of digital content is so extensive that one can no longer refer to a ‘type’ of contract. One can even maintain that digital content concerns a general rule that is not directed towards specific types of contracts. Moreover, one may even be of the opinion that, for digital content, the proposed CESL regulates general contract law. The definition of a contract for the supply of digital services loses (perhaps fortunately) its function as a limitation of the scope of application. This does however give an entirely new dimension to the CESL – its rules have to be suitable not only for quasi-sales contracts but, furthermore, can encompass supply contracts and activity-based contracts, respectively. For this reason it is somewhat problematic as all of these contracts ought to be subjected to rules primarily aimed at sales law. On the other hand it may be an argument for a narrow interpretation of a contract for the supply of digital content, which would favour a limitation of the CESL's scope. This is a consequence of particular changes in the drafters' opinions on the role, future and political chances of the optional instrument. The regulation of digital content is not only covered in the proposed CESL 64 but is also part of the Consumer Rights Directive, which defines digital content as: Article 2 Consumer Rights Directive Defintions For the purpose of this Directive, the following definitions shall apply: (…) (11) ‘digital content’ means data which are produced and supplied in digital form; (…)

95 Unless indicated otherwise, all of the following amendments were adopted by the European Parliament on the 27 February 2014, P7_TA(2014)0159.

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The Consumer Rights Directive does not contain a rule concerning contracts for the supply of digital content. Such a category is only used in the Directive when the legislator has considered it justifiable to include separate rules for digital content (e.g. art 5(g) Consumer Rights Directive). 65 One can see that there is a clear tendency in EU law to attribute the supply of digital content to sales law. Moreover, this development shows an extensive change that not only impacts on the contract law of the Member States but has a profound effect on the existing structures in conventional copyright law. The ECJ recently voiced its view on this issue in the much discussed decision UsedSoft96. Case C–128/11 UsedSoft [2012] ECR I–nyr 1.

2.

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

In applying sales law to a contract for the supply of computer software the decision thus not only typifies a contractual relationship but also foresees a mandatory categorization under sales law. The parties thus lose the possibility to be free to arrange their legal relationship in a manner that ensures, as far as possible, the complete mobility of the digital content. III. Mixed Contracts and Contract Groups

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European contract law has generally avoided a typification of contracts and therefore the question has hardly been posed of how mixed contracts are to be treated. The European legislator has attempted to outline specific contractual situations, such as in the Distance Selling Directive97 or in the Doorstep Selling Directive98, each of which are now covered in the Consumer Rights Directive.

96 Case C–128/11 UsedSoft [2012] ECR I–nyr. 97 See art 2(7) Consumer Rights Directive for the definition of a ‘distance contract’. 98 See art 2(8) Consumer Rights Directive for the definition of an ‘off-premises contract’.

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III. Mixed Contracts and Contract Groups Article 2 Distance Selling Directive Definitions For the purposes of this Directive: (1) ‘distance contract’ means any contract concerning goods or services concluded between a supplier and a consumer under an organized distance sales or service-provision scheme run by the supplier, who, for the purpose of the contract, makes exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded; (…) Article 1 Doorstep Selling Directive [Scope of application] (1) This Directive shall apply to contracts under which a trader supplies goods or services to a consumer and which are concluded: – during an excursion organized by the trader away from his business premises, or – during a visit by a trader (i) to the consumer's home or to that of another consumer; (ii) to the consumer's place of work; where the visit does not take place at the express request of the consumer. (2) This Directive shall also apply to contracts for the supply of goods or services other than those concerning which the consumer requested the visit of the trader, provided that when he requested the visit the consumer did not know, or could not reasonably have known, that the supply of those other goods or services formed part of the trader's commercial or professional activities. (3) This Directive shall also apply to contracts in respect of which an offer was made by the consumer under conditions similar to those described in paragraph 1 or paragraph 2 although the consumer was not bound by that offer before its acceptance by the trader. (4) This Directive shall also apply to offers made contractually by the consumer under conditions similar to those described in paragraph 1 or paragraph 2 where the consumer is bound by his offer.

In order for the protection to apply under these circumstances it is thus gener- 68 ally irrelevant whether the consumer is bound by a particular type of contract.99 However, the ever increasing volume of rules in European contract law100 causes the aforementioned types of contracts (even with their specific functions) to become more widespread, thereby giving rise to the problem of how to treat mixed contracts in the acquis communautaire. Art 2(5) Consumer Rights Directive therefore contains the first EU rule concerning this problem.101 Art 2(5) Consumer Rights Directive regulates how a contract is to be treated 69 when it contains both sale and service elements. At first glance it would appear 99 See Contract II/Schulte-Nölke/Zoll Introductory Part xxiii, xxv; Zoll, ‘Typisierung von Verträgen’ (n 6). 100 Alpa, ‘Towards a European Contract Law’ in Schulze/Stuyck (eds), Towards an European Contract Law (Sellier 2011) 23, 23–33; Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009); Müller-Graff, ‘Der Introitus des optionalen Europäischen Kaufrechts: Das erste Kapitel im Kontext von Kodifikationskonzept und Primärrecht’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 51, 54 and n 13 on the numerous projects contributing to harmonization of European private law; MüKo BGB/Busche (2012) Vorbemerkung paras 47–48; Reding, ‘The Next Step Towards a European Contract Law for Businesses and Consumers’ in Schulze/Stuyck ibid 9, 9–20; Riesenhuber (n 3) paras 24–43, Introduction, 3, 3–4; Schulze/Stuyck, ‘An Introduction’ in Schulze/Stuyck ibid 3, 3–8. 101 See above, para 38.

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that this article adopts the absorption theory102 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 indicated: the first arises from the entirely pragmatic observation that the general application of sales law would lead to unreasonable results in contracts in which the service element plays the dominant role and the transfer of ownership is merely secondary (e.g. restricted to documentation). The second concerns the function of art 2(5) Consumer Rights Directive – the provision should not be viewed as a complete regulation of mixed contracts but rather merely as a norm outlining the scope of application of those provisions of the Directive which indirectly refer to the sales contract. It primarily concerns the rules in Chapter IV of the Directive which are specific to sales, but also other individual provisions elsewhere in the Directive e.g. art 9(2)(b) which determines the start of the withdrawal period. The final version of the Directive does not aim at comprehensive regulation of a sales contract which also contains features to be performed under other contract types; instead it attempts to use these simple means to determine the scope of application of the Directive's provisions. In other words the Directive does not contain a general rule for mixed contracts but only stipulates the application of individual rules.103 70 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.

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The DCFR offers a near complete regulation of the contractual relationships. In this case a rule pertaining to mixed contracts therefore has the task of determining the law applicable to the contract. Art II.–1:107 DCFR expresses a typi102 See above, para 39. 103 See Zoll, ‘Typisierung von Verträgen’ (n 6).

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cal approach (at least in the Germanic legal family) of supplementing the combination theory104 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 particularly illustrated in Book IV DCFR (specific contracts), which takes on the characteristic role of regulating service contracts, and for which the DCFR's authors have selected the method of grouping contracts. Book IV contains three chapters which concern service contracts: Part C focuses on services (in the narrow sense), Part D on mandate and Part E on commercial agency, franchise and distributorship. Each of these groups covers further types of contracts, such as construction, processing, storage etc. However, each part contains general rules and Part C serves as a type of ‘general part’ for the other parts (art IV. C.–1:103 DCFR); the provisions on mandate are in principle applicable subsidiarily to commercial agency, franchise and distribution contracts (art IV. E.–1:201 DCFR). The scope of application of a group of contracts is defined by a method that can be compared with concentric circles. Art IV. C.–1:101 DCFR serves as an example of this approach: Article IV. C.–1:101 DCFR Scope (1) This Part of Book IV applies: (a) to contracts under which one party, the service provider, undertakes to supply a service to the other party, the client, in exchange for a price; and (b) with appropriate adaptations, to contracts under which the service provider undertakes to supply a service to the client otherwise than in exchange for a price. (2) It applies in particular to contracts for construction, processing, storage, design, information or advice, and treatment.

One can observe under this provision that the relevant contracts are arranged 72 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 which considers the deviations from the basic model. Finally, the third circle covers the service contracts for which a service is provided other than in exchange for a price (art IV. C.–1:101(1)(b) DCFR). It is expressly stipulated that the rules of Book IV can be applied but with ‘appropriate adaptations’. 104 Gawlik (n 71) 25, 30.

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The three circles are not exhaustive in relation to the groups of rules which 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.

This provision is constructed under the same principle. The centre circle encompasses the contracts listed in art IV. C.–3:101(1), whereas the contracts listed in paragraph (2) fall within the outer circle. Similarly, further ‘service contracts’ are outlined. This method changes the concept of a mixed contract. The service contracts, which form a very broad and heterogenous category, cover very different types of contractual performance. Such a very open concept of a service contract means that the boundaries for this type of contract are very vague. However, this aspect results in a flexible concept that leaves relatively little room for unnamed and mixed contracts as many different contracts for various types of performance – and of varying intensity – will indeed fall under the broad definition of a service contract. Art IV. C.–1:101 DCFR is not directly applicable to mixed contracts within the group and, moreover, within all three ‘service’ groups. The internal structure of the rule on services is rather to be observed and the general rule on mixed contracts is only applicable when no solution can be found within this structure. Despite the conceptual similarity, the method adopted by the DCFR for mixed contracts differs from the approach influenced by Germanic-continental European legal systems (combination and absorption theory) as it refrains from a clear differentiation between the contracts. 74a The problem of mixed contracts also features greatly in the CESL. Its rule on mixed contracts shall fulfil 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.105 This function forms the basis of art 9 CESL-Reg-D. 74

Article 9 CESL-D Mixed-purpose contracts (1) Where a contract provides both for the sale of goods or the supply of digital content and for the provision of a related service, the rules of Part IV apply to the obligations and remedies of the

105 Zoll, ‘Typisierung von Verträgen’ (n 6).

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III. Mixed Contracts and Contract Groups parties as seller and buyer of goods or digital content and the rules of Part V apply to the obligations and remedies of the parties as service provider and customer. (2) Where, in a contract falling under paragraph 1, the obligations of the seller and the service provider under the contract are to be performed in separate parts or are otherwise divisible, then if there is a ground for termination for non-performance of a part to which a part of the price can be apportioned, the buyer and customer may terminate only in relation to that part. (3) Paragraph 2 does not apply where the buyer and customer cannot be expected to accept performance of the other parts or the non-performance is such as to justify termination of the contract as a whole. (4) Where the obligations of the seller and the service provider under the contract are not divisible or a part of the price cannot be apportioned, the buyer and the customer may terminate only if the non-performance is such as to justify termination of the contract as a whole.

In comparison to art II.–1:107 DCFR, art 9 CESL-D contains a rule exclu- 75 sively following the combination theory. However, the heart of the statement lies in the effect of terminating the contract. In terms of structure this approach is surprising because such a rule would rather be expected under those provisions which concern 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 have to confront two competing ideas underlying these types of contract. From a purely technical perspective the CESL names three separate types of contract: sales contract, contract for the supply of digital content, and the ‘related service’ contract. The CESL has almost entirely regulated the content of a contract for a ‘related service’ through the provisions on the consequences of non-performance (Part V). According to the CESL's structure the agreement of a sales contract and of a related service contract are to be viewed not as one contract but rather as two different contracts, although the CESL is not consistent in this concept. The aforementioned art 2(m) CESL-Reg-D requires the related service contract to be concluded at the same time, with the same object and between the same parties as for the sales contract or contract for the supply of digital content. It is frequently a mixed contract that is to be subjected to the combination theory. The drafters of the CESL have recognized the problem of the unclear relationship between the sales contract (or contract for supply of digital content) and the related service contract and have consequently included a separate rule for the termination of the contract: Article 147 CESL-D Application of certain general rules on sales contracts (1) The rules in Chapter 9 apply for the purposes of this Part. (2) Where a sales contract or a contract for the supply of digital content is terminated any related service contract is also terminated.

The title of this provision is somewhat misleading as it does not concern the application of specific rules for sales contracts but rather the application of pro-

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visions that are mainly devised for sales contracts, though also for service contracts. Art 147(2) CESL-D plays a particular role in relation to the aforementioned problem of mixed contracts. It contains a hidden exception to art 9(2) CESL-D which, for unknown reasons, was not included in art 9 CESL-D. This exception sets out that, in contrast to art 9(2) CESL-D, the termination of the contract leads to the termination of the related service contract. However, one can presume that art 9 CESL-D regulates all the various combinations between the ‘main contract’ and the related service contract. 76 Art 9 CESL-D is not only applicable to sales contracts and contracts for the supply of digital services in their relationship to a related service contract but, moreover, it also determines the relationship amongst the contracts covered by the CESL. This particularly applies when a mixed contract contains elements of both a sales contract and a contract for the supply of digital content. In such instances contracts may vary greatly in content since the contract for the supply of digital content is not clearly outlined. Unfortunately, giving priority in this case to the combination method under art 9 CESL-D will not always lead to a fair outcome as a part of the contract can dominate to such an extent that the absorption of the lesser part presents the only appropriate solution. 77 The CESL does however contain a different perspective in relation to mixed contracts. Art 6 CESL-Reg-D generally excludes mixed contracts from the scope of this proposed regulation. Article 6 CESL-Reg-D Exclusion of mixed-purpose contracts and contracts linked to a consumer credit (1) The Common European Sales Law may not be used for mixed-purpose contracts including any elements other than the sale of goods, the supply of digital content and the provision of related services within the meaning of Article 5. (2) The Common European Sales Law may not be used for contracts between a trader and a consumer where the trader grants or promises to grant to the consumer credit in the form of a deferred payment, loan or other similar financial accommodation. The Common European Sales Law may be used for contracts between a trader and a consumer where goods, digital content or related services of the same kind are supplied on a continuing basis and the consumer pays for such goods, digital content or related services for the duration of the supply by means of instalments.

One can see that paragraph (1) contains the rule that parties do not have the possibility to select the CESL when a contract contains elements which do not fall under any category given under art 5 CESL-Reg-D. This purely political decision prevents an uncontrolled extension of the scope of the legislation, though it is a rather unconvincing method of doing so. This is especially so as the category of mixed contracts is not sufficiently clear-cut and there are great variations in the relationships between the contracts actually concluded and the type outlined by the legislator.106 One has to bear in mind that a contract will seldom fit 106 Andrés Santos (n 38), 5; Pecyna/Zoll, ‘Założenia projektu struktury części szczegółowej zobowiązań.W poszukiwaniu nowego modelu’ [2012] Transformacje Prawa Prywatnego 25, 27; Zoll ‘Typisierung von Verträgen’ (n 6).

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within the framework given by legislation,107 thus it is hardly feasible that the scope of application foreseen for the CESL depends on art 5 CESL-Reg-D. Close adherence to the wording of this article could, for example, have the effect that the CESL will not cover a sales contract with the separately agreed obligation for the seller to deliver the goods to the buyer's home. In this example the contract combines obligations belonging to different types of contract: the delivery of the goods does not belong to the sales contract but could rather qualify as a service contract that is related to the sales contract. However, as art 2(m)(i) CESL-Reg-D stipulates that the CESL does not cover transport services one must therefore presume that the contract in this example will not fall within the CESL's scope of application. This presumption is incorrect as the CESL contains a number of provisions that cover such a scenario (e.g. art 94 CESL-D) thus clearly indicating that the CESL was intended to apply to such circumstances. Nevertheless, this example shows the difficulties in trying to determine the scope of an instrument by excluding mixed contracts. Art 6(2) CESL-Reg-D reflects an attempt by the drafters to exclude a specific 77a category of ‘mixed’ contracts from the scope of the proposal: consumer contracts in which the consumer is granted credit. This provision was included because the CESL should not suppress the application of the national laws implementing the Consumer Credit Directive. Although good reasons exist for incorporating such an exception, its implementation in the provision has rather been unsuccessful. It is hardly conceivable that an agreement on advance performance by the business would suffice to exclude the application of the CESL. This rule does not contain a degree of differentiation that is required in order to distinguish a deferred payment which does not serve as finance or credit. Changes to this article were to be expected due to the problems it would cre- 78 ate. The European Parliament has now proposed that national law is to be applied to contracts that are not listed under art 5 CESL-Reg-D. Amemdment 64 Proposal for a Regulation Article 6 – paragraph 1 Text proposed by the Commission (1) The Common European Sales Law may not be used for mixed purpose contracts including any elements other than the sale of goods, the supply of digital content and the provision of related services within the meaning of Article 5.

Amendment (1) The Common European Sales Law may also be used for:

a) cases where a contract governed by the Common European Sales Law is linked to a contract other than a sales contract, a contract for the supply of digital content or a related service contract, or

107 Staudinger BGB/Feldmann/Löwisch (2012) § 311 paras 30–51; Rott-Pietrzyk, ‘Systematyka części szczegółowej zobowiązań a miejsce umów o pośrednictwo sensu largo’ [2012] Transformacje Prawa Prywatnego 41, 43.

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Chapter 2 Core Elements b) cases where a contract includes any elements other than the sale of goods, the supply of digital content or the provision of related services within the meaning of Article 5, provided those elements are divisible and their price can be apportioned.

Amendment 65 Proposal for a regulation Article 6 – paragraph 1 a (new) Text proposed by the Commission

Amendment (1a) In the cases referred to in point (a) of paragraph 1, the linked contract shall be governed by the otherwise applicable law.

IV. Freedom of Contract 79

The principle of freedom of contract108 appears to also be self-evident in the European context.109 This is clearly stated by the CESL:110 Article 1 CESL-D Freedom of contract (1) Parties are free to conclude a contract and to determine its contents, subject to any applicable mandatory rules. (2) Parties may exclude the application of any of the provisions of the Common European Sales Law, or derogate from or vary their effects, unless otherwise stated in those provisions.

1. Non-mandatory and mandatory law 80

The DCFR also highlights the principle of freedom of contract in its art II.– 1:102: 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.

108 On freedom of contract as the CESL's guiding principle see Schmidt-Kessel CESL/SchmidtKessel Einleitung CESL-Reg-D para 4. 109 Wagner, ‘Zwingendes Vertragsrecht’ in Eidenmüller et al. (n 35) 1, 2–3. 110 On freedom of contract in the CESL see Schmidt-Kessel, ‘Der Vorschlag der Kommission für ein Optionales Instrument – Einleitung’ in Schmidt-Kessel (n 100) 1, 2.

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In contrast, the Acquis Principles do not contain a general rule that expresses 81 the principle of freedom of contract or party autonomy.111 Art 1:203 ACQP merely contains a rule outlining the requirements for the mandatory nature of rules protecting a consumer: 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 82 attempts to indirectly determine the boundaries of contractual freedom. One can see that not all of the Acquis Principles are mandatory (or cannot be modified to the consumer's disadvantage) even though their effect is to protect the consumer in a particular situation.112 According to these rules, only those provisions directly addressed to the consumer can be prejudicial, i.e. the notion of the consumer is assumed by the norm. One can therefore conclude that the authors of the Acquis Principles generally intended the Principles to be of a non-mandatory nature. Many sources113 of European private law contain similar provisions stipulat- 83 ing the mandatory effect of certain aspects of consumer protection. An illustrative example is given by art 25 Consumer Rights Directive: Article 25 Consumer Rights Directive Imperative nature of the Directive If the law applicable to the contract is the law of a Member State, consumers may not waive the rights conferred on them by the national measures transposing this Directive. Any contractual terms which directly or indirectly waive or restrict the rights resulting from this Directive shall not be binding on the consumer.

This article only ascertains that all of the rules arising from this Directive can 84 not be changed to the consumer's disadvantage. It is, however, not possible to ascertain from this provision whether the European legislator has taken the principle of freedom of contract as its foundation, though the drafters of the Directive have certainly acted on the basis that the contract law of the Member States has been built with this principle as the cornerstone. Nevertheless, it cannot be stated just in this context that the principle of freedom of contract is a tenet of 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.114 111 112 113 114

Wagner (n 109) 4. ibid 49. As in the proposal for a Consumer Rights Directive, see ibid 4–6. See Chapter 3 para 2.

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According to Grigoleit115 the European legislator does not have the competence to pass non-mandatory (‘dispositive’) law116 as provisions of this kind are neither of significance for the creation of the internal market117 nor do they fall under the competence118 afforded by art 114 TFEU.119 However, one cannot accept this view as it is inaccurate for the harmonization of non-mandatory law to be of no actual significance for the creation of the internal market. Non-mandatory law is to be seen as the guiding model for the legislator's notion of justice and considered as giving direction to the control of contract terms. The harmonization of such law therefore plays an indispensable role in the harmonization of contract law and thus ultimately in creating the internal market. 86 Several directives contain non-mandatory provisions. An interesting example is given by the Consumer Sales Directive: 85

Article 7 Consumer Sales Directive Binding nature (1) Any contractual terms or agreements concluded with the seller before the lack of conformity is brought to the seller's attention which directly or indirectly waive or restrict the rights resulting from this Directive shall, as provided for by national law, not be binding on the consumer. Member States may provide that, in the case of second-hand goods, the seller and consumer may agree contractual terms or agreements which have a shorter time period for the liability of the seller than that set down in Article 5(1). Such period may not be less than one year. (…) 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.

87

Art 4 Consumer Sales Directive concerns the legal relationships between businesses and protects the final seller from the risk of bearing the costs of consumer protection. However, art 4 is not covered by art 7 Consumer Sales Directive. Literal interpretation of the Directive therefore allows the argument that the Member States are free to use mandatory or non-mandatory provisions to implement the claims to redress. The question can be posed whether it is true that the

115 Grigoleit, ‘Der Entwurf für ein Gemeinsames Europäisches Kaufrecht; Funktionsbedingungen, EU-Kompetenz und Perspektiven’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 67. 116 ibid 77–78. 117 ibid 78. 118 With respect to the choice of art 114 TFEU as the legislative basis and the contrary view that art 352 TFEU should have been the legal basis see Schmidt Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D paras 23–36. 119 Grigoleit (n 115) 81.

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national legislator is free to choose to design the implemented norm as fully or partially mandatory. Minimum harmonization applies to this Directive: Article 8 Consumer Sales Directive National law and minimum protection (1) The rights resulting from this Directive shall be exercised without prejudice to other rights which the consumer may invoke under the national rules governing contractual or non-contractual liability. (2) Member States may adopt or maintain in force more stringent provisions, compatible with the Treaty in the field covered by this Directive, to ensure a higher level of consumer protection.

Minimum harmonization allows the Member States to exceed the level of protection afforded by the Directive. However, according to art 8 Consumer Sales Directive this only concerns the level of consumer protection. As art 4 Consumer Sales Directive does not concern consumer protection one could consider that, in this instance, the national legislator only has implementary freedom arising from the provision itself. The consequence may therefore be that the dispositive nature of the rule would even be mandated by the Directive 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 transposition120 (which only affords the parties a very limited possibility to deviate from this rule) would breach of the Directive. This conclusion would however go too far. The teleological interpretation of art 4 Consumer Sales Directive would allow one to draw the conclusion that the purpose of protecting the (often weaker) final seller from bearing all liability could hardly be achieved if there were no limitations on excluding the application of this rule. For this reason one can rather presume that the provision allows, at least implicitly, the national legislator to place restrictions on the dispositive nature of this rule. However, it may even be possible that an implementation allowing absolute exclusion of this rule would not breach the Directive. The Payment Services Directive also contains numerous provisions that can 87a be categorized as non-mandatory law. The dispositive nature of these provisions is primarily founded by the express stipulation in the Directive of mandatory rules protecting consumers, e.g. art 30(1) Payment Services Directive: Article 30 Payment Services Directive Scope (1) This Title shall apply to single payment transactions, framework contracts and payment transactions covered by them. The parties may agree that it shall not apply in whole or in part when the payment service user is not a consumer. (2) Member States may provide that the provisions in this Title shall be applied to micro enterprises in the same way as to consumers. (…)

120 § 478 BGB.

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Art 30 Payment Services Directive clearly expresses that, with the exception of consumer protection, all provisions covered by this article are non-mandatory. However, this Directive represents an exception in European contract law because it does not simply supplement particular aspects of national law but rather represents a complete set of rules for this area. In this case the set of rules is ‘self-supporting’, i.e. it has to practically be implemented as a whole into national law, and therefore it does not just need mandatory rules but also a system of dispositive rules to define and shape the area of law. The European legislator has however allowed the Member States to waive the non-mandatory nature of these rules and to assimilate them with the consumer protection standards, even outside of consumer law. 2. Limitiations on contract drafting by controlling contract terms 88

European contract law may only selectively limit the boundaries of contractual freedom by requiring the Member States to implement mandatory law, but at the same time it also adopts a different approach to restricting the freedom of contract, namely through the control of non-negotiated contract terms in consumer contracts.121 Only the basic features of the regulatory system will be discussed here as this issue will be considered in more detail below.122 This system is primarily shaped by the Unfair Terms Directive. Article 3 Unfair Terms Directive [Terms not individually negotiated] (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. (2) A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. (3) The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair.

89

This provision plays a specific role in European legislation because it expresses the substantive requirement for the limitations of party autonomy. The European legislator presumes that this control is necessary if the terms of the contract are given to the consumer either as part of pre-formulated standard terms or with the intention of single use. The consumer is not worthy of protection when it can influence the content of the term during the conclusion of the contract. 121 Jansen (n 37) 53–107. 122 See Chapter 4.

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It can be considered to be a paradox that the European legislator appears to be 90 less active in B–B contracts; it has been through the Late Payment Directive, albeit in a relatively narrow area of law. Article 7 Late Payment Directive Unfair contractual terms and practices (1) Member States shall provide that a contractual term or a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is either unenforceable or gives rise to a claim for damages if it is grossly unfair to the creditor. In determining whether a contractual term or a practice is grossly unfair to the creditor, within the meaning of the first subparagraph, all circumstances of the case shall be considered, including: (a) any gross deviation from good commercial practice, contrary to good faith and fair dealing; (b) the nature of the product or the service; and (c) whether the debtor has any objective reason to deviate from the statutory rate of interest for late payment, from the payment period as referred to in Article 3(5), point (a) of Article 4(3), Article 4(4) and Article 4(6) or from the fixed sum as referred to in Article 6(1). (2) For the purpose of paragraph 1, a contractual term or a practice which excludes interest for late payment shall be considered as grossly unfair. (3) For the purpose of paragraph 1, a contractual term or a practice which excludes compensation for recovery costs as referred to in Article 6 shall be presumed to be grossly unfair. (4) Member States shall ensure that, in the interests of creditors and competitors, adequate and effective means exist to prevent the continued use of contractual terms and practices which are grossly unfair within the meaning of paragraph 1. (…)

The Late Payment Directive applies exclusively to B–B contracts. Art 7 Late Payment Directive creates a basis for the control of contract terms which determine the period for payment, however this control can even be carried out when the term has been negotiated by the parties. 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, however, form an explicit part of this list. In this instance the European legislator has attempted to set the boundaries of contractual freedom with the aid of a ‘flexible system’. 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 in practice to ascertain 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

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the influence under consideration of the factors listed in art 7 Late Payment Directive. 3. Freedom of contract in selecting the CESL

Art 1 CESL-D expresses the principle of freedom of contract. At first glance this is a self-evident requirement in order to make a system of contract law available to the parties. Moreover, the concept of party autonomy continues to remain an influential principle of the law of contract in the national legal systems. In light of such fundamental importance of contractual freedom and party autonomy it is therefore necessary for these undisputed guiding principles to be clearly expressed in a set of rules on European contract law. 91a The principle of freedom of contract in the CESL is however of further significance due to the optional nature of this proposed instrument: the characteristic as an optional instrument123 of European sales law could thus mean that the parties may first ‘enjoy’ contractual freedom after they have selected this legislative option. In contrast, one should speak of freedom of contract as existing on two levels: choice of law and choice of content. The possibility to select the European sales law arises from the European legislator's intention to allow the parties to choose between two different systems of contract law within the national legal system. The parties therefore gain the possibility to exclude even the mandatory provisions of one of these systems, though with the consequence of being subjected to the mandatory provisions of the other. However, effectively selecting the optional instrument is subject to the particular requirements given therein. These requirements arise not only from the limitations the CESL has placed on its scope of application but also from the intention to ensure that the instrument has been chosen on the basis of a conscious and free decision, especially in relation to consumers. 92 The choice of the CESL, as well as the general limitations, are stated in art 3 CESL-Reg-D. 91

Article 3 CESL-Reg-D Optional nature of the Common European Sales Law The parties may agree that the Common European Sales Law governs their cross-border contracts for the sale of goods, for the supply of digital content and for the provision of related services within the territorial, material and personal scope as set out in Articles 4 to 7.

93

The ability to choose the optional European sales law is a particular form of expressing the principle of party autonomy. This principle does not only concern the substantive law of the national legal systems but also the rules on the conflict of laws. However, with respect to the optional instrument, the competence lies with the parties and is not assigned to either substantive law or international law 123 Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law’ COM (2011) 635 final, 10.

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on the conflict of laws. It is rather a competence that is ‘conflict of laws’ in nature but falls within the scope of the applicable substantive law. This is not an entirely new concept as the CISG is also an example of an optional instrument, though one based on an opt-out approach, i.e. the parties have to actively exclude the application of the CISG if it would otherwise be applicable to the contract.124 This autonomy, which falls between the autonomy in the choice of laws and 94 the freedom of contract in substantive law, is not an obligatory principle of a liberal society. Exercising the freedom of self-determination in the context of private law merely requires the substantive law to make such space available within its framework. This freedom has to fulfil the pragmatic function of compensating for the lack of uniform law in Europe. The boundaries of this freedom therefore have to primarily perform the political and constitutional task of further legal unification in Europe without officially suppressing the national legal systems and making changes to their content. The limitations in art 3 CESLReg-D on the possibility to select the European sales law thus serve to ensure that the needs of subsidiarity are upheld when legislating at EU level125. Art 3 CESL-Reg-D names three categories of such limitations: the territorial, 95 material, and personal scope. a) Territorial scope

Art 4 CESL-Reg-D contains the more detailed requirements concerning the 96 territorial application of the CESL: Article 4 CESL-Reg-D Cross-border contracts (1) The Common European Sales Law may be used for cross-border contracts. (2) For the purposes of this Regulation, a contract between traders is a cross-border contract if the parties have their habitual residence in different countries of which at least one is a Member State. (3) For the purposes of this Regulation, a contract between a trader and a consumer is a cross-border contract if: (a) either the address indicated by the consumer, the delivery address for goods or the billing address are located in a country other than the country of the trader's habitual residence; and (b) at least one of these countries is a Member State. (4) For the purposes of this Regulation, the habitual residence of companies and other bodies, corporate or unincorporated, shall be the place of central administration. The habitual residence of a trader who is a natural person shall be that person's principal place of business. (5) Where the contract is concluded in the course of the operations of a branch, agency or any other establishment of a trader, the place where the branch, agency or any other establishment is located shall be treated as the place of the trader's habitual residence.

124 One can presume that the choice of the CESL will impliedly exclude the application of the CESL, see Schmidt Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D para 52. 125 The proposal generally accords with the principle of subsidiarity anchored in art 5 TFEU, see COM (2011) 635 final (n 123), 9–10.

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Chapter 2 Core Elements (6) For the purpose of determining whether a contract is a cross-border contract the relevant point in time is the time of the agreement on the use of the Common European Sales Law.

According to this provision, the valid selection of the CESL by the parties requires the contract to be cross-border in nature.126 The CESL shall therefore not be applicable to purely domestic contracts unless the Member State has otherwise chosen to extend the application of the CESL in this respect: Article 13 CESL-Reg-D Member States' options A Member State may decide to make the Common European Sales Law available for: (a) contracts where the habitual residence of the traders or, in the case of a contract between a trader and a consumer, the habitual residence of the trader, the address indicated by the consumer, the delivery address for goods and the billing address, are located in that Member State; (…)

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The application of the optional instrument further requires that at least one of the parties has its habitual residence in a Member State (art 4(2) CESL-Reg-D). For consumers, however, this requirement is satisfied by the rather loose links made by the delivery address, billing address or the address indicated by the consumer.127 In practice it will be relatively easy to circumvent the requirement of a ‘cross-border contract’ in consumer contracts as these criteria can be easily fulfilled even in purely domestic contracts.128 b) Material scope

Art 5 CESL-Reg-D outlines the CESL's material scope of application:

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Article 5 CESL-Reg-D Contracts for which the Common European Sales Law can be used The Common European Sales Law may be used for: (a) sales contracts; (b) contracts for the supply of digital content whether or not supplied on a tangible medium which can be stored, processed or accessed, and re-used by the user, irrespective of whether the digital content is supplied in exchange for the payment of a price. (c) related service contracts, irrespective of whether a separate price was agreed for the related service.

The material scope, and thus the extent of the freedom to choose the CESL, is limited by the reference to particular types of contract. This issue has been discussed in more detail as part of the above analysis of typification of contracts.129 It is therefore only to be noted here that the types of contracts listed in art 5 CESL-Reg-D, as well as the limitations listed in art 6 CESL-Reg-D (mixed-purpose contracts), determine the boundaries of contractual freedom in relation to the selection of the CESL.130 126 127 128 129

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ibid 9; Schmidt-Kessel CESL/Schmidt-Kessel art 4 CESL-Reg-D para 1. ibid para 11. ibid para 12. See above, paras 51–63.

IV. Freedom of Contract

c) Personal scope

The personal scope of application is the final element of the limitations on the 99 application of the CESL. The requirements are given in art 7 CESL-Reg-D: Article 7 CESL-Reg-D Parties to the contract (1) The Common European Sales Law may be used only if the seller of goods or the supplier of digital content is a trader. Where all the parties to a contract are traders, the Common European Sales Law may be used if at least one of those parties is a small or medium-sized enterprise (‘SME’). (2) For the purposes of this Regulation, an SME is a trader which (a) employs fewer than 250 persons; and (b) has an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million, or, for an SME which has its habitual residence in a Member State whose currency is not the euro or in a third country, the equivalent amounts in the currency of that Member State or third country.

Art 7 CESL-Reg-D is burdened with many insufficiencies. One can first note 100 that the CESL can be selected in respect of three formats: business with consumer;131 business with a party who is not a consumer; business with business.132 It is necessary for either the seller or supplier to be a business;133 the sale of a good by a consumer to a business would not fall under the scope of the CESL and therefore the instrument could not govern the contract. Art 7 CESL-Reg-D also allows for B–B contracts to fall within the scope of 101 the legislation.134 However, this provision contains a further, extensive restriction: one of the businesses has to be a SME, though it is irrelevant whether it plays the role of either the seller/supplier or the buyer.135 The SME classification is subject to the criteria outlined in art 7(2)(b) CESL-Reg-D. One can maintain that this concept is entirely unsuitable for the purposes of a European sales law and, from the perspective of the parties' interests in a sales contract, that these criteria are absolutely irrelevant. For instance, why should the choice of the CESL for a contract for the sale of pencils depend on the business' annual turnover or the number of employees? The reason for the decision to include such an exception arises from the principle of subsidiarity.136 The aim was perhaps to alleviate the competition with the CISG by directing the CESL to a somewhat different group. Here one has to bear in mind that the CESL was designed with standard, mass contracts as a basis, whereas the CISG is more concerned with greater transactions that are tailored to the transaction’s individual 130 131 132 133 134

Schulze CESL/Wendehorst art 5 CESL-Reg-D para 1. COM (2011) 635 final (n 123); EP Legislative Resolution (n 45) amendment 70. COM (2011) 636 final (n 17) 8. Schmidt-Kessel CESL/Schmidt-Kessel art 7 CESL-Reg-D para 2. COM (2011) 635 final (n 123), which contains express reference to SMEs; EP Legislative Resolution (n 45) amendment 70. 135 On the objective to promote SMEs see Schmidt-Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D para 17. 136 See above, n 124.

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requirements. The proposed amendment stated above rightfully intends to exclude the SME requirement suggested by the Commission. 102 The CESL includes the possibility for the Member States to forego the SME requirement:137 Article 13 CESL-Reg-D Member States' options A Member State may decide to make the Common European Sales Law available for: (…) (b) contracts where all the parties are traders but none of them is an SME within the meaning of Article 7(2).

Art 7 CESL-Reg-D does not contain an express reference to consumer contracts. The scope of application as well as the freedom to choose the instrument are determined by the role played by the business. As a result art 7 CESL-Reg-D also contains the situation in which a contract is concluded between a business and a party who is neither a consumer nor a business. Such instances concerns bodies that are not individuals but also do not pursue commercial aims, for example clubs or societies. However, a problem arises as the CESL has generally tailored its rules to B–B or B–C contracts and therefore corrections will be necessary during the legislative process. 104 In addition to outlining the requirements underlying the choice of the CESL (art 3 CESL-Reg-D138), the CESL also contains criteria determining the validity of the agreement on the use of the CESL: 103

Article 8 CESL-Reg-D Agreement on the use of the Common European Sales Law (1) The use of the Common European Sales Law requires an agreement of the parties to that effect. The existence of such an agreement and its validity shall be determined on the basis of paragraphs 2 and 3 of this Article and Article 9, as well as the relevant provisions in the Common European Sales Law. (2) In relations between a trader and a consumer the agreement on the use of the Common European Sales Law shall be valid only if the consumer's consent is given by an explicit statement which is separate from the statement indicating the agreement to conclude a contract. The trader shall provide the consumer with a confirmation of that agreement on a durable medium. (3) In relations between a trader and a consumer the Common European Sales Law may not be chosen partially, but only in its entirety.

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The CESL does not contain any specific requirements in relation to how the agreement is made on the choice of the instrument in a B–B contract. Only the general requirements for the conclusion of the contract (and on the inclusion of general terms) have to be observed. The question whether the parties' choice of the CESL is valid is also to be decided on the basis of the CESL and not by national law.

137 Schmidt-Kessel CESL/Schmidt-Kessel Einleitung CESL-Reg-D para 49. 138 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D paras 1–4.

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Stricter requirements are in place for B–C contracts:139 the statement on the 106 application of the CESL has to be given by the consumer in an eligible manner and form in order to ensure that the consumer has made a conscious decision on the application of the CESL.140 This rule shall avoid that national contract law is ousted by, for example, the inclusion of standard terms and conditions that the consumer has not noticed. The drafters of the CESL have therefore included extensive information duties for the business in order to ensure the freedom of the consumer's decision in selecting the CESL. In this respect the consumer has to be provided with a ‘Standard Information Notice’:141 Article 9 CESL-Reg-D Standard Information Notice in contracts between a trader and a consumer (1) In addition to the pre-contractual information duties laid down in the Common European Sales Law, in relations between a trader and a consumer the trader shall draw the consumer's attention to the intended application of the Common European Sales Law before the agreement by providing the consumer with the information notice in Annex II in a prominent manner. Where the agreement to use the Common European Sales Law is concluded by telephone or by any other means that do not make it possible to provide the consumer with the information notice, or where the trader has failed to provide the information notice, the consumer shall not be bound by the agreement until the consumer has received the confirmation referred to in Article 8(2) accompanied by the information notice and has expressly consented subsequently to the use of the Common European Sales Law. (2) The information notice referred to in paragraph 1 shall, if given in electronic form, contain a hyperlink or, in all other circumstances, include the indication of a website through which the text of the Common European Sales Law can be obtained free of charge.

This information notice142 (included in Annex II of the CESL) contains a 107 brief description of the legal consequences arising from the use of instrument: ANNEX II STANDARD INFORMATION NOTICE The contract you are about to conclude will be governed by the Common European Sales Law, which is an alternative system of national contract law available to consumers in cross-border situations. These common rules are identical throughout the European Union, and have been designed to provide consumers with a high level of protection. These rules only apply if you mark your agreement that the contract is governed by the Common European Sales Law. You may also have agreed to a contract on the telephone or in any other way (such as by SMS) that did not allow you to get this notice beforehand. In this case the contract will only become valid after you have received this notice and confirmed your consent. Your core rights are described below. THE COMMON EUROPEAN SALES LAW: SUMMARY OF KEY CONSUMER RIGHTS Your rights before signing the contract The trader has to give you the important information on the contract, for instance on the product and its price including all taxes and charges and his contact details. The information has to be more detailed when you buy something outside the trader's shop or if you do not meet the trader personal-

139 140 141 142

Schmidt-Kessel CESL/Schmidt-Kessel arts 8, 9 CESL-Reg-D paras 13, 20–23. ibid para 20. COM (2011) 636 final (n 17) 10. Schmidt-Kessel CESL/Schmidt-Kessel arts 8, 9 CESL-Reg-D para 24.

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Chapter 2 Core Elements ly at all, for instance if you buy online or by telephone. You are entitled to damages if this information is incomplete or wrong. Yours rights after signing the contract In most cases you have 14 days to withdraw from the purchase if you bought the goods outside the trader's shop or if you have not met the trader up to the time of the purchase (for instance if you bought online or by telephone). The trader must provide you with information and a Model withdrawal form. If the trader has not done so, you can cancel the contract within one year. What can you do when products are faulty or not delivered as agreed? You are entitled to choose between: 1) having the product delivered 2) replaced or 3) repaired. 4) Ask for a price reduction. 5) You can cancel the contract, return the product and get a refund, except if the defect is very small. 6) You can claim damages for your loss. You do not have to pay the price until you get the product without defects. If the trader has not performed a related service as promised in the contract, you have similar rights. However, after you have complained to the trader, he normally has the right to first try to do the job correctly. Only if the trader fails again you have a choice between 1) asking the trader again to provide the related service, 2) not paying the price until you get the related service supplied correctly, 3) requesting a price reduction or 4) claiming damages. 5) You can also cancel the contract and get a refund, except if the failure in providing the related service is very small. Period to claim your rights when products are faulty or not delivered as agreed: You have 2 years to claim your rights after you realise or should have realised that the trader has not done something as agreed in the contract. Where such problems become apparent very late, the last possible moment for you to make such a claim is 10 years from the moment the trader had to deliver the goods, supply the digital content or provide the related service. Unfair terms protection: Trader's standard contract terms which are unfair are not legally binding for you. This list of rights is only a summary and therefore not exhaustive, nor does it contain all details. You can consult the full text of the Common European Sales Law here. Please read your contract carefully. In case of dispute you may wish to ask for legal advice.

The question is thus posed of why it is considered necessary to provide the consumer with this information. If a foreign law were to be selected, a business will generally not be required to provide a consumer with information about the content of the law even though the average consumer will probably have even lesser knowledge than of its own domestic law. The duty to inform therefore appears to arise from the perception that the optional instrument is inferior to national law. It is not about inferior quality but rather the view that the text is not backed by a guarantee of justice that develops from each national legal system, at least from a formal perspective. However, this differentiation is not convincing. The CESL will also be an intrinsic part of national law. It therefore has to be debated whether to abolish such a duty to inform the consumer each time the CESL is chosen. 109 The CESL-Reg-D contains a further restriction of the possibility to exercise free choice when selecting the European sales law. Parties to a consumer contract are not afforded with a right to only select the CESL in order to clarify particular questions surrounding their legal relationship. The dépeçage well known in the conflict of laws is expressly prohibited when selecting the CESL in order to prevent ‘cherry picking’: 108

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IV. Freedom of Contract Article 8 CESL-Reg-D Agreement on the use of the Common European Sales Law (…) (3) In relations between a trader and a consumer the Common European Sales Law may not be chosen partially, but only in its entirety.

The European Parliament has proposed modifications to this rule by deter- 110 mining certain requirements for the partial selection in B–B contracts. Amendment 72 Proposal for a regulation Article 8 – paragraph 3 Text proposed by the Commission (3) In relations between a trader and a consumer the Common European Sales Law may not be chosen partially, but only in its entirety.

Amendment (3) In relations between a trader and a consumer the Common European Sales Law may not be chosen partially, but only in its entirety. In relations between traders, the Common European Sales Law may be chosen partially, provided that exclusion of the respective provisions is not prohibited therein.

The valid selection of the optional instrument gives rise to the question of the 111 significance of freedom of contract within the system itself, i.e. the second level of freedom of contract. Although art 1 CESL-D anchors the principle of freedom of contract, the parties' drafting freedom is however relatively narrow. These boundaries are set by the rigidity of the material scope of application. Although one can presume that the CESL's provisions are generally dispositive in nature, it is however a presumption that, strictly speaking, can only be made for the types of contracts covered by the CESL. Merely exceeding these boundaries will not lead to a sanction or ineffectiveness but will result solely in the non-application of the optional instrument. The simple fact that the contract is a consumer contract will not determine the 112 mandatory nature of the consumer protection rules. There is no general rule corresponding to art 1:203 ACQP143. The Acquis Principles state that all consumerspecific norms are mandatory, i.e. all rules directly naming the consumer in their scope of application. In theory there can be deviations from the consumer-specific norms and, for this reason, the CESL explicitly states which provisions are mandatory. However, one cannot find a consumer-specific rule in the CESL which is not designed to be non-mandatory in nature.

143 See above, para 81.

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An example of such wording is given in art 22 CESL-D, which refers to the pre-contractual information duties: Article 22 CESL-D Mandatory nature The parties may not, to the detriment of the consumer, exclude the application of this Section or derogate from or vary its effects.

The entire effect of this rule does not emerge from the wording of this provision. In particular, the extent of time considerations on the mandatory effect is not clear: can the consumer later, e.g. in a settlement, refrain from the protection offered by this provision? The second sentence of art 1:203(1) ACQP contains such wording which could benefit a provision such as art 22 CESL-D. Article 1:203 ACQP Mandatory nature of consumer rules (1) (…) This does not apply to contracts which settle an existing dispute. (…)

This clarifies that in event of a dispute parties are free to negotiate on the rights and duties arising from mandatory provisions and, if necessary, change them. Settlements would hardly be possible without such a possibility. It is to be presumed that the mandatory rules in the CESL also do deny such an approach. 114 The CESL contains a definition of mandatory rules: Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (…) (v) ‘mandatory rule’ means any provision the application of which the parties cannot exclude, or derogate from or the effect of which they cannot vary; (…)

Presumably, the drafters do not want to exclude the possibility to modify the rights and duties arising from mandatory rules in the event of an agreement (settlement) serving to resolve a dispute. This problem will particularly arise in the ADR promoted by the EU. 115 A central role is also played by the question of the parties' negotiating strength: Article 7 CESL-D Not individually negotiated contract terms (1) A contract term is not individually negotiated if it has been supplied by one party and the other party has not been able to influence its content. (2) Where one party supplies a selection of contract terms to the other party, a term will not be regarded as individually negotiated merely because the other party chooses that term from that selection.

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IV. Freedom of Contract (3) A party who claims that a contract term supplied as part of standard contract terms has since been individually negotiated bears the burden of proving that it has been. (4) In a contract between a trader and a consumer, the trader bears the burden of proving that a contract term supplied by the trader has been individually negotiated. (…)

The provision has been placed in the CESL's general provisions rather than in 116 the chapter on unfair contract terms. This decision requires justification as merely the concept of ‘non-negotiation’ is the requirement allowing for the control of the term: Article 83 CESL-D Meaning of ‘unfair’ in contracts between a trader and a consumer (1) In a contract between a trader and a consumer, a contract term supplied by the trader which has not been individually negotiated within the meaning of Article 7 is unfair for the purposes of this Section if it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer, contrary to good faith and fair dealing. (…) Article 86 CESL-D Meaning of ‘unfair’ in contracts between traders (1) In a contract between traders, a contract term is unfair for the purposes of this Section only if: (a) it forms part of not individually negotiated terms within the meaning of Article 7; and (…)

The prominence given to art 7 CESL-D through structural separation was pre- 117 sumably intended to express that the issue of influencing the content of the contract is an underlying aspect justifying the freedom of contract. There are initially no far-reaching consequences that could extend beyond the system of the control of unfair terms, though this does not mean that art 7 CESL-D shall be a purely programmatic norm. It names precise criteria for the negotiation, which is determined by the possibility to influence the content of the contract. A characteristic of the negotiation is linked to the concept of standard terms, which play a subordinate role in this system. It is generally presumed that terms are not individually negotiated in a consumer contract, irrespective of whether or not the contract was concluded through the use of standard terms. This approach differs from the rule in the Unfair Terms Directive in which the presumption of nonnegotiation in consumer contracts is linked to the use of standard terms: Article 3 Unfair Terms Directive [Terms not individually negotiated] (2) (…) 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. (…)

Such a presumption under the CESL is only triggered when standard terms 118 are used in a non-consumer contract (art 7(3) CESL-D). In contrast, one can only assume for consumer contracts (on the basis of the CESL) that the use of stan83

Chapter 2 Core Elements

dard terms creates additional, i.e. practical, difficulties for rebutting the presumption arising from art 7(4) CESL-D. 119 The link between contractual autonomy and the consumer's freedom of choice is once again affected in the rule on the conformity of the goods or digital content. This provision is thus significant for the concept of contractual freedom under the CESL because it attempts to force a degree of standardization of the main subject-matter of the contract which can only be detracted from under specific circumstances. Article 99 CESL-D Conformity with the contract (1) In order to conform with the contract, the goods or digital content must: (a) be of the quantity, quality and description required by the contract; (b) be contained or packaged in the manner required by the contract; and (c) be supplied along with any accessories, installation instructions or other instructions required by the contract. (2) In order to conform with the contract the goods or digital content must also meet the requirements of Articles 100, 101 and 102, save to the extent that the parties have agreed otherwise. (3) In a consumer sales contract, any agreement derogating from the requirements of Articles 100, 102 and 103 to the detriment of the consumer is valid only if, at the time of the conclusion of the contract, the consumer knew of the specific condition of the goods or the digital content and accepted the goods or the digital content as being in conformity with the contract when concluding it. (4) In a consumer sales contract, the parties may not, to the detriment of the consumer, exclude the application of paragraph 3 or derogate from or vary its effects.

Art 99(3) CESL-D is of particular relevance in this context. It attempts to tackle the phenomenon of the so-called ‘negative quality agreement’, namely the problem of the validity of an agreement for goods of a quality falling below the statutory standard.144 The CESL did not want to take such a step and generally prohibit the parties to a consumer contract from contracting for substandard goods. This could mean a disproportionate interference with contractual freedom because the consumer would be denied the right to knowingly purchase defective goods. However, from a different perspective one can see the risk of such an agreement depriving the consumer of protection. Accordingly, the decision was made to protect the consumer by introducing requirements for the consumer's agreement rather than prohibiting the contractual circumvention of the legislative standards. The proposed approach corresponds to the image of the informed consumer, who can make use of its freedom of choice when informed and equipped with various tools (such as the withdrawal right). 121 The European legislator does however protect the consumer in various ways which are each underpinned by different ideologies. In consumer sales, art 7 Consumer Sales Directive provides mandatory (or rather semi-mandatory) protection to all of the consumer's rights without considering whether the consumer 120

144 Schmidt-Kessel CESL/Remien art 99 CESL-D para 5; Schulze CESL/Wendehorst art 99 CESL-D paras 6, 27.

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could actually influence the content of the contract term. One may therefore ask why, in the area of non-conformity, the methods used by legislator to determine the boundaries of contractual freedom differ from the legal relationships covered by the Unfair Terms Directive. This difference will only be of little significance in practice as consumer sales contracts are typically not negotiated; a detrimental departure from the standard would seldom arise if the provisions of the Consumer Sales Directive were dispositive and would serve as a measure for the control of the content. Nonetheless, one can observe particular incoherencies in the design of the system as a whole. 4. Good faith

The concept of good faith is not self-evident in EU law. National legal sys- 122 tems 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 concept145).146 The European law on this matter has therefore been very restrained147 thus only few directives expressly include the concept of good faith in their provisions. The Unfair Terms Directive148 outlines good faith as: Article 3 Unfair Terms Directive [Terms not individually negotiated] (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. (…)

The Unfair Terms Directive plays a central role in spreading the concept of 123 good faith.149 The required implementation into national law has therefore resulted in ‘good faith’ finding its way into the common law; though of course the concept of ‘good faith’ under the Directive is restricted in scope as it aims at setting the boundaries of contractual freedom if the disputed term has not been individually negotiated. The Late Payment Directive uses, however, the wording

145 Brownsword, ‘Regulating Transactions: Good Faith and Fair Dealing’ in Howells/Schulze (n 100) 88; Ranieri (n 7) 1873 n 114, 1873–1875; Stuyck, ‘Unfair Terms’ in Howells/ Schulze (n 100) 142–147; Zimmermann/Whittaker, Good faith in European Contract Law (CUP 2000) 39. 146 Patti, ‘Interpretation of the General Clauses “Public Policy” and “Good Morals” in European Contract Law’ [2014] ERPL 611; Riesenhuber (n 6) 570; Smits, Contract Law, A Comparative Introduction (Edward Elgar 2014) 136–137, 139; Zimmermann/Whittaker ibid 16– 39. 147 Jansen/Zimmermann, ‘Restating the Acquis Communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law”’ [2008] MLR 505, 524; Riesenhuber (n 6) 510–412. 148 Riesenhuber (n 6) 402–403, 570. 149 ibid 410.

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good faith and fair dealing, though here the functions are similar and the content is comparable: 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; (…)

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However, the inclusion of good faith in Unfair Terms Directive does not represent the European legislator's first use of the concept: it is also explicitly included in the earlier Commercial Agents Directive.150 Article 3 Commercial Agents Directive [Rights and obligations of the commercial agent] (1) In performing has activities a commercial agent must look after his principal's interests and act dutifully and in good faith. (…) Article 4 Commercial Agents Directive [Rights and obligations of the principal] (1) 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 however 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 loyalty151 – a contract of the uberrima fidei. 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. 125 The inclusion of good faith has over time become more commonplace in European law, for instance in the Unfair Commercial Practices Directive:

150 ibid 403–404, 570. 151 ibid 403–404.

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IV. Freedom of Contract Article 2 Unfair Commercial Practices Directive Definitions For the purposes of this Directive: (…) (h) ‘professional diligence’ means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader's field of activity; (…)

The notion of good faith here is accompanied by the further category of ‘hon- 126 est market practice’;152 the notions can be used as an alternative to one another.153 In this respect one must remember that the Directive, as every directive,154 is addressed to the Member States. 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:155 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.156 ‘Honest market practices’ represents a different notion as it does not refer to an idealized situation but rather to actual practices and usages which 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 acting 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. The ECJ also referred to the concept of good faith, in particular in its decision 127 in Messner: Case C–489/07 Messner [2009] ECR I–7315 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

152 On the concept of ‘honest market practices’ in relation to the implementation of the Unfair Commercial Practices Directive into German law see Schünemann in Harte-Bavendamm/ Henning-Bodewig (eds) UWG Kommentar (2nd edn, C.H. Beck 2009) § 3 paras 127–158. 153 Köhler in Köhler/Bornkamm (eds), UWG Kommentar (32nd edn, C.H. Beck 2014) § 2 para 131, § 3 para 44. 154 According to art 288 TFEU. 155 See below, para 133. 156 Brownsword (n 145) 91–92.

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Chapter 2 Core Elements 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 underpinning 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. 128 The authors of the Acquis Principles have considered that these few traces of claims to good faith provide a sufficient basis for general rules. However, it is to be noted that the Acquis Principles do not contain a general provision expressing the general application of the principle of good faith.157 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:158 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.

129

The decision to contain separate rules on good faith arises from a reluctance to give this concept an overly prominent standing within the system adopted by the Acquis Principles. The effect of good faith ought therefore to be selective.159 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 Paper160 that European law does

157 158 159 160

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Jansen/Zimmermann (n 147) 524; Ranieri (n 7) 1896–1897. Jansen/Zimmermann ibid 510. Ranieri (n 7) 1896–1897. Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 17.

IV. Freedom of Contract

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

The Consumer Rights Directive – which can be considered as one of the con- 130 sequences of this Green Paper – has not adopted the principle of good faith. It thus appears that Option 2 was followed in respect of directives. 131 The principle of good faith is explicitly stated in the DCFR:161 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 com- 132 promise between the various traditions in the legal systems of the Member 161 Ranieri (n 7)1896–1897.

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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. 133 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,162 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. 134 The CESL utilizes the principle of good faith as a general rule applicable across its entire system: Article 2 CESL-D Good faith and fair dealing (1) Each party has a duty to act in accordance with good faith and fair dealing. (2) Breach of this duty may preclude the party in breach from exercising or relying on a right, remedy or defence which that party would otherwise have, or may make the party liable for any loss thereby caused to the other party. (3) The parties may not exclude the application of this Article or derogate from or vary its effects.

135

Moreover, the CESL-Reg-D contains a definition of ‘good faith and fair dealing’: Article 2 CESL-Reg-D Definitions For the purpose of this Regulation, the following definitions shall apply: (…) (b) ‘good faith and fair dealing’ means a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question; (…)

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.163 Although the definition under art 2(b) CESL-Reg-D also uses various undefined terms that also require substantiation, it does show the direction taken by contract law under the CESL. The CESL requires the parties to consider the interests of the other party and to co-operate with each other for this purpose (see also art 3 CESL-D on the

162 See above, para 126. 163 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D paras 14, 15.

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obligation to co-operate164).165 In other words, contract law under the CESL is focused on co-operation rather than on each party acting in its own interest. In general, the wording of art 2(b) CESL-Reg-D repeats the concept adopted 135a in the DCFR166 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 ‘dagger’ 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 the adoption of such a general principle in the scope of an optional instrument could, in spite of its optional nature, possibly influence the entire acquis communautaire. V. Parties to the Contract 1. Overview

European private law has undergone a development that differs from the de- 136 velopment 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.167 However, the realization of the principle of formal equality led these private laws to contain merely ‘Tropfen sozialen Öls’168 (literally, ‘drops of social oil’). 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.169 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.170 The protection of the weaker party first arose in some legal systems by af- 136a fording protection to tenants and thereafter to consumers;171 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.172 The necessity of increased protection for particular 164 165 166 167 168 169 170 171 172

See ibid art 3 CESL-D; Schulze CESL/Wendehorst art 2 CESL-Reg-D para 5. Schulze CESL/Wendhorst art 2 CESL-Reg-D para 5. Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 9. See Wieacker, Privatrechtsgeschichte der Neuzeit: unter besonderer Berücksichtigung der deutschen Entwicklung (2nd edn, Vandenhoeck & Ruprecht 1967) 5.–12.Tausend, 458–468. v. Gierke, Die soziale Aufgabe des Privatrechts (Springer 1889) 10; Wieacker ibid 470. For more detail on this development see Wieacker (n 167) 517, 539, 543, 558. See ibid 547. See Schlosser, Grundzüge der Neueren Privatrechtsgeschichte Rechtsentwicklungen im europäischen Kontext (10th edn, C.F. Müller 2005) 202–203. This issue was also approached by the European Commission in 2000 in its Communication on European Contract Law (COM (2001) 398 final); see also Denkinger, Der Verbraucherbegriff: Eine Analyse persönlicher Geltungsbereiche von verbraucherrechtlichen Schutzvorschriften in Europa (de Gruyter 2007) 1–2, 243; Riesenhuber/Takayama, ‘Rechts-

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market participants does however raise costs173 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.174 As such it is hardly surprising that the development of European private law has focused on the removal of such differences in national laws.175 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. 136b 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.176 In particular instances the consumer may be the superior party and not actually deserve the protection that it will nevertheless be afforded.177 One can therefore see that an instrinsic and potential injustice is linked to the concept of the consumer. Such injustice may also be seen whereby inferiority is more significant than in the case of a consumer (e.g. small businesses) yet no protection is afforded, whereas others will be protected even though it may not be necessary under the circumstances. Ultimately, the classification as a consumer is a phenomenon corresponding to the demands of mass contracts.178 However, this results in problems in relation to ‘dual use’,179 i.e. acting for a purpose that is a combination of commercial and private motivations. 137 The protection of parties under a contract of course depends on the nature of the contract to be concluded. Accordingly, the parties' contractual role and, in some circumstances, their personal characteristics will be of considerable relevance for the application of protective measures; though in certain cases it will rather be the nature of the legal relationship, not party status, which will be relevant e.g. package holidays. The role of a party in a contract can be particularly seen in the notion of the consumer, a term that is defined in the numerous consumer law directives180 but, as stated above, is nevertheless problematic due to particular issues such as ‘dual use’. A further example can also be seen in cer-

173

174 175 176 177 178 179 180

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angleichung: Grundlagen, Methoden und Inhalte’ in Riesenhuber/Takayama (eds), Rechtsangleichung: Grundlagen, Methoden und Inhalte (de Gruyter 2006) 1, 2. See the analysis of the effect of such protection in respect to employees under the second sentence of § 612(3) BGB and the clear disadvantages which arise for the employer when complying with this norm Adams, Ökonomische Theorie des Rechts: Konzepte und Anwendungen (2nd edn, Lang 2004) 115–118. See Denkinger (n 172) 243. See Riesenhuber (n 6) 217. See ibid 206; see MüKo BGB/Micklitz (2012) Vorbermerkung zu §§ 13, 14 para 95. See also Denkinger (n 172) 101 et seq., especially 103. See v. Hippel, Verbraucherschutz (3rd edn, Mohr Siebeck 1986) 3–4. See Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) 91. A useful overview of the notion of the consumer in EU directives is given in Riesenhuber (n 6) 251–253.

V. Parties to the Contract

tain B–B contracts, such as investment contracts.181 A party's personal characteristics are of particular importance in non-discrimination legislation as legally relevant criteria such as gender or race will play a decisive role in affording protection.182 Each of these aspects will be considered in more detail below. 2. Notion of the consumer in the acquis communautaire

According to art 1:201 ACQP, a consumer is any natural person who is main- 138 ly 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.183 Moreover, Jansen and Zimmermann note that the ECJ came to a different conclusion in Gruber184 as the classification as a consumer did not focus on the predominance of the private element but rather the negligibility of the business purpose.185 Case C–464/01 Gruber [2005] ECR I–439 The rules of jurisdiction laid down by the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic, by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic, and by the Convention of 29 November 1996 on the Accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden must be interpreted as follows: – a person who concludes a contract for goods intended for purposes which are in part within and in part outside his trade or profession may not rely on the special rules of jurisdiction laid down in Articles 13 to 15 of the Convention, unless the trade or professional purpose is so limited as to be negligible in the overall context of the supply, the fact that the private element is predominant being irrelevant in that respect; – it is for the court seised to decide whether the contract at issue was concluded in order to satisfy, to a non-negligible extent, needs of the business of the person concerned or whether, on the contrary, the trade or professional purpose was negligible; – to that end, that court must take account of all the relevant factual evidence objectively contained in the file. On the other hand, it must not take account of facts or circumstances of which the other party to the contract may have been aware when the contract was concluded, unless the person who claims the capacity of consumer behaved in such a way as to give the other party to the contract the legitimate impression that he was acting for the purposes of his business.

The decision in Gruber was concerned with a procedural question on international jurisdiction.186 It can therefore be questioned whether its notion of the consumer can be applied to substantive contract law or whether there is a suffi181 Recital 1 Markets in Financial Instruments Directive. 182 See, for example, the Racial Equality Directive or the Gender Equality Directive; see below, paras 145–149. 183 Jansen/Zimmermann (n 147) 514. 184 Case C–464/01 Gruber [2005] ECR I–439. 185 Jansen/Zimmermann (n 147) 515. 186 More specifically, the application of arts 13–15 Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Brussels Convention) [1978] OJ L304/36.

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cient basis in the substantive acquis communautaire for the notion of the consumer adopted in Gruber. The Consumer Rights Directive does not provide clear clarification in this respect. At first glance it appears that art 2(1) Consumer Rights Directive has defined the notion of the consumer in the traditional manner, as is frequently the case in the directives: Article 2 Consumer Rights Directive Definitions For the purpose of this Directive, the following definitions shall apply: (1) ‘consumer’ means any natural person who, in contracts covered by this Directive, is acting for purposes which are outside his trade, business, craft or profession; (…)

The recitals187 to the Consumer Rights Directive do however contain a more differentiated definition of the consumer. This model of a narrow definition in the legislation188 itself and a broader paraphrasing in the recitals189 has also been adopted in the Mortgage Credit Directive and Consumer ODR Regulation. Article 4 Mortgage Credit Directive Definitions For the purposes of this Directive, the following definitions shall apply: (1) ‘Consumer’ means a consumer as defined in point (a) of Article 3 of Directive 2008/48/EC. (…) Article 4 Consumer ODR Regulation Definitions (1) For the purposes of this Regulation (a) ‘consumer’ means a consumer as defined in point (a) of Article 4(1) of Directive 2013/11/EU; (…) 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. 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,

187 Recital 17 Consumer Rights Directive. 188 See the definition of the ‘consumer’ in art 4(a) Consumer ODR Regulation and art 4(1) Mortgage Credit Directive. 189 Recital 10 Consumer ODR Regulation and recital 12 Mortgage Credit Directive.

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V. Parties to the Contract business or professional purpose is so limited as not to be predominant in the overall context of the contract, that person should also be considered as a consumer. Recital 13 Consumer ODR Regulation The definition of ‘consumer’ should cover natural persons who are acting outside their trade, business, craft or profession. However, if the contract is concluded for purposes partly within and partly outside the person's trade (dual purpose contracts) and the trade purpose is so limited as not to be predominant in the overall context of the supply, that person should also be considered as a consumer.

According to these recitals, the consumer concept encompasses dual use con- 139 tracts 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 can not ignore the recitals when interpreting the directive.190 One can thus pose the question of why their content was not directly included in the main text; the reason may perhaps lie in simply trying to reach a consensus during the legislative process. It is however clear from these Directives and the Regulation that the dual purpose of the contract does not prevent the classification of a party as a consumer as long as the private purpose is predominant. The Package Travel Directive uses the notion of a consumer in a different 140 sense. Art 2 Package Travel Directive contains a very far-reaching definition of the consumer, i.e. the retailer's or organizer's customer, as the performance under a package travel contract serves to satisfy non-commercial, private interests: no distinction is necessary as all customers are considered to be worthy of protection. Due to this broad notion and the absence of a further requirement that the customer has to be a natural person, legal persons or a natural person acting for commercial purposes can be considered consumers. Again, the reason lies in the nature of the performance: it serves to satisfy traveller's non-economic interests and the private purpose of the ultimate recipient of the performance (even though this person may not have been party to the contract). Extending the concept of the consumer to, for example, customers of a package holiday therefore indicates the link to the nature of the legal relationship.

190 The recitals are not legislation per se but they are part of the legislation's ‘authority and dignity’, Köndgen, ‘Die Rechtsquelle des europäischen Privatrechts’ in Riesenhuber (ed) Europäische Methodenlehre (2nd edn, de Gruyter 2010) § 7 para 41.

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Chapter 2 Core Elements Article 2 Package Travel Directive Definitions For the purposes of this Directive: (…) (4) ‘consumer’ means the person who takes or agrees to take the package (‘the principal contractor’), or any person on whose behalf the principal contractor agrees to purchase the package (‘the other beneficiaries’) or any person to whom the principal contractor or any of the other beneficiaries transfers the package (‘the transferee’); (…)

The broad definition of consumer under the Package Travel Directive can rather be viewed as an exception; other consumer directives instead adopt a rather narrow definition. Nevertheless, the narrow scope of these definitions still contains room for interpretation and thus does not provide a conclusive answer to the question whether a commercial purpose will always prevent classification as a consumer. This problem has also been approached in the Product Liability Directive191 – legislation which falls under the category of tort rather than contract. Although the Product Liability Directive does not use the word ‘consumer’, its function also serves to protect consumers. This can be seen in art 9(b)(ii) in conjunction with art 1 Product Liability Directive: a claim to damages can arise if any item of property – other than the defective property – is damaged and such property is of a type ordinarily intended for private use or consumption. 141 The wording adopted by the Acquis Principles is to be viewed here as a suggestion for interpretation. On the one hand one could argue that knowledge of the parties is expected when the contract also has a minor commercial purpose, though on the other hand all reasons for protecting the consumer are given in such contracts which mainly serve private purposes. Excluding consumer protection merely because a coffee machine is mainly used in the purchaser's home and occasionally used to prepare drinks for its customers appears unjust. Clarification by the ECJ of the application of Gruber to matters of substantive law remains to be seen, though the development shown in the Consumer Rights Directive clearly shows that dual purpose contracts with just a predominant private purpose and, additionally, with a non-negligible commercial purpose are generally to be considered consumer contracts. 142 Art I.–1:105(3) DCFR contains a specific rule for dual purpose contracts: a party to such a contract can benefit from consumer protection but at the same time is subject to the obligations for a business. It concerns those contracts in which a person is both a business and consumer because the nature of the transaction can fall under both categories. The interpretation under the present law could possibly lead to the same result if the wording adopted by the Acquis Principles is a correct reflection of European law. 191 Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products [1985] OJ L210/29.

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3. Other protected parties

The acquis communautaire also contains rules protecting a party regardless of 143 its status as a consumer: the nature of the legal relationship is the determinative factor. For instance, the Late Payment Directive and the Commercial Agents Directive are examples for circumstances in which businesses are protected. Recital 9 Late Payment Directive This Directive should regulate all commercial transactions irrespective of whether they are carried out between private or public undertakings or between undertakings and public authorities, given that public authorities handle a considerable volume of payments to undertakings. It should therefore also regulate all commercial transactions between main contractors and their suppliers and subcontractors. Article 1 Commercial Agents Directive Scope (1) The harmonization measures prescribed by this Directive shall apply to the laws, regulations and administrative provisions of the Member States governing the relations between commercial agents and their principals. (2) For the purposes of this Directive, ‘commercial agent’ shall mean a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, hereinafter called the ‘principal’, or to negotiate and conclude such transactions on behalf of and in the name of that principal. (…)

In addition, art 4 Consumer Sales Directive provides a business (who was liable to the consumer) with a right to seek redress from other businesses. In each 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 suffice.192 The Markets in Financial Instruments Directive applies a mixed system under 144 which all customers will in principle be protected, though the level of protection will vary depending on whether the customer is a professional or retail client.193 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 E-Commerce Directive Information to be provided (1) In addition to other information requirements established by Community law, Member States shall ensure, except when otherwise agreed by parties who are not consumers, that at least the following information is given by the service provider clearly, comprehensibly and unambiguously and prior to the order being placed by the recipient of the service: (…)

192 See Denkinger (n 172) 272. 193 Recital 31 Markets in Financial Instruments Directive.

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4. Non-discrimination

A further category of persons protected by acquis communautaire is composed of those persons who display an actual or supposed characteristic which forms the basis of discrimination when accessing goods or services (including housing) made available to the public. 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, though is not covered here).194 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 deterrent sanctions, and include a presumption of discrimination when plausible facts are established. 146 These Directives are anchored in EU primary law: art 18 TFEU prohibits discrimination on the basis of EU citizenship195 whereas art 19 TFEU provides the legislative competence for the EU to prohibit discrimination based on gender, racial or ethnic origin, religion or belief, disability, age or sexual orientation. In addition, art 21 Charter of Fundamental Rights prohibits discrimination on further grounds such as political opinion, genetic features etc. 145

Article 18 TFEU [Non-discrimination] Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt rules designed to prohibit such discrimination. Article 19 TFEU [Measures against discrimination] (1) Without prejudice to the other provisions of the Treaties and within the limits of the powers conferred by them upon the Union, the Council, acting unanimously in accordance with a special legislative procedure and after obtaining the consent of the European Parliament, may take appropriate action to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. (2) By way of derogation from paragraph 1, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, may adopt the basic principles of Union incentive measures, excluding any harmonisation of the laws and regulations of the Member States, to support action taken by the Member States in order to contribute to the achievement of the objectives referred to in paragraph 1.

147

A particular question arises in relation to the extent to which non-discrimination applies in contract law if it is not expressed in a directive. One can see that, 194 On non-discrimination legislation in the acquis communautaire see Zoll, ‘Remedies for Discrimination: A Comparison on the Draft Common Frame of Reference and the Acquis Principles’ [2008] ERA-Forum 87. 195 For more detail see Haberl, Zivilrechtliche Diskriminierungsverbote in nationalen Privatrechtsgesellschaften – Eine rechtsvergleichende Untersuchung der deutschen und italienischen Schutzbestimmungen (Sellier 2011) 75–103.

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where employment law is concerned, the ECJ decision in Mangold196 has gone so far as to assume general application of non-discrimination. Case C–144/04 Mangold [2005] ECR I–10013 (…) 75. The principle of non-discrimination on grounds of age must thus be regarded as a general principle of Community law. Where national rules fall within the scope of Community law, which is the case with Paragraph 14(3) of the TzBfG, as amended by the Law of 2002, as being a measure implementing Directive 1999/70 (see also, in this respect, paragraphs 51 and 64 above), and reference is made to the Court for a preliminary ruling, the Court must provide all the criteria of interpretation needed by the national court to determine whether those rules are compatible with such a principle (Case C–442/00 Rodríguez Caballero [2002] ECR I–11915, paragraphs 30 to 32). 76. Consequently, observance of the general principle of equal treatment, in particular in respect of age, cannot as such be conditional upon the expiry of the period allowed the Member States for the transposition of a directive intended to lay down a general framework for combating discrimination on the grounds of age, in particular so far as the organisation of appropriate legal remedies, the burden of proof, protection against victimisation, social dialogue, affirmative action and other specific measures to implement such a directive are concerned.

Art 3:101 ACQP prohibits discrimination in contract law on the grounds of 148 sex, racial or ethinc origin; art II.–2:101 DCFR contains a similar provision. 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, in particular the freedom to choose the counterparty. The horizontal application of provisions prohibiting discrimination in contract law just on the basis of generally-worded 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. The Racial Equality Directive maintains that its use of ‘racial origin’ does not 149 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. 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. Recital 3 Racial Equality Directive The right to equality before the law and protection against discrimination for all persons constitutes a universal right recognised by the Universal Declaration of Human Rights, the United Nations Convention on the Elimination of all forms of Discrimination Against Women, the International Convention on the Elimination of all forms of Racial Discrimination and the United Nations Covenants on Civil and Political Rights and on Economic, Social and Cultural Rights and by the European Con-

196 Case C–144/04 Mangold [2005] ECR I–10013.

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Chapter 2 Core Elements vention for the Protection of Human Rights and Fundamental Freedoms, to which all Member States are signatories.

The Commission is presently working on a proposal for a directive that, following the model in employment law, will extend the scope of non-discrimination in relation to access to goods and services made available to the public by including the other factors listed in art 19 TFEU.197 5. Party status 150

Party status (business or consumer) is of key importance for European contract law. There has not been a development of a general contract law in which the party status is irrelevant – EU contract law has presently only aimed to supplement the general contract law of the Member States. The proposal for a CESL takes a different approach as it represents the development of a contract law that does not supplement national law but rather independently regulates the legal relationships between the parties.198 The emancipation of European contract law will also have an effect on reducing the relevance attributed to the status of the parties. VI. Interpretation of Juridical Acts 1. Acquis communautaire

151

There is no a consistent system of the interpretation of ‘notices’199 within the patchwork of the sources related to contract law. It is still predominantly for national law to determine which methods of interpretation should apply. Despite this general approach the existing acquis does contain certain rules applicable to the process of interpreting or affecting the parties' own autonomous decisions on the specific rules of interpretation that will apply to their agreement. The European legislator touches on this issue mostly in the Unfair Terms Directive. This problem has been considered in the context of a consumer-friendly interpretation of terms in consumer contracts: Article 5 Unfair Terms Directive [Interpretation] 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).

197 Commission, ‘Proposal for a Council Directive on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation’ COM (2008) 426 final. 198 Riesenhuber (n 3) § 4 para 59. 199 For more detail on this concept in the acquis communautaire see above, paras 22–30.

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Art 5 Unfair Terms Directive governs not only the matter of interpretation but it also expresses the principle of transparency of contract terms. It does not mean that the infringement of the transparency requirement always results in the sanction of a consumer-friendly interpretation. Furthermore, the lack of transparency does not necessarily mean that there are various ways to possibly understand the term. It could be also the case that there is only one possible interpretation of the term, but this term is not easily readable. Generally the lack of transparency should be analyzed in the context of the fairness test.200 If the lack of transparency is not so detrimental for the consumer that it does not justify the abusiveness of the terms, space remains for the consumer-friendly interpretation.201 Art 5 Unfair Terms Directive contains two important rules related to interpretation. Firstly, it expresses the principle of the consumer-friendly interpretation of the written terms. It encompasses not only the standard terms but also all non-negotiated terms (even though only provided for single use). The only requirement for the application of this rule is that the terms must be formulated in writing; terms given orally will not be covered by the rule under the Directive and therefore national law has an exclusive regulatory competence on this issue. The second rule arising from art 5 Unfair Terms Directive concerns the exclusion of the principle of consumer-friendly interpretation in the case of collective procedures, i.e. procedures that are not related to the particular, given legal relationship, but serve to generally ban the unfair terms from the market. The function of this confinement is to also secure the high level of consumer protection in these collective procedures. It may arise that the consumer-friendly interpretation would lead to the finding that the term in question (with a broad array of the possible interpretations) would be declared as ‘fair’ and despite its lack of transparency or further ambiguity with the open possibility for a more hostile interpretation for consumers. The application in the scope of collective procedures allows the use of the ambiguous term to stop and prohibit such a hostile interpretation. The term should therefore be regarded as fair only if even a consumerhostile interpretation renders the term unfair. The ECJ in Commission v Spain202 was presented with the question whether 152 there is a violation of the Unfair Terms Directive with respect to implementation of art 5 without the exception from the principle of the consumer-friendly interpretation in the case of the collective procedures violates the Directive. The ECJ responded to this question as follows: Case C–70/03 Commission v Spain [2004] ECR I–7999 The proviso in the third sentence of Article 5 of Directive 93/13 on unfair terms in consumer contracts that the rule of interpretation most favourable to the consumer is to prevail where there is doubt about the meaning of a term is not to apply in the context of actions for cessation, referred to

200 See Chapter 4. 201 See, for example, Case C–96/14 van Hove [2015] ECR I–nyr. 202 [2004] ECR I–7999.

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Chapter 2 Core Elements in Article 7(2) of the Directive, is a binding legislative provision which confers rights on consumers and assists in determining the result which the directive seeks to achieve. The distinction thus made concerning the applicable rule of interpretation, as between actions involving an individual consumer and actions for cessation which involve persons or organisations representative of the collective interest of consumers may be accounted for by the different aims pursued by those actions. In the former case, the courts or competent bodies are required to make an assessment in concreto of the unfair character of a term contained in a contract which has already been concluded, while in the latter case it is their task to assess in abstracto the unfair character of a term which may be incorporated into contracts which have not yet been concluded. In the former case, an interpretation favourable to the individual consumer concerned benefits him or her immediately. By contrast, in the latter case, in order to obtain, by way of prevention, the most favourable result for consumers as a whole, it is not necessary, where there is doubt, to interpret the term in a manner favourable to them. Accordingly, an objective interpretation makes it possible to prohibit more frequently the use of an unintelligible or ambiguous term, which results in wider consumer protection.

Ultimately, the Court declared: Case C–70/03 Commission v Spain [2004] ECR I–7999 (1) (…) 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;

It may be discussed on a theoretical level whether the ECJ is correct. A ‘blind application’ of the consumer-friendly interpretation principle may eventually have an effect which is detrimental to the consumer in an individual case. Facts similar to the above may also arise in the event of a collective procedure. The court may maintain that the term subject to the consumer-friendly interpretation is still detrimental to the consumer but does not breach the good faith standard. If the court were to apply the consumer-hostile interpretation, the term would be regarded as abusive and would not bind the consumer. This result would reflect the principle of transparency. Actually the process of the interpretation in the collective and the individual procedure should not differ from each other. The requirement of consumer-friendly interpretation should be understood as a principle of such interpretation which will ultimately put the consumer in the most beneficial position. The ruling in Commission v Spain is thus not very convincing.203 153 One may ask whether the principle of consumer-friendly interpretation is at all an act of interpretation. This could be questioned if the interpretation means the process of understanding the term in order to determine the drafter's intention. The consumer-friendly interpretation does not aim to determine the drafter's intention (even if the reliance of the addressee should be seen as important indication for the understanding) but rather to select from the several possible methods the approach which is the most favourable to the consumer. Application of the consumer-friendly approach requires the determination of the many 203 Ulmer/Brandner/Hensen, AGB-Recht Kommentar (10th edn, Otto Schmidt 2006) § 305c para 90; Online-Kommentar BGB/Bamberger/Roth/Schmidt § 305c para 56 accessed 29 April 2015.

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ways in which the term may be understood in order to consider it as ambiguous. The ambiguity of the term should then be seen if the reasonable addressee could understand the rule in several ways. The selection of the most favourable interpretation for the consumer must be limited to this spectrum of such reasonable ways of interpretation. It is however more a sanction than the means of interpretation. The consequence is therefore that an ambiguity in the reasonable understanding of the term will result the selection of the most favourable interpretation, even if it is not the most probable way to determine the intended meaning. The Annex to the Unfair Terms Directive contains a provision related to the 154 interpretation of the contract: Annex – Unfair Terms Directive Terms referred to in Article 3(3)(1) (1) Terms which have the object or effect of: (…) (m) giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract;

According to this rule, a non-negotiated term authorizing only the business to interpret the contract must usually be regarded as unfair and not binding on the consumer. A rule concerning the interpretation of the contract can also be found in 155 art 2(2) Consumer Sales Directive: Article 2 Consumer Sales Directive Conformity with the contract (…) Consumer goods are presumed to be in conformity with the contract if they: (2) (a) comply with the description given by the seller and possess the qualities of the goods which the seller has held out to the consumer as a sample or model; (b) are fit for any particular purpose for which the consumer requires them and which he made known to the seller at the time of conclusion of the contract and which the seller has accepted; (c) are fit for the purposes for which goods of the same type are normally used; (d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labelling.

At first glance this article governs the rules concerning whether the delivered goods are in conformity with the contract, though actually these are the rules which serve the interpretation of the intention related to the agreed content. The parties set out the requirements concerning the quality of the goods. Art 2(2) Consumer Sales Directive should actually be regarded as the rule determining the content of the notices made by the parties. It constitutes the criteria for reasonable understanding of the parties' agreement.

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2. DCFR 156

The DCFR contains an elaborated set of rules concerning the interpretation of contracts; certain modifications and adaptations are also provided in relation to unilateral juridical acts (arts II.–8:201 to 8:202 DCFR). The basic principles of interpretation arise from art II.–8:101 DCFR: Article II.–8:101 DCFR General rules (1) A contract is to be interpreted according to the common intention of the parties even if this differs from the literal meaning of the words. (2) If one party intended the contract, or a term or expression used in it, to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could reasonably be expected to have been aware, of the first party's intention, the contract is to be interpreted in the way intended by the first party. (3) The contract is, however, to be interpreted according to the meaning which a reasonable person would give to it: (a) if an intention cannot be established under the preceding paragraphs; or (b) if the question arises with a person, not being a party to the contract or a person who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract's apparent meaning.

This rule reflects the Germanic tradition of the interpretation of juridical acts.204 There are two main principles reflected by this provision. The first is to seek the common intention of the parties and secondly, if such common intention cannot be established, to seek the reasonable perspective of the addressee of such declaration. This provision contains more specific rules determining the ‘reasonableness’ of the addressee's perspective. It distinguishes between the specific situation – where the addressee could reasonably be aware of the specific meaning given to the terms or expression used by the other party – and the general situation – the contract should be interpreted by the standard of the reasonable person where there are no indications for at least the legitimate expectations which would make one aware of the particular meaning intended by the drafter. The reasonable person test also applies to the third party (i.e. a person not party to the contract). It also applies in order to prevent such a person from gaining better rights than a person who has reasonably (and in good faith) relied on the contract's apparent meaning from an objective perspective. This situation may occur in the assignment of rights arising from the contract – if the assignee has understood the contract, in the standard reasonable way, as being a source of the assigned claim and the parties to the contract have understood it differently due to the particular context. 157 The DCFR also contains a rule naming the circumstances that maybe taken into consideration when interpreting contracts and other juridical acts:

204 Bork, Allgemeiner Teil des Bürgerlichen Gesetzbuche (3rd edn, Mohr Siebeck 2011) paras 519, 523; v. Bar/Clive (n 10) 553.

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VI. Interpretation of Juridical Acts Article II.–8:102 DCFR Relevant matters (1) In interpreting the contract, regard may be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the interpretation which has already been given by the parties to terms or expressions which are the same as, or similar to, those used in the contract and the practices they have established between themselves; (d) the meaning commonly given to such terms or expressions in the branch of activity concerned and the interpretation such terms or expressions may already have received; (e) the nature and purpose of the contract; (f) usages; and (g) good faith and fair dealing. (2) In a question with a person, not being a party to the contract or a person such as an assignee who by law has no better rights than such a party, who has reasonably and in good faith relied on the contract's apparent meaning, regard may be had to the circumstances mentioned in subparagraphs (a) to (c) above only to the extent that those circumstances were known to, or could reasonably be expected to have been known to, that person.

These ‘relevant matters’ should be considered in the process of determining the reasonableness of the term to be interpreted from the addressee's perspective. These criteria apply not only in the case of determining the standard of the average addressee of the statement but also the specific standards of the particular addressee who, according to these criteria, should be aware of the specific meaning of the terms used. The DCFR contains also an elaborated rule expressing the principle ambigui- 158 tas contra stipulatorem: Article II.–8:103 DCFR Interpretation against supplier of term or dominant party (1) Where there is doubt about the meaning of a term not individually negotiated, an interpretation of the term against the party who supplied it is to be preferred. (2) Where there is doubt about the meaning of any other term, and that term has been established under the dominant influence of one party, an interpretation of the term against that party is to be preferred.

In contrast to art 5 Unfair Terms Directive, the DCFR does not limit the principle arising from its art II.–8:103 only to consumer contracts. It belongs to the general set of the rules on interpretation. It may be discussed whether it is a correct decision to place this rule here – for instance, its relationship to the predeceasing articles on the general principle of interpretation is not evident. It makes a difference whether the ambiguitas contra stipulatorem principle should be regarded as one of several criterions for the interpretation conducted in line with arts II.–8:101 to 8:102 DCFR, or only the principle of interpretation against the supplier of the term should apply if it is not possible to determine the content of the term according to these general principles. Although this provision seems to be related to art 5 Unfair Terms Directive, it probably would not actually function this way. Art 5 Unfair Terms Directive is constructed more as a sanction for the unclear formulation of the term by the business, which may justify various 105

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ways of interpretation. In the DCFR the principle in question must be seen rather as an additional device for interpretation when the ‘reasonable understanding’ test does not reach its effect. 159 The rules of the DCFR concerning interpretation also contain another provision usually associated with the law on standard terms: Article II.–8:104 DCFR Preference for negotiated terms Terms which have been individually negotiated take preference over those which have not.

It is a rule that governs the conflict between two groups of rules with different quality. The negotiated terms (i.e. both parties could at least influence the content) take preference over the terms that have been imposed by just one party. It is also a rule that should not be regarded as related to the process of interpretation of the contract as it rather concerns the process of contract formation. This rule expresses the principle that non-negotiated terms do not become a part of the contract if the corresponding negotiated terms are contradictory. 160 The DCFR provides a rule on the interpretation in the context of the whole contract: Article II.–8:105 DCFR Reference to contract as a whole Terms and expressions are to be interpreted in the light of the whole contract in which they appear.

This provision completes the rules of arts II.–8:101 and 8:102 DCFR by adding the additional criterion of the relationship to other terms of the contract. As the term must not be understood in isolation from other terms of the contract, the context of the whole contract modifies the results of the interpretation resulting from arts II.–8:101 and 8:102 DCFR. 161 The DCFR expresses a principle of benigna interpretatio (favor contractus) for the contractual terms: Article II.–8:106 DCFR Preference for interpretation which gives terms effect An interpretation which renders the terms of the contract lawful, or effective, is to be preferred to one which would not.

However, the rule shows that the system of the DCFR is not fully coherent; though this rule does of course make sense on the level of general contract law. It could be presumed that the parties intended to give reasonable content to the interpreted term. This rule does not interact correctly with the aforementioned provisions on the interpretation contra stipulatorem. In the process of the interpretation against the supplier of the non-negotiated terms, the purpose cannot be to give priority to maintaining the term as effective. It must be combined with the process of the fairness test (in particular in consumer cases), hence there is a 106

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tension between the various principles put together into this Chapter of the DCFR. The DCFR also contains a rule which addresses the multi-language problem: 162 Article II.–8:107 DCFR Linguistic discrepancies Where a contract document is in two or more language versions none of which is stated to be authoritative, there is, in case of discrepancy between the versions, a preference for the interpretation according to the version in which the contract was originally drawn up.

This provision clarifies that the parties may decide which version (from several linguistic versions) of the contract is authoritative or prevails as the relevant basis for interpretation. It also provides a default rule if the parties have not agreed on the text that should be regarded as authoritative: the version of the original draft for the contract. This rule also does not settle all possible problems that mostly arise where a consumer is involved. The text of the contract plays also an important role in the process of performing the information duties. The language of the addressee of the terms that have been supplied to this person and not being negotiated therefore cannot be ignored in the process of interpretation. Moreover, clarification is needed in respect of the relationship of this rule to the principle of the interpretation against the supplier of the terms. At least in consumer cases the principle ambiguitas contra stipulatorem should prevail. Nonetheless, each of these examples shows that the system in the DCFR for determining the process of interpretation remains incomplete. 3. The interpretation of contracts under the CESL

The proposal for a Common European Sales Law has principally adopted the 163 system proposed by the DCFR. The rules have however been redrafted for simplification purposes and also slightly restructured. Nonetheless, although improvements have been made the aforementioned main problems concerning the DCFR arise also in the CESL. As the DCFR, the CESL first gives priority to the common intention of the parties, even if they use expressions that usually would be (reasonably) understood differently. A test of reasonable understanding will apply if it is not possible to derive the parties' intention from the normal understanding. In addition, as under art II.–8:101 DCFR the CESL first applies the test of the particular addressee and how it reasonably understands the term; failure to ascertain the intended meaning by this approach will ultimately lead to the application of the reasonable person test. Article 58 CESL-D General rules on interpretation of contracts (1) A contract is to be interpreted according to the common intention of the parties even if this differs from the normal meaning of the expressions used in it. (2) Where one party intended an expression used in the contract to have a particular meaning, and at the time of the conclusion of the contract the other party was aware, or could be expected to

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Chapter 2 Core Elements have been aware, of that intention, the expression is to be interpreted in the way intended by the first party. (3) Unless otherwise provided in paragraphs 1 and 2, the contract is to be interpreted according to the meaning which a reasonable person would give to it.

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As in art II.–8:102 DCFR, the CESL also formulates criteria for the circumstances that may be taken into account when interpreting the term: Article 59 CESL-D Relevant matters In interpreting a contract, regard may be had, in particular, to: (a) the circumstances in which it was concluded, including the preliminary negotiations; (b) the conduct of the parties, even subsequent to the conclusion of the contract; (c) the interpretation which has already been given by the parties to expressions which are identical to or similar to those used in the contract; (d) usages which would be considered generally applicable by parties in the same situation; (e) practices which the parties have established between themselves; (f) the meaning commonly given to expressions in the branch of activity concerned; (g) the nature and purpose of the contract; and (h) good faith and fair dealing.

These are the criteria that allow one to determine whether the particular perspective of the addressee (in the sense of art 58(2) CESL-D) should also be taken into account or whether the interpretation should be limited to the view of the average reasonable person. As in the DCFR (art II.–8:105) the whole context of the contract must also be taken into account in the process of interpretation. The CESL follows the DCFR with respect to the rule concerning linguistic discrepancies (art 61 CESL-D). It expresses the principle of preference for individually negotiated terms (art 62 CESL-D) and the principle of favor contractus (art 63 CESL-D). Art 64 CESL-D provides a rule outlining the consumer-friendly interpretation: Article 64 CESL-D Interpretation in favour of consumers (1) Where there is doubt about the meaning of a contract term in a contract between a trader and a consumer, the interpretation most favourable to the consumer shall prevail unless the term was supplied by the consumer. (2) The parties may not, to the detriment of the consumer, exclude the application of this Article or derogate from or vary its effects.

The CESL states the contra stipulatorem principle, although it has not entirely followed the DCFR: Article 65 CESL-D Interpretation against supplier of a contract term Where, in a contract which does not fall under Article 64, there is doubt about the meaning of a contract term which has not been individually negotiated within the meaning of Article 7, an interpretation of the term against the party who supplied it shall prevail.

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In consumer contracts, the principle ambiguitas contra stipulatorem applies also to negotiated terms that have not been supplied by the consumer. The provision related to the consumer therefore stresses its mandatory nature. The problem discussed already in the case of the DCFR also arises here, namely the relationship between these two latter principles to other rules on interpretation, for example, to favor contractus or to the rule on linguistic discrepancies. The rule on consumer-friendly interpretation should probably be placed among the rules on unfair terms.

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Chapter 3 Conclusion and Content of Contracts Literature: Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts vol II (Mohr Siebeck 2009); 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); Kötz/Flessner, European Contract Law (Clarendon 1997); Micklitz/Stuyck/Terryn, Cases, Materials and Text on Consumer Law (Hart 2010); Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schulze, ‘Die Widerrufsrechte im Gemeinsamen Europäischen Kaufrecht’ in Schulte-Nölke et al. (eds), Der Entwurf für ein optionales Kaufrecht (Sellier 2012) 151; Terryn, ‘The Right of Withdrawal, the Acquis-Principles, the Draft Common Frame of Reference and the Proposal for a Consumer Rights Directive’ in Schulze (ed), Common Frame of Reference and Existing EC Contract Law (2nd edn, Sellier 2009) 143–182; Twigg-Flesner/Schulze, ‘Protecting rational choice: information and the right of withdrawal’ in Howells/Ramsay/Wilhelmsson (eds), Handbook of Research on International Consumer Law (Edward Elgar 2010) 145; v. Bar/ Clive (eds), DCFR Full Edition (Sellier 2009).

I. Conclusion of Contract 1. Overview a) Introduction

The conclusion of a contract causes a legal relationship with specific rights 1 and obligations to arise between the parties. The rules concerning the manner as well as the time of conclusion of contract are thus 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).1 Furthermore, the European legal systems have reacted differently to the new challenges for conclusion of contract in national and, above all, in international trade (especially the forms of agreement which are not traditionally categorized as offer and acceptance, e-commerce, and the increasing significance of pre-contractual information and statements). The effects of these new developments concern all European countries and therefore increases the 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 for EU private law, also. b) Acquis communautaire

The acquis communautaire does not contain a comprehensive group of rules 2 on conclusion of contract. Nonetheless, there are numerous provisions and court decisions concerning this matter and therefore open the possibility for identifica1 See also para 16.

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tion of overarching principles. Fundamental principles can even be found within EU primary law: freedom of conclusion and freedom of content are at the core of the principle of freedom of contract;2 the principle of non-discrimination is based on arts 10, 18 and 19 TFEU and art 21 Charter of Fundamental Rights as well as the principles for the EU’s individual policy areas (for instance, consumer protection under art 38 Charter of Fundamental Rights, which also extends to the conclusion of consumer contracts). 3 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 selling3, form requirements and electronic confirmation4, and withdrawal rights. In contrast to the laws of the Member States, one can however observe great inconsistencies in the regulatory density of the acquis communautaire: the directives contain very few details on the important requirements for conclusion of contract via offer and acceptance,5 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). 4 In spite of 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 the expansion of the notion of ‘mass contracts’ and the associated standardization of contracts.6 In this respect it is necessary to take account of the modern reality of contract practice in which contracts are (in contrast to the traditional model) often not the result of individual negotiations between the parties. A party (or even each party) will rather use its own standard terms in the hope that these will be accepted by the other party without the need for negotiations.7 5 Furthermore, the acquis communautaire is characterized by its focus on precontractual behaviour and the content of the future contract. EU directives have created a number of information duties to be performed before or at the moment the contract is concluded and which sometimes allow for a smooth transition between the pre-contractual phase and the conclusion of a contract.8 Such a strong link to the formation of intention and the content of the contract thus gives rise to key questions surrounding the relationship between these information duties 2 3 4 5 6 7

For more detail see Chapter 2 paras 79–87. On unsolicited goods see art 27 Consumer Rights Directive. art 8 Consumer Rights Directive; art 11(1) E-Commerce Directive. Contract II/Schulze art 4:102 para 3. See Chapter 2 para 26. See Chapter 4 paras 4–11.

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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 thus for the national legislator to coordinate the extensive information duties with such types of rules. Nonetheless, the task remains to consider both approaches in order to develop a theory of risk distribution in the event of missing, incomplete or incorrect information during the conclusion of a contract. A further consequence of the directives concerns an extension of the bound- 6 aries of conclusion of contract beyond the traditional focus on offer and acceptance. 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.9 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.10 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’11 in which two corresponding statements of intention create the contract. Formation of contract rather requires consideration of the process from pre-contractual information and statements to subsequent correction of the agreement through the right of withdrawal.12 c) Academic drafts

The principles on conclusion of contract in the acquis communautaire are 7 mainly reflected in the Acquis Principles.13 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.14 It is to be noted that the PECL extend beyond 8 On information duties see paras 88–91; Busseuil, ‘La Phase précontractuelle – La formation du contrat électronique’ in Rochfeld (ed), L’Acquis Communautaire – Le contrat électronique (Economica 2010) 71. 9 See below, paras 32–41. 10 See below, paras 142–146. 11 Pfeiffer, ‘New Mechanisms for Concluding Contracts’ in Schulze (ed), New Features in Contract Law (Sellier 2007) 161, 167. 12 See Chapter 2 paras 16–17. 13 Contract II/Schulze et al. on conclusion of contract, in particular Chapter 4. 14 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.

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those aspects traditionally regulated by the Member States as its Principles (despite their rather concise nature15) do not categorize the conclusion of contract in offer and acceptance, and also include unilateral promises. Several of the rules from these further sources have been used by the Acquis Principles to supplement matters of EU law requiring completion.16 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. d) CESL

The synthesis approach adopted by the DCFR has 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 conclusion of contract, such as the requirement of an explicit statement (separate from the statement indicating the agreement to conclude a contract) on the agreement to use the CESL in consumer contracts (art 8(2) CESL-Reg-D) and the effect of pre-contractual statements on the content of the contract (art 69 CESL-D). The CESL therefore comprises 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). Principles derived from comparative law would thus form an important part of rules on conclusion of contract should a planned European sales law enter into force with these aforementioned provisions.17 Moreover, these principles would become part of the acquis communautaire and consequently a part of the ‘acquis commun’18 would be merged with the acquis communautaire. 9 The aforementioned innovative approaches in the acquis communautaire have thus been included in the CESL (though mostly in a more general manner) and have been further developed, in particular in relation to the supply of digital content. 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 unsolicited goods19 or unilateral 8

15 art 2:101 PECL. art 2:201 PECL contains a rule on offer and art 2:204 PECL on acceptance. 16 Such as detailed requirements for an offer (art 4:103 ACQP) and the binding effect of unilateral promises (art 4:109(1) ACQP). 17 In particular with respect to the individual aspects of conclusion of contract via offer and acceptance, and also concerning defects in consent (arts 30 et seq.; arts 48 et seq. CESL-D). See Schmidt-Kessel CESL/Gebauer Vorbemerkung arts 30 et seq. CESL-D paras 3–4. 18 See Chapter 1 para 21. 19 art 27 Consumer Rights Directive; previously art 9 Distance Selling Directive (which provided the basis for art 4:106 ACQP).

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promises20 cannot be regulated by a law of contract that is only applicable by means of an agreement between the parties. Furthermore, in some respects the CESL appears to have been reluctant to include matters which are of considerable importance in practice, but which have received little attention in the legislation and jurisprudence of the Member States and have been inadequately discussed in legal doctrine. It would be especially desirable if the further development of European private law were to direct greater attention to the many different forms of conclusion of contract without the traditional structure of offer and acceptance. 2. Agreement a) Principle

The requirement in European contract law for the formation of a contract and 10 creation of rights and obligations for the parties is essentially an agreement between the parties. 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. 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 law21, 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 contract22 but has used different means to modify and develop the principle.23 The PECL, Acquis Principles and the DCFR24 have assisted the CESL in determining the following requirements for the conclusion of a contract: Article 30 CESL-D Requirements for the conclusion of a contract (1) A contract is concluded if (a) the parties reach an agreement; (b) they intend the agreement to have legal effect; and (c) the agreement, supplemented if necessary by rules of the Common European Sales Law, has sufficient content and certainty to be given legal effect. (2) Agreement is reached by acceptance of an offer. Acceptance may be made explicitly or by other statements or conduct. (3) Whether the parties intend the agreement to have legal effect is to be determined from their statements and conduct.

20 21 22 23 24

art 2:107 PECL; art 4:109 ACQP; art II.–1:103 DCFR. For more detail see Chapter 2 paras 1–5. Contract II/Schulze art 4:101 paras 4–6. See Chapter 2 para 15. art 2:101 PECL; art 4:101 ACQP; art II.–4:101 DCFR.

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b) Requirements

Conclusion of contract is therefore subject to three requirements: the parties reach an agreement; they intend the agreement to have legal effect (intention to be legally bound); the content and certainty of the agreement is sufficient to give legal effect. In principle these three core elements of conclusion of contract are firmly set by art 30 CESL-D. The article's subsequent paragraphs, as well as the further articles in Chapter 3 (arts 31–39 CESL-D), substantiate and supplement these set rules. 12 aa) The agreement to be reached by the parties (art 30(1)(a) CESL-D) arises by means of the acceptance of an offer (art 30(2) CESL-D). Offer and acceptance do not necessarily require express statements but can be inferred from conduct (‘conclusive behaviour’). Although arts 30(2) and 34(1) CESL-D25 explicitly refer to the acceptance, the exclusion of such possibility for the offer would not only contradict the values and purpose of arts 6 and 10 CESL-D but is also not necessary in light of the requirements art 31 CESL-D stipulates for the offer. 13 The requirement of an agreement is further substantiated by art 30(4) CESL-D according to which a party can give a specific matter such significance that a contract cannot be concluded until an agreement on that matter has been reached. In this context a typical, but not essential, question can be regarded by a party as fundamental for the conclusion of the contract.26 This provision guarantees the party's freedom to conclude a contract and to determine its content (art 1(1) CESL-D) even with regard to unusual, individual expectations and values. 14 bb) Furthermore, art 30(1)(b) CESL-D stipulates that the conclusion of contract requires the parties to intend to be legally bound by their agreement. Such a requirement particularly allows for an agreement of a contractually binding nature to be distinguished from mere favours with no legal effect (gentlemenʹs agreement, acte de complaisance).27 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). The requirement of an intention to be legally bound thus has significance for European contract law far beyond the CESL's 11

25 For criticisms of this double approach and the wording of art 30(2) CESL-D see Schulze CESL/Terryn art 30 CESL-D para 13. 26 Looschelders, ‘Das allgemeine Vertragsrecht im Common European Sales Law’ (2012) 212 AcP 581, 606; Schmidt, Der Vertragsschluss (Mohr Siebeck 2013) 270; Schulze CESL/Terryn art 30 CESL-D para 12; v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009) 279. 27 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.

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scope of application.28 It is not necessary for the parties to expressly state their intention to be legally bound, nonetheless art 30(3) CESL-D states that the parties' statements and conduct are determining factors for ascertaining such an intention in relation to their agreement.29 cc) A further requirement for the conclusion of contract is ultimately the suf- 15 ficiency of the content and certainty of the agreement (art 30(1)(c) CESL-D). This standard shall guarantee that the parties' respective obligations can be clearly determined in order to ensure the performance of the contract.30 Whereas art 4:101 ACQP is phrased in a general manner, art 30(1) CESL-D seeks to achieve precision through three aspects: firstly, it stipulates that the rules of the CESL are to be considered alongside the agreement in order to determine whether the agreement is sufficient. This does not only concern the rules on the content of the contract (Part III CESL) but also all parts of the CESL (i.e. including the rules in Parts IV–VIII on the obligations of the parties). Secondly, the agreement has to be sufficient in relation to its content and certainty, therefore the extent of the parties' terms (supplemented by the CESL) and their certainty (also supplemented by the CESL, e.g. rules on interpretation) are each to be considered. Thirdly, the standard for ‘sufficient’ content and certainty is set by ‘to be given legal effect’. Such wording has little conclusive effect by itself and requires substantiation by the aforementioned principle that the obligations of the parties have to be determined to the extent that allows for the performance of the contract.31 The requirement will often be satisfied by the seller's extensive pre-contractual information duties (especially in consumer contracts) under Chapter 2 CESL-D.32 c) Additional requirements?

aa) Art 30(1) CESL-D does not stipulate any further requirements for the con- 16 clusion of a contract. Consequently, contract formation will be effective when each of the stated requirements is fulfilled. Such a result cannot be inferred just from the wording of the provision but also from the history thereof,33 even though the CESL – in contrast to its counterparts in the PECL and DCFR34 –

28 See also art 2:102 PECL; art 4:101 ACQP; art II.–4:102 DCFR. 29 In general accordance with art 2:102 PECL and art II.–4:102 DCFR, also. 30 See also art 2:103(1) PECL and art II.–4:103(1) DCFR, which also share the same aim as art 30(1)(c) CESL-D but feature some individual differences. 31 It is however not necessary for all obligations to have been performed. It will rather suffice when the agreement provides criteria or mechanisms (e.g. transfer of responsibilities to a third party) by which a party's or both parties' obligations can be determined; see also, for example, Huber/Mullis, The CISG (Sellier 2007) 73–75; Schlechtriem/Schroeter, Internationales UNKaufrecht (5th edn, Mohr Siebeck 2013) paras 244–245. 32 Schulze CESL/Terryn art 30 CESL-D paras 7–8 with reference to the possibility in B–B contracts to also draw on art 14(1) CISG as a source of inspiration. 33 Schmidt-Kessel CESL/Gebauer art 30 CESL-D paras 17–18; Schulze CESL/Terryn art 30 CESL-D para 10. 34 art 2:101 PECL; art II.–4:101 DCFR.

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does not contain the confirmatory statement that no further requirements are necessary. The focus in the CESL on an agreement without additional requirements accords with the concept of contract expressed in the PECL and which, according to the Acquis Principles, also underlies EU contract law.35 Accordingly, the effectiveness of a contract in European contract law depends neither on consideration (such as in English law) nor a cause (such as in French law).36 17 bb) The principle of freedom of form is anchored in art 6 CESL-D. Unless stated otherwise within the CESL, contracts are therefore neither subject to specific formal requirements nor do they have to be evidenced.37 3. Modes a) Offer and acceptance 18

aa) Parties will frequently come to an agreement on the contract through the acceptance by one party of an offer made by the other. The underlying consensus consists of the congruence in content of the offer and the corresponding acceptance. Offer and acceptance are therefore traditionally central parts of the laws of the Member States which serve to describe the process of conclusion of contract and the elements of the agreement.38 However, EU legislation and ECJ decisions39 – as art 30(2) CESL-D – also consider a contract to be concluded by means of offer and acceptance;40 art 4:102(1) ACQP contains a corresponding rule. Nevertheless, current EU law is not a fruitful source for detailed provisions on the conclusion of contract via offer and acceptance. In contrast, arts 2:201 et seq. PECL and accordingly arts II.–4:201 et seq. DCFR have considered this matter in much more detail (in part through reference to the CISG as well as the UNIDROIT Principles).41 Arts 31 et seq. CESL are thus largely based on this model in order to substantiate and supplement the general rule on agreement via 35 art 4:101 ACQP; Contract II/Schulze art 4:101 para 9. See Chapter 2 para 15. 36 On both concepts Farnsworth, ‘Comparative Contract Law’ in Reimann/Zimmermann (eds), The Oxford Handbook of Comparative Law (OUP 2006) 908–910; Gordley, ‘Consideration’ in Smits (ed), Elgar Encyclopedia of Comparative Law (2nd edn, Edward Elgar 2012) 180; Kadner Graziano, Comparative Contract Law (Palgrave 2009) 101–149; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 76–100, 1049, 1153–1179; on consideration Whittaker/Riesenhuber, ‘Conceptions of Contract’ in Dannemann/Vogenauer (n 27) 120, 129– 130. 37 Limitations on the freedom of form are contained in, for example, art 19(4) and art 25(2) CESL-D with respect to distance contracts concluded electronically; see below, paras 30–31. Harmonized restrictions on the freedom of form may also be seen in national laws, for example in distance contracts concluded via telephone (art 8(6) Consumer Rights Directive). 38 Kötz/Flessner, European Contract Law (Clarendon 1997) 16–18; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 161; see also Kadner Graziano (n 36) 49–93; Ranieri (n 36) 176–228, 290–309; v. Bar/Clive (n 26) 294–295. 39 The ECJ made express reference to the conclusion of contract via acceptance of an offer, see Case C–96/00 Rudolf Gabriel [2002] ECR I–6367, paras 48–49. 40 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.

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offer and acceptance. They comprise rules on the terminology, revocation and rejection of an offer (arts 31–33 CESL-D) as well as on the acceptance (arts 34, 36–38 CESL-D), time of conclusion of contract (art 35 CESL-D), and conflicting standard terms (art 39 CESL-D). bb) Arts 31 and 32 CESL-D draw on two problems relating to an offer and for 19 which there no clear answer in the present acquis communautaire: firstly, the boundaries between the offer and other conduct and statements by a potential contract party prior to the possible conclusion of contract; secondly, the revocation of an offer before its acceptance. Article 31 CESL-D Offer (1) A proposal is an offer if: (a) it is intended to result in a contract if it is accepted; and (b) it has sufficient content and certainty for there to be a contract. (2) An offer may be made to one or more specific persons. (3) A proposal made to the public is not an offer, unless the circumstances indicate otherwise. Article 14 CISG Proposal (…) (2) A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal. Article 2:201 PECL Offer (…) (3) A proposal to supply goods or services at stated prices made by a professional supplier in a public advertisement or a catalogue, or by a display of goods, is presumed to be an offer to sell or supply at that price until the stock of goods, or the supplier's capacity to supply the service, is exhausted.

The boundary between an offer and other preparatory statements and conduct 20 covered by art 31 CESL-D is of considerable importance in practice.42 If such a statement or conduct is an offer, the other party merely has to state its acceptance in order for the contract to be concluded and therefore to give rise to rights and obligations for each party. However, if preparatory statements by one party do not fulfil the requirements of an offer, the acceptance by the other party is not binding. There will often be a divergence in the parties' interests and views in regard to whether the proposal by one party contains an offer or is merely an in41 Lando/Beale (n 38) xxv-xxvii; Lando, ‘Das neue Schuldrecht des Bürgerlichen Gesetzbuchs und die Grundregeln des europäischen Vertragsrechts’ [2003] RabelsZ 235; Vogenauer in Kleinheisterkamp/Vogenauer (eds), Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (OUP 2009) Introduction para 22. 42 Illmer, ‘Vertragsschluss’ in Basedow/Hopt/Zimmermann (eds), Handwörterbuch des Europäischen Privatrechts vol II (C.H. Beck 2009) 1697.

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vitation to the other party to make an offer (invitatio ad offerendum). For example, if a seller distributes a catalogue it will thus often not be in its interest to make an offer to each recipient as its stock level will only suffice for a limited number of customers. Alternatively, it may be in the interest of the recipient to not have to first make an offer and to thus keep the conclusion of contract in suspense until the seller responds. 21 National and international laws give different answers to this conflict of interests. 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;43 art 31 CESL-D follows these models. However, there are differences between the standards vis-à-vis proposals made in public advertisements, catalogues etc., and directed at an undefined group. Under art 14(2) CISG such a proposal is, in the absence of the contrary, to be considered merely as invitatio ad offerendum. In contrast, art 2:201(3) PECL and art II.–4:201(3) DCFR have not adopted this approach, which would be more favourable to the offeror (in consumer contracts this would often be the seller). These provisions instead provide that a proposal to deliver goods or to provide services at stated prices are presumed to be an offer to sell at the stated price. However, this is limited in public advertisements, catalogues, or in a display of goods by the supplier's capacity to supply the service or goods. Art 4:103(3) ACQP incorporates this rule in order to supplement existing EU law. Although no clear rule on this matter can be found within the acquis communautaire, such a supplementary rule in the Acquis Principles can serve to clarify whether (and at what moment) a contract is concluded and thus if, under the circumstances, protective rules in EU law can be invoked to benefit a party. The reference in the Acquis Principles to the solution favoured by the PECL and DCFR is founded by the important role that EU law attributes to public statements in other contexts.44 Moreover, this solution corresponds with the values of the Unfair Commercial Practices Directive.45 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 43 Some differences can be observed, cf art 14(1) CISG with art 2:201(1) PECL and art II.– 4:201(1) DCFR. 44 Contract II/Schulze art 4:103 para 1 relating to art 2(2)(d), (4) and art 6(1) Consumer Sales Directive, second sentence of art 3(2) Package Travel Directive; Møgelvang-Hansen, ‘The Binding Effects of Advertising’ in Schulze (n 11) 169–179. 45 For more detail see Schulze CESL/Terryn art 31 CESL-D para 10.

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‘clear indication’ but must rather satisfy the general requirements for notice (art 10 CESL-D). Although the CESL has not adopted 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. The questions of whether and under what circumstances an offer can be re- 22 voked remain unanswered in EU contract law. Moreover, the laws of the Member States also do not contain uniform answers to these issues:46 many national laws provide that the offer can be revoked until 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).47 A general statement in favour of one or the other solution can not be obtained from the acquis communautaire. Individual provisions instead indicate that EU law acknowledges both approaches and abstains from making a specific decision.48 Consequently, the Acquis Principles do not contain a rule on this matter. In contrast, art 16 CISG, art 2:202 PECL and art II.–4:202 DCFR adopt the approach of the majority of European states and allow for the revocation of the offer until its acceptance by the offeree. In principle, the CESL follows the approach of allocating of the risk to the offeree (for instance due to changes in interest resulting from market fluctuations or offers from third parties): art 32(1) CESL-D allows for revocation of an offer when the revocation reaches the offeree before the offeree has sent its acceptance. The same principle applies in the event of acceptance by conduct (art 34 CESL-D), i.e. before the contract has been concluded by such conduct. Offers directed at the public can be revoked but the revocation is to be by the same means as were used to make the offer (art 32(2) CESL-D). Art 32(3) CESL-D however provides three limitations on the principle of revocation: the offer indicates that it is irrevocable; the offer states a fixed period of time for its acceptance; or it was otherwise reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer. The latter exception expresses the principle of the protection of legitimate reliance and softens the model in which the offeror is principally bound by its offer. cc) The CESL rules concerning acceptance of the offer mainly follow the ap- 23 proach adopted by the PECL and DCFR. 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 (art 34 CESLD). Silence or inactivity are therefore not excluded as methods of communicating acceptance but require further circumstances in order to have binding effect (such as statements during the negotiations, framework agreements or agreements on such form of acceptance).49 The period for acceptance is regulated by 46 Kadner Graziano (n 36) 150–190. 47 Lando/Beale (n 38) 166–167; v. Bar/Clive (n 26) 304–307; Zweigert/Kötz, Introduction to Comparative Law (3rd edn, OUP 1998) 356–364. 48 See Recital 14 Consumer Rights Directive.

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art 36 CESL-D, which stipulates that the relevant time period is primarily determined within the offer. In the absence of such a contractual stipulation, the offer will otherwise remain open for a reasonable time after it was made. 23a If an offer can be accepted by conduct or through practices established between the parties (art 35(3) CESL-D) the offeree must behave in such a manner within the allocated (or reasonable) time frame for acceptance. However, according to art 37 CESL-D 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 which 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. 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 (art 38(1) CESL-D). This principle is adopted by most of the Member States and is also to be found in the PECL and DCFR.50 However, as is shown by the remaining, more detailed paragraphs of art 38 CESL-D, the CESL does contain deviations 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-D).51 24 dd) The acceptance of the offer results in the conclusion of the contract. The statement of acceptance must reach the offeror (art 35(1) CESL-D). The further requirements for communication of the acceptance – and thus for the formation and time of conclusion – are contained in the general provisions on notice (art 10 CESL-D).52 Arts 35(2) and (3) CESL-D contain specific rules for instances of acceptance by conduct: in principle the contract is concluded when knowledge of the conduct reaches the offeror. However, if the offeree can accept via conduct without notice to the offeror,53 the relevant point in time is the moment the conduct commences.54

49 Lando/Beale (n 38) 169; Schulze CESL/Terryn art 34 CESL-D paras 5–6; v. Bar/Clive (n 26) 310–311. 50 art 2:208 PECL; art II.–4:208 DCFR. 51 For further detail see Gebauer, ‘Der Vertragsschluss im EU-Kaufrecht (Art 30–39 GEKR)’ in Schmidt-Kessel, Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 121, 142–144; Schulze CESL/Terryn art 38 CESL-D paras 2–7, 12–13. 52 See Chapter 2 para 22. 53 See above, para 12. 54 Lando/Beale (n 38) 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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b) Conclusion without formal offer and acceptance

aa) In practice, a contract can be concluded in forms that are not limited to 25 conclusion via offer and acceptance. However, neither the acquis communautaire nor the CESL contain express rules reflecting the variation 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. Moreover, an agreement will also exist in relation to the successive dispatch of offer and acceptance. In conjunction with the application of provisions on offer and acceptance in several national laws55 and in the CISG56, art 2:211 PECL, art 4:102(2) ACQP, and art II.–4:211 DCFR each stipulate that the provisions on conclusion of contract are applicable if categorization in offer and acceptance is not possible. Similarly, such an analogous application of the CESL rules on offer and acceptance would also be appropriate if the statements of intention were to cross paths. However, the absence of a provision expressly permitting the possibility of analogous application ought not to be understood as a decision to exclude the application. It rather shows the reluctance in favour of how this relatively new field can be shaped by doctrine and jurisprudence on the basis of principles arising from arts 30 et seq. CESL-D on the conclusion of contract. bb) The valid application of rules to ‘crossing statements’ must also apply in 26 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 Understanding57, 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.58 Such forms of ‘gradual’ conclusion of 55 For example, for Germany Staudinger BGB/Bork (2010) § 146 para 7; for Italy: Bianca, Diritto Civile, vol 3: Il contratto (2nd edn, Giuffrè 2002) 238. 56 See Schroeter in Schlechtriem/Schwenzer (eds), Kommentar zum Einheitlichen UN-Kaufrecht (2013) Vorbemerkung zu arts 14–24 paras 15–45. 57 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 (n 11) 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 Handelsund Wirtschaftsverkehrs (C.H. Beck 2013) 85–89. 58 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; van Erp, Contract als Rechtsbetrekking (Willink 1990); Fontaine, ‘Offre et acceptation, approche dépassée du processus de formation des contrats’ in Mélanges offerts à Pierre Van Ommeslaghe (Bruy-

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contract have not been subjected to detailed rules 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 acceptance59 excludes other forms of conclusion of contract. On the contrary, the provisions rather indicate that precontractual statements are of considerable importance for the conclusion of contract.60 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). 27 If the parties have agreed to apply the CESL to their contract, but the contract is concluded ‘unevenly’ over several steps and without a formal offer and acceptance, one may use the aforementioned reasons regarding ‘crossing statements of intent’61 to determine that the CESL rules can be applied by analogy. The Commission's proposal has indeed not seized the opportunity to react to the growing importance of ‘gradual’ conclusion of contract (also in cross-border contracts) with express, specific rules providing an innovative response to the demands of modern contract law. However, this may be due primarily to the differences in development between theory and practice and thus the absence of a strong doctrinal basis for the legislator. The lack of express rules ought not to be construed as an exclusion of such contracts from the CESL's scope of application but rather as allocating the task (above all for legal doctrine) regarding the future application of the CESL. Clarification is necessary with regard to many questions concerning the ‘appropriate adaptation’62 in the corresponding application of the provisions (for instance, the revocation of individual statements during the conclusion of contract and the time at which individual contractual duties are created63).

59 60 61 62 63

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lant 2000) 115; Siems, ‘Unevenly Formed Contracts’: Ignoring the ‘Mirror of Offer and Acceptance’ [2004] ERPL 771; Schroeter in Schlechtriem/Schwenzer (n 57) Vorbemerkung zu arts 14–24, paras 23–24. See above, para 18. See above, paras 5–6. See above, para 25. See art 2:211 PECL. On the question whether a ‘magical moment’ remains necessary in relation to the ‘gradual’ conclusion of contract see Pfeiffer, Der Vertragsschluss im Gemeinschaftsrecht, in Schulze/ Ebers/Grigoleit (eds), ‘Informationspflichten und Vertragsschluss im Acquis communautaire’ (Mohr Siebeck 2003) 103, 110–111; Pfeiffer (n 11) 165–168; Schulze, ‘The New Challenges in Contract Law’ in Schulze (n 11) 3, 18–19.

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c) Specific media

aa) The acquis communautaire and the CESL do not contain a mere general 28 distinction between contracts concluded in the presence of the parties and contracts concluded in absentia.64 Each instead use specific provisions for the different forms in which a contract can be concluded without the simultaneous physical presence of the parties. The notion of a distance contract (see art 2(7) Consumer Rights Directive; art 2(p) CESL-Reg-D) covers a particularly broad range of means of distance communication that can be used to prepare and conclude the contract, for instance post, telephone, e-mail, and trading websites.65 Although the classification 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 CESL and the Consumer Rights Directive contain the limitation in consumer contracts that the contract has to be concluded under an organized distance sales or service-provision scheme.66 bb) The preparation and conclusion of contract often takes place through the 29 use of ‘real time’ communication which allows direct contact without simultaneous physical presence of the parties and without the loss of time (in particular, via telephone or some internet services).67 A guiding principle for this area is that the business has to disclose its identity and commercial purpose when making contact with the consumer via distance communication. Similar protective rules are not just contained in art 6 E-Commerce Directive (with regard to commercial communications which are part of, or constitute, an information society service) but also in art 3(3)(a) Distance Marketing of Financial Services Directive, art 8(5) Consumer Rights Directive and, correspondingly, art 19(1) CESL-D. The business is liable for every loss suffered by the consumer as a result of the business' failure to perform this duty (art 29(1) CESL-D).68 cc) E-commerce is of considerable importance for the internal market and 30 thus is encouraged by EU law.69 Conclusion of contract via e-commerce is therefore subject to specific rules on information and formal requirements (arts 10 and 11 E-Commerce Directive70), with further additional rules for B–C contracts 64 See, for example, § 130(1), 147 BGB; arts 4, 5 OR. 65 For more detail see Schulze CESL/Wendehorst art 2 CESL-Reg-D paras 32–36; Staudinger BGB/Thüsing (2012) § 312b paras 26–27. 66 It has however been considered not to limit the concept to consumer contracts; European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TAPROV(2014)0159), amendments 26, 49, 60–61. 67 For further detail on this concept and the various different forms of real-time communication see Sieber, ‘Technische Grundlagen’ in Hoeren/Sieber/Holznagel (eds), Multimedia-Recht (39th supplement, C.H. Beck 2014) Teil 1 paras 116–130. 68 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). 69 Recital 1 and art 1(1) E-Commerce Directive; see Glatt, Vertragsschluss im Internet (C.H. Beck 2002) 69.

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(art 8(2)–(7) Consumer Rights Directive) and requirements for performance of information duties where there are technical limitations (e.g. the limited number of characters that can be displayed on mobile phones).71 Similar requirements are also provided by arts 13(3), 19(1) and 25 CESL-D.72 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 recently shown in the ECJ decision Content Services73 with regard to the use of hyperlinks to information on the right of withdrawal,74 and may be the subject of future EU legislation and court decisions. The same also applies to numerous practical problems concerning the security and evidentiary issues surrounding the electronic conclusion of contract. Nonetheless, the provisions of the Regulation on electronic identification and trust services for electronic transactions75 will enter into force on 1st July 2016 and will regulate some of the issues concerning e-commerce. However, it will remain to be seen whether there will be an increase in the user's confidence in the security, confidentiality, integrity of data as well as the identity of the business partner, and thus whether e-commerce will be strengthened.76 31 dd) Art 8(6) Consumer Rights Directive 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 18(4) CESL-D 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 especially reinforced by the preventative aspect (irrespective of the consumer's interest in maintaining the contract) together with the strict sanction of ipso iure invalidity of the contract. The inclusion of this requirement in the sec-

70 art 4:105 ACQP is very similar, but provides a right to withdraw and a claim to damages as possible sanctions for breach. 71 Recital 36 Consumer Rights Directive. 72 For further detail see below, para 58. 73 Case C–49/11 Content Services [2012] ECR I–nyr. 74 See Chapter 2 para 30. 75 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. 76 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.

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tion 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. 4. Pre-contractual public statements a) Party to the contract

aa) The content of the contract may not only be determined by statements 32 made by the parties before and during the conclusion of the contract but also by pre-contractual public statements made by one of the parties.77 Such principle of European contract law has particularly emerged on the basis of the Consumer Sales and Package Travel Directives. According to arts 2(2)(d) and 6(1) Consumer Sales Directive, statements made in advertising, labelling and the guarantee can be relevant for determining the content of the seller's contractual obligations. Similarly, pre-contractual statements in a brochure for a package holiday are also binding on the organizer or retailer under art 3(2) Package Travel Directive. These rules in the two Directives have had an innovative effect on the development of contract law in Europe. They take account of the situation in modern sales practice in which decisive information about the goods or services are often not first given to the other party at the time the contract is concluded. The seller can rather use advertising in media, such as television, internet, magazines or catalogues, to influence the expectations of a large group of persons a long time before the parties contact one another and negotiate the conclusion of a specific contract. The customer will possibly not ask important questions about the object of the contract (e.g. the fuel consumption or engine performance when purchasing a car) because it considers itself to have been informed by the precontractual statements made in the advertisements. The Directives consider the business' responsibility in contributing to the customer's expectations and therefore bind it to its pre-contractual statements. bb) The binding effect under the Consumer Sales Directive concerns two situ- 33 ations. On the one hand a guarantee under art 6(1) binds the offeror not only to the conditions contained in the guarantee statement but also to the conditions set out in the associated advertising. On the other hand art 2(2) determines that public statements, made by the seller in advertising or labelling, are criteria for the presumption that the goods are in conformity with the contract. However, the seller is not bound by these public statements when it can prove that the statement had been corrected by the time the contract was concluded or that the statement could not have influenced the decision to purchase the goods. The decisive aspect thereby is not whether the seller was actually aware of the statement but rather whether it could have reasonably been aware thereof. The provision takes into account the difficulties that are caused by the multitude of influences in

77 For more detail see Møgelvang-Hansen (n 44) 169–179.

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complex advertising strategies when attempting to reconstruct the moment (as well as the content) of the buyer's opinion in the individual case – the buyer, even when receiving the goods, will often not be aware of the ways and time at which the advertising impacted on its purchasing decision. 34 The binding effect of pre-contractual statements in travel law concerns the information given in brochures. Where a brochure is made available to a consumer, it must contain legible, comprehensible and accurate information on the price and other relevant information (art 3(2) Package Travel Directive). The information in the brochure is binding on the organizer or retailer and need not be mentioned again either during the negotiations or in the contract itself. However, changes clearly communicated to the consumer before the contract is concluded, or due to a later agreement will not be binding on the organizer or retailer. 35 cc) The provisions in the Consumer Sales Directive and in the Package Travel Directive are restricted to the protection of consumers in the purchase of goods and package holidays, repsectively.78 However, these two specific situations do share a common principle: pre-contractual advertising and other public statements on the characteristics of goods and services remain key for the performance due under the contract without the need to refer to such statements during the negotiation stage. Such pre-contractual statements typically aim to influence the customer's decision on the contract and therefore form the basis for a legitimate expectation that the characteristics of the goods or services under the contract will correspond to the pre-contractual statements made by the business. The reason for the binding effect of pre-contractual public statements in consumer sales and package travel lies therein that the pre-contractual behaviour by the business has generated legitimate expectations in relation to the subject-matter of the contract. However, this basis for liability does not exist only in relation to the two types of contracts regulated by the Directives but rather generally applies to contracts for goods and services. The business must be aware that marketing these products through public statements will generate the corresponding expectations from its customers; it must therefore assume responsibility for these pre-contractual statements when concluding the contract. Art 4:107 ACQP has thus proposed a general rule for such pre-contractual public statements: Article 4:107 ACQP Pre-contractual statements by a contract party (1) Any public statement which a business, prior to the conclusion of the contract, makes about the specific characteristics of the goods or services which it supplies is binding under the contract unless: (a) when the contract was concluded, the other party was aware, or should have reasonably been aware that the statement was incorrect, or (b) the other party's decision to conclude the contract could not have been influenced by the statement, or (c) the statement had been corrected by the time of the conclusion of the contract

78 The concept of consumer varies in the Consumer Sales Directive and Package Travel Directive. See Chapter 2 paras 138–142 for further detail.

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I. Conclusion of 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-D has largely adopted this approach. Its first two paragraphs 36 generally cover the pre-contractual statements made by a business (both in the conclusion of B–C and B–B contracts). In contrast, art 69(3) and (4) CESL-D expand on the principle and give it further detail for consumer contracts. Article 69 CESL-D Contract terms derived from certain pre-contractual statements (1) Where the trader makes a statement before the contract is concluded, either to the other party or publicly, about the characteristics of what is to be supplied by that trader under the contract, the statement is incorporated as a term of the contract unless: (a) the other party was aware, or could be expected to have been aware when the contract was concluded that the statement was incorrect or could not otherwise be relied on as such a term; or (b) the other party's decision to conclude the contract could not have been influenced by the statement. (2) For the purposes of paragraph 1, a statement made by a person engaged in advertising or marketing for the trader is regarded as being made by the trader. (3) Where the other party is a consumer then, for the purposes of paragraph 1, a public statement made by or on behalf of a producer or other person in earlier links of the chain of transactions leading to the contract is regarded as being made by the trader unless the trader, at the time of conclusion of the contract, did not know and could not be expected to have known of it.79 (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.

According to the CESL, pre-contractual public statements can be binding on 37 the content of the contract without being included in the offer made to each individual party and without the need for the other party to be aware of the statements at the time the contract was concluded. The link between the binding effect of pre-contractual statements and the legitimate expections assists in explaining the exceptions provided in art 69(1) CESL-D. These follow art 2(3) and (4) Consumer Sales Directive and art 3(2) Package Travel Directive, albeit with minor differences.80 The public statements could therefore not generate such legitimate expectations if the other party knew or could be expected to have known that the statement was incorrect or that the statement could not have influenced the decision to conclude the contract. These restrictions – as well the underlying principle – are not limited to consumer sales and package travel and 79 The German version of (3) reads: ‘Handelt es sich bei der anderen Partei um einen Verbraucher, wird für die Zwecke des Absatzes 1 eine öffentliche Erklärung, die im Vorfeld des Vertragsschlusses von oder im Auftrag eines Herstellers oder einer anderen Person abgegeben wurde, als vom Unternehmer abgegeben angesehen, es sei denn, der Unternehmer kannte diese Erklärung bei Vertragsschluss nicht und hätte sie auch nicht kennen müssen.’ As the German version does not refer to ‘in earlier links of the chain of transactions leading to the contract’ it is not clear that the ‘other person’ has to be part of one of the earlier links in the chain; see Schmidt-Kessel CESL/Looschelders/Makowsky art 69 CESL-D para 20. 80 In particular through the additional limitation that the other party knew or could be expected to have known that it ‘could not otherwise be relied on as such a term’, see Schulze CESL/ Kieninger art 69 CESL-D para 5.

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can therefore be extended to other types of contract in which one can take account of expectations generated by pre-contractual statements in relation to the goods or services. b) Third parties

aa) Pre-contractual public statements may also bind a party to the contract even if the statement has originated from a third party. Art 69(3) CESL-D provides such an approach for consumer contracts when a public statement is made by or on behalf of a producer or other person earlier in the contract chain and the requirements of art 69(1) CESL-D are met. Aside from the exception of the circumstances listed in art 69(1)(a) and (b) CESL-D, statements by third parties are not binding if the business did not know or could not be expected to have known of the statement at the time the contract was concluded. The CESL therefore follows the approach in art 2(2)(d) Consumer Sales Directive, which contains a similar rule concerning the pre-contractual statements on the specific characteristics of the goods made by the producer or its representative(in particular in advertising or labelling). The same principle underpins art 3(2) Package Travel Directive when the organizer (art 2(2) Package Travel Directive) provides a brochure but the consumer concludes the contract with the retailer (art 2(3) Package Travel Directive). 39 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 party but is also determined by third party conduct.81 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. 40 bb) The personal scope of application of the CESL provisions on pre-contractual public statements by third parties has taken a different path than was originally paved for European contract law by the PECL and Acquis Principles: according to art 6:101(3) PECL pre-contractual public statements are to be treated as a source of the contractual obligations if they are made by a person who either advertises or markets the goods for the professional supplier, or is an earlier 38

81 See Chapter 2 paras 17–18.

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link in the chain of transactions. The requirement ‘professional supplier’ (i.e. a ‘business’ in modern EU legal terminology) means that the rule can generally be applied to all types of contracts (and not just specifically to consumer contracts). Arts 4:107 and 4:108 ACQP adopt a similar line as public statements by ‘the producer, another person in the business chain between producer and ultimate consumer, or any person advertising or marketing services or goods for the business’ (art 4:108 ACQP) will be binding irrespective of whether the other party to the contract is a business or a consumer (as long as the final seller is a business). In contrast, the Consumer Sales Directive stipulates the binding effect of precontractual statements only for consumer sales contracts. However, this accords with the general limitations on the scope of this Directive82 but does not allow one to draw the conclusion that the underlying principle can only concern consumer contracts. The general relevance of this principle in the acquis communautaire is rather illustrated by the second sentence of art 3(2) Package Travel Directive, which substantiates the principle for information given in the brochure. According to art 3 Package Travel Directive, businesses may also refer to the information given in the brochure if they have concluded a contract with an organizer or retailer. The term ‘consumer’ defined in art 2(4) Package Travel Directive encompasses – in contrast to the notion generally used in EU law83 – businesses that have concluded the contract for a commercial purpose or other purpose related to their business (e.g. booking a company trip). However, art 69(3) CESL-D expressly restricts the application of the provisions on precontractual 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.84 If the other party is not a consumer, the binding effect of statements by third parties is to be viewed in light of the requirements under art 69(2) CESL-D. The extent to which statements by third parties will have binding effect in B–B contracts will primarily depend on the interpretation of ‘engaged’ under art 69(2) CESL-D. A reason for this restriction to consumer contracts is not apparent. The adver- 41 tising measures taken by the seller, service provider or previous links in the business chain can exert considerable influence on parties' expectations irrespective of whether the party is a consumer or business (as is shown by the Package Travel Directive). The collaborative marketing structure means that advertising and other public statements by other participants equally benefit the business – this also does not depend on whether the other party is a consumer or a business. This issue has been taken into account by the ‘gold plating’ of the Consumer 82 art 1 Consumer Sales Directive. 83 See Chapter 2 paras 138–142. 84 For more detail see Schulze CESL/Kieninger art 69 CESL-D para 11; Looschelders/Makowski, ‘Inhalt und Wirkungen von Verträgen’ in Schmidt-Kessel (n 51) 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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Sales Directive by some national legislators when implementing the Directive into national law.85 The restriction to consumer contracts does 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 it is in the interest of consumer protection for these statements to have mandatory effect in the latter (as foreseen by art 69(4) CESLD). 5. Unilateral promises a) Binding effect 42

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-RegD) and is accordingly 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.

43

These rules reflect the significance that unilateral promies has gained both in several Member States as well as in international practice86 (e.g. concerning guarantees, prize notifications, securities87 and in relation to contract formation and ‘gradual’ conclusion of contract88). In most European countries, legal doc-

85 In Germany with the third sentence of § 434(1) BGB which extends the scope of art 2 Consumer Sales Directive to all sales contracts. 86 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).

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trine paid relatively little attention to this matter following the 17th and 18th century controversies surrounding the theories of contract and promise89. 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).90 Several provisions of EU law are also indicative of the possible binding effect of unilateral promises, for example art 6 Consumer Sales Directive the offeror of a guarantee is bound to the conditions set out in the guarantee statement and the associated advertising. This particular effect of the guarantee does not necessarily require an acceptance by the seller. Furthermore, it does not just concern the buyer–seller relationship but also guarantees given by the producer and other third parties.91 Ascertaining this binding effect of guarantees under art 6 Consumer Sales Directive does however not present a sufficient basis for the presumption that EU law generally attributes binding effect to unilateral promises.92 b) Protecting the offeror

Although the acquis communautaire does not contain a general rule on the 44 binding nature of unilateral promises, the laws of the Member States do indicate that EU contract law ought to protect the weaker party when it enters into obligations in particular situations. The purpose of such protection frequently lies 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 utile93 principle therefore require the protection (afforded by EU law when

87 Kleinschmidt, ‘Unilateral contract und einseitiges Versprechen’ [2007] Jura 250; Treitel, ‘The Agreement’ in Beale (ed), Chitty on Contracts (31st edn, Sweet & Maxwell 2012) paras 2–081–2–086. 88 For example letter of intent; to such (unilateral and bilateral) statements in conclusion of contract, paras 25–26. 89 See para 10. 90 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. 91 Atiyah/Adams/Macqueen, Atiyah's Sale of Goods (12th edn, Pearson 2010) 290–291; Micklitz, ‘Die Verbrauchsgüterkauf-Richtlinie’ [1999] EuZW 485, 488; Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 11 para 35. 92 Accordingly art 4:109(1) ACQP is not based on current EU law but rather on art 2:107 PECL; see Contract II/Schulze art 4:109 para 1. 93 See above, para 26.

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entering into or performing obligations) to extend beyond the contractual obligations to the obligations due to unilateral promises as long as the unilateral creation of obligations is permitted by EU and Member State law. If the wording of EU law only applies to contractual obligations, but there is a similar need for protection in relation to unilateral promises binding under EU or national law, one can consider an analogous application of the protection available under contract law (art 4:109(2) ACQP). 6. Inertia selling a) Principle 45

The delivery and provision of unsolicited goods and services (also known as ‘inertia selling’) is a further matter that is not regulated in the CESL. The absence of rules on this important issue is understandable due to the lack of the contractual basis between the parties – the CESL will thus not be applicable. The regulation of unsolicited goods and services is not just important for the concept of contract in European private law94 but also for national contract practice and jurisprudence on obligations. The second indent of art 9 Distance Marketing of Financial Services Directive and art 27 Consumer Rights Directive95 afford extensive to protection to consumers in respect of unsolicited demands for payment and aggressive marketing practices. They provide that silence or inactivity by the consumer following the receipt of unsolicited goods or services does not amount to an acceptance of an offer and may not result in any obligation whatsoever for the consumer (e.g. to pay consideration). These provisions are based on early policy considerations96 indicating the need for a Europe-wide protection of consumers from demands for payment for unsolicited goods.97 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.98 b) Functions

46

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

94 See Chapter 2 paras 8–13. 95 See Chapter 2 para 8. 96 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). 97 Howells/Weatherill, Consumer Protection Law (2nd edn, Ashgate 2005) 370–371; Ranieri (n 36) 310–322. 98 See Chapter 2 para 10.

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market behaviour.99 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 means that this requirement covers the obligations that can be placed on the consumer in respect of the acquisition, retention, rejection or use of the goods (or services).100 Moreover, this may particularly include (depending on the national legal system) tort law, unjust enrichment, benevolent intervention in another's affairs, and the legal relationships between owner and possessor. The increased need for protection, which can justify extensive consequences, is however restricted to the imbalance in consumer contracts and does not arise in contracts concluded between other parties. c) Requirements

In addition to the notion of the consumer,101 the ‘unsolicited’ performance 47 forms a central requirement in the relevant provisions.102 The concept ‘unsolicited’ will not extend to goods or services that have been delivered or supplied following an offer sent by the consumer to the business in relation to the particular goods or services subsequently provided. A distinction will be necessary if the consumer has not sent an offer but merely an invitatio ad offerendum103: 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.104 The goods or services will therefore be unsolicited if the consumer could not foresee such delivery of goods or services. Performance to be tendered under a contract cannot subsequently become 48 ‘unsolicited’ in the event that a party has terminated the contract through a remedy such as withdrawal or avoidance. This must also apply when remedies under national law provide that the contract is void from the outset (for instance the ex tunc effect of avoidance provided in the CESL and in many national laws105).106 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 ‘unso99 In particular the recourse to the policy on protecting the buyer from payment demands for unsolicited goods and from aggressive sales practices clearly expresses the preventative aim of the policy (recital 5 Distance Selling Directive, ‘Preliminary Programme’ (n 96). 100 Contract II/Schulze art 4:106 paras 5, 9; Bülow/Artz, Verbraucherprivatrecht (4th edn, C.F. Müller 2014) paras 636–641; MüKo BGB/Finkenauer (2012) § 241a paras 28–34; v. Bar/ Clive (n 26) 257–261. 101 See Chapter 2 para 138. 102 art 27 Consumer Rights Directive; art 9, 2nd indent Distance Marketing of Financial Services Directive. 103 See above, para 20. 104 Contract II/Schulze art 4:106 para 8; v. Bar/Clive (n 26) 258. 105 For example, in Dutch law art 3:53(1) BW; in German law § 142 BGB. 106 Contract II/Schulze art 4:106 para 8.

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licited’ if the consumer was aware or could have been aware thereof had it taken reasonable care.107 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 constitute ‘consent’108. In this respect the provisions strengthen the principle that the agreement between the parties forms the basis of contract.109 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,110 though this will not apply in the context of unsolicited performance covered by the Directives. Moreover, the mere use or consumption of the goods or services by the consumer can also not be considered an implied acceptance to an offer if there are no further circumstances allowing an inference that the consumer intended to be contractually bound. In each of these situations the consumer's behaviour is not directed outwards and therefore the wording and purpose of the Directives' provision do not allow for such behaviour to be consdiered as a ‘reaction’ or ‘response’ by the consumer to the business.111 50 bb) Furthermore, the consumer is ‘exempted from the obligation to provide consideration’ (art 27 Consumer Rights Directive) and ‘any obligation’ (art 9 Distance Marketing of Financial Services Directive). The concept of ‘consideration’ is not limited to just the reciprocal contractual obligations, such as paying 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.112 The teleological interpretation of the provisions therefore means that generally all obligations for the consumer will be excluded if they can result from the acquisition, use or destruction of the unsolicited good or service and irrespective of whether the obligations are contractual or non-contractual under EU or the applicable national law113 (in partic49

107 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). 108 art 27 Consumer Rights Directive, though already in the second indent of art 9 Distance Marketing of Financial Services Directive; second indent of art 9 Distance Selling Directive. 109 See above, para 10. 110 Ranieri (n 36) 151–160. 111 Contract II/Schulze art 4:106 para 9; v. Bar/Clive (n 26) 259; for German law MüKo BGB/ Finkenauer (2012) § 241a para 16; cf Casper, ‘Die Zusendung unbestellter Waren nach § 241a BGB’ [2000] ZIP 1602, 1607. 112 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’.

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ular 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). 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.114 Nevertheless, one has to consider whether such long-term exclusion of the owner's possession and use of its things is proportionate. 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.115 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. cc) The provisions on unsolicited performance do not exclude the possibility 51 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.116 However, 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. II. Pre-contractual Duties 1. Overview

European private law has devoted increasing attention to the question whether 52 a duty of loyalty exists between the parties even before the contract has been concluded. Present EU law has however only focused on particular aspects of pre-contractual duties, in particular determining pre-contractual information duties.117 Nonetheless, EU law is taking increasingly more steps, as is illustrated by the inclusion of particular duties which are subject to the principle of good 113 114 115 116 117

v. Bar/Clive (n 26) 260. ibid 260; see Chapter 2 para 10. HK-BGB/Schulze (2014) § 241a paras 7–8. See above, para 12. See Riesenhuber (n 91) § 7 paras 16–51.

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faith and honest market practices (art 5(2)(a), art 2(h) Unfair Commercial Practices Directive).118 53 The Acquis Principles have used the principle of good faith as a source for pre-contractual duties (see art 2:101 ACQP).119 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 which underpinned 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.120 The examination of the various national legal systems shows that the principle of good faith has not been adopted in all systems. Its use in common law systems is very limited and has principally only become part of such systems since the implementation of EU law (in particular the Unfair Terms Directive).121 54 However, the importance of the principle of good faith has increased in recent EU law, as is clearly shown in, for example, the Unfair Commercial Practices Directive; moreover, good faith can also be found in ECJ decisions.122 The proposed CESL makes frequent references to the principle of good faith;123 lasting changes would therefore be made to EU law which would not just be limited to the scope of the CESL. 55 One aspect of pre-contractual duties has been subject to comprehensive regulation at European level: information duties.124 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. The process is made increasingly difficult by the frequent asymmetry in information.125 Such an asymmetry formed part of the initial aspects of the notion 118 ibid paras 3–15. 119 On wording see Chapter 2 para 128. 120 Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 17–18. 121 See Chapter 2 paras 122–124. 122 For an overview and further references see Riesenhuber, System und Prinzipien des Europäischen Vertragsrechts (de Gruyter 2003) 398–401. 123 Recital 31, art 2(b) CESL-Reg-D; art 2, art 23(1), art 48(1)(b)(iii), art 49(1), (3), art 59(h), art 68(1)(c), art 83(1), art 86(1)(b), art 170(1) CESL-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. 124 COM (2006) 744 final (n 120) 19–20. 125 For more detail see Fleischer, Informationsasymmetrie im Vertragsrecht (C.H. Beck 2001) 1–5, 101–110, 140–146; on the consequences of the information asymmetries see Busch, Informationspflichten im Wettbewerbs- und Vertragsrecht (Mohr Siebeck 2008) 41–46; see also Mota Pinto, ‘Informationspflichten im Fernabsatz’ in Schulze/Ebers/Grigoleit (n 63) 157, 159, 160.

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of a consumer, namely a person who is lacking sufficient information due to the weaker contractual position. However, such structural asymmetry is not limited to consumer contracts as considerable information asymmetries also exist in contracts between businesses.126 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 56 asymmetries between the parties. Indeed, the development in many legal systems has shown an increase in the information duties that are imposed on a party 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 which have not only influenced the image of Europe but, more fundamentally, influenced the ideas whether and what duties the parties are to perform in the pre-contractual phase. Some legal systems aim more at party co-operation – as opposed to solely considering and asserting one's own interests – therefore resulting in extensive duties arising from the principle of mutual loyalty. The obligation to provide pre-contractual information therefore extends further into such ‘co-operative’ systems and is easier to justify. Other legal systems take the opposite approach by focusing more on the individual. Accordingly, such systems proceed from the general assumption that each person is responsible for obtaining the information it requires. These two approaches represent two ends of a spectrum composed of various models which adopt a conciliatory position. 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. The right to information in EU law is considered as one of the most important 57 instruments used to strengthen the position of the consumer.127 Catalogues of information duties have therefore been included in (or attached to) numerous directives,128 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.129 A further category of information serves to identify the party to the contract.130 126 See, with respect to financial services, Ebers, ‘Informations- und Beratungspflichten bei Finanzdienstleistungen’ in Schulze/Ebers/Grigoleit (n 63) 171, 174. 127 Börger, Sanktionen für die Verletzung vorvertraglicher Informationspflichten – Eine Untersuchung gemeinschaftsrechtlicher Vorgaben und deren Umsetzung in Deutschland, Frankreich und Großbritannien (Sellier 2010) 22–30; Heiderhoff, Grundstrukturen des nationalen und europäischen Verbrauchervertragsrechts (Sellier 2004) 266. 128 For further detail on information duties and their function see Riesenhuber (n 91) § 7 paras 16–51; for an overview of pre-contractual information duties see Börger ibid 45–46. 129 See, for example, art 5(1) and art 6(1) Consumer Credit Directive; recital 21 Distance Marketing of Financial Services Directive. 130 See, for example, arts 13(1)(c), 15(a) CESL-D.

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Other information explains the procedure that should lead to the conclusion of the contract. Such information play a prevailing role when the procedure requires particular knowledge or is technically complex (art 24(3) CESL-D).131 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. Article 24 CESL-D Additional duties to provide information in distance contracts concluded by electronic means (…) (3) The trader must provide information about the following matters before the other party makes or accepts an offer: (a) the technical steps to be taken in order to conclude the contract;; (b) whether or not a contract document will be filed by the trader and whether it will be accessible; (c) the technical means for identifying and correcting input errors before the other party makes or accepts an offer; (d) the languages offered for the conclusion of the contract; (e) the contract terms. (…)

Information obligations also exist which serve to make the other party aware of the commercial nature underlying the contract. In turn, other information concerns the availability of particular rights that are available to the consumer under the contract, for instance a withdrawal right which is available to the consumer in specific situations (e.g. an off-premises contract).132 59 The acquis communautaire contains very few provisions stipulating the sanctions for breach of information duties,133 though an extension of the withdrawal period belongs to the typical consequences under EU contract law.134 However, this reluctance to set sanctions is decreasing – academic research groups have drafted sets of rules, namely the Acquis Principles and the DCFR, which provide for a complete set of sanctions for the breach of information duties (art 2:208 ACQP; art II.–3:109 DCFR). An important element of these systems is to allow the contract to be modified in light of missing or incorrect information:

131 See also recital 36 Consumer Rights Directive; recital 23 and art 3(2) Distance Marketing of Financial Services Directive; recitals 12 and 13, art 4 (especially para 2) and 5 Distance Selling Directive; arts 5–7 E-Commerce Directive. 132 COM (2006) 744 final (n 120) 19–20. See also, for example, art 5(1)(o), art 10(2)(p) Consumer Credit Directive; recital 43 and art 6(1)(h) Consumer Rights Directive; art 4(1)(f) Distance Selling Directive; art 4 Doorstep Selling Directive. 133 For an overview see Börger (n 127); see also Mota Pinto (n 125) 167–169. 134 See, for example, art 14(1)(b) Consumer Credit Directive; art 10 Consumer Rights Directive; the second and third indents of art 6(1) Distance Selling Directive.

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II. Pre-contractual Duties Article 2:208 ACQP Remedies for breach of information duties (…) (2) If a party has failed to comply with its duties under Articles 2:201 (Duty to inform about goods or services) to 2:204 (Clarity and form of information), and a contract has been concluded, this contract contains the obligations which the other party could reasonably expect as a consequence of the absence or incorrectness of the information. (…) Article II.–3:109 DCFR Remedies for breach of information duties (…) (2) If a business has failed to comply with any duty imposed by the preceding Articles of this Section and a contract has been concluded, the business has such obligations under the contract as the other party has reasonably expected as a consequence of the absence or incorrectness of the information. Remedies provided under Book III, Chapter 3 apply to non-performance of these obligations. (…)

The European legislator is gradually beginning to refrain from primarily al- 60 lowing the Member States to regulate the sanctions for breach of information duties. The new Consumer Rights Directive contains detailed provisions on such sanctions.135 In comparison to the Acquis Principles, the CESL does indeed contain a more conservative set of sanctions; this set is complete (art 29 CESL-D) albeit not as far-reaching as the Consumer Rights Directive. Article 29 CESL-D Remedies for breach of information duties (1) A party which has failed to comply with any duty imposed by this Chapter is liable for any loss caused to the other party by such failure. (2) Where the trader has not complied with the information requirements relating to additional charges or other costs as referred to in Article 14 or on the costs of returning the goods as referred to in Article 17(2) the consumer is not liable to pay the additional charges and other costs. (3) The remedies provided under this Article are without prejudice to any remedy which may be available under Article 42 (2), Article 48 or Article 49. (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.

Furthermore, EU law contains information duties that apply outside the field 61 of consumer law. However, the focus on consumer law has resulted in a lower number of instances where such information duties apply. The continuously increasing number of information duties may indeed be 62 positive, yet it does have the negative effect that consumers are often overwhelmed because they are not able to cope with volume of information. The performance of the information duty is therefore reduced to a formality that has no positive influence on improving the consumer's actual level of information. The 135 See art 6(6), art 10 and art 24 Consumer Rights Directive.

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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 recently 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 which it can depend on and refer to. 63 The European legislator has also attempted to expand the pre-contractual duties in particularly risky financial transactions (e.g. investments) in order to protect the customer from taking too high a 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. 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 insuitability of the transaction. Article 19 Markets in Financial Services Directive Conduct of business obligations when providing investment services to clients (1) Member States shall require that, when providing investment services and/or, where appropriate, ancillary services to clients, an investment firm act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the principles set out in paragraphs 2 to 8. (2) All information, including marketing communications, addressed by the investment firm to clients or potential clients shall be fair, clear and not misleading. Marketing communications shall be clearly identifiable as such. (3) Appropriate information shall be provided in a comprehensible form to clients or potential clients about – the investment firm and its services, – financial instruments and proposed investment strategies; this should include appropriate guidance on and warnings of the risks associated with investments in those instruments or in respect of particular investment strategies, – execution venues, and – costs and associated charges so that they are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. This information may be provided in a standardised format. (4) When providing investment advice or portfolio management the investment firm shall obtain the necessary information regarding the client's or potential client's knowledge and experience in the investment field relevant to the specific type of product or service, his financial situation and his investment objectives so as to enable the firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him. (…) (10) In order to ensure the necessary protection of investors and the uniform application of paragraphs 1 to 8, the Commission shall adopt, in accordance with the procedure referred to in Arti-

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II. Pre-contractual Duties cle 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

In 1861 the celebrated German scholar, Rudolf von Jhering, published his ar- 64 ticle ‘Culpa in contrahendo oder Schadensersatz bei nichtigen oder nicht zur Perfektion gelangten Verträgen’136 in which he outlined his theory on the existence of loyalty duties between the parties in a relationship that can result in the conclusion of a contract. This ‘discovery’ has since had a long-lasting effect on the concept of contract: the existence of a legally-relevant relationship prior to the conclusion of contract reduces the significance of the contract itself. Jhering's focus was on the question of liability for breach of pre-contractual obligations and therefore he may not have intended that the content of the contract would also be determined by the pre-contractual phase. Nonetheless, Jhering assumed a contractual relationship that would oblige the parties to act loyally towards one another at the time the contract was concluded; this basis provided the source for pre-contractual obligations. The classification under contract was founded by the absence of a sufficient non-contractual foundation for liability, which continued after the German Civil Code entered into force in 1900. Jurisprudence and legal theory indeed renounced the fiction of a contract on the conclusion of contract but have nonetheless remained with the contractual approach. The liability due to culpa in contrahendo was expressly included in the German Civil Code following modernization of the law of obligations in 2002. Jhering's theory on the liability due to the breach of pre-contractual duties be- 65 came well-known 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. 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 confronted with cons- 66 dierable sceptism in other legal traditions, especially the common law. This is particularly notable in the English decision Walford v Miles:

136 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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Chapter 3 Conclusion and Content of Contracts However the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adverserial 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.137

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

The different approaches at national level allowed the drafters of the Acquis Principles to presume that the acquis communautaire does not contain a duty of loyalty between the parties to a contract that has not yet been concluded. However, these Principles were drafted at a time of few indications that good faith had made its way into the acquis and will become an integral part thereof.138 68 Art 4(2) Distance Selling Directive provided that the principles of good faith in commercial transactions were to be regarded when determining the form and manner in which the information was to be given to the consumer. The Distance Selling Directive has since been replaced by the Consumer Rights Directive, which neither includes this requirement nor makes reference to the standard of good faith. The catalogue of information in the Consumer Rights Directive is rather to be viewed as an independent source for the information to be given. Moreover, full harmonization prevents the national legislator from extending the list for off-premises or distance contracts even if this were justified by the principle of good faith. In comparison, art 5 Consumer Rights Directive concerns the information duties for other types of contracts and does not prevent other information duties arising under national law due to application of good faith. Such duties under the Directive can therefore not be derived solely from the principle of good faith. 67

Article 5 Consumer Rights Directive Information requirements for contracts other than distance or off-premises contracts (1) Before the consumer is bound by a contract other than a distance or an off-premises contract, or any corresponding offer, the trader shall provide the consumer with the following information in a clear and comprehensible manner, if that information is not already apparent from the context: (a) the main characteristics of the goods or services, to the extent appropriate to the medium and to the goods or services; (b) the identity of the trader, such as his trading name, the geographical address at which he is established and his telephone number; (c) the total price of the goods or services inclusive of taxes, or where the nature of the goods or services is such that the price cannot reasonably be calculated in advance, the manner in which the price is to be calculated, as well as, where applicable, all additional

137 Walford v Miles [1992] 2 AC 128, 138 per Ackner LJ. 138 For comments on the application of good faith in the acquis communautaire see COM (2006) 744 final (n 120) 19–20 and Chapter 2 paras 132–134.

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II. Pre-contractual Duties 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-today transactions and which are performed immediately at the time of their conclusion. (4) Member States may adopt or maintain additional pre-contractual information requirements for contracts to which this Article applies.

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

The aforementioned sources show that good faith has become a part of the 69 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.139 In light of the subject-matter, the Commission maintained that the principle of good faith did not apply in EU law and its inclusion would first have to be considered.140 However, the Commission failed to take account of the sources of EU law141 in which, even for modern law, the principle of good faith unarguably applies. This still holds true even though the Consumer Rights Directive is entirely silent on this principle. The actual break in the application of good faith as a source of rights and du- 70 ties for the parties (also in the pre-contractual phase) can be observed in the frequent reference to good faith in the proposed CESL.142 One cannot deny that the principle of good faith generally applies under the CESL. More significantly, if the CESL were to enter into force it would have an influence on the entire acquis communautaire. Furthermore, one could not deny that the principle of good faith will have become part of EU law, yet more fundamentally the development

139 COM (2006) 744 final (n 120) 17–18. 140 On the application of the principle of good faith see Chapter 2 paras 128–129. 141 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. 142 Recital 3, art 2(b) CESL-Reg-D, art 2, art 23(1), art 48(1)(b)(iii), art 49(1) and (3), art 59(h), art 68(1)(c), art 83(1), art 86(1)(b), art 170(1) CESL-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries.

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could affect legal relationships that do not fall within the CESL's scope of application. 71 The CESL contains a definition of the principle of good faith. As under the Unfair Commercial Practices Directive143 the principle has been extended to also include ‘fair dealing’. Both concepts are covered under one uniform definition: Article 2 CESL-Reg-D144 Definitions For the purpose of this Regulation, the following definitions shall apply (…) (b) ‘good faith and fair dealing’ means a standard of conduct characterised by honesty, openness and consideration for the interests of the other party to the transaction or relationship in question; (…)

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. 72 The CESL places the party under a duty to act in accordance with the principle of good faith and fair dealing (art 2(1) CESL-D). The consequences of breach are outlined in art 2(2) CESL-D and include preclusion from exercising or relying on a right, remedy or defence. In addition, breach of the duty of good faith and fair dealing may give rise to a claim for damages for loss suffered as a consequence. The provision therefore attributes a double function to the principle of good faith. Firstly, good faith is a limitation on the exercise of subjective rights. The first part of art 2(2) CESL-D is reminiscent of the English estoppel which can prevent or exclude the exercise of rights.145 Such a limitation thus allows good faith to function as a ‘shield’ and not as a ‘sword’ and therefore not as an independent source of rights and obligations. However, the second part of art 2(2) CESL-D modifies this concept by including ‘liability’ for the breach of rights and obligations which arise due to good faith. Accordingly, the principle can also be used as a ‘sword’. The wording ‘liable for any loss thereby caused’ is however unclear as it raises the question of how the ‘loss’ corresponds to the harm. Moreover, it is also unclear whether the breach of good faith will lead to 143 See Riesenhuber (n 91) § 7 paras 8–11. 144 The European Parliament has proposed to restructure art 2 CESL-Reg-D by placing a definition of ‘good faith and fair dealing’ in art 2(fe) CESL-Reg-D, see EP Legislative Resolution (n 66) amendment 37. 145 Peel, Treitel on the Law of Contract (13th edn, Sweet & Maxwell 2007) paras 3–077–3–086; 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.

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the application of other remedies for breach. Despite such uncertainties it is nevertheless clear that liability from culpa in contrahendo shall arise for the precontractual phase, though the optional nature of the CESL means that this liability can only arise if the CESL has been chosen and thus applies to the contract. Consequently, the pre-contractual phase is included in the regime of contractual liability. A notable feature of the CESL is the distinction between the pre-contractual 73 information duties in B–C and B–B contracts. Art 13 CESL-D states information duties for B–C contracts but does not refer to the principle of good faith. 74 However, art 23(1) CESL-D stipulates: Article 23 CESL-D Duty to disclose information about goods and related services (1) Before the conclusion of a contract for the sale of goods, supply of digital content or provision of related services by a trader to another trader, the supplier has a duty to disclose by any appropriate means to the other trader any information concerning the main characteristics of the goods, digital content or related services to be supplied which the supplier has or can be expected to have and which it would be contrary to good faith and fair dealing not to disclose to the other party. (…)

The provision gives rise to the question whether a duty to give information in B–C contracts is not derived solely from the principle of good faith. However, the reference to good faith in B–B contracts allows greater flexibility in ascertaining the scope of the information duties. In this respect, one has to bear in mind the differences in contracting practice for B–C and B–B contracts and therefore the variation in approach. B–C contracts are primarily standardized, mass contracts in nature and therefore it is possible to determine an exhaustive list of information duties. This approach is also in the interest of the seller as it can be sure that it will have correctly performed its information duties;146 such certainty is all the more relevant due to monitoring by consumer organizations and authorities. However, the circumstances may lead to the paradox that the information duties in a particular B–B contract may be more extensive than in a B–C contract. This is somewhat theoretical as such extensive information duties are seldom likely to arise from the principles of good faith and fair dealing, yet it does highlight the possibility for further information duties in B–B contracts. One can therefore see that the principle of good faith is better suited to individually-negotiated contracts. 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. 146 See Chapter 3 paras 62–63.

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The clarity of the above distinction is however clouded by somewhat unclear wording in art 48(1)(b)(iii) CESL-D: Article 48 CESL-D Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (…) (b) the other party: (…) (iii) knew or could be expected to have known of the mistake and caused the contract to be concluded in mistake by not pointing out the relevant information, provided that good faith and fair dealing would have required a party aware of the mistake to point it out; (…)

The provision names the principle of good faith as a general source for precontractual information duties, yet this does not accord with the method for information duties – the provision has been worded to give the impression that all information duties stem from the principle of good faith. As noted above, this is misleading. If art 48(1)(b)(iii) CESL-D were to be passed in its present form, the requirement for avoidance would have to be extended by interpretation in order to cover the breach of those information duties that do not result from the principle of good faith. In contrast, art 48(1)(b)(iii) CESL-D should not be understood as introducing an additional source of information duties extending beyond the information listed in art 13 CESL-D or also providing that further information is to be given which arises solely from the principle of good faith and fair dealing in consumer transactions. 77 By comparison, art 49(1) CESL-D (on fraud) refers to all statutory information duties. It is not clear why art 49(1) CESL-D refers to all statutory pre-contractual information duties alongside the information duties arising from the principle of good faith, yet art 48 CESL-D does not. The difference cannot be explained by ranking the statutory information duties more highly as both groups are given equal weight in art 49 CESL-D – avoiding the contract due to fraud requires the fraudulent non-disclosure of all information that is to be given, irrespective of whether this duty is statutory or due to good faith. 78 The principle of good faith is also expressed in other aspects of the CESL: it is the standard for the interpretation of contracts (art 59(h) CESL-D) and the control of contract terms (art 83(1), art 86(1)(b) CESL-D). Adopting the CESL would therefore mean that the principle of good faith will have clearly become a fixed part of the acquis communautaire and thus it would be unnecessary to ask whether or not the principle applies in European contract law. 76

5. Pre-contractual duties and good faith in the DCFR 79

The DCFR represents an amalgamation of various different sources: where applicable, the text from the Acquis Principles was modified and woven with the 148

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text from the Principles of European Law (PEL) and indirectly with the text from the PECL.147 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.148 Although the DCFR had considerable influence on the content of the CESL149 one can nevertheless see clear differences between the two sets of rules, particularly in relation to good faith. The concept of good faith is used more sparingly than in the proposed CESL. Article III.–1:103 DCFR Good faith and fair dealing (1) A person has a duty to act in accordance with good faith and fair dealing in performing an obligation, in exercising a right to performance, in pursuing or defending a remedy for non-performance, or in exercising a right to terminate an obligation or contractual relationship. (…) (3) Breach of the duty does not give rise directly to the remedies for non-performance of an obligation but may preclude the person in breach from exercising or relying on a right, remedy or defence which that person would otherwise have.

In contrast to the CESL, art III.–1:103(3) DCFR provides that the breach of the duty of good faith and fair dealing does not give rise to remedies. However, both sets of rules provide that the breach of good faith can preclude the party in breach from exercising or relying on rights, remedies or defences. The provision implements the common law concept of estoppel, which is similar to good faith in this respect, and is based on the assumption that good faith can solely function as a ‘shield’ and not as ‘sword’. The wording of art III.–1:103(1) DCFR implies that the provision only applies to a relationship between the parties which 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 can not serve as a general source for pre-contractual duties. 80

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 147 Contract II/Ajani/Schulte-Nölke Preface xiii–xiv. 148 See above, paras 64–66. 149 See Commission, ‘A Common European Sales Law to facilitate cross-border transactions in the single market’ COM (2011) 636 final, 5–7.

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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. 81 The second provision concerns the breach of the duty of confidentiality in relation to the information given in the course of negotiations: Article II.–3:302 DCFR Breach of confidentiality (1) If confidential information is given by one party in the course of negotiations, the other party is under a duty not to disclose that information or use it for that party's own purposes whether or not a contract is subsequently concluded. (2) In this Article, ‘confidential information’ means information which, either from its nature or the circumstances in which it was obtained, the party receiving the information knows or could reasonably be expected to know is confidential to the other party. (3) A party who reasonably anticipates a breach of the duty may obtain a court order prohibiting it. (4) A party who is in breach of the duty is liable for any loss caused to the other party by the breach and may be ordered to pay over to the other party any benefit obtained by the breach.

82

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

As stated above, the Acquis Principles provide a relatively broad basis for liability due to breach of the duty of good faith.150 The Principles do not only determine that the parties are to act in accordance with good faith during the precontractual phase (art 2:101 ACQP) but also the standard for the business' precontractual 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). 84 It has been questioned whether there is actually a sufficient basis in the acquis communautaire for such liability.151 No source directly regulates this type of lia83

150 See Chapter 2 paras 123–135.

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bility. However, CJEU jurisprudence does provide clear indications that such a basis for liability is not alien to EU law. Indeed such liability for the European Community was affirmed in the decision Embassy Limousines152 in which the non-contractual basis for the liability was derived from the EC Treaty.153 The criticism by Jansen and Zimmermann on the wording of the Acquis Prin- 85 ciples draws on the availability of withdrawal rights for consumers in particular situations.154 In their opinion, art 2:103 ACQP could form the basis for the liability of the consumer if it concluded the contract with the intention of later withdrawing.155 This would not be compatible with EU law, though it is important to note that one can speak of abuse in relation to withdrawal rights and that this can have indirect, negative consequences for the consumer. The provisions on withdrawal rights can, however, be considered as lex specialis even if one does not want to follow this opinion. 7. Pre-contractual information duties in the Member States

For many years, Community and Union law has influenced the consumer pro- 86 tection law of the Member States, particularly in the area of pre-contractual information duties. The implementation of the EU requirements has resulted in long-lasting changes in national laws. A further phase of these changes arises from the developments in financial markets. The Markets in Financial Instruments Directive has introduced extensive information duties as well as the obligation to warn clients if the financial product is not suitable for their needs. Furthermore, the business has to identify the suitability of these products for the individual client. The approaches towards information duties vary greatly amongst the different 87 legal systems. The common law is most reluctant as it assumes that – as for precontractual good faith – each party is responsible for obtaining the information that it requires, whereas the other party may not provide false information. Consequently, there is therefore rather the tendency to narrowly interpret the information duties implemented on the basis of European law. In contrast, continental and Scandinavian legal traditions have been more open to the European information duties. The seller's information duties under the French Code Civil are extended through interpretation to other contracts but also to pre-contractual situations. German law was previously sceptical of information duties; the common expression ‘Augen auf, Kauf ist Kauf’ (in other words caveat emptor) highlighted that each party was responsible for obtaining the information it required, although some information could not be withheld (e.g. on defects). This original

151 See Jansen/Zimmermann, ‘Restating the Acquis communautaire? A Critical Examination of the “Principles of the Existing EC Contract Law’ [2008] MLR 505, 525. 152 Case T–203/96 Embassy Limousines [1998] ECR II–4239. 153 The Court based liability on art 215(2) EC Treaty, ibid para 45. 154 Jansen/Zimmermann (n 151) 520–531. 155 See ibid 527.

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perception was particularly changed by the increasing importance of the concept of good faith and its effect of creating information duties under the circumstances of the individual cases. The tendency towards information duties was encouraged, especially in consumer contracts but also in other situations in which considerable asymmetries existed between the parties and where a party was to trust the purported competence of the other. 8. Information duties in the acquis communautaire

Current EU law contains a series of provisions which 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. Indeed, one of the consumer's key weaknesses lies in the asymmetry of information;156 consequently the European legislator has attempted to combat this weakness by imposing information duties on the business.157 The information duties do not just cover the field of consumer law but also extend to other contractual situations. For example, the Services Directive practically contains no limitations to particular types of recipients – the mere fact that a services contract shall be concluded will suffice in order for the information duties to apply.158 In addition, information duties arise in e-commerce regardless of the status of the parties;159 the mandatory nature of the information duties in this context does however depend on whether the customer is a consumer.160 The mandatory nature of the information duties also depends on the status of the parties in investment contracts. 89 Information duties serve different purposes including, for example, identifying the party, informing of the intention to create legal relations, technical aspects of the procedure for concluding the contract, the subject-matter of the contract, requirements for performing the contract, risks, content of the contract and 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.161 However, before the Services Directive and, above all, the Consumer 88

156 157 158 159 160 161

152

See above, para 55. See above, paras 55–57; see also MüKo BGB/Emmerich (2012) § 311 para 104. See art 22 Services Directive. See arts 5–7 E-Commerce Directive. See art 10(1) E-Commerce Directive. See, for example, on the information duty concerning the right of withdrawal art 5(1)(o), art 10(2)(p) Consumer Credit Directive; art 6(1)(h) Consumer Rights Directive; art 4(1)(f) Distance Selling Directive; art 4 Doorstep Selling Directive; art 17(1) CESL-D; further information duties under art 10(2)(q), (r) and (s) Consumer Credit Directive (on the excerise of the rights under art 15 Consumer Credit Directive); art 5(1)(f) Consumer Rights Directive (on the termination of contracts of undetermined duration); art 16(b), art 19(3)(e) CESL-D (on the conditions for terminating the contract); the procedure for early payment art 10(2)(r),

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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 90 all the information listed in its art 21. The notion of a services contract is very broad.162 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,163 though this Directive distinguishes between information duties in off-premises and distance contracts, and other types of contract. Offpremises and distance contracts are subject to full harmonization164 and therefore the Member States cannot introduce any additional information duties for these types of contracts.165 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- 91 premises or distance) involving day-to-day transactions performed immediately at the time they are concluded: the information duties may not apply to such contracts (art 5(3) Consumer Rights Directive). This exception is necessary because the business in day-to-day transactions (e.g. in a supermarket) would otherwise have to provide all the information listed under the Directive, which would certainly not be practicable. 9. Between pre-contractual information duties and fair trading

Pre-contractual information duties are also included in the Unfair Commercial 92 Practices Directive:166 Article 7 Unfair Commercial Practices Directive Misleading omissions (1) A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations 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. (…)

162 163 164 165

166

the procedure for termination (s); on ADR art 10(2)(t) Consumer Credit Directive; art 6(1)(t) Consumer Rights Directive; art 13(1)(g) CESL-D; on the applicable law art 8(1) in conjunction with art 9(1) CESL-Reg-D; see the corresponding comments in the Schmidt-Kessel CESL and Schulze CESL commentaries. cf the definitions in art 4(1) Services Directive with the restrictions under the second sentence of art 2. arts 5 and 6 Consumer Rights Directive. See recital 5 Consumer Rights Directive. 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] 3 Centre for the Study of European Contract Law Working Paper Series 5, 6 available online under http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1639436 accessed 9 March 2015. Riesenhuber (n 91) § 7 paras 16–51.

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This Directive does not aim to regulate individual contractual relationships but rather seeks to structure the market according to the principles of fair trading.167 In practice, however, the boundary between individual contract law and fair trading is no longer easily recognizable.168 Art 7 Unfair Commercial Practices Directive 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. 10. Standardized performance

94

Imposing new information duties does not always lead an improvement in level of information for the other party: the volume of information creates difficulties for this party to take on, process and sort the information it has received.169 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 Directive170 and the Markets in Financial Instruments Directive171. 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.172 11. Pre-contractual information duties in the CESL

95

The pre-contractual information duties in the CESL generally follow the concept adopted by the Consumer Rights Directive; only the structure has been altered. In comparison to the Consumer Rights Directive, the CESL first lists the information duties for distance and off-premises contracts (arts 13–19 CESL-D) before the general information duties for other types of contracts (art 20 CESL-D). The proposed CESL does however regulate information duties in B– B contracts (art 23 CESL-D); these information duties are derived from the principle of good faith and fair dealing (art 23(1) CESL-D).

167 See art 1 Unfair Commercial Practices Directive. 168 Busch (n 125) 32–39. 169 Twigg-Flesner/Schulze, ‘Protecting rational choice: information and the right of withdrawal’ in Howells/Ramsay/Wilhelmsson, (eds), Handbook of Research on International Consumer Law (Edward Elgar 2010) 142–143. 170 See the European standard information for consumer credit in Annex II Consumer Credit Directive. 171 Provided at the end of art 19(3) Markets in Financial Instruments Directive. 172 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 http://www.zoll.jura.uni-osnabrueck.de/files/Consumer_Credi t_Final.pdf accessed 9 March 2015.

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The information duties in consumer contracts are structured in accordance 96 with the function of the different pieces of information. Accordingly, art 13 CESL-D generally outlines the duty to inform of the subject-matter of the contract (paragraphs a, b), the identity of the business (paragraph c), the contract terms (paragraph d) as well as the rights of withdrawal (paragraph e); arts 14–17 contain the specifics for each of these types of information. The further information duties concern guarantees, after-sales services and complaints handling policy (paragraph f), ADR mechanisms (paragraph g) as well as particular technical aspects relating to digital content (paragraphs i, j). The technique is somewhat surprising because art 20 CESL-D concerns other types of contract yet almost repeats art 13 CESL-D. As in the Consumer Rights Directive, day-to-day contracts performed immediately at the time of their conclusion are not subject to the information duties. The pre-contractual information duties in the CESL are faced with a funda- 97 mental problem which is linked to the optional nature of this instrument. The regulation of the pre-contractual phase in the optional instrument appears to create a paradox – the application of the European sales law (if passed in its current form) is subject to selection as the law regulating the contract (art 8(1) CESLD). 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. However, it can be argued that the rights and duties of the parties can be determined retrospectively. This nonetheless poses the question whether the provisions of the optional instrument would therefore be inapplicable if it is not actually chosen by the parties. The business will have to know which duties it will have to perform before 98 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 has not yet been sufficiently clarified, it can be assumed that the effect of the optional instrument on determining the rights and duties in the pre-contractual phase shall solely depend on the intention to conclude the contract under its regime. In this respect, one can presume the optional instrument to have a direct effect on the pre-contractual phase. 12. Pre-contractual information duties in the Acquis Principles and DCFR

The Acquis Principles represented the first attempt to structure the pre-con- 99 tractual information duties in the acquis communautaire. In so doing it included the duties that arise in relation to the marketing of goods and services (art 2:202 ACQP). The Acquis Principles use the specifics of European directives in order to draft general principles173 and therefore they include information duties that 173 Contract II/Dannemann Introductory Part xxiii–xxvi.

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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. 100 The pre-contractual duties under the DCFR have generally been drafted in line with the Acquis Principles though some distinctions can be observed. The structure of the DCFR is more conservative and not as greatly influenced by the development of the acquis communautaire; arts II.–3:101 to 3:108 DCFR therefore only contain general information duties. The specific information duties tailored to particular situations are, with the exception of arts II.–3:103 to 3:105 DCFR, missing. The DCFR also contains specific information duties but these are, more traditionally, linked to the particular types of contract. 13. Consequences of breach

For many years the Member States were generally responsible for determining the sanctions for the breach of information duties foreseen 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;174 these differences also resulted in notable ECJ decisions in cases such as Heininger175 and Hamilton176. The Consumer Rights Directive should now remove these unfounded differences, at least in distance and offpremises contracts. However, one can note a further tendency to also remove such differences in other directives. 102 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 at remedying 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 101

174 See above, para 145. 175 Case C–481/99 Heininger [2001] ECR I–9945. 176 Case C–412/06 Hamilton [2008] ECR I–2695.

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the information duty will be resolved by adapting the content of the contract to the other party's legitimate expectations. Secondly, art 2:208(3) ACQP provides a right to damages due to breach. Furthermore, the Acquis Principles refer to the rules on damages due to non-performance. It is therefore clear that the breach of an information duty is to be equated with the non-performance of a contractual obligation. The DCFR includes a very similar rule in its art II.–3:109, which was derived from the Acquis Principles. However, in contrast to the Acquis Principles, the DCFR contains rules on defects in consent. In this respect art II.– 7:201(b)(iii) DCFR contradicts the model of the self-correcting contractual content; here the conservative elements of this draft are not sufficiently in tune with a new development. By comparison, the new Consumer Rights Directive includes only few rules 103 outlining the sanctions for the breach of information duties. The European legislator has not provided any sanctions for the breach of information duties in contracts other than off-premises or distance contracts, therefore leaving the responsibility with the national legislator. Nonetheless, the Consumer Rights Directive does contain two specific sanctions for breach of certain information duties in distance and off-premises contracts: the consumer will not have to bear any additional charges or costs if it has not been informed thereof (art 6(6), in a similar vein art 14(1), (2) and (4)); the withdrawal period will be extended if the consumer has not been provided with the information on the right of withdrawal (art 10). The CESL contains more detailed rules than the Consumer Rights Directive: 104 Art 29(1) CESL-D provides – as the Acquis Principles – a right to damages; art 29(2) CESL stipulates that consumer will not be liable to pay additional costs if the business has breached its duty to inform thereof. Furthermore, the provisions on defects in consent will also apply (art 29(3) CESL-D). Art 42(2) CESL-D contains the consequences of a failure to inform the consumer of its right of withdrawal. The 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 has remained with a rather conservative approach towards regulating the sanctions for breach of information duties despite an initial intention to follow the Acquis Principles.177 III. Defects in Consent 1. An alternative concept for protecting correct decisions?

The law on defects in consent is a major part of the entire concept of private 105 autonomy and thus belongs at the heart of the continental legal tradition. Private 177 See the Feasibility Study published by the Expert Group on European Contract Law, available online under http://ec.europa.eu/justice/contract/files/feasibility_study_final.pdf accessed 28 April 2015.

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autonomy – as an expression of personal freedom – requires accompanying conditions for a free, conscious decision that has not been distorted by false expectations. The legal relevance of defects in consent is limited by the need for legal certainty.178 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.179 Aside from these differences across Europe, it is to be emphasized that the regulation of defects in consent primarily stems from the notion of an individually-negotiated contract.180 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.181 At the same time, the European legislator is striving towards creating instruments that shall fulfil the function of shaping the market; these instruments are above all the pre-contractual information duties182 and the rights of withdrawal183. 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. 106 Tension exists between these European approaches and traditional laws on defects in consent. For example, there are overlaps between the respective functions of right of withdrawal and the rules on defects in consent, but fundamental differences in the requirements. No reason is required for withdrawal and therefore it is irrelevant whether the consumer had been induced to make a mistake or it simply changed its mind during the withdrawal period;184 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 178 Schulze CESL/Pfeiffer art 48 CESL-D para 1. 179 Stone/Devenney, Text, Cases and Materials on Contract Law (3rd edn, Routledge 2014) 367; on the comparison between civil law and common law see Dalhuisen, Dalhuisen on Transnational, Comparative, Commercial, Financial and Trade Law, Contract and Movable Property Law, vol 2 (5th edn, Hart 2013) 1.4.2. 180 Martens, ‘Einigungsmängel im EU-Kaufrecht’ in Schmidt-Kessel (n 51) 179, 189; SchmidtKessel CESL/Martens art 48 CESL-D para 1. 181 Commission, ‘Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law’ COM (2011) 635 final, 4, 6; Jansen/Zimmermann (n 151) 510. 182 See Part 2, Chapter 2 CESL-D. 183 See Part 2, Chapter 4 CESL-D. 184 See Chapter 3 para 142; 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.

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are tailored to fit this purpose. Though shall the possibility of withdrawal limit the right to avoid the contract because of a mistake? Should a business, who has performed its information duties, be safe in knowing that avoidance of the contract because of a mistake is excluded once the withdrawal period has expired? European law cannot give answers to these questions as long as the system of contract law is incomplete. European law features a different approach which can represent an alternative 107 to rules on defects in consent: adjusting the contract in light of the other party's (consumer or debtor) legitimate expectations185. It concerns those provisions which cause the information or statement by a third party to become part of the contract: Article 3 Package Travel Directive [Brochure] (1) Any descriptive matter concerning a package and supplied by the organizer or the retailer to the consumer, the price of the package and any other conditions applying to the contract must not contain any misleading information. (2) When a brochure is made available to the consumer, it shall indicate in a legible, comprehensible and accurate manner both the price and adequate information concerning: (…) The particulars contained in the brochure are binding on the organizer or retailer, unless: – changes in such particulars have been clearly communicated to the consumer before conclusion of the contract, in which case the brochure shall expressly state so; – changes are made later following an agreement between the parties to the contract. Article 2 Consumer Sales Directive Conformity with the contract (1) The seller must deliver goods to the consumer which are in conformity with the contract of sale. (2) Consumer goods are presumed to be in conformity with the contract if they: (…) (d) show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, particularly in advertising or on labelling.

At first glance it would seem that these provisions have little to do with the 108 law on defects in consent. However, it does actually concern provisions which provide a mechanism for adapting the contract to take account of the consumer's legitimate expectations. The relevance of a mistake is therefore diminished because the contract is automatically adjusted in light of potential expectations. Integrating a system of self-correction is a promising alternative to the traditional solutions under the law of defects in consent.

185 On the principle of legitimate expectations see Micklitz, ‘Perspektiven eines europäischen Privatrechts’ [1998] ZEuP 253, 263–264.

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2. Defects in consent in the acquis communautaire 109

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 E-Commerce Directive Placing of the order (…) (2) Member States shall ensure that, except when otherwise agreed by parties who are not consumers, the service provider makes available to the recipient of the service appropriate, effective and accessible technical means allowing him to identify and correct input errors, prior to the placing of the order.

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.186 The rule highlights a characteristic of EU law, namely to develop an instrument that determines a standardized preventative measure though without the need to question whether the consumer's decision was influenced by a mistake caused by the other party. Moreover, it emphasizes a further feature of EU law in relation to information duties: the E-Commerce Directive does not provide sanctions for breach of this duty but rather the responsibility to introduce sanctions for breach remains – as in other directives187 – with the national legislator.188 111 The Acquis Principles have strived to create a complete rule which contains a sanction for breach, namely a right for the other party to withdraw from the contract:189 110

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.

186 Contract II/Lehmann art 4:105 para 1. 187 See above, para 101. 188 Recital 54 E-Commerce Directive; on the space now available in German law see Spindler, ‘E-Commerce in Europa: Die E-Commerce-Richtlinie in ihrer endgültigen Fassung’ [2000] MMR-Beilage 4, 12. 189 See Contract II/Lehmann art 4:105.

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One may ask whether the Acquis Group has exceeded the limits of its ap- 112 proach190 by introducing the sanction in art 4:105(4) ACQP. The Acquis Group did however endeavour to draft complete rules from fragments in the acquis communautaire, in other words to also propose sanctions that best correspond to the nature of the duties under EU law.191 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.192 The DCFR has adopted a different approach to the ‘duty to make available a 113 means of correcting input errors’ (art II.–7:201(1)(b)(iii) DCFR) by creating a direct link to the regulation of defects in consent: Article II.–7:201 DCFR Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (…) (b) the other party (…) (iii) caused the contract to be concluded in mistake by failing to comply with a precontractual information duty or a duty to make available a means of correcting input errors; or (…)

The approaches therefore vary between the DCFR and the Acquis Principles. The DCFR outlines that the breach of this duty is one of many requirements for avoiding the contract. The key requirement is a mistake. It can be questioned whether this rule is suitable for providing an instrument for mass contracting which aims, as the E-Commerce Directive193, at guiding business' market behaviour. 3. Mistake and protection against unfair commercial practices

The European legislator attempts to support the consumer's decision-making 114 process by prohibiting certain types of unfair commercial practices with a misleading effect:194 190 Commission, ‘A more coherent European contract law – An action plan’ COM (2003) 68 final, 18–25; Schulte-Nölke, ‘Function of Contracts in EC Private Law’ in Schulze/Ebers/ Grigoleit (n 126) 85, 93. 191 COM (2003) 68 final ibid 18–19. 192 Contract II/Lehmann art 4:105 para 7. 193 v. Bar/Clive (n 26) 268. 194 art 1 and recitals 4, 6, 8–10, 12 Unfair Commercial Practices Directive; Schmidtke, Unlautere geschäftliche Handlungen bei und nach Vertragsschluss (Utz Verlag 2011) 30.

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Chapter 3 Conclusion and Content of Contracts Article 5 Unfair Commercial Practices Directive 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 Unfair Commercial Practices Directive Misleading actions (1) A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the 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 Unfair Commercial Practices Directive Misleading omissions (1) A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and the limitations 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 fair trading law instead of contract law.195 The Unfair Commercial Practices Directive196 does not require that a specific contract or statement of intent be voidable but rather focuses on collective sanctions, though the Member States are entitled to introduce sanctions which can be enforced by the consumer directly affected by the unlawful act:197 Article 11 Unfair Commercial Practices Directive Enforcement (1) Member States shall ensure that adequate and effective means exist to combat unfair commercial practices in order to enforce compliance with the provisions of this Directive in the interest of consumers. 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. (…)

195 As is the opinion of the German legislator, see BT-Drucks. 16/10145 vom 20.08.2008, 10. 196 See Chapter 2 para 9. 197 Klug, Die Umsetzung der Richtlinie über unlautere Geschäftspraktiken in Spanien (Utz Verlag 2014) 243–245.

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The Directive on Misleading and Comparative Advertising198 also features 116 such preventative measures which shall prevent customers from making their decisions on the basis of mistaken beliefs: Article 1 Directive on Misleading and Comparative Advertising [Purpose] The purpose of this Directive is to protect traders against misleading advertising and the unfair consequences thereof and to lay down the conditions under which comparative advertising is permitted.

These aspects of fair trading law are integral parts of a system that strives to 117 use modern approaches to create conditions for freely-made decisions. The system aims at changing the traditional contract law by utilizing instruments such as pre-contractual information duties, withdrawal rights and the aforementioned self-correction of contracts on the basis of the consumer's legitimate expectations. In future, one will ask the question whether there is still space for the traditional law on defects in consent. 4. CESL a) Overview

In consideration of the present acquis communautaire one may be surprised 118 by the inclusion of traditional aspects of the law of defects in consent alongside pre-contractual information duties, rights of withdrawal as well as instruments to adapt the contract to the customer's legitimate expectations. The Commission has however acted on the assumption that contract law would not be complete without provisions on defects in consent.199 The CESL lists four types of defects in consent: mistake (art 48 CESL-D), 119 fraud (art 49 CESL-D), threat (art 50 CESL-D), and unfair exploitation (art 51 CESL-D). The system is generally based on the DCFR approach which (in applying the Restatements-approach200) strives to synthesize various models.201 A defect in consent under arts 48–51 CESL-D leads to avoidance of the contract. Avoidance occurs by notice to the other party:

198 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. 199 On the importance of an avoidance right as a fundamental part of European contract law see Schmidt-Kessel CESL/Martens art 48 CESL-D para 1; Schulze CESL/Pfeiffer art 48 CESL paras 1–3. 200 Riedl, Vereinheitlichung des EU-Vertragsrechts in Europa (Nomos 2004) 141–147; Schwartze,‘Die Drechtsvergleichung’ in Riesenhuber (ed), Europäische Methodenlehre (2nd edn, de Gruyter 2010) § 4 para 27. 201 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-D Notice of avoidance (1) Avoidance is effected by notice to the other party. (2) A notice of avoidance is effective only if it is given within the following period after the avoiding party becomes aware of the relevant circumstances or becomes capable of acting freely: (a) six months in case of mistake; and (b) one year in case of fraud, threats and unfair exploitation.

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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.202 The specific effects of avoidance on the restitutionary aspects are given in Chapter 17 CESL-D (see art 172 CESL-D), whereas art 54 CESL-D contains the general effects of avoidance:203 Article 54 CESL-D Effects of avoidance (1) A contract which may be avoided is valid until avoided but, once avoided, is retrospectively invalid from the beginning. (2) Where a ground of avoidance affects only certain contract terms, the effect of avoidance is limited to those terms unless it is unreasonable to uphold the remainder of the contract. (3) The question whether either party has a right to the return of whatever has been transferred or supplied under a contract which has been avoided, or to a monetary equivalent, is regulated by the rules on restitution in Chapter 17.

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Art 54 CESL-D 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 absolue204 as is familiar to French law. A notable aspect is however the possibility of partial avoidance under art 54(2) CESL-D 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.205 According to art 48(1)(a) CESL-D, the mistake must be fundamental206 – the party would therefore not have otherwise concluded the contract under these terms. The partial avoidance thus leads to a modification of the contract. If there is no fundamental mistake and the party avoids the contract, it must be void as a consequence. However, under art 54 CESL-D the avoidance leads 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.

202 art 52(1) CESL-D; on avoidance as a formative right see Schmidt-Kessel CESL/Martens art 52 CESL-D paras 1–2; Schulze CESL/Pfeiffer art 52 CESL-D paras 1, 9–14. 203 On the general effect of avoidance see Schmidt-Kessel CESL/Martens art 54 CESL-D; Schulze CESL/Pfeiffer art 54 CESL-D. 204 See Beckmann, Nichtigkeit und Personenschutz (Mohr Siebeck 1998) 111–112; Bénabent, Droit civil – Les obligations (11th edn, Dalloz 2007) para 208; Stadler, Gestaltungsfreiheit und Verkehrsschutz durch Abstraktion (Mohr Siebeck 1996) 160. 205 Martens (n 180) 196. 206 See Schmidt-Kessel CESL/Martens art 48 CESL-D paras 4–7.

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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) CESLD) the remainder of the contract will be effective despite the ineffectiveness of individual terms.207 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. The CESL also provides damages as the sanction for loss caused by the defect 122 in consent:208 Article 55 CESL-D Damages for loss A party who has the right to avoid a contract under this Chapter or who had such a right before it was lost by the effect of time limits or confirmation is entitled, whether or not the contract is avoided, to damages from the other party for loss suffered as a result of the mistake, fraud, threats or unfair exploitation, provided that the other party knew or could be expected to have known of the relevant circumstances. Amendment 121 Proposal for a regulation Annex I – Article 55 Text proposed by the Commission 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.

Amendment 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 under Chapter 16 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.209 123 As noted above,210 some Member States regulate culpa in contrahendo under their national tort law – in this respect the scope of the CESL will also impact on the tort law of such Member States (e.g. France). The result is therefore that the

207 See Chapter 4 paras 52–53; Schmidt-Kessel CESL/Möslein art 79 CESL-D para 29; Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 79 CESL-D para 8. 208 In general on the damages sanction see Schmidt-Kessel CESL/Martens art 55 CESL-D; Schulze CESL/Pfeiffer art 55 CESL-D. 209 Schulze CESL/Pfeiffer ibid paras 1–2. 210 See above, paras 64–66.

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CESL's effect on national law could be greater than expected because its selection will not just repress national contract law. 124 The damages will presumably be limited to the ‘negative interest’.211 The claim to damages will also be available if the party has not exercised its right of avoidance. In such instances the damages will correspond to the difference between what the party may have legitimately expected had it not acted under the influence on the defect in consent, and what is owed under the contract.212 125 The right to avoid the contract is limited, on the one hand, via the time periods213 given in art 52(2) CESL-D but also, on the other hand, by the confirmation requirement provided under art 53 CESL-D: Article 53 CESL-D Confirmation Where the party who has the right to avoid a contract under this Chapter confirms it, expressly or impliedly, after becoming aware of the relevant circumstances, or becoming capable of acting freely, that party may no longer avoid the contract.

According to this provision the party's confirmation of the contract will ‘cure’ the defect; the provision therefore serves to maintain the contract.214 The inclusion of implied confirmation also aims at ensuring legal certainty: the party who is aware of its defective consent but nevertheless expresses an intention, for example in writing, to maintain the contract can claim the performance owed under the contract but will have to perform its own contractual obligations. 126 Furthermore, the CESL outlines that a party can choose between the different remedies in circumstances in which non-performance occurs alongside a defect in consent: Article 57 CESL-D Choice of remedy A party who is entitled to a remedy under this Chapter in circumstances which afford that party a remedy for non-performance may pursue either of those remedies.

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The CESL therefore does not include a rule which, in the case of a mistake concerning the properties of the good, would prioritize the provisions on nonperformance. Not including such a rule is understandable for consumer sales contracts and consumer contracts for the supply of digital content because the business does not have a right to cure (whereas art II.–7:203(1) DCFR does contain such a provision). The competitive element arising under art 57 CESL-D is however less understandable for contracts for related services and B–B contracts 211 Schulze CESL/Pfeiffer art 55 CESL-D para 17. 212 ibid para 19. 213 Schmidt-Kessel CESL/Martens art 52 CESL-D paras 3–5; Schulze CESL/Pfeiffer art 52 CESL-D paras 15–17. 214 Schmidt-Kessel CESL/Martens art 53 CESL-D paras 1–2; Schulze CESL/Pfeiffer art 53 CESL-D paras 1–2.

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because the service provider or seller can successfully defend itself against remedies by curing the non-performance. The role of the right to cure vis-à-vis the parties' interests can therefore be taken into account by the avoidance–damages combination. b) Mistake

Art 48 CESL-D contains the rule on mistake:

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Article 48 CESL-D Mistake (1) A party may avoid a contract for mistake of fact or law existing when the contract was concluded if: (a) the party, but for the mistake, would not have concluded the contract or would have done so only on fundamentally different contract terms and the other party knew or could be expected to have known this; and (b) the other party (i) caused the mistake; (ii) caused the contract to be concluded in mistake by failing to comply with any precontractual information duty under Chapter 2, Sections 1 to 4; (iii) knew or could be expected to have known of the mistake and caused the contract to be concluded in mistake by not pointing out the relevant information, provided that good faith and fair dealing would have required a party aware of the mistake to point it out; or (iv) made the same mistake. (2) A party may not avoid a contract for mistake if the risk of the mistake was assumed, or in the circumstances should be borne, by that party. (3) An inaccuracy in the expression or transmission of a statement is treated as a mistake of the person who made or sent the statement.

Art 48 CESL-D contains an extensive concept of mistake215 – the legally-rel- 129 evant mistake can concern all facts and even the law; the CESL therefore has not followed the principle ignorantia iuris nocet216. The provision is so broad that mistakes as to motive can also be legally relevant;217 this is understandable as the motive becomes the content of the contract when one applies the concept of legitimate expectations. The mistake must have causal effect,218 i.e. it must have influenced the other 130 party's decision. In this respect the subjective factor will suffice to establish a causal link.219 In addition, the other party had to have known or could be expect-

215 Schulze CESL/Pfeiffer art 48 CESL-D para 16; for criticism see Jansen, ‘Irrtumsanfechtung im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (n 184) 175–192. 216 See Hauptmann, ‘Recht als Produkt der kulturellen Evolution’ in Schwind (ed), Festschrift für Schneider (Otto Schmidt 1998) 483, 502–503. 217 Martens (n 180) 182; Schmidt-Kessel CESL/Martens art 48 CESL-D para 2; Schulze CESL/ Pfeiffer art 48 CESL-D para 24. 218 Huber, Irrtumsanfechtung und Sachmängelhaftung (Mohr Siebeck 2001) 154–155; Schulze CESL/Pfeiffer ibid para 26. 219 Schulze CESL/Pfeiffer ibid para 26.

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ed to have known that the party would not have concluded the contract but for the mistake.220 131 The contract can only be avoided if the mistake can be attributed to the other party; this requirement shall protect the certainty of the transaction. Art 48(1)(b) (ii) and (iii) CESL-D link the pre-contractual information duties with the law on mistake. The failure to give information under a pre-contractual information duty will therefore entitle the party to avoid the contract should this failure have resulted in a mistake leading to the conclusion of the contract. 132 The avoidance of the contract in the event both parties have made the same mistake (art 48(1)(b)(iv) CESL-D) has its roots in English law.221 In this particular system, the contract can be avoided even under the exceptional circumstance that the other party has not caused its counterparty to make the mistake. c) Fraud 133

Art 49 CESL-D contains a rule on a specific form of mistake, namely fraud: Article 49 CESL-D Fraud (1) A party may avoid a contract if the other party has induced the conclusion of the contract by fraudulent misrepresentation, whether by words or conduct, or fraudulent non-disclosure of any information which good faith and fair dealing, or any pre-contractual information duty, required that party to disclose. (2) Misrepresentation is fraudulent if it is made with knowledge or belief that the representation is false, or recklessly as to whether it is true or false, and is intended to induce the recipient to make a mistake. Non-disclosure is fraudulent if it is intended to induce the person from whom the information is withheld to make a mistake. (3) In determining whether good faith and fair dealing require a party to disclose particular information, regard should be had to all the circumstances, including: (a) whether the party had special expertise; (b) the cost to the party of acquiring the relevant information; (c) the ease with which the other party could have acquired the information by other means; (d) the nature of the information; (e) the apparent importance of the information to the other party; and (f) in contracts between traders good commercial practice in the situation concerned. Amendment 119 Proposal for a regulation Annex I – Article 49 – paragraph 3 – point e Text proposed by the Commission (e) the apparent importance of the information for the other party; and

Amendment (e) the likely importance of the information to tthe other party; and

220 Martens (n 201) 854–855. 221 Huber, ‘Irrtum und anfängliche Unmöglichkeit im Entwurf eines Gemeinsamen Referenzrahmens für das Europäische Privatrecht’ in Buchheim/Fuchs (eds), Festschrift für Dieter Medicus zum 80. Geburtstag (Heymanns 2009) 114, 199, 210.

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It may appear doubtful whether the rule on fraud is actually necessary. Such a 134 rule would be needed if either the consequences or the requirements for fraud were to differ from art 48 CESL. However, the CESL provides for the same consequences in cases of fraud as well as mistake. The only differences arise through arts 52 and 56 CESL-D: Article 52 CESL-D Notice of avoidance (1) Avoidance is effected by notice to the other party. (2) A notice of avoidance is effective only if it is given within the following period after the avoiding party becomes aware of the relevant circumstances or becomes capable of acting freely: (a) six months in case of mistake; and (b) one year in case of fraud, threats and unfair exploitation. Article 56 CESL-D Exclusion or restriction of remedies (1) Remedies for fraud, threats and unfair exploitation cannot be directly or indirectly excluded or restricted. (2) In relations between a trader and a consumer the parties may not, to the detriment of the consumer, directly or indirectly exclude or restrict remedies for mistake.

Classifying the defect in consent as fraud therefore only plays a role in B–B 135 contracts. Even the requirements for the types of defects are – on closer inspection – defined in such a manner that practically all cases of fraud satisfy the criteria for a legally-relevant mistake. Art 49 CESL-D could therefore be omitted without any negative consequences; only art 56 CESL-D would have to be amended accordingly. Art 49 CESL-D also contains a reference to the pre-contractual duties and gives the surprising impression of being the source of the precontractual information duty.222 The European Parliament has however not reacted to these considerable 136 deficits in the CESL proposal; it rather just favours a revision, though one which is not extensive enough: Amendment 119 Proposal for a regulation Annex I – Article 49 – paragraph 3 – point e Text proposed by the Commission (e) the apparent importance of the information for the other party; and

Amendment

(e) the likely importance of the information for the other party; and

This proposed amendment worsens the aforementioned problem as it further blurs the distinction between the requirements for fraud and the requirements for mistake.

222 For criticism see Martens (n 180) 186.

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d) Mistake caused by a third party 137

The CESL does not contain rules concerning a mistake caused by a third parThe European Parliament has therefore made the following suggestion in order to fill this gap:

ty.223

Amendment 120 Proposal for a regulation Annex I – Article 50 a (new) Text proposed by the Commission

Amendment Article 50a Third parties (1) Where a third party for whose acts a person is responsible or who, with that person's assent, is involved in the making of a contract: (a) causes a mistake, or knows of, or could be expected to know of, a mistake, or (b) is guilty of fraud or threats or unfair exploitation, remedies under this Chapter shall be available as if the behaviour or knowledge had been that of the person with responsibility or giving assent. (2) Where a third party for whose acts a person is not responsible and who does not have the person's assent to be involved in the making of a contract is guilty of fraud or threats, remedies under this Chapter shall be available if that person knew or could reasonably be expected to have known of the relevant facts, or at the time of avoidance did not act in reliance on the contract.

In general, the rule is a necessary addition to the system.224 Only ‘at the time of avoidance did not act in reliance on the contract’ is unclear and does not allow the purpose of the rule to be identified. e) Threat 138

The CESL contains a traditional rule concerning threat as a defect in consent:225 Article 50 CESL-D Threat A party may avoid a contract if the other party has induced the conclusion of the contract by the threat of wrongful, imminent and serious harm, or of a wrongful act.

223 ibid 192. 224 ibid 193. 225 In general on threat as a defect in consent see Schmidt-Kessel CESL/Martens art 50 CESLD; Schulze CESL/Pfeiffer art 50 CESL-D.

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Amendment Article 50a Third parties (1) Where a third party for whose acts a person is responsible or who, with that person's assent, is involved in the making of a contract: (a) causes a mistake, or knows of, or could be expected to know of, a mistake, or (b) is guilty of fraud or threats or unfair exploitation, remedies under this Chapter shall be available as if the behaviour or knowledge had been that of the person with responsibility or giving assent. (2) Where a third party for whose acts a person is not responsible and who does not have the person's assent to be involved in the making of a contract is guilty of fraud or threats, remedies under this Chapter shall be available if that person knew or could reasonably be expected to have known of the relevant facts, or at the time of avoidance did not act in reliance on the contract.

The question could be asked whether rules better suited to individual con- 139 tracts, as opposed to standardized contracts, would be appropriate if the CESL were only to apply to distance contracts (as has been proposed by the European Parliament). However, one can imagine that room for blackmail also exists in mass contracting and e-commerce (e.g. infecting a computer with a virus and only removing it upon completion of certain acts). The inclusion of a rule for threat is thus desirable even in relation to distance contracts. f) Unfair exploitation

The CESL's provisions on defects in consent also contain rules on unfair ad- 140 vantage (‘unfair exploitation’, art 51 CESL-D).226 It is however to be noted whether it is actually appropriate to place rules on unfair exploitation in a framework concerning defects in consent. Article 51 CESL-D Unfair exploitation A party may avoid a contract if, at the time of the conclusion of the contract: (a) that party was dependent on, or had a relationship of trust with, the other party, was in economic distress or had urgent needs, was improvident, ignorant, or inexperienced; and (b) the other party knew or could be expected to have known this and, in the light of the circumstances and purpose of the contract, exploited the first party's situation by taking an excessive benefit or unfair advantage.

226 For general comments on unfair exploitation see Schmidt-Kessel CESL/Martens art 51 CESL-D; Schulze CESL/Pfeiffer art 51 CESL-D.

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It is namely an unanswered question whether this provision represents a barrier to the acceptable content of the contract or whether a defect in consent exists. Certain tensions with national legal systems could arise if the disproportionality of performance obligations would have to be considered as immoral under the applicable national ‘background’ law. The CESL does not include (beyond the realm of unfair contract terms) a rule determining the consequences of an immoral contract,227 so that in such circumstances the applicable ‘background’ law would apply. Tension between art 51 CESL-D and national law may arise above all when the time periods under art 52(2)(b) CESL-D expire. In this situation a court may tend to apply national law if it is considered to be in the interests of justice. However, it is correct to assume that the scope of art 51 CESL-D will suppress the national rules on immoral contracts.228 141 The question may be asked if a provision on unfair exploitation would actually be necessary if the scope of the CESL were limited to distance contracts. It has to be considered that unfair exploitation is very closely connected to the circumstances of the individual case, therefore such a rule would often be irrelevant for standardized distance contracts. IV. Right of Withdrawal 1. Overview a) Introduction 142

A right of withdrawal entitles a party to withdraw from a contract or their statement of intention without giving any reason (e.g. art 9 Consumer Rights Directive; art 40 CESL-D). In this respect the right limits the principle of pacta sunt servanda, i.e. that parties are bound to the contract.229 Several European directives230 and the CESL grant mandatory withdrawal rights in specific situations in which a party (usually a consumer) is typically considered to warrant protection during the conclusion of the contract.231 Consumers were first granted a right of withdrawal at European level by the 1985 Doorstep Selling Directive.232 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 227 Schulze CESL/Pfeiffer ibid para 1. 228 Martens (n 180) 190. 229 Howells/Weatherill (n 97) 362; 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. 230 Consumer Credit Directive, Consumer Rights Directive, Distance Marketing of Financial Services Directive, Timeshare Directive; in contrast to other directives, art 35(1) Life Assurance Directive provides that not just consumers are entitled to withdraw from life assurance contracts; see Contract II/Schulze art 5:101 para 3. 231 Schulze (n 184) 151–168. 232 art 4 Doorstep Selling Directive referred to a ‘right of cancellation’.

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consumer protection in the EU.233 This position has been strengthened through the gradual transition over recent years from minimum to full harmonization of withdrawal rights.234 The rights of withdrawal in distance and off-premises contracts in the now 143 fully harmonized Member State law and the planned CESL are greatly coordinated with one another. Prior to 2011 the withdrawal rights for these two areas were contained in two separate directives235, however the Consumer Rights Directive now collates these rights in one legislative act together with the aim of full harmonization. In contrast to the original proposal the Consumer Rights Directive does not include the areas of consumer sales and unfair contract terms;236 full harmonization of these two areas would have had a considerable impact on national legal systems. However, full harmonization is more appropriate for narrower, more definable areas that had already been greatly shaped by European legislation, such as withdrawal rights (and also pre-contractual information duties). The Commission intended to synchronize the CESL's provisions on withdrawal with those of the Consumer Rights Directive: the choice of the optional instrument should guarantee the same level of consumer protection as has been provided at national level through full harmonization. Several provisions of the CESL are however more precise in nature and more structured. Furthermore, the CESL incorporates the rights of withdrawal into its own system of contract law, whereas the full harmonization via the Consumer Rights Directive can only cover a section of different systems of (consumer) contract law in the EU. b) Functions

The increased expansion of the situations affording the consumer with with- 144 drawal rights does however pose the question of the further objectives and effects of the withdrawal rights besides their traditional protective function.237 In particular, the consumer is provided with protection in a distance contract concluded online due to the absence of a possibility to examine the goods prior to purchase. However, one also has to consider that the use of the internet increases the possibilities for comparison and acquisition of further information. Such possibilities therefore allow the – now generally well-informed – consumer to 233 An overview of the implementation of EU minimum harmonization directives is given in Schulte-Nölke/Twigg-Flesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008). An updated version is available online under http://ec.europa.eu/consumers/archive/rights/d ocs/consumer_law_compendium_comparative_analysis_en_final.pdf accessed 27 April 2015). 234 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 more recently extended in 2011 by the Consumer Rights Directive. 235 Distance Selling Directive; Doorstep Selling Directive. 236 See Chapter 1 para 33. 237 Loos (n 229) 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.

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make a more-informed decision in an online purchase than in a spontaneous instore purchase. At the same time the confidence-building effect of withdrawal (especially in distance sales) and the resulting willingness to conclude a contract appear to justify (despite the criticisms238) the inclusion of withdrawal rights from both the consumer and business239 perspectives. A mandatory, general rule for a particular form of conclusion of contract (such as through distance means with its particular relevance for the internal market) can thus create greater legal certainty for the consumer and therefore increase confidence rather than allowing the business to decide on the voluntary inclusion of such a right240 (especially as the consumer cannot and generally will not inform itself of the general terms and conditions in a low-value transaction). In this respect, the limitation of freedom of contract and the principle of pacta sunt servanda through a right of withdrawal can serve to promote the particular type of transaction, especially due to its relevance for the internal market. Its economic effect is therefore not restrictive but can prove to be a competitive advantage for a particular branch or sales method. c) General part 145

The rights of withdrawal in the earlier European directives displayed a number of inconsistencies regarding the terminology,241 time periods, exercise of the right as well as the effects thereof, without any ascertainable objective reason for the differences.242 Several 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.243 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.

238 Eidenmüller et al., ‘Der Gemeinsame Referenzrahmen für das Europäische Privatrecht’ [2008] JZ 529, 545–546; see also Eidenmüller, ‘Why withdrawal rights’ [2011] ERCL 1. 239 FEDSA, ‘Commission Green Paper on policy options for progress towards European contract law for consumers and businesses’ as part of the public consultation concerning the Green Paper on policy options for progress towards a European Contract Law, available online under http://ec.europa.eu/justice/news/consulting_public/0052/contributions/143_en.pdf accessed 27 April 2015); Eidenmüller ‘Why withdrawal rights’ ibid; Wagner, ‘Mandatory Contract Law: Functions and Principles in Light of the Proposal for a Directive on Consumer Rights’ [2010] Erasmus Law Review 47, 69. 240 In favour of an optional withdrawal right, Eidenmüller ibid 11–14; Wagner ibid 69. 241 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’. 242 Loos, Review of the European Consumer Acquis (Sellier 2008) 49; Mankowski, ‘Widerrufsrecht’ in Basedow/Hopt/Zimmermann (n 42) 1791–1795. 243 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).

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The Consumer Rights Directive and the proposed CESL have adopted this ap- 146 proach for distance and off-premises consumer contracts.244 Both sets of rules contain a ‘general part’, which in principle applies to all off-premises and distance contracts, alongside separate specific rules for each of these respective types of contract.245 These ‘general’ provisions concern, in particular, the exercise of the right of the withdrawal, the length of the withdrawal period (including the extended withdrawal period), the effects of the withdrawal (including ancillary contracts) and the obligations of the parties after withdrawal (arts 9–16 Consumer Rights Directive; arts 40–46 CESL-D). This academic and now legislative formation of a ‘general part’ shows that the withdrawal rights in European contract law are greatly based on the same or similar principles and in this respect can be allocated to a uniform system. 2. Legal nature and position in the legal system

Irrespective of their further functions (especially in distance contracts) the di- 147 rectives primarily grant withdrawal rights on the basis of the presumption that one of the parties to the contract is in a weaker position vis-á-vis the other party. This weakness particularly concerns the party's decision to conclude and draft the contract and arises due to the situation in which the contract is concluded (for instance in distance or off-premises contracts) or the complex nature of the contract (such as in consumer credit, life assurance, and timeshare contracts).246 Withdrawal rights shall partially compensate for this presumed disadvantage by affording the weaker party additional time (the withdrawal period) before it is 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.247 The need to protect the weaker party can be based on an asymmetry in infor- 148 mation (e.g. when the consumer can not sufficiently inform itself on the quality of the product).248 In this respect, the protection afforded by a withdrawal right is linked to the aim of limiting the asymmetry during formation by providing further possibilities to acquire information. However, withdrawal rights do not necessarily require that the information was not available to the protected party.249 Irrespective thereof, withdrawal rights rather afford the weaker party with additional time to reconsider the conclusion of the contract (as reflected in the 244 See Schulze/Morgan, ‘The Right of Withdrawal’ in Dannemann/Vogenauer (n 27) 294, 297. 245 Due to the limited scope of application of the Consumer Credit Directive, Distance Marketing of Financial Services Directive, Life Assurance Directive, and the Timeshare Directive it is not necessary to separate the content into general and situation-specific parts. However, there are similarities between the provisions. 246 See, for example, recital 37 Consumer Rights Directive, recital 23 Distance Marketing of Financial Services Directive; recital 11 Timeshare Directive. 247 Twigg-Flesner/Schulze (n 169) 145. 248 Micklitz/Stuyck/Terryn (n 229) 240; Terryn (n 229) 461–432; Twigg-Flesner/Schulze ibid 132–134. 249 Howells/Weatherill (n 97) 362.

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expression ‘cooling-off period’) as a means of compensating for such typical disadvantages.250 149 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.251 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), the cause is contrary to good morals (see art 1133 in conjunction with art 1131 Code Civil) or form requirements for protection against hasty acts have not been observed (e.g. § 311b (1) BGB). In these circumstances the ‘automatic’ rescission prevents the effectiveness of the contract even if this is contrary to the interests and intentions of both parties. In contrast, a withdrawal right affords the disadvantaged party with the withdrawal period in order for it to decide whether or not the contract should be upheld. The freedom to decide on the conclusion of the contract is thus extended beyond the time of conclusion and accordingly limits the binding nature of the contract. 150 A three-tier structure is thus of significance for 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.252 151 The contract is therefore not definitively effective during the withdrawal period, even if the parties' agreement has been made in accordance with the provisions on the conclusion of contract. During this time the contract is instead ‘pending effectiveness’253: the withdrawal period does not prevent the parties from performing their contractual obligations, for example to deliver or to make payment (art 9(3) Consumer Rights Directive254; arts 44(1) and 45(1) CESL-D). Such an approach thus ensures that, in relation to the claim for performance, the position of the consumer is not worse than without a withdrawal right. It is however for the consumer to decide whether to exercise the withdrawal right and 250 See Weatherill, EU Consumer Law and Policy (2nd edn, Edward Elgar 2014) 114. 251 Canaris, ‘Wandlungen des Schuldvertragsrecht – Tendenzen zu seiner „Materialisierung“’ (2000) 200 AcP 276, 344–345; Schulze (n 184) 165–166. 252 See below, paras 154–156. 253 Contract II/Schulze art 5:105 para 4; Meller-Hannich, ‘Verbraucherschutz im Schuldvertragsrecht’ (Mohr Siebeck 2005) 155–157; Schulze (n 115) § 355 para 2; Twigg-Flesner/ Schulze (n 169) 152. 254 National laws prohibiting the performance of the consumer’s payment obligation during the withdrawal period may however be maintained for off-premises contracts, see art 9(3) Consumer Rights Directive.

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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. There are a number of differences between the withdrawal rights considered 152 here and the revocation of an offer under art 32 CESL-D255 as well as under the different national approaches256: the former differs from withdrawal rights because the latter 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 arts 48 et seq. CESL-D and the corresponding national provisions on avoidance or rescission).257 The relevant directives instead provide that the withdrawing party does not have to give a reason for the withdrawal258 – the mere existence of a particular situation will suffice in order for a withdrawal right to compensate for a perceived disadvantage.259 The differing characteristics of a withdrawal right are reflected in its location 153 within the various sets of rules. The proposal for a CESL follows the model adopted by the Acquis Principles and the DCFR260 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).261 3. Scope

A variety of different needs and policy considerations underlie how the legis- 154 lation has determined the situations in which protection is afforded by withdrawal rights.262 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.263 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.264 In contrast, timeshare contracts are subject to particular risks which arise from the (often) foreign dimensions and other circumstances surrounding the conclusion of the contract.265 Lastly, credit contracts and life assurance contracts frequently in255 256 257 258 259 260 261 262 263 264

See above, para 22. For example, §§ 130, 145 BGB; art 1328 Codice Civile. See above, para 142. For example art 14(1) Consumer Credit Directive; art 9(1) Consumer Rights Directive; art 6(1) Distance Marketing of Financial Services Directive; art 6(1) Timeshare Directive. For further detail on these distinctions see Schulze (n 184) 162. Chapter 5 ACQP; Book II Chapter 5 DCFR. 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). Howells/Weatherill (n 97) 359. Recital 37 Consumer Rights Directive. Recital 37 Consumer Rights Directive; see also above, para 144.

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volve long-term obligations and with future consequences that the consumer does not initially recognize because of the complexity of the contract.266 155 The protection afforded in these situations by a right of withdrawal was introduced through separate directives. The Consumer Rights Directive now contains the withdrawal rights from the Doorstep Selling Directive and Distance Selling Directive, whereas separate sets of rules continue to provide protection in the other situations. The CESL has generally followed the model of the Consumer Rights Directive with respect to the areas subject to protection. Both of these sets of rules 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' premises267 (e.g. on the street or on public transport268). 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.269 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’270 for both off-premises and distance sales contracts. 156 The Directives and the CESL contain numerous exceptions which restrict the right of withdrawal in the various situations.271 These exceptions particularly aim at avoiding the disproportionate burdens for the business which would arise under specific circumstances (e.g. goods created according to the consumer's specifications could not be resold) and, furthermore, preventing the risk of abuse (e.g. in relation to goods subject to fluctuating market value).272

265 For more detail see recitals 9 and 11 Timeshare Directive; Heiderhoff, Europäisches Privatrecht (3rd edn, C.F. Müller 2013) 181; Loos (n 229) 246. 266 Recital 27 Consumer Credit Directive; recital 23 Distance Marketing of Financial Services Directive. 267 art 9(1) in conjunction with art 2(8)(a) Consumer Rights Directive; extended by art 2(8)(b)– (d) for similar situations which are also to be considered as off-premises contracts; art 40(1) in conjunction with art 2(q) CESL-Reg-D. 268 As was already provided in German law as part of the ‘gold plating’ of the Doorstep Selling Directive. 269 art 9(1) in conjunction with art 2(7) Consumer Rights Directive; art 40(1) in conjunction with art 2(p) CESL-Reg-D; on the question of internet auctions Riefa, ‘A Dangerous Erosion of Consumer Rights: The Absence of a Right to Withdraw from Online Auctions’ in Howells/Schulze (n 229) 177–187; see also Neubauer/Steinmetz, ‘Internetauktionen’ in Hoeren/Sieber/Holznagel (n 67) Teil 14 paras 73–89. 270 art 5:A–01 ACQP uses the term ‘contracts negotiated away from business premises’ is a further sense than the Consumer Rights Directive and the CESL as it does not just include faceto-face contracts but also distance contracts. 271 art 16 Consumer Rights Directive and art 40(2), (3) CESL-D contain extensive exceptions, art 6(2) Distance Marketing of Financial Services Directive; see also art 5:A–01(3) to(5) ACQP. 272 art 16(c) Consumer Rights Directive; art 40(2)(d) CESL-D.

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4. Exercise a) Notice Article 5:102 ACQP Exercise of a right of withdrawal A right of withdrawal is exercised by notice to the other party. No reasons need to be given. Returning the subject matter of the contract is considered a notice of withdrawal unless the circumstances indicate otherwise. Article 5:103 ACQP Withdrawal period (1) Unless provided otherwise, the right of withdrawal must be exercised within fourteen days after both the contract has been concluded and notice of the right pursuant to Article 5:104 (Information on the right of withdrawal) has been given, and no later than one year after the conclusion of the contract. If the subject matter of the contract is the delivery of goods, the period lapses not earlier than fourteen days after the goods have been receved. (2) The notice of withdrawal is timely if dispatched within this period. Article 9 Consumer Rights Directive Right of withdrawal (1) Save where the exceptions provided for in Article 16 apply, the consumer shall have a period of 14 days to withdraw from a distance or off-premises contract, without giving any reason, and without incurring any costs other than those provided for in Article 13(2) and Article 14. (…) 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). (2) The consumer shall have exercised his right of withdrawal within the withdrawal period referred to in Article 9(2) and Article 10 if the communication concerning the exercise of the right of withdrawal is sent by the consumer before that period has expired.

The Acquis Principles have proposed general rules for the exercise of the 157 withdrawal right and the withdrawal period. These general rules have been designed in order to be applicable to all withdrawal rights.273 The Consumer Rights Directive and arts 40–42 CESL-D have followed this approach by also adopting a uniform 14-day withdrawal period274 (as also in the Timeshare Directive and Consumer Credit Directive) and overarching rules on the exercise of the 273 For the most part adopted from art II.–5:102–5:103 DCFR. 274 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

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withdrawal right. However, the Consumer Rights Directive and CESL contain new criteria which provide greater differentation in relation start of the withdrawal period (art 9(2) Consumer Rights Directive; art 42(1) CESL-D)275 and also give the consumer two further options for exercising the right of withdrawal: in addition to an unequivocal statement, the consumer can use a model withdrawal form or (if available) submit the withdrawal statement electronically via the business' website (art 11(1) and (3) Consumer Rights Directive; art 41(2) and (3) CESL-D). The mere return of the good is not considered as an unequivocal declaration of withdrawal, therefore in this respect there is a gap in relation to art 5:102 ACQP.276 b) Dispatch principle 158

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 if the notice of withdrawal is sent within the withdrawal period (e.g. art 14(3) Consumer Credit Directive; art 11(2) Consumer Rights Directive; art 41(4) CESL-D). This approach guarantees that the consumer has the entire length of the withdrawal period in order to reflect on the contract and to make a decision. However, the concept only concerns the timely exercise of the withdrawal right and not its effectiveness. In European contract law (as in most Member States277) the latter issue is generally subject to the receipt principle (art 10(3) CESL-D; art I.–1:109(3) DCFR),278 namely the communication is effective if it is sent before the end of the period and irrespective of when it is received. However, the burden of proving the timely dispatch (as well as the other requirements for the correct exercise of the withdrawal right) rests with the consumer (as expressly stipulated in art 11(4) Consumer Rights Directive; art 41(5) CESLD). c) Information on the right of withdrawal

159

The stipulation of a withdrawal period is very closely linked to the requirement that the business sufficiently informs the consumer of the withdrawal. Typically the presumed imbalance between the business and consumer is also manifested in an information assymmetry 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 provi-

275 276 277 278

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was already provided in several Member States e.g. Czech Republic, Denmark and Portugal; see Schulte-Nölke/Twigg-Flesner/Ebers (n 233) 347. With respect to service contracts and sales contracts (here above all for delivery in installments and particular goods). See Schulze, ‘The Right of Withdrawal’ in Schulte-Nölke/Tichy (eds), Perspectives for European Consumer Law (Sellier 2010) 13, 20. Ferrari, ‘Offer and acceptance inter absentes’ in Smits (n 36) 625, 642–643; Kötz (n 38) 20; Zweigert/Kötz (n 47) 357. See Chapter 2 para 25.

IV. Right of Withdrawal

sions of the various directives279 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.280 The Consumer Rights Directive and the proposed CESL have now integrated the duty for the business to inform the consumer of the conditions, time limit and procedures for exercising the withdrawal right in their respective catalogue of pre-contractual information duties. Furthermore, several directives and the CESL contain model instructions on withdrawal which can be tailored to requirements of the individual contract281 and, if correctly completed by the business, will fulfil the information duties on withdrawal rights.282 Such an instrument can therefore ease cross-border transactions for businesses by overcoming one aspect of the obstacles posed by different languages. Performing the information duties283 should compenstate for the consumer's 160 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. However, if the business does not correctly284 perform this information duty (thus resulting in the absence of a typically necessary basis for the consumer's decision) the possibility for withdrawal can therefore not be limited by a 14-day period. Accordingly, the withdrawal period cannot begin if the information duties on withdrawal have not been performed (art 14 (1)(b) Consumer Credit Directive and art 6(1) Distance Marketing of Financial Services Directive). Such an approach therefore results in a right of withdrawal that is in principle not subject to time limitations and, following the ECJ decision in Heininger285, cannot be limited by the Member 279 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. 280 According to the ECJ in Content Services (n 73) a website is not a ‘durable medium’; furthermore, information duties will not be performed through the use of hyperlinks; Schulze/ Morgan (n 244) 322–323. 281 Annex III 6 Consumer Credit Directive; Annex I Consumer Rights Directive; Annex V Timeshare Directive; Annex II CESL-D. 282 Art 6(4) Consumer Rights Directive and art 17(4) CESL-D. German law also provided standard forms prior to the introduction of the Consumer Rights Directive (§ 360(1) and (3) BGB in conjunction with § 355(3) BGB and the model withdrawal information form in Annex 1 to art 246 § 2(3) EGBGB). Furthermore, art 6(6) Consumer Rights Directive and art 17(2) in conjunction with art 45(2) CESL-D also provide consequences concerning the failure to inform the consumer of costs of return, namely that the consumer does not have to bear such costs; see para 103. 283 On the extent and type of the notice in e-commerce see Content Services (n 73); see Chapter 2 para 20 and above, para 30. 284 This represents a breach of unfair competition law, namely art 7(1) Unfair Commercial Practices Directive. 285 See Case C–481/99 Heininger [2001] ECR I–9945 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.

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States. The Acquis Principles and DCFR (art 5:103(1) ACQP; art II.–5:103(3) DCFR) have adopted a different approach which has been followed in art 10(1) Consumer Rights Directive and art 42(2)(a) CESL-D: in the event of non-performance of the relevant information duties the withdrawal period is limited to a maximum of one year beginning from the end of the initial withdrawal period.286 The performance of the information duties during this extended period will cause the withdrawal period to end 14 days after the day on which the consumer has received the information (art 10(2) Consumer Rights Directive; art 42(2)(b) CESL-D); the maximum withdrawal period is therefore one year and 14 days (as expressly stated in art 6(3)(a) Timeshare Directive).287 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.288 5. Effect a) Restitution 161

Comprehensive regulation at European level of the consequences of withdrawal is a relatively modern feature. The Consumer Rights Directive and the proposed CESL now adopt such an approach whereas earlier directives instead only provide for specific consequences in relation to their particular area.289 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 revocation290, unjust enrichment, or damages291). In light of these national differences art 5:105 ACQP is thus restricted to proposals for several core issues which have been made apparent in the directives and in ECJ case law but without providing for a general regime of restitution. Art II.–5:105(2) DCFR is, by comparison, more extensive as its general provisions on restitution (arts III.–3:510 et seq. DCFR) are applicable to withdrawal rights, albeit with some modifications. The proposed CESL 286 See Schulze/Morgan (n 244) 327. 287 Prior to the Consumer Rights Directive the Distance Selling Directive and the Timeshare Directive had already provided a maximum of three months for exercising the right to withdraw. The Doorstep Selling Directive did not provide a maximum period (see Heininger (n 285)). 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. 288 Koch, ‘Rechte des Unternehmers und Pflichten des Verbrauchers nach Umsetzung der Richtlinie über die Rechte der Verbraucher’ [2014] JZ 758, 760. 289 For example art 7 Distance Marketing of Financial Services Directive concerning payment for services performed prior to withdrawal. 290 As was the approach adopted under previous German law §§ 357, 346 et seq. BGB (previous version). 291 Terryn (n 237) 164–165.

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has not adopted such an approach: as it does not contain an express reference to the general provision on restitution (arts 172 et seq. CESL-D) the questions thus remains 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 162 perform the contract (art 12(a) Consumer Rights Directive; art 8(1) Timeshare Directive; art 43(a) CESL-D). The exercise of the withdrawal right therefore releases the parties from their original contractual obligations,292 though it is not expressly stated whether the legal relationship established by contract between the parties also ends.293 It therefore remains unclear whether the restitution takes place within or outside of a contractually-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.294 However, the language in art 15(1) Consumer Credit Directive, art 15(1) Consumer Rights Directive, art 11(1) Timeshare Directive and art 46(1) CESL-D 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 withdrawal can be exercised even prior to the conclusion of the contract. 163 In this event the consumer will no longer be bound by its offer (art 12(b) Consumer Rights Directive; art 43(b) CESL-D).295 This effect restricts the binding nature of the offer (as stipulated in several different national laws296) and modifies the general provision of European sales law on the ineffective revocation of an offer (art 32(3) CESL-D).297

292 See also art 35(1) Life Assurance Directive. According to this provision the withdrawal has an ex nunc effect, i.e. the consumer is released from its future obligations under the life assurance contract. 293 See also art 5:105(1) ACQP; cf art II.–5:105(1) DCFR: ‘Withdrawal terminates the contractual relationship …’. 294 For German law, Schulze (n 115) § 357 para 2; Palandt BGB/Grüneberg (2015) § 355 para 12. 295 ‘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. 296 See above, para 22; § 145 BGB; Ferrari (n 277) 637–638; Zweigert/Kötz (n 47) 362–363. 297 See also art II.–4:202(3) DCFR.

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c) Obligations of the parties

The restitutionary aspects of withdrawal are subject to the important principle that no costs should arise for the consumer when exercising the withdrawal right (art 9(1) Consumer Rights Directive; art 6(1) Distance Marketing of Financial Services Directive; art 8(2) Timeshare Directive; art 40(1) CESL-D298). The business is obliged to reimburse all payments received from the consumer, including the costs of delivery (art 13(1) Consumer Rights Directive; art 44(1) CESL-D).299 The reimbursement is to follow without undue delay (at the latest within a time limit300 beginning from the day on which it has been informed of the consumer's decision to withdraw from the contract). The consumer is subject to the same time frame for returning the goods to the business. The burden of paying the direct costs of returning the goods can be placed on the consumer, however the business can bear these costs either by agreement or through the failure to inform the consumer that it has to bear such costs (art 14(1) Consumer Rights Directive; art 45(1), (2) CESL-D). 165 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.301 This is subject to the requirement that the business must have correctly informed the consumer of the withdrawal right (art 14(2) Consumer Rights Directive; art 45(3) CESL-D). Furthermore, art 45(4) CESL-D provides that the consumer does not have to pay any compensation for use of the goods during the withdrawal period.302 This key point represents a distinction between the proposed CESL and the Consumer Rights Directive: the latter does not contain such a provision and thus its art 14(2) does not contain a clear exclusion of compensation for use from the obligation to compensate for the diminished value of the goods. The level of protection in the Consumer Rights Directive thus falls below the previous level set by the ECJ in Messner303 in relation to withdrawal rights under the Distance Selling Directive. The proposed CESL has thus opted to follow the principle underlying the decision in Messner through releasing the consumer 164

298 See also art 6(1) Distance Marketing of Financial Services Directive and art 8(2) Timeshare Directive; see Case C–489/07 Messner [2009] ECR I–7315, Opinion of AG Trstenjak, para 79. 299 See Case C–511/08 Heinrich Heine [2010] ECR I–3047, which concerned the Distance Selling Directive; art 13(2) Consumer Rights Directive and art 44(2) CESL-D restrict the reimbursement to the standard delivery costs. 300 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. 301 art 14(2) Consumer Rights Directive. 302 See also art 8(2) Timeshare Directive, according to which the consumer does not have to pay for services provided. 303 n 298.

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from an obligation to compensate for use, but instead binding it to the principle of good faith and fair dealing (art 2(1) CESL-D).304 Case C–489/07 Messner [2009] ECR I–7315 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.

d) Service contracts

In contrast to sales contracts for goods, the withdrawal from service contracts 166 is linked to the conclusion of contract (art 9(2)(a) Consumer Rights Directive; art 42(1)(e) CESL-D). Furthermore, particular rules apply to the payment of costs following the withdrawal from a service contract. It is to be noted that these rules are always subject to the requirement that a withdrawal right is excluded for particular services (e.g. for urgent repairs or maintenance under the requirements of art 16(h) Consumer Rights Directive, art 40(3)(e) CESL-D, or services that have been fully performed, art 16(a) Consumer Rights Directive305). If the consumer does have a right to withdraw from a service contract, it will not have to bear any costs for services rendered if it did not expressly request performance to begin during the withdrawal period, or the business has not provided information on the withdrawal right and the liability to pay reasonable costs (art 14(4) Consumer Rights Directive; art 45(6) CESL-D).306 In comparision, a higher level of protection is provided in timeshare contracts as the consumer is not generally liable for the costs of services provided during the withdrawal period (art 8(2) Timeshare Directive). e) Ancillary contracts

The withdrawal from a contract also results in the termination of so-called an- 167 cillary or linked contracts (art 15(1) Consumer Rights Directive and art 46(1), (2) CESL-D); art 14(4) Consumer Credit Directive and art 11 Timeshare Directive contain similar provisions. The purpose of such rules is to protect the consumer from the risks that may arise from – objectively – breaking down one transaction into numerous different contracts (in particular by splitting an install304 The extent to which principles of unjust enrichment can be applied still remains questionable, Messner (n 298) para 26; on the question of recourse to the provisions in Part VII CESL-D see above, para 161; see also Weller, ‘Widerrufsrecht bei Fernabsatz- und Haustürgeschaften’ in Schmidt-Kessel (n 51) 147, 170. 305 Services do not fall within the scope of the CESL, only related services. The right of withdrawal is not excluded for related service contracts. The consumer must also be informed that costs may arise and must also expressly consent to the performance of the related service (art 17(1) and (3); art 18(2) and art 19(6); art 45(6)(a) CESL-D). 306 art 45(6)(b) CESL-D contains a similar approach for contracts for the supply of digital content.

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ment contract into a cash sale for the sale of goods or other services and a consumer credit contract serving to finance the contract).307 The single transaction can be considered as one economic unit, for example the conclusion of a credit agreement with a car dealership in order to purchase the vehicle. Whereas there is a variation in the definition of ‘ancillary’ contracts in the directives and the CESL-D resulting from the differences in application, the Acquis Principles contain one general definition of linked contracts.308 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. (…)

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

307 Welter, ‘Verbraucherkredit’ in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010) 641; Rott, ‘Die neue Verbraucherkredit-Richtlinie 2008/48/EG und ihre Auswirkungen auf das deutsche Recht’ [2008] WM 1104, 1112; v. Bar/Clive (n 26) 381–384. 308 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); Jansen, ‘Klauselkontrolle im europäischen Privatrecht. Ein Beitrag zur Revision des Verbraucheracquis’ [2010] ZEuP 69; Kötz, Vertragsrecht (2nd edn, Mohr Siebeck 2012); Loos, ‘Standard Contract Terms Regulation in the Proposal for a Common European Sales Law. Comment to Jansen’ [2012] ZEuP 776; Pecyna, ‘Nieuczciwe postanowienia umowne w projekcie dyrektywy o prawach konsumenta, Zasadach Acquis i DCFR. Różne środki do tego samego celu’ (2009) 1–2 Transformacje Prawa Prywatnego 91; Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009); Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales europäisches Kaufrecht (Sellier 2012); Schulte-Nölke/TwiggFlesner/Ebers (eds), EC Consumer Law Compendium (Sellier 2008); Steinmetz/Calais-Auloy, Droit de la consommation (7th edn, Dalloz 2006); Ulmer/Brander/Hensen, AGB-Recht, Kommentar zu den §§ 305–310 BGB und zum UKlaG (11th edn, Otto Schmidt 2011); 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

The law of unfair terms in consumer contracts forms a core part of the law of 1 contract in the EU Member States and is an area in which extensive legislation has been passed at European level. The modern reality of economic activity is that consumer contracts not subject to the Unfair Terms Directive are very much an exception. 1. Unfair Terms Directive

The 1993 Unfair Terms Directive is the result of a compromise between sev- 2 eral legal traditions, though primarily the French and German.1 Consequently, the Directive features incoherencies resulting from these very different approaches.2 The heart of the control of unfair terms is formed by a ‘general clause’3 that 3 defines the underlying framework for permissible contract terms. 1 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 available online under http://biedronne.home.pl/transformacje/wp -content/uploads/2010/05/tpp-1–2–2009_pecyna.pdf accessed 16 January 2015; 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. 2 See Nebbia, Unfair Contract Terms in European Law (Hart 2007) 3; Ranieri ibid 405 with further references. 3 Stuyck, ‘Unfair Terms’ in Howells/Schulze (eds) Modernising and Harmonising Consumer Contract Law (Sellier 2009) 115, 116.

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Chapter 4 Unfair Contract Terms Article 3 Unfair Terms Directive [Terms not individually negotiated] (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer. (2) A term shall always be regarded as not individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. (3) The Annex shall contain an indicative and non-exhaustive list of the terms which may be regarded as unfair.

The concept of good faith had considerable influence on the content of this provision.4 The rule is substantiated by a so-called ‘indicative’5 list of contract terms that may be regarded as unfair. The issue of unfair contract terms has of course been subject to a number of ECJ decisions, however in this respect one can observe an increasing relevance of the questions of the extent to which the control of terms is subject to European requirements and the extent national standards should determine the outcome of the control.6 5 It appears at first glance that the Unfair Terms Directive is underpinned by a structure similar to the solution adopted in German law.7 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.8 Similarities aside, there are of course a number of differences to previous German legislation as this was not the sole source of inspiration for the European approach.9 6 The area of unfair contract terms also formed part of the European Commission's aspirations of reform in order to develop a more coherent European contract law.10 With the aid of the Green Paper on consumer protection (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 4

4 Nebbia (n 2) 143. 5 Stuyck (n 3) 116. 6 Case C–237/02 Freiburger Kommunalbauten [2004] ECR I–3403; Joined Cases C–240/98– 244/98 Océano [2000] ECR I–4941; see also Schulte-Nölke/Twigg-Flesner/Ebers (n 1) 202; Ranieri (n 1) 438–448. 7 Nebbia (n 2) 119. 8 §§ 305–310 BGB. 9 See below, paras 12–21. 10 Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 14, 18–20.

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to include negotiated terms.11 Furthermore, the Commission considered a deviation from the scope of the Unfair Terms Directive by extending the control to terms on main performance obligations. The Unfair Terms Directive is a minimum harmonization directive. Member 6a States are therefore afforded the possibility to maintain or introduce national rules that exceed the minimum level of protection granted by the Directive.12 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.13 This proposal was ultimately rejected during the legislative process; art 8 Unfair Terms Directive therefore continues to allow the Member States to introduce rules with a higher level of consumer protection. Following a consultation period, the Commission published its proposal for a 7 Consumer Rights Directive in 2008.14 The proposal also contained new provisions on the control of contract terms,15 yet reflected to a remarkable extent the provisions contained in the Unfair Terms Directive.16 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.17 However, the discussions surrounding the proposal maintained that it would hardly be possible to use full harmonization to implement important aspects into national law.18 The general view favoured the exclusion of unfair contract terms legislation from the scope of full harmonization;19 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.20 The scope of the control of terms under the Unfair Terms Directive only concerns consumer law21 and the acquis communautaire only 11 12 13 14 15 16 17 18 19

20 21

ibid 14, 20–21. Recital 12 Unfair Terms Directive. COM (2006) 744 final (n 10) 14. Commission, ‘Proposal for a Directive of the European Parliament and of the Council on consumer rights’ COM (2008) 614 final. ibid 3. ibid 11. ibid 3, 6, 7. This problem of full harmonization is referred to by Martinek in Eckpfeiler des Zivilrechts (5th edn, Sellier-de Gruyter 2014) para 194. 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. See below, paras 9–11; Chapter 1 paras 51–58. See art (1)(1) Unfair Terms Directive; extensive explanation of control of contract terms in consumer contracts in Loos, ‘Standard Contract Terms Regulation in the Proposal for a Com-

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contains very limited control over terms in B–B contracts: the control under the Late Payment Directive 2000 (as well as under the new Late Payment Directive) only applies to agreements on, inter alia, dates or periods of payment which are grossly unfair.22 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. 2. Unfair Terms in the Acquis Principles and DCFR 8

The academics working on the Acquis Principles and the DCFR have also attempted to revise the law on unfair contract terms and each contain rules inspired by the acquis communautaire. The same (and clear) source of inspiration has nevertheless resulted in a number of variations between the Unfair Terms Directive and the rules in the Acquis Principles and DCFR. Moreover, significant distinctions can also be observed between the Acquis Principles and the DCFR even though the former provided the basis for some of the provisions in the latter and are therefore closely related. These differences confirm that the academic discourse surrounding the best regulation of unfair contract terms for Europe is not at an end. 3. Unfair Terms in the CESL

9

The proposed CESL contains provisions concerning the control of unfair contract terms23 and generally expands on the design outlined by the Unfair Terms Directive.24 The CESL refrains from using ‘standard terms’ in its legislative provisions although the control of terms in B–B contracts is still subject to the ‘nonnegotiated’ requirement (art 86(1)(a) CESL-D). The structure of the control is similar to the original (and, at least where unfair terms are concerned, failed) proposal for a Consumer Rights Directive. The control of terms in consumer contracts is therefore regulated by a general clause that is accompanied by lists of particular terms (arts 83–85 CESL-D). Article 83 CESL-D Meaning of ‘unfair’ in contracts between a trader and a consumer (1) In a contract between a trader and a consumer, a contract term supplied by the trader which has not been individually negotiated25 within the meaning of Article 7 is unfair for the purposes of

22 23 24 25

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mon European Sales Law. Comment to Jansen’ [2012] ZEuP 776, 788–790; for criticism of the limitation of scope to party status see Riesenhuber, Europäisches Vertragsrecht (2nd edn, de Gruyter 2006) § 7 para 207 (cf § 10 paras 2, 6 where the scope of the Unfair Terms Directive is not criticized and only the issue of negotiation is discussed). Art 3(3) Late Payment Directive (2000); art 7 Late Payment Directive. Chapter 8 CESL-D. Loos (n 21) 778; Riesenhuber, ‘EU-Vertragsrecht’ (n 21) § 10 para 2. The European Parliament has omitted ‘not been individually negotiated’ in its amendments; however this does not mean a change in content see European Parliament legislative resolu-

II. Comparative Law Foundations 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.

The CESL contains lists of ‘grey’ (presumed unfair; art 84 CESL-D) and 10 ‘black’ (always unfair; art 85 CESL-D) terms and therefore follows the approach adopted by the original proposal for a Consumer Rights Directive. Moreover, the CESL also provides for the control of terms in B–B contracts, which is also based on a general clause (art 86 CESL-D); as may be expected, the standard of unfairness in a B–B is subject to requirements much stricter than for B– C contracts. Article 86 CESL-D Meaning of ‘unfair’ in contracts between traders (1) In a contract between traders, a contract term is unfair for the purposes of this Section only if: (a) it forms part of not individually negotiated terms within the meaning of Article 7; and (b) it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing. (2) When assessing the unfairness of a contract term for the purposes of this Section, regard is to be had to: (a) the nature of what is to be provided under the contract; (b) the circumstances prevailing during the conclusion of the contract; (c) the other contract terms; and (d) the terms of any other contract on which the contract depends.

The lists of prohibited terms do not apply to B–B contracts. As an optional instrument, the CESL would be relevant for the control of con- 11 tract terms once it is selected by the parties to form the basis of the contract. Moreover, according to Stürner26 the instrument would rather also be of importance for the interpretation of the Unfair Terms Directive. The list of unfair terms under the CESL could be used to substantiate and give further detail to the content of the general clause under art 3(1) Unfair Terms Directive. II. Comparative Law Foundations

The Unfair Terms Directive is based on a compromise between two different 12 concepts underlying the control of contract terms.27 Put simply, the Directive attempts to reduce the German and French systems to a common denominator. tion 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. 26 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. 27 Nebbia (n 2) 34; Ranieri (n 1) 404; Zoll (n 1) 71.

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Other models for controlling contract terms have of course also developed in Europe, in particular in the English and Scandinavian tradition, but these were given lesser consideration during the legislative development of the Unfair Terms Directive. 1. Development in German law 13

The concept of standard terms, i.e. pre-formulated contract terms designed for repeated use, was developed in German law.28 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.29 In comparison, the other party is faced with much higher costs if it intends to actually influence or just examine the terms. Under normal circumstances the risk of a negative development in the contractual relationship is too low in order for the counterparty to justify taking on such costs. This structural characteristic of conclusion of contract through standard terms gives the user greater scope to easily impose contractual risks on the counterparty; such a typical imbalance would not arise without the use of standard terms. German law thus developed the control of contract terms. Originally, doctrine and jurisprudence developed the concept until the German legislator took legislative measures – this was of course at a time when the control of unfair contract terms lay entirely with the national legislator. The control served to limit the user's factually one-sided freedom to draft the contract30 and the rule 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.31 The legislation implemented the control on three principal levels: control of inclusion32, control by 28 Hensen/Ulmer in Ulmer/Brandner (eds) AGB-Recht (11th edn, Otto Schmidt 2011) Einleitung paras 1–3; see also Schmidt-Salzer, ‘Recht der AGB und der mißbräuchlichen Klauseln’ [1995] JZ 223. 29 Jansen, ‘Klauselkontrolle im europäischen Privatrecht. Ein Beitrag zur Revision des Verbraucheracquis’ [2010] ZEuP 69, 84–86; Kötz, Vertragsrecht (2nd edn, Mohr Siebeck 2012) § 6 para 242; see also Kötz/Schäfer, Judex oeconomicus-12 höchstrichterliche Entscheidungen kommentiert aus ökonomischer Sicht (Mohr Siebeck 2003) 228–231; on the interaction between the costs of standard terms and their quality see Adams, Ökonomische Theorie des Rechts. Konzepte und Anwendungen (Lang 2004) 127, 128; see also Akerlof, ‘The Market for Lemons: Qualitative Uncertainty and the Market Mechanism’ (1970) 84 Quarterly Journal of Economics 488. 30 Hommelhoff/Wiedemann, ‘Allgemeine Geschäftsbedingungen und unausgehandelte Klauseln in Verbraucherverträgen. Grundsätzliches zur Transformation der EG-Klauselrichtlinie ins deutsche Recht’ [1993] ZIP 562, 565; Kötz ibid § 6 para 244. 31 Kötz ibid § 6 paras 243–245; see Hommelhoff/Wiedemann ibid 565; see also Adams (n 29) 119. 32 § 2 AGB-Gesetz 1976, § 305 BGB.

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contra proferentem interpretation33 and control of content 34, with the latter being the heart of this system. A general clause represented the central basis for the fairness control:35 § 9 AGB-Gesetz 1979 (1) 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.36 (…)

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;37 the terms in the second list could not be subject to assessment so that, at least in theory, they should lead to clearcut results.38 By comparison, the general clause should only be applied if a questionable standard term did not fall in either these two lists. The control of terms in B–B contracts was only undertaken on the basis of the general term, although in these cases the judges used the two lists of prohibited terms as a guideline. Substantiation of the general clause was therefore to be found in non-mandatory law, which reflected the legislative view of justice.39 Controlling the inclusion of standard terms should ensure that the customer can take notice of the standard terms before the contract is concluded. The approach therefore linked the law on standard terms to the traditional doctrine in contract. Furthermore, the provisions were supplemented by a traditional rule on interpretation (in dubio contra proferentem),40 whereby any doubts in the interpretation of the clause would give rise to an interpretation against the user and, accordingly, in favour of the customer. The structure can be seen in the text of the Unfair Terms Directive but in a simpler form. One can therefore see why an understanding of German law is important to comprehend the unfair terms legislation at European level. German law can therefore function as a point of reference in helping one to grasp the development of this area of law in the EU.

33 34 35 36 37 38 39 40

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

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15

16

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2. Control of terms under the French system 18

Although it is clear that German law influenced the structure of the Unfair Terms Directive, its content was inspired by the French system. The French tradition was less familiar with the phenomenon of standard terms as greater emphasis was placed on the notions of a contrat d’adhésion,41 whereby the factual imbalance between the parties results in the weaker party being unable to influence the drafting process42 – 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 it43 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.44 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

19

In addition to the two basic models outlined above, one can also note the development of English and Scandinavian systems on the control of contract terms. The English approach concerns the attempt to remove certain, particularly detrimental terms on the basis that a customer would clearly ‘not want’ such a term and therefore it would not fall within the consensus between the parties.45 The control of content (due to the weaker party's inability to influence the term46) was discussed in the context of conclusion of contract.47 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. 41 HK-BGB/Schulte-Nölke (2014) Vorbemerkung zu §§ 305–310 para 6. 42 For more detail see Brock, Der Schutz der Verbraucher vor mißbräuchlichen Klauseln im französischen Privatrecht (BWV 1998) 53–55; Nebbia (n 2) 34; Nobis, Missbräuchliche Vertragsklauseln in Deutschland und Frankreich (Nomos 2005) 60–61. 43 Brock ibid 5–6; Nobis ibid 92. 44 The control is rather focused on the consumer see Steinmetz/Auloy, Droit de la consommation (7th edn, Dalloz 2006) 204; also Aubert, Le contrat. Droit des obligations (4th edn, Dalloz 2010) 82–84; see also Brock ibid 5–6; Nebbia (n 2) 38–40. 45 See also the report of the Scottish Law Commission from 7 August 2002 available online under http://www.scotlawcom.gov.uk/publications/news-releases1/ accessed 16 January 2015. 46 Schulte-Nölke, ‘Fünf Jahre AGB-Richtlinie 93/13/EWG – Weitere Rechtsetzungspläne der Kommission?’ [1999] NJW 3176. 47 For more detail see 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) 126–128.

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III. Unfair Terms Directive

The Scandinavian legal tradition adopts a further approach which is based on 20 the extensive competence of the courts48 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. III. Unfair Terms Directive 1. Compromise

The first proposals for the Unfair Terms Directive focused greatly on the 21 French model49 for the control of contract terms.50 All terms not directly concerning the primary contractual obligations could be subjected to control and, in consumer contracts, all individually negotiated terms.51 Furthermore, the European legislator also intended to follow the French model by applying the control to single-use terms. The original proposal for the Unfair Terms Directive was therefore very broad and thus difficulties arose in attempting to reach an agreement. The final version of the Unfair Terms Directive adopted a compromise along different lines: the control of unfair terms should extend to single-use terms,52 but (in contrast to French law53) negotiated terms would be excluded from the scope of the control.54 The approach therefore represents the attempt to combine two different justifications for controlling contract terms: the structural weakness of one party, who was typified as ‘consumer’, and the lack of a possibility to influence the content of the contract, a possibility which is needed to sufficiently consider party autonomy. 2. General clause and the list of unfair terms

A general clause55 on the unfairness criteria is at the centre of the control of 22 contract terms. Art 3(1) Unfair Terms Directive stipulates that a term will be unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer. These criteria are substantiated in a non-exhaustive list referred to in art 3(3) Unfair Terms Directive. The substantiation is assisted by a so-called ‘indicative’ list of terms that are, in cases of doubt, to be regarded as unfair. These prohibited terms must be read in conjunction with the criteria outlined in art 3(1) Unfair Terms Directive as they clarify the indistinctions and indicate the types of terms that the European legislator sought to counter. The indicative list

48 MüKo ZPO/Micklitz (2013) Vorbemerkung §§ 1 et seq. UKlaG, para 41. 49 See Callais-Auloy/Steinmetz, Droit de la consommation (6th edn, Dalloz 2003) paras 176– 196. 50 See also Schulte-Nölke/Twigg-Flesner/Ebers (n 1) 197, 204; Zoll (n 1) 71. 51 Baier (n 47) 7. 52 See also Schulte-Nölke/Twigg-Flesner/Ebers (n 1) 197, 204. 53 Callais-Auloy/Steinmetz (n 49) para 179. 54 Schulte-Nölke/Twigg-Flesner/Ebers (n 1) 197, 204; Zoll (n 1) 71. 55 See above, para 3.

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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, as confirmed by the ECJ in Commission v Sweden56. On the whole, national legislation has included the list, though sometimes with variations in content in order to accommodate national requirements. Case C–478/99 Commission v Sweden [2002] ECR I–4147 22. Inasmuch as the list contained in the annex to the Directive is of indicative and illustrative value, it constitutes a source of information both for the national authorities responsible for applying the implementing measures and for individuals affected by those measures. As noted by the Advocate General in paragraph 48 of his Opinion, Member States must therefore, in order to achieve the result sought by the Directive, choose a form and method of implementation that offer a sufficient guarantee that the public can obtain knowledge of it.

A key question for control of terms under EU law arises in this context: does the substantiation of the general clause (art 3(1) Unfair Terms Directive) actually constitute a matter belonging to the acquis communautaire? Is the principle of good faith in art 3(1) Unfair Terms Directive to be uniformly understood in a European context or does the substantiation of the general criteria under art 3(1) (as well as the answer to the question whether the term at issue could survive the fairness test) remain exclusively a national matter? 24 It was initially apparent that there was absolute unawareness of the need for such a distinction. There appeared to be satisfaction with the presumption that the control of the content of unfair terms became part of Community law once the Unfair Terms Directive entered into force. One must therefore observe the list of prohibited terms when interpreting the general clause under art 3(1) Unfair Terms Directive because the list expresses the legislative intention at European level. The question concerning the interpretation of the general clause – and thus the understanding and substantiation of the principle of good faith – can therefore be answered in the affirmative. The general clause is thus a matter of European law and accordingly subject to interpretation by the ECJ. 25 It can be seen from its decision in Océano57 that the ECJ initially understood its competence to that effect.58 The Court determined in its decision that: 23

Case C–240/98 Océano [2000] ECR I–4941 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.

56 Case C–478/99 Commission v Sweden [2002] ECR I–4147. 57 n 6. 58 Stuyck (n 3) 120.

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III. Unfair Terms 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 DCFR59 and the Acquis Principles60. It cannot be concluded from this decision that agreements on jurisdiction are 26 always prohibited.61 The Court also emphasized that this type of agreement belongs to the terms contained in the list. One has to therefore remember that this list does not contain terms which are always prohibited but rather only indicates terms which will have to be assessed under the criteria in art 3(1) Unfair Terms Directive. This would rather imply that the Court does not entirely exclude the possibility for additional consideration by applying the general clause. However, there is no doubt that the Court categorically states its view in relation to the incompatibility between jurisdiction clauses and the principle of good faith. The aforementioned view gives rise to a number of questions on theoretical as 27 well as practical aspects. Can the ECJ fill a concept such as good faith with content that is generally binding across Europe? Since the legislator uses wording such as good faith in order to ensure flexibility when applying the law, is it therefore possible to substantiate the principle with the same content for the whole of Europe? The content of good faith strongly depends on extra-legal rules which an individual society strives to respect and which are considered as the glue holding the society together.62 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 59 arts II.–9:409 and II.–9:410 DCFR. 60 arts 6:304 and 6:305 ACQP. 61 Zoll, ‘Die Grundregeln der Acquis-Gruppe im Spannungsverhältnis zwischen acquis commun und acquis communautaire’ [2008] GPR 106, 113. 62 For German law Huber in Eckpfeiler des Zivilrechts (Sellier – de Gruyter 2005) 125–126; Lurger, ‘The Common Frame of Reference’ in Wilhelmsson/Paunio/Pohjolainen, Private Law and the Many Cultures of Europe (Kluwer 2007) 189.

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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:63 if the Court's approach were correct it would be faced with the considerable problem of a multitude of preliminary rulings – each control of terms in Europe would give rise to the question of interpreting good faith from a European perspective. This would ultimately paralyse the Court, permanently. 28 The ECJ did, however, soon recognize the problems emerging from its decision in Océano. This can be seen in a subsequent decision in the Court's clear (though not stated) distancing from the substantive aspects of the control of terms. The following question was posed by the German Bundesgerichtshof to the ECJ in Freiburger Kommunalbauten64: Case C–237/02 Freiburger Kommunalbauten [2004] ECR I–3403 14. Is a term, contained in a seller's standard business conditions, which provides that the purchaser of a building which is to be constructed is to pay the total price for that building, irrespective of whether there has been any progress in the construction, provided that the seller has previously provided him with a guarantee from a credit institution securing any monetary claims the purchaser may have in respect of defective performance or non-performance of the contract, to be regarded as unfair within the meaning of Article 3(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts?

The ECJ responded:

29

Case C–237/02 Freiburger Kommunalbauten [2004] ECR I–3403 It is for the national court to decide whether a contractual term such as that at issue in the main proceedings satisfies the requirements for it to be regarded as unfair under Article 3(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

One can clearly see that the decision is incompatible with Océano. The Court emphasized in Freiburger Kommunalbauten that it does not have the competence to assess the contract term in light of the principle of good faith.65 Additionally, it could not substantiate the principle of good faith for the whole of Europe. However, the Court did attempt to maintain the impression that in this respect there is no fundamental difference between Océano and Freiburger Kommunalbauten. In its reference to Océano the Court states that the term in this case was clearly unfair because it was ‘solely to the benefit of the seller and contained no benefit in return for the consumer’.66 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’67. The ECJ therefore attempts to divide the terms into 63 64 65 66

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See Zoll (n 62) 113. Case C–237/02 Freiburger Kommunalbauten [2004] ECR I–3403. See ibid paras 21–24. See ibid para 23.

IV. Late Payment Directive

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, the terms that are only ineffective at local level so that European law merely provides the framework for assessing the term. A problem does however exist in relation to criteria that are to be applied to 30 defining the first group of terms prohibited across Europe. The approach is, in principle, understandable as Europe does have many common values, though at the same time there are of course many differences at local level. In theory, one could imagine a system in which two different standards apply when interpreting the principle of good faith: good faith under European and under national standards. In a technical sense this would mean that the concept of good faith would partly belong to the acquis communautaire and partly to national law. However, this somewhat attractive notion of double content for good faith could, from a practical perspective, hardly be realized as many unsolvable problems would arise in relation to the boundaries between the terms ‘European’ and ‘national’ content. The ECJ would be faced with numerous instances in which it would have the exceptionally difficult task of determining the border between European and local breaches of the principle of good faith. The term in Océano would breach the principle of good faith and would therefore be unfair, whereas this jurisdiction clause in Freiburger Kommunalbauten would be categorized as unfair without requiring an additional assessment that should apply to the same extent in all Member States. It is questionable whether a jurisdiction clause such as in Océano would al- 31 ways be unfair irrespective of all other circumstances. It is clear that such a clause particularly affects those consumers who live far away from the place named in the term. Nonetheless, it is not unlikely that the term does not present such a problem for those parties who live close to the chosen jurisdiction and therefore the term must not necessarily be unfair. It was precisely in this respect that ECJ softened its approach in later decisions. The Court decided in Pannon68 that the national court is to determine whether a contract term (a jurisdiction clause) fulfils the criteria in order to be unfair under art 3(1) Unfair Terms Directive.69 In so doing the Court distanced itself further from its opinion in Océano, namely on the absolute unfairness of a jurisdiction clause. IV. Late Payment Directive

The acquis communautaire does not just contain rules concerning the regu- 32 lation 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 Di67 ibid. 68 Case C–243/08 Pannon [2009] ECR I–4713. 69 See Case C–243/08 Pannon [2009] ECR I–4713, para 32; see also Case C–472/10 Invitel [2012] ECR I–nyr.

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rective 2000 already outlined the control of an agreement on an excessive deferral of the payment period;70 such control applied irrespective of whether the term was individually negotiated.71 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.72 However, this appears to be quite out of touch with everyday reality as, in practice, both areas cannot be strictly separated from one another.73 The Late Payment Directive joins both areas together. 33 The criterion ‘grossly unfair to the creditor’ used in the Late Payment Directive is supplemented by further criteria. A particular role is played here by the ‘gross deviation from good commercial practice, contrary to good faith and fair dealing’ according to art 7(1)(a) Late Payment Directive. This criterion, which only serves to substantiate the concept of ‘grossly unfair’, is itself significant in academic drafts (art 6:301 ACQP; art II.–9:405 DCFR) as well as in the proposed Common European Sales Law (art 86 CESL-D). Article 7 Late Payment Directive Unfair contract terms and practices (1) Member States shall provide that a contractual term or a practice relating to the date or period for payment, the rate of interest for late payment or the compensation for recovery costs is either unenforceable or gives rise to a claim for damages if it is grossly unfair to the creditor. In determining whether a contractual term or a practice is grossly unfair to the creditor, within the meaning of the first subparagraph, all circumstances of the case shall be considered, including: (a) any gross deviation from good commercial practice, contrary to good faith and fair dealing; (b) the nature of the product or the service; and (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).

70 art 3(3) Late Payment Directive 2000. 71 Inferred e contrario from art 3(3) Late Payment Directive 2000 and art 7 Late Payment Directive. 72 art 3(2) Unfair Commercial Practices Directive. 73 On this question see also Leistner, Richtiger Vertrag und lauterer Wettbewerb (Mohr Siebeck 2007) 450–454.

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V. Acquis Principles (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. (…)

V. Acquis Principles

The Acquis Principles serve to provide a structure and create internal co- 34 herency within the acquis communautaire,74 therefore it is not surprising that the structure of its control of terms was strongly based on the Unfair Terms Directive.75 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 can clearly be seen.76 Moreover, the method adopted by the Acquis Group was also applied in order to propose generalizations of EU rules which, although narrowly worded, have extendable content. Although the Unfair Terms Directive is a part of European consumer law, the 34a 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).77 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 35 including the control of single-use terms and thereby greatly reducing the importance of standard terms in this set of rules. Standard terms only play a role in relation to a battle of the forms between the parties (art 6:204 ACQP).78 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 communautaire79 due to the Late Payment Directive.80 The criteria concerning the control under this Directive have therefore also influenced the corresponding criteria in the Acquis Principles.

74 75 76 77 78 79 80

See Contract II/Dannemann Introductory Part xxxvi; see also Zoll (n 1) 69. Zoll ibid 72. ibid. Contract II/Pfeiffer/Ebers art 6:101 para 6. This ‘Grey-Rule’ is taken from art II.–4:209 DCFR. Zoll (n 1) 71. See Chapter 2 para 143.

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The Acquis Principles structure the control in accordance with the traditional approach, namely by providing for control in relation to three different aspects: inclusion81, interpretation82 and, most importantly, content83. 37 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,84 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. 36

Article 6:201 ACQP Acquaintance with terms not individually negotiated (1) Contract terms which have not been individually negotiated bind a party who was unaware of them only if the user took reasonable steps to draw the other party's attention to them before or when the contract was concluded. (2) Terms are not brought appropriately to the other party's attention by a mere reference to them in a contract document, even if that party signs the document. (3) If a contract is to be concluded by electronic means, contract terms are not binding on the other party unless the user makes them available to the other party in textual form. (4) Consumers are not bound to terms to which they had no real opportunity to become acquainted before the conclusion of the contract.

In principle, the Acquis Principles provide a general control of inclusion without placing restrictions concerning the legal status of the parties. This can be seen in the wording of art 6:201 ACQP: art 6:201(1) ACQP generally provides that the user of non-negotiated terms has to draw the other party's attention to the terms; art 6:201(3) ACQP expands on this requirement by providing that the terms are to be made available to the other party in text form if the contract is to be concluded by electronic means. Stricter requirements are provided if the customer is a consumer. In this case the effective inclusion depends on the real opportunity to become acquainted with the terms before the contract is concluded (art 6:201(4) ACQP). 39 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 38

81 82 83 84

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art 6:201 ACQP. art 6:203 ACQP. arts 6:301–6:306 ACQP. Contract II/Pfeiffer/Ebers art 6:101 para 10.

V. Acquis Principles

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 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 40 the familiar system under the Unfair Terms Directive. The differences arise in relation to the extended scope of application to B–B contracts as well as to contracts in which it is not necessary to qualify the status of the parties. The centre of the system is formed by a general clause (art 6:301(1) ACQP),85 41 which refers to criteria taken from the Unfair Terms Directive:86 Article 6:301 ACQP Unfairness of terms (1) A contract term which has not been individually negotiated is considered unfair if it disadvantages the other party, contrary to the requirement of good faith, by creating a significant imbalance in the rights and obligations of the parties under the contract. Without prejudice to provisions on collective proceedings, when assessing the unfairness of a contractual term, regard is to be given to the nature of the goods or services to be provided under the contract, to all circumstances prevailing during the conclusion of the contract, to all 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 42 creates a significant imbalance between the rights and obligations of the parties under the contract to the disadvantage of the customer. In contrast to the Unfair Terms Directive, this provision shall not just apply to consumer contracts. The general clause will be applied, unchanged, to contracts in which the customer is neither a consumer nor a business. An exception applies to B–B contracts in the application of an additional criterion for unfairness that is inspired by the Late Payment Directive: the gross deviation from good commercial practice:87 Article 6:301 ACQP Unfairness of terms (…) (2) A term in a contract between businesses which has not been individually negotiated is considered unfair only if using that term would grossly deviate from good commercial practice.

In contrast to the Late Payment Directive,88 the deviation from ‘good commercial practice’ has become an additional, but independent criterion. This addi-

85 86 87 88

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

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tional 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. 43 One can nevertheless not neglect the differences between the different types of contract 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 Océano89.90 It serves as an example of how a system could look if it were to include a black list. The approach in the Acquis Principles concerning control of terms in other types of contracts is based on a general clause, though the three different types of contract covered in these Principles are each subject to a slightly different control. Terms in B–C contracts are subject to the application of a general clause as well as a grey (which is somewhat surprisingly labelled as an ‘indicative list’) and black list of prohibited terms.91 The control of content in B–B contracts is undertaken on the basis of a general clause, which is however distinguished by stricter criteria of unfairness. Furthermore, neither the grey nor the black list of prohibited terms applies to B–B contracts. The general clause will apply to other contracts, though without the application of the ‘gross deviation from good commercial practice’. However, both lists of prohibited terms will also not be used here in order to substantiate the general clause. VI. DCFR 44

The parts of the DCFR based on the acquis communautaire are related to the text of the Acquis Principles and have generally been drafted on the basis of the same method, i.e. to reflect and structure EU law.92 The text of Acquis Principles thus served as a basis for the corresponding provisions in the DCFR but one can nevertheless identify striking differences between the two texts.93 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 concering the duty of transparency, i.e. the duty to supply non-negotiated terms in clear language (art II.–9:402 DCFR), andthe 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).

89 90 91 92 93

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n 6. Contract II/Pfeiffer/Ebers art 6:304 para 1. ibid 4, art 6:305 ACQP. v. Bar/Clive/Schulte-Nölke (eds), DCFR Outline Edition (Sellier 2009) 7. Zoll (n 1) 73.

VI. DCFR

The Acquis Principles also contain a transparency requirement (art 6:302 AC- 45 QP), but drafted in a very general manner without outlining sanctions for breach. In comparison, the DCFR expressly considers the duty of transparency as an aspect of the control of content; this can be seen in the wording of art II.–9:401(2) DCFR. This provision determines that just a breach of the duty of transparency can lead to the unfairness of a term in a consumer contract. It is apparent from art II.–9:407 DCFR that, in light of the circumstances prevailing during the conclusion of the contract, a further point of consideration for the unfairness of a term in a B–C contract is whether the consumer had a real opportunity to become acquainted with the term. This provision can be traced back to the concept of presumed unfairness descended from the Unfair Terms Directive94 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 45a of content. Here aspects will also be considered which do not directly concern the relationship between the rights and obligations between the consumer and the business, but extend beyond this to also include aspects related to the customer's decision-making process. The potential possibility for the customer to become acquainted with the content and meaning of the term, as well as the extent of the possibilities to influence the content, shall be relevant under this system when assessing the fairness of the term. The editors of the DCFR could not come to an agreement as to whether negotiated terms should be subject to control, at least in consumer contracts. This indecisiveness is clear from the parenthesis used in art II.–9:403 DCFR.95 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.96 The DCFR therefore also differs from the Acquis Principles as thesehave followed the Directive in this respect (art 6:101(4) ACQP).97 Surprisingly, the DCFR has – in contrast to the Acquis Principles – restricted 46 the control of terms in non-consumer contracts just to the standard terms, i.e. contract terms drafted in advance for multiple transactions (art II.–9:404, art II.– 9:405 in conjunction with art II.–1:109 DCFR). The systems of control in and outside of consumer law are therefore underpinned by different principles and 94 95 96 97

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

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values even though both systems are partly served by the same or similarly worded provisions. 47 Furthermore, the DCFR makes distinctions within the control of standard terms. 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 which must be retained in such types of contract. The DCFR follows the Acquis Principles in this respect.98 48 The DCFR also adopts a similar approach to the Acquis Principles by including two lists of prohibited terms: the grey (art II.–9:410 DCFR) and the black list (art II.–9:409 DCFR). The latter contains (as the Acquis Principles) just one prohibited term. However, these two lists are only applicable to consumer contracts. The DCFR and Acquis Principles are therefore identical in this respect, also. VII. Reform 49

The 2007 Green Paper on the Review of the Consumer Acquis also included the control of contract terms.99 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 ecompass negotiated terms or should the status quo be maintained, i.e. only non-negotiated terms can be assessed under the Unfair Terms Directive? The Commission also considered an extension to the unfairness test. Under the Unfair Terms Directive (which is reflected in the DCFR and Acquis Principles) terms will be excluded from the unfairness test if they cover the main subject-matter of the contract, unless they are not in plain intelligible language (art 4(2) Unfair Terms Directive). The control of the price:performance ratio should be left to the market. However, it is exceptionally difficult in prac98 Stuyck (n 3) 126. 99 COM (2006) 744 final (n 10) 18–20.

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tice to separate the terms on the main subject-matter from the additional provisions.100 Furthermore, for several contracts (e.g. for insurance101) this results in – from a policy perspective – an undesirable limitation on the extent of the unfairness test. Consequently, the Commission considered to abolish this requirement. However, the Commission above all considered a step concerning a general 50 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. VIII. The Exclusion of Unfair Terms from the Consumer Rights Directive

The Commission presented its proposal for a Directive on Consumer Rights 51 in 2008.102 The proposal covered the regulation of unfair contract terms which have indeed repealed the Unfair Terms Directive,103 though differences between the two were minimal. The general solutions were maintained and only the nonnegotiated terms should be subject to the unfairness test; clearly drafted terms on the main subject-matter of the contract would continue to be excluded from the scope of the test. A new feature could however be observed in the inclusion of two lists of unfair terms – the ‘black’ and ‘grey’ lists – which were to replace the ‘indicative’ list in the Unfair Terms Directive.104 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 100 On the issue of the main subject matter of the contract see Case C–484/08 Caja de Ahorros [2010] ECR I–4785; C–26/13 Kásler [2014] ECR I–nyr; cf C–143/13 Matei [2015] ECR I– nyr. 101 See Case C–96/14 van Hove [2015] ECR I–nyr. 102 n 14. 103 ibid recitals 1 and 2 . 104 Stuyck (n 3) 128.

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failure lay in the intended full harmonization105 – 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 criticism106 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. IX. CESL 52

The content of the control of contract terms in the CESL resembles most of all the corresponding content of the Acquis Principles.107 However, the presumption of non-negotiation as well as the clear integration of a transparency requirement in this CESL system were more greatly influenced by the DCFR.108 The inclusion test is regulated in art 70 CESL–D, this overlaps entirely with the rule in art 6:201 ACQP.109 Article 70 CESL-D Duty to raise awareness of not individually negotiated contract terms (1) Contract terms supplied by one party and not individually negotiated within the meaning of Article 7 may be invoked against the other party only if the other party was aware of them, or if the party supplying them took reasonable steps to draw the other party's attention to them, before or when the contract was concluded. (2) For the purposes of this Article, in relations between a trader and a consumer contract terms are not sufficiently brought to the consumer's attention by a mere reference to them in a contract document, even if the consumer signs the document. (…)

The European Parliament has proposed to omit art 70 CESL-D. The requirement to draw the consumer's attention to the terms is however expressed in a revised version of art 76 CESL-D:

105 See Chapter 3 para 35. 106 See, for example, the criticism in Graf, ‘Richtlinienentwurf und Allgemeine Geschäftsbedingungen’, in Jud/Wendehorst, Neuordnung des Verbraucherprivatrechts in Europa? (Manz 2009) 141, 143–144. 107 Schulze CESL/Kieninger art 70 CESL-D para 3. 108 ibid para 2. 109 On the inclusion in the CESL see Möslein, ‘Kontrolle vorformulierter Vertragsklauseln’ in Schmidt-Kessel, Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 255, 274; Schmidt-Kessel CESL/Looschelders/Makowsky art 70 CESL-D; see also ibid.

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IX. CESL Amendment 148 Proposal for a regulation Annex I – Article 76 a – paragraph 1 (new) Text proposed by the Commission

Amendment (1) Contract terms supplied by a trader and not individually negotiated within the meaning of Article 7 may be invoked against a consumer only if the consumer was aware of them, or if the trader took reasonable steps to draw the consumer's attention to them, before or when the contract was concluded. (See amendment for paragraph 70(1))

Amendment 149 Proposal for a regulation Annex I – Article 76 a – paragraph 2 (new) Text proposed by the Commission

Amendment (2)For the purposes of this Article, contract terms are not sufficiently brought to the consumer's attention unless they are: (a) presented in a way which is suitable to attract the attention of a consumer to their existence; and (b) given or made available to a consumer by a trader in a manner which provides the consumer with an opportunity to comprehend them before the contract is concluded. (See amendment for paragraph 70(2), the text has been amended)

The user of a non-negotiated term can therefore only rely on this term if the 53 customer was either aware of such a term or the user brought the term to the customer's attention. Art 70(2) CESL-D makes it clear that in B–C contracts the mere reference to the use of the terms in the contract document will not satisfy this requirement even if the document has been signed by the consumer. The proposed CESL does not contain a provision expressly regulating the inclusion of terms in electronic contracts. However, art 24(3)(e) and (4) CESL-D outline extensive information duties concerning the contract terms in contracts concluded by electronic means. The breach of these information duties is subject to the sanctions under art 29(1) CESL-D. Moreover, the general rule on inclusion also applies to e-commerce. The CESL distinguishes between the control in B–C contracts (art 83 CESL- 54 110 D) and the control in B–B contracts (art 86 CESL-D)111, and thereby covers all the circumstances covered in the CESL's proposed personal scope of application (art 7(1) CESL-Reg-D112). However, non-negotiated terms are not subject to 110 See above, para 9. 111 See above, para 10. 112 On the personal scope of application see also Möslein (n 110) 266; Schulze CESL/Mazeaud/ Sauphanor-Brouillaud art 83 CESL-D.

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the test,113 thus the proposal has not adopted the DCFR approach on this issue. In addition, single-use terms in B–B contracts may also be subject to control (art 86(1)(a) CESL-D). The notion of standard terms does not play a role if one does not abstain from presuming the non-negotiation of standard terms. The requirement of non-negotiated terms is also maintained in B–C contracts (art 83(1) CESL-D). Both groups exclude contract terms on the main subject-matter of the contract from control unless the trader has not complied with the duty of transparency (art 80(2) CESL-D).114 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. 55 The core of the test comprises the general clauses (arts 83 and 86 CESLD)115, which are regulated separately for both groups of contracts (B–B and B‑C). Article 83 CESL-D Meaning of ‘unfair’ in contracts between a trader and a consumer (1) In a contract between a trader and a consumer, a contract term supplied by the trader which has not been individually negotiated within the meaning of Article 7 is unfair for the purposes of this Section if it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer, contrary to good faith and fair dealing. (2) When assessing the unfairness of a contract term for the purposes of this Section, regard is to be had to: (a) whether the trader complied with the duty of transparency set out in Article 82; (b) the nature of what is to be provided under the contract; (c) the circumstances prevailing during the conclusion of the contract; (d) to the other contract terms; and (e) to the terms of any other contract on which the contract depends. Article 86 CESL-D Meaning of ‘unfair’ in contracts between traders (1) In a contract between traders, a contract term is unfair for the purposes of this Section only if: (a) it forms part of not individually negotiated terms within the meaning of Article 7; and (b) it is of such a nature that its use grossly deviates from good commercial practice, contrary to good faith and fair dealing. (2) When assessing the unfairness of a contract term for the purposes of this Section, regard is to be had to: (a) the nature of what is to be provided under the contract; (b) the circumstances prevailing during the conclusion of the contract; (c) the other contract terms; and (d) the terms of any other contract on which the contract depends.

56

In B–C contracts, the significant imbalance between the rights and obligations of the parties which arises, to the detriment of the consumer, contrary to good faith and fair dealing will be the decisive in classifying a term as unfair.116 The 113 Möslein ibid 267; Schmidt-Kessel CESL/Looschelders/Mankowsky art 70 CESL-D para 1; Schulze CESL/Kieninger art 70 CESL-D para 1. 114 On the exceptions under art 80 CESL-D see Möslein ibid 270–272. 115 See above, paras 9–10. 116 Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 83 CESL-D para 7.

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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.117 The wording of the general clause in art 83(1) CESL–D varies from the corre- 57 sponding provisions in the Unfair Terms Directive (art 3), the Acquis Principles (art 6:301(1) ACQP) and the DCFR (art II.–9:404 and art II.–9:405). The general clause in the new proposal refers more to the contract as a whole rather than a specific term. However, it is to be doubted whether this distinction (which could theoretically allow for less restricted consideration of the terms to be controlled) could actually lead to lower consumer protection in practice. Two lists are again foreseen for B–C contracts: a black (art 84 CESL-D)118 and a grey (art 85 CESL-D)119 list. However, the black list is much longer than its counterparts in the DCFR and Acquis Principles.120 The control of terms in the CESL has not expanded on several of the DCFR's 58 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 which have arisen in this area of law since the Unfair Terms Directive was passed.

117 Möslein (n 110) 284. 118 On the prohibited terms under art 84 CESL-D see Schmidt-Kessel CESL/Möslein art 84 CESL-D paras 10–20; Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 84 CESL-D. 119 On the prohibited terms under art 85 CESL-D see Schmidt-Kessel CESL/Möslein art 85 CESL-D paras 4–11. 120 Schulze CESL/Mazeaud/Sauphanor-Brouillaud art 84 CESL-D para 3.

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Chapter 5 Performance Obligations Literature: Lorenz, Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law (2012) 212 AcP 702; Research Group on the Existing EC Private Law (Acquis Group), Contract II – General Provisions, Delivery of Goods, Package Travel and Payment Services (Contract II) (Sellier 2009); Schmidt-Kessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014); Schulze (ed), Common European Sales Law – Commentary (Nomos 2012); v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009).

I. Performance Obligations 1. Acquis communautaire a) Overview

A contract founds the obligation for one or both parties to perform for the 1 other or a third party. The content of these obligations can be very diverse. The principle of freedom of contract – more specifically its form of freedom of content of contract – ensures that it is primarily the parties who can determine the content of their contractual obligations. Freedom of contract is acknowledged in the laws of the Member States as well as in EU contract law.1 Nevertheless, the laws of the Member States contain extensive rules, in particular on the manner of performance (such as time and place) as well as non-mandatory obligations in individual types of contract, which supplement the parties' contractual agreement should such terms not have been specifically stipulated in the contract.2 Mandatory rules in national law are however often only applicable to performance obligations in a limited number of circumstances. In contrast to national laws, the acquis communautaire contains neither a comparatively comprehensive set of rules on performance obligations nor a clear-cut notion of performance obligations. Present EU contract law rather limits itself to a series of specific aspects which 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, though these rules of European contract law have nonetheless not necessarily resulted in affording the injured party with a corresponding primary contractual right to performance. These provisions of EU contract law can rather be additionally or exclusively linked with other legal consequences. In particular, they can – even without a primary claim to performance – form the basis for the availability of remedies such as subsequent performance and termination.3 1 See Chapter 1 para 30; on the recognition of this principle in the Member States see v. Bar/ Clive (eds), DCFR Full Edition 131–132. 2 For more detail see Chapter 2 paras 80–87.

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b) Consumer contracts

Art 2(1) Consumer Sales Directive plays a highly significant role concerning the regulation of performance obligations in specific areas of contract law covered by the acquis communautaire. According to this provision the seller is obliged to deliver goods which are in conformity with the sales contract. The content of the obligation is therefore not just the delivery but rather the requirement that the delivered goods are to be ‘in conformity with the contract of sale’. This obligation is therefore not just fulfilled by the delivery of the goods (in contrast to non-delivery as non-performance in a broad sense) but rather extends to cover the performance in conformity with the contract (in contrast to non-conformity or defective performance). In this respect the Consumer Sales Directive follows the approach under the CISG and the PECL as it also provides an overarching concept of the obligation to perform in conformity with the contract and, accordingly, a broad understanding of non-performance in relation to the remedies available to the other party.4 3 Art 18(1) Consumer Rights Directive is also of particular importance for performance obligations in certain consumer contracts. The provision determines the scope of the delivery obligation under the Directive (as was previously outlined in art 7(1) Distance Selling Directive) together with the time and the nature of the delivery to the buyer.5 Individual specific aspects of performance obligations in other areas are also regulated by, for example, arts 3 and 5 Commercial Agents Directive, art 21(1) Markets in Financial Instruments Directive, art 49(1) Payment Services Directive6 as well as in a number of provisions on the manner of performance.7 The Acquis Principles have structured these individual provisions of the acquis communautaire in an overarching manner which has been combined with the principle of good faith to create the following 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 in, for example, contracts for the delivery of goods (art 7:B–01 ACQP) or commercial agency contracts (arts 7:H–03 et seq. ACQP). The Acquis Principles therefore generalize the rules derived from present EU law and extend their scope of application beyond the directives (for instance, for delivery of goods in general and not just for consumer sales contracts); however the Principles are not extended to all types of contract relevant to the internal market because of the lack of a sufficient basis in the acquis communautaire (especially for service contracts). 2

3 4 5 6 7

See Chapter 6 para 34; on sanctions by non-contractual means see Chapter 6 para 1. For more detail see Chapter 6 paras 11–27. See below, paras 12–20. For more detail see Contract II/Aubert de Vincelles et al. art 7:101 para 2. See below, para 12.

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I. Performance Obligations Article 18 Consumer Rights Directive Delivery (1) Unless the parties have agreed otherwise on the time of delivery, the trader shall deliver the goods by transferring the physical possession or control of the goods to the consumer without undue delay, but not later than 30 days from the conclusion of the contract. (…)

2. CESL a) Overview

The CESL determines the performance obligations not only for parties to a 4 sales contract but also to contracts for the supply of digital content, and contracts for (related) services. The rules are initially general and sometimes list-like in nature but are supplemented by subsequent, more substantive rules on the manner of performance and further requirements for conformity. These provisions on the respective contractual obligations for the parties under one of the aforementioned contracts precede – following the pattern in the CISG – the rules on the remedies available to the other party in the event of non-performance. The catalogue of the seller's main obligations is at the peak of the provisions 5 for a sales contract and contracts for the supply of digital content. ‘Main obligations’ expresses that these obligations are characteristic for these types of contract but that it does not intend to represent an exhaustive list of all of the seller's obligations. Furthermore, ‘main obligations’ are not the pendant to the notion of ‘fundamental non-performance’ of contractual obligations. Although it will often be considered that a breach of the main obligations under art 91 CESL-D will be fundamental, it does not mean that the breach of such obligations will always be considered ‘fundamental’ under art 87(2) CESL-D.8 Article 91 CESL-D Main obligations of the seller The seller of goods or the supplier of digital content (in this part referred to as ‘the seller’) must: (a) deliver the goods or supply the digital content; (b) transfer the ownership of the goods, including the tangible medium on which the digital content is supplied; (c) ensure that the goods or the digital content are in conformity with the contract; (d) ensure that the buyer has the right to use the digital content in accordance with the contract; and (e) deliver such documents representing or relating to the goods or documents relating to the digital content as may be required by the contract.

A common aspect in modern practice is for the seller to entrust performance 6 of the contract to a third party; as a result the CESL also contains basic rules for performance by a third party (art 92 CESL-D) which follow immediately after the main obligations of the seller. According to art 92 CESL-D a third party may be entrusted with the performance if the contract does not require personal per8 For more detail see Chapter 6 paras 61–62.

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formance by the seller; however the responsibility for performance lies with the seller.9 b) Main obligations

Art 123 CESL-D contains a list of the ‘main obligations of the buyer’, which 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.10 Furthermore, art 123(2) CESL-D makes it clear that the obligation to pay the purchase price is not applicable to contracts for gratuitous digital content.11 As for the seller's obligations, the list of the buyer's main obligations is also supplemented by detailed provisions which will be considered in more detail below. 8 The additional provisions concerning taking delivery do not only determine that the buyer has to take over the goods or digital content (or, in each case, the documents) but rather it has to perform all acts that could be expected in order to enable the seller to perform its delivery obligation (art 129 CESL-D), for example informing the seller of the place of delivery and ensuring it has access.12 Although the buyer is obliged to take delivery of the goods there are no rules in the CESL concerning the specific consequences of non-acceptance.13 However, the seller can benefit from the exclusion of the buyer's remedies under art 106(5) CESL-D. The seller must also take reasonable steps to protect and preserve the goods or digital content (art 97(1) CESL-D), though it is entitled to deposit or sell the goods or digital content and retain its costs from the amount to be reimbursed to the buyer (art 97(2), (3) CESL-D). 8a The buyer can only refuse to accept early delivery or delivery of a lesser quantity than agreed if it has a legitimate interest in doing so (art 130(1), (2) CESL-D). However, if the amount delivered is greater than agreed the buyer can choose to retain or refuse the excess.14 If the buyer decides to retain the excess it will however result in the obligation to pay for the excess at the contractual rate (art 130(3), (4) CESL); an exception applies in consumer contracts if the ‘buyer reasonably believes that the seller has delivered the excess quantity intentionally and without error, knowing that it had not been ordered’ (art 130(5) CESL-D).15 The buyer's right under art 130(2) CESL to choose does however appear to be 7

9 10 11 12 13

This is mandatory in a consumer contract, art 92(3) CESL-D. On the latter point see Schulze CESL/Dannemann art 123 CESL-D para 12. For more detail on contracts for the supply of digital services see Chapter 2 paras 56–59. See also v. Bar/Clive (n 1) 1328. For criticism see Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 722. 14 According to art 130(3) CESL-D the seller would be exposed to the risk of implied rejection by the buyer, on this problem see Schulze CESL/Dannemann art 130 CESL-D para 19, who proposes the possible analogous application of art 135 CESL-D. 15 According to art 130(6) CESL-D the provisions on early delivery and incorrect quantity are not applicable to contracts for the gratuitous supply of digital content. For criticism of art 130(5) and (6) CESL-D see ibid paras 13, 20.

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problematic in cases in which the excess delivery has been made in error. The excess delivery does not always have to be perceived by a sensible recipient as an offer to change the contract or to conclude an additional contract, thereby binding the seller even though this conflicts with the general rules on conclusion of contract.16 c) Service contracts

The respective obligations of service providers and customers under the 9 CESL are contained in separate sections of Chapter 15 CESL-D; the CESL thus distinguishes between two types of obligations for service providers. Art 148(1) CESL-D will be applicable if the contract requires a specific result to be achieved. The service provider is therefore obliged to achieve every result due under the contract. Services of this kind often include the examples of related services listed in art 2(m) CESL-Reg-D (installation, maintenance or repair). If, however, the service contract does not contain an express or implied obligation to achieve a specific result, the applicable criteria are stipulated under art 148(2) and (3) CESL-D.17 In such instances the service is to be provided with the care and skill which a reasonable service provider would exercise and in conformity with the relevant statutory provisions. Consequently, merely performing in accordance with regulations would not suffice under this standard if, under the individual circumstances, the reasonable service provider is subject to further requirements of care and skill.18 Art 148(3) CESL-D contains a non-exhaustive list of the requirements of care and skill in relation to the foreseeability of risks19, the costs of preventing damage and the time available for performance of the related service. Moreover, if a consumer contract includes the installation of the goods, the service provider must also ensure that the installed goods conform to the contract in accordance with art 101 CESL-D. This rule takes account of a current rule in European contract law according to which an incorrect installation is regarded as non-conformity of the goods. Article 2 Consumer Sales Directive Conformity with the contract (…) (5) Any lack of conformity resulting from incorrect installation of the consumer goods shall be deemed to be equivalent to lack of conformity of the goods if installation forms part of the contract of sale of the goods and the goods were installed by the seller or under his responsibility. This shall apply equally if the product, intended to be installed by the consumer, is installed by

16 See Chapter 2 para 19. 17 art 148(2) CESL-D is mandatory for consumer contracts (art 148(5) CESL-D). 18 Faber, ‘Dienstleistungsverträge’ in Wendehorst/Zöchling-Jud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 147, 181–182. 19 Contrary to the wording of art 148(3)(a) CESL-D, which is clearly the result of an editorial error, this does not just apply to risks concerning consumers but also for businesses as customers; ibid 182–183.

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Art 149 CESL-D places the service provider under the obligation to prevent against damage. The service provider must therefore take reasonable precautions in order to prevent damage to the goods or digital content, and to prevent physical injury or other loss and damage from arising during performance or as a consequence of the performance of the related service. The further provisions on the obligations of the service provider concern, in particular, the (secondary) obligation to provide an invoice and to warn of unexpected or uneconomic costs (arts 151, 152 CESL-D). Furthermore, art 150 CESL-D contains provisions concerning the performance by a third party. Although these provisions are similar to art 92 CESL-D for sales contracts, service contracts are generally more personal in nature and therefore further limitations ought to be placed on entrusting the performance to a third party.20 These secondary obligations arising from the related service contract21 are therefore aimed not only at preventing damage to the goods or digital content delivered with the related service but rather also extend to protect against loss or harm to the contractual partner's other legal interests, such as its physical integrity.22 In this respect these obligations have the character of contractually-based obligations to protect the legal interests of the other party. 11 The customer's obligation under a service contract is primarily to pay the contractually agreed price (art 153(1) CESL-D). In addition, art 154 CESL-D outlines the specific obligation to provide access to the premises at reasonable hours if this is necessary in order for the service to be provided. 10

3. Manner of performance a) Overview 12

In addition to these aforementioned obligations, the laws of the Member States often contain detailed rules concerning time, place, and manner of performance in order to clearly determine the debtor's performance obligations and the creditor's remedies in the event of non-performance. The acquis communautaire also contains a number of provisions on these matters, though these do not form part of a complete regulatory foundation. As a consequence, the Acquis Principles had to partly refer to the results of the comparative approach in the PECL and DCFR in order to fill the relevant gaps in the EU law.23 However, the CESL has followed these drafts so that its chapters on obligations of the parties now 20 See, on the one hand, art 150(1) CESL-D: ‘… unless personal performance by the service provider is required’; and on the other hand art 92(1) CESL-D: ‘unless personal performance by the seller is required by the contract terms’; for criticisms see Schulze CESL/Zoll art 92 CESL-D para 2. 21 Illmer, ‘Related Services in the Commission Proposal for a Common European Sales Law’ [2013] EPRL 131, 168. 22 Faber (n 18) 183.

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contain a complete set of rules for these types of performance. Admittedly, it cannot answer all questions arising in relation to performance due to the many different types of clauses that exist in practice, therefore one will often have to refer to general provisions and principles such as good faith and fair dealing (art 2 CESL-D), the obligation to co-operate (art 3 CESL-D) and consider legitimate consumer expectations24. b) Place and form of performance

aa) The acquis communautaire does not contain any general requirements on 13 place and form of performance, though a key starting point for the delivery of goods can be found in the Consumer Rights Directive. The Directive's scope of application extends beyond the former art 7(1) Distance Selling Directive and the present art 2(1) Consumer Sales Directive not only by providing that the seller has to deliver the goods to the consumer but also through a more precise concept of delivery. Art 18(1) Consumer Rights Directive states that the seller delivers the goods by transferring the physical possession or control of the goods to the consumer. It is clear from the language that the notion of possession here refers to the actual material control of the goods.25 However, the Consumer Rights Directive does not contain an express provision concerning the place at which the possession or control is transferred to the consumer.26 bb) The CESL considerably extends this approach and its rules on the type of 14 delivery are linked to the place of delivery for various different situations. Art 93 CESL-D gives priority to the agreement under the contract, however there are three different circumstances to be considered if the place of delivery is not stipulated or cannot otherwise be determined (e.g. no reference to the INCOTERMS27 in B–B contracts): (1) the place of delivery in a distance or offpremises contract is the consumer's place of residence at the time of the conclusion of the contract. The same applies under a consumer contract if the seller is to arrange the carriage of the goods to the buyer. (2) In other cases the place of delivery will depend on whether the sales contract includes the carriage of the goods by a carrier. Following the provisions of the CISG, a carrier is independent of the seller, for example not an employee.28 Under such circumstances the 23 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. 24 See Chapter 2 para 17. 25 ‘[T]ransferring the physical possession of the goods’, the French and German versions of the Directive also includes such clear language ‘transférant la possession physique’ and ‘physischen Besitz’, respectively. 26 Zöchling-Jud, ‘Acquis-Revision, Common European Sales Law und Verbraucherrechterichtlinie’ (2012) 212 AcP 550, 568. 27 Schmidt-Kessel CESL/Remien art 93 CESL-D para 2. The INCOTERMS (International Commercial Terms) 2010 contain fundamental rules on the obligations for buyers and sellers, see http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/the-incoterms -rules/ accessed 27 April 2015. 28 ibid; Magnus in Staudinger, CISG (16th edn, Sellier-de Gruyter 2012) art 31 CISG para 18.

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place of delivery will be the nearest collection point of the first carrier. (3) If the sales contract does not include the carriage of the goods by an independent carrier, the place of delivery will be the seller's place of business at the time of the conclusion of the contract. The obligation to collect the goods is therefore the residual concept foreseen for the delivery of goods in instances involving neither a contract of carriage under the aforementioned requirements in (2) nor a consumer contract under the above requirements in (1). In contrast, if such a consumer contract exists, an obligation to deliver at the consumer's residence is foreseen as this is more favourable to the consumer. 15 Art 94 CESL-D stipulates how the seller is to perform its obligation to deliver under each of these three situations. Where the obligation to deliver is concerned, the seller is to transfer the physical possession or control of the goods or digital content to the consumer (art 94(1)(a) CESL-D; as also provided under art 18(1) Consumer Rights Directive). If the contract includes carriage, the delivery obligation will be performed by handing over the goods to the first carrier and, if necessary, handing over any document to the buyer which is necessary in order to enable it to take over the goods from the carrier (art 94(1)(b) CESL-D). Art 96 CESL-D contains more specific rules on this mode of performing the delivery obligation. Where collection of the goods is concerned, the seller has to make the goods or digital content available to the buyer (or, if agreed, deliver the documents representing the goods) (art 94(1)(c) CESL-D).29 16 cc) The acquis communautaire does not contain any general rules regarding the place of performance of monetary obligations. Although it does contain individual rules on the means of payment, these are merely applicable in specific circumstances, for instance in the Consumer Rights Directive (art 13 on the seller's obligations in the event of withdrawal; art 19 on fees for the use of specific means of payment; art 22 on payments additional to the contractually agreed amount). The (in part) very detailed provisions of the Payment Services Directive mainly apply to the relationship between payment service providers and their users, therefore they are mostly of indirect relevance. The Acquis Principles on this area are thus restricted to referring to art III.–2:101 DCFR30 as a model to fill this particular gap. 17 Art 125 CESL-D follows the corresponding rule in the DCFR and now provides that the place of payment in sales contracts is, unless determined otherwise, the seller's place of business at the time of the conclusion of contract. The place with the closest relationship to the obligation to pay will otherwise apply in the event the seller has more than one place of business. The details of the means of payment are contained in art 124 CESL-D, which is based in part on art 7:108 PECL and art III.–2:109 DCFR. In the absence of an agreement to the 29 Furthermore, art 94(2) CESL-D stipulates that the provisions on the buyer in the first and third situation also apply to a third party (but not the carrier as under arts 93–94 CESL-D) who was indicated by the consumer or the buyer in accordance with the contract. 30 Based in part on arts 31(c), 57 CISG and art 7:101 PECL.

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contrary the debtor can, taking into account the nature of the transaction, pay by any means that are used in the ordinary course of business at the place of payment. One can therefore use this basic rule to determine that the payment is to be made in the local currency at the place of payment.31 Where payments are not made in cash (e.g. by cheque, other money orders or a promise to pay) it is presumed that these are accepted on the condition that they will be honoured. Failure to do so will entitle the seller to enforce the original payment obligation.32 However, the buyer's original payment obligation will be extinguished if the seller accepts a promise to pay from a third party if such a pre-existing arrangement exists (e.g. payment by credit card).33 As under art 19 Consumer Rights Directive, art 124(4) CESL-D 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. The consumer can therefore only be burdened with the actual costs that arise for the business, thereby prohibiting the business from, for example, imposing the payment of flat processing charges.34 Art 90(1) CESL-D extends the scope of these provisions beyond the payment of the purchase price to other payments (with appropriate adaptations), unless otherwise provided.35 c) Time

aa) The point in time at which the performance is due is indicated in specific 18 parts of the acquis communautaire through the expression without any undue delay. For instance, art 7(1) Distance Marketing of Financial Services Directive stipulates that the consumer, in exercising the withdrawal right, may only be required to pay ‘without undue delay’ for services actually provided. Art 18(1) Consumer Rights Directive provides that the business is to deliver the goods to the consumer ‘without undue delay, but not later than 30 days from the conclusion of the contract.’ In this respect the Consumer Rights Directive has further developed36 the 30-day period not only in relation to the notion of delivery and the right to termination after non-performance in an additional period37 but also in relation to a time period for delivery. In comparison, art 3(3) Consumer Sales Directive denotes the time period available for repair or replacement as a ‘rea31 Schulze CESL/Dannemann art 124 CESL-D para 18. 32 On the increased certainty which can arise from art 124(2) CESL-D in comparison to the second sentence of art 7:107(2) PECL and the second sentence of art III.–2:108(2) DCFR see Schmidt-Kessel CESL/Schaub art 124 CESL-D para 4. 33 For further detail and on the questions concerning the boundaries to personal loans see ibid paras 5–6. 34 This point has been left open, see Lorenz (n 13) 806. 35 See Schulze CESL/Zoll art 90 paras 1–4. 36 The 30-day period for delivery was originally provided under art 7(1) Distance Selling Directive. 37 For further detail on the concept of delivery see above, para 3; for termination see Chapter 6 paras 53–69.

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sonable time’. Nevertheless, the Acquis Principles outline the general principle of EU contract law as being the obligation for the debtor to perform without undue delay, unless agreed otherwise (art 7:201(1) ACQP). 19 bb) The CESL follows the approach adopted by the Acquis Principles for the time of performance and therefore deviates from art 33 CISG as well as from the complex rules in arts III.–2:102 and IV.A.–2:202 DCFR.38 According to art 95(1) CESL-D, the delivery of goods must, unless agreed otherwise, be delivered without undue delay after the conclusion of the contract; the CESL does not state the meaning of ‘undue’.39 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.40 The scope of ‘without undue delay’ in art 95(1) CESL-D is limited to the delivery of goods and digital content, whereas the Acquis Principles apply the principle to performance obligations in general. However, application of this CESL provision to other circumstances may come into consideration if there are no provisions on the time for delivery. 20 The CESL contains specific rules on the time of payment, namely at the moment of performance for which payment is due. Art 126(1) CESL-D bolsters this principle by stipulating that the payment of the price is due at the moment of delivery. According to art 90(1) CESL-D, this rule is also applicable (with appropriate adaptations) to other payments. Where (related) services contracts are concerned, art 153(2) CESL-D contains the more precise rule that the payment is due when the service is completed and the object of the service is made available to the customer. One has to of course always distinguish between when the payment is due and whether it can be performed. The latter point does not concern the question when the debtor has to perform, but when it may perform. One can deduce from art 126(2) CESL that, in principle, payment is possible before the due date but the creditor can reject the offer to pay if it has a legitimate interest in doing so. II. Risk 21

The provisions on when the buyer has to pay the purchase price has although it has not yet received the object, or it has received a non-conforming good, are closely linked to the rules establishing the form of performance. The academic drafts on European contract law could initially refer to arts 66 et seq. CISG in relation to the transfer of economic risk (price risk) to the buyer. The DCFR 38 In contrast to art 7:201 ACQP, however, art 95(1) CESL-D expressly states the moment of conclusion of contract as the relevant time, whereas the comments to the Acquis Principles favour the time at which the obligations arise (which may sometimes be difficult to determine); see Contract II/Aubert de Vincelles et al. art 7:201 para 8. 39 On the controversial doctrinal views see Lorenz (n 13) 702, 721; Schmidt-Kessel CESL/ Remien art 95 CESL-D para 1; Schulze CESL/Zoll art 95 CESL-D para 8. 40 Contract II/Aubert de Vincelles et al. art 7:201 para 10.

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based its rules on this model, though took account of the characteristics of European contract law by including specific provisions for consumer contracts (art IV. A.–5:103 DCFR). Art 20 Consumer Rights Directive now represents a rule in the acquis communautaire in relation to this issue of high practical importance in distance and off-premises contracts involving the carriage of goods. According to this provision the risk of loss or damage passes to the consumer when it or a third party (indicated by the consumer and not the carrier) has acquired the physical possession of the goods.41 However, the risk will only pass to the consumer when the goods are delivered to a carrier that has been commissioned by the consumer and this option was not offered by the business. A characteristic of the CESL is its further development of rules originally 22 outlined in the DCFR. This approach is reflected in arts 140 et seq. CESL-D as its rules on the passage of risk are divided into three sections. The first section contains the ‘General provisions’ which apply to all sales contracts and contracts for the supply of digital content under the CESL. These ‘General provisions’ determine the effect of passage of risk and the requirement that the goods or digital content can be clearly identified to the contract (arts 140, 141 CESL-D). Specific rules for ‘passing of risk in consumer contracts’ form the second section (art 142 CESL-D) and rules for ‘passing of risk in contracts between traders’ (arts 143 et seq. CESL-D) comprise the third. According to the general rule in art 140 CESL-D, the effect of passage of risk is that the buyer is not released from its obligation to pay the purchase price if the goods or digital content have been lost or damaged after the risk has passed (though this will not apply if the loss or damage is due to an act or omission of the seller). However, this effect will first arise when the goods or digital content to be delivered have been either identified beforehand by the parties during the conclusion of the contract (specific goods) or through subsequent identification of unascertained goods, for example by notice to the buyer (art 141 CESL-D).42 The moment risk passes in consumer contracts is determined by art 142 23 CESL-D, which follows the approach in art 20 Consumer Rights Directive.43 In principle the risk passes to the consumer when it or a third party it has designated (but, again, not the carrier) acquires the physical possession of the goods. Where digital content is concerned, the relevant moment will also be the acquisition of physical possession if the content is supplied on a tangible medium; otherwise it will be the moment the consumer obtains control of the content (art 142(1), (2) CESL-D). Art 142(3) CESL-D does however detract from these principles if the consumer has not performed its obligation to take delivery of the goods or digital content and such non-performance is not excused under 41 See above, para 13. 42 On the individual groups see Schmidt-Kessel CESL/Wiese arts 140, 141 CESL-D paras 8–10 (here also on the particular problem of combined shipment); Schulze CESL/Zoll/Watson art 141 CESL-D paras 6–10; v. Bar/Clive (n 1) 1374–1375. 43 See above, para 21.

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art 88 CESL-D.44 Under these requirements the risk will pass at the moment the consumer would have acquired physical possession or control of the digital content had it performed its obligation to accept delivery. However, this rule will not apply in distance selling contracts or off-premises contracts (art 142(3) CESL-D).45 24 The CESL adopts a similar approach for B–B contracts as for B–C contracts by providing that the risk will pass when delivery is taken of the goods or the documents representing the goods (art 143(1) CESL-D).46 However, this principle is bypassed by specific rules for circumstances that often arise in practice. In the event that the goods or digital content are, with the buyers knowledge, placed at its disposal, the risk will generally pass at the moment the buyer should have taken over the goods or digital content (obligation to collect, art 144 CESL-D) unless it is entitled under art 113 CESL-D to withhold performance of its obligation to accept delivery. A particularly significant difference between B– B and B–C contracts can be seen in relation to sales contracts providing for the carriage of goods: the risk will generally pass to the buyer in a B–B contract when the goods are handed over to the first carrier in accordance with the contract (art 145(2) CESL-D). Similarly, risk will pass to the buyer in relation to goods sold in transit when the goods are handed over to the first carrier. However, here the circumstances may indicate that risk shall pass at the time of conclusion of contract. Nevertheless, the seller may still bear the risk of loss or damage to the goods if it knew, or could be expected to have known of the loss or damage to the goods at the time the contract was concluded (art 146 CESLD). The fundamental difference between all of these provisions on passage of risk in B–B contracts and art 142 CESL-D on B–C contracts lies ultimately in their non-mandatory nature. Accordingly, the parties in a B–C contract cannot exclude or alter the rules on passage of risk in a manner that would disadvantage the consumer (art 142(5) CESL-D).

44 For more detail see Schmidt-Kessel CESL/Wiese art 142 CESL-D para 6; Schulze CESL/Zoll/ Watson art 142 CESL-D paras 8–12. 45 See Schulze CESL/Zoll/Watson ibid para 8; for criticism 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, 273; Schmidt-Kessel CESL/Wiese ibid paras 12–14. 46 On the unanswered question whether ‘takes delivery of’ shall have a different meaning to ‘has acquired the physical possession’ under art 142(1) CESL-D (or which only arises because art 142 CESL-D is based on art 20 Consumer Rights Directive and art 143 is based on art 67(1) CISG and art IV.A.–5:102 DCFR) see Schmidt-Kessel CESL/Wiese arts 143–146 CESL-D para 3.

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Chapter 6 Consequences of Non-performance Literature: Grabitz/Hilf/Nettesheim (eds), Das Recht der Europäischen Union (54th edn, C.H. Beck 2014); Bianca/Grundmann (eds), EU Sales Directive – Commentary (Intersentia 2002); Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702; Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013); Schulte-Nölke et al. (eds), Der Entwurf für ein optionales Kaufrecht (Sellier 2012); SchmidtKessel (ed), Der Entwurf für ein Gemeinsames Europäisches Kaufrecht – Kommentar (Sellier 2014); Schulze (ed), Common European Sales Law – Commentary (Nomos 2012); Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ [2012] ZEuP 797.

I. Introduction 1. Innovative approaches in the acquis communautaire

The consequences of the non-performance of contractual obligations and in 1 particular the legal responses to non-performance (remedies) are central parts of the law of contract. The sanctions foreseen by contract law for the non-performance of obligations indeed give the injured party the possibility to react; the threat of sanctions also has a preventative effect to induce a party to perform its duties and therefore ensure the performance of the contract. Although a number of EU directives contain contractual obligations, the responsibility for providing the corresponding sanctions has mainly been left to the Member States. Accordingly, there is a great variation in the measures that have been adopted to secure the objectives of the directive, for example private law instruments, administrative preventative and sanctioning measures, and even criminal sanctions have been provided in the field of consumer law.1 Nonetheless, a series of directives2 and regulations3 contain express rules on the remedies that shall be available to the injured party in the event of a non-performance as well as other private law consequences that are not contained in specific rules. Despite their fragmented nature, several EU laws have given key features to the development of this area of law. Consequently, one can observe in several Member States a number of extensive changes to traditional approaches which have occasionally extended beyond the foreseen scope of the European legislation.

1 For example reg 9(6) European Communities (Protection of Consumers in Respect of Contracts made by means of Distance Communication) Regulations 2001 (SI No. 207/2001), which served to implement the Distance Selling Directive into Irish law; or the ‘fraud’ under art L 213–1 Code de la consommation, which also served to implement the Consumer Sales Directive; see Thissen, Die Verbrauchsgüterkaufrichtlinie und die Haftung des Verkäufers für öffentliche Äußerungen Dritter in Frankreich (LIT 2005) 72–74. 2 These include, above all, the Commercial Agents Directive, Consumer Rights Directive, Consumer Sales Directive, Late Payment Directive, Package Travel Directive, and the Payment Services Directive. 3 For example, 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.

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EU law on non-performance has indeed initiated or promoted a number of developments. The most important includes the emergence of a uniform aspect as the link to several or all remedies available to the injured party. The basis is formed by the concept of (non-) conformity outlined in art 3 Consumer Sales Directive (inspired by the CISG and the PECL). The model adopted by this Directive made, for example, an important contribution to the 2002 modernization of the German law of obligations not only through the introduction of uniform aspects of breach and non-conformity into the general law of obligations but also through the integration of sales law provisions into this framework. Similarly, the approach adopted in the Consumer Sales Directive also played an important innovative role for Member States' rules on the relationship between performance and termination, as well as the other remedies. In this respect, the concept of a claim to performance as a remedy was a new approach for many Member States. Further innovative aspects of the Consumer Sales Directive also concern the seller's right to ‘cure’ a breach and the hierarchy of the remedies, namely the priority of repair or replacement above the remedies of price reduction or termination.4 Furthermore, the injured party's right to rescind or terminate the contract is also linked to the innovative approach wherey judicial intervention is not necessary in order to execute the remedy, as was required in some Member States; art 18 Consumer Rights Directive also follows a similar approach to the Consumer Sales Directive. Withdrawal rights in this context also represent a departure from some traditional national approaches in which judicial intervention is needed in order for one party to unilaterally terminate or change the contractual relationship.5 In this respect the directives – as the CISG and the PECL – have placed a different model in the foreground: the legislator affords a party the power to create, modify or end a legal relationship through unilateral acts (socalled ‘formative rights’).6 3 Moreover, the new European rules have had considerable effect on the notion of defect in sales law. On the one hand this concerns the integration of this notion into the general terminology of contract law/law of obligations with the aid of the concept of (non-) conformity. However, on the other hand the Consumer Sales Directive and the Package Travel Directive expand the traditional national criteria of conformity by including public statements made by the seller and third parties and, respectively, organizer and retailer. The notion of defect in the sale of goods is not limited to the physical integrity of the good but rather also includes associated acts, namely the installation instructions and installation by the seller (see art 2(5) Consumer Sales Directive). This concept of defect thus expresses that the contractual obligations are substantiated by consideration of 2

4 See below, para 28 and paras 56–57. 5 See Chapter 3 para 157. 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.

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the other party's legitimate expectations. Such change in perspective towards the legitimate expectations of the other party is prevalent throughout the provisions on contractual obligations in relation to non-performance and therefore places the criteria for non-performance in a new context. 2. System a) Acquis communautaire

The European rules on non-performance of contract have been subject to a 4 piecemeal development for specific circumstances and are thus far from forming a complete system of law for breach of contract. Nevertheless, these limited number of rules do provide a starting point for a partial systemization. In light of the aforementioned provisions of the Consumer Sales Directive, one can therefore refer to, for example, the concept of a uniform requirement of breach as a common requirement for several remedies, the inclusion of (subsequent) performance as a remedy, the hierarchy of remedies, the division of subsequent performance in repair and replacement, and the equal ranking of rescission (and termination) and price reduction as remedies.7 Member States have not just implemented these provisions on the design and relationship between remedies beyond the scope of the Directive but have used them as a framework for a new structure of sales law and of the general law of obligations as a whole (especially in Germany).8 The Acquis Principles have used the relevant directives and associated Euro- 5 pean case law in order to develop approaches for structuring European contract law concerning non-performance. This especially includes the use of overarching principles on the requirements and exercise of remedies, and their relationship to one another (including also damages and interest), as well as the extension of general principles through specific rules for individual aspects (e.g. the delivery of goods or for particular services).9 The Acquis Principles have thus outlined the possibilities for a coherent development of the acquis communautaire, but the extent of current EU contract law prevents the further step of drafting a complete system of European law on breach of contract. The Acquis Principles thus do not cover important topics such as the restitution after termination

7 It is doubtful whether one can derive general principles of current EU contract law from the provisions of the Consumer Sales Directive; on remedies for non-performance see Contract II/ Machnikowski/Szpunar art 8:202 paras 1–2; Schmidt-Kessel ibid 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. 8 See Herresthal, ‘Die Schuldrechtsmodernisierung 2002, Modell für die europäische Privatrechtsvereinheitlichung?’ in Artz/Gsell/Lorenz (eds), Zehn Jahre Schuldrechtsmoderniserung (Mohr Siebeck 2014) 279, 285–286; Schulze/Schulte-Nölke (eds), Die Schuldrechtsreform vor dem Hintergrund des Gemeinschaftsrecht (Mohr Siebeck 2001) 3–24. 9 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.

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of contract and, furthermore, must refer to the PECL or DCFR as the gaps cannot be filled through reference to the acquis communautaire.10 b) CESL

aa) The proposed Common European Sales Law presented the European legislator with the challenge of developing an overarching system of rules for breach of contract which is as comprehensive as possible in order to work in practice. In addition, the CESL also contains a broad catalogue of the remedies available to the parties and is extensively based on the system of remedies in the PECL, Acquis Principles and DCFR. The CESL provides each of the parties (seller and buyer) with separate remedies which each are positioned after the obligations for the other contract party.11 Remedies for parties to a service contract are regulated separately, however in one general section on remedies12 after the sections on the parties' obligations. This separation into types of contracts and parties expresses that the remedies in each case are possible reactions to the non-performance of the contractual obligations stipulated in the preceding sections. However, this approach leads to repetitions and frequent cross-references, particularly to the earlier chapter on general terms13 which concerns the requirements of various remedies (such as non-performance, fundamental non-performance and excused non-performance), as well as to later14 rules on damages and interest – these latter aspects have general effect on each type of contract and party, yet are positioned after specific rules. 7 bb) Art 106(1) CESL-D outlines the basic structure of the catalogue of remedies available to the buyer in the event of a non-performance by the seller. Corresponding provisions for the seller, the customer in a service contract, and the service provider are contained in arts 131, 155, 157 CESL-D. The remedies available to the injured party comprise the request for performance, withholding performance, termination, price reduction, and damages.15 6

Article 106 CESL-D Overview of buyer's remedies (1) In the case of non-performance of an obligation by the seller, the buyer may do any of the following:

10 arts 8:201 and 8:202 ACQP on monetary and non-monetary obligations, respectively, corresponding to arts III.–3:301 and III.–3:302 DCFR; art 8:302 ACQP on notice of termination, corresponding to art III.–3:507(1) DCFR; art 8:304 ACQP on the right to withhold performance, corresponding to art III.–3:401 DCFR; art 8:404 ACQP on interest on delayed payment, corresponding to art III.–3:708 DCFR. 11 Chapter 11 the remedies for the buyer (arts 106 et seq. CESL-D) follow the obligations of the seller in Chapter 10; the remedies of the seller in Chapter 13 (arts 131 et seq. CESL-D) follow the obligations of the buyer in Chapter 12. 12 Chapter 15, Section 4 (arts 155 et seq. CESL-D). 13 Chapter 9 (arts 87 et seq. CESL-D). 14 Chapter 16 (arts 159 et seq. CESL-D). 15 For more detail on each of these remedies see below, paras 33–90.

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(2)

(3)

(4) (5) (6)

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. 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. 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. If the seller's non-performance is excused, the buyer may resort to any of the remedies referred to in paragraph 1 except requiring performance and damages. The 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. Remedies which are not incompatible may be cumulated.

cc) Art 106(6) CESL-D regulates the relationship between the remedies by 8 stipulating their cumulative application under the requirement ‘not incompatible’16, which is of course subject to interpretation. However, express rules concern the relationship between specific remedies, for example art 8(2) CESL-D provides that termination and damages are available to the injured party. In contrast, art 120(3) CESL-D excludes recovery of damages for loss if of the buyer claims price reduction. The remedies of termination and performance cannot be exercised concurrently (art 8(1) CESL-D). dd) It is characteristic of the system of remedies in art 106 CESL-D that all 9 remedies (except withholding performance) in B–B contracts are first subject to cure of the non-performance by the seller (art 106(2)(a) CESL-D). The non-performing party is therefore afforded the right to perform in conformity with the contract (cf art 109(1) CESL-D) and thereby cure its breach.17 Performance can therefore be claimed by the injured party as a remedy (art 106(1)(a) CESL-D) but is also a right for the party in breach (the right to performance in the form of cure under art 109 CESL-D). A further characteristic can be identified in art 106(2)(b) CESL-D, namely the buyer can only rely on the remedies if requirements of examination and notification in arts 121 and 122 CESL have been fulfilled. However, these are again only applicable in B–B contracts and do not apply to consumers (art 106(3)(b) CESL-D).18 Art 106(4) CESL-D highlights that each of the remedies do not require fault on the part of the party in breach i.e. liability is objective. However, liability is limited in respect of performance 16 See Lorenz, ‘Das Kaufrecht und die damit verbundenen Dienstverträge im Common European Sales Law’ (2012) 212 AcP 702, 754. On art III.–3:102 DCFR see v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009) 777–778. 17 See below, paras 30–32. 18 See below, paras 43–46.

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and damages if the non-performance is excused under the requirements of art 88(1) CESL-D.19 Art 106(5) CESL-D outlines the final principle of all remedies, namely the causal link between the non-performance and the actions by the non-performing party.20 10 ee) The CESL's chapters on remedies do not regulate all consequences resulting from the exercise of remedies. In particular, the effects of termination are mainly contained in art 8 CESL-D, which covers the termination of contract in general. Whether (and to what extent) a party is to return what has been obtained under the contract falls under the issue of restitution, which is contained in a separate part of the CESL (arts 172 et seq. CESL-D).21 The provisions in this part 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. Accordingly, the provisions are removed from the chapter on defects in consent and from the parts on remedies and – in adhering to the ‘life cycle’ of the contract22 – placed before presciption in the penultimate chapter of the CESL. II. Non-performance 1. Overview 11

The directives in the acquis communautaire have paid less attention to the questions of non-performance23 than to the contractual duties. The consequences of breach have been left in the domain of the Member States. Nevertheless, the process of consolidating European contract law has given rise to an increasing number of rules on non-performance. One could pose the question whether a system is emerging which will consist of coherent parts, or whether different rules will emerge for various different points and will be scattered across the acquis communautaire. The authors of the Acquis Principles presumed that the existing EU private law offers a sufficient basis for generalized rules. The Acquis Principles define the concept of non-performance as: Article 8:101 ACQP Definition of non-performance Non-performance is any failure to perform an obligation, including delayed performance, defective performance and failure to co-operate in order to give full effect to the obligation.

The definition follows the approach of proceeding from a uniform notion of breach/non-conformity24 and therefore is linked to the model in the CISG, PECL and DCFR. Despite such indications that the European legislator would follow 19 20 21 22 23

See below, paras 25–27. For more detail see para 39. See below, paras 91–93. Recitals 6, 26 CESL-D. Commission, ‘Green Paper on the Review of the Consumer Acquis’ COM (2006) 744 final, 22–23. 24 Contract II/Machnikowski/Szpunar art 8:101 para 5.

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

The model of a uniform concept of non-performance, which does not catego- 12 rize the different types of breach, can be seen primarily in the Package Travel Directive:25 Article 5 Package Travel Directive [Liability] (…) (2) With regard to the damage resulting for the consumer from the failure to perform or the improper performance of the contract, Member States shall take the necessary steps to ensure that the organizer and/or retailer is/are liable unless such failure to perform or improper performance is attributable neither to any fault of theirs nor to that of another supplier of services, because: – the failures which occur in the performance of the contract are attributable to the consumer, – such failures are attributable to a third party unconnected with the provision of the services contracted for, and are unforeseeable or unavoidable, – such failures are due to a case of force majeure such as that defined in Article 4 (6), second subparagraph (ii), or to an event which the organizer and/or retailer or the supplier of services, even with all due care, could not foresee or forestall. (…)

According to art 5(2) Package Travel Directive the right to damages is linked to every type of non-performance.26 This uniform model of non-performance is reflected in the words ‘failure to perform’ and ‘improper performance’. It is to be assumed that this description refers to all types of non-performance, such as late performance, despite the absence of an express reference. A contentious issue concerns strict liability in this context.27 The Package 13 Travel Directive does indeed state that the liability is excluded in the absence of fault. However, this fault is defined in a manner that alludes to objective liability attributable to either just the consumer, or just to a third party, or force majeure. In turn, force majeure is defined with reference to due care. The concepts of fault or negligence provide little assistance here as they do not have clearly defined content in European law. In this case one can at least refer to performance subject to due care. 25 On non-performance see Riesenhuber, EU-Vertragsrecht (Mohr Siebeck 2013) § 13 paras 22– 37. 26 ibid para 32. 27 Answered in the affirmative in ibid.

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A uniform concept of non-performance is also included in the Payment Services Directive: Article 75 Payment Services Directive Non-execution or defective execution (1) Where a payment order is initiated by the payer, his payment service provider shall, without prejudice to Article 58, Article 74(2) and (3), and Article 78, be liable to the payer for correct execution of the payment transaction, unless he can prove to the payer and, where relevant, to the payee's payment service provider that the payee's payment service provider received the amount of the payment transaction in accordance with Article 69(1), in which case, the payee's payment service provider shall be liable to the payee for the correct execution of the payment transaction. (…)

15

The Consumer Sales Directive is the most important directive to adopt the uniform approach to non-performance:28 Article 3 Consumer Sales Directive Rights of the consumer (1) The seller shall be liable to the consumer for any lack of conformity which exists at the time the goods were delivered.

16

It may be surprising that this provision is given as an example of the uniform concept of non-performance even though it only contains a specific case of defective or non-performance, namely the lack of conformity.29 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 relation to the CISG,30 which is devised on the basis of a uniform notion of breach.31 The use of such a uniform approach does not necessarily result in the complete absence of a distinction between the different subforms of defective and non-performance. The Consumer Sales Directive merely represents a part of a system that has not fully developed in the acquis communautaire. The system32 has now been completed by the proposed CESL.

28 Magnus in Grabnitz/Hilf (eds) Das Recht der Europäischen Union (40th edn, C.H. Beck 2009) Sekundärrecht A.15, 1999/44/EG, art 3 para 1; Bianca in Bianca/Grundmann (eds) EU Sales Directive: Commentary (Intersentia 2002) art 3 para 3. 29 Bianca ibid. 30 Magnus (n 28) para 4; Bianca ibid Introduction para 21. 31 Müller-Chen in Schwenzer (ed), Schlechtriem and Schwenzer: Commentary on the UN Convention on the International Sale of Goods (3rd edn, OUP 2010) art 45 para 5. 32 art 87 CESL-D contains a list of acts which fall under non-performance see Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D paras 1–11; Schulze CESL/Zoll art 87 CESLD para 4; the reference for determining non-performance is conformity under arts 99–105 CESL-D, see Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 8; Schulze CESL/Zoll art 87 CESL-D para 18.

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3. Types of non-performance in the acquis communautaire

Other directives and regulations specify the different types of non-perfor- 17 mance for which the European legislator has provided the corresponding remedies. A key example of the renaissance of such a case approach instead of a remedy approach (as a feature of the uniform model) can be seen in the Consumer Rights Directive: Article 18 Consumer Rights Directive Delivery (…) (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. (…)

This provision regulates late performance and provides the consumer with a 18 right to terminate if an additional period has been set and the seller has failed to perform in this additional time. It follows a strict liability approach in relation to the type of delay. The national legislator indeed has the choice to transpose this provision into a standard breach of contract provision, but this does not alter the fact that a specific remedy (termination) is available and original legal concepts – additional period – are applicable. In this respect it concerns a part of the law related to non-performance whose origins are in a system that differs from the system of the Consumer Sales Directive (even though both systems can be merged by the national legislator). Such typification of non-performance can also be seen in the various travel 19 law regulations on passenger rights: Regulation 261/2004 on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights33 and Regulation 1371/2007 on rail passengers' rights and obligations34: Article 16 Regulation (EC) No 1371/2007 on rail passengers' rights and obligations 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

33 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. 34 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.

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Chapter 6 Consequences of Non-performance 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.

Regulation 261/2004 covers numerous different types of non-performance, such as denied boarding (art 4), cancellation (art 5), and delay (art 6) and provides different consequences in each instance. The European legislator could not be content with a general clause due to the strict liability and specific type of performance. 4. Requirement in the CESL a) Non-performance 20

The proposed CESL presented the European legislator with the first opportunity to draft a near-complete system of contract law. The proposal also introduces its own concept of law concerning non-performance: Article 87 CESL-D Non-performance and fundamental non-performance (1) Non-performance of an obligation is any failure to perform that obligation, whether or not the failure is excused, and includes: (a) non-delivery or delayed delivery of the goods; (b) non-supply or delayed supply of the digital content; (c) delivery of goods which are not in conformity with the contract; (d) supply of digital content which is not in conformity with the contract; (e) non-payment or late payment of the price; and (f) any other purported performance which is not in conformity with the contract. (2) Non-performance of an obligation by one party is fundamental if: (a) it substantially deprives the other party of what that party was entitled to expect under the contract, unless at the time of conclusion of the contract the non-performing party did not foresee and could not be expected to have foreseen that result; or (b) it is of such a nature as to make it clear that the non-performing party's future performance cannot be relied on.

21

The provision clearly expresses a homogenized concept of non-performance35 and lists various different examples of types of non-performance. The list is not exhaustive and thus also provides a clear framework in uncertain cases.36 The concept of non-performance is however (somewhat unfortunately) thus used in two contexts – as the general concept and thereby as a synonym of default or of breach37 and in a more specific sense as the term for fundamental non-performance and entire non-performance38. However, it does clarify that the entire 35 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) 107, 108. 36 Schulze CESL/Zoll art 87 CESL-D para 4.

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non-performance also falls under the uniform concept of non-performance. Accordingly, the right to require performance can be included as one of several remedies.39 The CESL therefore does not distinguish between primary and secondary contractual rights. Art 87(2) CESL-D provides an additional category of ‘fundamental non-per- 22 formance’40, which corresponds to ‘fundamental breach’ in the CISG41.42 This additional category is an important extension to the uniform concept of non-performance: in principle all remedies are available for all types of non-performance, therefore other means are necessary in order to prevent simple termination of the contract.43 This function can be achieved through classification of the types of non-performance (e.g. late performance or impossibility) and attributing a particular remedy allowing the contract to be ended (such as termination). In the CESL, a contract can generally only be terminated due to non-performance when the non-performance is fundamental. However, the CESL does provide an important exception which reflects the solution in art 3(6) Consumer Sales Directive. Article 114 CESL-D Termination for non-performance (1) A buyer may terminate the contract within the meaning of Article 8 if the seller's non-performance under the contract is fundamental within the meaning of Article 87 (2). (2) In a consumer sales contract and a contract for the supply of digital content between a trader and a consumer, where there is a non-performance because the goods do not conform to the contract, the consumer may terminate the contract unless the lack of conformity is insignificant.

The termination of a consumer sales contract and a contract for the supply of 23 digital content is also possible even if the non-performance can not be considered fundamental. However, this only concerns one variant of non-performance: the delivery of non-conforming goods. The contract can only be terminated if the non-confomity is not minor; here the business will bear the burden of proof. Article 3 Consumer Sales Directive Rights of the consumer (…)

37 See Zöchling-Jud, ‘Rechtsbehelfe des Käufers im Entwurf eines Gemeinsamen Europäischen Kaufrechts’ in Schmidt-Kessel (ed), Ein einheitliches europäisches Kaufrecht? (Sellier 2012) 327. 38 Schulze CESL/Zoll art 87 CESL-D para 4. 39 Zöchling-Jud (n 37) 332. 40 Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 12. 41 art 25 CISG; see Schroeter in Schwenzer (n 31) art 25. 42 Schopper (n 35) 107, 110; cf Schmidt-Kessel CESL/Schmidt-Kessel/Kramme art 87 CESL-D para 13. 43 See also Schmidt-Kessel/Kramme ibid para 12.

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Chapter 6 Consequences of Non-performance (6) The consumer is not entitled to have the contract rescinded if the lack of conformity is minor.

b) Excused non-performance 24

Moreover, particular remedies are subject to a limitation which supplements the notion of non-performance: Article 106 CESL-D Overview of buyer's remedies (…) (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. (…)

25

The CESL defines excused non-performance as follows: Article 88 CESL-D Excused non-performance (1) A party's non-performance of an obligation is excused if it is due to an impediment beyond that party’s control and if that party could not be expected to have taken the impediment into account at the time of the conclusion of the contract, or to have avoided or overcome the impediment or its consequences. (2) Where the impediment is only temporary the non-performance is excused for the period during which the impediment exists. However, if the delay amounts to a fundamental non-performance, the other party may treat it as such. (…)

The German translation of excused non-performance (entschuldigte Nichterfüllung) does, however, vary from the English version as the former indirectly suggests the concept of fault (Verschulden) as a requirement for liability. This is not so. The release of the non-performing party rather occurs if the nonperformance is due to an impediment beyond its control. It is therefore an objective test.44 27 Moreover, it is appears doubtful that the right to require performance shall also be excluded if the non-performance is ‘excused’. This transfer of an approach45 pertaining to the CISG can be inserted more easily into the CESL system than can be said for the right to require performance as one of several remedies. Nonetheless, it shows an inconsistency in the system as the right to performance is excluded if performance is impossible (art 110(3) CESL-D). The objective ‘excuse’ and the rather subjective notion of impossibility lead to an unavoidable overlap. This problem was recognized by the Committee on Legal Affairs in its proposed amendments: 26

44 Schopper (n 35) 107, 113−114; Schulze CESL/Zoll art 88 CESL-D para 8. 45 MüKo BGB/Huber (2012) art 79 CISG para 29, n 84 with further references; Müller-Chen (n 31) art 46 para 9; cf Online Kommentar BGB/Saenger art 79 CISG para 10 accessed 1 November 2014; Schwenzer in Schwenzer (n 31) art 79 para 52.

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II. Non-performance Amendment 144 Committee on Legal Affairs 46 Proposal for a regulation Annex I – Article 106 – paragraph 4 Text proposed by the Commission (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. Amendment (4) If the seller's non-performance is excused, the buyer may resort to any of the remedies referred to in paragraph 1 except damages. Justification The consumer protection level under CESL should not fall behind the minimum standard of the Consumer Sales Directive (Article 3(5)), which would be the case if the seller could refuse repair or replacement in the case that the delivery of non-conforming goods is excused.

The Committee on Legal Affairs uses the reference to the Consumer Sales Directive in order to exclude claims for damages in the event of excused non-performance. The approach is based on the concern that the business will be able to avoid subsequent performance in the form of repair or replacement (art 110 CESL-D) due to excused defective performance. As noted above, the problem is more in-depth and leads back to the unclear relationship between impossibility and excuse. The above proposal achieves the correct result, though surprisingly it was not included in the final version of the European Parliament's amendments. The issue should therefore be reconsidered in the preparation of the revised version of the present CESL draft. c) Change of circumstances

Problems in the performance of contractual obligations are further considered 27a in the CESL through the possibility to adapt the contract when its performance would otherwise be excessively onerous due to an exceptional change of circumstances. The rule is however an exception to the principle that a party is nevertheless required to perform its contractual obligations even if the performance has become more onerous because the cost of performance has increased or because the value of what is to be received in return has diminished (first sentence of art 89(1) CESL-D). The adaptation or termination of the contract is therefore an exception that will only arise when exceptional circumstances impact on the performance to such an extent that it will be excessively onerous (second sentence of art 89(1) CESL-D). The rule on adaptation follows an approach already contained – though in a different version – in the PECL and DCFR47 and which is becoming an ever increasing part of national laws.48 46 Committee on Legal Affairs, ‘Draft Report on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law’ PR\927290EN.doc. Available online under http://www.europarl.europa.eu/meetdocs/2009_2014/documents/juri/pr/927/ 927290/927290en.pdf accessed 28 April 2015. 47 art 6:111 PECL; art III.–1:110 DCFR. 48 See Schulze ‘Changes in the Law of Obligations in Europe’ in Schulze/Zoll (eds), The Law of Obligations in Europe (Sellier 2013) 3, 13.

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The release from the performance obligations is subject to the strict requirements outlined in art 89 CESL-D. As noted above, art 89(1) CESL-D limits the release to an ‘exceptional’ change in circumstances which result in an ‘excessively’ onerous performance. Art 89(3) CESL-D includes further limitations. Firstly, the change of circumstances must have occurred after the conclusion of the contract. Secondly, the possibility or extent of the change of circumstances was not or could not have been expected to have been taken into account by the aggrieved party at the time the contract was concluded. Thirdly, the aggrieved party must not have adopted the risk of the change of circumstances. Fourthly, (from a hypothetical perspective) one may not assume that this party had adopted the risk. 27c The parties are initially required to enter into negotiations in order to either adapt or terminate the contract. If, however, the parties cannot come to an agreement within a reasonable time, a party may request adaptation or termination by the court. Adaptation of the contract requires the court to consider (again, from a hypothetical perspective) what the parties would have agreed had they taken the circumstances into account when drafting the contract. Termination of the contract requires application of art 8 CESL-D.49 Although termination is not expressly stated as the ultima ratio it is possible to infer that – as adaptation is listed as the first option and the underlying favor contractus approach – the court should first attempt to adapt the contract in accordance with the parties' hypothetical intentions vis-à-vis the change of circumstances and only opt for termination when adaptation cannot be adequately acheived.50 Although there are doubts concerning the interpretation, one can nevertheless acknowledge that the limitations of the performance obligation in art 89 CESL-D belong to the innovative approaches in European contract law which not only reflect the developments in several Member States but also go beyond the CISG.

27b

III. Right to Cure 1. Acquis communautaire 28

The acquis communautaire contains two provisions which provide the right to terminate or rescind a contract: art 3(5) Consumer Sales Directive51 and art 18(2) Consumer Rights Directive52: Article 3 Consumer Sales Directive Rights of the consumer (…)

49 50 51 52

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See below, para 69. See also Schulze CESL/Zoll art 89 CESL-D paras 33–34. Magnus (n 28) paras 73–78; see also Bianca in Bianca/Grundmann (n 28) paras 40–53. Zoll, ‘The Remedies for Non-Performance in the Proposed Consumer Rights Directive and the Europeanisation of Private Law’ in Howells/Schulze (eds), Modernising and Harmonising Consumer Contract Law (Sellier 2009) 279, 285–286.

III. Right to Cure (5) The consumer may require an appropriate reduction of the price or have the contract rescinded: – if the consumer is entitled to neither repair nor replacement, or – if the seller has not completed the remedy within a reasonable time, or – if the seller has not completed the remedy without significant inconvenience to the consumer. Article 18 Consumer Rights Directive Delivery (…) (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 case concerns the seller's liability in respect of the non-conformity of the goods,53 whereas the second concerns the delay in performance.54 The question is always posed of whether the non-performing party can prevent the termination of the contract even though the requirements for termination have been fulfilled. Similarly, the question can also be asked in relation to the price reduction under the Consumer Sales Directive as this also affords the seller a second chance to perform. Both Directives use different instruments in order to protect similar interests. The Consumer Rights Directive requires an additional period55 that serves to allow performance even though the original time frame has passed. However, it is not appropriate in this context to refer to a ‘second chance’ or a ‘right to cure’ because no performance has been tendered. The cure of the performance itself is thus unnecessary even though the injuring party continues to remain responsible for resolving the non-performance. In comparison, the Consumer Sales Directive does not require the consumer to first grant an ‘additional period’ but rather stipulates that the consumer has to first require repair or replacement,56 which have to be provided within a reasonable time. In a technical sense, one could rather refer to the ‘chance’ to cure rather than a ‘right’. Whether the seller receives such a possibility to perform in conformity with the contract depends on the consumer who, in principle, can choose between both forms of rectification. The seller is therefore not entitled to cure, but the consumer can neither terminate the contract nor reduce the price if it has not first demanded repair or replacement. However, this is subject to the exceptions in art 3(5) Consumer Sales Directive. The right to cure is considered here as an important part of balancing the interests between consumers and businesses because the return of the good often leads to a relatively high loss in value.57 These 53 54 55 56 57

Bianca (n 28) paras 1–11. Magnus (n 28) para 8. ibid para 62; Bianca (n 28) para 56. Bianca ibid para 54. Wagner, ‘Ökonomische Analyse des CESL: Das Recht auf zweite Andienung’ [2012] ZEuP 797, 809–810.

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goods can often not be sold on the market as new goods, therefore it is very much in the seller's interest to maintain the contract and to remedy the non-conformity. 2. DCFR 29

The right to cure in the DCFR restricts all remedies except the right to withhold performance (art III.–3:202):58 Article III.–3:202 DCFR Cure by the debtor: general rules (1) The debtor may make a new and conforming tender if that can be done within the time allowed for performance. (2) If the debtor cannot make a new and conforming tender within the time allowed for performance but, promptly after being notified of the lack of conformity, offers to cure it within a reasonable time and at the debtor's own expense, the creditor may not pursue any remedy for non-performance, other than withholding performance, before allowing the debtor a reasonable period in which to attempt to cure the nonconformity. (…)

3. CESL 30

The methods to balance the parties' interests may be considered an established part of the acquis communautaire at the time the DCFR was drafted. This view does however have to be put into perspective in light of the proposed CESL. The Commission's proposal has refrained entirely from including a right to cure in consumer contracts.59 The consumer can therefore exercise its rights in the event of non-performance irrespective of whether the seller is willing to cure (art 106(3)(a) CESL-D).60 A right to cure is, however, granted in B–B contracts:61 Article 106 CESL-D Overview of buyer's remedies (…) (2) If the buyer is a trader: (a) the buyer's rights to exercise any remedy except withholding of performance are subject to cure by the seller as set out in Section 2 of this Chapter; and (b) the buyer's rights to rely on lack of conformity are subject to the requirements of examination and notification set out in Section 7 of this Chapter. (3) If the buyer is a consumer: (a) the buyer's rights are not subject to cure by the seller; and (…)

58 See v. Bar/Clive (n 16) 835–838. 59 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; MacQueen/Dauner-Lieb/Tettinger, ‘Specific Performance and Right to Cure’ in Dannemann/Vogenauer (eds), The Common European Sales Law in Context (OUP 2013) 612, 643. 60 Schmidt-Kessel CESL/Zöchling-Jud art 106 CESL-D para 6; Schulze CESL/Zoll art 106 CESL-D para 3. 61 Zoll ibid.

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III. Right to Cure Amendment 191 Proposal for a regulation Annex I – Article 106 – paragraph 1 – introductory part Text proposed by the Commission (1) In the case of non-performance of an obligation by the seller, the buyer may do any of the following:

Amendment (1) In the case of non-performance of an obligation by the seller, the buyer, where the specific requriements for the respective remedies are met, may do any of the following:

Amendment 192 Proposal for a regulation Annex I – Article 106 – paragraph 3 – point a Text proposed by the Commission (a) the buyer's rights are not subject to cure by the seller; and

Amendment (a) the buyer's rights are not subject to cure by the seller, except where they relate to goods or digital content which are manufactured, produced or modified in accordance with the consumer's specifications or which are clearly personalised; or

The decision not to include the right to cure in a consumer contract under the CESL attracted considerable criticism.62 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 who can no longer use the returned goods. However, the extensive privilege for the consumer stems from the view that communication about cure with a business based abroad can have a deterring effect on a cross-border transaction with the consequence that the consumer will often refrain from concluding cross-border contracts. The European Parliament's Committee on Legal Affairs has attempted to 31 amend the proposed CESL in light of some of the criticisms but without the need to change the entire conceptual approach: Amendment 142 Committee on Legal Affairs 63 Proposal for a regulation Annex I – Article 106 – paragraph 3 – point a – introductory wording and point i (new) Text proposed by the Commission (a) The buyer's rights are not subject to cure by the seller; and Amendment (a) The buyer's rights are not subject to cure by the seller, except where (i) they relate to goods or digital content which are manufactured, produced or modified according to the consumer's specifications or which are clearly personalised; or

62 Wagner (n 57) 825; Zoll (n 59) 284. 63 n 46.

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Chapter 6 Consequences of Non-performance Justification As CESL is proposed, the consumer has a right to immediately terminate the contract for a non-insignificant (Article 114(2)) lack of conformity in all cases of a sale of goods or supply of digital content, but he must allow cure in case of a related service contract (Article 155(2)). It leads to random results not to subject the buyer's right to cure in cases of sales contracts which factually also contain a service element, such as the sale of customised or personalised goods (e.g. a tailor-made suit) or digital content. The proposed change undertakes the necessary adjustment. Amendment 191 Proposal for a regulation Annex I – Article 106 – paragraph 1 – introductory part Text proposed by the Commission (1) In the case of non-performance of an obligation by the seller, the buyer may do any of the following:

Amendment (a) the buyer's rights are not subject to cure by the seller, except where they relate to goods or digital content which are manufactured, produced or modified in accordance with the consumer's specifications or which are clearly personalised; or

Amendment 192 Proposal for a regulation Annex I – Article 106 – paragraph 3 – point a Text proposed by the Commission (a) the buyer's rights are not subject to cure by the seller; and

32

Amendment (a) the buyer's rights are not subject to cure by the seller, except where they relate to goods or digital content which are manufactured, produced or modified in accordance with the consumer's specifications or which are clearly personalised; or

The proposed amendment can indeed correspond better to the parties' respective interests. This is all the more true as the CESL has also included a right to cure in consumer contracts for related services.64 However, the consumer's remedies are not subject to a right to cure by the service provider in the event of incorrect installation. Such aspect is more closely linked to a sales contract, accordingly there was the need to avoid the introduction of a right to cure ‘through the backdoor’. Article 155 CESL-D Remedies of the customer (…) (2) Without prejudice to paragraph 3, the customer's remedies are subject to a right of the service provider to cure whether or not the customer is a consumer. (3) In the case of incorrect installation under a consumer sales contract as referred to in Article 101 the consumer's remedies are not subject to a right of the service provider to cure.

64 Zoll (n 59) 284.

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

The injured party can claim performance as a remedy should the counterparty 33 fail to perform a contractual obligation. This particular concept of performance as a remedy was outlined for European contract law by the PECL.65 Its adoption into the acquis communautaire primarily occurred via the Consumer Sales Directive, though it has now been extended by the CESL. Article 3 Consumer Sales Directive Rights of the consumer (…) (2) In the case of a lack of conformity, the consumer shall be entitled to have the goods brought into conformity free of charge by repair or replacement, in accordance with paragraph 3, or to have an appropriate reduction made in the price or the contract rescinded with regard to those goods, in accordance with paragraphs 5 and 6. (3) In the first place, the consumer may require the seller to repair the goods or he may require the seller to replace them, in either case free of charge, unless this is impossible or disproportionate. (…) Article 106 CESL-D Overview of buyer's remedies (1) In the case of non-performance of an obligation by the seller, the buyer may do any of the following: (a) require performance, which includes specific performance, repair or replacement of the goods or digital content, under Section 3 of this Chapter; (…)

The Consumer Sales Directive is restricted to the provision of a right to per- 34 formance (repair or replacement) for one aspect of non-performance, namely defective performance due to the delivery of non-conforming goods. It therefore recognizes performance as an enforceable right and the requirement of performance as a remedy for the injured party. However, the Directive does not determine whether a claim to performance can arise prior to the delivery of non-conforming goods (and accordingly – using the terminology of several national legal systems – whether to distinguish between primary and secondary claims to performance under the contract). Such a limitation allowed the integration of its provisions on performance into the common law legal systems, which generally

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

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do not contain a primary claim to performance,66 and into the civil law legal systems with primary claims to performance. 35 In contrast, the CESL's intention to be a (as far as possible) complete sales law and an independent set of rules thus requires a decision on this question. It therefore follows the middle ground between the legal traditions of the EU Member States: in comparison to the common law, it does not exclude a claim to performance. However, in comparison to most continental European legal systems, it does not grant performance as a primary contractual right but only as remedy in the event of non-performance.67 In this respect, the CESL does not contrast the contractual duty to perform with a congeneric ‘primary’ right to demand performance. It rather first recognizes an enforceable right to performance as one of several possible ‘remedies’ arising with non-performance. Using this approach it integrates performance into its catalogue of remedies and thus includes subsequent performance as a particular form of performance. This is clearly expressed in art 106(1) CESL-D: point (a) places performance at the top of the list of ‘remedies’ for the buyer and therefore makes clear that performance in this context ‘includes […] repair or replacement of the goods or digital content’. In this respect the CESL also differs from the CISG, which generally accepts the performance claim under the continental European approach and only takes account of the common law approach in art 28 CISG.68 36 According to art 106(1) CESL-D, the principal requirement for the claim to performance as a remedy is the non-performance of an obligation. The CESL therefore adopts an overarching concept that is not followed in the EU consumer law directives: whereas subsequent performance under art 3(2) Consumer Sales Directive is merely linked to the non-conformity of the good,69 art 18(2) Consumer Rights Directive contains a rule on non-delivery as a specific type of nonperformance.70 In comparison, the CESL's broad notion of non-performance encompasses each type of defective performance as well as non-performance.71 This general notion of non-performance is used for the seller's and buyer's obli66 For detail see Ranieri, Europäisches Obligationenrecht (3rd edn, Springer 2009) 747. 67 Lorenz (n 16) 702, 757; Weller, ‘Die Struktur des Erfüllungsanspruchs im BGB; Common Law und DCFR – ein kritischer Vergleich’ [2008] JZ 764–765; Zoll (n 52) 279–280; Zoll, ‘The Influence on the Chosen Structure of the Draft for the Optional Instrument on the Functioning of the System of Remedies’ in Schulze/Stuyck (eds), Towards a European Contract Law (Sellier 2011) 151–52; Schulze CESL/Zoll art 106 CESL-D paras 1–2. 68 See Kröll/Mistelis/Perales Viscasillas, UN Convention on Contracts for the International Sale of Goods (CISG) (C.H. Beck 2011) art 28 paras 1–2; Schlechtriem/Butler, UN Law on International Sales (Springer 2009) para 103; Schlechtriem/Schroeter, Internationales UNKaufrecht (5th edn, Mohr Siebeck 2013) para 338. 69 For more detail see Grundmann in Bianca/Grundmann (n 28) art 2 paras 1–7; Magnus, ‘Consumer Sales and Associated Guarantees’ in Twigg-Flesner (ed), The Cambridge Companion to European Union Private Law (CUP 2010) 243, 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) 127, 135–138. 70 The Package Travel also contains the possibility of a claim in the event of non-performance, see art 4(6) Package Travel Directive.

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gations as well as for the service provider's and its customer's obligations (arts 106, 131, 155, 157 CESL-D). It defines this notion in art 87(1) CESL-D, which applies to all remedies.72 Article 87 CESL-D Non-performance and fundamental non-performance (1) Non-performance of an obligation is any failure to perform that obligation, whether or not the failure is excused, and includes: (a) non-delivery or delayed delivery of the goods; (b) non-supply or delayed supply of the digital content; (c) delivery of goods which are not in conformity with the contract; (d) supply of digital content which is not in conformity with the contract; (e) non-payment or late payment of the price; and (f) any other purported performance which is not in conformity with the contract. (2) Non-performance of an obligation by one party is fundamental if: (a) it substantially deprives the other party of what that party was entitled to expect under the contract, unless at the time of conclusion of the contract the non-performing party did not foresee and could not be expected to have foreseen that result; or (b) it is of such a nature as to make it clear that the non-performing party's future performance cannot be relied on. Article 106 CESL-D Overview of buyer's remedies (1) In the case of non-performance of an obligation by the seller, the buyer may do any of the following: (a) require performance, which includes specific performance, repair or replacement of the goods or digital content, under Section 3 of this Chapter; (b) withhold the buyer's own performance under Section 4 of this Chapter; (c) terminate the contract under Section 5 of this Chapter and claim the return of any price already paid, under Chapter 17; (d) reduce the price under Section 6 of this Chapter; and (e) claim damages under Chapter 16. (2) If the buyer is a trader: (a) the buyer's rights to exercise any remedy except withholding of performance are subject to cure by the seller as set out in Section 2 of this Chapter; and (b) the buyer's rights to rely on lack of conformity are subject to the requirements of examination and notification set out in Section 7 of this Chapter. (3) If the buyer is a consumer: (a) the buyer's rights are not subject to cure by the seller; and (b) the requirements of examination and notification set out in Section 7 of this Chapter do not apply. (4) If the seller's non-performance is excused, the buyer may resort to any of the remedies referred to in paragraph 1 except requiring performance and damages. (5) The buyer may not resort to any of the remedies referred to in paragraph 1 to the extent that the buyer caused the seller's non-performance. (6) Remedies which are not incompatible may be cumulated.

71 Schmidt-Kessel, ‘Der Torso des allgemeinen Leistungsstörungsrechts, Art. 87–90 GEKR’ in Schmidt-Kessel (n 37) 287, 292; Schopper (n 35) 108–109; Schulze CESL/Zoll art 87 CESLD para 3. 72 See above, paras 20–22.

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The CESL's ‘third way’ between common law and civil law indeed allows the right to performance only as a remedy, yet it does so in a comprehensive manner which principally includes all types of non-performance. It does not view the remedy merely as an instrument of consumer protection (as in the Consumer Sales Directive) but includes B–B contracts in this concept. However, the right does not adopt a uniform approach for all questions in B–C and B–B contracts: in B–B contracts only the non-performing party has a right to cure73 and the injured party is subject to examination and notification duties concerning non-conforming performance (art 106(2), (3) CESL-D). Furthermore, the consumer only has the right to choose between repair or replacement to remedy the non-conformity in a B–C contract (art 111 CESL-D). b) Requirements and exclusion

38

aa) Non-performance is the underlying requirement for the claim to performance in the CESL but is subject to specific rules in relation to the type of contract and the parties.74 However, the general standard of non-performance is determined by art 87(1) CESL-D. If these requirements are fulfilled, buyers and customers can, in principle, require performance from the other party in accordance with arts 110 et seq. CESL-D, provided that none of the restrictions mentioned below apply. Moreover, the provisions on cure are also to be considered if the contract is not a consumer contract.75 Art 132 CESL-D provides the further requirements concerning the seller's or service provider's claim to payment of the price and performance of other obligations.76 Article 110 CESL-D Requiring performance of seller's obligations (1) The buyer is entitled to require performance of the seller's obligations. (2) The performance which may be required includes the remedying free of charge of a performance which is not in conformity with the contract. (3) Performance cannot be required where (a) performance would be impossible or has become unlawful; or (b) the burden or expense of performance would be disproportionate to the benefit that the buyer would obtain.

39

bb) As also applies to the other remedies, the claim to performance is excluded if the injured party has caused the non-performance (see art 106(5) CESL-D).77 Similar approaches can also be found in the acquis communautaire, though in a different form: art 2(3) Consumer Sales Directive excludes non-conformity in the manufacture of goods if its origins are in the materials supplied by

73 74 75 76

See above, paras 30–32. art 106, 131, 155, 157 CESL-D; see above, para 7. arts 109, 155(2) and (3) CESL-D; see above, para 20. Exceptions for service contracts apply due to the reference in art 157 CESL-D with the listed adaptations (e.g. the customer's right to decline performance under art 158 CESL-D). 77 Zöchling-Jud (n 34) 330.

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the consumer; therefore no claim shall arise under art 3(1) Consumer Sales Directive. In contrast, non-performance exists under art 106(5) CESL-D though the injured party will not be able to resort to any of the remedies. A similar approach underlies the exclusion of compensation in art 5(2) Package Travel Directive. Nevertheless, each set of rules contains the common stance that the exclusion of the remedy requires a causal link between the non-performance and the injured party's conduct. The injured party is further unable to demand performance if the non-performance is excused by art 88 CESL-D,78 although the other remedies (except damages) will be available (art 106(4) CESL-D). However, the exclusion of the claim to performance due to excused non-performance could result in a lower level of consumer protection than in the Consumer Sales Directive as this does not include excused non-performance as a means of avoiding subsequent performance. cc) Further limitations on the claim to performance can be seen in the rules on 40 impossibility and illegality of performance (art 110(3)(a) CESL-D). The former stems from the principle impossibilium nulla obligatio est79 and includes impossibility at the time of the conclusion of contract (initial impossibility) as well as afterwards (subsequent impossibility). However, it appears from the wording that illegality is only relevant if it occurs after the conclusion of the contract (‘has become unlawful’).80 The limitation to post-contractual illegality is understandable: the illegality at the moment of conclusion would render the application of the CESL highly doubtful as the ineffectiveness of the contract would also encompass the agreement on the CESL.81 The exclusion of the claim to performance concerns each of these contractual obligations which cannot be performed due to impossibility or illegality. The contract as a whole may not be affected and therefore the other obligations – perhaps with necessary changes – are to be performed.82 Furthermore, according to art 110(3)(b) CESL-D, the claim to performance is lost if the performance (including subsequent performance) would be disproportionally burdensome or expensive in relation to the advantage for the injured party. The extent of the performance is thus not relative to the other remedies but only to the advantage the buyer would gain.83 In contrast to art 110 CESL-D, art 111 CESL-D regulates the exclusion of the selected form of subsequent performance in consumer contracts. This so-called ‘relative disproportionality’ restricts the consumer's choice between repair and replacement; it is based on the model in art 3(3) Consumer Sales Directive. However, it is questionable whether the notion of ‘absolute disproportionality’ 78 79 80 81

See paras 25–27. Digests 50, 17, 185. cf art III.–3:302(3)(a) DCFR. On the possibility of an analogous application of art 110(3)(a) CESL-D see Schulze CESL/ Zoll art 110 CESL-D para 14; for further criticism see also Lorenz (n 16) 759–760. 82 Schulze CESL/Zoll art 110 CESL-D paras 10, 16. 83 Faust, ‘Das Kaufrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke (n 59) 251, 257.

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of performance (as can be seen in art 111(3)(b) CESL-D) is also applicable in consumer sales contracts.84 A two stage test is therefore necessary in the event of its application to consumer sales contracts under the CESL: firstly, the proportionality of the chosen form of performance (i.e. repair or replacement); secondly, the proportionality of performance in relation to the benefits for the buyer. c) Subsequent performance

aa) The buyer is entitled to a remedy free of charge if the non-performance comprises a non-conformity. The notion ‘free of charge’ extends to the costs that are necessary in order for the contract to be brought into conformity (e.g. delivery costs, but also removal and installation costs85). This principle can be seen in current EU law, in particular in art 3(2) and (4) Consumer Sales Directive (for consumer contracts) and art 4(6) Package Travel Directive; art 110(2) CESL-D extends the principle to B–B sales contracts and B–B related service contracts. The standard of non-conformity in consumer sales contracts is set in present EU law by art 2(2) Consumer Sales Directive; arts 99 et seq. and arts 147 et seq. CESL-D set the respective standards for sales and related service contracts falling under this regime.86 42 The claim to a remedy ‘free of charge’ also includes the exclusion of the buyer's obligation to compensate for the use of the non-conforming goods prior to delivery of the replacement. Such exclusion was initially doubtful under the Consumer Sales Directive because its recitals allowed Member States to permit a reduction in the amount reimbursed to the consumer in order to take account of the use of the goods since delivery.87 However, the ECJ decision in Quelle88 clarified that the payment of such compensation for use prior to delivery of the replacement is excluded: 41

Case C–404/06 Quelle [2008] ECR I-2685 Article 3 of Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees is to be interpreted as precluding national legislation under which a seller who has sold consumer goods which are not in conformity may require the consumer to pay compensation for the use of those defective goods until their replacement with new goods.

Art 112(1) CESL-D follows this decision by stipulating that the seller not only has a right to take back the replaced item but that it has an obligation to do so at its own expense. However, it is questionable whether the installation and removal costs are included (following the ECJ decision in Weber/Putz89) in this 84 For the Consumer Sales Directive see Joined Cases C–65/09 and C–87/09 Weber/Putz [2011] ECR I–5257; on the CESL see Lorenz (n 16) 763. 85 Weber/Putz, ibid. 86 See Chapter 2 para 119. 87 Recital 15 Consumer Sales Directive. 88 Case C–404/06 Quelle [2008] ECR I–2685.

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rule.90 Art 112(2) CESL-D excludes the buyer's liability to compensate for the use of the good prior to its replacement. These provisions are only mandatory in consumer contracts (art 108 CESL-D). bb) The claim to performance in a B–B contract is subject to the additional 43 requirement that the buyer has examined the good and notified the seller of the non-conformity (art 106(2)(b) CESL-D91). Several national legal systems also contain similar provisions;92 however some national legal systems (such as Germany) do not categorize the examination and notification as obligations or duties as the other party has no remedy for non-performance of these acts. The notification according to art 122 CESL-D should allow the seller to prepare for possible guarantee claims and, if necessary, offer to cure the non-conformity (cf art 109 CESL-D).93 In comparison, neither the CESL nor the Consumer Sales Directive require examination and notification in B–C contracts. Art 5(2) Consumer Sales Directive does indeed allow the national legislators to introduce notification obligations and several have done so.94 However, the CESL has decided in favour of a total exclusion of examination and notification obligations in consumer contracts (art 106(3)(b) CESL-D) and therefore favoured an approach that is more consumer friendly than in the present acquis communautaire. The examination and notification requirements in B–B contracts represent 44 two different legal acts and are therefore always to be considered separately. Accordingly, the relevant requirements, time periods, exceptions, and consequences of these respective acts are contained in separate provisions in the CESL (art 121, 122 CESL-D). The type and extent of examination are not subject to express rules. Art 121(1) CESL-D merely requires that the examination is to be undertaken either by the buyer or by a person chosen by the buyer. The examination is to take place within a short period as is reasonable under the circumstances and – in contrast to the CISG – within a maximum period of 14 days. Relevant factors for determining the length of the examination period can include, for example, the type of good or the method of examination. Consequently, a much shorter period is to be calculated for rapidly deteriorating goods than for complex machinery.95 The maximum period generally begins with perfor89 Weber/Putz (n 84). 90 For further detail see Kroll-Ludwigs, ‘Ein optionales Vertragsrecht für Europa’ [2012] GPR 181, 185–186; Lorenz (n 16) 764–765; Weller, ‘Die „Abhilfen“ des Käufers im Kommissionsvorschlag für ein Gemeinsames Europäisches Kaufrecht: Neujustierung des Nacherfüllungsanspruchs im Rechtsvergleich’ [2012] GPR 173, 179. 91 This generally accords with art 38, 39 CISG. On the individual differences see Magnus, ‘CISG vs. CESL’ in Magnus (ed), CISG vs. Regional Sales Law Unification (Sellier 2012) 97, 118–119. 92 Janssen, ‘Die Untersuchungs- und Rügepflicht im deutschen, niederländischen und internationalen Kaufrecht’ (Nomos 2001); Schwenzer in Schwenzer (n 31) art 38 CISG para 6. 93 For more detail on the functions of the examination and notification obligations see Faust (n 83) 270–271; Wiese, ‘Prüfungs- und Mitteilungspflichten nach Artt. 121, 122 GEKR’ in Schmidt-Kessel (n 37) 401. 94 See Schulte-Nölke/Twigg-Flesner/Ebers (n 69) 408, 431–432. 95 Schwenzer (n 92) para 16.

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mance (e.g. delivery),96 though if the contract includes carriage of the goods the period will begin on their arrival at their destination (art 121(2) CESL-D). However, this maximum period appears to be especially problematic in relation to goods requiring complex examination (e.g. if expert analysis is necessary).97 45 Art 122(1) CESL-D outlines the requirements concerning the content and time frame for the notification of the non-conformity. The extent of the necessary content of the notification is not regulated by the CESL; however, a general statement of non-conformity without specific details will be insufficient (in consideration of art 39(1) CISG).98 The details must thus offer a sufficient basis under the circumstances in order to allow the seller to consider its reaction.99 The time period begins – following the examination under art 121(1) CESL-D – when the goods are supplied or when the buyer discovers or could be expected to discover the lack of conformity, whichever is later.100 The time period is subject to the requirement of ‘reasonableness’; accordingly it is necessary to consider all circumstances, such as the type of good, commercial practices etc.101 By comparison, this requirement of reasonableness is more flexible than the short period under art 121 CESL-D.102 Nevertheless, art 122(2) CESL-D has a preclusionary effect in order to protect the seller against claims over an indefinite period of time: the buyer will lose the right to rely on the lack of non-conformity if it does not notify the seller of the non-conformity within two years after the goods have been handed over.103 46 The statutory guarantee rights are excluded if the buyer does not perform the examination and notification requirements within the time limit. However, such exclusion merely serves to protect the seller who has contracted in good faith. Art 122(6) CESL-D therefore provides that the seller cannot rely on the failure to notify if it is, or could be expected to be aware of the facts relating to the nonconformity and did not disclose these to the buyer.104 47 cc) Repair or replacement come into consideration as the remedy for non-conformity. The terms ‘repair’ and ‘replacement’ referred to in art 111(1) CESL-D

96 However, uncertainty remains concerning the beginning of the time period for early performance, Schmidt-Kessel CESL/Wiese arts 121, 122 CESL-D para 14. 97 See also ibid paras 20–23. 98 Schwenzer in Schwenzer (n 31) art 39 CISG paras 6–7. 99 Magnus in Staudinger CISG (de Gruyter 2005) art 39 CISG para 21. 100 No notification obligation will arise for the buyer to notify the seller that not all the goods have been delivered (in delivery by installments) if the buyer has reason to believe that the remaining goods will be delivered (art 122(5) CESL-D). 101 Similarly in the CISG, see Schwenzer (n 98). 102 ibid para 15. 103 According to art 122(3) CESL-D the two year period under art 122(2) CESL-D will not apply in relation to an agreement between the parties on the length of time the goods are to remain fit for purpose (e.g. an agreement that a machine is to be used for five years). Art 122(4) CESL-D provides a second exception in relation to third party rights and claims under art 102 CESL-D. 104 For further detail on the problems with this provision see Schmidt-Kessel CESL/Wiese arts 121, 122 CESL-D paras 39–44.

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correspond to art 3 Consumer Sales Directive.105 Moreover, both the CESL and the Consumer Sales Directive afford the consumer the right in a sales contract106 to choose between repair and replacement107 (art 3(3) Consumer Sales Directive; art 111 CESL-D). In this respect, the goal of consumer protection overrides economic efficiency, namely that the seller will often be in the best position to choose the most appropriate remedy.108 However, in B–B contracts the choice of remedy lies with the seller, as can be ascertained argumentum e contrario from art 111 CESL-D. The consumer's right to choose between repair and replacement is not absolute as art 111(1) CESL-D allows for limitations due to illegality, impossibility, and disproportionality (this is similar to art 110(3) CESL-D, but only in relation to the chosen remedy and not to performance as a whole).109 As under art 3(3) Consumer Rights Directive, there are three key criteria that are to be considered when comparing repair and replacement: the value of the goods without the non-conformity, the significance of the lack of conformity, and whether the alternative remedy (repair or replacement) could be completed without causing significant inconvenience to the consumer.110 The CESL does not provide clear answers to the questions of the legal nature of the exercise of the right to choose between repair and replacement, and the consequences concerning a transition between these two remedies. Further reflection on these points will require consideration of the aim of consumer protection in the Consumer Sales Directive and the CESL. It therefore appears appropriate to allow a switch between these remedies and the retraction of the decision as long as the seller has not commenced with performance of the original remedy or has not yet taken any particular measures in order to do so.111 dd) There is no hierarchy of the remedies in B–C contracts under the 48 CESL;112 the consumer can therefore generally choose at the outset from all remedies . Moreover, the consumer does not need to set an additional period for performance;113 it does have to allow the seller a reasonable period to repair or replace the non-conforming good if this remedy is selected.The consumer can thereafter choose between price reduction or termination if the repair or replacement does not take place within the reasonable period, though this cannot exceed 30 days (art 111(2) CESL-D). Requesting either repair or replacement

105 On the definitions of these concepts see art 1(2)(f) Consumer Sales Directive; Kuba, ‘Nacherfüllung’ in Basedow et al. (eds), Handwörterbuch des Europäischen Privatrechts, vol II (Mohr Siebeck 2009) 1090–1091; Magnus (n 69) 252–253. 106 On the exclusion of application to related service contracts art 155(5)(b) CESL-D. 107 Replacement of second-hand goods is generally not possible, see recital 16 Consumer Sales Directive. 108 Schulze CESL/Zoll art 111 CESL-D paras 4, 5; see also Faust (n 83) 258–259. 109 See above, para 40. 110 For more detail see Schmidt-Kessel CESL/Zöchling-Jud art 111 CESL-D para 1; Schulze CESL/Zoll art 111 CESL-D paras 3–18. 111 See Schulze CESL/Zoll art 111 CESL-D paras 4–5. 112 See above, para 30. 113 See above, para 28.

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therefore prevents other remedies for a limited time; the exercise of other remedies will therefore have no effect during this time.114 However, the effect of notice of termination given during this time will presumably only be suspended due to the corresponding application of art 109(3) CESL-D; therefore termination will take effect after the time limit has expired and will not require any further actions.115 Although the consumer cannot exercise other remedies after requesting subsequent performance, it is not prevented from withholding its own performance until repair or replacement has been completed (art 111(2) CESL-D). 49

Article 111 CESL-D Consumer's choice between repair and replacement (1) Where, in a consumer sales contract, the trader is required to remedy a lack of conformity pursuant to Article 110(2) the consumer may choose between repair and replacement unless the option chosen would be unlawful or impossible or, compared to the other option available, would impose costs on the seller that would be disproportionate taking into account: (a) the value the goods would have if there were no lack of conformity; (b) the significance of the lack of conformity; and (c) whether the alternative remedy could be completed without significant inconvenience to the consumer. (2) If the consumer has required the remedying of the lack of conformity by repair or replacement pursuant to paragraph 1, the consumer may resort to other remedies only if the trader has not completed repair or replacement within a reasonable time, not exceeding 30 days. However, the consumer may withhold performance during that time.

2. Withholding performance a) Overview 50

Alongside requiring performance, the drafts for European contract law also provide the injured party with the right to withhold performance.116 Such a right has been outlined for European contract law by art 9:201 PECL and art III.– 3:401 DCFR,117 although it is not included in the Consumer Sales Directive. The CESL's consistent separation between the remedies available to the buyer and to the seller has resulted in a mirror image of this right for each of the respective parties (art 113, 133 CESL-D).118 The right is limited to obligations that exist in a synallagmatic relationship (i.e. the interdependency between performance and 114 For criticism of the broad scope of this provision and favouring a restrictive interpretation concerning reimbursement of damages for delay Zöchling-Jud (n 37) 334. 115 Schulze CESL/Zoll art 111 CESL-D para 19. 116 Categorizing the right to withhold performance as a remedy does not accord with, for example, the German approach. According to § 273 BGB the right to withhold performance is designed as a defence. In relation to the CESL, the right to withhold performance could be placed under ‘excused non-performance’. 117 art 58 CISG is similar in function. 118 The European Parliament has proposed a comprehensive right to withhold performance for consumer sales contracts, see European Parliament legislative resolution of 26 February 2014 on the proposal for a regulation of the European Parliament and of the Council on a Common European Sales Law (P7_TA-PROV(2014)0159), amendment 200.

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corresponding performance due to their reciprocal relationship119).120 The right to withhold performance in B–B contracts is the only remedy that is not restricted by the right to cure.121 Moreover, according to art 106(6) CESL-D, the right can generally be exercised in conjunction with other rights. The link between withholding performance and the performance by the other party arises from the wording of art 113(1) CESL-D, thus the claim to subsequent performance can be implied. Nevertheless, the right to withhold performance can also be exercised together with termination or price reduction. b) Requirements

The right to withhold performance under the CESL has been conceived for 51 two different situations: on the one hand it is a right for the injured party who is to perform at the same time or after the other party (arts 113(1), 133(1) CESLD); on the other hand it is a right for the injured party who is to perform before the other party (arts 113(2), 133(2) CESL-D). In the former case, the other party has not performed its contractual duty. The right to withhold performance thus releases the injured party from advance performance (contrary to the contract) and counteracts the risk that the other party can evade its obligation without consequence. In contrast, the right to withhold performance in the latter case is founded on the basis of the uncertainty of future performance by the other party. In order to withhold performance the injured party must have an – objective122 – reason for believing that the other party will not perform at the time the performance is due. The right to withhold performance therefore ends when this belief no longer exists; the effect of suspending performance therefore also ends. Furthermore, under art 133(2) CESL-D the buyer can avert the exercise of this right if it gives adequate assurance of due performance or provides adequate security123.124 c) Consequence

The direct consequence of withholding performance is to entitle the injured 52 party not to perform its own contractual obligations until the other party has performed in conformity with the contract (arts 113(1), 133(1) CESL-D). Moreover, it has the effect of preventing the other party from exercising a remedy due to non-performance (in particular, the other party cannot terminate the contract due to non-performance). Withholding performance also impacts on the transfer of risk: according to art 144(1) CESL-D the risk is not passed to the buyer if it does 119 120 121 122 123

MüKo BGB/Emmerich (2012) Vorbermerkung § 320 BGB para 3. Schulze CESL/Zoll art 113 CESL-D para 2. art 106(2)(a) CESL-D. Schmidt-Kessel CESL/Fehrenbach art 133 CESL-D para 9. On the problems concerning the distinction between the two see ibid para 10; Lorenz (n 16) 814–815. 124 A corresponding right of aversion is not foreseen for the seller under art 113(2) CESL-D; Schmidt-Kessel CESL/Keiler art 113 CESL-D para 1.

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not perform its obligation to take delivery (art 129 CESL-D) because it has exercised its right to withhold performance. Consequently, the buyer is not liable for loss or damage to the goods as long as it is entitled to refuse to take delivery. 3. Termination a) Overview

The sets of rules on European contract law contain different approaches and terminology in relation to the right to terminate a contract due to non-performance. For instance, arts 9:301 et seq. PECL use the term ‘termination’ (whereas art 49 CISG refers to ‘avoidance’); art 3 Consumer Sales Directive affords a right to ‘rescind’, whereas art 8:301 ACQP and art 18 Consumer Rights Directive refer to ‘termination’. The CESL uses ‘termination’125 and stipulates that the parties can, subject to more detailed provisions, terminate the contract if the other party has not performed an obligation.126 The right to terminate affords the injured party with a unilateral right to end the performance obligations of both parties. This far-reaching consequence justifies the remedy's extensive requirements in comparison to the right to request performance and the right to withhold performance.127 54 In essence, two approaches have developed in European contract law in order to determine the additional requirements of the unilateral right to terminate the contract for non-performance.128 One approach binds the remedy to the requirement of fundamental non-performance (including subsequent non-performance); the other requires an additional period for performance and in principle only allows termination after this additional period has expired. 55 The notion of fundamental non-performance as ground for unilateral termination first found footing in European contract law through the PECL. Art 9:301 PECL models itself on art 49(1)(a) CISG 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 53

125 This is the heading used for Chapter 11 Section 5 (arts 114 et seq. CESL-D) and Chapter 13 Section 4 (art 134 et seq. CESL-D); see arts 106(1)(c), 155, 157 CESL-D. 126 See (1)(c) to arts 106, 131, 155, 157 CESL-D. The CESL uses the concept of termination in other contexts and therefore uses it both in relation to ex tunc and ex nunc termination, for criticism see Wendehorst, ‘Rücktritt („Beendigung“) im Entwurf für ein Gemeinsames Europäisches Kaufrecht’ in Schmidt-Kessel (n 37) 371–372. 127 See below, paras 61–62, for the differences concerning consumer contracts. 128 See Kiene, Vertragsaufhebung und Rücktritt des Käufers im UN-Kaufrecht und BGB (Nomos 2010) 68; Schlechtriem/Schroeter (n 68) paras 465–466; Schwenzer, ‘The Danger of Domestic Pre-Conceived Views with Respect to the Uniform Interpretation of the CISG: the Question of Avoidance in the Case of Non-Conforming Goods and Documents’ (2005) 37 VUWLR 795, 799–800.

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have such an extensive impact on the legitimate expectations the injured party may have due to the content of the contract are not covered.129 In contrast, the Consumer Sales Directive has not adopted the notion of fun- 56 damental non-performance but rather introduced the additional period model into the acquis communautaire (see art 3(5) Consumer Sales Directive130). Under this approach the injured party has the right to terminate the contract only after the additional period has expired and performance has not been tendered.131 In other words, the party in breach has not used its ‘second chance’. Art 18(2) Consumer Rights Directive follows a similar approach: in the event of late delivery the consumer can terminate the contract if it has set an additional period of time appropriate to the circumstances and the seller still has not delivered. The substantial nature of the non-performance of contractual duties is not of most significance for this approach as, in principle, every non-performance will give rise to the possibility to terminate if there is no performance within the additional time. However, an exception does exist in relation to ‘minor’ non-conformities (art 3(6) Consumer Sales Directive), a much lower standard than ‘fundamental non-performance’.132 Nonetheless, it is unclear whether the ‘minor’ standard is equivalent to the ‘insignificant’ standard in art 114(2) CESL-D or whether it represents a stricter requirement.133 Moreover, it is problematic that variations in protection across the Member States arise due to the influence of national perceptions in determining the extent of the non-conformity.134 The hierarchical approach in the Consumer Sales Directive provides that the 57 right to subsequent performance precedes the right to terminate the contract. The transition to termination is therefore prevented during the reasonable time for performance and in such instances only becomes possible once this period has expired. Superiority in the hierarchy is therefore afforded to the performance of contractual obligations through subsequent performance, whereas termination takes second place.

129 See Huber, ‘Modellregeln für das Europäische Kaufrecht’ [2008] ZEuP 709, 726–727; Lando/Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer 1999) 409; Schulze CESL/Zoll art 87 CESL-D paras 33–37. 130 According to this provision the right to terminate also exists when the consumer has no claim to subsequent performance (under the applicable criteria) or when the seller has not provided the remedy without causing significant inconvenience to the consumer. 131 See §§ 437 Nr. 2, 323(1) BGB. A much discussed point in German law is whether the requirement for the consumer to set an additional period for performance is in conformity with the Consumer Sales Directive. See Leible, ‘Kaufvertrag’ in Gebauer/Wiedmann (eds), Zivilrecht unter europäischem Einfluss (2nd edn, Boorberg 2010), para 96; MüKo BGB/Westermann (2012) § 437 para 9 a. 132 Bianca (n 28) paras 41–45; Schwartze, ‘Das künftige Sachmängelgewährleistungsrecht’ [2000] ZEuP 544, 567; Schmidt-Kessel CESL/Wendehorst art 114 CESL-D paras 6–7. 133 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. 134 See, for example, Case C–32/12 Duarte Hueros [2013] ECR I–nyr, Opinion of AG Kokott, para 57.

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In spite of the priority afforded under the Consumer Sales Directive to subsequent performance, the Directive expands the scope of situations in which termination is possible by foregoing a requirement of fundamental non-performance (in contrast to the CISG). The Consumer Sales Directive intends to protect the consumer. Although this represents a broader scope than the CISG, it nonetheless reflects the changes in international trade as the costs of returning the goods are now considerably lower than at the time the CISG was drafted (due to reduction in prices in international freight shipping). Furthermore, the extension corresponds to the better conditions for judicial enforcement and execution of restitutionary measures due to judicial cooperation in the European legal community (in comparison to the difficulties that the CISG has to approach on a global scale135).136 b) Requirements

59

The various rights to termination in current EU law generally require the nonperformance of a contractual obligation.137 This key element of the right to terminate is however subject to further requirements and different forms in the relevant directives.138 Where sales law is concerned, the two most important circumstances granting the right to terminate a contract are contained in the Consumer Sales Directive and the Consumer Rights Directive. Alongside non-performance, art 3 Consumer Sales Directive stipulates two further requirements: no subsequent performance within a reasonable additional period and no minor non-conformity. Art 18(2) Consumer Rights Directive contains the requirements for termination due to non-delivery in distance sales and off-premises contracts. In the absence of an agreement to the contrary, these requirements are split across two stages: the seller has not delivered the goods without undue delay, at the latest within 30 days after the conclusion of the contract; the seller has not delivered the goods within the (subsequent) additional reasonable period of time set by the consumer. Article 3 Consumer Sales Directive Rights of the Consumer (…) (5) The consumer may require an appropriate reduction of the price or have the contract rescinded:

135 Schulze, ‘Gemeinsamer Referenzrahmen und Acquis communautaire’ [2007] ZEuP 130, 140–141. 136 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). 137 The right to withdraw is to be considered as lex specialis and therefore does not belong in the general rules on contract. 138 Aubert de Vincelles/Rochfeld (eds), L’Acquis communautaire, Les sanctions de l’inexécution du contrat, (Economica 2006); Contract II/Pisulinski/Zoll/Szpunar arts 8 :301–8 :303.

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

(…) Article 18 Consumer Rights Directive Delivery (1) Unless the parties have agreed otherwise on the time of delivery, the trader shall deliver the goods by transferring the physical possession or control of the goods to the consumer without undue delay, but not later than 30 days from the conclusion of the contract. (2) Where the trader has failed to fulfil his obligation to deliver the goods at the time agreed upon with the consumer or within the time limit set out in paragraph 1, the consumer shall call upon him to make the delivery within an additional period of time appropriate to the circumstances. If the trader fails to deliver the goods within that additional period of time, the consumer shall be entitled to terminate the contract. The first subparagraph shall not be applicable to sales contracts where the trader has refused to deliver the goods or where delivery within the agreed delivery period is essential taking into account all the circumstances attending the conclusion of the contract or where the consumer informs the trader, prior to the conclusion of the contract, that delivery by or on a specified date is essential. In those cases, if the trader fails to deliver the goods at the time agreed upon with the consumer or within the time limit set out in paragraph 1, the consumer shall be entitled to terminate the contract immediately. (…)

The CESL stipulates the reasons for termination in three provisions: termina- 60 tion due to non-performance (art 114 CESL-D), termination for delay in delivery after notice fixing additional time for performance (art 115 CESL-D) and termination for anticipated non-performance (art 116 CESL-D). These provisions also apply to the customer of a related service contract (art 115(1) CESL-D), though in such contracts art 158 CESL-D allows the customer to give notice at any time that the performance (including further performance) is no longer required even where there is no ground for termination. The termination due to non-performance under art 114(1) CESL-D covers all 61 types of non-performance,139 although it has to be fundamental in nature (except in B–C contracts). Art 87(2) CESL-D outlines the term ‘fundamental’ non-performance in more detail. The right to terminate the contract under the CESL has been broadened in re- 62 lation to consumer contracts (also in comparison to the Consumer Sales Directive). According to art 114(2) CESL, the consumer can terminate the contract if the non-conformity of the goods is minor without, however, the non-performance being ‘fundamental’. Similarly, art 155(4) CESL-D allows the consumer to terminate a related services contract for non-conformity without imposing this additional requirement. The CESL therefore favours the consumer by refraining from a higher standard for termination even though this remedy – in comparison to requiring performance and withholding performance – leads to the termination of the parties' contractual agreement.140 It merely places a limitation on in139 See above, paras 20–21.

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stances in which the non-conformity is minor.141 The reasons for this consumerfriendly rule may be explained by the present acquis communautaire: the Consumer Sales Directive is subject to minimum harmonization and several Member States increased the level of protection outlined by the Directive by affording the consumer a right to terminate.142 As the proposed CESL should not fall short of the national expectations concerning consumer protection, it has therefore deviated from the approach in the Consumer Sales Directive and does not contain a hierarchy of remedies for consumer contracts (art 106(3)(a) CESL-D). Nonetheless, the CESL has followed this approach in relation to B–B sales contracts (i.e. an area not covered by the Consumer Sales Directive).143 63 As under art 18 Consumer Rights Directive144, the CESL also requires that termination due to late delivery is subject to an additional time for performance (art 115 CESL-D). The cumulation of both approaches thus opens the possibility for the injured party to terminate the contract either without additional time but with fundamental non-performance (arts 114(1), 134 CESL-D), or due to nonperformance within an additional time145 but without fundamental non-performance (‘delay in delivery’; arts 115, 135 CESL-D). In contrast to art 114 CESLD, art 115 CESL-D only covers delayed delivery and not defective performance.146 However, the contract can be terminated under art 114 CESL-D if the delayed delivery can be considered fundamental.147 This would particularly arise where time is of the essence.148 64 In principle, the buyer must have first set an additional period for delivery in order to be able to terminate the contract under art 18 Consumer Rights Directive and art 115 CESL-D.149 The Consumer Rights Directive requires the period to be ‘appropriate’ (art 18(2) Consumer Rights Directive), whereas the CESL outlines that the period is to be ‘reasonable’ (art 115(1), 135(1) CESL).150 Despite the terminological differences each period requires objective consideration of the circumstances in order to afford the seller with a genuine possibility to 140 For criticism see Schopper (n 35) 134–135; see also Schmidt-Kessel CESL/Wendehorst art 114 CESL-D para 7; cf Lorenz (n 16) 770. 141 See above, para 56 for the interaction betwen this criteria with fundamental and insignificant breach, respectively. 142 For example, a more generous right to terminate a contract exists in the United Kingdom. 143 On this problem Feltkamp/Vanbossele, ‘The Optional Common European Sales Law, Better Buyer's Remedies for Seller's Non-performance in Sales of Goods?’ [2011] ERPL 873, 891– 892; Zöchling-Jud (n 37) 343–346. 144 See above, para 59. 145 See Schulze CESL/Zoll art 115 CESL-D para 4; with regard to the relevant time see Chapter 5 para 19. 146 Schmidt-Kessel CESL/Wendehorst art 115 CESL-D para 4. 147 Schulze CESL/Zoll art 115 CESL-D para 6. 148 Schmidt-Kessel CESL/Wendehorst art 114 CESL-D para 5. 149 art 18(2) Consumer Rights Directive provides an exception in three different situations: refusal to deliver; delivery within the agreed time period is essential; delivery by or on a specific date is essential in consideration of the circumstances of the contract. 150 No such distinction is made in the German language versions of the Consumer Rights Directive and CESL. Each text uses the term ‘angemessen’.

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perform. However, the CESL requirements do deviate from the Consumer Rights Directive: the length of the additional period is regarded as reasonable if the seller does not object to it without undue delay. Furthermore, the seller has the possibility to terminate the contract if the buyer does not perform its contractual obligations. However, the additional period in a B–C contract must not end before 30 days have passed (art 135(2) CESL-D). The additional period has to be made via notice to the other party (art 115(1) and art 135 (1) CESL-D each in conjunction with art 10 CESL-D; cf art 18(2) Consumer Rights Directive). The notice may also provide for automatic termination in the event of non-performance during the additional period; no further acts are required in order for the contract to be terminated (arts 115(3), 135(3) CESL-D), otherwise a separate notice of termination will be necessary (art 118 CESL-D). The injured party can also be entitled to terminate the contract if the other 65 party has already indicated that it will not perform (‘anticipated non-performance’). In such instances the termination will be justified if the non-performance would satisfy the aforementioned standards for termination (art 116 CESL-D151). One can neither expect the injured party to wait for the non-performance nor are there other objective reasons for first waiting for non-performance to arise before granting the injured party the right to terminate.152 A similar approach also applies if it is clear that, despite the absence of notice by the seller, the non-performance will arise, for example because of bankruptcy. c) Notice

The mere existence of reasons permitting termination of the contract does not 66 lead to termination ipso iure. The characteristic of termination as a formative right153 rather requires the right to be exercised in order for termination to be effective.154 The injured party is therefore free to elect to maintain the contract despite the possibility to terminate (as expressed in arts 114 et seq. CESL-D by ‘A buyer may terminate the contract’ or in art 18 Consumer Rights Directive ‘the consumer shall be entitled’). If the injured party elects to terminate the contract it will have to send notice to the other party.155 As regards the time frame for notice, the PECL used the limitation of a ‘reasonable time’ in consideration of the other party's interests in legal certainty and the aim of avoiding disputes (art 9:303(2) PECL). The CESL has followed this model though the ‘reasonable time’ does not begin from when buyer became, or could be expected to have be151 Corresponding to art 9:304 PECL; art III.–3:504 DCFR. 152 Lando/Beale (n 129) 417; Samoy/Dang Vu/Jansen, ‘Don’t Find Fault, Find a Remedy’ [2011] ERPL 855, 866; Schulze CESL/Zoll art 116 CESL-D para 1; v. Bar/Clive (n 16) 867 et seq. 153 See above, para 2. 154 Chen-Wishart/Magnus, ‘Termination, Price Reduction, and Damages’ in Dannemann/Vogenauer (n 59) 647, 667. 155 See, for example, art 118 CESL-D; corresponding to art 9:303 PECL; art 8:302 ACQP; art III.–3:507 DCFR.

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come, aware of the non-performance, but rather also from when the right arose; the later circumstance will be relevant in determining whether notice was given within a reasonable time (art 119(1) CESL-D).156 Furthermore, later termination will also be possible in a consumer contract or if no performance whatsoever has been tendered (art 119(2) CESL-D). d) Examination and notification duties 67

In order to terminate the contract (or exercise other remedies such as (subsequent) performance157) art 106(2)(b) CESL-D generally requires the buyer in a B–B sales contract to examine the goods and notify the seller of the non-conformity. The right to rely on the non-conformity in order to terminate the contract is therefore subject to the examination and notification requirements. These do not apply to B–C contracts (art 106(3)(a) CESL-D). e) Consequences

Current EU law does not contain detailed rules on the consequences of termination158 and therefore regulation is left to national law.159 Nonetheless, the limited provisions in the directives can exercise influence on important aspects surrounding the legal consequences of termination. For example, the ECJ decision in Quelle stipulated that the seller can only obtain compensation for the use of the goods if the contract is terminated.160 69 In contrast, the effects of termination of contract are contained in the CESL's introductory provisions. Art 8 CESL-D provides general rules for all types of termination of contract as well as specific rules for termination due to non-performance or anticipated non-performance. 68

Article 8 CESL-D Termination of a contract (1) To ‘terminate a contract’ means to bring to an end the rights and obligations of the parties under the contract with the exception of those arising under any contract term providing for the settlement of disputes or any other contract term which is to operate even after termination. (2) Payments due and damages for any non-performance before the time of termination remain payable. Where the termination is for non-performance or for anticipated non-performance, the terminating party is also entitled to damages in lieu of the other party’s future performance. (3) The effects of termination on the repayment of the price and the return of the goods or the digital content, and other restitutionary effects, are governed by the rules on restitution set out in Chapter 17.

156 Corresponding to the seller's loss of the right to terminate (art 139 CESL-D); see Schulze CESL/Dannemann art 139 CESL-D paras 7–13. 157 See above, paras 43–46. 158 In contrast the consequences of the withdrawal from a contract are expressly provided, see Chapter 3 paras 161–168. 159 For example, in German law § 437 Nr. 2 in conjunction with §§ 346 et seq. BGB. 160 Quelle (n 88) para 39; for more detail see above, para 42.

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The right to terminate can be directed either at the entire contract or parts of the contract if it is severable. Arts 117 and 137 CESL-D provide the further rules for the termination of sales contracts; art 9 CESL-D contains the specific rules for mixed contracts. According to art 8(1) CESL-D, termination (either in whole or in part) ends the primary contractual rights and obligations of the parties. This does not mean that the original contractual legal relationship between the parties ceases to exist, but rather results in its change to a restitutionary relationship that focuses on the restitution of the performances received. Art 8(1) CESL-D therefore provides for the continuation of contractual rights and obligations resulting from the contract which operate even after termination, such as the provisions concerning consequences of breach (including restitution), for example, arbitration and jurisdiction clauses.161 Likewise, the obligation will remain in relation to payments due and to damages for non-performance before the contract was terminated (art 8(2) CESL-D); this includes, for example, interest on later payments and damages for prescribed claims. The injured party who terminates the contract for subsequent non-performance may also demand damages in lieu of performance (art 8(2) CESL-D). The restitution is subject to arts 172 et seq. CESL-D which contain uniform rules for avoidance and termination of contract.162 4. Price reduction a) Overview

Price reduction is a remedy of considerable importance in practice. It allows 70 for a relatively simple balance of the parties' respective interests by reducing the price paid for the promised performance in proportion to the actual performance received. Art 9:401 PECL and art III.–3:601 DCFR provide price reduction as a general remedy for European contract law, as is the tendency in the development of the modern law of obligations. Its adoption in the acquis communautaire is represented by art 3(5) Consumer Sales Directive163 (for sales law) and, inter alia, art 4(6)(a) Package Travel Directive (for travel law164).165 The CESL provides the right to price reduction for each contract type falling within its scope (arts 120, 155 CESL-D). European contract law therefore develops a tradition that, in national legal systems, can be traced back to the civil law principle actio quanti minoris166. The tradition also expressed in international sales law (art 50 CISG), yet neither of these systems determines the form and interpretation of the European rules. 161 162 163 164

Schulze CESL/Zoll art 8 CESL-D para 7. See below, para 93. See above, para 59. See also art 4(7)(1) Package Travel Directive; art 8(1)(a) Regulation 261/2004; art 17(1) Regulation 1371/2007; art 19(1) Regulation 1177/2010; art 19(2) Regulation 181/2011. 165 See also art 8:301(4) ACQP. 166 Lando/Beale (n 129) 430; Zimmermann, Law of Obligations (Clarendon 1996) 318.

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Chapter 6 Consequences of Non-performance Article 50 CISG [Price reduction] If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time. However, if the seller remedies any failure to perform his obligations in accordance with article 37 or article 48 or if the buyer refuses to accept performance by the seller in accordance with those articles, the buyer may not reduce the price.

71

A controversial aspect of the right to price reduction in European contract law is whether it is a formative right.167 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.168 Contention aside, the effective exercise of the right to price reduction also requires – as for termination169 (art 10 CESL-D) – the injured party to give notice to the other party; however – in contrast to termination – the CESL does not contain an explicit reference to this requirement.170 The notice guarantees that the party in breach is informed of the legal reason for non-payment and the reduction (or alternatively the obligation to make partial reimbursement of payments received) and can take the appropriate measures. b) Requirements and exclusion

72

The right to price reduction in a sales contract requires non-conformity of performance (art 3(1) Consumer Sales Directive; art 120(1) CESL-D); the broader concept of ‘non-performance of an obligation’ is required for related services (art 155(1)(d) CESL-D) and is accordingly applicable to other types of contract. Furthermore, the CESL also stipulates acceptance of performance in sales contracts (art 120(1) in conjunction with arts 123, 129 CESL-D). In contrast to termination, the remedy of price reduction is neither subject to fundamental nonperformance nor to an additional period and therefore is a simpler and quicker remedy than termination. The requirements of examination and notification in B–B contracts (arts 121, 122 CESL-D) remain applicable and can therefore exclude the right to price reduction.171 The right is not excluded by excused nonperformance under art 88 CESL-D (and therefore differs from the right to performance and to damages; see art 106(4) CESL-D).172 Nevertheless, despite its 167 See Lorenz (n 16) 789; cf Faust (n 83) 264. 168 Such an issue is also controversial, favouring this ius variandi Lorenz ibid; Schulze CESL/ Zoll art 120 CESL-D para 3. 169 See above, para 66. In comparison, the agreement by the creditor is not required, see Zoll ibid. 170 Schmidt-Kessel CESL/Schmidt-Kessel art 120 CESL-D para 16 with further references. 171 See above, paras 43–46. 172 On the debtor's possibility to cure, see above, paras 25–27.

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broader application vis-à-vis other remedies, price reduction is excluded if the injured party is responsible for the non-conformity (art 106(5) CESL-D). c) Consequences

Price reduction results in a change to the content of the contract agreed be- 73 tween the parties. The asking price is reduced according to the ratio between the reduced value of the non-conforming performance and the hypothetical value of conforming performance (relative calculation).173 The reduced price can be calculated using the formula: Reduced price = agreed price X

actual value of performance tendered hypothetical value of conformity

In the event that the buyer has already paid a sum greater than the reduced price (as calculated by the above formula) it will be entitled to recover the excess (art 120(2) CESL-D). The reimbursement is subject to the provisions in Chapter 12 CESL-D, for example concerning form and place of payment (art 90 CESL-D). The same must also apply for the rules concerning non-performance of monetary obligations.174 Price reduction may have an effect similar to damages and thus exercising 73a both rights would allow double recovery of the loss. Art 120(3) CESL-D therefore provides that the buyer can only claim damages for further losses and not for loss already compensated by the reduction in price. The rule reflects the general exclusion of culmination of incompatible remedies (art 106(6) CESL-D) though claims to price reduction and damages would otherwise be excluded under this general rule without the need for specificity in a separate provision.175 5. Damages and interest a) Overview

The right to claim damages in the acquis communautaire has mainly de- 74 veloped in relation to non-contractual liability. Contributions to the development have been made by various pieces of legislation (as well as ECJ decisions) above all on the basis of art 340(2) TFEU.176 However, the Consumer Sales Directive does not contain any provisions on damages, whereas other contract law

173 Schulze CESL/Zoll art 120 CESL-D para 4; for criticism of this method of calculation with regard to other types of breach see Faust (n 83) 264–265. 174 Zoll ibid para 5. 175 Lorenz (n 16) 790. 176 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 (n 7) 211; Remien (ed), Schadensersatz im europäischen Privat- und Wirtschaftsrecht (Mohr Siebeck 2012); Wurmnest, Grundzüge eines europäischen Haftungsrechts (Mohr Siebeck 2003).

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directives are merely limited to individual points and specific topics, such as the claim to interest on late payments in B–B contracts. 75 Part VI CESL on ‘Damages and Interest’ therefore represents the first entire legislative approach at EU level for damages due to non-performance of contractual obligations. It is based mainly on art 9:501 PECL (as inspiration for art III.–3:701 DCFR). The CESL provisions on damages follow these models by opting against rules tailored for individual types of contract and instead adopting an overarching approach as a general contract law for the different types of contract covered by the CESL (and thus allowing the possibility of application to other types of contract). Although the CESL contains a ‘distinction’ due to separate provisions affording the right to damages in sales contracts (arts 106(1)(e), 131(1)(d) CESL-D) and service contracts (arts 155(1)(e), 157(1)(d) CESL-D), the content and limitation of damages are contained in the general rules (arts 159 et seq. CESL-D) rather than specifically for each type of contract. The 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. Furthermore, separate sections contain rules on interest for late payments in general and specifically for B–B transactions. These rules are based on the Late Payment Directive and in part on the Acquis Principles177 (arts 166 et seq. CESL-D) b) Requirements

aa) The claim to damages is subject to the non-performance of a contractual obligation (art 159(1) CESL-D). Damages are therefore available for non-delivery, delivery of non-conforming goods as well as every other form of non-performance under art 87(1) CESL-D. These are merely examples and therefore the breach of other obligations will entitle the injured party to claim damages, for example due to the breach of good faith and fair dealing (art 2(2) CESL-D), failure to give notice of the impediment (art 88(3) CESL-D) as well as the breach of the pre-contractual information duties, though further clarification is required in relation to the individual circumstances.178 77 bb) The claim to damages is excluded if the non-performance is excused (arts 106(4), 159(1) CESL-D) and is thus subject to the same limitation as the claim for performance179. The CESL therefore follows an approach outlined by art 9:501 PECL180 (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’181 but is rather replaced by the 76

177 arts 8:404; 8:406 ACQP. 178 For more detail see Schulze CESL/Mozina art 159 CESL-D paras 8–9; on the inclusion of contractual obligations vis-à-vis protecting physical integrity and other losses through reference to art 149 CESL-D see Schmidt-Kessel CESL/Remien art 159 CESL-D para 4. 179 See above, para 39. 180 See also art III.–3:701 DCFR. 181 As since 2002 in German law through the second sentence of § 280(1) BGB.

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common law approach of objective fault. This basis therefore allows for the possibility to exclude damages on the grounds of excused non-performance.182 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-D.183 c) Reimbursable loss

aa) The damages cover the economic and non-economic losses that have 78 arisen due to the non-performance and are recoverable under art 2(c) CESLReg-D. The definition of damages under art 2(g) CESL-Reg-D distinguishes between ‘loss’ and ‘injury or damage’. In light of this distinction and the sole reference to ‘loss’ in art 159(1) CESL-D one can therefore infer that ‘injury or damage’ are not covered within this contractual claim as they do not appear to fall under the term ‘loss’.184 Nominal damages (franc symbolique; symbolischer Schadensersatz) are also excluded from the requirement of ‘loss’.185 bb) The CESL does not contain more precise details on the notion of ‘econo- 79 mic loss’ covered by art 2(c) CESL-Reg-D. However, this term will cover all financial losses, such as loss of income or profit, loss in value of property, loss of property etc.186 Art 159(2) CESL-D expressly stipulates that damages will also include the future losses that the injured party could expect to incur. This provision is linked to the concept of future loss in English law and art 9:501(2)(b) PECL187. It refers to losses that are expected at the time damages are calculated by the court but which have not yet occurred.188 Damages are also to be paid in respect of lost profits. Despite the distinction 80 between lost profits and loss suffered, art 159(2) CESL-D nonetheless includes the former in the scope of recoverable damages. The CESL does not contain an explicit rule in relation to when a profit is to be deemed as lost; the reference to the standard in art 159(2) CESL-D offers an approach which will ease the burden of proof in this respect.189 The injured party thus only needs to outline the circumstances and to prove that a profit would have otherwise been likely under such circumstances. 182 For criticism see Faust, ‘Leistungsstörungsrecht’ in Remien/Herrler/Limmer (eds), Gemeinsames Europäisches Kaufrecht für die EU? (C.H. Beck 2012) 161, 180–181; Kieninger, ‘Allgemeines Leistungsstörungsrecht im Vorschlag für ein Gemeinsames Europäisches Kaufrecht’ in Schulte-Nölke et al. (n 59) 205, 210, 213–214; Lorenz (n 16) 795. 183 Schulze CESL/Mozina art 159 CESL-D para 6. 184 The compensation for such loss thus remains within the scope of national tort law. This is not especially convincing as damages for ‘suffered loss’ as non-economic law are to be provided according to art 2(c) CESL-Reg-D (see below, para 81). 185 Schulze CESL/Mozina art 159 CESL-D para 3. 186 See also art III.–3:701 DCFR. 187 See also art III.–3:701(2) DCFR. 188 Lando/Beale (n 129) 436; v. Bar/Clive (n 16) 918. 189 Schulze CESL/Mozina art 160 CESL-D para 12.

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cc) The recoverable non-economic loss comprises pain and suffering. Art 2(c) CESL-Reg-D does excludes other non-economic loss such as impairment of quality of life and loss of enjoyment.190 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.191 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.192 The general standards for the compensation of non-economic losses under art 159 CESL-D in conjunction with art 2(c) CESL-Reg-D require adjustments in order to be applicable to other types of contract falling outside the scope of the CESL which 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 to be considered as recoverable in relation to the purpose of the rules; this also applies in cases that would not fall under art 2(c) CESL-Reg-D.193 82 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-D). In accordance with the present development of the acquis communautaire194 it is necessary for a causal link to exist between the non-performance and the loss for which damages are claimed. The causation arises if the loss would not have occurred without the non-performance (conditio sine qua non). With the exception of foreseeability of loss (art 161 CESL-D), the CESL does not include any additional restrictions (in particular the requirement of ‘adequate’ causation, as is foreseen in several national laws)195 in relation to limiting the amount of recoverable loss. 81

d) Type and scope of damages 83

aa) Due to the general rule under art 2(g) CESL-Reg-D, damages under art 159 CESL-D are to be paid in monetary form. The CESL does not acknowledge a claim to restitution-in-kind – in this respect its remedy of performance takes on a function similar to national approaches concerning damages as a form of restitution-in-kind. The CESL therefore follows an approach outlined by

190 For criticism see Kieninger (n 182) 215–216; Remien, ‘Schadensersatz und Zinsen nach EU-Kaufrecht’ in Schmidt-Kessel (n 37) 503, 507–508; on the questions concerning differentiation Schulze CESL/Wendehorst art 2 CESL-Reg-D paras 7–8. 191 Kieninger ibid 217; Schulze CESL/Mozina art 160 CESL-D para 12. 192 Mozina ibid para 18; cf Kieninger ibid. 193 For loss of enjoyment based on the Package Travel Directive see Case C–168/00 Leitner [2002] ECR I–2631. 194 See Magnus (n 176) 220; Weitenberg, Der Begriff der Kausalität in der haftungsrechtlichen Rechtsprechung der Unionsgerichte (Nomos 2014). 195 Lorenz (n 16) 795; Schulze CESL/Mozina art 159 CESL-D para 5.

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CISG196.197 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) 83a CESL-Reg-D does not state anything to the contrary and, in addition, the recovery of such costs for substitute transactions (actual or fictitious) is expressly outlined in art 164, 165 CESL-D as a means of calculating the concrete damages. It is of course lacking a correspondingly clear rule for, in particular, costs of repair and for resolving non-economic losses.198 However, a uniform approach on the concept of damages in the CESL may require that the recovery of the costs for restoring the status quo ante can also not generally be excluded. Legislative clarification of such an important question would be desirable in relation to whether, for example, the principle of proportionality (which also applies to subsequent performance199) 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). bb) The extent of the compensation for the loss suffered by the non-perfor- 84 mance is measured in accordance with the principle of total reparation (i.e. full compensation) 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. The injured party is to be put as close as possible into this position if the total reparation cannot be achieved (art 160 CESL-D). The principle is based on the PECL and DCFR200 as well as on the development in the acquis communautaire.201 Its application202 means that the injured party can claim the entire difference between the amount to be paid under the contract and the expenditure resulting from the non-conformity (e.g. as is outlined by art 164 CESL-D for substitute transactions and art 165 CESL-D for fictitious substitute transactions concluded after termination). The injured party can also demand damages for further loss (see arts 164–165 CESL-D) if these restorative damages do not cover the entire loss recoverable under art 2(c), (g) CESL-Reg-D. cc) Art 161 CESL-D limits the extent of the recoverable loss to the foresee- 85 able loss, which therefore serves as an additional requirement (alongside inex196 art 74 CISG; see Huber/Mullis, The CISG (Sellier 2007) 269–270; Schöne/Koller, in Honsell (ed), Kommentar zum UN-Kaufrecht (2nd edn, Springer 2010) art 74 CISG para 41. 197 See also art 9:502 PECL; art III.–3:702 DCFR. For more detail see Lando/Beale (n 129) 438–439; v. Bar/Clive (n 16) 924. 198 Schmidt-Kessel CESL/Schmidt-Kessel art 2 CESL-Reg-D para 23. 199 See above, para 47. 200 See art 9:502 PECL; art III.–3:702 DCFR. 201 See Commission, ‘Proposal for a Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union’ COM (2013) 404 final. 202 See above, para 83.

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cused non-performance) for a claim to damages.203 The rule in art 161 CESL-D is not based on approaches from the acquis communautaire204 but rather follows art 9:503 PECL and art III.–3:703 DCFR, which can each be traced back to the second sentence of art 74 CISG.205 However, the CESL does differ from these European sets of rules (and also national laws206) as it does not provide an exception for either intentional non-performance or for gross negligence.207 Similarities can be observed in the CESL's application of subjective (i.e. the loss the debtor foresaw) and objective (i.e. the loss the debtor could be expected to have foreseen) criteria. One will observe that the CESL has refrained from applying ‘reasonably’208 to the objective arm of the foreseeability standard thereby avoiding the unnecessary use of this undefined term without expressing a difference in function. 85a Under art 161 CESL-D the loss had to have been foreseen at the time the contract was concluded. This standard does however cause a problem in relation to the lack of an exception for intentional non-performance: price increases may make it easier for the seller to enter into a more profitable contract with another party209 if the foreseeability requirement also applies when damages are calculated with the aid of a substitute transaction according to arts 164–165 CESLD.210 86 dd) The party in breach will not be liable if the injured party has contributed to the non-performance (or its consequences) or has not taken appropriate steps to mitigate the loss even though such steps were possible. The acquis communautaire only contains limited instances of this approach211 therefore the bulk of the general rules in arts 162–163 CESL-D is based on the PECL and DCFR.212 Art 162 CESL-D determines that the extent of the damages will be reduced in relation to the extent of the injured party's contribution to the non-performance or consequences. However, the CESL's system will afford the injured party with the possibility to excuse its actions through analogous application of art 88 CESL-D.213 In addition, the recoverable loss will also be reduced if the injured 203 204 205 206 207

208 209 210 211 212 213

268

See above, para 77. Schulze CESL/Mozina art 161 CESL-D para 2. On the development see Kieninger (n 182) 205, 214. art 1150 Code Civil. On the discussion concerning the exceptions in drafting the Feasibility Study see Expert Group on a Common Frame of Reference in European Contract Law, ‘Synthesis of the Tenth Meeting, 17–18 February 2011’ 3 available online under http://ec.europa.eu/justice/contract/ cesl/expert-group/index_en.htm accessed 28 April 2015. cf art III.–3:703 DCFR. Schulze CESL/Mozina art 161 CESL-D para 2. cf Schmidt-Kessel CESL/Remien art 164 CESL-D para 2 on avoiding speculation prejudicial to the debtor. Legislative clarification of this point would be desirable. Contract II/Magnus art 8:403 para 1; Magnus (n 176) 223–224; v. Bar/Clive (n 16) 934. art 9:504 PECL and art III.–3:704 DCFR for art 162 CESL-D, which, within the CESL, generally accords with arts 106(5), 131(3) CESL-D; art 9:505 PECL and art III.–3:705 DCFR for art 163 CESL-D. Schmidt-Kessel CESL/Remien art 162 CESL-D para 2; cf Koch, ‘Schadensersatz und Rückabwicklung’ in Wendehorst/Zöchling-Jud (n 35) 225, 233.

IV. Remedies for the Injured Party

party has not, contrary to the requirement of good faith and fair dealing (art 2 CESL-D), taken steps to mitigate its loss (art 163(1) CESL-D);214 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).215 Taking such reasonable steps to mitigate the loss may result in additional costs for the injured party and therefore not necessarily serve as incentive for mitigation. Consequently, art 163(2) CESL-D provides that the injured party is entitled to recover the costs reasonably incurred in taking mitigating steps, which need not be successful. This provision extends the notion of co-operation between the parties (art 3 CESL-D) with respect to the financial burden for acts undertaken by one party to support the performance of the other party's contractual obligations. e) Interest

aa) Current EU contract law does not contain an overarching rule on interest 87 on late payments. The European legislator has instead focused on several specific areas of considerable economic importance for the internal market: payment services and late payment in commercial transactions. The Late Payment Directive seeks to combat late payment in commercial transactions because of the negative effects on solvency of the debtor (particularly if the business is an SME), especially in times of economic crisis.216 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.217 It therefore seeks to promote a ‘culture of prompt payment’218 by linking periods for payment with claims to interest and compensation for costs incurred.219 Arts 3 and 4 Late Payment Directive particularly set out the conditions for an interest claim in transactions between businesses and between businesses and public authorities. In order to make a claim the creditor must have performed its own contractual obligations (art 3(1)(a); art 4(1)(a) Late Payment Directive) and has not received the payment on time: the timely nature of the successful performance by the debtor is therefore key,220 though it will not have to pay interest if it is not responsible for the delay (art 3(1)b); art 4(1)(b) CESL-D). The time for payment 214 On the question whether preventable loss should be deducted from the damages claim (as achieved under the second sentence of art 77 CISG) or is to be determined by considering both amounts see Koch ibid 234. 215 Schulze CESL/Mozina art 163 CESL-D paras 3–4. 216 See recitals 3 et seq. Late Payment Directive. 217 Recital 12 Late Payment Directive. 218 ibid. 219 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. 220 Case C–306/06 Telekom [2008] ECR I–1923.

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will be subject to the agreement under the contract, though the time periods in art 3(3)(b) or art 4(3) Late Payment Directive will apply in the absence of such an agreement or in a contract between a business and public authority, respectively. It is not necessary for the creditor to remind the debtor. Moreover, contract terms that are grossly unfair to the creditor will be unenforceable or will form the basis of a damages claim (art 7(1) Late Payment Directive). Such an approach shall protect the creditor against unfair contract terms221, which includes standard as well as negotiated terms.222 88 The Acquis Principles have used the Late Payment Directive as a basis for its own provisions (arts 8:405 et seq. ACQP) but have also determined that the acquis communautaire does not contain a sufficient basis for a general rule for interest on late payments. A reference is instead made to the corresponding rule in the DCFR, which was drafted on the basis of comparisons of national laws.223 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.

89

bb) The CESL has followed the approach in the DCFR by including general rules for interest on late payments (arts 166–167 CESL-D). These rules extend the preceding CESL section on damages and are also supplemented by a further section containing specific rules for late payments in B–B contracts. According to art 166(1) CESL-D, the creditor will generally have a claim to interest when the payment is delayed; notice need not be given. The amount of interest is generally calculated on the basis of the interest rate set by the European Central Bank (in Member States whose currency is the euro) plus two percentage points (art 166(1), (2) CESL-D). The creditor is thus afforded a form of abstract damages which will not only typically compensate for the losses suffered (though 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.224 The creditor may recover any damages for further loss through application of the provisions on damages (art 166(3) CESL-D). However, these strict rules only apply to late payments by consumers if the performance is not excused. The interest does not start to accrue until 30 days after notice issued by the creditor which 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 221 222 223 224

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Recital 28 Late Payment Directive; see Chapter 4 paras 32 –33. Heiderhoff, Europäisches Privatrecht (3rd edn, C.F. Müller 2012) para 390. v. Bar/Clive (n 16) 945. Schulze CESL/Mozina art 166 CESL-D para 3.

IV. Remedies for the Injured Party

will not be binding on the consumer if the terms would be unfair under art 83 CESL-D (art 167(1)–(4) CESL-D). The CESL's specific rules on late payments by businesses (arts 168–171 90 CESL-D) are closely based on the Late Payment Directive as well as on art 8:406 ACQP and art III.–3:710 DCFR. A claim to interest will arise under art 168(1) CESL-D if the business225 delays the payment of a price due under a contract for the delivery of goods, supply of digital content or provision of related services, unless the late payment is excused under art 88 CESL-D. The scope of the rules therefore covers payments due under the contract, but not claims to damages or reimbursements; interest claims under these latter circumstances are subject to art 166 CESL-D.226 The interest rate is stipulated in art 168(5) CESLD and adopts the approach under art 166(2) CESL-D, but with the application of eight (as opposed to two) percentage points. In general, the time for performance is subject to the contract; art 168(2) and (3) CESL-D will apply if there is no contract term on the time for payment. The maximum time for payment will generally be 60 days (art 168(4) CESL-D) though it is possible to exceed this statutory time limit if the parties have expressly agreed otherwise and the agreement is not unfair according to art 170 CESL-D. There is therefore a rebuttable presumption that a longer period for payment is unfair under art 170 CESL-D. Unfair contract terms on payment dates, time periods, and interest rates will not be binding.227 Moreover, the rules on late payment by businesses are mandatory and can therefore neither be excluded nor varied (art 171 CESL-D).228 6. Restitution

In many instances the performance due under the contract will have been ten- 91 dered before the contract is terminated by one of the parties (e.g. a buyer because of non-performance under art 114 CESL-D)229. There is therefore the need for rules outlining 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). The approach under current EU law is to very much allow the Member States to regulate these issues even though the requirements and risks of restitution have considerable influence on price calculation and the differences in national laws can increase the transaction costs. Even the Consumer Sales Directive does not contain any express rules on restitution despite providing termination as a remedy. One can therefore see that, 225 ‘Business’ (‘trader’) is defined in art 2(e) CESL-Reg-D. 226 For criticism see Schulze CESL/Mozina art 168 CESL-D para 3. 227 According to art 170(2) CESL-D contract terms will be presumed to be unfair if they provide for a time or period for payment or a rate of interest which is less favourable to the creditor than regulated by the CESL-D. Art 170(3) CESL-D stipulates that terms will always be unfair if they exclude interest for late payment or compensation for recovery costs. 228 For more detail see Kieninger (n 190) 222–223. 229 See above, paras 59–67 for details on the requirements for termination of the contract.

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where the consequences of termination and avoidance are concerned, the acquis communautaire falls greatly below the level that the Consumer Rights Directive has achieved for restitution following withdrawal.230 92 The CESL attempts to overcome this current deficit by including a separate part on restitution (Part VII) after its main parts on obligations and remedies (Parts IV and V), and damages and interest (Part VI). When compared to the DCFR231 and many national laws one can however observe a different approach under the CESL: Part VII is overarching in its application as it regulates not only restitution following termination but also restitution after avoidance due to defects in consent. A uniform set of rules shall thus cover two different legal matters. On the one hand it concerns the legal relationship that arises between the parties after their contractual relationship has been terminated (art 8 CESLD).232 On the other hand it extends to cover the contract's retrospective invalidity resulting from avoidance (art 54(1) CESL-D) due to mistake, fraud, threat, and unfair exploitation (arts 48 et seq. CESL-D).233 The difference in the CESL's approach can be illustrated by reference to German law in which the restitution following revocation (which corresponds to termination under the CESL) is subject to specific rules under §§ 346 et seq. BGB, whereas the rules on unjust enrichment (§§ 812 et seq. BGB) are important for the restitutionary consequences of avoidance. The European Parliament234 has agreed to the uniform approach adopted by the CESL for both areas though has considered the criticisms235 and the European Law Institute's Position Paper236 in making its suggestions for improvements. 93 Due to this ongoing discussion, the following will only outline some of the basic aspects of restitution that were adopted in the original proposal. The core rule comprises the general obligation for each party (following termination or avoidance) to return what has been received from the other party, including any 230 See above, para 61. 231 art III.–3:510 DCFR on restitution following termination and Book VII (unjustified enrichment) on restitution in the event of void or avoided contracts; for criticism see Wendehorst, ‘Bereicherungsrecht’ in Schulze/v. Bar/Schulte-Nölke (eds) Der akademische Entwurf für einen gemeinsamen Referenzrahmen (Mohr Siebeck 2008) 215, 237; on the status of the discussions relating to the CESL see Bargelli, Il sinallagma rovesciato (Guiffrè 2010). 232 See above, para 69. 233 See Chapter 3 para 120. However, restitution following withdrawal is regulated separately in arts 44–45 CESL-D; on the deficiencies in the relationship between these two regimes see Schulze CESL/Schulze art 44 CESL-D para 11; on a possible analogous application of arts 172 et seq. CESL-D to other circumstances in which restitution is concerned see SchmidtKessel CESL/Wendehorst art 172 CESL-D para 2. 234 EP Legislative Resolution (n 108) amemdments 223–246. 235 Schmidt-Kessel CESL/Wendehorst art 172 CESL-D paras 4–5; Schulze CESL/Lehmann art 172 CESL-D paras 61–67. 236 European Law Institute (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 https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publicat ions/S-2–2012_Statement_on_the_Proposal_for_a_Regulation_on_a_Common_European_S ales_Law.pdf accessed 30 April 2015.

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natural or legal fruits that have been derived from what was received (art 172(1), (2) CESL-D). The general rule therefore principally aims at establishing the status quo ante.237 An exception concerns performance in instalments or parts as the parties do not have to return what was received if they have fully performed their contractual obligations or the price remains payable under art 8(2) CESL-D (art 172(3) CESL-D).238 Art 173 CESL-D provides for the payment of monetary value where the received performance (including natural and/or legal fruits) cannot be retuned. The payment of the monetary value is also foreseen in relation to the use of the goods (art 174(1) CESL-D) though only if the recipient has caused the basis for the avoidance or termination, if it was aware of the ground for avoidance or termination before it began to use the goods or it would be inequitable (under the listed circumstances) to allow free use of the goods. Art 174(2) CESL-D provides the counterpart to payment for use, namely the payment of interest in respect of monies to be returned. However, it is subject to whether the other party is obliged to pay for use or the recipient has given cause for avoidance due to fraud, threat or unfair exploitation. The extent of the compensation due to the recipient because of the expenditure incurred on the goods or digital content is generally measured on the basis of the benefit to the other party, though this is excluded when the recipient knew or could be expected to have known of the grounds for avoidance or termination at the time the expenditure was made (art 175 CESL-D). The performance of the repayment or restitution obligations under Part VII is however subject to equitable standards that allow these obligations to be modified in situations in which the performance would be grossly inequitable (art 176 CESL-D). Such a possibility has received widespread support because of its contribution to ensuring a just approach in the individual case.239 Nonetheless, the incredibly broad scope and vague terminology of art 176 CESL-D do cause problems in relation to legal certainty. Revising this part of the CESL would therefore be particularly desirable not just in relation to art 176 CESL-D but also, for example, in clarifying important practical questions concerning the place of performance and other aspects in relation to restitution.240 The analogous application of the provisions on primary contractual obligations241 could be of some assistance in resolving this issue, though clarification would nevertheless be preferable.

237 Schulze CESL/Lehmann art 172 CESL-D para 2. 238 For criticism see Schmidt-Kessel CESL/Wendehorst art 172 CESL-D paras 10–11. 239 Schmidt-Kessel CESL/Wendehorst art 176 CESL-D para 2; Schulze CESL/Lehmann art 176 CESL-D paras 13–18. 240 On this and other questions see Looschelders, ‘Das allgemeine Vertragsrecht des Common European Sales Law’ (2012) 212 AcP 518, 674; Wendehorst ibid para 4. 241 See Schulze CESL/Zoll art 93 CESL-D para 5.

273

Chapter 7 Preclusion and Prescription Literature: Grabitz/Hilf, Das Recht der EU (40th edn, C.H. Beck 2009); 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/ZöchlingJud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012).

I. Acquis Communautaire

The present acquis communautaire contains only a series of specific and in- 1 complete rules concerning the consequences of an expiration of time limits on the exercise and restriction of rights. Such ‘patchwork’ has arisen due to the approach adopted by the European legislator in only stipulating the consequences when it considers absolutely necessary to do so in the context of other aspects of European law; its focus is therefore on the limitation of the individual law itself rather than on comprehensive rules. Searching the present acquis for extensive and generalizable provisions on such time limits would consequently be to no avail. Nonetheless, some aspects of the acquis communautaire contain nearcomplete regulation of rights subject to time limitations, in particular the time limits on withdrawal rights. Article 9 Consumer Rights Directive Right of withdrawal (1) Save where the exceptions provided for in Article 16 apply, the consumer shall have a period of 14 days to withdraw from a distance or off-premises contract, without giving any reason, and without incurring any costs other than those provided for in Article 13(2) and Article 14. (…) 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.

Each of these provisions of the Consumer Rights Directive serve as a good 2 example for such a time limit for preclusion (corresponding rules can also be found in other directives providing which a withdrawal right is provided). The right to withdraw ceases to remain available once the withdrawal period has expired. The business does not have to refer to the expiration of the time limit, but the court is to consider this ex officio. Art 10 Consumer Rights Directive defines the circumstances under which the withdrawal period can be extended. These provisions aim at full harmonization and therefore there is no scope for the application of consumer-friendlier national rules on the expiration of the time limit (e.g. in light of good faith and fair dealing). In contrast, a minimum harmoniza275

Chapter 7 Preclusion and Prescription

tion directive would allow the application of consumer-friendlier rules (e.g. as was possible before the Consumer Rights Directive repealed the Distance Selling Directive).1 3 The Consumer Sales Directive contains similar fragmented regulation of time periods restricting consumer rights:2 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 directive3 and therefore the national legislator may increase the Directive's level of consumer protection when implementing its rules into national law.4 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 periods5 (limitation cannot occur before the two-year period under the Directive has expired).6 Furthermore, an additional restriction of the consumer's rights can also be seen in the two-month period for informing the seller of nonconformity (art 5(2) Consumer Sales Directive); Member States may choose to include this requirement.7 Although the Directive merely outlines these time limits without including more detail, the minimum standard of these time limits 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. However, this does not mean that the Euro-

1 art 14 Distance Selling Directive; see Micklitz in Grabitz/Hilf (eds), Das Recht der Europäischen Union (40th edn, C.H.Beck 2009) Sekundärrecht Vor A.2, 85/577/EWG und 97/7/EG – Systematischer Teil, para 27. 2 See Hondius in Bianca/Grundmann (eds), EU Sales Directive: Commentary (Intersentia 2002) art 5. 3 art 8(2) Consumer Sales Directive, see Stijns/van Gerven in Bianca/Grundmannibid art 7 paras 2–5; Micklitz (n 1) Sekundärrecht A.15, 1999/44/EG, art 8 para 5. 4 MüKo BGB/Micklitz (2012) Vorbemerkung §§ 13, 14 para 32. 5 art 5 Consumer Sales Directive. 6 See Magnus in Grabnitz/Hilf (n 1) Sekundärrecht A.15, 1999/44/EG, art 5 paras 3–16; Hondius (n 2) art 5 paras 3–9. 7 See art 5(2) Consumer Sales Directive ‘Member States may provide that…’.

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pean legislator has not used the Consumer Sales Directive to develop a self-supporting concept to regulate limitation periods. A further fragmented rule concerning an important aspect of prescription can 5 also be seen in the ADR Directive: Article 12 ADR Directive Effect of ADR procedures on limitation and prescription periods (1) Member States shall ensure that parties who, in an attempt to settle a dispute, have recourse to ADR procedures the outcome of which is not binding, are not subsequently prevented from initiating judicial proceedings in relation to that dispute as a result of the expiry of limitation or prescription periods during the ADR procedure. (2) Paragraph 1 shall be without prejudice to provisions on limitation or prescription contained in international agreements to which Member States are party.

This provision of the ADR Directive allows the Member States to select the 6 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 uncertain whether this provision also applies to those time periods based on EU law and, for example, limits a withdrawal right when ADR proceedings enquire into the validity of the withdrawal. Where the Consumer Rights Directive is concerned, these time periods are however conclusively regulated so that art 12 ADR Directive is not applicable in matters involving consumers. II. Proposal for Comprehensive European Rules

The provisions on prescription in the proposed CESL are contained in its 7 Chapter 18.8 The chapter is at least as complete as the rules of prescription in national codifications influenced by pandectism9 (such as the German BGB10 or the Polish Civil Code). It is relatively closely based on the model adopted by the DCFR11 (arts III.–7:101 et seq. DCFR12).13 8 See Stellungnahme des Deutschen Notarvereins vom 7.12.2011 at 28–31, available under http://www.dnotv.de/_files/Dokumente/Stellungnahmen/STNDNotVGemeinsamesEuropische sKaufrechtl.pdf accessed 16 January 2015. 9 ibid 30. 10 On the pandectic notion of prescription in German law see Windscheid/Kipp, Lehrbuch des Pandektenrechts (Scientia 1984) §§ 105–113. 11 Ernst, ‘Das Verjährungsrecht des (D)CFR’ in Remien (ed), Verjährungsrecht in Europa – zwischen Bewährung und Reform (Mohr Siebeck 2011) 67; Schulze CESL/MøgelvangHansen art 178 CESL-D para 5; Zöchling-Jud, ‘Verjährungsrecht’ in Wendehorst/ZöchlingJud (eds), Am Vorabend eines Gemeinsamen Europäischen Kaufrechts (Manz 2012) 255. 12 On prescription in the DCFR v. Bar/Clive (eds), DCFR Full Edition (Sellier 2009) 1139– 1206.

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Art 178 CESL-D states the rights subject to prescription: Article 178 CESL-D Rights subject to prescription A right to enforce performance of an obligation, and any right ancillary to such a right, is subject to prescription by the expiry of a period of time in accordance with this Chapter.

According to this provision, prescription affects the right to enforce performance and the ‘ancillary’ rights. The latter are not defined14 and thus there is uncertainty as to which rights fall under this notion.15 In any event, ‘ancillary’ will comprise all other claims that are not classified as performance,16 for example, damages, right to payment of interest etc. Art 178 CESL-D does not represent a complete rule as the prescription of other rights can be extracted from art 185 CESL-D on the effects of prescription. 9

Article 185 CESL-D Effects of prescription (1) After expiry of the relevant period of prescription the debtor is entitled to refuse performance of the obligation in question and the creditor loses all remedies for non-performance except withholding performance. (…)

According to this provision, the remedies are lost if performance can be refused because the prescription period has expired. However, a problem exists in respect of the unclear relationship to art 178 CESL-D,17 especially the uncertainty surrounding the scope of the ‘ancillary’ rights18 (particularly formative rights such as termination19 and price reduction20). The European Parliament has attempted to resolve at least some of these uncertainties by proposing amendments to art 178 CESL-D: Amendment 248 Proposal for a regulation Annex I – Article 178

13 The law of prescription in the DCFR follows the proposals in the PECL, see Ernst (n 11) 89. 14 Schmidt-Kessel CESL/Müller art 178 paras 4–5; Schulze CESL/Møgelvang-Hansen art 178 CESL-D para 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. 17 Vaquer/Arroyo (n 15) 56. 18 Schmidt-Kessel CESL/Müller art 178 CESL-D para 4. 19 Zöchling-Jud (n 11) 256. 20 Müller (n 16) 531.

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II. Proposal for Comprehensive European Rules Text proposed by the Commission 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.

Amendment A right to enforce performance of an obligation, and any right ancillary to such a right, including the right to any remedy for non-performance except withholding performance, is subject to prescription by the expiry of a period of time in accordance with this Chapter.

The European Parliament has not proposed an amendment to art 185 CESL-D.21 The need for improvement therefore remains22 as further uncertainties23 exist in respect of the effects of prescription on claim-based remedies (e.g. the right to damages); the right should not be lost in such cases but should instead allow the other party to withhold performance. 10 This lack of clarity is increased by art 185(3) CESL-D: Article 185 CESL-D Effects of prescription (…) (3) The period of prescription for a right to payment of interest, and other rights of an ancillary nature, expires not later than the period for the principal right.

The positioning of this rule is incorrect because it does not concern the effects of prescription but rather the length of the period for ancillary rights. Moreover, it does not consider the general distinction in the CESL between primary and ancillary rights: the right to performance does not represent a ‘primary right’ but is rather only to be qualified as a remedy (see e.g. art 106 CESL-D). The CESL contains two types of prescription periods – the so-called ‘short’ 11 and ‘long’ period of prescription: Article 179 CESL-D Periods of prescription (1) The short period of prescription is two years. (2) The long period of prescription is ten years or, in the case of a right to damages for personal injuries, thirty years.

The short period corresponds with the two-year period provided in the Con- 12 sumer Sales Directive. However, the European Parliament has proposed to shorten the long period of prescription:24 Amendment 249 Proposal for a regulation Annex I – Article 179 – paragraph 2

21 22 23 24

Clarification is also considered necessary by Zöchling-Jud (n 11) 256. See also Stellungnahme des Deutschen Notarvereins (n 8) 31. For criticism of the wording of art 185 CESL-D see also Zöchling-Jud (n 11) 261. A shortening of prescription periods can also be seen at international level, see Ernst (n 11) 89; Zöchling-Jud (n 11) 257.

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Chapter 7 Preclusion and Prescription Text proposed text by the Commission (2) The long period of prescription is ten years or, in the case of a right to damages for personal injuries, thirty years.

Amendment (2) The long period of prescription is six years or, in the case of a right to damages for personal injuries, thirty years.

The decision is purely political and its justification shows the painstaking search for a compromise in order to achieve as much acceptance of the CESL as possible. 13 The distinction between a short and long prescription period is also reflected in the different points at which the respective periods are to begin: Article 180 CESL-D Commencement (1) The short period of prescription begins to run from the time when the creditor has become, or could be expected to have become, aware of the facts as a result of which the right can be exercised. (2) The long period of prescription begins to run from the time when the debtor has to perform or, in the case of a right to damages, from the time of the act which gives rise to the right. (3) Where the debtor is under a continuing obligation to do or refrain from doing something, the creditor is regarded as having a separate right in relation to each non-performance of the obligation.

According to art 180(1) CESL-D, the short period will begin ad scientiae, though the subjective knowledge will be 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 will be subject to objective circumstances (‘has to perform’; art 180(2) CESL-D) and it is thus irrelevant whether the creditor was aware of these circumstances or could be expected to become aware thereof.25 The long period therefore begins from the time performance is due as this represents the starting point for potential claims. 14 Unless the parties have agreed otherwise, the parties' respective claims will be subject to art 95 (buyer) and art 126 CESL-D (seller): Article 95 CESL-D Time of delivery (1) Where the time of delivery cannot be otherwise determined, the goods or the digital content must be delivered without undue delay after the conclusion of the contract. (2) In contracts between a trader and a consumer, unless agreed otherwise by the parties, the trader must deliver the goods or the digital content not later than 30 days from the conclusion of the contract.

25 Schmidt-Kessel CESL/Müller art 180 CESL-D paras 2–3; Schulze CESL/Møgelvang-Hansen art 180 CESL-D para 1; Vaquer/Arroyo (n 15) 48.

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II. Proposal for Comprehensive European Rules Article 126 CESL-D Time of payment (1) Payment of the price is due at the moment of delivery. (2) The seller may reject an offer to pay before payment is due if it has a legitimate interest in so doing.

It is the European Parliament's view that the Commission's proposal is lack- 15 ing a rule that is necessary to determine the relationship between the long and short periods. It has therefore proposed the following:26 Amendment 250 Proposal for a regulation Annex I – Article 179 – paragraph 2 a (new) Text proposed by the Commission

Amendment (2a) Prescription takes effect when either of the two periods has expired, whichever is the earlier.

The end of the period can be modified in various ways. The CESL provides 16 that the period can be suspended (i.e. it does not continue to run during this time and will resume once the circumstances causing suspension cease to exist), postponed (i.e. the period will continue but will end at a later date) or renewed (i.e. the period starts again). Article 181 CESL-D Suspension in case of judicial and other proceedings (1) The running of both periods of prescription is suspended from the time when judicial proceedings to assert the right are begun. (2) Suspension lasts until a final decision has been made, or until the case has been otherwise disposed of. Where the proceedings end within the last six months of the prescription period without a decision on the merits, the period of prescription does not expire before six months have passed after the time when the proceedings ended. (3) Paragraphs 1 and 2 apply, with appropriate adaptations, to arbitration proceedings, to mediation proceedings, to proceedings whereby an issue between two parties is referred to a third party for a binding decision and to all other proceedings initiated with the aim of obtaining a decision relating to the right or to avoid insolvency. (4) Mediation means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the national law. Mediation ends by an agreement of the parties or by declaration of the mediator or one of the parties.

According to this provision, the prescription period will be suspended in in- 17 stances in which the parties initiate formal proceedings to resolve the dispute.27 26 See also ibid 53–54, Vaquer and Arroyo determine that the CESL does not contain a rule outlining which rights and claims are subject to which of the two periods and which is the general period. 27 Schmidt-Kessel CESL/Müller art 181 CESL-D para 2; Schulze CESL/Møgelvang-Hansen art 181 CESL-D paras 1–2.

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These provisions feature an uncertainty as to the extent to which the procedural laws of the Member States are to be considered28 (e.g. if the claim is rejected due to non-payment of fees and, under national law, the failed submission cannot be viewed retrospectively as initiating proceedings). It is rather to be presumed that art 181 CESL-D does not represent an entire rule and that the national procedural rules will influence the moment at which suspension will take effect. 18 Furthermore, the European Parliament has proposed that suspension requires a reason in order to take effect. Force majeure thus comes into consideration as it increases the difficulty of exercising prescribed claims. Amendment 252 Proposal for a regulation Annex I – Article 183 a (new) Text proposed by the Commission

Amendment Article 183a Suspension in cases of force majeure (1) The running of the short period of prescription shall be suspended for the period during which the creditor is prevented from pursuing proceedings to assert the right by an impediment which is beyond the creditor's control and which the creditor could not reasonably have been expected to avoid or overcome. (2) Paragraph 1 shall apply only if the impediment arises, or subsists, within the last six months of the prescription period. (3) Where the duration or nature of the impediment is such that it would be unreasonable to expect the creditor to take proceedings to assert the right within the part of the period of prescription which has still to run after the suspension comes to an end, the period of prescription shall not expire before six months have passed after the impediment was removed.

The European Parliament's justification contains a clear reference to the DCFR and therefore highlights the link between the DCFR and the CESL. Indeed, it cannot be denied that both sets of rules are closely related, especially where the provisions on prescription are concerned. 19 A postponement of the prescription period is foreseen for two entirely different situations. The first is associated with the aforementioned group of dispute resolution methods29; it concerns the necessary30 extension of the prescription period due to the start31 of negotiations between the parties (i.e. the informal attempt to resolve the dispute):32 28 This is rejected by Müller (n 16) 535–536. 29 ibid 539–540. 30 Suspending expiration and the length thereof are assessed in Schmidt-Kessel CESL/Müller art 182 CESL-D para 5. 31 On the starting point for negotiations see Schmidt-Kessel CESL/Müller art 182 CESL-D para 4.

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II. Proposal for Comprehensive European Rules Article 182 CESL-D Postponement of expiry in the case of negotiations If the parties negotiate about the right, or about circumstances from which a claim relating to the right might arise, neither period of prescription expires before one year has passed since the last communication made in the negotiations or since one of the parties communicated to the other that it does not wish to pursue the negotiations.

The second instance of postponement arises due to the need to protect persons 20 lacking legal capacity:33 Article 183 CESL-D Postponement of expiry in case of incapacity If a person subject to an incapacity is without a representative, neither period of prescription of a right held by that person expires before one year has passed since either the incapacity has ended or a representative has been appointed.

The CESL does not contain rules on (in)capacity, therefore art 83 CESL-D 21 can only function in conjunction with the applicable laws of the Member States. However, it will be necessary to determine whether the notion of incapacity under art 183 CESL-D also concerns a person who is of limited capacity according to national law.34 The final approach is renewal. It applies in cases of acknowledgement of 22 debt: Article 184 CESL-D Renewal by acknowledgement If the debtor acknowledges the right vis-à-vis the creditor, by part payment, payment of interest, giving of security, set-off or in any other manner, a new short period of prescription begins to run.

The CESL does not contain any further definition of ‘acknowledgement’ as used in art 184 CESL-D.35 The provision does indeed include 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.36 Art 184 CESL-D rather gives a basis for presumed acknowledgement if the debtor has performed one of the listed acts, though presumed acknowledgement is a notion that could have been expressed more clearly. The renewal of the short period of prescription is a similar example of inappropriate wording, especially in light of the European Parliament's proposed amendment to art 179(2)(a) CESL-D.37 According to this proposal, the prescription period would end when one of the periods (long or short) has expired. A literal inter32 33 34 35 36

Schulze CESL/Møgelvang-Hansen art 182 CESL-D. Müller (n 16) 541. Vaquer/Arroyo (n 15) 43. ibid 54. Müller (n 16) 542.

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pretation of art 184 CESL-D would thus mean that the long period could continue to run in spite of the acknowledgement. As it would be not in the interest of either party, one can therefore presume that acknowledgement refers exclusively to the length of the prescription period. The newly beginning period can thus also end after the long prescription period has expired.

37 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 250.

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Chapter 8 Outlook The legislation and jurisprudence of the 19th and 20th centuries exercised 1 considerable influence on the legal concepts and principles in the law of the Member States. However, almost all of the aspects covered in this book have indicated that European contract law is more innovative in response to the demands of 21st century contracting. These new approaches are not apparent at first glance as they are often only contained in individual legislative provisions. Nonetheless, issues ranging from the pre-contractual information duties to the restitution following withdrawal or termination have defined these aspects even further due to the efforts to not only bring greater coherency to European contract law but also to move away from ‘fragmentation’ by aiming at ‘systemization’. Several innovations are based on suggestions for modern contract law (not 2 just in Europe, but in many parts of the world) stemming from the CISG. However, European contract law has not simply ‘copied’ such models but has exhibited great creativity in developing several of them in light of the social and economic tasks underlying European integration. In so doing they have been applied to entirely new areas of law, most especially in the development of consumer law. The Consumer Sales Directive has adopted the CISG model (such as the concept of conformity and the remedial structure) for consumer law, i.e. for a field not included in the CISG and one which is presently not regulated worldwide but only in individual world ‘regions’. The inclusion of consumer law at European level corresponds to its place in modern contract law – and the development of CISG approaches for consumer law – and to the need to realize the internal market's potential where trade with consumers is concerned. Several directives and the proposed CESL therefore aim at a development that eases crossborder transactions (also with consumers) and allows consumers to partake in the advantages offered by the internal market (and linking market participation with a high level of consumer protection). However, European contract law has not just developed CISG concepts but 3 has also spawned innovative approaches of its own. This does not just include the focus on new regulatory areas and objectives, such as consumer law and the protection of SMEs or (more recently) promoting sustainable consumption, but rather the new perspectives for underlying concepts in contract law. For example, this can be seen with respect to the conclusion of contract as greater attention is given to the various phases of formation (from pre-contractual duties to withdrawal rights) than in traditional contract law. Furthermore, the focus on modern ‘mass contracting’ and its link to standardized formation, content, and performance is particularly characteristic of European contract law. Whereas this feature of modern contract practice is hardly reflected by specific provisions in the CISG, the acquis communautaire has for many years taken account of the actual significance of non-negotiated contracts, which have practically become 285

Chapter 8 Outlook

4

5

6

7

the ‘normal case’ in practice. The Unfair Terms Directive was a decisive step in this direction. The proposed CESL has focused more on this approach and particularly highlights that legal answers to the ‘mass contracting’ phenomenon cannot solely affect consumer law but must also encompass non-negotiated B–B contracts. The rapid development of e-commerce in the 21st century has presented a further challenge for contract law which could not have been considered by either the CISG or the national legislators. The possibility of online trading has caused standardization to reach a new level in contract practice. European contract law, which has for the most part arisen during the time of this ‘electronic revolution’ was (and is) more able than older laws to adapt to these new developments. Accordingly, the initial focus of European contract law was generally not on a traditional face-to-face or written conclusion of contract but rather contained rules for e-commerce, e-signature, and contracts concluded via the internet. The proposed CESL has not been restricted to online contracts. It instead goes much further – as one of the first projects worldwide – by indicating that contract law must consider the new markets for digital content and the necessity of specific provisions for regulating contracts for digital content. The CESL's proposed material scope therefore includes not only the traditional contracts for sales and related services but also contracts for the supply of digital content. Moreover, the CESL has proposed specific provisions which shall integrate the supply of digital content into its system of contract law. The proposed CESL has therefore paved a way for the future development of European contract law whereby academic and legislative proposals will include legal answers to the challenges of the digital age. One will not be able to find these answers in the national framework since the new technologies cannot be contained within national borders. The European Commission has therefore made a first attempt at accommodating the challenges of the digital age in a supranational contract law through more than just ‘targeted’ measures. However, the attempt features a number of shortcomings. This is hardly surprising when one considers that the proposal was drafted in a very short space of time on the basis of earlier research which lacks specific approaches for the supply of digital content. Not only are several of the proposal's details questionable, but a series of structural issues will have to be reconsidered in order to obtain a European contract law corresponding as a whole to the new challenges. For instance, one will have to give greater consideration to whether and how the different forms of supply or use of digital content (including e.g. ‘streaming’) can be included in the traditional distinction between sales and service contracts, or which new categories are necessary and how to determine the relationship between contract and licensing law (and ‘intellectual property’ in general). Furthermore, an extensive analysis will be needed vis-à-vis the consequences of new technical possibilities and new business models resulting from ‘digitalization’. One can ask the question, for example, whether and in any case in which

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manner the ‘internet of things’ requires new rules on contractual obligations and liability, on the relationship to tort law, and perhaps to ‘automatized’ conclusion of contract, also. Similarly, questions may also be linked to ‘share economy’ and the issue of whether the traditional concept of the consumer ensures sufficient protection in relation to online platforms for services which are not provided by businesses. The further development of European contract law in light of these new is- 8 sues and questions may soon form a crucial task for academics, legislators and judges. European law therefore has an advantage over many national laws as the former is a ‘law in progress’ and has not become encased in a long-established system and corresponding codification. It will therefore be easier to integrate the answers to the new challenges of the ‘digital age’ in the process of systematizing European law. The result of this development of future European legislation can at best create a law of contract which combines the efforts at coherency with adequate new solutions for the issues in the digital field. From this perspective the proposed CESL may appear as the result of the 30 9 year development of European contract law but also as a bridge to a new phase in this development. The withdrawal of the proposal by the European Commission bears the risk that all that has been achieved in relation to overarching concepts and a system will be lost. In particular, the sole focus on the ‘digital agenda’ can once again lead to isolated and fragmented rules on one exclusive area instead of considering the coherency of contract law as a whole. The new path would lead back to the old deficiencies and weaknesses in EU law, as has been clearly shown in the discussions on ‘minimum’ and ‘full’ harmonization. However, a new stage in the discussions on European contract law can also – at least in the long term – offer the chance to bring together the experiences and approaches with the requirements of the ‘digital age’ to devise a contract law for the 21st century. What stood out at the end of 20th century still applies in the ‘digital’ 21st century: it would be an anachronism if one internal market and one internet were available to businesses and consumers yet, alongside 28 various national laws, not one common contract law.

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Index Absorption theory – mixed contract 2 39, 71, 74 Acceptance 3 3, 12, 18 ff – conduct 3 22 f, 24 – inertia selling 3 51 – late 3 23a – modified 2 19 – silence 3 23, 45, 49 – unilateral promises 3 42 f Acknowledgement – debt 7 22 Acquis commun 1 21, 3 8 Acquis communautaire 1 16, 21, 58, 2 42, 38f – contract 2 6 – good faith 3 53, 4 23 – innovations 1 56, 2 16, 3 9, 4 8 Acquis Principles 1 3 – conclusion of contract 2 14 ff, 3 21 – control of terms 4 8, 34 ff – development 1 46 ff – dual use 2 141 – Feasibility Study 1 52 – freedom of contract 2 81 f – good faith 2 128 f, 3 53, 83 – inertia selling 2 10 – information duties 3 59, 99 ff, 102 – method 1 47 – non-discrimination 2 148 – non-performance 6 11 – notice 2 23 ff – pre-contractual statements 3 35, 40 – remedies 6 5 – right of withdrawal 3 111 f – scope 1 48 Action Plan 1 49, 51 Actio quanti minoris 6 70 Advertising 3 21, 38 f, 6 3 – conclusion of contract 2 17 – misleading 3 116 AGB-Gesetz 4 5, 13 Barter 2 59 Battle of the forms 2 20 Cause 3 16, 149 Caveat emptor 3 56, 87 CESL – agreement on use 2 104 ff – avoidance of contract 3 119 ff – concept of contract 2 18 ff – Conclusion of contract 3 8 ff

– – – – – – – – –

content 1 55 ff contract 2 6 ff contract types 2 51 ff digital content 2 52 ff, 55 f, 61 ff, 98 Feasibility Study 1 52 fraud 3 119, 133 ff freedom of contract 2 91 ff good faith 2 134 ff, 3 69 ff information duties 2 106 ff, 3 69 ff, 95 ff – interest 6 89 ff – legal basis 1 57 – legislative process 1 57 f – mandatory rules 2 112 ff – mistake 3 118 ff, 128 ff – mixed contract 2 74a ff – non-performance 6 20 ff – notice 3 119 – opt in 2 93 – performance obligations 5 4 – pre-contractual statements 3 36 f – prescription 7 7 ff – private international law 1 57 – related service 2 52 ff, 60 f, 98, 5 9 – remedies 6 6 f – restitution 6 92 ff – right to cure 6 30 ff – rules on interpretation 2 163 ff – sale 2 52 ff, 98 – scope 1 54, 2 51 ff, 63, 75, 77, 95 ff, 3 40 – Standard Information Notice 2 106 ff – structure 1 55 – threat 3 119, 138 f – unfair exploitation 3 119, 140 f – unfair terms 4 9 ff Circumstance – change of 6 27a ff CISG 1 4, 18 f, 44 ff, 56, 6 16, 58, 8 2 – national law 1 19 – opt out 2 93 Codification 1 3, 58 Combination theory – mixed contract 2 71, 74, 75 Commercial agency 1 38, 2 71, 5 3 – contract 2 31 f – definition 2 31 – good faith 2 124 Commercial practices – directive 1 43 – enforcement 3 115 – good faith 2 125

289

Index Commerical agents – protection 2 143 Common core 1 21 Common Frame of Reference 1 49, 51 Common law – estoppel 2 132, 3 72, 79 – good faith 2 122 f, 135, 3 53 Conclusion of contract 3 1 ff, 5 17 – acceptance 3 6, 12, 18 ff – Acquis Principles 3 21 – agreement 3 10 – alternative forms 3 25 ff – CESL 3 8 ff – consent 3 5 – crossing statements 3 25 ff – distance communication 3 28 – electronic 3 3, 30 – form 3 17 – gradual 3 26 f – in absentia 3 28 – inertia selling 3 45 ff – information 3 57 f – information duties 3 30 f – input errors 3 109 ff – intention 3 5 f – invitatio ad offerendum 3 20 f – letter of intent 3 26 – løfteteori 3 43 – notice 3 21, 24 – offer 3 6, 12, 18 ff – pre-contractual 3 5 – pre-contractual statements 3 32 ff – preparatory statements 3 20 – real time communication 3 29 – requirements 3 11 ff – revocation 3 18 f, 22 – right of withdrawal 3 154 ff – silence 3 23, 45, 49 – telephone 3 31 – unilateral promises 3 7, 14, 43 Conduct – contract 3 12, 22 Confidentiality 3 81 Conformity 2 17, 155, 6 15 f – freedom of contract 2 119 – negative quality 2 120 – of performance 5 2 – scope 6 3 – service 5 9 – terminology 6 3 Consensus 2 6 ff, 15 f Consent 3 31, 6 10 – conclusion of contract 3 5 – damages 3 122 ff

290

– defects in 1 56, 2 18, 3 105 ff – e-commerce 3 109 – fraud 3 133 ff – information duties 3 105 – legitimate expectations 3 107 f – mistake 3 128 ff – right of withdrawal 3 105 f, 152 – threat 3 138 f – unfair exploitation 3 140 f Consideration 3 16 – conclusion of contract 3 1 – inertia selling 2 10, 13, 3 50 Consumer – average 3 93 – definition 2 136b, 138 ff – informed 3 62 Consumer credit 1 37 – contract 2 40 f, 77a – right of withdrawal 3 154 Consumer protection 1 37, 2 87a, 88, 136a ff, 151, 4 6a, 5 24, 6 39, 8 2 – asymmetry 3 88, 55 f – dual use 2 137 ff – inertia selling 3 46 – information duties 3 86 ff – mandatory law 2 81, 83 ff, 86 ff, 112 ff – non-mandatory law 2 86 ff – package travel 2 140 – right of withdrawal 3 142 ff Contract – absorption theory 2 39 – acceptance 2 19, 3 3, 6, 12, 18 ff – adaptation of 3 107 f, 6 27a ff – adhesion 4 18 – advertising 2 17 – advisory services 2 43 – agreement 3 10 – ancillary 3 167 f – avoidance of 3 48, 76, 102, 105, 119 ff, 134, 6 10, 69, 92 ff – barter 2 59 – battle of the forms 2 20 – carriage 5 14 f – certainty 3 15 – CESL 2 51 ff – change of circumstances 6 27a ff – CISG 2 19 – commercial agency 2 31 f, 71, 5 3 – concept of 2 1 ff – conclusion 2 14 ff, 3 1 ff – conformity 2 155, 5 2 – consensus 2 6 ff, 15 f, 3 10 – consumer credit 2 40 f, 77a, 3 154 – control of content 2 88 ff – cross-border 1 56, 2 96 f, 6 30, 8 2

Index – – – – – – – – – – – – – –

day-to-day 3 91 DCFR 2 3 ff digital content 2 52 ff distance 3 154 f dual use 2 137 ff electronic 3 3 essentialia negotii 2 60 framework 2 42 freedom of 2 79 ff, 3 2 guarantee 2 46 inertia selling 2 8 ff installment 3 167 intention 2 26, 3 5, 6, 14 interpretation of 2 63, 151 ff, 156 ff, 163 ff – invitatio ad offerendum 3 20 f – language 2 162 – legitimate expectations 2 17 – life assurance 3 154 – mixed 2 39, 53, 67 ff – non-discrimination 2 147, 3 2 – non-negotiated 8 3 – notice 2 22 ff, 3 21, 24 – offer 3 3, 6, 12, 18 ff – off-premises 3 154 f – parties 2 136 ff – party status 2 150 – performance 5 2 ff, 5 – pre-contractual duties 2 17 – pre-contractual statements 3 32 ff – preparatory statements 3 20 – privity 3 39 – related service 1 56, 2 60 f, 5 9 – revocation 3 22, 152 – right of withdrawal 2 17 – sale 2 35 ff, 52 ff, 57 ff, 8 7 – service 2 44 ff, 52 ff, 3 166, 5 9 ff, 8 7 – severable 6 69 – SME 2 99 ff – standardization 1 56, 3 4, 159, 8 3 – sufficiency 3 15 – termination 2 75 – terms 2 17, 115 ff, 4 1 ff – timeshare 2 33 f, 3 154 – typification 2 51 ff – unilateral promises 3 43 – withdrawal period 3 151 Contra proferentem 4 13 f, 16 Co-operation 2 135 – duty 3 56, 71 Copyright – digital content 2 65 f Culpa in contrahendo 3 64 ff, 72, 80, 82, 123

Cure 3 127, 6 9 – CESL 6 30 ff – right to 6 28 ff Customer – protection 2 144 Damage – prevention 5 10 Damages 3 105, 122 ff, 6 6, 7 f, 12, 73a, 74 ff, 7 9, 11 – calculation 6 75, 84 f – causation 6 82 – good faith 3 80 – negative interest 3 124 – nominal 6 78 – requirements 6 76 ff – restitution 6 83 ff DCFR 1 3, 4 8 – contract 2 3 ff – control of terms 4 44 ff – culpa in contrahendo 3 80 – dual use 2 142 – Feasibility Study 1 52 – freedom of contract 2 80 – good faith 2 131 ff, 3 79 ff – inertia selling 2 11 f – information duties 3 99 ff, 102 – interest 6 88 – juridical act 2 3 ff – method 1 50 – mistake 3 113 – mixed contract 2 70 ff – non-discrimination 2 148 – right to cure 6 29 – rules on interpretation 2 156 ff – sales contract 2 37 – scope 1 50 – service contract 2 49 f Delivery 6 17, 28, 7 14 – acceptance of 5 8 – carriage 5 14 f – concept 5 13 – conformity 5 2 – costs 3 164 – excess 5 8a – late 6 56 – non-performance 6 36, 59 – obligation 5 7 ff, 18 f – performance 5 13 ff – refusal 5 8a – risk 5 23 f Digital content 1 56, 3 9, 8 5 – CESL 2 52 ff, 55 f, 61 ff, 98 – cloud computing 2 62 – copyright 2 65 f – definition 2 55 f, 61, 64 291

Index – obligations 5 7 – passing of risk 5 23 Directive 1 16 f, 27, 31 ff, 32 ff, 2 2 – gold plating 1 36 – implementation 1 17, 3 41 – Life Assurance 1 42 – list of consumer related 1 37 ff – list of e-commerce related 1 39 – list of non-discrimination related 1 41 – list of SME related 1 38 – Payment Services 1 40 – Unfair Terms 4 2 ff, 12 ff, 21 ff Dispatch theory – notice 2 27 f Dispute resolution – legislation 1 43 – prescription 7 5, 19 Distance communication 3 28, 155 Distance selling 1 2, 37 – right of withdrawal 3 154 f Doorstep selling 1 37 – right of withdrawal 3 154 f Dualism 1 23 Dual use 2 137 ff – Acquis Principles 2 141 – DCFR 2 142 Dépeçage 2 109 ECHR 1 4, 18 E-Commerce 1 32, 39, 56, 2 23, 3 30, 139, 4 53, 8 4 – information 3 58 Effet utile 3 26, 44 Essentialia negotii 2 60 Estoppel 2 132, 3 72, 79 EU law – approach 1 26 f – coherency 1 3, 44 ff, 8 1, 9 – development 1 23 ff – subsidiarity 2 94 – superiority 1 25 – terminology 1 14 ff, 25 European Coal and Steel Community 1 23 European Court Reports 1 7 Examination 6 9, 43 ff, 67 – duty 6 72 Fair trading – information duties 3 92 ff Feasibility Study – CESL 1 52 f – optional instrument 1 53

292

– sources 1 52 Force majeure 6 13, 7 18 Form 3 17 Formative right 3 150, 6 2, 66, 71, 7 9 Framework contract 2 42 Fraud – avoidance 3 134 – CESL 3 119, 133 ff – information duties 3 77 Freedom of contract 1 30, 2 79 ff, 3 2, 13, 17, 105, 4 34a, 45a, 5 1 – Acquis Principles 2 81 f – CESL 2 91 ff – conformity 2 119 – contract terms 2 88 ff – DCFR 2 80 – mandatory law 2 83 ff – right of withdrawal 3 149 – standard terms 2 117 f Good faith 2 122 ff, 3 52 ff, 62, 67 ff, 5 12, 6 86 – Acquis Principles 2 128 f, 3 53 – breach 3 82, 83 ff – CESL 2 134 ff – commercial agency 2 124 – commercial practices 2 125 – common law 2 122 f, 135, 3 53 – concept 4 27 – contract terms 4 4 – damages 3 80 – DCFR 2 131 ff, 3 79 ff – definition 2 135 – fair dealing 2 123, 133, 135, 3 71 f, 79 ff – Green Paper 2 129 – honest market practice 2 126 – information duties 3 74 ff – interpretation 2 152, 3 78 – performance 5 3 – right of withdrawal 2 127, 3 85, 165 – terms 2 122 ff, 4 33, 42 Goods – characteristics 3 35 – defective 2 120 – specific 5 22 – unascertained 5 22 Guarantee 3 33, 43, 6 43, 46 Harmonization 1 2, 24, 27 ff, 36, 2 85, 4 27 – full 1 34 ff, 51, 3 68, 90, 143, 4 6a ff, 50 f, 7 2, 8 9 – minimum 1 34 ff, 51, 2 87, 3 3, 4 6a ff, 6 62, 7 2 f, 8 9

Index Ignorantia iuris nocet 3 129 Incapacity – prescription 7 20 f INCOTERMS 5 14 Inertia selling 2 8 ff, 3 9 – conclusion of contract 3 3, 45 ff – consequences of 2 10 ff, 3 49 – consideration 2 13 – DCFR 2 11 f – functions 3 46 – requirements 3 47 f Information 3 144 – Acquis Principles 3 59, 99 ff, 102 – asymmetry 3 55 f, 88, 148, 159 – breach 3 29, 60, 101 ff, 160, 164 – CESL 3 95 ff – conclusion of contract 3 30 f – confidentiality 3 81 – DCFR 3 99 ff, 102 – distance communication 3 29 – duties 1 56, 2 106 ff, 8 1 – duty 3 52 ff, 57 ff, 68, 86 ff, 4 53 – duty to warn 3 86 – e-commerce 3 109 f – electronic 3 58, 4 53 – exception 3 91 – fair trading 3 92 ff – financial transactions 3 63 – form 2 30, 3 34 – fraud 3 77 – function 3 89 – good faith 3 74 ff – harmonization 3 90 – language 3 159 – liability 3 64 ff – mistake 3 131 – overload 3 62 – performance 3 94 – pre-contractual 3 86 ff, 88 ff, 92 ff, 95 ff, 99 ff – right of withdrawal 3 101, 103, 159 f – services 3 88, 90 – standardization 3 62, 94 Installation 6 3 Insurance 1 38, 42 Interest 1 2, 6 6, 74 ff, 87 ff, 7 10 – CESL 6 89 ff – DCFR 6 88 – rates 6 89 f Internal market 1 1 f, 5, 28, 32 ff, 33 ff, 36, 44, 3 144, 5 3, 8 2, 9 – mandatory law 2 85 Interpretation 2 63, 7 6 – CESL 2 163 ff

– consumer contracts 2 151 ff, 164 – contract terms 2 151 ff – contra proferentem 4 13 f, 16 – contra stipulatorem 2 158, 162, 164 – DCFR 2 156 ff – favour contractus 2 161, 164 – good faith 2 152, 3 78 – juridical act 2 151 ff – language 2 162 – notice 2 151 ff – terms 4 16 Invitatio ad offerendum 3 20 f – inertia selling 3 47 Ius commun 1 21 Juridical act – concept 2 1 ff – DCFR 2 3 ff – interpretation 2 151 ff, 156 ff Legitimate expectations 2 16, 3 32 ff, 107 f, 129, 5 12, 6 3, 55 – conclusion of contract 2 17 Liability 3 122 ff, 6 12, 26 – compensation for use 3 165, 6 42 – diminished value 3 165 – non-contractual 1 26 – pre-contractual 3 64 ff – strict 6 13 Loss 3 122 – economic 6 78, 82 – foreseeability 6 75, 82, 85 f – future 6 79 – mitigation 6 86 – non-economic 6 78, 81 f, 83a Løfteteori 3 43 Mandatory law 2 87a, 3 144, 5 1, 24, 6 42 – CESL 2 112 ff – consumer protection 2 81, 83 ff, 86 ff, 112 ff – definition 2 114 – freedom of contract 2 83 ff Mass contracts 2 19, 101, 3 4, 74, 106, 113, 139, 4 39, 8 3 – conclusion of contract 2 17 Mirror image rule 2 19 Mistake – advertising 3 116 – causation 3 130 – CESL 3 118 ff, 128 ff – consequences 3 118 ff – DCFR 3 113 – e-commerce 3 109 f – inertia selling 3 48 – information 3 131 293

Index – mutual 3 132 – third party 3 137 – unfair commercial practices 3 114 ff Mixed contract 2 53, 67 ff – absorption theory 2 39, 71 – CESL 2 74a ff – combination theory 2 71, 75 – DCFR 2 70 ff – termination 2 75 Monism 1 23 Non-discrimination 1 31 ff, 2 145 ff, 3 2 – Acquis Principles 2 148 – DCFR 2 148 – directives 1 41 Non-mandatory law 2 87a, 4 14, 5 1, 24 – consumer protection 2 86 ff Non-performance 6 6, 28, 36 – Acquis Principles 6 11 – anticipated 6 69 – CESL 6 20 ff – cure 3 127 – definition 6 11 ff – delivery 6 36, 59 – excused 6 6, 9, 24 ff, 72, 75, 77 – fundamental 5 5, 6 6, 20 ff, 23, 36, 54 ff – installation 5 9 – intentional 6 85 f – non-acceptance 5 8 Notice 3 21, 24, 6 66, 71 – Acquis Principles 2 23 ff – avoidance 3 119 f – concept 2 26 – contract 2 22 ff – dispatch theory 2 27 f – effective 2 27 – electronic 2 23, 29 f – interpretation 2 151 ff – receipt theory 2 25, 27 – right of withdrawal 3 157 Notification 6 9, 43 ff, 67 – duty 6 72 nullité absolue 3 121 Obligation – after withdrawal 3 164 – conformity 5 2 – delivery 5 2 f, 7 ff, 13 ff, 18 f, 6 28 – examination 6 9, 43 ff – notification 6 9, 43 ff – payment 2 59, 5 7, 11, 16 ff – performance 5 1 ff – pre-contractual 3 52 ff

294

Obligations 3 32 – breach 6 1 ff – main 5 5 – performance 3 151 Offer 3 3, 12, 18 ff – definition 3 19 – inertia selling 3 47 – invitatio ad offerendum 3 20 – rejection 3 18, 23a – revocation 3 18 f, 22 Official Journal 1 7 Optional instrument 1 53, 2 63 Package Travel 1 37, 3 32, 38 f – consumer 2 140 Pacta sunt servanda 3 142, 144 Pandectism 2 2, 22, 7 7 Passenger rights 1 2, 28, 6 19 Pavia Draft 1 45 Payment 6 38, 7 14 – deferred 2 41 – interest 6 74 ff, 87 ff – late 1 38, 4 32 ff, 6 87 ff – obligation 2 59, 5 7, 11, 16 ff, 6 90 – reimbursement 3 164 – services 1 40 – time of 5 20 PECL 1 13 – conclusion of contract 3 7 – Feasibility Study 1 52 – structure 1 44 Performance 2 17, 61 – additional period 5 18, 6 18, 28, 48, 54, 64 – breach 6 1 ff – by third party 5 6 – change of circumstances 6 27a ff – conformity 5 2 – delivery 6 28 – good faith 5 3 – illegal 6 40 – impossible 6 40 – inertia selling 3 48 – late 6 12, 18 – manner of 5 12 – obligation 5 1 ff – place 5 12 ff, 13 – remedy 5 1, 6 4, 6 f, 21, 28, 33 ff, 47, 48 – right of withdrawal 3 151 – standardization 3 62, 94, 8 3 – subsequent 6 41 ff – time of 5 12, 18 ff, 6 90 – withholding 6 7 f, 29, 48, 50 ff, 53, 7 6, 9

Index Preclusion 6 45 – right of withdrawal 7 1 Pre-contractual statements 3 32 ff – CESL 3 36 f – third parties 3 38 ff Prescription 1 56, 7 3 – CESL 7 7 ff – dispute resolution 7 19 – effects 7 9 – incapacity 7 20 f – long period 7 11 ff, 15 – short period 7 11 ff, 15 f Price – definition of 2 58 Price reduction 6 7 f, 48, 50, 70, 7 9 – calculation 6 73 – exclusion 6 72 – notice 6 71 – requirements 6 72 Primary law 1 16, 29 ff – CESL 1 57 – conclusion of contract 3 2 – non-discrimination 2 146 – services 2 45 Private international law 1 2, 28, 2 93 – CESL 1 57 Product liability 2 140 Profits – lost 6 80 Proof – burden of 6 23 Real time communication 3 29 Receipt theory – notice 2 25, 27 Redress 2 86 f Regulation 1 16 f, 28 – implementation 1 17 Remedies – Acquis Principles 6 5 – avoidance 3 48, 76, 102, 105, 119 ff, 134 – CESL 6 6 f – choice 3 126 – cumulation 6 8, 50, 73a – Damages 3 122 ff, 6 7 f, 74 ff, 7 9, 11 – exclusion 6 39 – hierarchy 6 4, 9, 48, 57, 62 – non-performance 5 8, 6 1 ff – performance 5 1, 6 4, 7 f, 21, 28, 33 ff, 47, 48 – price reduction 6 7 f, 48 f, 70, 7 9 – proportionality 6 40 – repair 6 7

– – – – –

replacement 6 7 requirements 6 38 rescission 6 4, 28 selection 6 47 termination 3 48, 5 1, 18, 6 2, 4, 7 f, 10, 18, 22, 27a ff, 28, 48, 50, 53 ff, 7 9 – withholding performance 6 7 f, 29, 50 ff, 53, 7 6, 9 Restitutio in integrem 6 83 Restitution 6 42, 69, 91 ff – CESL 6 92 ff – damages 6 83 ff – right of withdrawal 3 161 Right of withdrawal 3 48, 142 ff, 7 6 – ancillary contract 3 167 f – compensation for use 3 165 – diminished value 3 165 – effect 3 161 ff, 162 f – exceptions 3 156, 166 – exercise 3 151, 157, 168 – extension 3 160, 7 1 – freedom of contract 3 149 – function 3 144, 147 – good faith 2 127, 3 85, 165 – information 2 30 – information duties 3 101, 103, 159 f – notice 2 27 f – period 3 151, 157 f – preclusion 7 1 – scope 1 2, 3 154 ff – service contract 3 166 – structure 3 146, 150 – terminology 3 145 Risk – carrier 5 24 – consumer contract 5 23 – passing 5 21 ff, 6 52 Risks – foreseeability 5 9 Sale – CESL 2 52 ff, 98 – contract 2 57 ff, 8 7 – copyright 2 65 f – definition 2 35 ff, 54, 57 ff Secondary law 1 29, 32 ff – directive 1 15 f – regulation 1 16 f, 28 Service – advisory 2 43 – CESL 2 52 ff – conformity 5 9 – contract 2 44 ff, 5 9 ff, 8 7 – DCFR 2 49 f – definition of 2 45, 48 ff

295

Index – delivery 2 77 – directive 1 43 – financial 1 37 – installation 5 9 – maintenance 5 9 – obligation 5 9 – related 1 56, 2 52, 54, 60 f, 98, 5 9 – repair 5 9 – retail 2 45 – right of withdrawal 3 166 – scope 2 46 f SME 8 3 – contract 2 99 ff – definition 2 99 Standard Information Notice 2 106 ff Substitute transaction 6 75, 83a f, 85a Termination 3 48, 151, 5 1, 18, 6 2, 4, 7 f, 10, 18, 22, 27a ff, 28, 48, 50, 53 ff, 7 9 – ancillary contract 3 167 f – consequences 6 68 ff – mixed contract 2 75 – notice 6 66 – requirements 6 59 – restitution 6 91 ff – right of withdrawal 3 151, 162 f Terms 3 15 – Acquis Principles 4 8, 34 ff – black list 4 6, 10, 25, 43, 48, 51, 57 – CESL 4 9 ff, 52 ff – contract 4 1 ff – control 2 88 ff, 4 3 ff, 34 ff, 44, 52 ff – DCFR 4 8, 44 – development in case law 4 25 ff – English law 4 19 – freedom of contract 2 88 ff – French law 4 18 – general clause 4 3 ff, 10, 13 ff, 22 ff, 41, 55 – German law 4 5, 13 ff – good faith 2 122 ff, 4 4, 25 ff, 27 ff, 33, 42

296

– – – – – – –

grey list 4 6, 10, 22 ff, 43, 48, 51, 57 harmonization of control 4 6a ff interpretation 2 151 ff, 4 13, 16 jurisdiction 4 26, 31 legislative reform 4 49 ff negotiated 4 6 non-negotiated 1 56, 2 88 ff, 115 ff, 117 f, 154, 159, 4 3, 9, 37 ff, 50, 52, 54, 8 3 – payment 4 32 ff – Scandinavian law 4 20 – single use 2 89, 151, 4 18, 21, 35, 39, 54 – standard 1 56, 2 20, 89, 117 f, 3 4, 18, 4 5, 9, 13 ff, 18, 35, 37 ff, 39, 46 f, 8 3 – transparency 2 151 ff, 4 44 ff, 52, 54 – unfair 1 32, 2 115 ff, 4 1 ff, 6, 9 ff, 21 ff Third party – fault 6 13 – mistake 3 137 – payment 5 17 – performance 5 6 – statements 3 38 ff, 107 Threat – CESL 3 119, 138 f Timeshare 1 37 – contract 2 33 f – definition 2 33 – right of withdrawal 3 154 Transparency – contract terms 2 151 ff, 4 44 ff, 52, 54 Unfair exploitation – CESL 3 119, 140 f Unilateral promises 3 7, 9, 14 – binding effect 3 42 f – guarantees 3 43 – løfteteori 3 43 von Jhering, Rudolf 3 64 f