EU Law Blog

Consumer Guarantees, Defective Goods and Compensation for Use: Case C-404/06

The Court of Justice held in Case C-404/06 Quelle AG v Bundesverband der Verbraucherzentralen und Verbraucherverbände, that Directive 1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees precludes 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.

The story goes like this. Quelle, a German mail order company, sold and delivered a ‘stove-set’ to a German consumer. But the goods were defective and since repair was not possible, the consumer returned the appliance to Quelle, who replaced it with a new appliance. However, Quelle required her to pay €69.97 (US$109.76) as compensation for the benefit which she had obtained from use of the appliance initially delivered. The Bundesverband, a consumers’ association acting as the consumer’s authorized representative, claimed a refund to her of that amount.

The German court before which the claim was brought referred a question to the Court of Justice question whether the provisions of Directive 1999/44/EC preclude an obligation on the consumer to compensate the seller of goods which are not in conformity.

The Court held that they did preclude such an obligatory payment for the use of the defective goods.

The Court stated that according to the Directive, the seller is to be liable to the consumer for any lack of conformity in the goods at the time when they are delivered. Where goods are not in conformity, the consumer is entitled to require the seller to repair the goods or to replace them – in either case free of charge – unless that is impossible or disproportionate.

It found that if a seller delivers goods which are not in conformity, it has failed to perform correctly the obligation which it accepted in the contract of sale – unlike the consumer, who has already paid the selling price – and must therefore bear the consequences of that faulty performance. It pointed out, however, the seller’s financial interests are protected by the two-year time-limit for repair or replacement and by the fact that it may refuse to replace the goods where that remedy would be disproportionate in that it would impose unreasonable costs on the seller.

During the course of the proceedings, the German government referred to a statement made in the minutes of the Council prior to the adoption of Directive 1999/44/EC giving a restrictive interpretation to the meaning of "free of charge". The Court disregarded it and recalled its settled case-law that, where a statement recorded in Council minutes is not referred to in the wording of a provision of secondary legislation, it cannot be used for the purpose of interpreting that provision (see, inter alia, Case C‑292/89 Antonissen, paragraph 18, and Case C‑402/03 Skov and Bilka, paragraph 42).

Civil Society Involvement: Stakeholder Dialogue Group for Health and Consumer Protection

The Commission has created a "Stakeholder dialogue group" for public health and consumer protection.

The creation of this group is part of the practical implementation of the Commission's desire to raise further the quality of its consultations, as set out in its Communication COM(2007) 127 final, as well as its White Paper on European Governance.

The role of the new group will not be to discuss Commission policy initiatives but to advise the Commission on how to improve the stakeholder consultation process required by Protocol (N° 30) on subsidiarity and proportionality (1997).

So, if we've understood correctly, the Commission will consult it on how to consult others....

Mobile phone roaming charges: Regulation 717/2007

Anyone using a cell phone in Europe will rapidly become aware of the poor quality of service and the extraordinarily high cost of making (or receiving) a call from one member State to another.

So, to "remedy" the situation, the European Parliament and the Council have adopted Regulation 717/2007 to regulate the cost of roaming calls, that is calls made from one member State to another. It sets up what is known as the "Eurotariff" which is a sort of maximum charge.

We'll see if this old fashioned piece of price regulation does any good. Or perhaps the quality of service will plummet still further.

Air travel in Europe: Passenger rights & Regulation 261/2004

Anyone who has attempted air travel in Europe has confronted with capricious and unreliable airlines. They just love overbooking or canceling flights at the last moment....

The problem was so bad that measures had to be taken and a regulation - Regulation 261/2004 - was adopted obliging the airlines to inform passengers of their rights and to provide compensation. Actually, that Regulation replaced an earlier one from 1991.

But guess what ? No-one seems to comply with the Regulation much. At least that what transpires from a recent Communication (Com (2007) 168) and a Commission Working Paper (SEC (2007) 426).

Now, if only the issue of lost or stolen luggage had been addressed....

Spam report

The Commission has published this report on spam, spyware and malicious software.

The Commission proudly announces that it will "continue [its] efforts in raising awareness and fostering cooperation between stakeholders". More interestingly, it also announces the introduction of new legislation sometime in 2007 requiring internet service providers to notify their customers of any breach of security leading to the loss, modification, access or destruction of personal customer data.

Arbitration, consumer contracts and public policy: Case C-168/05

The Court has dealt a blow to arbitration in consumer disputes.

In Case C-168/05 Mostaza Claro v. Centro Móvil the Court of Justice held that a national court seised of an action for the annulment of an arbitration award must determine whether the arbitration agreement is void and annul the award where the arbitration agreement contains an unfair term even when the consumer has not raised the issue of unfairness in the arbitration proceedings but only in the action for annulment.

What happened was this. Ms. Mostaza Claro subscribed to a mobile phone plan with an operator called Centro Móvil. The contract contained an arbitration clause under which any disputes arising from the contract were to be referred for arbitration. The contract also stipulated a minimum subscription period. But Ms. Mostaza Claro didn't comply with that minimum period so Centro Móvil started arbitration proceedings against her (before the AEADE in Spain). She did not claim the arbitration agreement was void and she lost on the substance. Then Ms. Mostaza Claro contested the arbitral award before a Spanish court submitting that the unfair nature of the arbitration clause meant that the arbitration agreement was null and void.

The problem is that Article 3(1) of Council Directive 93/13/EEC of April 5th, 1993 on unfair terms in consumer contracts provides:

‘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 annex to the Directive contains an indicative list of unfair terms. Among them, point 1(q) of that annex refers to terms which have the object or effect of ‘excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.’ If a term is unfair, it shall not be binding on the consumer.

So was Ms. Mostaza Claro bound by the arbitration agreement ? No. The Court held that the non binding nature of the unfair clause was mandatory, provided that the national court determined itself that the clause was actually unfair (Case C-237/02 Freiburger Kommunalbauten GmbH Baugesellschaft & Co. KG v. Ludger Hofstetter and Ulrike Hofstetter, paragraph 25). But she did not contest the validity of the arbitration agreement during the course of the arbitration. Was she then precluded from raising the invalidity of the arbitration clause in subsequent judicial proceedings she brought to annul the arbitral award ? Again, the Court answered no. It found that Spanish law did not require the consumer to contest the arbitration proceedings during those proceedings in order to have the award set aside for being contrary to public policy. The Court recalled that where its domestic rules of procedure require a national court to grant an application for annulment of an arbitration award where such an application is founded on failure to observe national rules of public policy, national law must also grant such an application where it is founded on failure to comply with Community rules of this type (see Case C-126/97 Eco Swiss, paragraph 37).

The Court concluded that the nature and importance of the public interest underlying the protection which Directive 93/13/EEC confers on consumers justify the national court being required to assess of its own motion whether a contractual term is unfair, compensating in this way for the imbalance which exists between the consumer and the seller or supplier.