EU countries are ensuring that effective means exist under national law to enforce consumer rights and to prevent the use of unfair terms in all types of business-to-consumer contracts. In order to facilitate the application of Council Directive 93/13/EEC on Unfair Contract Terms in Consumer Contracts (UCTD), on the 22nd July 2019, the European Commission adopted a Guidance Notice on the interpretation and application of the Directive which presents case law of the Court of Justice of the European Union on the interpretation which the Court has provided on the key concepts of the UCTD. In this way, there is an increase in awareness of this case law amongst all interested parties, such as consumers, businesses, Member States authorities, including national courts, and legal practitioners, across the EU, and, thereby, its application is facilitated in practice.
The Guidance is divided into six sections dealing with the following matters;
Section 1 covers interpretation of objectives and the scope of the Directive, including interpretation of notions such as “consumer”, “seller” or “supplier” as well as interplay of the Directive with other European Union law and application of the Directive to traders from third countries. The Court has repeatedly qualified protection under the UCTD as a matter of ’public interest’ having a double-objective; (i) the effective protection of consumers as the weaker party against unfair contract terms which are used by sellers or suppliers and have not been individually negotiated, and (ii) contributing to the establishment of the Internal Market through the minimum harmonisation of the national rules aiming at this protection. Contract terms which reflect mandatory statutory or regulatory provisions are not subject to the provisions of the UCTD. Additionally, whether the UCTD is applicable to a contract concluded between a consumer resident in an EU Member State and a non-EU or non-EEA seller or supplier is to be determined by Regulation (EC) No 593/2008 (Rome I).
Section 2 concerns the principle of minimum harmonization and relationship with national law. Member States may ensure a higher level of consumer protection than the one provided for by the UCTD. In effect, Maltese national law has broadened the scope of the unfairness assessment to individually negotiated contract terms and to the adequacy of the price or remuneration, regardless of whether such terms are in plain, intelligible language.
Section 3 deals with the general unfairness test and transparency requirements. Contract terms are to be regarded as unfair if they are contrary to the requirements of good faith and they cause a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. Nonetheless, the general test must be applied by Member State authorities on a case-by-case basis. In addition, a non-exhaustive list of contract terms which may be regarded as unfair is provided for in an Annex to the UCTD. Maltese national law contains a list of standard contract terms that may be unfair which lists some additional terms compared to the Annex. The transparency requirements reiterate that individually negotiated contract terms cannot be used by sellers or suppliers; consumers must be given the real opportunity to become acquainted with contract terms before the conclusion of the contract. Terms that are not drafted in plain, intelligible language have to be interpreted in favour of the consumer. The main subject matter or the adequacy of the price and remuneration set out in the contract are subject to an assessment only insofar as such terms are not in plain intelligible language and failure to meet the transparency requirements can ultimately indicate unfairness.
Section 4 in fact caters for the mandatory rule of the non-binding character of unfair contract terms and about legal effects of the unfair term not being binding for a consumer. Through this mandatory rule, the UCTD aims to tackle this inequality and create an effective balance between the parties to the contract. The imperative character also implies that consumers cannot waive this protection. The Court has emphasized that an unfair contractual term must be regarded as never having existed. The contract shall be ineffective only to the extent of the invalidity, without affecting or impairing the validity and enforceability of the remaining of the provision or the remaining provisions of the contract.
Section 5 concerns remedies and procedural guarantees. Court has established that, insofar as the Member States’ rules of procedure affect the application of rights laid down in EU law, such rules have to comply with the principles of equivalence and effectiveness – Member State rules must not be less favourable than those governing similar domestic actions nor render virtually impossible or excessively difficult the exercise of rights conferred by Community law. National courts are also under an obligation to assess unfair contract terms of their own motion. This compensates for the weaker position of consumers, who may not be aware of their rights and may, therefore, not raise the unfairness of contract terms.
Section 6 finally deals with injunctions in the collective interest of consumers. In contrast to an individual action which entails a specific examination of the contract term in the light of the particular circumstances of the case; a collective action for an injunction aims at the abstract, general assessment of whether a contract term is unfair. Contract terms which are declared unfair in an action for an injunction are neither binding on the consumers who are parties to the action nor on those who have concluded with the same seller or supplier a contract to which the same terms apply. A term deemed to be unfair in such a procedure is then considered to be unfair also in all future contracts between that trader and consumers.
European business organisations have drawn up recommendations on how mandatory consumer information as well as terms and conditions can be presented to consumers in a more user-friendly and transparent way. It is however ultimately up to the Member States to comply with the UCTD in their rules and practices and to examine how compliance can be improved in order to protect consumers against unfair contract terms.
Article written by Dr Maria Attard.
For more information, please contact Dr Ivan Gatt on igatt@gtgadvocates.com Dr Cynthia Borg Barthet on cborgbarthet@gtgadvocates.com and Dr Maria Attard on mattard@gtgadvocate.com
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.