A Common Approach to the Enforcement of Unfair Commercial Practices and Unfair Contract Terms

^[1]

Hans-W. Micklitz

Breaking Boxes - A Common Approach?

On 15 March 2012 (C-453/10 Perenicovaf and 26 April 2012 (C-472/10 Invitelf the ECJ reached two important decisions with regard not only to the relation of the law on unfair contract terms and the law on unfair commercial practices, but also to the interplay between individual and collective law enforcement. This leads to fundamental considerations about the relationship between the law on unfair contract terms, unfair commercial practices and individual/collective enforcement. The overall hypothesis I would like to defend is that we might see the emergence of a common approach to two areas of law which are normally regarded as being separate and guided by different philosophies.

I will develop my arguments in four steps. I will first explain what I mean by breaking boxes, by overcoming the invisible boundaries between unfair commercial practices and unfair terms. Therefore I will contrast the old thinking found in the old Member States with the new thinking in the new Member States. The starting point for a new approach is laid down in the two judgments of the ECJ, Perenicova and Invitel. These two judgments then serve as a starting point to look into the interplay of the two fields of law, in substance and in enforcement, individually and collectively. Here the questions are formulated which require an answer for the development of a common approach (II). The matter is complex: two fields of law, different ways of enforcement, individually and collectively and no, or a very limited link between individual and collective enforcement. Relatively easy to grasp is the approximation of the substance of unfair terms and unfair commercial practices. The two judgments are used to pave the way for a much stronger and more systematic interplay of the substance of the two fields (III). Enforcement, however, has to be broken down into different steps in order to be able to combine the joint substance with the paradigm of individual and collective enforcement. Invitel sets the tone for a new reading of collective redress under the unfair terms directive. The ECJ paves the way for linking the effects of an action for injunction to individual redress (IV). In unfair commercial practices the biggest gap is to be found in the lack of appropriate individual redress. Here combining Directive 2005/29/EC on commercial practices with the Constitutional Charter enhances the conclusion that consumers must have the opportunity to get out of a contract which is the result of unfair or misleading commercial practices (V). In a last step I will then transfer the new reading of collective redress in unfair terms to the field of commercial practices, thereby linking substance and procedure, individual and collective redress in the two fields and between the two fields (VI). The envisaged 'common approach' might still need a number of further preliminary references to the ECJ but the Court is definitely on course to introduce a new way of thinking about the relationship between unfair terms and unfair commercial practices legislation (VII).

The Rise and Decline of German Law as a Blueprint for European Action

This is not an article on German law. However, German law played a central role in the Europeanization of these two fields of law, and that is why it is necessary throughout the paper to refer to German law which is paradigmatic for the old type of thinking. The German Act on General Terms and Conditions of Trade (AGBG) of 1976 provided a model law for the adoption of Directive 93/13/EEC on Unfair Terms in Consumer Contracts. The German Unfair Competition Act (UWG) smoothed the way for the drawing up of Directive 84/450/EEC on Misleading Advertising. In the meantime, the latter has been amended by Directive 2005/29/EC concerning unfair business-to-consumer (B2C) commercial practices and Directive 2006/114/ EC regarding misleading business-to-business (B2B) advertisement. Seen against the series of unfair terms legislation which were adopted in the 1970s and 1980s, Directive 93/13 did not provide many new insights, perhaps with the exception of the introduction of an action for injunction as a means of collective redress. In contrast, differences with the legal systems of the Member States' law on unfair commercial practices came to light at an early stage. Already Directive 97/55/EC, which legalized comparative advertising, did not correspond to harmony-seeking industrial operators that refrain from using comparative advertising as a means to enhance competition. Such an attitude is widespread in the legal orders of continental Member States. More than ever this holds true for Directive 2005/29/EC which contradicted established preconceptions both with regard to the differentiation of B2B and B2C situations and with a view to its substantive arrangements. It suffices to recall the information paradigm and the key role of blacklists in the UCPD in which the blanket clause plays a subsidiary role only.^[2]

Gradually the German legal system lost its influence over EU law making, last but not least its insistence on collective private enforcement by trade and consumer associations. Entrusting enforcement to private associations might have represented an adequate response to the German economy of the late nineteenth and the first half of the twentieth century, with its huge number of small and medium-sized firms, when market transactions were bound to the national territory.^[3] However, the system of private collective law enforcement does not meet the requirements of the European Internal Market. The prerogative to take action has been undertaken by others, by public enforcement bodies in particular, whose introduction has been promoted by the European Union via Regulation 2006/2004/EC and who fulfil their tasks in an innovative way. Their approach does not necessarily comply with an understanding of contract law, and unfair terms and commercial practices law premised on the notion that they are two autonomous fields of law that have to be precisely separated, not only with regard to substance - contract vs. advertising - but also with regard to the shaping of the appropriate enforcement mechanisms. Administrative enforcement is very much guided by the search for pragmatic solutions beyond the neat boundaries of substantive or procedural legal categories.^[4]

The separation between contract law and unfair commercial practices is set in stone in Article 3(2) of Directive 2005/29/EC: 'This Directive is without prejudice to contract law and, in particular, to the rules on the validity, formation or effect of a contract.' However, I will argue throughout the text that exactly this distinction is gradually vanishing away. In my opinion these new tendencies should be studied carefully and welcomed as a chance to break with the error of thinking in traditional categories and to embark, without fear or prejudice, upon the feasibility of a common approach, one which unites both fields of law in substance and in their enforcement. The two judgments under discussion herein push us back to a debate which took place in the 1970s when the Nordic countries were introducing consumer protection legislation which was hard to reconcile with the tendency to think in established legal categories.

Old Thinking - Old Member States - vs. New Thinking - New Member States?

It seems somewhat ironic that crucial improvements are promoted through the Europeanization of the law on unfair contract terms, which is putatively so similar to German law. The submissions were provided by a Slovenian and a Hungarian court. AG Trstenjak comes from Slovenia and the reporting judge in both procedures at the ECJ was the former president of the Polish constitutional court,

Marek Safjan. This strong Central and Eastern European dimension has to be emphasized, though obviously not to give way to some kind of conspiracy theory. This note rather serves the purpose of making private lawyers from the old Member States realize that legal rules are not only exported, but must also be developed in the exporting country and finally may even be re-exported or re-imported to the country of origin - according to one's perspective. Beyond national private law this understanding is common knowledge, especially with regard to international commercial law.^[5] The discussion on the creation of a European Civil Code, enshrined in the Draft Common Frame of Reference, subsequently condensed in the Draft Regulation on a Common European Sales Law, was again dominated by the 'old' Member States, as if legal export is the only way of communication. The DCFR proved a disappointing choice in view of all the efforts of the 'new' Member States, which joined the European Union after 2004, to include their private law systems. The rising number of submissions by Central and Eastern European civil courts reveals quite to the contrary that the new Member States are ready to play a more active role in the implementation of Directives. The two references fit very well into such an understanding. The competent institutions in the new Member States, legislatures, agencies or courts, take hold of EU rules and interpret them according to their own comprehension, which might still be influenced by socialist reasoning. This proves to be particularly true with regard to the strong instrumentalization of private law,^[6] in which European private law and socialist civil law find harmony in a strange and remarkable way. Thus there is an undercurrent in the idea of a common approach which deserves further scrutiny. However, such investigation is beyond the scope of this chapter.

• [1] This paper has been written in the context of the ERC grant on European Regulatory Private Law. A first version, focusing on the two judgments of the ECJ, has been published under the joint authorship of Hans-W Micklitz and Norbert Reich in Europäische Zeitschrift für Wirtschaftsrecht, EuZW 2012, 257.
• [2] Consistent practice since VTB, Joined Cases C-261 + 299/07 VTB et al. v Total et al. Slg. 2009 , I-2949, confirmed by C-140/08 Mediaprint v 'Österreich' Zeitungsverlag, ECR 2010 I-nyr.
• [3] See the doctoral thesis (PhD), often overlooked in Germany, of A Bakardjieva, 'Fair Trading in Flux', University of Stockholm 2005.
• [4] Ch Hodges, The Reform of Class and Representative Actions in European Legal Systems, A New Framework for Collective Redress in Europe, 2009.
• [5] R Knieper, 'Möglichkeiten und Grenzen der Verpflanzbarkeit von Recht. Juristische Zusammenarbeit aus der Sicht eines Beraters' (2008) 72 RabelsZ 88-113.
• [6] Ch Schmid, 'The Instrumentalist Conception of the Acquis Communautaire in Consumer Law and its Implications on a European Contract Law Code' (2005) 1 European Review of Contract Law 211-227; updated in: Stephan Grundmann and Martin Schauer (eds), The Architecture of European Codes and Contract Law (Kluwer Law International, 2006) 255-267; in a more developed version in Die Instrumentalisierung des Privatrechts durch die Europäische Union, 2010.