CJEU: companies cannot mislead consumers under their 'freedom of expression' (C-157/14)

In its Judgment of 17 December 2015 in Neptune Distribution, C-157/14, EU:C:2015:823, the Court of Justice of the European Union (CJEU) addressed whether companies making potentially misleading claims about their products could be protected under a right to 'freedom of expression and information'. In short, the CJEU assessed whether companies could issue commercial statements apt to mislead consumers and still be protected under that type of 'corporate human right'. 

This is a global issue, and the relevance of this problem has been picked by mainstream media, such as John Oliver's piece on an episode of HBO's Last Week Tonight in 2014. Interestingly, the CJEU ended up rejecting the idea of affording protection to companies that potentially mislead consumers in breach of EU foodstuffs law, but only after assessing their claims under a strict proportionality test. Its reasoning, which falls quite short from resolving the issue once and for all, deserves some analysis.

In Neptune Distribution, the contested claims concerned the presentation of carbonated water as low or very low in salt or in sodium in a manner contrary to Art 9(1), 9(2) and Annex III of Directive 2009/54 on the exploitation and marketing of natural mineral waters, when read together with the annex to Regulation No 1924/2006 on nutrition and health claims made on foods. The main issue was that, in the way they were advertised (eg per comparison to milk, or by establishing claims as to the different effects of sodium chloride and sodium bicarbonate), the mineral water products sold by Neptune could be perceived by consumers as '(very) low salt/sodium' despite actually (significantly) exceeding the the limits for the amounts of sodium or the equivalent value for salt laid down by the relevant EU legislation.

Remarkably, Neptune claimed that its marketing statements were protected by freedom of expression and information under Art 11 of the Charter of Fundamental Rights of the EU and corresponding rules under the European Convention on Human Rights (ECHR, Art 10). The CJEU does not disagree with this general approach. The CJEU indeed recognises that there is significant scope for protection of corporate claims, including marketing claims, under their right to freedom of expression and information. As the CJEU stresses, the freedom of expression and information enshrined in Art 11 of the Charter 'applies, inter alia, as is clear from the case-law of the European Court of Human Rights, to the circulation by an entrepreneur of commercial information in particular in the form of an advertising slogan' (para 64). 

Therefore, Art 11 Charter protection can be claimed in relation to 'the use by a business, on packaging, labels and in advertising for natural mineral waters, of claims and indications referring to the sodium or salt content of such waters' (para 65). This results in the fact that '[t]he prohibition on the displaying on the packaging, labels and in the advertising for natural mineral waters of any claim or indication referring to the fact that such waters have a low sodium content which may mislead the consumer as to that content is an interference with the freedom of expression and information of the person carrying on that business and with his freedom to conduct that business' (para 67, emphasis added). 

Even if technically correct de lege data, I find this approach criticisable in itself because it recognises a type of strong 'corporate human right' to freedom of expression and information that seems unwarranted in view of the extremely weak (if not inexistent) link between the development of commercial activities and the exercise of (properly understood) civil and political liberties [see  the main arguments in A Sanchez-Graells and F Marcos, "'Human Rights' Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?", in P Nihoul and T Skoczny (eds), Procedural Fairness in Competition Proceedings (Cheltenham, Edward Elgar, 2015) 84-107]. 

However, in a line of argument that clearly restricts the general approach outline above, the CJEU also recognises that such interference with corporate freedom of expression can be compatible with the applicable rules under the Charter and the ECHR if it serves a valid social purpose, not least because 'the freedom to conduct a business ... must be considered in relation to its social function' (para 66). In that regard, the CJEU considers that 'While those freedoms may nevertheless be limited, any limitation on their exercise must ... be provided for by law and respect the essence of those rights and freedoms. Furthermore ... subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the European Union or the need to protect the rights and freedoms of others' (para 68).

In the assessment of the proportionality of the measure restricting Neptune's right to make any claims whatsoever about its products, the CJEU focusses on three aspects. First, that the restriction is created by law. Second, that 'the freedom of expression and information of the person carrying on the business is not affected by those provisions, since they merely make the information which may be communicated to the consumer regarding the sodium or salt content of natural mineral waters subject to certain conditions' (para 70). And, third, that 'far from prohibiting the production and marketing of natural mineral waters, the legislation at issue ... merely controls, in a very clearly defined area, the associated labelling and advertising. Thus, it does not affect in any way the actual content of the freedom to conduct a business' (para 71). This comes to establish that, provided that the restriction is not absolute and that it derives from a legal source, then a claim under Art 11 Charter is unlikely to prosper. However, this will not always be the case and, in particular for products other than foodstuffs, compliance with all these conditions may be difficult to achieve--particularly if the products are totally unregulated, which makes the first condition difficult to achieve unless general consumer protection or unfair competition rules fill that possible regulatory gap.

Further to these general considerations, the CJEU also assesses the purpose and proportionality of the restrictions. In that regard, it gives particular weight to several factors related to the fact that the 'limitations on the use of the claims and indications ... aim to ensure a high level of consumer protection, to guarantee adequate and transparent information for the consumer relating to the sodium content of drinking water, to ensure fair trading and to protect human health' (para 72), In particular,

75 ... the determination of the validity of the contested provisions must be carried out in accordance with the need to reconcile the requirements of the protection of those various fundamental rights protected by the EU legal order, and striking a fair balance between them ...

76 With regard to judicial review of the conditions of the implementation of the principle of proportionality, the EU legislature must be allowed a broad discretion in an area such as that involved in the present case, which entails political, economic and social choices on its part, and in which it is called upon to undertake complex assessments ...

77 ... even if a claim or indication referring to the sodium content of natural mineral waters associated with chloride ions can be regarded as being substantively correct, the fact remains that it is incomplete if it suggests that the waters are low in sodium whereas, in reality, their total sodium content exceeds the limits provided for by EU legislation ... 

78 In such a situation, the information displayed on the packaging, labels and in advertising containing that claim or indication may mislead the consumer as to the sodium content of the mineral waters ... (C-157/14, paras 75-78, references omitted).

There is a final step in the analysis concerning certain claims of Neptune that EU legislation was unnecessarily restrictive, which the CJEU sorts out by deferring to the EU legislator's action under the precautionary principle. Thus, overall, the CJEU has no qualms in restricting the previously recognised corporate right to freedom of expression and information on the basis of a pretty straightforward analysis of the labelling requirements coupled with a high degree of deference on the basis of the precautionary principle.

Overall, the outcome of the case must be welcome (and follows some other positive developments in EU food law). However, in my view, the trouble is in the process that the CJEU had to follow before upholding the restrictions on labelling of mineral waters for consumer protection health-related reasons. It would seem to me that these issues would be better reconducted under a standard case of judicial review of the administrative action and the underpinning legal rules imposing labelling requirements. In that regard, it seems quite clear that Neptune would not have had legal standing to challenge the European rules on mineral water labelling. However, it managed to trigger the same level of judicial review through a claim of corporate human rights (certainly artificially overblown). Is it time to reconsider, once and seriously, a change in the rules for judicial review of EU acts, or are we better off by indulging endlessly in this ridiculous discussion on corporate human rights?

AG Mengozzi on price comparisons: buying cars is not like buying tomatoes ... So what? (C-476/14)

In his Opinion of 16 December 2015 in Citroën Commerce, C-476/14, EU:C:2015:814 (not available in English), Advocate General Mengozzi assessed whether EU consumer law allows for Member State rules that systematically ban car advertisements that mention separately the price of the car and additional mandatory transportation expenses that the consumers need to cover in order to buy the advertised car. Or, in other words, whether harmonised EU consumer law prevents Member States from retaining domestic rules that require car ads to indicate in a transparent and unmistakable manner the global, full and final price of the advertised vehicle. 

In his Opinion, AG Mengozzi concludes that EU law does not systematically prohibit this type of ads, but rather requires a case-by-case analysis of the content and circumstances of the advertisement. Thus, in his view, a domestic rule that imposes a blanket restriction on the way price and information on other (mandatory) expenses is provided--ie, which requires explicit disclosure of the global cost of acquisition of the car--runs contrary to EU law. This is a counter-intuitive Opinion on consumer protection and, in my view, deserves some closer analysis.

The dispute in Citroën Commerce concerns a German rule whereby the offeror of goods to final consumers must indicate prices including value added tax and any other integral parts of the final price to be paid. In the specific case of car ads, it is settled German law that 

in principle, what should be indicated in ads is the final price of the vehicle, ie the price including transportation expenses, because the public does not perceive these incidental expenses as additional, but rather as an integral part of the price. It is only possible to indicate separately the price if the consumer can choose between two options, namely, collecting the vehicle at the manufacturer's plant or ordering the vehicle to be transferred to the dealership where the sale took place; or when it is not possible to calculate in advance the amount of such expenses (Opinion in C-476/17, para 26, own translation from Spanish).

AG Mengozzi assesses the German rule and its interpretation by reference to EU rules on labelling of products (Directive 98/6) and on unfair business-to-consumer commercial practices (Directive 2005/29). 

Assessment under Directive 98/6

From the outset, AG Mengozzi doubts the applicability of Dir 98/6 to the case. In his view, '[p]erhaps the advertisement ... constitutes an offer of products in the broad and common sense. However ... the concept of "products offered by traders to consumers" ​​in Article 1 of Directive 98/6 must be interpreted within the limits inherent to its scope' (Opinion in C-476/17, para 38, own translation from Spanish).

AG Mengozzi considers that Dir 98/6 on consumer protection in the indication of the prices of products offered to consumers, does not apply in the case of cars. In his view, '[a]lthough this obligation [to provide transparent prices for the purposes of comparison by consumers] is ... prima facie formulated regarding all "products offered", the analysis of the lexical scope of Directive 98/6 leads me to conclude that it was, however, essentially conceived for regular consumption products, it being understood that it may be both food and non-food products' (Opinion in C-476/17, para 42, own translation from Spanish). 

The AG expands on the reasons for his assessment:

45 ... although Article 1 of the [then] proposed directive was drafted in the sense that the indication of the selling price and the price per unit of measure of "products offered by traders to final consumers" should be provided, the Commission added that this should be done where such dual pricing information was relevant. It thus acknowledged that "there [were] a number of situations where the comparison does not give the consumer determinant information, particularly when the products have very different characteristics or meet different needs of consumers. This is, for example, customized products, articles of clothing, automobiles, furniture and all products where indication of measurement [...] does not provide useful information to compare prices."

46. ​​Thus, given their own varied individual characteristics, vehicles are not products for which a price comparison through the labelling regulated by Directive 98/6 proves immediately relevant to the consumer. To be clear, just as Directive 98/6 is destined to facilitate comparison, for the consumer, of the price of a kilogram of tomatoes--because tomatoes are an easily comparable product and, in any case, are completely equivalent to tomatoes sold in another store--for products such as automobiles, the labelling of prices in the conditions prescribed by Directive 98/6 cannot serve this objective, given the degree of specificity of each vehicle (Opinion in C-476/17, paras 45-46, own translation from Spanish, emphasis added).

AG Mengozzi also stresses that AG Cruz Villalón and the CJEU indicated that 'the purpose of Directive 98/6 is not to protect consumers in relation to the indication of prices, in general or with regard to the economic reality of announcements of price reductions, but specifically in relation to the indication of the prices of products by reference to different units of quantity' (Commission v Belgium, C-421/12, EU:C:2014:2064, para 59; as referred to in Opinion in C-476/17, para 47, emphasis added).

All those arguments lead AG Mengozzi to conclude that 'Directive 98/6 does not constitute the European Union law benchmark for the indication of prices in general for all product offerings. Nor is it intended to regulate in general terms the conditions under which prices must appear in ads' (Opinion in C-476/17, para 49, own translation from Spanish, emphasis added).

In my view, the reasoning of AG Mengozzi is problematic for two reasons. Firstly, because it conflates whether dual pricing (ie including both the selling and the unit price) is necessary for consumers to assess the cost of a car [which it is not, as cars are bought by units; see Art 5(1) Dir 98/6] and whether transparent price comparisons are useful for consumers looking to buy cars (which they definitely are). I am particularly troubled by his "tomato-analogy" because it does not reflect the basic economic insight that consumers can benefit from competition in two dimensions: inter-brand and intra-brand competition.

Of course, inter-brand competition only benefits consumers willing to compare the price and characteristics of different (makes and models of) cars and, in that regard, pure price comparisons may not be (solely/primarily?) relevant. However, intra-brand competition benefits consumers willing to buy one specific make and model of car and looking for the best price available. This second type of consumer benefit derived from competition necessarily relies on transparent price comparisons. Thus, the exclusion from cars altogether from the scope of application of Dir 98/6 'because buying  cars is not like buying tomatoes' is simply ridiculous [by the way, buying tomatoes can be a less than straightforward exercise as well ... but let's leave the paradox of choice aside].

A functional understanding of the goal of Dir 98/6 should make it obvious that it aims at enabling easy and reliable price comparisons by consumers, or 'to stipulate indication of the selling price and the price per unit ... in order to improve consumer information and to facilitate comparison of prices' (Art 1, emphasis added)--ultimately because 'transparent operation of the market and correct information is of benefit to consumer protection and healthy competition between enterprises and products' [rec (1) Dir 98/6].

Therefore, it seems quite straightforward that Dir 98/6 aims to facilitate price comparisons and, in that regard, the rest of its provisions are relevant also for the offer of cars. Art 2(a) Dir 98/6 clearly establishes that 'selling price shall mean the final price for a unit of the product ... including VAT and all other taxes'. Therefore, the analysis of the Citroën Commerce case should have rested on whether offering a price and separately indicating that there are additional mandatory transportation expenses for the acquisition of a car meets this requirement. In that regard, even if it was considered that the indication of these two elements of the final prices in the same ad was not prohibited by the EU rule, it should be taken into account that Art 10 Dir 98/6 allows for Member States to adopt or maintain provisions which are more favourable as regards consumer information and comparison of prices, without prejudice to their obligations under the Treaty. Therefore, unless there was an infringement of the other obligations under EU law, the German rule should stand (see analysis re Dir 2005/29 below).

AG Mengozzi disagrees with such an approach and considers that 'transportation expenses ... are entirely outside the scope of Directive 98/6 for various reasons' (Opinion in C-476/17, para 55, own translation from Spanish). His main reasons relate to the travaux preparatoires of the Directive and his argument that it solely applies to regular consumption products offered immediately by retailers to consumers (ie where no transportation costs are usually applicable). In my view, such approach goes against the objective of the Directive and seeks to create a restriction that can well render the requirements of the Directive completely moot. It should be clear that the Directive aimed to provide consumers a global, final price for the products they are offered (thus, the obligation to include applicable taxes). Any interpretation that allows for the exclusion of price components from the 'legal' concept of final price makes no functional sense.

In any case, what is clear is that, either on the basis of Art 10 Dir 98/6 or not, the last hurdle for the German rule to overcome is the regulation of unfair commercial practices under Dir 2005/29, which establishes maximum harmonisation measures and, consequently, does not allow Member States to provide a level of protection beyond the EU law standard.

Assessment under Directive 2005/29

Ultimately, then, the assessment of  compatibility of an interpretation of Dir 98/6 with Dir 2005/29 and the maximum harmonisation it imposes requires to determine whether a reading of Art 2(a) (and 10) Dir 98/6 as requiring the disclosure of a single final price that includes all mandatory costs and expenses payable for the acquisition of the car, is compatible with Art 7(1), 7(4)(c)  and 7(5) Dir 2005/29 as a standard of maximum harmonisation [Art 3(5)].

Art 7(1) Dir 2005/29 determines that 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'. Art 7(4)(c) Dir 2005/29 clarifies that '[i]n the case of an invitation to purchase, the following information shall be regarded as material, if not already apparent from the context: ... (c) the price inclusive of taxes ... as well as, where appropriate, all additional freight, delivery or postal charges ...'. Finally, Art 7(5) Dir 2005/29 determines that EU law requirements on pricing are to be considered material as well, which include Art 3(4) Dir 98/6 (not relevant for our purposes).

AG Mengozzi reasons as follows:

73 ... Article 7, paragraph 4, letter c) of Directive 2005/29 is not limited to mentioning the price, including taxes, but also refers to "... where appropriate, all additional freight, delivery or postal charges." From the structure of this provision, it is clear that it covers price with all of its components and that the text of Article 7, paragraph 4, letter c) of Directive 2005/29, read in its entirety, clearly seems to address differently the price or the manner in which it is determined, on the one hand, and the other price components such as transport costs, on the other. In any case, nothing indicates, in view of the interpretation of Article 7, paragraph 4, letter c), that the price must include transport costs and be subject to a global definitive indication. 

74 ... it must also be stated that the omission of material information, such as price as defined in Article 7, paragraph 4, letter c) of Directive 2005/29 is not, in any case and of itself, an unfair trade practice, since the impact of this omission on consumer behavior and the adoption of its decision on a transaction will always have to be analysed case-by-case. The terms of Directive 2005/29 show that this analysis should also take into account the context of the commercial practice in question, of all its features and circumstances and the limitations of the communication medium.

76 ... a national rule interpreted as systematically prohibiting invitations to buy that indicate separately the price of products and mandatory transportation costs would go beyond the level of protection afforded by Directive 2005/29 because that provision would have the effect of generally punishing the omission of material information--namely the price, including compulsory expenses--whereas the Directive requires a case-by-case analysis to appreciate the practical consequences of such a failure in the commercial behavior of such a consumer before it can qualify the commercial practice as "unfair" (Opinion in C-476/17, paras 73-74 and 76, own translation from Spanish, emphasis added).

In this instance, the reasoning of AG Mengozzi seems accurate. Indeed, it seems clear that Art 7(4)(c) Dir 2005/29 requires disclosure of all costs applicable to the purchase, but not necessarily the disclosure of a global, final price as a single figure. It also seems clear that Art 7 Dir 2005/29 excludes the use of presumptions of unfairness by Member States by requiring a case-by-case analysis [which may not be desirable from a broader perspective, particularly in terms of legal enforcement costs, but that is an issue intrinsic to Dir 2005/29 and its maximum harmonisation]. 

In the circumstances of the case Citroën Commerce, given that the mandatory transportation costs were disclosed (albeit in a different, smaller font...) it is hard to see a possibility to declare the practice "unfair" for the purposes of Dir 2005/29.

As a final point, it may be worth stressing that it also seems clear that Dir 2005/29 has (implicitly) severely limited, if not completely excluded, the possibility for Member States to adopt 'more stringent measures' under Art 10 Dir 98/6. If this implication is correct, it would be desirable for the CJEU to declare it as such in its final Judgment in Citroën Commerce.

When a commercial lawyer is (also) a consumer: Excessive paternalism by the CJEU (C-110/14)

In its Judgment in Costea, C-110/14, EU:C:2015:271, the Court of Justice of the European Union (CJEU) has engaged in extreme formalism in the interpretation of the notion of 'consumer' under EU law [and, more precisely, under Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts]. Costea is, in my view, a criticisable Judgment because it pushes legal fiction too far and departs from what I would have considered a sensible functional approach to the concept of consumer. It is worth looking closer at the reasoning of the CJEU.

The CJEU provides a very useful summary of the facts of the case: 

Mr Costea practises as a lawyer and, as such, primarily handles cases in the field of commercial law... he concluded a credit agreement with Volksbank. The repayment of that loan was secured by a mortgage registered against a building belonging to Mr Costea’s law firm ... That credit agreement was signed by Mr Costea, not only in his capacity as borrower but also in his capacity as representative of his law firm, owing to the latter’s status of mortgage guarantor (C-110/14, para 9, emphasis added).

In short, then, Mr Costea was legally acting in several capacities in a single commercial transaction, where he was both borrowing money personally and representing the legal entity that acted as his guarantor. However, he claimed protection under EU law so as to detach both legal positions and avoid his professional qualification from reducing the protection that he would otherwise be afforded as a lay consumer.

His claim was, in very simple terms, that he was at the same time a commercial lawyer acting for his firm and a consumer acting for himself. Given the impossibility of splitting the human mind and detaching oneself from knowledge already acquired, it is very hard to understand how--beyond the legal fiction derived from his ability to represent a legal entity created and owned by himself, as well as his own personal interests--he could ever be considered to functionally hold two very opposite positions: ie that of the knowledgeable commercial lawyer that acts under the general duties of his lex artis, and that of the unknowing consumer that deserves special protection when it enters into complex transactions.

However, the CJEU does precisely that. Following the Opinion of AG Cruz Villalón (see a comment here), the CJEU engages in the following reasoning:

17 It is ... by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 30, and Šiba, C-537/13, EU:C:2015:14, paragraph 21).
18 That criterion corresponds to the idea on which the system of protection implemented by that directive is based, namely that the consumer is in a weaker position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge. This leads to the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 31, and Šiba, C-537/13, EU:C:2015:14, paragraph 22).
21 The concept of ‘consumer’, within the meaning of Article 2(b) of Directive 93/13, is ... objective in nature and is distinct from the concrete knowledge the person in question may have, or from the information that person actually has (C-110/14, paras 17-18 and 21, emphasis added).

In setting up this analytical framework, the CJEU conflates two arguments. The first one relates to the weak position of the consumer in terms of unequal bargaining power. The second one relates to the information imperfection that can affect the consumer. At least on this second point, the CJEU is extremely formalist and engages in an interpretation of EU law that is not adjusted to commercial reality, but simply aimed at the world of ideas. By  flatly rejecting that the specific knowledge and expertise of the consumer can alter its legal position, the CJEU preempts any granularity in EU consumer law, at least when it comes to a potential reduction of the standard of protection of the savvy consumer--which is also functionally in stark contrast with the increased protection afforded to the particularly vulnerable consumer, and thus creates a clear imbalance in the development of this area of EU economic law.

Moreover, this formalism exacerbates the paternalism of the CJEU in its aim to protect consumers, even when they are in a situation where they do not actually deserve protection because they are not affected by an information asymmetry or imperfection [for extended discussion on this rationale for consumer protection law, see F Gomez Pomar, 'EC Consumer Protection Law and EC Competition Law: How related are they? A Law and Economics perspective' (2003) InDret 113, pp. 10 and ff]. Thus, the Costea Judgment is bound to expand consumer protection beyond its desirable remit.

The line of argument based on the consumer's limited bargaining power is the one that allows the CJEU to afford protection to Mr Costea as an individual. It is harder to take issue with the reasoning of the CJEU in paras 24-27 because the CJEU assesses the relative bargaining power of a lawyer in the abstract and concludes that 'even if a lawyer were considered to display a high level of technical knowledge ..., he could not be assumed not to be a weak party compared with a seller or supplier'. However, this should have been left for a factual assessment under the circumstances of the case, in which it could actually be proven (not presumed or assumed) that the lawyer was in no weaker position.

This is where the CJEU again engages in a line of reasoning that is extremely formalistic, particularly because it loses perspective of the fact that several legal persons are actually embodied in a single natural person. According to the CJEU

28 As regards the fact that the debt arising out of the contract in question is secured by a mortgage taken out by a lawyer in his capacity as representative of his law firm and involving goods intended for the exercise of that lawyer’s profession, such as a building belonging to that firm, it should be held that ... it has no bearing on the assessment carried out in ... this judgment.

29 The case in the main proceedings concerns the determination of the status (that of consumer or of seller or supplier) of the person who has concluded the main agreement (the credit agreement) and not the status of that person under the ancillary agreement (the mortgage), securing the payment of the debt arising from the main agreement. In a case such as that at issue in the main proceedings, the categorisation, as a consumer or as a seller or supplier, of the lawyer in the context of his taking out a mortgage cannot, consequently, determine his status under the main credit agreement (C-110/14, paras 28-29, emphasis added).

In my view, this is simply functionally absurd. The CJEU failed to look at the transaction as a whole and afforded protection beyond what might have been necessary. Moreover, the reasoning seems exceedingly simplistic in its dichotomy: ie in a given contract, each of the parties is either a consumer or a seller/supplier. This is not in line with the fact that, as AG Cruz Villalón pointed out in his Opinion, 'the contrast between the concepts of seller or supplier and consumer does not operate in completely symmetrical terms' (para 21). A functional approach should certainly allow for a more nuanced approach, so that a specific party (ie the one that demands the services in the transaction) can be categorised as consumer/no-consumer. This is certainly the case with legal entities [Judgment in Cape and Idealservice MN RE, C-541/99 and C-542/99, EU:C:2001:625, para 16], and there seems to be no good reason to automatically exclude such analysis in the case of professionals.

Overall, then, the Costea Judgment seems like an exceedingly formalistic exercise and leaves a flavour of undue expansion of consumer protection that could well backfire by allowing professionals to access unnecessary protection by the simple use of separate legal entities (which they can create and control). Will this lead to a future extension of the doctrine of lifting the corporate veil to the area of consumer protection? That would certainly be bonkers...

When time limits result in a prohibition, the Commission cannot present its decisions as 'temporary authorisations' (T-198/12)

In its Judgment of 14 May 2014 in case T-198/12 Germany v Commission (Toy safety), the General Court of the European Union (GC) has established an interesting standard for the analysis of the criteria concerned with the imposition of time limits in the Commission's enforcement of Article 114 TFEU. In short, under Art 114(6) TFEU, despite the adoption of a harmonisation measure which has as its object the establishment and functioning of the internal market, and as long as it concerns health, safety, environmental protection and consumer protection, the Commission can authorise Member States to maintain (conflicting) national provisions on grounds of the major needs mentioned in Article 36 TFEU.

In the case at hand, Germany had requested authorisation to keep domestic rules that deviated from the new standards concerned with the presence of certain (toxic) metals in toys set by Directive 2009/48 on the safety of toys. Germany considered that the standards imposed by the new version of the toy safety directive where not supported by adequate scientific evidence and requested the Commission to authorise it to maintain the existing domestic standards, which had been developed on the basis of the previous version of the toy safety Directive 88/378/EEC.

 

The European Commission partly authorised the German measure and, for some substances, imposed a time restriction whereby the domestic standards could only be enforced until the approval of new EU standards or 21 July 2013, whatever came first. Germany challenged this aspect of the partial approval on two grounds: 1) that the Commission incurred in a contradiction when it imposed the time limitation on the authorisation, given that it had found that it was legitimate, justified and did not significantly restrict intra-EU trade in toys (and, hence, should be authorised without restrictions); and 2) that the specific time-limit imposed actually amounted to a prohibition, given that the date chosen by the Commission was fundamentally coincidental (or, as the Commission indicated during the procedure, diverged symbolically by one day) with the final date foreseen in Directive 2009/48 for the repeal of the pre-existing domestic standards.

 

The GC has upheld this point of Germany's appeal and, more importantly, has established the principle that the Commission cannot issue de facto prohibitions of domestic measures under the appearance of temporary authorisations, as that fundamentally infringes its duty to state reasons and motivate its decisions. It is interesting to stress that

Given that, on the one hand, the bioavailability limits set by Directive 88/378 should continue to apply until 20 July 2013 and, on the other hand, the maintenance of national provisions on lead is authorized only until 21 July 2013 (specifying that the difference between these two dates is merely symbolic), it should be noted, as the Federal Republic of Germany rightly points out, that the contested decision is equivalent, in terms of concrete results, to a negative decision--which, furthermore, the Commission has expressly acknowledged during the proceedings, as the institution has indicated in its decision that the [German] measure met the requirements of Article 114 TFEU, paragraphs 4 and 6 [...] It is clear, therefore, that the contested decision contains an internal contradiction that may hinder the correct understanding of the reasons on which it is based (T-198/12 at paras 64 and 65, own translation from Spanish).

This is an interesting case, given that the GC has focussed on the material or substantial elements of the Commission's Decision and its effects on the autonomy of the Member State to actually deviate from the harmonising measure after seeking approval uner Art 114 TFEU. Hopefully this will result in more clarity in the enforcement Decisions of the Commission in the future and will contribute to a more speedy revision of security standards when Member States challenge the scientific evidence used at EU level. 

Free movement (of gold) meets consumer protection (C-481/12)

In its Judgment of 16 January 2014 in case C-481/12 Juvelta, the Court of Justice of the EU has issued an interesting decision concerned with the delicate balance between free movement of goods under Article 34 TFEU and the protection of consumers.

In the case at hand, gold jewellery was imported into Lithuania. The golden products had been stamped with the Polish hallmark to indicate their quality and fineness. The Polish and Lithuanian hallmarks differed in that Lithuanian rules require the express indication of the per thousand purity of the gold, whereas the Polish hallmark functions on a scale basis. Aware of such a divergence, the importer of the jewellery had complemented the Polish 'official' hallmark with a 'private mark' that expressly indicated the additional information necessary for Lithuanian consumers to understand the quality of the products. However, Lithuanian authorities were not willing to accept the validity of such 'private' second hallmark and required the products to be 'officially' marked again to comply with Lithuanian standards. The importer considered this an unjustified restriction of its free movement of goods rights and challenged the decision.

The CJEU framed the case within the standard Dassonville formula for the assessment of measures of equivalent effect to quantitative restrictions and offered some interesting insights into the limitations that consumer protection may introduce in that analytical framework. It is worth noting that, according to the CJEU,

23 In order to determine whether an indication of a standard of fineness not provided for by legislation of a Member State provides consumers with equivalent and intelligible information, the Court must take into account the presumed expectations of an average consumer who is reasonably well-informed and reasonably observant and circumspect (see, to that effect, Commission v Ireland, paragraph 32).

24 With regard to the proceedings [...] it should be noted that [...] the articles at issue in the main proceedings were stamped with hallmarks by an independent assay office authorised by the Republic of Poland, in accordance with that State’s legislation.

25 Likewise, [...] it is not disputed that the hallmark stamped on those articles shows their standard of fineness by means of the mark consisting of the numeral ‘3’ and that, in Poland, that mark is intended to denote articles of precious metals whose standard of fineness, expressed as the number of parts by weight of the precious metal in 1 000 parts by weight of the alloy, is 585.

26 It follows that the information provided by that mark is, as far as the articles of precious metal stamped with a hallmark in Poland are concerned, equivalent to that provided by the numerals ‘585’ on a hallmark stamped by an independent assay office authorised in Lithuania, in accordance with that State’s legislation.

27 That said, consideration must also be given to whether the marking of the numeral ‘3’ on the hallmarks stamped on the articles at issue in the main proceedings provides information intelligible to an average Lithuanian consumer who is reasonably well-informed and reasonably observant and circumspect.

28 In that regard, it must be held that it is probable that that mark is not intelligible to such a consumer, since such a person is not, in principle, deemed to know the Polish system of indicating standards of fineness for articles of precious metal.

29 However, although the restrictive effects of the legislation at issue can thus be justified by the objective of ensuring effective protection for Lithuanian consumers, and providing them with information relating to standards of fineness for articles of precious metal imported into Lithuania which are intelligible to them, such justification can be accepted only if that legislation is proportionate to the objective pursued, that is to say if, while appropriate in order to fulfil that objective, it does not go beyond what is necessary to attain it (C-481/12 at paras 23-29, emphasis added).

 

In Juvelta, then, the CJEU seems to have inserted an intermediate test of adequacy for consumer protection purposes that may need to be applied before the rule of reason analysis of the restrictive measure and in a cumulative manner. Hence, it seems that in situations where the application of free movement rules may leave consumers unprotected, the CJEU may be willing to set a limitation on the standard criteria of mutual recognition.

 

In general, then, it seems that the additional consideration of consumer protection/expectations comes to consolidate a 'suitability check' applied to the free movement rules (not to the measure having equivalent effect, which is still subjected to the traditional proportionality analysis) and, in that regard, seems fit for the purpose of ensuring overall consistency of the EU internal market rules--which, ultimately, should aim to protect consumers as well as allowing them to benefit from the increased efficiency that market competition brings about.

 

It may be that Juvelta does not create a revolution in the way free movement rules are applied (as such considerations had already occasionally been taken into account by the CJEU to a certain extent), but it may have spelled out more clearly the analytical path through which measures having equivalent effect against free movement of goods need to be assessed. In my view, this is a positive (incremental) development.

CJEU strengthens #EULaw on #food #information: more #disclosure in the #consumers' interest

In the aftermath of the horse meat scandal, in its Judgment of 11 April 2013 in case Karl Berger v Freistaat Bayern, the European Court of Justice has clearly pushed for an expansive interpretation of EU food law that gives public authorities the appropriate tools to protect consumers' interests.

In Berger, the CJEU has clearly supported the fact that public authorities release information and food warnings concerning products that, despite not creating a health risk to humans, are unfit for human consumption. 

In the case, the manufacturer of nauseating food products (game meat processed in less than hygienic conditions) intended to claim damages for the loss of business derived from one such food warning. The manufacturer sued the relevant German food authority on the basis that, there not being a risk for human health, the authority exceeded its powers by disclosing that the products were not fit for human consumption.

In what should be welcome, the CJEU has interpreted that EU food law sets minimum mandatory requirements, but that public authorities can exceed them as long as they act proportionately and in the interest of consumers. In the CJEU's view, indeed:

35. In so far as a foodstuff is unacceptable for human consumption and accordingly unfit therefor, it does not fulfill the food safety requirements under Article 14(5) of Regulation No 178/2002, and is, in any event, such as to prejudice the interests of consumers, the protection of whom, as stated in Article 5 of that regulation, is one of the objectives of food law.

36. It follows from the above that, where food, though not injurious to human health, does not comply with the aforementioned food safety requirements because it is unfit for human consumption, national authorities may, as provided under the second subparagraph of Article 17(2) of Regulation No 178/2002, inform the public thereof in accordance with the requirements of Article 7 of Regulation No 882/2004 (emphasis added).

In my view, the Berger Judgment must be welcome and consumers should push for Member States' food agencies to make the most of their informative powers. Granted, they should only act on the basis of strong procedures and reliable evidence but, once they find products that are not fit for human consumption, they should promptly disclose this information. When the interests of the manufacturer and those of consumers clash, the CJEU seems to clearly side with consumers and, as a matter of general policy, this seems appropriate. This will create further incentives across the food supply chain to improve quality controls and, in the end, will result in safer food markets in the EU. So, in short, the expansive interpretation adopted by the CJEU in Berger is a most welcome development of EU food law.

'Winner' means WINNER and 'prize' means FREE PRIZE: The CJEU overshoots the mark of consumer protection (C-428/11)

In its Judgment of 18 October 2012 in case C-428/11 Purely Creative and Others v Office of Fair Trading, the CJEU was confronted with the interpretation of consumer protection rules in the field of aggressive commercial practices in a distant sales scenario. The CJEU has significantly raised the barrier for the conduct of commercial practices that include the award of 'prizes' and call the targeted consumer a 'winner' if she must assume any cost (even that of buying a stamp) to claim the prize, by determining that "the prohibition on making the consumer bear any cost whatsoever is absolute, whether it be the cost of a stamp or of a simple telephone conversation". In my opinion, the CJEU has overshot the mark of consumer protection.

In the case at hand, Purely Creative and other traders were sending individually addressed letters, scratch-cards and other advertising inserts placed into newspapers and magazines, by which the consumer was informed that he had won a prize or equivalent benefit, the value of which could be either considerable or merely symbolic. The consumer was offered a number of options in order to discover his prize and obtain a claim number: he could call a premium rate telephone number, use an SMS service or obtain the information by ordinary post (the latter method being given less prominent). The consumer was informed of the cost per minute and the maximum duration of the telephone call but was unaware that the company responsible for the promotion took a certain sum from the cost of the call (see curia press release here).

The Office of Fair Trading (OFT) took issue with these commercial practices and brought proceedings before the High Court of Justice of England and Wales, Chancery Division (Companies Court) seeking to restrain the traders from continuing to distribute promotions. The High Court found that the promotions involved unfair practices, albeit on a more limited basis than contended by the OFT. In short, the High Court found that the commercial practices would only be acceptable "if the payment required was de minimis (such as the purchase of a stamp or the cost of an ordinary telephone call), no part of which would benefit the trader concerned, and if that payment were de minimis compared with the value of the prize won" (account rendered by the CJEU in C-428/11 at para 19, emphasis added).

Therefore, the High Court passed undertakings by which traders committed not to ‘create the false impression that the consumer has already won, will win or will on doing a particular act win, a prize or equivalent benefit, when in fact taking any action recommended by the [trader] in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost which is either: (a) a substantial proportion of the unit cost to the defendant of the provision to the consumer of the thing described as a prize or other equivalent benefit; or (b) in the case of a charge stated to be for delivery and insurance, used by the defendant to finance in whole or in part its acquisition, handling or other cost of the making available of that thing, other than the actual cost of its delivery to the consumer and insurance (if any) in transit’  (account rendered by the CJEU in C-428/11 at para 20, emphasis added).

Traders appealed and the OFT cross-appealed the High Court ruling before the Court of Appeal (England and Wales) (Civil Division), which referred the case to the CJEU for a preliminary ruling whereby it seeked an interpretation of paragraph 31 of Annex I to the 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 (OJ 2005 L 149, p. 22) in order to determine whether that provision prohibits the imposition of a cost, even of a de minimis nature, on a consumer who has been informed that they have won a prize.

According to the CJEU, indeed, the proper legal basis for the analysis in this case was Dir 2005/29/EC and, more specifically, its rules preventing the conduct of aggressive commercial practices against consumers. According to Art 8 Dir 2005/29/EC, 'A commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise'.

More specifically, annex I to the Dir 2005/29/EC is a list of 31 paragraphs that describe practices which are in all circumstances regarded as unfair. Under paragraph 20, ‘[d]escribing a product as “gratis”, “free”, “without charge” or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item’ is considered an unfairly aggressive commercial practice. Identically, under paragraph 31, ‘[c]reating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either, [a)] there is no prize or other equivalent benefit, or [b)] taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.’

In Purely Creative v OFT, the CJEU has adopted a very strict, absolute interpretation of paragraph 31 of annex I of Dir 2005/29/EC by finding that:

29 [...] the term ‘false’ is not vital to an understanding of paragraph 31 of Annex I to the Unfair Commercial Practices Directive but merely reinforces the sentence in question (sic). The prohibited practice consists in the creation of one of the impressions referred to in the first part of that paragraph, whereas, as stated in the second part of that paragraph, those impressions do not correspond to reality.

30 [...] according to the wording of that provision, an unfair practice exists where the consumer is subject to a requirement to pay money or incur a cost on taking any action to claim what is presented to him as a prize or other equivalent benefit. That wording does not allow for any exception, meaning that it is evident that the expression ‘incur a cost’ does not allow the consumer to bear the slightest cost, even if it is de minimis compared with the value of the prize or a cost which would not procure any advantage for the trader, such as the cost of a stamp.

31 The wording of the phrase ‘action in relation to claiming the prize’ is imprecise, it being possible therefore that it covers, inter alia, any step taken by the consumer in order to obtain information about the nature of his prize or to collect it. [...]

34 In addition, given the absolute nature of the prohibition on imposing any cost, the offer of a number of options cannot eliminate the unfair character of the practice if any of the proposed options were to require the consumer to bear a cost, even a de minimis cost compared with the value of the prize. [...]

38 [...] the practice at issue in paragraph 31, second indent, of Annex I to the Unfair Commercial Practices Directive exploits the psychological effect caused by the announcement of the winning of a prize, in order to induce the consumer to make a choice which is not always rational, such as calling a premium rate telephone number to ask for information about the nature of the prize, travelling at great expense to collect an item of low-value crockery or paying the delivery costs of a book which he already has (sic). [...]

40 [...] prohibiting traders from making the consumer bear the slightest cost would not make it impossible to organise such promotional campaigns. The trader could impose a geographic limitation on participation in the competition or in the promotion, so as to limit the costs he would have to bear which are associated with travel by the consumer and with the formalities for the consumer’s taking possession of the prize. When determining the value of the prizes to be distributed, the trader could also take into account the communication or delivery costs he would have to bear. [...]

42 [...] clarification of the interpretation of paragraph 31 of Annex I to the Unfair Commercial Practices Directive can be provided by a reading of paragraph 20 of that annex. According to that provision, there is a misleading practice where a product is described as ‘gratis’, ‘free’ ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item. Paragraph 31 of Annex I to the directive does not contain similar wording, confirming that that paragraph should be interpreted as meaning that the prohibition on making the consumer bear any cost whatsoever is absolute, whether it be the cost of a stamp or of a simple telephone conversation (sic). [...]

49 It is, therefore, in order to protect the consumer that the concept of a true ‘prize’ should be preserved, by interpreting paragraph 31 of Annex I to that directive as meaning that a prize in respect of which the consumer is obliged to make a payment of whatever kind cannot be regarded as a ‘prize’.

50 [...] it is not permissible to allow action to be taken in relation to the claiming of a prize pursuant to a multi-option scheme, proposed to the consumer by the trader, where at least one of the methods would not involve any payment. It is the very prospect of taking possession of the prize which influences the consumer and may cause him to take a decision he would not take otherwise, such as choosing the quickest method of finding out what prize he has won, even though that may be the most expensive method. (C-428/11 at paras 29 to 50, emphasis added).

In a nutshell, the position of the CJEU makes life very difficult for companies willing to attract consumers by offering legitimate and true prizes, since they now have to internalize the tiniest of the costs involved. This position is very strict and, from my view, overshoots the mark--possibly on the basis of rather extreme assumptions of irrational consumer behaviour such as those presented in paragraph 38 of the Judgment (which, in my view, do not seem to represent the actual behaviour of the average consumer or would, at least, have deserved some further evidentiary support). The position advanced by the High Court of Justice of England and Wales, Chancery Division (Companies Court) was preferable because it set a more proportionate standard. I find two faults in the reasoning of the CJEU.

First, in paragraph 29, I think that the CJEU fails to give proper value to the expression 'false' impression. If the consumer is not mislead because she has full, proper information of the de minimis costs required to claim the prize, there seems to be no need to extend the protection. In this regard, resorting to paragraph 20 as an interpretative tool seems correct, but the CJEU seems to have extracted the wrong conclusions. Given that paragraph 20 deals with the concept of 'free' (a rather absolute and appealing concept) and still allows for de minimis charges that are the unavoidable cost of responding to the commercial practice, it seems to impose a clear de minimis threshold for the analysis of the relevance of the costs retained by consumers (ie not internalized by the trader running the promotion). And this de minimis threshold or safe harbour should have been extended to paragraph 31 under the systematic interpretation conducted by the CJEU. Otherwise, the construction of paragraph 31 of annex I Dir 2005/29/EC as the CJEU at para 42 of Purely Creative v OFT is an expansive interpretation of a prohibitive rule (since the 'absolute' element of no-cost that the CJEU brings to the provision is arguably not there, once resort to paragrah 20 is had as an interpretative tool). And expansive or analogic interpretation of prohibitive rules runs against basic principles of legal interpretation [whatever is not prohibited is thereby ipso facto permitted].

Second, the reasoning that the CJEU offers to support the adoption of such a per se prohibition seems faulty too. At paras 45 to 47 of Purely Creative v OFT he CJEU considers that

45 As is apparent from the recitals in the preamble to the Unfair Commercial Practices Directive, in particular recital 17, legal certainty is an essential element for the sound functioning of the internal market. It was in order to attain that objective that the legislature collected in Annex I to the directive the commercial practices which are, in all circumstances, unfair and which, therefore, do not require a case-by-case assessment against the provisions of Articles 5 to 9 of that directive.

46 That objective would not be achieved if paragraph 31 of Annex I to the Unfair Commercial Practices Directive were interpreted as including an element of misleading conduct, distinct from the situations described in the second part of that provision. Difficult assessments would have to be carried out, on a case-by-case basis, in order to prove that element, which is precisely what Annex I to the directive sought to avoid by including that practice.

47 Equally, that objective would not be achieved if traders were allowed to impose on the consumer costs which are ‘de minimis’ compared with the value of the prize. That would make it necessary to determine evaluation methods both for the costs and the prizes and would also require such evaluations to be carried out (C-428/11 at paras 45 to 47, emphasis added).

Formally, the reasoning is correct. However, it is in open contradiction with the following finding of the CJEU in the same Judgment: "[c]lear and sufficient consumer information is important where the trader wishes to ensure that consumers can identify a prize and assess its nature" (para 53) and, therefore "[l]ike every other item of information provided by a trader to a consumer, information on the substance of the prize must be examined and assessed by the national courts in the light of recitals 18 and 19 in the preamble to the {Dir 2005/29/EC], and of Article 5(2)(b) of the directive. That concerns the availability of the information and how it is presented, the legibility and clarity of the wording and whether it can be understood by the public targeted by the practice" (para 55). Therefore, national courts cannot conduct an automatic interpretation of paragraph 31 of annex I of Dir 2005/29/EC anyway. And, if so, the provision is simply badly tailored to become a per se rule--which should allow for a case by case scrutiny of the information provided to consumers (ie the 'false impression' prong of the text) as well as of the actual costs necessary to redeem the prize (as ruled by the High Court of England and Wales). Otherwise, we have an asymmetrical per se rule that unnecessarily restricts business possibilities without clearly increasing (actual, effective) consumer protection, nor reducing litigation (costs and occurrences).

Therefore, in my opinion, the CJEU has overshot the mark by adopting such an absolute interpretation of paragraph 31 of annex I of Dir 2005/29/EC.