Consumer Contracts (PIL)
1. Need for regulation and the concept of the consumer
For consumers who increasingly participate in cross-border transactions, two particular contract law questions are of importance: which law is applicable and which state has jurisdiction over a potential lawsuit? Both identifying the applicable law and enforcing it in a foreign country require additional effort and costs. Apart from differences with regard to general private and procedural law provisions, the level of special consumer protection also varies. Due to the fact that the value of the claims in question will typically be small, consumers would be less likely to enforce their claims without EU protection. However, such a result would run counter to the basic idea of the internal market, which specifically aims at increased mobility.
European legal instruments regarding private international law (PIL) or private international procedural law (PIPL) provide direct and simple special rules favouring consumers. Consumers are privileged by the application of the law of the country in which they habitually reside and by jurisdiction being vested in the courts within the country of their domicile. Party agreements providing otherwise are strictly limited.
These special rules operate under the prerequisite that the transaction is between a consumer and a professional. Definitions for these two opposing parties correspond with the consumer acquis (consumers and consumer protection law). The only divergence exists in PIPL: following the previous provision of the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters, Art 15(1) Brussels I Regulation (Reg 44/2001) still does not exclude legal persons from potentially having consumer status. However, the more recent regulation (Reg 593/2008) on the law applicable to contractual obligations (Rome I Regulation) restricts protection to natural persons. A parallel clarification in the Brussels I Regulation seems advisable.
The European Court of Justice (ECJ) interprets these requirements in a surprisingly strict manner, at least with regard to jurisdiction. For example, in Case C-464/01 – Gruber  ECR I-439, the Court was unwilling to classify the purchase of roof tiles for a farm as a consumer transaction since a commercial element was partially involved (see consumers and consumer protection law).
2. Parallels between jurisdiction and choice of law
Both the Rome I and the Brussels I Regulations are measures in the field of judicial cooperation in civil matters having cross-border implications, as provided for under Art 81 TFEU/65 EC. Therefore, pursuant to Art 68 EC, the ECJ has had jurisdiction in those matters from the very beginning. (In contrast, the Court was granted jurisdiction for the 1968 Brussels Convention only on the grounds of a 1971 interpretative protocol. For the 1980 Rome Convention on the law applicable to contractual obligations, it was only granted jurisdiction on 1 August 2004.) But jurisdiction was initially restricted to the extent that a right of referral only existed in courts whose decisions were non-appealable under national law (see Art 68(1) EC).
With the Treaty of Lisbon, however, this situation has changed as matters are now subject to the general rules on jurisdiction laid down in Arts 251 ff TFEU with the consequence that the above-noted limitation has fortunately been removed (see Art 68(1) EC). The reform thus furthers the possibility of creating a uniform terminology throughout the European judiciary by way of a consistent interpretation of the Rome I and Brussels I Regulations as well as of the Rome II Regulation (Reg 864/2007 on the law applicable to non-contractual obligations). This is an important objective, not just because the regulations lack definitions, but also due to the need for terms to be accorded an autonomous interpretation (see Art 18 1980 Rome Convention).
The ECJ has already defined the term ‘contract’ in ECJ Case C-27/02 – Engler  ECR I-481, a case addressing obligations arising from isolated prize notifications sent abroad. Such notifications are generally not connected with an order for goods on the part of the consumer, and due to the fact that they consequently only give rise to unilateral obligations, they do not fall under the reign of the special provision laid down by Art 13(3) Brussels Convention 1968, which is to be narrowly interpreted. (See, however, the broader meaning of ‘contract’ in Art 15(1)(c) Brussels I Regulation in ECJ Case C-180/06 – Ilsinger  ECR I-3961 para 51.) Nonetheless, prize notices give rise to voluntarily incurred obligations. Therefore, according to Engler, the general, broadly interpreted contractual jurisdiction laid down in Art 5(1) 1968 Convention is applicable and supersedes jurisdiction in tort.
In view of the parallels between the two regulations, it would be advisable to reciprocally incorporate the definitions of legal terms. (Such a coordination had already been the case with regard to the 1968 Brussels Convention and the 1980 Rome Convention; see the Giuliano/ Lagarde-Report regarding the 1980 Rome Convention, OJ EC 1980 C 282/1). Yet whether that will be possible in detail remains disputed because of the different functions of PIL and PIPL. However, concerns of this nature would not seem justifiable with respect to consumer protection provisions. Here, PIL abandons its strict neutrality and comes closer to procedural law, which generally includes protective objectives. This opens up the possibility for a harmonious interpretation. The parallels between the regulations also lead to a regular concurrence of the applicable law and the applicable forum, what stands as a desirable outcome given the usually low value of consumer claims.
The United Kingdom has opted for the Rome I Regulation just as it has done with the Brussels I Regulation. In relation to Denmark, the Rome I Regulation will not come into effect so that the 1980 Rome Convention will stay applicable due to Art 69 EC. Denmark has agreed to Brussels I based on an agreement that entered into force 1 July 2007 ( OJ L94/70). Therefore, the 1968 Brussels Convention has finally been replaced.
3. Applicable law
a) Art 5 Rome Convention 1980 and Art 6 Rome I Regulation
The Rome I Regulation regulates conflicts of laws for consumer contracts within the EU. It replaces the 1980 Rome Convention for claims based on contracts concluded after 17 December 2009. In comparison with the Convention, this new instrument is broader concerning its substantive scope: Art 5 Rome Convention 1980 on consumer protection is only applicable to contracts for the supply of goods or services or a contract for the provision of credit for that purpose. Now, Art 6(1) Rome I is, in principle, applicable to all consumer contracts. This extension has long been needed in order to include intangible goods such as software and music downloads.
Pursuant to Art 6(4) Rome I, the exceptions set forth in the 1980 Rome Convention are left intact. Unfortunately, this includes services which were exclusively supplied outside the country of habitual residence of the consumer (eg hotel bookings, holiday language courses, sport programmes), contracts of carriage (see Art 5 Rome I, except travel packages, to which Dir 90/314 is applicable), contracts on property rights over immovables and, finally, rental agreements except for temporary tenancy according to Dir 94/47. Furthermore, Art 6(4)(d) and (e) Rome I exclude certain aspects of financial instruments. Article 7 Rome I is a special provision for insurance contracts which also has long been overdue as the 1980 Rome Convention did not apply to them. Pre-contractual relationships are only regulated by the provisions of the Rome II Regulation (see Art 1(2)(j) Rome I). A special provision for product liability obligations in tort can be found in Art 5 Rome II Regulation, which has been in effect since 11 January 2009.
In addition to the above-mentioned criteria in respect of personal and substantive scope, the special conflict of laws provisions require a certain geographical scope of activity, ie the professional party must either pursue his commercial or professional activities in the country of the consumer or, according to Rome I, direct such activities to that country ‘by any means’. This new general criterion replaces the former list specifying covered contract formation scenarios. Article 5(2) 1980 Rome Convention proved to be too inflexible, ie too broad for some situations, too fragmentary for others. The latter was the case concerning the controversial Gran Canaria cases. In those instances, tourists were solicited in a foreign country but were only to fulfil the contract upon return to their home countries with the result that consumer protection was often not adequately achieved (see, however, BGH 15 December 1990, BGHZ 113, 11).
For the sake of simplification, Art 6 Rome I no longer relies on the place where the consumer’s order was placed. This change is to be approved; in the age of modern communication technology, reasonable differentiations cannot be made on the basis of whether or not a consumer was located at his habitual residence while placing the order. The consumer’s location is incidental, and under a contrary rule the professional could potentially try to induce the consumer to leave his country of residence. The change due to Art 6 Rome I (compared to Art 5(2) first indent 1980 Rome Convention) is also consistent with the amendment in Art 15(1)(c) Brussels I (compared to Art 13(1)(3)(b) 1968 Brussels Convention).
Still, the new criterion of the ‘direction’ of commercial or professional activities to the consumer’s country of domicile needs clarification. This concept is deliberately open to construction in order to cover yet unknown marketing methods. This is not only true in the case of Rome I, but also for Brussels I, where it was first introduced in 2001 in order to include distance contracts (see 4. below regarding Art 15(1)(c)). Once again, this parallel leads to a harmonious relationship between PIL and PIPL. Consumers may file claims before the courts of their residence which, in turn, are under a duty to apply the consumer’s substantive law. This can be seen as an equitable balancing of interests. Whereas the professional may avoid the application of certain state laws by selectively directing his activities, the consumer is not deprived of the mandatory provisions in which he will generally have confidence (mandatory law (fundamental regulatory principles)).
Determining the applicable law pursuant to the ‘directed activity’ criteria requires a conscious and target-oriented measure having been taken in the direction of the state of residence of the consumer. It is insufficient to merely make a web page accessible, eg a publicly accessible web page with product information which includes links for orders to retailers. For a ‘directed activity’, the web page must offer the means of concluding a contract (eg by fax), and the contract has to be concluded in that manner. (For the concept of activity ‘directed to’ the Member State of the consumer’s domicile in the case of a presentation of the voyage and the hotel on a website see ECJ, Joined Cases C-585/08 and C-144/09 – Pammer, nyr) Moreover, neither the language nor the currency used by a website constitutes a relevant factor (recital 24 Rome I), a view which may make little sense in regards to languages less frequently spoken at the international level. A ‘directed activity’ may not only be assumed for online cases. It is also applicable to a variety of advertising methods (which were already expressly mentioned in both Conventions). This comprises newspaper advertisements and especially shipped catalogues and offers made by sales agents (ECJ Case C-96/00 – Gabriel  ECR I-6367 para 44). For both regulations, it is clearly necessary that the contract was concluded within the framework of the particular activity.
Article 5(2) 1980 Rome Convention allowed for a choice of law by the parties to consumer contracts. Whether this rule was to be preserved was subject to fierce argument between the Member States and within the European Parliament. The regulation—upon pressure by Germany and Luxembourg—preserves party autonomy: Art 3 and Art 6(2) Rome I allow choice of law also for consumer contracts, so that the professional’s law can still be chosen in his standard terms. This is to prevent an excessive burden on small and medium-sized businesses. The choice of law in such instances has to be—as usual—expressly stated or unambiguously implied by the clauses of the contract or by the circumstances of the case (Art 3(1) Rome I).
On the other hand, in the interest of sufficient consumer protection, the mandatory rules for consumer protection in the state of the consumer’s residence cannot be deviated from. For example, this may concern a mandatory national termination period for remedies for the breach of contract which surpasses the period prescribed by the Consumer Sales Directive (Dir 1999/44). This leads to the situation that a choice of law can still (as in the case of labour contracts) lead to the application of two legal systems: the chosen legal order, supplemented by the mandatory provisions of the law at the consumer’s residence. If the laws suggest different outcomes, the test of favourability remains necessary.
Where the chosen law is more favourable for the consumer than his own, he may benefit from a choice of law. Given this possibility of ‘cherry picking’, a choice of law is comparatively unattractive for the professional. The intricate test of favourability is usually not applied if the consumer already prevails on the grounds of his own law. Due to the advantages of the parallels between jurisdiction and applicable law, courts seemingly often simply apply the lex fori, thus ignoring the choice of law by the parties.
b) Conflict of laws in directives
Five of the more recent consumer law directives include restrictions in instances where non-Member State law has been chosen. Such limitations are based on the competence to establish the internal market through the harmonization of laws (and, therefore, lie beyond the 1980 Rome Convention and Rome I). PIL provisions of this nature can be found in Art 6(2) Dir 93/13, Art 9 Dir 94/47, Art 12(2) Dir 97/7, Art 7(2) Dir 99/44 and Art 12(2) Dir 2002/65. Aiming to ensure adherence to the rules laid down in the directives, they apply in cases where a contract has a ‘close connection’ with the territory of the Member States. The necessary measures have to be taken by both the EU states and (owing to the EEC treaty) by the members of the EEC.
4. Questions on jurisdiction—Arts 15–17 Brussels I Regulation
Since 1 January 2002, Arts 15–17 Brussels I (Reg 44/2001) determine jurisdiction for consumer contracts (and also include the local forum in the case of Art 16(1) Brussels I). Concerning Switzerland, Iceland and Norway, Arts 13–15 Lugano Convention are applicable which have been reformed according to the model of Brussels I.
As with other legislative instruments, Brussels I makes extensive exceptions to the principle of the defendant’s domicile, a principle that is generally laid down in Art 2(1). If the consumer is the claimant, he may choose between the court of his own domicile and the domicile of the defendant (Art 16(1) Brussels I). He will most probably choose the court of his domicile. On the other hand, if the professional files a claim, he can only do so in the courts of the consumer’s domicile (Art 16(2) Brussels I). The time of the filing the claim is of particular significance.
For the benefit of the consumer, the jurisdictional reach of his local court is broadened considerably. Under Art 15(2) Brussels I, professionals from non-EU states are also bound if they have a branch, agency or other establishment within the Union. This constitutes a partial exception from the condition contained in Art 4(1) Brussels I that the defendant has to have his domicile in a Member State. Additionally, the special jurisdiction of agency under Art 5(5) Brussels I must be observed (see Art 15(1) Brussels I).
Concerning the substantive scope, it needs to be noted that Brussels I does not exclude services performed outside the state of residence of the consumer (this approach should be followed also by Rome I). Whereas Brussels I provides for a catch-all clause with the concept of ‘directed activities’ in Art 15(1)(c), Art 13(1)(1) of the 1968 Brussels Convention had still been limited to service and sales contracts. This historic difference explains the explicit mentioning of Art 15(1)(a) and (b) on contracts for the sale of movables on instalment credit terms as well as contracts for a loan to finance such sale contracts.
Nonetheless, according to Art 15(3), the consumer protection section of Brussels I is not applicable to transport contracts unless they combine travel and accommodation for an inclusive price. Moreover, the rules for insurance claims (Arts 8–14 Brussels I) and the rules on exclusive jurisdiction, eg regarding tenancies of immovables (Art 22 Brussels I) supersede Arts 15-17.
Regarding the geographical scope of activities: under Art 15(1)(c) Brussels I, the claim in question is a consumer claim if the professional pursues commercial or professional activities in the Member State of the consumer’s domicile. In all other cases, (already commented on in section 3. a) above) the professional must direct his activities to the state in question. Again, the contract has to be part of the activities exercised in or directed to the jurisdiction in question, and the place where legal activities are conducted has lost its significance.
Choice of court agreements are for the most part prohibited in consumer cases and are only possible under Art 17 Brussels I (see Art 23(5) Brussels I). Such agreements are only valid if concluded after the dispute has arisen, if they allow for additional fora to the benefit of the consumer or under special circumstances where the consumer changes his domicile after the contract has been concluded. In addition, the formal requirements of Art 23 Brussels I have to be met, in particular the requirement of a written agreement. The provision does not exclude a further limitation, eg one based on Dir 93/13.
According to Art 24 Brussels I, a defect in jurisdiction can be cured where the defendant enters an appearance. However, the ECJ has decided on the grounds of Dir 93/13 that an arbitration agreement to the detriment of a consumer must be annulled where it results from an invalid arbitration clause whose invalidity was not brought up in the course of the arbitration proceedings (ECJ Case C-240/98 – Mostaza Claro  ECR I-4941). Furthermore, contrary to the general principle laid down in Art 35(3) Brussels I, the absence of jurisdiction in consumer cases precludes recognition and enforcement of foreign judgments. Therefore, judicial review of jurisdiction still needs to take place (Art 35(1) Brussels I).
Jürgen Basedow, ‘Consumer Contracts and Insurance Contracts in a Future Rome I-Regulation’ in Johan Meeusen, Marta Pertegás and Gert Straetmans (eds), Enforcement of International Contracts in the European Union —Convergence and Divergence Between Brussels I and Rome I (2004) 269; Lord Collins and others (eds), Dicey, Morris and Collins on the Conflict of Laws, vol II (14th edn, 2006) paras 33R-001 ff; Max Planck Institute for Comparative and International Private Law, ‘Comments on the European Commission’s Proposal for a Regulation of the European Parliament and the Council on the Law Applicable to Contractual Obligations (Rome I)’ (2007) 71 RabelsZ 225, 267; Peter Arnt Nielsen, ‘Jurisdiction Over Consumer Contracts’ in Ulrich Magnus and Peter Mankowski (eds), Brussels I Regulation (European Commentaries on Private International Law, vol 1 (2007); Lorna E Gillies, Electronic Commerce and International Private Law: A Study of Electronic Consumer Contracts (2008); Jonathan Hill, Cross-Border Consumer Contracts (2008); Norbert Reich, ‘Cross-Border Consumer Protection’ in Hans-W Micklitz, Norbert Reich and Peter Rott, Understanding EU Consumer Law (2009) 263; Paul Cachia, ‘Consumer Contracts in European Private International Law—The Sphere of Operation of the Consumer Contract Rules in the Brussels I and Rome I Regulations’ (2009) 34 E L Rev 476; Richard Plender and Michael Wilderspin, The European Private International Law of Obligations (3rd edn, 2009) 223 ff; Francesca Ragno, ‘The Law Applicable to Consumer Contracts Under the Rome I Regulation’ in Franco Ferrari and Stefan Leible (eds), Rome I Regulation—The Law Applicable to Contractual Obligations in Europe (2009) 129.