Right of Withdrawal
The right of withdrawal affords consumers a subsequent moment of pause to reflect on a completed transaction, a so-called cooling-off period. Without being under the influence of the contractor, the consumer should be able to consider whether he still desires the concluded contract (consumers and consumer protection law). In many respects he should be able to ascertain facts that could not be known or determined before the conclusion of the contract. He should be able to detach himself from the rash conclusion of the contract; he should be able to examine the performance of the contractor under a distance contract; he should be able to study the contract terms of rather complex transactions (eg consumer credit contracts) and draw comparisons of the conditions in the market; he should, with a clear head and through further consideration, determine if there still is a need for the conclusion of the contract.
2. Prevalence and definition
The right of withdrawal is one of the three characteristic elements of modern consumer contract law along with the duty to inform and the (semi-) mandatory nature of such provisions. But not every European regime addressing consumer protection contains this right; and, where it exists, it often fulfils different purposes and follows different rationales in different areas. It grants protection against being taken by surprise in the event of doorstep selling (Art 5 Doorstep Selling Directive, Dir 85/577), against the risk of acquiring unknown goods or services in the event of distance contracts (Art 6 Distance Contracts Directive, Dir 97/7; Art 6 Distance Contracts of Financial Services Directive, Dir 2002/65), against the extensive and barely comprehensible content of contracts in the event of consumer credit (Art 14 amended Consumer Credit Directive, Dir 2008/48) and against timesharing (Art 5 Timeshare Directive, Dir 94/47). On the European level, it first emerged in the field of doorstep selling, the most recent area of application being consumer credit (consumer credit (regulatory principles)) with the amendment of the Consumer Credit Directive (EU consumer credit law). In this latter field the national legislatures were free to introduce a right of withdrawal, a liberty which Germany in particular made use of. There is no right of withdrawal concerning the sale of consumer goods and concerning package holidays. The right of withdrawal is therefore only a typical but not necessary element in the different consumer protection regimes.
The several regimes can differ in detail. This is particularly the case with regard to exceptions as well to the commencement and duration of the period of expiry. There is simply no uniform European model capable of overarching all regimes. A number of fundamental characteristics and fundamental constructions are common to all systems, yet the particulars can differ. The different modes of the right of withdrawal also vary depending on the reach of the Union regulation vis-à-vis the gap-filling national law. As far as full harmonization prevails (thus far, in the Distance Contracts of Financial Services Directive and in the amended Consumer Credit Directive), the national legislature typically has no space left for manoeuvring and can at best implement additions where Union law does not regulate each and every detail. However, the EU legislature strives for standardization. In October 2008, the Commission presented a proposal that strives for a detailed and consistent harmonization. According to Art 12(1) of the proposed Consumer Rights Directive (COM(2008) 614), a period of 14 days would basically start running from signing the order sheet. This has remained substantially unaltered in the compromise and the Parliament’s approval dated 22 June 2011.
3. Legal standing during the course of the cooling-off period
Concluded distance contracts are (preliminarily and temporarily) effective during the cooling-off period. In these instances, any other approach would be contrary to the function of the right of withdrawal since the right intends to allow the consumer to inspect and examine the goods or services to be delivered by the professional party, something that is not possible when a distant selling contract is concluded because the goods are not then present before the consumer and services are to be rendered in the future only. In order for the consumer to secure the performance of the contractor, he needs a claim for performance and this only follows from a (provisionally) effective contract. The situation is different on the other hand for the right of withdrawal with respect of doorstep selling. Here, the right is designed to protect the consumer from making rash decisions. Such protection would be incomplete if the contractor could effectively claim payment or other consideration during the cooling-off period.
With regard to doorstep selling and timeshare contracts, preliminary ineffectiveness is thus the appropriate legal consequence. Only such preliminary ineffectiveness prevents the professional seller from claiming consideration. For consumer credit contracts, preliminary effectiveness appears inappropriate because it would allow interest to run before the cooling-off period expires. Preliminary ineffectiveness thus is the modality most favouring the consumer and giving maximum support to the effet utile of the right of withdrawal. Union law does not contain express guidelines for the national legislatures to this avail, though. The national legislatures may deviate considerably from the ideal model and provide preliminary effectiveness. The spectrum of legal consequences during the cooling-off period in the national jurisdictions ranges from preliminary effectiveness across unenforceability and preliminary ineffectiveness and on to nullity of the contract (and passes through all possible variations). Within this spectrum, the nullity sanction results from a failure to comply with the duty to inform a consumer of the right of withdrawal. Article 12(4) of the proposed Consumer Rights Directive requires that Member States not forbid the contracting parties from fulfilling their obligations during the cooling-off period.
4. Duty of the contractor to inform the consumer of the existence of the right of withdrawal
The contractor has to inform the consumer of the existence of the right of withdrawal and of the possible consequences. If he does not do so at all or does so incorrectly or incompletely, the cooling-off period will not commence; in this event the consumer essentially gains a perpetual right of withdrawal. The right would not be effective and worth nothing if the consumer were unaware of it, and exactly that danger would exist without the duty to inform. Otherwise, one would have either an—uninformed—consumer cloaked with a right whose probability of exercise would be virtually nil (as would be the deterrent effect on the contractor) or, alternatively, a consumer forced to overcome his rational disinterest and invest the effort to learn of his right. The latter could hardly be amortized by the consumer. The duty to inform is the perfect instrument to balance an information asymmetry: the informed party should provide the non-informed party with information whose acquisition is connected with low one-off cost. These low information costs are neglected and have significant rationalization possibilities. Balancing and compulsory sharing of information eliminates any information asymmetry. The necessary enticement for the entrepreneur to attend to his duty comes not from a liability for damages, but rather the avoidance of uncertainty, which would otherwise loom over the final destiny of the contract. The entrepreneur who properly instructs the consumer is rewarded by being sure of the contract’s validity at the end of the cooling-off period. Conversely, the non-informing entrepreneur is punished because the cooling-off period never even begins and the right of withdrawal is virtually unlimited (ECJ Case C-481/99 – Heininger  ECR I-9945). However, the entrepreneur can also belatedly provide the required advisement and, thus, initiate a concededly extended withdrawal period.
In practice, most problems relate to the proper instruction regarding the beginning of the cooling-off period. Especially where several regimes overlap, it may be difficult for sellers to know which law determines the proper moment of time. To a certain degree, even when the controlling law is apparent, discerning the correct formulation may cause difficulties, particularly as to whether the period begins to run on the day the consumer is informed about his right of withdrawal or whether the period starts a day later. A mistake on even one single point infects the whole instruction and makes it ineffective.
According to Art 13 of the proposed Consumer Rights Directive, the period of expiry in the event of incorrect construction should be three months from the time when the professional has fulfilled his other contractual obligations.
5. Exercising modalities
The consumer does not need to state a basis for his withdrawal. This is sensible since the consumer should not generally be obliged to give an account of his motives. Additionally, the lack of an obligation to give reasons makes it easier to withdraw, and thus the right of withdrawal becomes more effective as further hurdles in the way of withdrawing are avoided.
The same applies for the form of withdrawal. Documentation is required only on a durable medium that is written and technically reproducible. A withdrawal by return of the goods is manifestly sufficient even if it can be difficult to ascertain if the return was actually intended as a notice of defect or a demand to remedy. A purely oral withdrawal, including by telephone, does not however suffice because, institutionally, it generates too much leeway for disputes due to its inherent lack of documentation, and sellers would be afforded an all-too easy means of escaping the provision, namely by simply alleging that the consumer had failed to revoke properly.
The most complex aspect is the period for withdrawing. Generally, it commences with the receipt of a correct notice of the right of withdrawal. However, further elements can be superimposed on this obligation, especially in the field of distance contracts, namely that the entrepreneur fulfils other obligations to inform. Furthermore, the beginning of the cooling-off period can vary in the several areas, again especially in the field of distance contracts. There, the protective aim demands that the period must not begin before the consumer can review the offered performance. Article 14 in conjunction with Annex I Part B of the proposed Consumer Rights Directive attempts to introduce an optional standard withdrawal form, including the option to electronically fill in and submit the standard withdrawal form on the trader’s website for distance contracts concluded on the internet.
The withdrawal should not cause high costs or charges for the consumer. Special costs or charges could deter the consumer from revoking. Such deterrent effects would affect the utility of the right of withdrawal. Hence, contract terms that impose an all-inclusive ‘contract handling charge’ in the event of withdrawal are null and void.
6. Free exercise of the right of withdrawal
The consumer can exercise his right of withdrawal ad libidum. He is not subjected to any restrictions. In particular, it is not required that the rationale underpinning the protection at issue is actually present in the specific case as the need for protection is presumed irrefutably and thus in an abstract and apodictic manner. Therefore, a consumer can also exercise a right of withdrawal in reaction to a defect in the goods he acquired. Consumers’ rights of withdrawal often co-exist alongside warranty rights. For the entrepreneur this is not unfair because he can readily foresee whether his contracts fall within a category for which a right of withdrawal exists. Thus he can realize rationalization potentials. Abstract regulation may have excessive moments, but in the end it is more economical for the entrepreneur than an individual assessment in each case. Providing evidence of a specific lack of need of protection would require unnecessarily high costs. If, conversely, the consumer had to prove his need of protection, the effects would be prohibitive and disavow any protective purpose.
7. Legal consequences of withdrawal
If the right of withdrawal is exercised in a timely fashion, the consumer’s contractual commitment becomes ineffective and is terminated. This in turn voids the entire contract since any contract requires mutual consent by both parties. Performances that were performed under the contract now rendered ineffective are to be returned. Subject to specific guidelines, the national legislatures are free to decide in such instances whether they wish to employ their national regime on the consequences of rescission in general (if such regime exists) or their national law on restitution (again insofar as such regime exists) or whether they opt to develop their own reverse transaction regime specifically for the situation that arises after withdrawal. This decision is only subject to the effet utile being respected (ECJ Case C-350/03 – Schulte v Badenia  ECR I-9215, I-9261). A specific and detailed regulation on interest obligations and an exclusion of further compensation has been implemented by virtue of Art 14(3)(b) Amended Consumer Credit Directive. Article 17 of the proposed Consumer Rights Directive expressly addresses the consumer’s return obligations and liability for diminished value.
8. Probability of exercise
The right of withdrawal is essentially a force in being. Its existence alone exerts a disciplinary effect on earnest entrepreneurs. Fraudulent entrepreneurs, conversely, are not deterred from their behaviour. The probability that a right of withdrawal is actually exercised is—apart from distance contracts—very small and amounts to less than 5 per cent of all contracts. In the realm of distance contracts there are allegedly some areas where this total rises to 20–30 per cent. In the area of consumer credit contracts—because of the high volume—there is the highest probability that a withdrawal results in a dispute over the unwinding of the contract. This is frequently the case in linked credit agreements, particularly in those related to property financing.
The various regimes which establish the right of withdrawal also contain numerous exceptions. Political compromises which embraced the concerns of the respective industries can be detected in exceptions, but also characteristics of each area are reflected. The latter applies namely to those exceptions in the Distance Contracts Directive (Dir 97/7) which are based on the information paradox whereby an item of information cannot be returned once it has been disclosed.
To a certain degree, a number of questionable exceptions favour certain industries with a reputation for strong lobbying, eg in the field of distance contracts. Pursuant to Art 6(3) Distance Contracts Directive, the consumer may not exercise a right of withdrawal for the provision of services if performance has begun, with the consumer’s consent, before the time limit of seven days has expired, regardless of the fulfilment of information obligations. This cannot be easily reconciled with the rationale of the Distance Contracts Directive that the consumer should be able to ask for and examine the services contracted for. Similarly, the Distance Contracts Directives also contains exceptions for gaming and lottery services. The reason underpinning this exception is that consumers should not be in a position to speculate without assuming any risk of their own to the detriment of the entrepreneur. Nevertheless, these very sectors have been shown to be quite aggressive and dangerous for the consumer.
There are also exceptions with regard to de minimis cases in which a reversal of the transaction would be inefficient because the cost for doing so would exceed the benefit possibly gained; this is, especially, an option provided to the national legislature in Art 3(1) Doorstep Selling Directive.
The catalogue of exceptions will become the subject of a consolidation under the future Consumer Rights Directive, yet without any major changes as to substance.
10. Termination as a matter of fact
Depending on the breadth and scope of the respective Union regime, Member States may be at liberty to introduce special grounds for ending the right of withdrawal. This applies especially for termination of the right as a consequence of the complete fulfilment of both parties’ obligations (ECJ Case C-412/06 – Hamilton  ECR I-2383). The lapsing of the cooling-off period is, thus, not the only possible reason for ending the right of withdrawal. Full harmonization would leave no space for such national regulation, though. Under Art 6(2)(c) Distance Contracts of Financial Services Directive, for example, a right of withdrawal ceases to exist if the contract is fulfilled on the customer’s express request before he has exercised his right of withdrawal.
11. Increased scope by virtue of Member State law
Insofar as the respective directive does not establish full harmonization, the Member States are at liberty to also introduce a right of withdrawal where it would not exist by virtue of a directive alone. This can become of particular importance, namely in the area of connected contracts (combining sales and their financing operations), but also where exceptions to individual regimes at the national level are subject to a new legislative evaluation and are not prolonged or are subsequently abolished (eg for lotteries and gambling in distance contracts). From a German perspective, the nationally introduced right of withdrawal with regard to consumer credit contracts serves as the prime example (until the implementation of the amended Consumer Credit Directive).
Janko Büßer, Das Widerrufsrecht des Verbrauchers (2001); Susanne Kalss and Brigitta Lurger, Rücktrittsrechte (2001); Nikolaj Fischer, Das allgemeine verbraucherschützende Widerrufsrecht gemäß § 355 BGB (2003); Peter Mankowski, Beseitigungsrechte (2003); Hannes Rösler, Europäisches Konsumentenvertragsrecht (2004); Marco BM Loos, ‘The Case for a Uniform and Efficient Right of Withdrawal from Consumer Contracts in European Contract Law’ (2007) 15 ZEuP 5; Georg Borges and Bernd Irlenbusch, ‘Fairness Crowded Out by Law: An Experimental Study on Withdrawal Rights’ (2007) 163 JITE 84; Evelyne Terryn, Bedenktijden in het consumentenrecht (2008).