1. Function, concept and diversity of meanings
Transparency plays a decisive role in market economies (including the Common Market), but it does not apply as an invariable rule or principle. Without minimum transparency of quality and prices, the opposite side of the market would not be able to compare offers and choose wisely. There would not even be a chance that the contract mechanism would produce equal results (Richtigkeitschance); freedom of contract and private autonomy would not be possible in any reasonable manner. Hence, transparency is a precondition for informed decisions by market participants, for the formation of market prices, and ultimately for workable competition. On the other hand, however, pure and exhaustive transparency would challenge ‘competition as a discovery procedure’, given that only the intrinsic value of information and its commodification create incentives for innovation. Moreover, if transparency was comprehensive, the search for favourable offers (‘grab a bargain!’) would be pointless. As a consequence, there is no general principle of transparency, neither in competition law nor in contract law. Instead, the core challenge for regulators consists in achieving a market-compatible degree of transparency, thereby avoiding an excess as well as a deficiency of transparency.
The concept of transparency has ambiguous meanings and is used differently, if not contradictorily, in different contexts. From the perspective of information recipients, markets are regarded as transparent when the information that is available is as comprehensive as possible. For the one holding the information, in contrast, transparency does not necessarily imply disclosure, but requires in the first instance refraining from deceit with regard to certain facts, and ‘not dissimulating’. As far as information is provided, transparency concerns a clear and comprehensible form of presentation, ie primarily ‘how’, not ‘if’ information is disclosed. For the rule-maker, transparency stands for the potential regulatory objective of ‘see-through’ markets, achievable by various means (including standardization in substance). From this perspective, however, transparency also describes a specific regulatory instrument which often has a comprehensive meaning synonymous with information obligations (information obligations (consumer contracts)) of all sorts and which, at the same time, works as a counterpart to mandatory substantive rules (mandatory law (fundamental regulatory principles)).
Accordingly, the scope of application, purpose and subject of regulation are very heterogeneous. Transparency rules and even ‘transparency directives’ are to be found in the most diverse areas of law. In European constitutional law, transparency stands for a comprehensible, open way of decision-making, most prominently addressed by Art 1(2) TEU/1(2) EU. This concerns the principle of checks and balances and more generally the democratic legitimacy of the rule-making process (see also Art 233 TFEU/200 EC), in particular access to the documents of the European Parliament, the Council and the European Council and the European Commission (see Art 255 EC and supplementary provisions; similarly in Art 15 TFEU). Specific transparency rules are laid down for instances where the state acts as a market participant or affects markets, namely in relation to acts of public procurement and state aid but also in respect of public undertakings. For the latter context, a separate Transparency Directive applies (Dir 80/ 723, now replaced by Dir 2006/111, not to be confused with the Transparency Directive in securities law, Dir 2004/109) and requires disclosure of financial relations between Member States and public undertakings in order to prevent cross-subsidies. Finally, for relations between private actors, unfair competition law provides for a very broadly worded prohibition of misleading omissions in Art 7 Unfair Commercial Practices Directive (Dir 2005/29). This may ultimately result in a duty of general pre-contractual information with a consequence that many fear to be excessive—and not exactly transparent—information. In contract law, specific information and instruction obligations apply and are regarded as transparency instruments even though their objectives are rather diverse (eg efficiency of other protective mechanisms, protection of economic self-determination, information about risks, disclosure of conflicts of interest). The same is true for disclosure rules in securities law and company law (disclosure). In company law, these obligations serve, moreover, the information of two different recipients, investors as well as creditors. This divergence is particularly striking with respect to accounting, where one and the same instrument aims at achieving transparency in two very different markets (the markets for equity and debt capital).
2. Foundations in EU primary law
In EU primary law, the concept of transparency is usually derived from the fundamental freedoms (general principles); some writers have developed a comprehensive information model on this basis. In the leading case of Cassis de Dijon, the ECJ disallowed a mandatory product standard (minimum alcoholic content) on the basis that the asserted justification of protecting consumers from misleading information was also achievable by way of a simple information obligation, which would constitute a less restrictive measure (ECJ Case C-120/78 – Rewe/Bundesmonopolverwaltung  ECR 649). The decision does not, however, imply a general primacy of information and transparency rules over mandatory substantive rules because various, partly opposed, factors need to be considered when questions concerning the principle of proportionality are assessed.
In the first place, the substantive grounds for justifications are important. The question of proportionality is of minor importance in any event where measures are not justified by mandatory requirements relating to the public good but instead serve to combat abuse or fraud. For other protective purposes, the instrument of transparency turns out to be of variable effectiveness: whereas it proves to be a relatively reliable remedy against risks of misleading statements, it is apparently less effective when it comes to combating health or accident hazards. The relevance of the information model, derived from the fundamental freedoms (fundamental freedoms (general principles)), has therefore much to do with the phenomenon that many, but by no means all, private law rules primarily serve the regulatory objective of reducing information inadequacies.
Another important criterion relates to the presumed information recipient and his individual capacities. The European Court of Justice (ECJ) applies the standard of ‘an average consumer who is reasonably well informed and reasonably observant and circumspect’ (ECJ Case C-210/96 – Gut Springenheide  ECR I-4657 para 31). On such a basis, information rules are more likely to be suitable for the respective protective purposes than a lower standard, like the hasty, inattentive and non-critical consumer formerly adopted by the German Federal Supreme Court (Bundesgerichtshof) (see eg BGH 2 April 1971  GRUR 365, 367) for only consumers that are able and willing to inform themselves can be protected by information rules alone. On the other hand, the standard imposed by the ECJ sets limitations on transparency rules. An excess of information or particularly strict requirements of clarity and comprehensibility are simply not necessary if consumers are presumed to pay close attention. ECJ decisions concerning national requirements with respect to languages illustrate this point. An obligation to translate product descriptions or contract clauses into a specific language is not automatically compatible with fundamental freedoms (general principles), when symbols or icons would be sufficient to achieve the protective purpose (see, above all, ECJ Case C-33/97 – Colim  ECR 3175).
One should finally keep in mind that the ECJ, under the fundamental freedoms jurisprudence, does not prescribe a specific solution, but rather identifies the maximum extent to which national rules are permissible (prohibition of disproportionate measures, Übermaßverbot). Member States are therefore not generally required to adopt information rules. Essentially, it is at their own (albeit limited) discretion which instrument they choose for protective purposes. A fortiori, the Member States enjoy discretion if the fundamental freedoms are applied from the opposite perspective, as an obligation to intervene, not as a prohibition of limitations (prohibition of insufficient measures, Untermaßverbot). Last but not least, the discretion of the European legislature is particularly broad given that uniform rules, regardless of their intensity, generally contribute to facilitating cross-border activities simply because they apply consistently throughout the whole internal market (European internal market).
3. Specific dimensions in EU secondary law
The following section provides a short overview over information rules that do not regulate the ‘if’, but rather the ‘how’ information is to be supplied (transparency in the strict sense). For transparency rules under EU secondary law in a broader sense, reference is made to more specific entries, namely disclosure; mandatory disclosure (securities markets); accounting; information obligations (consumer contracts); information obligations (insurance contracts); information obligations (labour contracts).
a) Clarity and intelligibility
In various respects, EU secondary law stipulates a general duty to formulate documents in a clear and intelligible way. A prime example is the transparency obligation in the Unfair Contract Terms Directive (Dir 93/13). The basic idea is stated in recital 20: ‘Whereas contracts should be drafted in plain, intelligible language, the consumer should actually be given an opportunity to examine all the terms and, if in doubt, the interpretation most favourable to the consumer should prevail’. With respect to terms offered in writing, Art 5 Unfair Contract Terms Directive resumes this idea, whereas, according to Art 4(2), terms relating to the main subject matter of the contract or the adequacy of the price and remuneration are exempted from an assessment of their unfair nature if they are in plain and intelligible language. This distinction is rooted in the core idea of a market economy, namely that the adequacy of performance and consideration is generally best assessed by markets themselves, and that questions of equivalence should therefore only be evaluated by courts if, due to a lack of transparency, the market mechanism fails by way of exception. For any other standard term (‘in writing’), however, such market failure can arguably be presumed given the intrinsic asymmetry of information. The rule that a lack of clarity inures to the detriment of the drafter creates an incentive to formulate terms clearly and intelligibly. However, the directive does not stipulate more specific requirements of transparency, but leaves this task to contract draftsmen and to the courts. The most important requirements concern, on the one hand, the formal layout (completeness; internal comprehensibility, ie no reference to any other document; intelligibility of the single letters and of the document as a whole) and, on the other hand, the substance (contents and structure; language; unambiguous wording). A more detailed rule concerns the pre-contractual information duty in distance-selling situations. According to Art 4(2) Distance Selling Directive (Dir 97/7), four different aspects need to be taken into account when assessing whether information is clear and comprehensible: clarity of the commercial purpose, appropriateness with respect to the medium in which the information is given (distance communication), common practice (principles of good faith in commercial transactions) and finally the individual capacities of the information recipient (when at a particularly low standard, ie minors). This enumeration is not very detailed either, but it illustrates at least some essential criteria upon which every assessment of transparency ultimately depends.
A specific question that is of particular importance in cross-border situations concerns the language in which information has to be supplied. Language is of crucial importance for clarity and intelligibility. This correlation is specifically emphasized in some provisions (eg Art 36 Payment Services Directive (Dir 2007/64)). An obligation to use a single, uniform language throughout the entire internal market would, however, be in conflict with the protection of cultural diversity. A universal obligation to translate information, on the other hand, would incur substantial costs. This explains the significance of the dispute whether the duty to formulate in a clear and intelligible way implies an obligation to supply information in a language that the recipient can easily understand. A reasonable choice of language largely depends on the respective context and on individual recipients, so that specific requirements seem more appropriate than a general, implicit rule. Above all, the formulation of such a general rule would disregard the European legislature having explicitly stipulated a number of specific, partly divergent language rules (particularly extensive: Art 5(1) Time-Share Directive (Dir 2008/122, replacing Dir 94/47)). Nonetheless, Member States may have an obligation, on the basis of their duty to transpose directives effectively, to prevent circumvention of transparency obligations by resort to an incomprehensible language. Given that the focus of EU primary law is on reasonably well-informed consumers, however, Member States enjoy a large degree of discretion in this respect.
In certain specific areas a number of information rules specify the general duty to formulate texts in a clear and intelligible way. There are mainly two different regulatory strategies that can be distinguished. One strategy concerns standardization of information, referring not only to detailed lists of single items of information subject to disclosure requirements (completeness), but also with respect to uniform standards of layout formats. Examples are to be found mainly among disclosure rules, in particular in the areas of accounting, mandatory disclosure (securities markets) and prospectus liability), but they are also anchored in specific contract-law duties of information (see eg Art 22 Services Directive (Dir 2006/123), in particular para 6 as well as Arts 4 ff Consumer Credit Directive (Dir 2008/ 48)). All provisions require a particular ‘processing’ of information, namely with respect to editing and presentation. Hence, the cost of information processing is partly shifted to the information supplier, who will, however, regularly incur relatively lower costs for this task than information recipients due to economies of scale. The recipient, in turn, can compare different options (offers) much more conveniently whenever information is supplied in a standardized way: such information can simply be placed ‘side by side’. Standardization of information thus facilitates the comparison of market offers and thereby necessarily increases transparency.
The second regulatory strategy may indeed seem diametrically opposed, but serves the same purpose and has similar effects. It concerns individualization of information, namely its adaption to each individual recipient. This concept cannot be applied where disclosure is broadly targeted towards entire markets (where financial intermediaries may take over similar functions), but it is quite common in the context of pre-contractual information duties. For an illustrative example, one may think of the rules applicable to investment services. The so-called ‘know your customer rule’ lays the groundwork for the obligation to align advice and instruction with each customer’s individual investment objectives and information needs. Transparency needs to be ensured on a very individual basis and must therefore not be oriented towards some typical, idealized recipient of information. Article 19(3)2 MiFID (Dir 2004/39) shows that both regulatory strategies may nonetheless be combined to a certain extent. Some information may very well be supplied even in a standardized form but needs to be explained more specifically to individual customers under certain conditions. A similar approach is taken by the new Consumer Credit Directive: Art 5(6) supplements the conventional extensive catalogue of standardized information in Art 5(1) with an obligation to explain credit agreements adequately to potential borrowers. Member States may adapt the modalities of such assistance ‘to the particular circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the type of credit offered’. This illustrates the manifold dimensions of individualization of information. More generally, an individual processing of information provides for a particularly high degree of transparency, adapted to each individual market participant if not to each specific situation of decision making. On the other hand, such an individual design of information imposes even more additional costs of information processing on the information supplier than does standardization (no economies of scale). This regulatory strategy is therefore only applied where the (financial) product in question is considered to be particularly ‘dangerous’.
4. Trends in a common European law (CFR)
The Common Frame of Reference (CFR) covers, on the one hand, the prohibition of fraud, ie the ‘negative’ aspect of transparency as it used to prevail in conventional private law regimes as well as in the Principles of European Contract Law (PECL). In the framework of rules on mistake, fraud is defined comparatively broadly in that it includes the non-disclosure ‘of any information which good faith and fair dealing, or any pre-contractual information duty, required that party to disclose’ (Art II.-7:205(1), with certain specifications in para 3). The sanction consists, as usual, in the other party’s option to avoid the contract or to claim damages (see Arts II.-7:205 and 7:214).
Moreover, the rules make an attempt to comprehensively regulate pre-contractual information duties (which constitute, at the same time, a pre-condition for fraud). By this means, the very differentiated, contract- or situation-specific rules of the various consumer protection directives are extended in a very general way and are partly even applied to commercial transactions (see Art II.-3:101 ff).
This approach is controversial. It gives rise to insistent warnings ‘that in contractual relations comprehensive disclosure appears to constitute the general rule and only exceptionally each party is individually responsible for supplying itself with the required information’. One is mainly concerned that the prohibition of misleading omissions in competition law (Art 7 Unfair Commercial Practices Directive) might be transformed into a general pre-contractual information duty. Another concern is a potential generalization of the transparency rule in sales law, forcing sellers to disclose any deviation from the market standard in order to avoid liability risks (Art 2(2) Consumer Sales Directive (Dir 1999/ 44)). The regulatory challenge of finding a happy medium between potential transparency excesses and deficiencies therefore needs to be addressed anew when it comes to the future development of a European private law.
Holger Fleischer, Informationsasymmetrie im Vertragsrecht (2001); Stefan Grundmann, Wolfgang Kerber and Stephen Weatherill (eds), Party Autonomy and the Role of Information in the Internal Market (2001); Stefan Grundmann, ‘Information, Party Autonomy and Economic Agents in European Contract Law’ (2002) 39 CMLR 269; Reiner Schulze, Martin Ebers and Hans Christoph Grigoleit (eds), Informationspflichten und Vertragsschluss im Acquis communautaire (2003); Gerraint Howells, Andre Janssen and Rainer Schulze (eds), Information Rights and Obligations: A Challenge for Party Autonomy and Transactional Fairness (2005); Karl Riesenhuber, Europäisches Vertragsrecht (2nd edn, 2006); Wolfgang Schön, ‘Zwingendes Recht oder informierte Entscheidung’ in Festschrift Claus-Wilhelm Canaris (2007) 1191; Bart Driessen, Transparency in EU Institutional Law (2008); Michelle Kelly-Louw, James Nehf and Peter Rott (eds), The Future of Consumer Credit Regulation—Creative Approaches to Emerging Problems (2008); Wolfgang Schön (ed), Rechnungslegung und Wettbewerbsschutz im deutschen und europäischen Recht (2009).