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12 Consumer Contracts

From: The Rome I Regulation on the Law Applicable to Contractual Obligations

Michael McParland

Content type:
Book content
Product:
Private International Law [PRIL] — International Commercial Law [ICML]
Published in print:
19 March 2015
ISBN:
9780199654635

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

Subject(s):
Choice of law clauses — Rome Convention — Rome I Regulation and choice of law

(p. 495) 12  Consumer Contracts

Article 6

Consumer contracts

  1. 1.  Without prejudice to Articles 5 and 7, a contract concluded by a natural person for a purpose which can be regarded as being outside his trade or profession (the consumer) with another person acting in the exercise of his trade or profession (the professional) shall be governed by the law of the country where the consumer has his habitual residence, provided that the professional:

    1. (a)  pursues his commercial or professional activities in the country where the consumer has his habitual residence, or

    2. (b)  by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities.

  2. 2.  Notwithstanding paragraph 1, the parties may choose the law applicable to a contract which fulfils the requirements of paragraph 1, in accordance with Article 3. Such a choice may not, however, have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable on the basis of paragraph 1.

  3. 3.  If the requirements in points (a) or (b) of paragraph 1 are not fulfilled, the law applicable to a contract between a consumer and a professional shall be determined pursuant to Articles 3 and 4.(p. 496)

  4. 4.  Paragraphs 1 and 2 shall not apply to:

    1. (a)  a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence;

    2. (b)  a contract of carriage other than a contract relating to package travel within the meaning of Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours [15];1

    3. (c)  a contract relating to a right in rem in immovable property or a tenancy of immovable property other than a contract relating to the right to use immovable properties on a timeshare basis within the meaning of Directive 94/47/EC;

    4. (d)  rights and obligations which constitute a financial instrument and rights and obligations constituting the terms and conditions governing the issuance or offer to the public and public take-over bids of transferable securities, and the subscription and redemption of units in collective investment undertakings in so far as these activities do not constitute provision of a financial service;

    5. (e)  a contract concluded within the type of system falling within the scope of Article 4(1)(h).

A.  Protecting the Weaker Party

12.01  Consumers engaged in certain cross-border transactions are a specially protected species in European law private international law.2 These protections share a common objective with those found in the partial harmonization of Member States’ domestic laws. They are based on the idea that the consumer is in a weak position vis-à-vis the seller or supplier of goods or services, as regards both his bargaining power and his level of knowledge.3

Consumer protection

12.02  Consumer protection has been an evolutionary, incremental process within Europe.4 The 1957 Treaty of Rome concentrated on producers, but as early as 1961 it was recognized within the European Commission that ‘the general interests of consumers in the Common Market are not represented to the extent as those of producers’.5 Thereafter a broader recognition of the role of the consumer within the European project has evolved because of both the drive to expand the Internal Market and changes made within the national laws of Member States.6

(p. 497) 12.03  Recognition by legislators of a need to protect consumers (and others) against unfair contract terms began at national law level. At Community level, creating the Internal Market resulted in a wide-range of consumer protection Directives that now form the ‘consumer acquis’. These have included Directives on misleading advertising and comparative advertising,7 product liability,8 doorstop selling,9 consumer credit,10 package holidays,11 unfair terms in consumer contracts,12 timeshare contracts,13 cross-border credit transfers,14 distance selling,15 unfair business-to-consumer commercial practices,16 consumer credit agreements,17 injunctions for protecting consumer’s interests,18 sale of consumer goods and associated guarantees,19 electronic commerce,20 and credit agreements relating to residential immovable property.21

12.04  The Consumer Rights Directive (2011/83/EU)22 replaced, as of 13 June 2014, the earlier Directive (97/7/EC) on the protection of consumers in relation to distance contracts and Directive (85/557/EEC) on consumer protection in relation to contracts negotiated away from the business premises were repealed. Directive (1999/44/EC) on certain aspects of the sale of consumer goods and associated guarantees, and Directive (93/13/EEC) on unfair terms in consumer contracts were amended but remain in force. Many of these Directives will provide assistance in interpreting Article 6.

B.  The 1968 Brussels Convention

12.05  The 1968 Brussels Convention made no reference to the term ‘consumer’. Instead, limited special jurisdictional protections were given to ‘buyers’ under contracts for the sale of goods on instalment credit terms, and ‘borrowers’ under a loan contract expressly made to finance the sale of goods and repayment by instalments.23 These provisions derogated from the basic jurisdictional rules and permitted actions against a seller or lender to be instituted by the buyer or borrower either in the courts of the State in which the defendant was domiciled or, importantly, in the courts of the State in which the buyer or borrower was domiciled, ie their ‘home courts’. Buyers and borrowers were also protected by a requirement that any action by the seller or lender against them ‘may in general be brought only in the courts for the place where the buyer or borrower is domiciled when the proceedings are (p. 498) instituted’.24 The terms ‘buyers’ and ‘borrowers’ were not further defined, and the provisions did not refer to any other supplies of goods or services other than the sale of goods.25 In Société Bertrand,26 the Court held that the original Article 13 of the 1968 Convention was not to be understood to extend to the sale of a machine by one company to another on the basis of a price to be paid by way of bills of exchange spread over a period. Adopting a restrictive teleological interpretation of the term ‘buyer’, the Court declared these provisions were ‘inspired solely by a desire to protect certain categories of buyers’, namely:

buyers who are in need of protection, their economic position being one of weakness in comparison with sellers by reason of the fact that they are private final consumers and are not engaged, when buying the product acquired on instalment credit terms, in trade or professional activities.27

12.06  The autonomous concept in European private international law of the private final consumer, as someone who concluded a contract when not engaged in trade or professional activities was born.

The 1978 amendments

12.07  The 1968 Brussels Convention was amended in 1978 to take account of the accession of Denmark, Ireland, and the United Kingdom to the European Community. The working party on that project recognized that amendments had to accommodate developments in consumer protection laws within Member States. The existing provisions considered in Société Bertrand had been ‘consistent with the law as it then stood in the original Member States…since it was in fact only in the field of instalment sales and loans that awareness of the need to protect the consumer against unfairly worded contracts became widespread’.28 But developments at national level involving ‘a general move in consumer protection legislation to ensure appropriate jurisdictions for the consumer’ was recognized. Consequently ‘intolerable tensions’ would be bound to develop between national legislation and the 1968 Convention in the long run ‘if the Convention did not afford the consumer much the same protection in the case of transfrontier contracts as he received under national legislation’.29

12.08  The solution was for the existing special jurisdiction provisions to be extended to cover ‘consumer contracts’. These would cover ‘only final consumers acting in a private capacity should be given special protection and not those contracting in the course of their business to pay by instalments for goods and services used’.30 Section 4 of the 1968 Brussels Convention was therefore revised.31 Article 13 (‘Jurisdiction over consumer contracts’) now provided:

In proceedings concerning a contract concluded by a person for a purpose which can be required as being outside his trade or profession, hereinafter called ‘the consumer’, jurisdiction shall be determined by this section, without prejudice to the provisions of Article 4 and point 5 of Article 5, if it is—

  1. 1.  a contract for the sale of goods on instalment credit terms, or

  2. 2.  a contract for a loan repayable by instalments, or for any other form of credit made to finance the sale of goods, or(p. 499)

  3. 3.  any other contract for the supply of goods or a contract for the supply of services, and

    1. (a)  in the State of the consumer’s domicile the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising; and

    2. (b)  the consumer took in that State the steps necessary for the conclusion of the contract.

Where a consumer enters into a contract with a party who is not domiciled in a Contracting State but has a branch, agency or other establishment in one of the Contracting States, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State.

This Section shall not apply to contracts of transport.

12.09  The revised Article 13 adopted the consumer concept described in Société Bertrand, and extended to consumers the special jurisdictional protections previously limited to buyers and borrowers.32 The existing protections relating to the sale of goods on instalment credit terms, to loans repayable by instalments, and for any other form of credit made to finance the sale of goods were carried over from the original text. In addition, the substantive scope of protected consumer contracts protected was extended to cover ‘any other contract for the supply of goods or a contract for the supply or services’, as long as the two additional requirements in Article 13(3) were met. These were that (i) the conclusion of the contract was preceded in the State of the consumer’s domicile by a specific invitation addressed to him or by advertising; and (ii) that the consumer took in that State the steps necessary for the conclusion of the contract. These requirements were introduced to ensure a ‘sufficiently strong connection with the place where the consumer is domiciled’.33 A consumer, who contracted with a foreign trader in such circumstances, could expect to be able to sue (or be sued) in his own country.

C.  Article 5 of the Rome Convention

12.10  The 1972 Draft Convention contained no special provision for consumer protection. The idea that consumers might also require protection in choice-of-law issues emerged subsequently.34 It was debated at the 1974 Copenhagen Colloquium, and Professor Hartley presented a paper questioning whether the principles of the Draft Convention were compatible with United Kingdom legislation designed to protect the consumer.35 All of these developments led to change of approach within the Rome Convention Working Group. As the Giuliano–Lagarde Report noted:

Most of the experts who have participated in the Group’s work since 1973 have taken the view that consumer protection, the present aim of several national legislatures, would entail a reversal of the connecting factor provided for in Article 4 or a modification of the principle of freedom of choice provided for in Article 3. On the one hand the choice of the parties should not adversely affect the mandatory provisions of the State in which the consumer is (p. 500) habitually resident; on the other, in this type of contract it is the law of the buyer (the weaker party) which should normally prevail over that of the seller.36

12.11  The key issue was where the balance was to be struck between party autonomy and protecting the weaker party?37 An accepted goal was to protect consumers who were solicited for their custom in their own countries by a ‘foreign’ trader: the so-called ‘passive consumer’. In such circumstances, consumers might expect to be protected under their own laws. Those who went abroad and entered into contracts with foreign traders themselves without being solicited in their own country, the so-called ‘active consumers’, could not reasonably expect that the resulting contracts would be subject to their own country’s laws.38

12.12  Developed in parallel to the 1978 amendments to the 1968 Brussels Convention which saw an enhancement of consumer protection within the Community’s jurisdictional rules, Article 5 of the 1980 Rome Convention was headed ‘certain consumer contracts’.39 It provided:

  1. 1.  This Article applies to a contract the object of which is the supply of goods or services to a person (‘the consumer’) for a purpose which can be regarded as being outside his trade or profession, or a contract for the provision of credit for that object.

  2. 2.  Notwithstanding the provisions of Article 3, a choice of law made by the parties shall not have the result of depriving the consumer of the protection afforded to him by the mandatory rules of law of the country in which he has his habitual residence:

    • —  If in that country the conclusion of the contract was preceded by a specific invitation addressed to him or by advertising, and he had taken in that country all the steps necessary on his part for the conclusion of the contract, or

    • —  If the other party or his agent received the consumer’s order in that country, or

    • —  If the contract is for the sale of goods and the consumer travelled from that country to another country and there gave his order, provided that the consumer’s journey was arranged by the seller for the purpose of inducing the consumer to buy.

  3. 3.  Notwithstanding the provisions of Article 4, a contract to which this Article applies shall, in the absence of a choice in accordance with Article 3, be governed by the law of the country in which the consumer has his habitual residence if it is entered into in the circumstances described in paragraph 2 of this Article.

  4. 4.  This Article shall not apply to:

    1. (a)  a contract of carriage;

    2. (b)  a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence.

  5. 5.  Notwithstanding the provisions of paragraph 4, this Article shall apply to a contract which for an inclusive price provides for a combination of travel and accommodation.

Article 5(1) of the Rome Convention: material scope

12.13  Article 5(1) of the Rome Convention was drafted to correspond with Article 13 of the revised 1968 Brussels Convention. It defined a consumer contract in essentially the same (p. 501) way, and was intended to be interpreted in a similar way.40 Again, the autonomous definition of a consumer from Société Bertrand was adopted. A ‘more precise definition’ of a consumer contract was not attempted in order to avoid conflict with the various definitions given by national legislation.41

12.14  Like the revised 1968 Brussels Convention, Article 5(1) was limited in its material scope. It applied only to contracts ‘the object of which is the supply of goods or services to a person (‘the consumer’) for a purpose which can be regarded as being outside his trade or profession, or a contract for the provision of credit for that object’. Article 5(1) was:

  1. (a)  To apply to the sale and supply of goods and the supply of services, (which included contracts of insurance);

  2. (b)  To extend to credit sales and cash sales;

  3. (c)  Not to apply to the ‘sale of securities’, (an exclusion not expressly reflected in the wording of the Rome Convention itself);

  4. (d)  Not to apply to contracts made by traders, manufacturers or persons in the exercise of a profession (doctors, for example) who bought equipment or obtained services for that trade or profession. However, if such a person acted partly within, partly outside his trade or profession the situation only falls within Article 5 ‘if he acts primarily outside his trade or profession’;

  5. (e)  Not to apply if the goods or services were provided to a consumer by a seller or supplier who he did not know the receiver was a consumer and in all the circumstances should not reasonably have known.42

12.15  The consumer’s contractual counter-party was not identified in the text of the Convention, but ‘in the opinion of the majority of the delegations it will, normally, only apply where the person who supplies goods or services or provides credit acts in the course of his trade or profession’.43

Article 5(2): the necessary connecting factors

12.16  Article 5(2) specified the criteria that had to be met before the categories of contracts within Article 5(1) could qualify as consumer contracts. These involved three situations set out in the three ‘indents’ to the text of Article 5(2).

Article 5(2) specific invitation/advertising

12.17  The first situation followed the basic requirements of Article 13(3) of the revised Brussels Convention. The conclusion of the contract had, first, to be preceded in the country of the consumer’s habitual residence by a ‘specific invitation’ addressed to the consumer, or by ‘advertising’. Second, the consumer had to have taken in the country of his habitual residence ‘all the steps necessary on his part for the conclusion of the contract’. The only difference in Article 5 was that the place where these matters had to take place was the country of the consumer’s ‘habitual residence’ rather the country of his domicile as required under Article 13(3) of the Brussels Convention.44

(p. 502) 12.18  What constituted ‘advertising’ might be relatively easy to recognize and was described in the broadest of terms.45The professional’s advertising could be broadly aimed at several countries, which included the consumer’s country. A contract made by a German with a French company in response to an advertisement published by the company in a German publication could fall within the special consumer contract rule. However, a contract made by the same German with the same French company in response to an advertisement placed by the company in an American publication sold in Germany would not, ‘unless the advertisement appeared in special editions of the publication intended for European countries. In the latter case the seller will have made a special advertisement intended for the country of the purchaser’.46 A special German edition was not required, a European edition was enough.

12.19  The alternative ‘specific invitation’ could be far more difficult to analyse. It appeared to include ‘business proposals’ designed to cause a consumer to conclude a contract, and those business proposals could be made three ways, individually, through a middle-man, or by canvassing.47

12.20  The additional requirement was that the consumer should have in response to the advertising or specific invitation have taken ‘all the steps necessary on his part for the conclusion of the contract’ was subsequently described by the Court as referring to ‘any document written or any other step whatever taken by the consumer in the State in which he is domiciled and which expresses his wish to take up the invitation made by the professional’.48 The consumer had to do all things required of him for the contract to be concluded, rather than formally conclude the contract. The Working Group had adopted the words ‘steps necessary on his [the consumer’s] part’ to avoid the classic problem of determining the place where the contract was actually concluded:

This is a particularly delicate matter in the situations referred to, because it involves international contracts normally concluded by correspondence. The word ‘steps’ includes inter alia writing or any action taken in consequence of an offer or advertisement.49

Article 5(2): receipt of consumer’s order

12.21  The second situation in Article 5(2) involved the seller or supplier or their agent receiving the consumer’s order in the country of the consumer’s habitual residence. This provision was considered to parallel that in Article 3(2) of the 1955 Hague Convention on international sales.50 It was recognized there was considerable, but not complete, overlap with the first indent to Article 5(2), but this second situation should apply to situations where:

the consumer has addressed himself to the stand of a foreign firm at a fair or exhibition taking place in the consumer’s country or to a permanent branch or agency of a foreign firm established in the consumer’s country even though the foreign firm has not advertised in the consumer’s country in a way covered by the first indent [to Article 5(2)]. The word ‘agent’ is intended to cover all persons acting on behalf of the trader.51

(p. 503) 12.22  Again, as with the first situation, the consumer had to take certain steps in their own country. This time all the consumer had to do was to ensure that the seller or supplier or their agent received his order in that country.

Article 5(2): Kaffeefahrten‎ trips

12.23  The third situation in Article 5(2) of the Rome Convention was rather different; the only scenario involving a consumer physically leaving their own country to conclude a contract. It was described in the Giuliano–Lagarde Report as being ‘rather special’, but still needing special protection in the eyes of the majority of the delegations:

It covers what one might describe as ‘border-crossing excursion selling’, ie for example, a situation where a store-owner in country A arranges one-day bus trips for consumers in a neighbouring country B with the main purpose of inducing the consumers to buy in his store. This is a practice well-known in some areas.52

12.24  In Germany these excursions are known as Kaffeefahrten (‘coffee tours’), a rather innocuous term for what can be unpleasant high-pressure sales trips, often aimed at the elderly with the purpose of pressurizing them into making purchases they soon regret.53 Consumers were regarded as needing specific protection because this situation did not fall within either of the first two scenarios covered in Article 5(2). It was however, limited to contracts for the sale of goods. It was also declared that:

The condition that the journey was arranged by the seller shall not be understood in the narrow way that the seller must himself have taken care of the transportation. It is sufficient that the seller has arranged the journey by way of an agreement with the transportation company.54

The scope of consumer protection under Article 5(2)

12.25  Article 5(2) of the Rome Convention contained a special rule to afford protection to consumers where an express or implied choice-of-law had been made by the parties. Article 5(2) was said to embody ‘the principle that a choice of law in a consumer contract cannot deprive the consumer of the protection afforded to him by the law of the country in which he has habitual residence’.55 But that protection was limited to the ‘mandatory rules of law’ the law of the consumer’s habitual residence. These were defined in Article 3(3) of the Convention as those rules which ‘cannot be derogated from by contract’. If one of the required three scenarios depicted in the indents to Article 5(2) arose on the facts, then Article 5(2) prevented a choice-of-law made under Article 3 from ‘depriving’ a consumer of protection under those mandatory rules. Article 5(2) was an adoption of the preferential choice of the consumer’s law model, as a ‘protective default law’.56

12.26  The rationale for this model is readily defensible, but its application could cause problems. First, it can produce a more complex, and less efficient, result because more than one law is potentially engaged in resolving any dispute between the parties. Under Article 5(2) the rights, obligations, (p. 504) and remedies available to the parties under the contract were governed by any chosen law and by the mandatory rules of law of the consumer’s habitual residence. Those rules may offer substantially different consumer protection than those provided for under a chosen ‘foreign’ law. Second, the inter-relationship between any chosen ‘foreign’ law and the mandatory rules of law of the consumer’s habitual residence was not clearly defined. How was the court to decide whether a chosen ‘foreign’ law was applied, it would ‘deprive’ the consumer of protection of rules of law of his own habitual residence? At one level, any choice of foreign law would ‘deprive’ a consumer of their own law’s protections. But the purpose of the rule was to ensure that the consumer was not worse off than under their own law, rather than to ban any party choice of a law that was not the consumer’s habitual residence. So what if the chosen foreign law offered (or appeared to offer) more protection to the consumer than did the mandatory rules of law of their own country and would leave the consumer better protected? How then could it be properly said that applying the foreign law would cause his being ‘deprived’ of the ‘protection’ of his own country’s less favourable rules of law? Was the court required to conduct a comparative law analysis before making this decision, or was it simply required to apply the consumer’s own protective rules in any event? A purposive interpretation would suggest that Article 5(2) gave a consumer a choice of law between the protections offered under either the chosen law or his own country’s law if the former was more favourable to him.57 But such an approach could give rise to practical problems of proof of foreign law and difficult questions of comparison. The adoption of this ‘hybrid law’ system in Article 5(2) would cause criticisms of unfair ‘double protection’ for consumers.58 Third, in any event, mandatory rules of law that would apply to protect a consumer are not always easy to identify. As the Commission would subsequently note in their Green Paper, ‘there are only few rules that can be clearly identified as such’.59 Each of these matters could lead to increased legal costs and complexity.

Article 5(3): default rule/consumer’s law

12.27  Article 5(3) of the Convention provided a special default choice-of-law rule for consumer contracts in the absence of a party choice-of-law. This was an exception to the general default rules under Article 4 of the Convention. Article 5(3) provided that where a contract was entered into in one of the circumstances set out in the three indents to Article 5(2), then, absent choice under Article 3, the contract would be ‘governed by the law of the country in which the consumer has his habitual residence’. The wording of Article 5(3) was regarded as ‘sufficiently clear and calls for no additional examination’.60

Article 9(5): formal validity for consumer contracts

12.28  Irrespective of any choice of law, consumers were also to be protected by the special provision in Article 9(5) of the Rome Convention which required the formal validity of consumer contract under Article 5 to be ‘governed by the law of the country in which the consumer had his habitual residence’. Article 9 did not define what was to be understood by the term ‘formal validity’ which was considered a ‘difficult problem of definition’, but the Working Party considered that it was permissible ‘to consider “form”, for the purposes of Article 9, (p. 505) as including every external manifestation required on the part of a person expressing his will to be legally bound, and in the absence of which such expression of will would not be regarded as fully effective’.61 Article 9(5) was ‘justified by the very close connection, in the context of consumer protection, between mandatory rules of form and rules of substance’.62

Articles 5(4)(a) & 5(5): contracts of carriage

12.29  Read together Article 5(4)(a) and 5(5) of the Convention clarified that the consumer contract protections of Article 5 did not apply to ‘a contract of carriage’, other than a contract for ‘which for an inclusive price provides for a combination of travel and accommodation’.

12.30  The Giuliano–Lagarde Report declared that ‘the exclusion of contracts of carriage is justified by the fact that the special protective measures for which provision is made in Article 5 are not appropriate for governing contracts of this type’.63 No attempt was made to explain why. That exclusion did not however include contracts of carriage which formed part ‘of what is in English normally called a “package tour”, ie an ordinary tourist arrangement consisting of a combination of travel and accommodation for an inclusive price’ if such a contract otherwise satisfied the consumer contract requirements.64 The Working Party acknowledged difficulty in defining a ‘package tour’ and indicated an intention to leave that to the courts to solve any possible doubts. They did however, indicate that ‘[t]he accommodation which is part of a package tour must normally be separate from the transportation, and so paragraph 5 would not apply to a provision of a sleeper on a train’.65

Article 5(4)(b): exclusion of services exclusively supplied outside the consumer’s country

12.31  Article 5(4)(b) of the Convention excluded from consumer contract protection a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which the consumer has his habitual residence. The Rome Convention Working Group noted that:

in the case of contracts relating to the supply of services (for example, accommodation in a hotel, or a language course) which are supplied exclusively outside the State in which the consumer is resident, the latter cannot reasonably expect the law of his State of origin to be applied in derogation from the general rules of Articles 3 and 4. In the cases referred to under [Article 5] (b) the contract is more closely connected with the State in which the other contracting party is resident, even if the latter has performed one of the acts described in paragraph 2 (advertising for example) in the State in which the consumer is resident.66

D.  Article 15 of the Brussels I Regulation (44/2001)

12.32  The next significant development occurred when the Brussels Convention was converted into a community instrument by the adoption of the Brussels I Regulation (44/2001). Section 4 of the Brussels I Regulation, again entitled ‘Jurisdiction over consumer contracts’, was now renumbered Articles 15 to 17.

(p. 506) 12.33  Article 15 of the Brussels I Regulation included extensive revisions to the consumer jurisdiction provisions:

  1. 1.  In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5, if:

    1. (a)  it is a contract for the sale of goods on instalment credit terms; or

    2. (b)  it is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or

    3. (c)  in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including the Member State, and the contract falls within the scope of such activities.

  2. 2.  Where a consumer enters into a contract with a party who is not domiciled in the Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State.

  3. 3.  This Section shall not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation.

12.34  This provision is one of the key steps in the evolution of Article 6 of the Rome I Regulation and the Court’s case law on Article 15 and its successor in Article 17 of the Brussels I Recast (2015/2012) will likely be the primary interpretative guidance for Article 6 for the foreseeable future.67 For present purposes three issues of importance arise out of the changes made in Article 15(1)(c) of the Brussels I Regulation that saw a redrawing of the criteria for the operation of consumer protection rules in the light of developments in marketing and internet commerce.68

(1)  Extension of the scope of consumer contracts

12.35  First, the scope of protected consumer contracts was extended by the adoption of the phrase ‘in all other cases, the contract’. Article 13(3) of the 1968 Brussels Convention had limited protection to ‘any other contract’ as long as they were for the supply of goods or services. Apart from certain excluded contracts,69 Article 15(1)(c) of the Brussels I Regulation now covered every contract that satisfied the definitional requirements and the new directed activity criterion.70

(2)  The directed activity criterion

12.36  Second, a new ‘directed activity’ criterion was adopted in Article 15(1)(c) of the Brussels I Regulation to define the necessary connecting factors with the consumer’s domicile that gave rise to consumer contract protection. This criterion now required a contract to be concluded by the consumer with a person who:

  1. (a)  ‘pursues’ their commercial or professional activities in the Member State where the consumer is domiciled; or(p. 507)

  2. (b)  ‘by any means, directs such activities’ to that Member State or to several states including the Member State; and

  3. (c)  the concluded contract ‘falls within the scope of such activities’.

12.37  This new criteria included the traditional marketing and advertising requirements necessary to satisfy both Article 13(3) of the revised 1968 Brussels Convention and Article 5(2) of the Rome Convention, but were also extended to include the newer, less traditional (and less apparent), marketing activities of the information age. The Court has noted these changes were undertaken ‘in order to ensure better protection for consumers with regard to new means of communication and the development of electronic commerce’.71 The Commission described these changes in their Brussels I Explanatory Memorandum as being necessary to ‘take account of developments in marketing techniques’.72

A restriction to interactive websites was rejected

12.38  The Commission originally argued that the concept of activities pursued in or directed towards a Member State was designed to make clear that these requirements applied to ‘consumer contracts concluded via an interactive website accessible in the State of the Consumer’s domicile’.73 If however, a consumer simply had ‘knowledge of a service or possibility of buying goods via a passive website in his country of domicile will not trigger the protective jurisdiction’.74 In the eyes of the Commission a consumer contract was treated in ‘the same way as a contract concluded by telephone, fax and the like’.75

12.39  During the Brussels I legislative process, the precise implications of the wording of Article 15(c) were a matter of dispute, with institutions being unable to agree on how widely the concept of directing of activities should be understood; particularly regarding the use of the internet to advertise or to promote sales.76 Article 15 ‘provoked strong concern within the business community and provides the makings of a controversy’.77 The European Economic and Social Committee (‘EESC’) suggested the proposed wording ‘equates the offer of goods and services via the internet with an invitation or advertising by businesses… [t]he question is whether promoting its services on the internet means that a company is deliberately seeking to expand beyond its traditional marketing area’.78 The Commission’s Explanatory Memorandum had suggested that the dividing line between websites that fell within the scope of the concept of the directing of activities and websites to which this did not apply was to be drawn by reference to the interactivity of a website, ie whether the website permits a contract to be concluded directly.79 The European Parliament suggested an amendment that would have required a trader to direct his activities to the other Member (p. 508) State purposefully and in a substantial way, and that the national court when considering this issue should have regard to all the circumstances of the case, including attempts by the trader to ring-fence his trading operations against transactions with consumers domiciled in particular Member States.80 These proposals were not accepted.

The December 2000 Joint Declaration on Article 15

12.40  Because of the difficulties in interpreting the proposal the Council and the Commission adopted a joint declaration of 14 December 2000 (the ‘Joint Declaration’) that declared the mere fact that a website is accessible is not sufficient for Article 15 of the Brussels I Regulation to apply, although a factor will be that this website solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. It also stated that in this respect, the language or currency which a website uses does not constitute a relevant factor.81 This Joint Declaration is also directly relevant to the Rome I Regulation.82 It said that:

The Council and the Commission point out in this connection that for Article 15(1)(c) to be applicable it is not sufficient for an undertaking to target its activities at the Member State of the consumer’s residence, or at a number of Member States including that Member State; a contract must also be concluded within the framework of its activities. This provision relates to a number of marketing methods, including contracts concluded at a distance through the Internet. In this context, the Council and the Commission stress that the mere fact that an Internet site is accessible is not sufficient for Article 15 to be applicable, although a factor will be that this Internet site solicits the conclusion of distance contracts and that a contract has actually been concluded at a distance, by whatever means. In this respect, the language or currency which a website uses does not constitute a relevant factor.

(3)  Abolition of the ‘taking steps’ criteria

12.41  Third, the requirement that a consumer must take the steps necessary for the conclusion of the contract in the State of his domicile imposed in Article 13(3)(b) of the 1978 Brussels Convention was removed. The focus changed from the actions of the consumer to those of the co-contracting trader. As the Commission noted in their Explanatory Memorandum, ‘[t]he philosophy of new Article 15 is that the co-contractor creates the necessary link when directing his activities towards the consumer’s State’.83 The removal of the requirement should also be seen in the context of contracts concluded via an interactive website:

For such contracts the place where the consumer takes these steps may be difficult or impossible to determine, and they may in any event be irrelevant to creating a link between the contract and the consumer’s State.84

(p. 509) E.  The Need to Revise the Rome Convention

12.42  As part of the continuing objective of improving consumer protection, there were five key issues with the Rome Convention that justified its revision, which are reflected in both the Commission’s Green Paper,85 and the advice received from the Antwerp Study.86

The promise to Austria

12.43  Austria, an early adopter of domestic legislation to protect consumers in the choice of law,87 had made its accession to the Rome Convention conditional on consideration being given to revision of Article 5, which the Member States had agreed to do.88

‘Active’ and ‘passive’ consumers, and the German cases

12.44  Article 5 of the Rome Convention was regarded by several academic writers as not giving adequate protection to ‘active’ or ‘mobile’ consumers, ie those who travel to a country other than that of their habitual residence to make a purchase or receive a service. Apart from those involved in Kaffeefahrten, cross-border excursions organized by a vendor, the Rome Convention only protected the ‘passive consumer’: ie one who had received a specific invitation to contract or been the subject of advertising in their own country and/or had taken the steps necessary to conclude a contract there. Active consumers were therefore at risk of being unprotected against the application of a law of a third country which was less protective of their consumer rights. As the Commission noted, ‘where a Portuguese consumer goes to Belgium to make a purchase, no provision of the Rome Convention forbids the seller from submitting the contract to the law of a non-European country which has no consumer protection rules.89 In practice, most of the problems for active consumers had arisen in German cases involving trips to Spain.

The Gran Canaria‎ cases

12.45  Over 90 per cent of the published decisions in Europe on the Rome Convention had come from German courts.90 Those cases showed German courts applying Article 5 to a wide range of business activities, including the sale of goods, credit for financing the supply of goods and services, independent loans, the provision of legal services, fitting a kitchen, using timeshare property, package tours, trading in futures and arbitration agreements.91

(p. 510) 12.46  But the greatest difficulties German Courts had faced was dealing with the infamous Gran Canaria cases.92 Those cases fell into two groups.93 In both groups, the German courts ultimately held that German consumers could not rely on German law under Article 5 to protect them from choice-of-law provisions in contracts made while on holiday in Spain.

12.47  In the first group of cases, German tourists on holiday in Gran Canaria were the victims of a German company that manufactured bed linen. The German company had an agreement with a local Spanish company, which organized free bus excursions to a bird reserve.94 During these trips the Spanish company advertised the German company’s products and gave the tourists a ‘sales contract’ form, which they signed paying nothing immediately for goods. These contracts usually provided that all rights and obligations arising under the contract were transferred to the German company immediately after the conclusion of the contract. Under these contracts Spanish law was the suppliers’ chosen law. On returning to Germany the customers would receive confirmation of their orders from the German company. Disputes arose when some German tourists refused to pay the price invoiced by the German company and tried to exert their right of withdrawal under German law, enacted to give effect to Directive (85/577/EEC). The question was whether the law applicable to these disputes was the German law, which was favourable to the customers, or Spanish law, which was not. This was because Spain had incorrectly transposed part of the same Directive into their domestic law and consequently Spanish law did not acknowledge the consumer’s right to withdraw.95 Although the criteria under Article 5(2) of the Rome Convention was obviously not met in these cases, several German courts initially tried to protect German consumers who came before them in a variety of creative ways. All such attempts were ultimately rejected by the Bundesgerichtshof.96

12.48  The second group of Gran Canaria cases were classic timeshare hard-sell cases. German consumers on holiday were subjected to hard-sell sessions and induced to sign contracts for the purchase of a timeshare in a holiday apartment. The vendors were Isle of Man companies. The contracts, some of which were subject to the law of the Isle of Man others to Spanish law, contained a non-withdrawal clause, even although withdrawal was possible under German law and (by then) Spanish law. The question was whether the consumers could rely on German law despite the chosen law of the contract. Again, several lower German courts exhibited considerable creativity in applying German law.97 But once again, the Bundesgerichtshof was forced to rule out any attempt to apply the protective German law, even as mandatory rule of the forum within the meaning of Article 7 of the Convention. The choice-of-law clauses were held to be valid and the application of Article 5 of the Rome Convention was rejected because the contract did not concern the supply of goods or services (p. 511) but was instead in respect of immovable property and thus outside the material scope of Article 5; and second, because the specific requirements of Article 5(2) were not met.98

Concerns over e-commerce

12.49  Article 5 of the Rome Convention had been written when consumer law and distance selling techniques were in their infancy.99 As a result, Article 5 had been criticized for the criteria by which it distinguished consumers eligible for protection from those that were not. To determine whether a contract fell within the scope of consumer protection under the existing criteria in Article 5(2), it was always necessary to ‘locate it in space by reference to an aspect such as advertising, the signing of a contract or the receipt of an order’.100 In the Commission’s view the selection criteria in Article 5(2) no longer seemed adapted to the development of new distance selling techniques, in particular because of the development of e-commerce. These concerns did not arise out of any published decisions of the courts of the Member States but had arisen in academic literature.101

12.50  Another issue was whether contracts for the supply of intangible goods, like the online delivery of computer software, would constitute either a supply of goods or services within the meaning of Article 5 of the Rome Convention. The Commission believed that the existing terminology of Article 5 only applied to ‘tangible goods’. The German (‘bewegliche Sachen’), French (‘objets mobiliers corporels’), and the Italian (‘beni mobili materiali’) language versions of Article 5, all specifically referred to the corporeal nature of the object supplied, rather than the more neutral and extensive English version of ‘goods’. The concern was that software did not possess that essential corporeal requirement.102 Some argued the online delivery of software did not constitute a ‘service’ because it did not involve the supplier engaging in any activity beyond actual delivery of the software itself, and nothing that would provide ‘a surplus value to the recipient’.103

12.51  The difficulty of categorizing digital products such as software delivered online had arisen around the world and there had been a wide range of responses from courts and legislators.104 Some US legislation has excluded ‘general intangibles’ from the definition of ‘goods’.105 The EU itself claimed that digital products should be classified as services other than goods and should not be covered under the General Agreement on Tariffs and Trade (‘GATT’).106 The European Group for Private International Law (Group Europeén du Droit (p. 512) International Privé, known as ‘GEDIP’) considered that implementing Article 5 had raised difficulties which were linked to the restrictive nature of the areas covered by the provision and other problems could arise from the application to the provision to e-commerce.

Problems with the operation of Article 5(2)

12.52  There were concerns over the hybrid-law mix, ‘dépeçage’, mechanism created under Article 5(2) of Rome Convention. The Green Paper noted that where:

different parts of a same contract are ruled by the laws of two or even more countries. Thus a contract between a consumer residing in country A and a business established in country B will contain very often a clause for making the law of country B applicable; when the conditions of Article 5 are met, the court must nevertheless give effect to certain provisions of the law of country A, those which relate to public policy and protect the consumer. The court must accordingly apply two distinct laws to the same contract.107

12.53  The operation of Article 5(2) had led to some confusion among national courts. Some had not limited the application of the mandatory rules of law of the consumer’s habitual residence to situations where those rules provided a better protection to the consumer, but had instead applied the mandatory provisions in a way which resulted in the whole contract being governed by the consumer’s law. Sometimes this was done by using the mandatory rules of law to strike down an otherwise valid choice-of-law clause. This had happened in some German cases where German consumer parties to futures transactions contracts with English choice-of-law clauses were entitled to have such clauses declared invalid under German law, with the resulting effect of overriding the choice-of-law completely.108 In other cases the consumer’s home court had failed109 or even refused to consider whether the chosen law provided equivalent or even better protection to the consumer.110

Alignment with the Brussels I Regulation

12.54  It was also considered that the solution adopted in the Rome Convention was no longer in harmony with the directed activity criteria of Article 15(1)(c) of the Brussels I (p. 513) Regulation, under which consumer jurisdiction provisions applied where a company directs its business activities towards the Member State of the consumer’s residence and a contract is concluded within the framework of these activities, whatever advertising or selling technique is used.

F.  Suggested Solutions

12.55  The Rome I Green Paper put forward several possible solutions in eight categories as ‘some possible guidelines for the debate’.111 Appropriately listed in Roman numerals (I)–(VIII) these involved a rather complex collection of often overlapping ideas, which in summary comprised:

  1. (I)  Maintaining the Rome Convention solution (but with a general clause guaranteeing the use of the Community minimum protection standard);

  2. (II)  Enlarging the scope of the Rome Convention position to include ‘mobile’ consumers and adding other contracts to the scope of the protection;

  3. (III)  Systematically extending the general choice-of-law rules for ordinary contracts to consumer contracts but with a limitation for the mandatory rules of the habitual residence of the consumer;

  4. (IV)  Permitting party autonomy in choice of law for rules harmonized at the European Community level, but applying mandatory rules of the consumer’s habitual residence for matters not harmonized at EC level;

  5. (V)  The systematic application of the law of the consumer’s place of residence;

  6. (VI)  Aligning the scope of consumer contract protection with that provided in the jurisdiction provisions of Article 15 of the Brussels I Regulation;

  7. (VII)  Applying the law of the consumer’s habitual residence only when the business is aware of it; and

  8. (VIII)  Applying one set of rules for all consumers by permitting the parties freedom of choice from a limited range of laws.

12.56  The most radical suggestion was solution (V): the systematic application of the law of the consumer’s place of residence in any event. The Commission regarded this proposal as providing ‘a neat and clear solution and would make it unnecessary to split the contract. This would enhance certainty as to the law and would enable proceedings to be handled more quickly and more cheaply; both parties stand to gain’.112 However, one unspoken consequence of this proposal would be that it would rule out party autonomy in consumer contract cases.

Stakeholder responses

12.57  The ‘overwhelming majority’ of respondents to the Green Paper favoured modernizing the Rome Convention’s existing rules for consumer contract protection.113 The existing solution (p. 514) offered in Article 5(2) of the Convention was criticized as being too complex and for creating legal uncertainty, because of the hybrid law/dépeçage situation created in Article 5(2). Some argued this increased the costs of international litigation and accordingly being a ‘disincentive to providing consumer services and in effect preventing consumers from litigating in cross-border cases’.114 In addition, in favour of modernizing the provisions, ‘many respondents’ also favoured extending the application of the consumer protection to types of contracts then excluded under the Rome Convention.

12.58  There were, however, very considerable divergence of opinion on the protection that should be given to consumers. Two proposed solutions from the Commission’s Green Paper dominated the responses.

12.59  First, the systematic application of the solution (V), the ‘consumer’s law’, was ‘strongly advocated by consumer associations and some banks’, but ‘was regarded by the majority as imposing a heavy burden on small and medium-sized enterprises (SMEs) and being unacceptable for the seller’. However, ‘the need for consumer protection via the application of the law of the consumer’s habitual residence in certain international cases was, with minor exceptions, not questioned in substance and opinions diverged mainly on the conditions under which such protection should be granted’. Consumer representatives proposed restricting choice of law clauses at the level of substantive law, arguing that no such choice can be made in standard form contracts. In contrast, the business sector stressed the high level of EU consumer protection that had already been developed since the Rome Convention, and argued for an extension of party autonomy and/or for ‘the systematic application of the EU retailer’s law’. If the criticized hybrid solution that existed under Article 5(2) of the Rome Convention was to be avoided, the European legislator was faced with a stark choice between adopting the law of the consumer’s habitual residence (in any event) or adopting the law of the retailer, which might well be acceptable if they were an EU retailer subject to the existing EU consumer protection laws, but far more difficult if the proposed Regulation was to extend to non EU retailers and suppliers.115

12.60  Second, in relation to in what circumstances the consumer contract provisions should apply, the majority of respondents were in favour of aligning the proposed regulation with Article 15 of the Brussels I Regulation.116 This was regarded as providing the necessarily flexibility to deal with the ‘proven shortcomings’ of the Rome Convention demonstrated in the Gran Canaria cases. There was also ‘broad support’ for the Commission’s idea of further defining the directed activity criteria that derived from Article 15. In addition, there was general approval among respondents of ‘completing the “Brussels I” solution by an “awareness test” for the supplier’.117 The Green Paper had suggested that the proposed Regulation could provide that the place of the consumer’s residence would be a relevant factor only if the supplier knew of it or should have known of it on the ground of the consumer’s conduct.118 The supplier would be protected from applying a foreign law if the consumer did not provide him with any means of knowing at least the country–but not necessarily the exact (p. 515) address–of his residence, on the understanding it was for the supplier to give the consumer the opportunity to do so. The Commission argued that for ‘a contract concluded via the Internet, for example, it is up to the business to make sure that its standard form enables it to identify the place of the consumer’s residence’.119 Some however, thought this awareness test enhancement to the targeted activity criteria could itself produce uncertainty and increase litigation.

12.61  Thereafter opinions polarized as to how the proposed ‘directed activity’ could be defined or limited in a world where a website can be accessed theoretically by anyone from anywhere. E-commerce businesses wanted to limit the scope for arguing that such a website might constitute a directed activity, and sought a stipulation in the proposed Regulation that ‘a website, just because it can be accessed by any individual in any country in the world, is not deemed to be specifically addressing an invitation or advertising to that individual in another part of the world’. In general, these businesses favoured either applying a chosen law in matters already harmonized at Community level,120 or permitting a restricted choice of law of the State where the business is established.121 Consumer representatives, sought a broader definition, arguing that ‘a website be deemed to be addressing individuals in any given country except in the case of an express disclaimer for this country’.122

EESC opinion

12.62  The issues raised by the respondents to the Green Paper were taken up at the hearing before the EESC on 28 and January 2004.123 The EESC’s subsequent Opinion emphasized the importance of modernizing the existing system that it considered ‘not overall best suited to provide effective consumer protection’.124 The EESC considered that several questions must be resolved for the new Regulation to take proper account of the particularly disadvantageous position of individual consumers in international contracts, especially when confronted with pre-established, standard form contracts, and ‘most particularly in the highly specialist fields, such as financial services or contracts for electronic services’.125 Prominent among those questions was the position of ‘movable’ or ‘active’ consumers, issues relating to immovable property, particularly timesharing, and also e-commerce, which were believed to be excluded under the Rome Convention solution. The EESC recommended that ‘mobile’ or ‘active’ consumers should be covered by the new rule. It was also recommended that consumer contract protection be extended to contracts the object of which is immovable property—either a right in rem or periodic occupation and to a timeshare contract. The overall solution proposed by the EESC to the problems they had identified produced a different hybrid solution to the one that the Commission thought existed under the Rome Convention. It was accepted that the ‘substantive minimum level of protection of the consumer must continue to be assured by the mandatory provisions of the law of the consumer’s habitual place of residence’, but even this minimum level of protection for the consumer could be removed if a reasonably diligent supplier was actually unaware of the (p. 516) consumer’s country of residence. Borrowing in part a suggestion from GEDIP, the EESC recommended that:

Consumer contracts could therefore be subject to the general rules of conflict of laws (present Articles 3, 4 and 9), with the proviso that the protection afforded to a consumer by the mandatory provisions of their country of residence may not be reduced, unless the supplier was, in good faith, unaware of the consumer’s place of residence; it always being incumbent upon the supplier to prove unawareness in spite of reasonable diligence.126

G.  The Rome I Proposal: Draft Article 5

12.63  The Commissions’ Proposal was a radical one. Their new draft article 5 provided:
Article 5—Consumer contracts

  1. 1.  Consumer contracts within the meaning and in the conditions provided for by paragraph 2 shall be governed by the law of the Member State in which the consumer has his habitual residence.

  2. 2.  Paragraph 1 shall apply to contracts concluded by a natural person, the consumer, who has his habitual residence in a Member State for a purpose which can be regarded as being outside his trade or profession with another person, the professional, acting in the exercise of his trade or profession.

    It shall apply on condition that the contract has been concluded with a person who pursues a trade or profession in the Member State in which the consumer has his habitual residence or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities, unless the professional did not know where the consumer had his habitual residence and this ignorance was not attributable to his negligence.

  3. 3.  Paragraph 1 shall not apply to:

    1. (a)  a contract for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which he has his habitual residence;

    2. (b)  contracts of carriage other than contracts relating to package travel within the meaning of Directive 90/314/EEC of 13 June 1990;

    3. (c)  contracts relating to a right in rem or right of user in immovable property other than contracts relating to a right of user on a timeshare basis within the meaning of Directive 94/47/EC of 26 October 1994.

12.64  As the Explanatory Memorandum indicated,127 draft article 5 was the Commission’s attempt to resolve the unsatisfactory situation found in Article 5(2) of the Convention where ‘the law applicable to the professional and the mandatory provisions of the law applicable to the consumer were applied in parallel’. The Commission considered the existing ‘complex solution’ under the Rome Convention ‘entails additional procedural costs that are all the less justified as the consumer’s claim will tend to be quite small’. There were two possible solutions to the problem: ‘either full application of the law applicable to the professional or the law applicable to the consumer’. The Commission concluded that ‘only the latter would be truly compatible with the high level of protection for the consumer demanded by the Treaty’. In so doing, the Commission implicitly rejected the possibility (p. 517) of a third solution: accepting party autonomy under Article 3 and applying the selected law in full, which law might offer more protection to them than the law of their own habitual residence.128

12.65  The Commission believed draft article 5 created ‘a new, simple and foreseeable conflict rule consisting of applying only the law of the place of the consumer’s habitual residence, without affecting the substance of the professional’s room for manoeuvre in drawing up his contracts’.129 In practice this new solution did not substantially modify the situation of the professional, ‘for whom the initial difficulty in drafting standard contracts is to comply with the mandatory provisions of the law in the country of consumption, under the Convention, the mandatory provisions are already those of the country of the consumer’s habitual residence’. Party autonomy in relation to other clauses in the contracts would remain unaffected. The Commission considered this was fair in economic terms. The cost burdens of complying were more fairly born by traders rather than consumers: ‘a consumer will make cross-border purchases only occasionally whereas most traders operating across borders will be able to spread the cost of learning about one or more legal systems over a large range of transactions’. But this argument was put forward without any comprehensive impact assessment on the effect of businesses, particularly of small and medium-sized enterprises, and would be subject to criticism in the European Parliament.

12.66  But crucially draft article 5(1) outlawed party autonomy in consumer contracts only if the consumer had his habitual residence in an EU Member State. It was only then ‘the law of the Member State in which the consumer has his habitual residence’ would apply. The Rome Convention had not limited protection to EU consumers, and this had not been suggested in any of the responses to the Green Paper. The Explanatory Memorandum did not even mention it.130

12.67  Draft article 5(2) of the Rome I Proposal suggested the conditions for applying the special rule. This involved an adoption of the directed activity criterion from Article 15 of the Brussels I Regulation, and particular reference was made to the Joint Declaration by the Council and the Commission.131 The Commission suggested:

the sites to which this declaration refers are not necessarily interactive sites: a site inviting buyers to fax an order aims to conclude distance contracts. On the other hand, a site which offers information to potential consumers all over the world but refers them to local distributor or agent for the purposes of concluding the actual contract does not aim to conclude distance contracts.

12.68  The Commission also highlighted the extension of the scope of the proposed consumer contract protection, emphasizing that ‘[t]he proposed Regulation no longer contains a list of contracts to which the special rule applies; its material scope is accordingly extended to all contracts with consumers except those expressly excluded by paragraph 3’. Draft article 5(2) of the Proposal did not require the consumer to have done the acts needed to conclude the contract in the country of his habitual residence, as this was a superfluous condition for contracts concluded via the internet.

(p. 518) 12.69  The Rome I Proposal included a ‘safeguard clause’, designed to protect a professional against the application of the laws of the country of the consumer’s habitual residence if ‘the professional did not know where the consumer had his habitual residence and this ignorance was not attributable to his negligence’.132 The Commission considered this clause would apply where the professional ‘has agreed to enter into a contract with a consumer who has lied about his habitual residence’. However, in the apparent absence of deliberate deceit, in for example an e-commerce transaction of a contract concluded via the internet, the Commission considered that ‘it will be up to the professional to ensure that his standard form makes it possible to identify where the consumer lives’.133 Draft article 5(3) of the Proposal also contained in (a) and (b) the existing exclusions from the Rome Convention, and added a proposed new exclusion concerning contracts relating to a right in rem or right of user in immovable property other than timeshare contracts within the meaning of the 1994 Timeshare Directive (94/47/EC).

H.  The Legislative Development of Article 6 of the Regulation

12.70  There was criticism of the Commission’s lack of prior assessment of the impact of a Proposal especially regarding the burden it could impose on SMEs. The United Kingdom’s Financial Markets Law Committee considered if this principle was adopted, ‘the due diligence necessary to be able to conclude a contract with a consumer is exceedingly large, so as to become intolerable’.134 Luxembourg argued that ‘the economic impact of this proposal has not been evaluated’ and ‘[i]ts consequences for the internal market and for consumers have not been analysed’.135 It was suggested that applying the law of the country of the consumer’s habitual residence might ultimately create too heavy a burden on sellers and suppliers who could have to adjust their contracts to a whole raft of possibly different consumer contract laws, even when doing business with consumers within the Member States of the EU.136 Not all scholars were convinced.137

12.71  Particular concerns among stakeholders arose over the proposal to systematically adopt the ‘consumer’s law’ and to restrict the protections offered to those consumers whose habitual residence was within ‘a Member State’. The first involved an abandonment of the central principle of party autonomy, and the second would result in the Rome I Proposal being considered discriminatory in operation.

12.72  By rejecting party autonomy in consumer contracts, the Commission’s Proposal owed much to the solution adopted in Swiss Law.138 Article 120(2) of the Swiss Federal Code on Private International Law (‘CPIL’) of 18 December 1987 expressly precludes any choice of law in all(p. 519) consumer contracts.139 Instead, qualifying consumer contracts are governed by the law of the State in which the consumer is habitually resident.140 But, unlike Swiss law, the Commission’s proposal would only apply to consumers who had their habitual residence within a Member State, thereby actively discriminating against non-EU residents. This was a step backwards from the position under the Rome Convention and one that would create a two-tier consumer protection system.

12.73  The discriminatory nature of this development passed unnoticed by the European Parliament’s Committee on Legal Affairs (‘JURI Committee’),141 and also by the EESC in their December 2006 Opinion.142 It did not however, escape the attention of the Finnish Presidency, who removed the reference to the ‘law of the Member State’ replacing it with ‘the law of the country’ in their 12 October 2006 proposed amendments.143 Several European Parliamentarians also put forward proposed amendments to the European Parliament in December 2006 and March 2007.144 Nor did it go unnoticed by several distinguished scholars whose reaction was uniformly unfavourable. Limiting consumer protection to those with their habitual residence in a Member State was ‘astonishing’,145 ‘a remarkable step backward’,146 and ‘does not appear to be the act of a civilized community’.147

12.74  Among Member States most were in favour of excluding a choice of law, but also extending protection to all consumers. At the meeting of the Rome I Committee on 2 February 2007, only four delegations objected to the principle of excluding a choice of law from consumer contracts. The other delegations and the Commission supported the exclusion of any possibility of a choice of law agreement. Therefore, the Presidency concluded that, for the time being, the text of the Proposal should remain unchanged.148 However, only two delegations supported the proposed limitation of applying the consumer protection rules of Article 6 to consumers who were habitually resident in a Member State. Therefore, the Presidency concluded there was sufficient support for universal application of Article 6.149

12.75  If the balance that the Commission had been trying to achieve was to limit the burden on businesses by restricting the effect of their Proposal to consumers within the Member States, for whom consumer protection laws had already been partially harmonized, then the suggested approach of the majority of Member States would upset that balance. Thus, (p. 520) despite the apparent agreement for the universal application of consumer protection rules among the majority of the delegations in February 2007, the geographical limitation of consumer protection to EU consumers still subsisted. It was eventually removed in the 25 June 2007 draft prepared by the German Presidency and the incoming Portuguese Presidency.150 Similarly, the restriction on party autonomy was maintained despite this suggested change to the scope of consumers protected. That remained the position until Amendment 45 put forward on the 21 November 2007151and the final compromise package draft of 26 November 2007 prepared by the Portuguese Presidency.152 That draft article 5(1aa) returned to the concept of permitting choice of law under Article 3, but preventing such a choice from depriving the consumer of the protection afforded to him by the law of his habitual residence.153 The compromise reached was a return to the preferential law approach of Article 5(2) of the Rome Convention. The Commission’s radical proposal was at an end.

Deletion of the proposed ‘safeguard clause’

12.76  In addition, the safeguard clause in draft article 5(2) of the Rome I Proposal that the consumer’s law should apply ‘unless the professional did not know where the consumer had his habitual residence and this ignorance was not attributable to his negligence’ was also deleted at the same time. This clause had been subject to trenchant criticism. The Max Planck Institute argued that where the directed activity criterion towards a consumer’s country was to be adopted, ‘the lack of awareness’ on the part of the professional had no real value or role. Such a clause would also give rise to the difficult issue of whose ignorance at the professional’s business should be considered?154 In the context of electronic business where e-agents have been used, there is no human based ‘awareness’ to consider.155 The consequence of this deletion is that the idea that a supplier can avoid the application of a consumer’s home country law under Article 6 if they did not know where that country is not correct. The position is different when they have been actively misled.

Other changes to the proposal

12.77  The other substantive changes to draft article 5 of the Rome I Proposal (now found in Article 6 of the Regulation) are either clarifying drafting corrections, or concerned with extending the definition of excluded contracts which are dealt with further below.

The rapporteur’s comments to the European Parliament

12.78  The rapporteur M Cristian Dumitrescu reported to the European Parliament in presenting the Regulation for the vote on the 29 November 2007:

The problem was that the Commission proposal departed from the Rome Convention by saying that, apart from certain exceptions, it is the law of the consumer that should apply to contracts between consumers and professionals. The problem with this version of Article 5 proposed by the Commission was that traders, particularly electronic traders, would have (p. 521) had to draw up terms and conditions tailor-made for each EU Member State. This would have been impossible for small and medium-sized businesses, which do not have the same resources as the big multinationals, and the result would have been an enormous barrier for SMEs wanting to conduct e-commerce within the Single Market. The rapporteur is all too aware that SMEs are the driving-force behind Europe’s economy and create jobs and innovation. The smaller Member States were also worried that they would be excluded from the e-commerce market.

12.79  As a consequence, the end result was to return to the solution based on the Rome Convention. In the rapporteur’s words:

The solution adopted in the end was to return to a simplified version of Article 5 of the Rome Convention. The new Article 5 sets out the principle that the law of the consumer should apply, but allows the parties to choose the law applicable. In practice, given that most contracts between consumers and professionals are standard, take-it-or-leave-it contracts, this means that traders will make their law applicable. However, since Article 5 provides that the choice of law is subject to the mandatory rules of the consumer’s country of residence, it offers a solution that is very much in consumers’ favour. The new Article [6] that we are proposing therefore provides a win-win solution in which the consumer is guaranteed maximum protection and SMEs will be free to offer their goods and services on the internet on the basis of contracts governed by their own law.

I.  The Scope of Article 6

‘Without prejudice to Articles 5 and 7’

12.80  Article 6(1) begins by emphasizing that it operates ‘[w]ithout prejudice to Articles 5 and 7’. Coupled with the more detailed exclusion in Article 6(4)(b), this phrase highlights that the special rules for contracts for the carriage of goods and passengers in Article 5, other than a contract of carriage relating to a package travel contract,156 do not fall within the material scope of Article 6. Those insurance contracts that fall within Article 7 are also not subject to the rules in Article 6.157 But some may still fall within Article 6, as Article 7 does not include insurance contracts for non-large risks that are not situated in a Member State.158

Recital (32)

12.81  If there was any doubt on the role of Article 6 in relation to contracts of carriage and insurance contracts, this is dispelled by the terms of Recital (32):

Owing to the particular nature of contracts of carriage and insurance contracts, specific provisions should ensure an adequate level of protection of passengers and policy holders. Therefore, Article 6 should not apply in the context of those particular contracts.

The categories of exclusions

12.82  Article 6(4) contains a list of four categories of excluded contracts and one category of excluded rights and obligations. These are detailed below from Section O onwards, and a (p. 522) useful starting point in any case involves checking whether the contract or obligation in issue falls within them.

J.  ‘A Concluded Contract’

12.83  For those contractual obligations that are not excluded from its scope, Article 6(1) only applies if there has been ‘a contract concluded’ between a consumer and the professional.159 Three issues arise from these three words.

(1)  A contract

12.84  By requiring the conclusion of ‘a contract’, Article 6(1) marks the deliberate extension of the kinds of contract capable of being classified as consumer contracts under the Rome I Regulation. Subject to the identified exclusions Article 6 covers all consumer contracts.160 This is in contrast to the more limited scope of Article 5 of the Rome Convention, and dispenses with any further need to classify the contract as one involving either the ‘supply of goods or services’ to the consumer. This simple revision removes any lingering concerns that developments in e-commerce were not adequately safeguarded by the terminology used in the Rome Convention. All digital products or services, however characterized for other purposes, that form part of ‘a concluded contract’ are covered by Article 6 unless otherwise excluded under the Regulation’s provisions.

(2)  ‘Concluded’

12.85  Any ‘contract’ must be ‘concluded’ by the parties otherwise Article 6 has no application. This rules out any obligations which arise out of dealings which did not get beyond the pre-contractual stage which are governed by the culpa in contrahendo provisions of the Rome II Regulation.161

12.86  As the Court’s jurisdiction case law in relation to the mail-order ‘prizes’ have shown, it is not always obvious when a contract between a consumer and a trader has been concluded.162 Given the operation of Article 6 depends upon the criterion of a concluded contract, the Court may find it necessary to fashion an autonomous interpretation of the concept.163 The Court will find inspiration from the case law on the consumer contract jurisdiction provisions of the Brussels Regime; in particular, the prize cases, where German mail-order companies happily bombarded Austrian consumers with notifications telling them they had won prizes, in competitions the Austrians had never entered, and prizes which the Germans had no intention of paying.164 These cases show it is unnecessary for the conclusion of a contract that the parties have assumed reciprocal obligations, but merely that one party (normally the trader) has assumed a legal obligation by submitting (p. 523) a firm offer, which was sufficiently clear and precise regarding its object and scope, to give rise to a link of a contractual nature, which firm offer had been accepted by the other (normally the consumer).

12.87  In Ilsinger,165 the Austrian victim had received the usual cheery notification of success in a competition and did as she was asked; returning a coupon attached to a prize claim certificate to the German trader. In return she got nothing back. The Court held that Article 15(1)(c) of the Brussels I Regulation was no longer limited to those situations in which the parties have assumed reciprocal obligations.166 The actual wording of Article 15(1)(c) required a ‘contract’ to have been ‘concluded’ by a consumer with a person who pursues commercial or professional activities.167 As regards that condition, it was conceivable, in the context of Article 15(1)(c) that one of the parties merely indicates its acceptance, without assuming itself any legal obligation to the other party to the contract.168 However, it was necessary, for a contract to exist within the meaning of that provision, that the latter party should:

assume such a legal obligation by submitting a firm offer which is sufficiently clear and precise with regard to its object and scope as to give rise to a link of a contractual nature as referred to in that provision.169

12.88  That latter requirement might be regarded as being satisfied only where, in the context of a prize notification as at issue in Ilsinger, there had been ‘a legal commitment contracted by the mail order company’. The mail order company:

must have expressed clearly its intention to be bound by such a commitment, if it is accepted by the other party, by declaring itself to be unconditionally willing to pay the prize at issue to consumers who so request. It is for the national court to determine whether that requirement is fulfilled in the dispute before it.170

12.89  In the absence of such a legal commitment, a commercial practice of the kind found in Ilsinger, could not, without more, be regarded as ‘assuming a contractual nature or as relating to a contract within the meaning of Article 15’.171 Such a situation would, at most, be liable to be classified as a pre-contractual or quasi-contractual one.172 Transposing the prior Brussels Convention case law into the Brussels I Regulation, the Court held that legal proceedings could be brought under Article 15(1)(c) where a company, with the aim of encouraging a consumer to conclude a contract, sent a letter addressed to him personally of such a kind as to give him the impression that he would be awarded a prize if he requested payment by returning the ‘prize claim certificate’ attached to the letter, but without the award of that prize depending on an order for goods offered for sale by that company or on a trial order, on condition that the professional vendor ‘has undertaken in law to pay that prize to the consumer’, and where that condition has not been fulfilled, only if the consumer, had placed an order with that professional vendor.173

(p. 524) 12.90  In Hotel Alpenhof,174 the consumer contract provisions of the Brussels I Regulation were considered alongside the Court’s reference to both Recital (7), Recital (24) and Article 6(4)(b) of the Rome I Regulation. In Hotel Alpenhof, a room at the eponymous hotel had been booked via exchanges of email. The Court had no truck with the hotel operator’s argument that no contract was concluded until the customer arrived at the hotel, made their payment and received their room keys. The fact the keys were handed over to the consumer and payment was made by him in the Member State in which the trader was established, did not prevent the consumer contract provisions from applying ‘if the reservation was made and confirmed at a distance, so that the consumer became contractually bound at a distance’.175 No further guidance was given, but the basic principle underpinning that conclusion seems simple: the hotel room had been booked; the hotel promised to have it available, the consumer promised to turn up and pay for it. The precise facts, when viewed against ‘common contractual principles’,176 would indicate that a contract had been concluded, a booking made, a deal done.

12.91  It seems likely that the Court’s findings in Ilsinger & Hotel Alpenhof will be transposed to the operation of Article 6 of the Rome I Regulation.

(3)  No locational condition

12.92  There is no requirement under Article 6 that the contract must have been concluded within the consumer’s country of habitual residence, or that the consumer must have taken any steps within that country towards concluding it. The previous requirements of first and second indents of Article 5(2) of the Rome Convention that the consumer must have either taken ‘all the steps necessary on his part for the conclusion of the contract’, or ensured that the trader or his agent received the consumer’s order in that country, are now gone.

K.  ‘The Consumer’

12.93  Article 6(1) provides an autonomous definition of the concept of ‘the consumer’ for the purposes of the Regulation. This has two-interlocked elements that must both be satisfied. The consumer must be (1) ‘a natural person’ and (2) they must have concluded the contract ‘for a purpose which can be regarded as being outside his trade or profession’.

‘A natural person’

12.94  Article 5 of the Rome Convention required a consumer to be ‘a person’. The clarification they must be a ‘natural person’ ensures that Article 6 does not apply to a legal person. It is not a substantive change, but merely confirms the Court’s long-standing approach to the concept of the consumer that first appeared in Société Bertrand.177 Article 6 now utilizes ‘the standard definition found in several consumer protection directives’.178

(p. 525) 12.95  This requirement is in contrast to some other areas of EU law where the term ‘consumer’ is not necessarily limited to natural persons.179 It is also more limited in scope than some Member State’s national laws. For example Article L 131-1 of the French Consumer Code gives protection to contracts concluded between ‘professionnels’ and ‘non-professionnels or consommateurs’.180 Under French law, Cour de Cassation has held that a legal person could qualify for the same protection as a consumer if they were a ‘non-professionnel’ in relation to the transaction in question.181 In England, the Court of Appeal held in R&B Customs Brokers Co Ltd v United Dominions Trust Ltd182 that a freight forwarding business and shipping agency who purchased a car through a finance company was trading as a consumer within the meaning of s 12(1) of the Unfair Contract Terms Act 1997. Italian law also allows a certain level of protection to consumer associations.183 But none would qualify as a consumer under Article 6 of the Rome I Regulation which is not linked to definitions used in national legal systems.184

12.96  To ensure uniform interpretation of the Regulation, only a natural person can qualify as a consumer under Article 6 even if a broader definition of the concept of consumer constitutes a mandatory rule of law which is not capable of being derogated from by contract under the laws of the habitual residence of that legal person. Article L 131-1 of the French Consumer Code describes those provisions as ‘ordre public’, but this cannot allow a French ‘non-professionnel’ legal entity to qualify as a consumer for the purposes of Article 6.185

‘For a purpose which can be regarded as being outside his trade or profession’

12.97  The second, and key, element of the definition of a consumer in Article 6(1) is that the natural person must have concluded the contract in question ‘for a purpose which can be regarded as being outside his trade or profession’. The concept of a consumer contract covers ‘only a private final consumer, not engaged in trade or professional activities’.186 Accordingly, Article 5 of the Rome Convention did not apply ‘to contracts made by traders, (p. 526) manufacturers or persons in the exercise of a profession (doctors, for example) who buy equipment or obtain services for that trade or profession’.187

12.98  Taking account of the objective of protecting consumers by aiming to compensate for the imbalance between parties in contracts concluded between a consumer and a professional, their application cannot be extended to persons with respect to whom that protection is not justified.188 Consumer protection is unwarranted in the case of contracts for the purpose of a trade or professional activity.189 Accordingly, the Court has held that the rules of special jurisdiction over consumer contracts cannot apply to contracts concluded between two persons engaged in commercial or professional activities.190 Nor is there any imbalance requiring of protection when two private persons conclude a contract that is outside the trade or profession of both; the relationship between them ‘cannot be subject to the system of special protection applicable to consumers contracting with persons engaged in commercial or professional activities’.191

12.99  There is no personal status of a consumer or non-consumer. Whether a natural person satisfies the definition of a consumer is decided solely by the capacity or position in which they entered into the contract in question.192 What matters is the nature and aim of the contract and not the subjective situation of the person concerned.193 As a result, a consumer is neither a pre-determined status nor a fixed role in any transaction:

The status of a consumer…is not determined by a pre-existing subjective situation: the same natural person may be a consumer for certain purposes and an entrepreneur for others. The decisive factor is, therefore, not the personal circumstances of the individual, but rather his position under a particular contract, having regard to its scope and purpose.194

12.100  This aspect of the definition of the concept of consumer is couched in entirely negative terms. There is no requirement that the contract should be for ‘ordinary’ goods or services ‘intended for personal or family use’.195 There are no financial limits imposed, as ‘the status of a consumer is…not reserved only to those persons who are economically weak or disadvantaged’.196 All that is required is that the contract must have been concluded ‘for the purpose of satisfying an individual’s own needs in terms of private consumption’.197 But what those ‘needs’ are is entirely a matter for the individual.

(p. 527) The limits of a trade of profession?

12.101  Underpinning this second part of the definition of the consumer in Article 6 of the Regulation is the quaintly traditional assumption that a person has an identifiable trade or profession against which the purpose of the contract can be measured; thus a doctor is a doctor, a lawyer is a lawyer. Accordingly, Article 5 of the Rome Convention did not apply ‘to contracts made by traders, manufacturers or persons in the exercise of a profession (doctors, for example) who buy equipment or obtain services for that trade or profession’.198

12.102  But what if the doctor also buys and sells antiques? Or a wealthy lawyer, who owns a yacht and charters it out? Are these mere hobbies or could these activities constitute a secondary trade in addition to their principal profession? As the boundaries of a natural person’s trade or profession must be marked out to establish whether the consumer contract protections of Article 6 are engaged, this may give rise to some difficulties, that may be hard to resolve uniformly.

Standard Bank v Apostolakis

12.103  An example of the difficulties that might arise, especially in financial services and investments, can be seen from the parallel proceedings in England and Greece in the case of Standard Bank of London Ltd v Apostolakis.199 The defendants were a wealthy Greek couple living in Athens. Mr Apostolakis was a civil engineer by profession, but also a property developer.200 His wife was a lawyer, practising in family law.201 The couple had substantial deposits in foreign exchange, mainly with banks in London and Geneva. They invested some £400,000 each year.202 However, their overall portfolio was ‘undoubtedly conservative, with other investments being primarily in bonds and mutual funds’.203 The couple embarked on a far more adventurous arrangement with a London-based bank. They entered into an umbrella agreement, which involved them agreeing that the bank would make forward purchases of European Currency Units (‘ECUs’) on their behalf in exchange for Greek drachmas.204 The profits from such investments arose from the difference between the interest rate payable on the ECU and the rate payable on the Greek drachma. The investor would borrow ECUs at the lower rates of interest and use those funds to buy drachmas for deposit. The primary risk associated with this investment was any devaluation of the drachma.205 At the beginning of this agreement, the couple had to make two margin deposits with the bank in London to support the foreign currency trades. These totalled US$1.1 million. Within seven months from the agreement, the couple had entered into 28 separate transactions with the bank with a resulting exposure of some US$7 million.206 Some 16 of these had been closed, but 12 remained opened when, over a weekend, the Greek (p. 528) government devalued the drachma.207 The next working day, the bank closed the couples’ 12 remaining transactions, creating a loss for them on the contracts, and as a result the bank forfeited their margin deposits.

12.104  Mr and Mrs Apostolakis began proceedings in Athens against the bank.208 Before being served with the Greek proceedings, the bank had started its own proceedings in England seeking an anti-suit injunction to restrain the Greek proceedings on the basis of the English exclusive jurisdiction agreement. The bank sought summary judgment on their claim, and the trial of preliminary issues was ordered. The first issue concerned whether there was an exclusive jurisdiction clause between the parties. The English court held that there was. The second issue was whether the contract or contracts made between the Bank and the defendants were consumer contracts for the purposes of Article 13 of the Brussels Convention and/or Unfair Terms in Consumer Contracts Regulations which implemented the European directive (93/13/EEC).

12.105  The English court held these transactions were consumer contracts. Longmore J held that ‘[i]t is certainly not part of a person’s trade as a civil engineer or a lawyer…to enter into foreign exchange contracts’.209 The court then considered whether the couple were engaged into another trade by reason of the contracts they had made. Longmore J held:

I do not consider that they were. They were disposing of income which they had available. They were using money in a way which they hoped would be profitable but merely to use money in a way one hopes would be profitable is not enough, in my view, to be engaging in trade. This is all the more so if one looks at the purpose of the contracts as art. 13 of the convention invites one to do. These contracts were not trading in foreign exchange contracts in the sense that a bank or dealer can be said to trade. The evidence is all to the effect that it was outside their trade or profession that the contracts were being made.210

12.106  Their contracts were seen as financial services investment contracts. The bank had submitted that the sheer scale of the 28 contracts militated in favour of the conclusion that the defendants were acting as traders in foreign exchange. The English court thought that the scale of the contract cannot be determinative whether it was a consumer contract.211 Longmore J also rejected the bank’s submissions, based on the observations of the Court in Benincasa,212 that European law required a court to classify as a consumer contracts only those concluded for the purpose of satisfying an individual’s own needs in terms of his private consumption. On the evidence before the court, both the original umbrella agreement and the subsequent individual contracts made under it, were to satisfy the needs of Mr and Mrs Apostolakis:

defined as an appropriate use for their income, and that need was a need in terms of private consumption. Consumption cannot be taken as literally consumed so as to be destroyed but rather consumed in the sense that a consumer consumes, viz. he uses or enjoys the relevant product.213

(p. 529) 12.107  In the subsequent decision in Standard Bank London Ltd v Apostolakis (No 2),214 David Steel J expressed a preliminary views on that the London jurisdiction clause was unfair within the meaning of the Unfair Terms Consumer Contract Regulations 1994 and/or 1999 and was not binding on the defendants:

I recognise that in terms of a consumer contract the arrangements into which the defendants entered must be at the ‘business’ end of the scale given the size of the investments made. Nonetheless the purpose of the regulations is to protect consumers and it is into that category that they fall.215

12.108  Shortly after the second English decision in Athens, the Polimeles Protodikeio (Multi-Member First Instance Court) ruled in the defendants’ Greek action against the Bank. The Greek Court, despite being fully aware of the judgments in England, determined they were not binding on them,216 and came to the opposite conclusion, holding that the contracts entered into by the couple did not constitute consumer contracts. In the light of the English jurisdiction clause, they declined jurisdiction.217 The Greek court drew a distinction between investment transactions, such as the purchase of unit trusts and stock exchange transactions that involve the ‘average consumer’, which they described as ‘persons who are not specialized in this specific sector’, and those in which the participants may be regarded as ‘quasi-professional’.218 Given the transactions being entered into by Mr and Mrs Apostolakis, the Greek court concluded that the couple did ‘not follow the paradigm of the average saver’ and were ‘not in need of the protection afforded to inexperienced and ignorant customers’.219 Under the influence of Greek domestic law, which declares that the repeated carrying out of an objectively commercial transaction causes a party to acquire the capacity of a trader, even if he has another non-trading profession,220 the Greek court ‘concluded without any hesitation’ that Mr and Mrs Apostolakis had been engaged in ‘entrepreneurial activity’ regarding both the original umbrella agreement and the subsequent forward exchange contracts. ‘Moreover, it can be concluded that these contracts did not aim at satisfying own needs in terms of private consumption.’221 The transactions were entered into ‘for the purpose of profiting’.222 The Greek Court saw the contracts as ‘objectively commercial’.223 The ‘business relationship’ between the parties constituted ‘a commercial activity’ for Mr and Mrs Apostolakis ‘who, by carrying out the above acts and by operation of law, had acquired the capacity of traders’.224 Alternatively, the court relied on Article 281 of the Greek Civil Code,225 which provides that ‘the exercise of a right is prohibited where it manifestly exceeds the bounds of good faith, morality or the economic (p. 530) or social purpose of that right’. To afford the defendant’s consumer protection would be to allow the abusive exercise of those rights.

12.109  The difficult question of which first instance court was correct has attracted considerable thought among English scholars, who have reached differing conclusions as both regards the correct approach and the result in Standard Bank.226

12.110  In Germany, the Bundesgerichthof has held that German courts had consumer contract jurisdiction over a Swiss defendants under the Lugano Convention227 in relation to asset management228 and/or hedge fund transaction,229 even though each contract contained Swiss choice of law and exclusive jurisdiction clauses. The court held, by analogy with Article 5 of the Rome Convention,230 that the latter contract was for the supply of services and the concept of ‘provision of service’ ought to be broadly interpreted, and this included all contracts in which a business related service is promised to the consumer.231

12.111  Recital (26) of the Rome I Regulation emphasizes that financial services such as investment services are within the scope of consumer contract protection.232 Disputes like Standard Bank involving high-value cross-border trading in the financial services/investments field may surface in the future.233 Certainly, they have already in relation to tort jurisdiction disputes generally.234

12.112  Ultimately, the question of when a customer becomes a trader may prove to be a factual matter that depends on both subject matter and purpose of the contract and the sheer volume or repetition of the transactions involved. As Professor Hill put it:

A classic car enthusiast does not trade in used cars as a second hand car dealer traders, but if the enthusiast’s buying and selling activities are sufficiently extensive, it is reasonable to conclude that the enthusiast is carrying on a secondary trade.235

(p. 531) Dual purpose/mixed contracts

12.113  A contract concluded for a ‘dual purpose’, eg for goods or services to be used both inside and outside a trade or profession, may give rise to issues whether the customer is entitled to consumer contract protection under Article 6, and to questions as to how far an interpretation of Article 6 in this respect should be aligned with the jurisdictional provisions of the Brussels Regime. In relation to the consumer contract provisions of the Rome Convention, the Giuliano–Lagarde Report said that, if a person ‘acts partly within, partly outside his trade or profession the situation only falls within the scope of Article 5 if he acts primarily outside his trade or profession’.236 Yet, for jurisdiction purposes, the Court has ruled that where there is an element of mixed use, a contract will only qualify as a consumer contract if the consumer can establish that the trade or professional use element of it is ‘negligible’.237This is so even if its predominant purpose is for a private, non-professional use.

12.114  In Gruber v Bay Wa AG,238 a jurisdiction dispute arose out of a contract for the provision of one of the most basic of any consumer’s needs: a roof over their head. Mr Gruber was a farmer living in Austria close to the German border. His steading comprised a farmhouse, in which he lived with his family in 12 rooms, which constituted 62 per cent of the floor area. The remaining 38 per cent of the farmhouse was used as a pigsty and for storing fodder for his business. The defendant, a German company operating on the German side of the border, ran a building materials and DIY centre that advertised in brochures distributed in Austria. Mr Gruber wanted to tile his farmhouse roof, and contacted the defendant, having become aware of them through their brochures. A contract for the sale of tiles was entered into. A dispute arose over significant colour variations in the tiles after Mr Gruber had tiled his farmhouse roof. Mr Gruber sued the defendant in Austria claiming the Austrian courts had consumer contract jurisdiction, a contention challenged by the German defendant. On an appeal by Mr Gruber, the Austrian Supreme Court referred six questions to the European Court. Two questions addressed the issue whether or not a consumer contract depended upon which of the private and the trade or professional purposes was predominant, and in cases of doubt, whether a contract that could be attributed to both private or professional activities could still be a consumer contract for the purposes of the Convention.239

12.115  Both Advocate-General Jacobs and the Court rejected the idea of ‘dual purpose’ or ‘mixed’ consumer contracts: a contract was either to be classified as a consumer contract or it was not. The fact a contract had a private purpose, even if that was the predominant purpose, did not make it a consumer contract if it was entered into for the person’s trade or professional purposes. The only exception was when the business use was ‘only negligible’ or ‘merely negligible’.240 It was for the national court seized to decide in the light of the evidence submitted to it to decide.

12.116  Dicey, Morris, & Collins consider that it is ‘very likely’ that Article 6 will apply to a contract concluded in such circumstances only if the individual ‘acts substantially outside his trade or profession’,241 advice that reflects in part the earlier guidance from the Giuliano–Lagarde (p. 532) Report in relation to Article 5 of the Convention. But it is submitted that the weight of scholarship is probably against this view. Plender & Wilderspin consider that, on balance, the desirability of maintaining consistency between the interpretation of the concept of ‘consumer’ between the Brussels Regime and the Rome I Regulation should prevail, and the ‘negligible business purpose’ found in Gruber will be adopted.242 Dr Ragno favours the Gruber approach over the predominant purpose approach.243 Professor Hill considers there is no reason to think that the Gruber approach of requiring the trade or professional purpose to be negligible or de minimis should be any different in the context of the choice-of-law regime than under the jurisdictional provisions of the Brussels Regime.244 Professor Calliess believes that the decision in Gruber ‘clearly defeats’ an earlier understanding originating in the Giuliano–Lagarde Report according to which the preponderant purpose was decisive.245 It will remain to be decided whether the Court will distinguish the same concept in the two Regulations.

Future business purposes

12.117  A contract concluded for the purpose of pursuing a trade or profession, whether presently or in the future, is not a consumer contract.246 The identification of an individual’s trade or profession is therefore not necessarily formally fixed at the precise time the contract is concluded, and the court may consider any business purpose for which the particular contract is intended.

12.118  In Benincasa, an Italian promoter of a chain of franchise shops selling dental hygiene products concluded a franchise agreement in Florence with Mr Benincasa for the opening and operation of a shop in Munich.247 The franchise agreement contained an exclusive jurisdiction clause in favour of the courts of Florence. Mr Benincasa opened the shop, made an initial payment under the franchise agreement, ordered goods (for which he did not pay) and then ceased trading. He subsequently brought an action in Munich against the Italian defendants, claiming that the agreement was void and sought to recover the money he had paid. When the defendant challenged the jurisdiction of the German courts based on the Italian jurisdiction agreement, Mr Benincasa claimed that the franchise contract was a consumer contract and therefore the jurisdiction agreement was invalid. Ingeniously, Mr Benincasa claimed that when he concluded the franchise agreement he was not carrying on a business and therefore he should be regarded as a consumer within the meaning of Article 13 of the Brussels Convention. This was based on an argument by analogy with the definition of ‘consumer’ under the German law on consumer credit (Verbraucherkreditgesetz), which conferred the status of consumers upon persons applying for credit in order to pursue an activity which they had not previously taken up.248 A reference was made to the Court. The (p. 533) Advocate-General249 and the Court readily rejected Mr Benincasa’s case: his activities were intended to create a business. As the Court noted:

only contracts concluded for the purpose of satisfying an individual’s own needs in terms of private consumption come under the provisions designed to protect the consumer as the party deemed to be the weaker party economically. The specific protection sought to be afforded by those provisions is unwarranted in the case of contracts for the purpose of trade or professional activity, even if that activity is only planned for the future, since the fact that an activity is in the nature of a future activity does not divest it in any way of its trade or professional character.250

12.119  The Court concluded that it was consistent with the wording, spirit and aim of the provisions concerned to hold that the specific protective rules enshrined in them ‘apply only to contracts concluded outside and independently of any trade or professional activity or purpose, whether present or future’.251 The essential principles of the decision in Benincasa will apply to Article 6 of the Rome I Regulation.

Wholly exceptional transactions

12.120  That a transaction may be a wholly exceptional one made outside the ordinary course of the business is not enough to make it a consumer contract. Thus a trader entering into obligations regarding the sale of their business is not a consumer.252 Although such arrangements may bring the running of the business to an end, they are still treated as managerial acts performed to satisfy requirements other than the family or personal requirements of the trader.253 The Commission’s view that a trader, canvassed in connection with the sale of his business, finds himself ‘in an unprepared state similar to that of an ordinary consumer’ was rejected by the Court.254

Personal guarantees

12.121  Consumer contract protection cannot apply to contracts related to an individual’s business, such as the provision of a personal guarantee for loans provided to their company. Article 6 protection will not be available to a natural person giving an aval and becoming a guarantor of a promissory note, issued to guarantee the obligations of a commercial company, as this cannot be regarded as being given outside and independently of any trade or professional activity or purpose when that individual has close professional links with that company, such as being its managing director or majority shareholder.255

12.122  More difficulties may arise when the guarantee does not relate to a business with which the guarantor has ‘close professional links’ as opposed to personal or family ties. In Deitzinger,256 Mr Deitzinger’s father ran a building firm which had an overdraft facility with a German bank. Mr Deitzinger gave a written guarantee in respect of his father’s obligations to the bank. He was not informed of any right to cancel the guarantee. When the bank (p. 534) subsequently called in the loans, Mr Deitzinger sought to avoid the guarantee in reliance on German law implementing the Door Stop Selling Directive (85/577/EEC). The Court held that Mr Dietzinger was not entitled to do so, ‘since the directive is designed to protect only consumers, a guarantee comes within the scope of the directive only where…the guarantor has entered into a commitment for a purpose which can be regarded as unconnected with his trade or profession’.257 The Court then concluded, without further elucidation, that a contract of guarantee concluded by a natural person, who is not himself acting in the course of his trade or profession, does not come within the scope of the directive when it guarantees repayment of a debt contracted by another person who, for his part, is acting within the course of their trade or profession.258 Ultimately, the decision appears to have been because the purpose of the guarantee for Mr Dietzinger’s father’s business was crystal clear, even if technically it fell outside Mr Dietzinger’s own trade or profession. Mr Dietzinger’s guarantee of their overdraft presumably allowed his parent’s trade to continue. Whether that clarity is available always may be debateable. It has been doubted whether the Deitzinger principles would apply to Article 6 cases.259 There is an obvious gap between the Court’s rulings in Česká spořitelna and Dietzinger, where there is a guarantee for a third party’s debt where the guarantor has no close professional connection and in which the commercial purpose is not necessarily obvious. Whether a maintainable principle can be established remains to be seen.

Losing the right to consumer contract protection?

12.123  A consumer can, by his conduct, lose his right to consumer contract protection under Article 6. In relation to Article 5 of the Convention, the Giuliano–Lagarde Report had said that:

Where the receiver of goods or services or credit in fact acted pri