English and European Perspectives on Contract and Commercial Law

Essays in Honour of Hugh Beale

Louise Gullifer, Stefan Vogenauer, Louise Gullifer, Stefan Vogenauer

• Publisher: Hart Publishing
• Year: 2014
• ISBN:
  9781782255192
• Edition: 1
• Topic: Law
• Subtopic: Contract Law
• Index: Law

The purpose of this book is to honour the influential and wide-ranging work of Professor Hugh Beale. It contains essays by twenty-five very distinguished authors, each of whom has worked with Professor Beale as a co-author, as a teaching colleague, during his time as Law Commissioner of England and Wales, or as part of the study groups working in Europe on contract and commercial law. The essays reflect different aspects of Professor Beale's interests. Some concentrate on English contract law, either from a historical or a current perspective, while others are focused on aspects of European contract law. There are four essays looking at current issues relating to security and financing, and, as befits a former Law Commissioner, three essays on law reform. The essays in the final section discuss trends in transnational and European commercial law. This book brings together the reflections of eminent writers from all over Europe on important issues facing contract and commercial law and will be of interest to all scholars and practitioners working in these areas.

European Contract Law

13

Unfair Prices in the Common
European Sales Law

MARTIJN W HESSELINK^*

INTRODUCTION

AT ITS PLENARY session of 26 February 2014 in Strasburg, the European Parliament voted in favour of the Common European Sales Law (CESL).¹ The legislative resolution, which was adopted by a large majority, includes two amendments which significantly extend the protection of consumers against unfair terms, not only to individually negotiated terms but also to core terms, including price terms. The combined effect of these two amendments is that contract prices, including individually negotiated prices, in consumer contracts would become subject to unfairness control. So, if these amendments will be supported by the European Commission and the Council, this will bring a major increase in consumer protection compared not only to the Commission’s proposal, but also to the minimum level of protection that the Directive on unfair terms in consumer contracts (Unfair Terms Directive 93/13/EEC) currently requires the Member States to maintain in their national laws. In this contribution, I will argue that both these amendments make good sense and that there are good reasons for the Council and the Commission to endorse them so that they can become part of the optional European sales law. My argument is organised as follows: first, I will briefly introduce the exclusion from unfairness control of individually negotiated and core terms in the Unfair Terms Directive and the Commission proposal for a CESL. Then, I will argue that the prohibition of unfair core terms would be fully in line with the main objectives of both the Unfair Terms Directive and the proposed CESL. Subsequently, I will discuss and reject the main objections against the unfairness control of core terms. Finally, I will conclude that the amendments should be supported. Throughout, the focus will be primarily on excessive prices.²

PERMISSION OF UNFAIR CORE TERMS

Pursuant to the Unfair Terms Directive, Member States must ensure that unfair terms are not binding on consumers (article 6).³ A contract term must be regarded as unfair if, ‘contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer’.⁴ However, not all terms that are unfair in this sense are covered by the unfairness control. The Directive contains two important and well-known limitations. First, the required control extends only to contractual terms which have not been individually negotiated.⁵ Secondly, the ‘definition of the main subject matter of the contract’ and ‘the adequacy of the price’ do not have to be subject to an unfairness assessment (as long as these terms are written in plain intelligible language).⁶ Thus, the Directive explicitly permits a significant imbalance in the parties’ rights and obligations arising under the contract as long as it relates to the main obligations of the parties, such as the obligation to pay an excessive contract price, not merely ancillary ones.

A significant number of Member States decided not to introduce these limitations when transposing the Directive into their national laws.⁷ For example, the Nordic countries kept their famous general clause (article 36), which also covers individually negotiated core terms, even, in principle, in commercial contracts.⁸ The Member States are allowed to maintain or introduce such more protective provisions, because the Directive only aims at minimum harmonisation.⁹

With regard to the control of unfair terms in consumer contracts, the European Commission’s proposal for a Common European Sales Law of 2011 substantially followed the Unfair Terms Directive.¹⁰ In particular, the CESL-proposal contains the same exclusions as the Directive, for price and other core term and for individually negotiated terms.¹¹ This in spite of the fact that the Commission Expert Group on European Contract Law had proposed to extend the unfairness control in business to consumer (‘B2C’) contracts to individually negotiated terms—a rare deviation by the Commission from the Expert Group’s draft.¹²

In its Statement on the CESL proposal, the European Law Institute (ELI) pointed out that the protection of consumers against unfair clauses that have been individually negotiated needs to be improved.¹³ It therefore proposed to add to CESL, article 51 (unfair exploitation) a presumption of an unfair exploitation whenever the terms of a consumer contract are such as to create a grossly unfair imbalance of the parties’ rights and obligations to the detriment of the consumer.¹⁴ However, in the ELI’s proposal, price and other core terms remain explicitly excluded from the presumption of unfairness and the protection provided by it.¹⁵

PROHIBITION OF UNFAIR CORE TERMS

In its amendments in first reading, the European Parliament goes an important step further. Not only does Amendment 155 remove the exclusion of individually negotiated terms from unfairness control, thus essentially following the Expert Group’s proposal, in addition Amendment 153 also eliminates the exclusion of price and other core terms from scrutiny.¹⁶ The combined effect of these two amendments is that under the CESL, as adopted in first reading by the European Parliament, price terms and other core terms can be controlled for unfairness, even if these terms have been individually negotiated by the parties.

These amendments by the European Parliament to the Commission’s CESL proposal make good sense, because the main reasons for the control of unfair terms apply equally to individually negotiated terms and even a fortiori to core terms. The prevention of injustice, the protection of consumers as weaker parties, and consumer confidence in cross-border shopping are all likely to benefit much more significantly from the control for unfairness of core terms than from an unfairness control which is limited merely to ancillary terms.

Contractual Injustice

Contract terms normally create more contractual unfairness to the extent that they are the more important terms of the contract. For that reason, the core terms, and in particular the contract price, are the ones that matter most from the perspective of contractual justice. Therefore, if the aim is for the European Union to prevent injustice against citizens in their role of consumers,¹⁷ then clearly it should ban the terms that are most likely to make the entire contract become significantly imbalanced, and therefore unfair, ie the core terms. In particular, they should target excessive prices.

It is important to clarify at this point that we are talking here about preventing the introduction of injustice by the law, not the removal of an already existing injustice. If the law grants legally binding force to agreements that are unfair then to that extent the law creates an unjust situation that did not exist before: someone becomes entitled to something that they should not be entitled to. Moreover, if the law refuses to enforce certain contracts or contract clauses because of their unfairness then (absent provisions of criminal or administrative law to the contrary) parties remain free to conclude and voluntarily perform such agreements. The only difference is that these unfair contract terms fail to create legal obligations and can therefore not benefit from the apparatus of remedies and state supported enforcement which come with legally binding force. The concept of ‘freedom of contract’ is somewhat misleading in this regard: when we ‘limit the freedom of contract’, the only thing we do in reality is to refuse to require the contracting parties to comply with the agreement, and consequentially we prevent public officials from forcing people to perform unfair contracts, eg to pay excessive contract prices, against their will.

So, the moral argument in favour of unfairness control actually operates a fortiori when it comes to the unfairness of the most important terms in the contract. The moral force (or the logic) of the argument that it is acceptable for contract terms to be unfair as long as they are the important terms, while unfair terms must not be binding on consumers as soon as it comes to the unimportant terms, is rather doubtful.

Interestingly enough, the preliminary recitals in the proposed Regulation announce quite generally that the CESL should govern ‘the assessment and consequences of unfairness of contract terms’,¹⁸ while the heading of Chapter 8 is also very generally entitled ‘Unfair contract terms’, rather than ‘Unfair non-core contract terms’. They are already fully in line with—indeed better than—the European Parliament’s amendments.

Weaker Party Protection

Another reason for unfair terms control, and one of the objectives of the proposed regulation, is the protection of consumers as weaker parties. Pursuant to article 1(3) (Objective and subject matter), the consumer protection rules contained in the CESL are meant to ensure a high level of consumer protection (as required by the Treaty on the Functioning of the European Union (TFEU), Articles 114(3) and 169(3)). However, there is little doubt that the negative impact of weak bargaining power is likely to be strongest, and have the most serious consequences, with regard to price and other core terms.

The following considerations were set out with regard to the Unfair Terms Directive by the European Court of Justice (CJEU) in the Mostaza Claro case in 2006 and were repeated subsequently in several other cases:¹⁹

The system of protection introduced by the Directive is based on the idea that the consumer is in a weak position vis-à-vis the seller or supplier, as regards bot...

Table of contents

• Cover
• Title Page
• Preface
• Foreword: Hugh Beale and the Law Commission
• Contents
• Contributors
• Tables of cases
• Tables of Legislation
• Legal History
• Law Reform
• English Contract Law
• Freedom to Exercise Contractual Rights of Termination
• European Contract Law
• Security and Financing
• Trends in Transnational and European Commercial Law
• eCopyright