Unfair Terms in the Draft Common Frame of Reference (Comments on the Occasion of the Tartu Conference on Recent Development in European Private Law)

Author:Hans -W. Micklitz, Norbert Reich

1. The starting point: Mandatory rules on unfair terms based on directive 93/13/EEC - 1.1. Some remarks on directive 93/13 - 1.2. Proposals of the Acquis Group - 1.3. Proposals in the DCFR - 2. The need for a 'federal approach' in the EU - 2.1. 'Federalism' in EU contract law - 2.2. Some critical remarks on the DCFR - 2.3. The first proposals on 'implementing' the DCFR and the acquis... (see full summary)


Unfair Terms in the Draft Common Frame of Reference (Comments on the Occasion of the Tartu Conference on Recent Development in European Private Law)

1. The starting point: Mandatory rules on unfair terms based on directive 93/13/EEC
1.1. Some remarks on directive 93/13

Common EU rules on unfair terms will always be based on the well-known directive 93/13/EEC, which will not be analysed in detail in the present limited context1. The directive contains a mandatory, minimum, internationally applicable instrument of 'horizontal' consumer protection, which must be implemented in due form and applied consistently by the Member States and their courts of law in respecting this protective ambit, as interpreted by the ECJ2.

As will be remembered, this directive, which was a compromise between German and French concepts 3 , is currently subject to the review of the consumer acquis by the European Commission4. Several questions have been put to the stakeholders, which have given different answers5. The questions to be reviewed are many, more than in the European Commission paper. Among them are the following:

- Should an amended and 'modernised' version of the directive be limited to consumer transactions or be extended to 'mixed contracts', to contracts with (non-professional) legal persons 6 , to transactions with small and medium undertakings (SMU) or perhaps to all B-to-B and C-to-C contracts? It should be remembered that new Member States have used their discretion in this field very extensively7.

- What is the decisive yardstick for control, always respecting the principle of freedom of contract, as seen with German law's concept of Allgemeine Geschäftsbedingungen (AGB) - standard business terms imposed on the other party - or the unbalanced contract negotiation via contrats d'adhésion between the non-professionel and the professionel as in French law 8 , which would include also 'terms not individually negotiated', as in directive 93/13 but limited to specific persons in need of protection, like consumers? The EU consultation paper on the review of the consumer acquis even asks whether the "discipline of unfair contract terms should also cover individually negotiated terms" 9 .

- How could AGB respectively terms not individually negotiated become part of a contract? This concerns the question of controlling the inclusion (Einbeziehungskontrolle) covered by directive 93/13 only indirectly in clause 1 lit. i of the annex of the 'indicative list' whereby terms "irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract" may be regarded as unfair?

- What is the content of the principle of good faith in article 3? Should a procedural understanding as in UK law 10 or a substantive approach as applied in Germany 11 be preferred? What is the (limited!) harmonising role of the ECJ 12 ?

- What exceptions should be made to the substantive scope of application?

- What is the importance of (lack of) transparency of AGB or terms not individually negotiated? 13

- Will there be a 'grey list' or blacklist setting forth terms that should normally be regarded as unfair? As will be remembered, article 3 (3) contains an annex with what is called an indicative, non-exhaustive list of terms that "may be regarded as unfair"; Member States do not have a formal obligation of implementation14.

- What is the impact of an unfair term on an individual contract? Is a national court under a duty to raise questions of unfairness on its own initiative, despite the procedural autonomy of Member States? 15 Is this limited only to B-to-C situations, which is the starting point of the existing case law of the ECJ, or can it be extended to any type of contracting, including those involving a business? What about abstract proceedings? 16

- What about different standards of interpretation with regard to the use of terms not individually negotiated or AGB in individual and collective proceedings, as addressed by article 5's sentences 2 and 3, and as confirmed by the ECJ? 17 Is the distinction justified? 18

- Finally, more generally, what shall be the role of collective proceedings? Is it possible and feasible to separate enforcement by way of injunctive relief from the material law? Directive 93/13/EC combines the two and has considerably enhanced the level of consumer protection by obliging Member States to establish public agencies and/or to grant consumer organisations standing to file an action for injunction.

1.2. Proposals of the Acquis Group

Some of these questions had been on the agenda of the Acquis Group19. It decided to mostly reproduce the wording and structure of the directive as basically a consumer protection instrument as interpreted by the ECJ, with some interesting modifications:

- The concept of the consumer is extended in article 1:201 to "any natural person who is mainly [emphasis added - N.R.] acting for purposes that are outside this person's business activity", thus partially avoiding the problems of 'mixed contracts' that the ECJ created in Gruber by its narrow reading of the concept of consumer contracts according to article 13 of the Brussels Convention20.

- Chapter 6, on 'Non-negotiated Terms', contains general rules on both the terms not individually negotiated and AGB, also including B-to-B transactions, with special rules pertaining to consumer contracts.

- Article 6:201 contains a rule on 'inclusion of terms' (with the 'attention-drawing' principle, including special provisions according to which consumers must have a "real opportunity to become acquainted before the conclusion of the contract"), based on different sources of secondary law and comparative law material21.

- Article 6:301 (1) includes the unfairness principle known from article 3 (1) of directive 93/13 without reference to the consumer standard. Paragraph 2 provides for a special rule on unfairness in B-to-B transactions "only if using this term amounts to a gross deviation from good commercial practice" 22 . However, it is questionable whether there is enough evidence in the acquis to extend the control of unfair terms to B-to-B transactions also, and whether the yardstick used is appropriate and practical23.

- Article 6:304 blacklists clauses on exclusive jurisdiction of the business domicile in B-to-C contracts, thus following the precedent of the Océano case of the ECJ24.

- Article 6:305 repeats the 'indicative list' of directive 93/13 without amending it or changing its legal content, with the exception of clause (1) (i) of the annex. The comment suggests that the "list as such is 'grey'" 25 , although this is not clear from the wording.

- Article 6:203 reiterates the contra proferentem rule of directive 93/13, thereby relying on the use and usefulness of a different interpretation of terms in dependence on the type of the proceedings. The comment refers to the ECJ case law 26 , but without taking into account trends in Member States' courts to set this distinction aside27.

The acquis principles do not challenge the distinction between individually negotiated terms and standard terms, even though this creates uncertainty in the daily enforcement practice. This might be because the acquis principles do not deal with enforcement and because, instead, they separate - contrary to the EC directives - substantive law from rights, remedies, and procedures. It must equally be regretted that the acquis principles do not make any suggestions on extending both the scope and the legal nature of the indicative list of directive 93/13 by proposing either a "grey" or a "black" list of terms which should not be used in pre-formulated contract terms. The acquis principles substantially go behind existing Member State law, which has not been used as a reference point. This is justified in the comment in allegation that "[g]iven the differences in Member States' law, establishing a blacklist could be seen as an undue interference"28. This, of course, restricts the ambit of the acquis principles substantially and falls behind the goals established in the European Commission proposal of 1992.

1.3. Proposals in the DCFR

The proposals of the Acquis Group have to some extent been brought over into the Draft Common Frame of Reference as presented at the end of 2007 29 , but this action also shows an attempt to develop them further into a general EU law on unfair terms, used in whatever type of transaction is involved, whether B-to-B, B-to-C, or C-to-C. However, they are not placed in a coherent structure. Article II.-4.209 contains rules on conflicting terms, serving as part of the chapter on the formation of contracts; article II.-8104 insists on preference for negotiated terms, which is part of the rules on interpretation.

The question of inclusion of terms is regulated in article II.-9:103 ('Terms Not Individually Negotiated'), thus:

(1) Terms supplied by one party and not individually negotiated may be invoked against the other party only if the other party was aware of them, or if the party supplying the terms took reasonable steps to draw the other party's attention to them, before or when the contract was concluded.

(2) If a contract is to be concluded by electronic means, the party supplying any terms that have not been individually...

To continue reading