5

The Unfair Commercial Practices

Directive in Context

IDA OTKEN ERIKSSON AND ULF ÖBERG

1. INTRODUCTION

THE ADOPTION OF the Unfair Commercial Practices Directive1 (hereinafter ‘the UCPD’) presents a new and intriguing development in European Union law. The purpose of this chapter is to situate the UCPD in a wider context and address four issues that the Directive gives

raise to, namely:

(1)The question of the legal basis of the UCPD;

(2)The general character of the EC consumer protection rules;

(3)The possible impact of the proposal for a Directive on Services in the Internal Market; and

(4)The question of the future approach of the EC Court of Justice when interpreting the UCPD.

2. LEGAL BASIS

The UCPD is adopted under Article 95 EC, a legal basis which allows approximation of Member States’ provisions that have as their object the establishment and functioning of the internal market. Article 95 EC refers to the definition in Article 14 EC, which in turn indirectly refers to the specific free movement Articles on goods, workers, services, establishment and capital.

1 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council [2005] OJ L 149/22.

92 Ida Otken Eriksson and Ulf Öberg

Since the publication of the Commission’s Green Paper on Consumer Protection,2 it has been widely discussed whether there is a sufficient legal basis in the Treaty to pursue further harmonisation of certain consumer and advertising rules.3 We do not share the view that the UCPD lacks a proper legal basis simply on the ground that the Court has excluded certain selling arrangements from the scope of application of Article 28 EC in its landmark Keck and Mithouard case from 1993.4

Admittedly, in this judgment the Court stated that certain selling arrangements which affect domestic products and imported products in the same manner are not covered by the prohibition in Article 28 EC. However, there is no indication in the Treaty that the notion of measures having equivalent effect in Article 28 EC should necessarily be interpreted in exactly the same manner as the measures which can be adopted under Article 95 EC. For example, so-called internal situations that lack a transborder element do not fall within the scope of application of Article 28 EC.5 They are nevertheless without doubt covered by the general nature of harmonisation measures under Article 95 EC. This would seem to rule out that Articles 28 and 95 EC should necessarily be interpreted in exactly the same manner.

Moreover, such an interpretation would create significant problems of definition and would be highly impractical. The UCPD, for example, affects both typical Keck ‘selling arrangements’—eg false information in advertising about the quality of a product—and classical product-related measures which without doubt fall within the scope of Article 28 EC. An example taken from case law is the Mars case, where a product wrapper was marked ‘+10%’.6 Furthermore, the Court has to date never admitted any Keck exception in the area of free movement of services.7 And here again, the UCPD applies to both goods and services.8

However, this does not mean that there are no limits as to what can be the object of harmonisation measures under Article 95 in line with the principle of attributed competence.9 As the Court stated in the first Tobacco

2COM(2001)531.

3See, for one of the latest contributions to the discussions, G Davies, ‘Can Selling Arrangements be harmonised?’ [2005] European Law Review 370, with further references; see in particular n 23.

4Joined Cases C–267 & 268/91 Keck and Mithouard [1993] ECR I–6097.

5See eg Case 286/81 Criminal proceedings aginst Ooesthoek’s Uitgeversmaatschappij BV

[1982] ECR I–4575. This, however, does not mean that a request for a preliminary reference concerning an internal situation may not be answered by the Court: see eg Case C–448/98

Criminal proceedings against Jean-Pierre Guimont [2000] ECR I–10663.

6Case C–470/93 Verein gegen Unwesen in Handel und Gewerbe Köln eV v Mars GmbH

[1995] ECR I–1923.

7See eg Case C–384/93 Alpine Investments BV v Minister van Financiën [1995] ECR I–01141.

8Art 2(c) UCPD, above n 1.

9Stated expressly in Art 5 EC.

The UCPD in Context 93

Advertising case, a measure adopted under Article 95 EC must genuinely have as its object the improvement of the conditions for the establishment and functioning of the internal market, a ‘mere finding of disparities between national rules’ or ‘abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competition’ is not sufficient.10 Even if there may be good reason for questioning the legal basis of certain older consumer measures such as the Door-step Selling Directive,11 there is little doubt that these criteria are fulfilled when it comes to the regulation of the commercial practices covered by the UCPD.

As mentioned above, the UCPD covers measures that to a large extent would be caught by the ‘obstacle’/‘restriction’ case law of the Court under Articles 28 and 49 EC. Moreover, national regulations at issue are widely differing and even scattered over different national areas of law. Obviously, with the UCPD, all traders will have the advantage of having to comply with only one set of rules in respect of unfair business-to-consumer commercial practices and can rely on the same marketing strategies throughout the Community. Thus, even the more ‘quantitative’ or de minimis criteria—ie that the distortion of competition be appreciable—seems to be fulfilled. Indeed, the UCPD is wholly different from the situation at hand in the Tobacco Advertising cases.12

In this analysis we—perhaps a bit naïvely—make the assumption that all Member States will faithfully transpose the UCPD and respect what appears to be the ambition behind it. According to its wording and face value, the UCPD seems to aim to accomplish a full and total harmonisation, meaning that the notions contained in the UCPD shall be applied in exactly the same manner throughout the whole of the Union.

Still, there seems to be some confusion about the actual scope of the UCPD. In the travaux préparatoires, the UCPD was described as a ‘framework directive’, and it certainly contains several general clauses that are usually understood as leaving national courts significant discretion. With the final outcome in hand, however, it is difficult to grasp what is left of the ‘framework character’. The discretion given by the general clauses is carefully limited by the specification of quite a large number of particular situations. Furthermore, in its recitals, the UCPD talks about ‘uniform rules’

10Case C–376/98 Germany v Parliament and Council [2000] ECR I–8419, para 84. See also Case C–491/01 The Queen v Secretary of State for Health, ex parte British American Tobacco (Investments) Ltd and Imperial Tobacco Ltd [2002] ECR I–11453.

11Council Directive 85/577/EEC of 20 Dec 1985 to protect the consumer in respect of contracts negotiated away from business premises [1985] OJ L 372/31.

12See also A Bakardjieva Engelbrekt, ‘EG-Direktivet om otillbörliga affärsmetoder: En stundande omdaning av svensk marknadsrätt’ [2005] Europarättslig Tidskrift 236 at 240–41 and A Bakardjieva Engelbrekt, EU and Marketing Practices Law in the Nordic Countrie— Consequences of a Directive on Unfair Business-to-Consumer Commercial Practices, Report for the Nordic Council of Ministers Committee on Consumer Affairs (2005) at 10–11, (available at www.norden.org/pub/sk/showpub.asp?pubnr=2005:424).

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and ‘clarifying of certain legal concepts at Community level’ (recital 5), of a ‘high level of convergence’ and a ‘high common level of consumer protection’ (recital 11) as well as of ‘increased legal certainty’, ‘a single regulatory framework’ (recital 12), replacement of Member States’ ‘existing, divergent general clauses and legal principles’ (recital 13) and a ‘full harmonisation approach’ (recital 14).

Even the partially deleted ‘internal market clause’ in Article 4 supports the understanding of the UCPD as a total harmonisation measure. The UCPD sets out a number of substantive criteria that commercial practices measures must comply with in order not to be unfair, and the moment they do comply, no Member State may hinder the commercial practice on these grounds. Thus, in our view, there can be no doubt that the UCPD seems to constitute a total or full harmonisation of unfair commercial practices. One cannot help wondering whether the talk of a framework directive has mostly been a psychological measure meant to help Member States and national consumer and market law specialists to swallow the bitter pill of harmonisation.

3. GENERAL CHARACTER OF EC CONSUMER PROTECTION RULES

EC consumer protection law constitutes a sensitive area, as many Member States feel very protective towards ‘their’ consumers. Consequently, the Community has for years not had a proper legal basis from which to regulate consumer matters.13 It has been able to adopt consumer law measures only in so far as they qualify as internal market measures under Article 95 EC. As a consequence, harmonisation has to date been relatively rare, sec- tor-specific and has been kept strictly on a minimum basis, meaning that Member States may keep in force rules that are more stringent to ensure a higher level of consumer protection.

All the same, over the years the Community has managed to form an impressive number of directives actually regulating consumer matters, to mention a few: the Door-step Directive, the Misleading Advertising Directive, the Timeshare Directive, the Unfair Terms Directive, the Package Travel Directive, the Distance Contracts Directive, the Indication of Prices Directive, the Injunctions Directive, the Comparative Advertising Directive, the Certain Aspects and Guarantees Directive as well as the Financial Services Directive.14 As this list shows, EC consumer law has a high degree

13See now Art 153 EC.

14Directive 2002/65/EC of the European Parliament and of the Council of 23 Sept 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC [2002] OJ L 271/16, Directive 1999/44/EC of the European Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees [1999] OJ L 171/12, Directive 98/27/EC of the

The UCPD in Context 95

of ‘patchwork character’. It is extremely difficult to overview and assess, particularly as many of the later directives amend earlier ones, as for example the directives on misleading and comparative advertising.

Obviously, the UCPD is intended to bring at least some order to this fragmented and confusing patchwork. The question is whether the Community legislator has succeeded in this respect. The UCPD partially amends several previous directives and to a certain extent even aggravates the situation. Notably, the UCPD states that it applies only in so far as there are no specific Community law provisions regulating specific aspects of unfair commercial practices in accordance with the general lex specialis principle.15 However, this interpretation does not apply when it comes to more protective Member State legislation adopted in accordance with minimum harmonisation clauses. Such measures may only be kept in force for a transitional period of six years.16 In other words, the application of the lex specialis principle is strictly kept at the Community level. At national level, the horizontal approach is supposed to hit with full force and the UCPD will apply even to specific sector areas such as, for example, medical products.

It is no understatement to conclude that Member States and lawyers will have difficulties in assessing the whole extent of the scope of application of the UCPD. It is rather telling that not even the Commission dares to list exhaustively the Community law provisions setting out rules for advertising and commercial communication.17 It is hardly likely that Member States will have more energy in identifying particular national provisions that will be affected by the UCPD, even though the Member States are subject to a notification requirement in this regard.18

European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers’ interests [1998] OJ L 166/51, Directive 98/6/EC of the European Parliament and of the Council of 16 Feb 1998 on consumer protection in the indication of the prices of products offered to consumers [1998] OJ L 80/27, Directive 97/55/EC of European Parliament and of the Council of 6 Oct 1997 amending Directive 84/450/EEC concerning misleading advertising so as to include comparative advertising [1997] OJ L 290/18, Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts [1997] OJ L 144/19, Directive 94/47/EC of the European Parliament and the Council of 26 Oct 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis [1994] OJ L 280/83, Council Directive 93/13/EEC of 5 Apr 1993 on unfair terms in consumer contracts [1993] OJ L 95/29, Council Directive 90/314/EEC of 13 June 1990 on package travel, package holidays and package tours [1990] OJ L 158/59, Council Directive 85/577/EEC of 20 Dec 1985 to protect the consumer in respect of contracts negotiated away from business premise [1985] OJ L 372/31, Council Directive 84/450/EEC of 10 Sept 1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading advertising [1984] OJ L 250/17.

15Recital 10, UCPD, above n 1.

16Art 3(5) of ibid.

17Annex II of ibid.

18Art 3(6) of ibid.

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On the other hand, this horizontal approach is without doubt a very effective way to obtain common rules and full harmonisation. Still, the method is unorthodox and stealthy—if not rather brutal.

4. THE POSSIBLE IMPACT OF THE PROPOSAL FOR A DIRECTIVE

ON SERVICES IN THE INTERNAL MARKET

The Commission’s initial proposal for a Directive on Services in the Internal Market19 (hereinafter ‘the initial Service Proposal’) instituted a hard-core country-of-origin principle applicable to all service providers established in one Member State and offering their services in other Member States.20 The country-of-origin principle was supposed to apply in particular as regards ‘the behaviour of the provider, the quality or content of the service, advertising, contracts and the provider’s liability’. Thus, a service provider was supposed to comply only with the marketing rules of his country of establishment, even when providing services to or in other Member States.

Although the question is by now more or less academic, it can be questioned, in the light of the express wording of Articles 47 and 50 EC, whether the Commission’s initial proposal to introduce such a hard-core country-of-origin principle through secondary legislation had a sufficient legal basis in the Treaty.21

It can also be discussed whether the country-of-origin principle in the initial Service Proposal would in reality reinstate what the Community legislator expressly threw out of the UCPD.22 Admittedly, the Commission’s initial Service Proposal stated that it should be without prejudice to any legislative Community measures in the field of consumer protection and thus also to the UCPD. It could certainly also be argued—as the Commission did when confronted with the decision of the Member States to delete the country of origin principle from the UCPD23—that a country-of-origin clause does not have any real effect, as the UCPD establishes total harmonisation. If total harmonisation is to work, the evaluation of a certain commercial practice under the UCPD must be the same, no matter in which Member

19Proposal for a Directive of the European Parliament and of the Council on services in the internal market, COM(2004)2, SEC(2004)21.

20Art 16 of ibid.

21I Otken Eriksson and U Öberg, ‘Consumer Protection Aspects of the Commission’s Proposal for a Directive on Services in the Internal Market’, Legal Opinion presented at the Nordic Seminar held at the Swedish Konsumentverket on 1 June 2004, at 13, available at www.norden.org/pub/sk/showpub.asp?pubnr=2004:795.

22See also Bakardjieva Engelbrekt ‘EG-Direktivet’ above n 12, at 246 and Bakardjieva Engelbrekt, EU and Marketing Practices Law, above n 12 at 71–72.

23Political Agreement reached by the Competitiveness Council on 18 May 2004, see Annex Communication from the Commission to the European Parliament COM(2004) 0753 final– COD(2003) 0134.

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State the evaluation takes place. The legislative technique based on a coun- try-of-origin principle is from a theoretical point of view an alternative to full harmonisation.24

However, what is not expressly covered by the UCPD falls outside its scope of application and thus under the general Service Proposal. And here we find very important aspects of the actual functioning of the UCPD such as questions of jurisdiction and choices of law. In this regard, the UCPD itself only states that Member States shall ensure that adequate and effective means exist to combat unfair commercial practices for persons or organisations regarded under national law as having a legitimate interest in combating such unfair commercial practices.25 This Article could be interpreted as meaning that any commercial practice can be attacked in any Member State where, according to national law, someone has a legitimate interest in combating it. But if this Article is not to be construed as an express rule on jurisdiction—and it does not appear very natural to do that—the UCPD is silent on the point in which Member State unfair commercial practices should be fought. This would mean that, under the initial Service Proposal, the country-of-origin principle should apply and that unfair commercial practices should mainly be supervised and evaluated in the country of establishment, ie the home country. This is precisely what the Member States wanted to avoid in the UCPD.

The Service Proposal has recently undergone its first reading in the European Parliament and, as expected, the proposal did not go through untouched (hereinafter ‘the Service Proposal as amended by the EP’).26 Among many other modifications especially as to the scope of application of the Directive, the hard-core country-of-origin principle seems to have disappeared as regards free movement of services. Instead, the Service Proposal as amended by the EP states that Member States shall respect the right of providers to provide a service in a Member State other than that in which they are established, and that the Member States in which the service is provided shall ensure free access to and free exercise of a service activity within its territory.27 Furthermore, Member States shall not make access to or exercise of a service activity in their territory subject to compliance with any requirements which are not non-discriminatory, necessary for reasons

24U Öberg, ‘Principen om ömsesidigt erkännande och ursprungslandsprincipen i gemenskap- srätten—särskilt med hänsyn till marknadsföringsåtgärder, friheten att tillhandahålla tjänster och skyddet för konsumenter, Rapport for the Nordic Council of Ministers’ Committee on Consumer Affairs (Tema Nord 2003:534), available at www.norden.org/pub/sk/showpub. asp?pubnr=2003:534.

25Art 11 of the UCPD, above n 1.

26Position of the European Parliament adopted at first reading on 16 Feb 2006 with a view to the adoption of Directive 2006/000/EC of the European Parliament and Council on services in the internal market, EP-PE_TC1-COD(2004)0001.

27The Service Proposal as amended by the EP, Art 21(1).

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of public policy or public security or the protection of the health and the environment, as well as proportional.28 Paragraph 3 confirms that Member States to which the provider moves may impose requirements with regard to the provision of a service activity, where they are justified for reasons of public policy, public security, environmental protection and public health, and adds that Member States may also apply, ‘in conformity with Community law’, their rules on employment conditions, including those laid down in collective agreements.

Thus, under the Service Proposal as amended by the EP, host Member States may impose on service providers from other Member States specific national requirements on the grounds of public policy, public security, health and environment (as well as certain employment conditions).29 This seems to be an exhaustive list of this kind of derogations from service providers’ rights to provide a service in another Member State. It is particularly noteworthy that protection of consumers is not as such included in these grounds. This was one of the vigorously discussed issues in the Parliamentary debate. Certain observers argue that protection of consumers could be covered by the ground of public policy, but, looking at previous case law of the Court, this seems hardly likely.

Thus, it would seem that if the Service Proposal as amended by the EP is adopted, Member States will not be able to force service providers established in other Member States to observe stricter national requirements on grounds of pure consumer protection. This is a stricter approach than current case law of the Court of Justice on Article 49 EC, where all ‘imperative requirements in the general interest’ are accepted as grounds for derogation as regards non-discriminatory obstacles.30 This may in effect constitute a country-of-origin principle in a new disguise. At least, the initial country- of-origin principle has not been totally watered down to a mere recognition of the Court’s existing case law.

However, another important amendment to the initial Service Proposal further limits the possible impact of this instrument in the area of the UCPD. Contrary to the idea of the country-of-origin principle where supervision is to take place only in the home country, the Service Proposal as amended by the EP clearly states that supervision shall take place in the Member State where the service is actually provided.31 This solution seems to be better in line with the intention behind the removal of the country-of-origin principle from the UCPD. Furthermore, the Service Proposal as amended by the EP expressly states that it shall be without prejudice to private

28Ibid, Art 21(1).

29Obviously, provided the requirements are non-discriminatory and proportional.

30Obviously, provided the measure is proportional: Case C–55/94 Reinhard Gebhard v Consiglio dell’Ordine degli Avvocati e Procuratori di Milano [1995] ECR I–04165.

31The Service Proposal as amended by the EP, above n 26 Art 16–17.