by Maria João Pestana de Vasconcelos, Professor at the School of Law, UMINHO
As a part of Digital Single Market Strategy for Europe published in May 2015, the Commission adopted, on 9 December 2015, two proposals of Directives: one for a Directive on certain aspects concerning contracts for the online and other distance sales of goods (“Sales of Goods proposal” or “Sales of Goods Directive”); another for a Directive on certain aspects concerning contracts for the supply of digital content and digital services (proposal for a “Directive on Digital Content” or “Digital Content Directive”).
These proposals are the basis of a future reform on consumer sales contracts based on the principle of maximum harmonisation while providing for a high level of consumer protection.
It is already clear that the minimum harmonization approach, adopted by the Consumer Sales Directive (1999/44/EC) [i] has proved not to be appropriate to ensure the proper functioning of the internal market. Member States allowed go beyond the minimum rules, and to impose a high level of consumer protection, have acted on different elements and to different extents. As a result, national provisions transposing the Consumer Sales Directive (99/44/EC) significantly diverge today on essential elements, such as the absence or existence of a hierarchy of remedies. These disparities between the national laws of the Member States constitute one of the major obstacles to the development of the cross-border trade in Single Market given that they may adversely affect business (in particularly small and medium enterprises) and consumers[ii].
In the context of consumer sales, the protection provided by the Consumer Sales Directive is supplemented by protection provided by the Consumer Rights Directive (Directive 2011/83/EC)[iii]. This is a substantial Directive which addresses a number of gaps in the legislation, harmonising provisions in relation to contracts for services and sales made online with other “off-premises” and “distance” contracts, harmonising and enhancing consumer protection in terms of pre-contractual information and the right of buyers to withdrawal from the contract of sale, irrespective of whether there are any issues with the good’s conformity with the contract[iv]. However, as a whole, an overall lack of coherence and a number of gaps remains.
When the Commission, in October 2011, disclosed a proposal of Regulation on European Sales Law (CESL)[v] one could suppose that the dream of creating a coherent body of European Contract law would be fulfilled very soon[vi]. However, the project, perhaps overambitious and premature, was (even not formally) withdrawn by the Commission in December 2014. The reason offered for the withdrawal was to prepare a modified proposal in order to fully unleash the potential of e-commerce in Digital Single Market[vii].
It was not a surprise that the new reform is based on a maximum harmonisation Directive, which provide for a high level of consumer protection[viii]. In contrast to the current Consumer Sales Directive, the proposed “Sales of Goods Directive” is based on the principle of maximum harmonisation, which means that Member States should not maintain or introduce, in their national law, provisions diverging from those laid down in the text, including additional measures to ensure a higher level of consumer protection[ix].
However, on some aspects, the Council’s position leaves some room for Member States to go beyond the requirements in order to maintain the level of consumer protection already applied at national level. This is the case, for example, of time limits for guarantee periods (while the proposal provides for a minimum of two years for the guarantee period, Member States may go beyond this, but not below, in their national legislation) and of burden of proof in case of non-conformity of the good (the proposal raises the level of consumer protection provided by the Consumer Sales Directive foreseeing that any lack of conformity which becomes apparent within one year from the time when the goods were delivered, shall be presumed to have existed at the time of delivery without the consumer having to prove it[x]).
The proposed “Sales of Goods Directive” was, according to the original version of the Commission’s proposal, from 2015, intended to cover only online and other distance sales of goods. However, it was replaced on 31 October 2017 by an amended version[xi] made following the outcome of the regulatory Fitness Check Report, completed in May 2017[xii]. This amended version also includes face-to-face sales in order to avoid fragmentation and provide more clear rules for consumers whether they buy online or in shops.
Addressing a lacuna left by the Consumer Sales Directive, the proposal extends the notion of goods to the “goods with digital elements” (e.g. “smart” fridges, smartphones and TVs connected watches), to which there are no references in the Consumer Sales Directive[xiii]. Furthermore, one of the major innovations of the proposal (“Sales of Goods Directive”) compared to the Consumer Sales Directive (1999/44/EC), is the introduction of a clear obligation on the seller to provide for updates for goods with digital elements.
The proposed “Sales of Goods Directive” does not regulate all aspects of sales contract. It focuses only crucial areas, which are shown as barriers to normal functioning of internal digital market, such as the conformity of goods, remedies in case of non-conformity and the modalities for the exercise of these remedies[xiv].
Concerning the conformity of goods, the proposal introduces a direct reference to the content of the contract, stating that any reference to conformity should refer “to conformity of the goods with the sales contract, as opposed to conformity of goods with legal provisions for example”[xv]. Moreover, the proposal introduces a new rule, whereby conformity of the goods with the contract should cover material defects, but also legal ones, meaning that goods must be free from any third-party rights, including intellectual property rights.
In the case of lack of conformity, consumers should be entitled to have the goods brought into conformity (e.g. repair and replacement), or to receive a proportionate reduction of price, or to terminate the contract. The strict hierarchy provided for the Consumer Sales Directive has been mellowed down by the introduction of more detailed exceptions allowing sellers to opt for price reduction or termination instead of specific performance. For example, the seller should be allowed to refuse to bring the goods into conformity if either repair or replacement is impossible and the alternative remedy would impose disproportionate costs to him[xvi]. For example, when goods are located in a place different from where they were originally delivered, the costs of postage and carriage could become disproportionate for the seller[xvii].
Moreover, unlike Consumer Sales Directive, according the proposal, the consumer is also immediately entitled to a price reduction or termination of the contract when a lack of conformity appears despite the seller having attempted to bring the goods into conformity or if “a lack of conformity is of such a serious nature as to justify the immediate price reduction or termination” the consumer should be entitled to proportionate reduction of the price or the termination of the contract immediately. This concerns to cases in which consumer cannot maintain confidence in the ability of the trader to bring the goods into conformity, for instance, “when the lack of conformity severely affects the ability of the consumer to make normal use of the goods and the consumer cannot be expected to trust that repair or replacement by the seller would remedy the problem”[xviii].
It means that the Proposal, comparing to the Consumer Sales Directive (1999/44/EC) provides for a more stringent regime that could discipline the seller more efficiently[xix].
Furthermore, it is also explicitly stated that this proposed Directive “shall not affect the possibility of Member States to regulate general contract law aspects, such as rules on formation, the validity, the nullity or effects of contracts, including the consequences of the termination of a contract in so far as they are not regulated in this Directive, or the right to damages”[xx].
Although the sales law reform is still in the legislative process phase, it is clear the new approach adopted by the European legislator. The maximum harmonisation based on a high level of consumer protection is the new approach to ensure the further development of cross-border trade in Single Market. The amended version of the proposed “Sales of Goods Directive”, repealing the Consumer Sales Directive (1999/44/EC) would through its implementation has a crucial effect on national sales law of the Member States. However, it is still uncertain how these novelties would affect national laws of the Member States and at what extent the future reform could provide both business and consumers with the legal certainty needed to the development of the cross-border trade and to the proper functioning of the internal market.
[i] 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 OJ L 171, 7.7.1999.
[ii] In cross-border transactions, stricter standards of consumer protection will normally be incompatible with the fundamental freedoms, given that they will normally not satisfy the requirement of proportionality. See, Karl Reisenhuber, “System and Principles of EC Contract Law”, European Review of Contract Law, 3, 2005, 297-322, p. 306.
[iii] Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights (Consumer Rights Directive) OJ 2011 L 304/64.
[iv] See: Jonathon Watson, “Withdrawal Rights”, in Twigg-Flesner, Christian (ed.), Research Handbook on EU Consumer and Contract Law, Cheltenham (UK)/Northamption (MA), Edward Elgar, 241-265.
[v] Proposal for a Regulation of the European Parliament and of the Council on a Common European Sales Law, submitted in October 2011.
[vi] See: Reinhard Zimmermann, “Codification – The Civilian Experience Reconsidered on the Eve of a Common European Sales Law”, European Review of Contract Law, vol. 8 (2012), pp. 367-399.
[vii] In fact, the proposed CESL is, by virtue its Article 1, to be applicable to contracts for the sale of goods, defined as tangible movables but also extending to sales of digital content, including music, films, software and so on, irrespective of weather it is supplied on a durable medium or not. Despite its broader scope of application, the aim of the proposed CESL is not to harmonise the contract law of the Member States but to create an additional harmonised body of contractual law that would only be applied when the parties of the contract opted into it.
[viii] Ivana Kanceljak, “Reform of Consumer Sales law of Goods and Associated Guarantees – Possible Impact on Croatian Private Law”, EU and Comparative law issues and challenges series – Issue 2, pp. 586 – 610, p. 593.
[ix] See, Article 3 of the Amended proposal for a “Sales of Goods Directive”
[x] Article 8b, par. 1 of the Amended proposal for a “Sales of Goods Directive”. According to the Consumer Sales Directive, only if non-conformity becomes apparent within six months of delivery, is it presumed that it existed at the time of delivery. However, Portugal, for example, extended the period during which the presumption operates, to two years.
[xi] Amended proposal for a Directive of the European Parliament and of the Council on certain aspects concerning contracts for the sales of goods amending Regulation (EC) No 2006/2004 of the European Parliament and of the Council and Directive 2009/22/EC of the European Parliament and of the Council and repealing Directive 1999/44/EC of the European Parliament and of the Council, Brussels, 31.10.2017., COM/2017/0637 final – 2015/0288 (COD), available at: https://www.consilium.europa.eu/en/press/press-releases/2018/12/07/more-unified-rules-on-contracts-for-the-sales-of-goods-council-agrees-its-position/
[xii] Part of this report is a “Study on the costs and benefits of minimum harmonisation under the Consumer Sales and Guarantees Directive 1999/44/EC and of potential full harmonisation and alignment of EU rules for different sales channels”. See: Study on the costs and benefits of minimum harmonisation under the Consumer Sales and Guarantees Directive 1999/44/EC and of potential full harmonisation and alignment of EU rules for different sales channels, March 2017, available at: ec.europa.eu/newsroom/document.cfm?doc_id=44638.
[xiii] Rick Canavan, “Contracts of Sale”, in Twigg-Flesner, Christian (ed.), Research Handbook on EU Consumer and Contract Law, Cheltenham (UK)/Northamption (MA), Edward Elgar, 266-286, p. 272.
[xiv] Furthermore, this proposal is also to be supplemented by the existing Consumer Rights Directive (Directive 2011/83/EU), which provide a fully harmonisation on rules concerning to pre-contractual information requirements, the right to withdrawal for distance contracts, delivery conditions and the passing of the risk on sales contracts.
[xv] Recital (19) of the Amended proposal for a “Sales of Goods Directive”.
[xvi] Article 9, par. 2 of the Amended proposal for a “Sales of Goods Directive”.
[xvii] Recital (27 a) of the Amended proposal for a “Sales of Goods Directive”. The Geo-blocking Directive came into force in December 2018, obligating traders to sell to all Member States, without delivering the goods. On a B2C relationship, when a product becomes faulty, the trader, under the new rules, will be liable to bring it to conformity “free of charge” which includes transport costs. When goods are located in Member States where traders had no intention to sell in first place it could become really costly. By not giving a definition of “disproportionate costs” the Directive leaves room for the interpretation of the European Court of Justice, which could bring legal uncertainty that adversely affect business, particularly small or medium enterprises.
[xviii] Recital (28 a) of the Amended proposal for a “Sales of Goods Directive”.
[xix] About the hierarchy imposed by the Consumer Sales Directive, in particular, about its core mechanism – the giving of a “second chance”, see, Stefan Grundmann, “Regulating breach of contract – the right to reject performance by the party in breach”, European Review of Contractual Law, 2, 2007, 121-149, p. 132. The Author considers that the rule, which imposes to give the seller a “second chance” “is not about consumer protection, but about the reduction of costs of legal warranties”.
[xx] Article 2 a, par. 5, of the Amended proposal for a “Sales of Goods Directive”.
Pictures credits: Online store… by mohamed_hassan.