The Malta Independent 17 July 2024, Wednesday
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Law report: The CJEU Rules on the Obligation of Traders when Online Contracts are concluded

Wednesday, 10 July 2024, 13:09 Last update: about 6 days ago

Benjamin Farrugia

On the 30th of May 2024, the Court of Justice of the European Union (the "CJEU") laid down its preliminary ruling in the case of VT and UR v Conny GmbH , concerning the interpretation of Directive 2011/83/EU (the "Consumer Rights Directive") as to the conclusion of distance contracts concluded by electronic means.

The core issue revolves around whether the specific labelling requirements for an order button, which must indicate an obligation to pay, are applicable in scenarios where the consumer's payment obligation is conditional upon future events. This law report delves into the salient points of the judgment delivered by CJEU the on this matter.

Background of the Case

VT and UR, being landlords in Berlin (the "Landlords"), were defendants in a legal dispute against Conny GmbH, a company providing collection services ("Conny") who filed judicial proceedings in Germany to the reclaim overpaid rent on behalf of tenants. The contention arose when Conny GmbH, acting as an assignee of a tenant's rights, sought repayment of rent overcharges from the landlords, in contravention of rent increase caps in imposed by domestic German law.

Conny offered a service whereby tenants may enter into an agency contract via its website, wherein a tenant assigns their rights to reclaim any overpayments of rent in favour of Conny, who shall attempt to reclaim such overpayments from landlords on the tenant's behalf. Such agreement necessitates that tenants accept the general terms and conditions and place an order by clicking a button. Notably, the tenant's obligation to pay Conny is contingent upon Conny being successful in its attempted enforcement of their claims against landlords.

In this respect, the landlords argued that the contract between Conny and the tenant was void as Conny failed to comply with the labelling requirements established in Article 8(2) of the Consumer Rights Directive, as transposed into the German Civil Code. It was contended contended that the "order button" on Conny's website did not explicitly indicate that placing such order would entail a specific obligation on behalf of the tenant to pay.

The Applicable Law

Article 8(2) of the Consumer Rights Directive sets out the below requirements for distance contracts concluded by electronic means. Failing these requirements renders the contract to not be binding vis-à-vis the consumer:

1.      Firstly, traders (such as Conny) must provide consumers with essential information, in a clear manner, prior to the placement of the order, which should include the main characteristics of the goods or services, the total price, the contract duration, and any conditions for termination.

2.      Secondly, traders must ensure that consumers explicitly acknowledge that placing an online order entails an obligation to pay for such order. If an order is placed by clicking a button or similar function, it must be clearly and unambiguously labelled with the phrase "order with obligation to pay" or any interchangeable formulation.

Similarly to Regulation 8 of our domestic "Consumer Rights Regulations", the German Civil Code incorporates these requirements into German law, ensuring that consumers are fully aware of the financial implications of their online purchases.

The Question Referred to the CJEU

The Berlin Regional Court stayed domestic proceedings so as to refer the below question to the CJEU for a preliminary ruling:

Does the requirement under Article 8(2) of Directive 2011/83/EU, which mandates the clear labeling of an order button indicating an obligation to pay, apply to contracts where the consumer's payment obligation is conditional upon the occurrence of a future event?

This question arose as the landlords claimed that the future and conditional nature of the payment obligation in the contract with Conny GmbH might be interpreted as exempting such agreement from the strict labelling requirements of Article 8(2) of the Consumer Rights Directive.

The Findings of the Court

The CJEU's ruling focused on the appropriate interpretation of Article 8(2) and its application to the case, emphasizing that consumer protection is a key goal of the Consumer Rights Directive.

At the outset, the Court noted that the primary purpose of Article 8(2) is to ensure that consumers are fully informed about the financial commitment they are making when placing an order online. Such provision is designed to protect consumers from being misled or from being unaware of the payment obligations arising from their orders.

Next, the CJEU analysed the wording of Article 8(2), and noted that the provision applies broadly to all distance contracts concluded by electronic means, without distinguishing between immediate and conditional payment obligations. The critical factor is whether the consumer is entering into a contract that entails any form of payment obligation, even if that obligation is contingent upon future events.

The Court ruled that the interpretation of Article 8(2) must be consistent with the directive's overall aim of enhancing consumer protection in distance contracts. Therefore, the labelling requirement applies irrespective of whether the payment obligation is immediate or conditional.

In this respect, it determined that if conditional payment obligations were allowed to bypass the labelling requirements would undermine this objective, as consumers might not be adequately informed about the potential financial consequences of their actions.

The Court concluded that if a trader fails to comply with the labelling requirement of Article 8(2), the consumer is not bound by the contract. This includes situations where the payment obligation is conditional. In this case, the contract between the tenant and Conny GmbH would be void if the labelling requirement was not met.

Concluding Remarks

The CJEU's judgment in case C-400/22 underscores the broad application of Article 8(2) of the Consumer Rights Directive to all distance contracts concluded by electronic means, regardless of whether the payment obligation is immediate or conditional, thus reinforcing the Directive's aim of ensuring high levels of consumer protection by mandating clear and explicit acknowledgment of payment obligations in online transactions.

In respect of businesses operating on online platforms and websites, this judgment serves as a clarification of the importance of compliance with consumer protection law, particularly regarding the transparency of payment obligations. Failure to meet these requirements can render contracts void and lead to significant legal and financial consequences, particularly for traders and businesses.

Lastly, the decision also provides further clarity for national courts and regulators, affirming that the consumer's explicit acknowledgment of payment obligations is a non-negotiable aspect of distance contracts, and remains vital for protecting consumer rights in the digital marketplace.

 

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.

 Benjamin Farrugia is a Trainee Advocate at GANADO Advocates.

 


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