Consumer Law by lwIAX807

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									Consumer Law
    Klaus Viitanen
 University of Helsinki
October-November 2011
           1. INTRODUCTION

The main aims of these lectures

 1) to give an overall picture on different legal
 instruments used in consumer law, especially in EU
 consumer law and in the Nordic countries

 2) a special attention will be given on the problems
 connected with consumer´s access to justice
1.1. Basic definitions:

Consumer law
   the class of norms which are especially designated to protect
    the consumer in his or her dealings with a trader (direct
   Competition Law and Unfair Competition rules give only
    indirect protection to consumers
   a natural person who is acquiring goods or services for an
    other use than business purposes
   a new trend: from consumer protection to a more wider user or
    client protection (.e.g. passenger protection in air, railway, sea
    and road transport contracts)
   a natural or legal person who is professionally selling goods or
    providing services to consumers in order to obtain economic
Substantive Consumer Law
   rules of consumer legislation which define the
    rights and obligations of consumers and traders

Consumers' Access to Justice
   different methods (often supervisory authorities and dispute
    settlement bodies) which aim is to ensure that consumers'
    rights are fulfilled also in practice

Access to justice –questions are in close relation to
substantive consumer law
     without effective means for enforcement and consumer
      redress, the material improvements in consumer protection
      legislation will have little or no influence at all in a
      consumer's daily life
     formal right to take a legal action in a court is not enough
    Consumer Law -questions may be roughly
           divided into two groups:

1)protection of consumers' collective interests
       interests where no individual consumer has a right to remedy
        when an infringement of these interests occurs.
       good examples:
           regulation and supervision of marketing
           regulation and supervision of product safety

2)protection of individual rights
       how consumer's rights are fulfilled in individual cases after a
        contract has been concluded and a consumer is dissatisfied
        with his purchase
       example: contractual remedies when a product is defective
              1.2. EU Consumer Law
The legal basis and the main aims of EU Consumer
Law in The Treaty on the Functioning of The European
Union (former EC Treaty, originally Treaty of Rome)
1)Internal Market -argument
   EU is entitled to adopt measures which have as their object the
    establishment and functioning of the internal market (art. 114)
   aim is to abolish obstacles of free movement of goods and
2)Consumer Protection -argument
   in order to ensure a high level of consumer
    protection (art. 169)
Is there are a conflict between these two aims?
   in theory no, but how about in practice!
The Consumer Images behind Consumer Law

The EU Consumer Law:
   a consumer is an active and critical information-seeker, who is
    able to make rational choices on the basis of collected
    information (a rational consumer)
   the main stress in the legal regulation is in the regulation of
    information: to ensure the accessibility and quality of

The Nordic Consumer Law:
   a passive consumer, who is neither able to collect information
    available nor to use it in order to make a rational choice (an
    irrational consumer)
   regulation of information is not enough to ensure rational
   there is also a need for effective protection of consumers´
    individual rights, e.g. by means of contract law
The Legal Instruments of EU Consumer Law

   are directly applicable in all MSs
   there is no need to implement them to the national legislation

   they have to be implemented to the national legislation first
   minimum directives
      set only the minimum level of protection
      MSs are free to provide better protection in their own
   maximum directives
      sets also the maximum level of protection
      MSs are not entitled to provide better or weaker protection
    The EU Consumer Law directives and
Regulation of Marketing
   Unfair Commercial Practices Directive (2005/29/EC, OJ L 149,

Consumer Information and Contract Law
   Doorstep Selling Directive (85/577/EEC, OJ L 372, 31.12.1985)
   Package Travel Directive (90/314/EEC, OJ N:o L 158, 23.6.1990)
   Distance Selling Directive (97/7/EC, OJ L 144, 4.6.1997)
   Distance Marketing of Financial Services Directive (2002/65/EC,
    OJ L 271, 9.10.2002)
   Consumer Credit Directive (2008/48/EC, OJ L 133, 22.5.2008)
   Timeshare Directive (2008/122/EC, OJ N:o L 33, 3.2.2009)
Contract Law
   Unfair Contract Terms Directive (93/13/EEC, OJ L 95, 21.4.1993)
   Sale of Consumer Goods Directive(99/44/EC,OJ L 171, 7.7.1999)
   Regulations on passenger´s rights on transport contracts:
       Regulation on Air Passengers` Rights on Denied Boarding and on
        Cancelled or Delayed Flights (EC N:o 261/2004, OJ L 46, 17.2.2004)
       Regulation on Rail Passengers` Rights and Obligations (EC N:o
        1371/2007, OJ L 315, 3.12.2007)
       Regulation on Passengers` Rights on Bus Transport (EU N:o
        181/2011, OJ L 55, 28.2.2011)
       Regulation on Passengers` Rights on Maritime Transport (EU N:o
        1177/2010, OJ L 334, 17.12.2010)

Safety of Products
   Product Liability Directive (85/374/EEC, OJ L 210, 7.8.1985)
   Product Safety Directive (01/95/EC, OJ L 11, 15.1.2002)

Access to Justice
   Injunctions Directive (98/27/EC, OJ L 166, 11.6.1998)
   Cooperation Regulation (EC N:o 2006/2004, OJ L 364, 9.12.2004)
A New Trend: Towards full harmonisation
The starting point: minimum directives
   most consumer law directives between years 1985-2002 were
    minimum directives
   there were only few exception, e.g., the product liability
    directive from 1985
The new trend from year 2005: maximum directives
   Unfair Commercial Practices Directive 2005/29/EC
   Timeshare Directive 2008/122/EC
   Consumer Credit Directive 2008/48/EC
   Proposal for Directive on Consumer Rights 2008
The key questions:
    1)whose interests does full harmonisation promote?
    2)is full harmonisation in practice possible?
        Who needs full harmonisation?

Official explanations:
1) full harmonisation promotes consumers´ confidence
   on internal market
 assessment of this argument:
     do consumers really need exactly same rules in all MSs?
     most sale of consumer goods takes still place inside MSs,
      cross-border shopping forms still only a small minority of
      the total sale
     when cross-border shopping takes place, a certain
      minimum level of protection (e.g. at least two weeks cooling
      off -period in distance selling) is usually totally enough for
     instead more emphasis should be focus on the settlement
      of cross-border consumer disputes, where there are in
      practice many problems
2)full harmonisation promotes traders´ willingness to
   cross-border marketing and sale

   assessment of this argument:
       are the differences in consumer law rules, e.g., concerning
        marketing or consumer contracts, in practice so relevant in
        cross-border marketing and sale compared to, e.g., rules on
        product design, content, package, or labelling
       if there are markets for a product, and a company has
        capacity for cross-border marketing, are the differences in
        marketing and contract rules really in practice any relevant
        obstacles to make business?
2.1. General
Domestic Marketing
   marketing in which traders and consumers are domiciled in a
    same country
Cross-border Marketing
   marketing in which traders and consumers are domiciled in
    different countries

The regulation of marketing has usually two main aims
  1)prohibition of unfair marketing practices
   to prohibit unfair marketing practices, especially false and
    misleading advertising
    2)disclosure of consumer information
   to ensure that traders provide to consumers certain basic
    information during the marketing
     Prohibition of unfair marketing practices
Different techniques to regulate:

1)general clauses
   prohibits the use of all kinds of unfair marketing practices
    without clearly defining what marketing practices are unfair

   whether a marketing practice is unfair or not, is decided by
      it is question of delegation of legislative power from the
       Parliament to courts

   a general clause is a flexible way to regulate, especially when
    new unfair marketing practices have been developed (e.g.
    marketing in internet)
      whether the system is predictable, depends on the amount
       of case law and its accessibility in practice
2)specific detail rules

   marketing practices which are regarded as illegal are defined
    by specific rules in legislation

   benefit: detail rules make it for an advertiser easier to predict
    what kind of marketing practices may be regarded as illegal

   defect: in case there is a need to interrupt a totally new kind of
    marketing practice, legislative changes have to be done first
3)combination of general clause and specific rules

   by using this model, benefits of general clause and specific
    rules may be achieved at the same time

   in the Nordic countries the combination of general clauses and
    more detail rules have traditionally been used in the regulation
    of unfair marketing practices

   however, in the Nordic countries the main focus has always
    been in the use of general clauses

   due to this, most principles on unfair marketing practices in the
    Nordic countries may be found in the case law instead of the
    written law
      Duty to Disclose Consumer Information

Detail regulation
   defines quite precisely what information a trader is obliged to
    give to consumers during the marketing
   is much more effective than general clauses
   is used in several EU Consumer Law directives: they oblige
    MSs to adopt rules which set to traders duties to give certain,
    specific information to consumers concerning:

1) cooling-off period
   consumers are not able to use this right, if they are not aware
    of its existence
   see, e.g., Timeshare Directive, art. 5.4.
2)other essential information, for example

a) Package Travel Directive, art. 3.2. and 4.1.
   the identity of the trader (name, address, etc.)
   the legal rights of consumers
   the main features of the product or service marketed
   all relevant information connected to the price of the product or
    service (including taxes, extra expenses, etc.)

b) Consumer Credit Directive, art. 4
   the annual percentage rate (the total cost of credit to a consumer
    per an year)
2.2.Unfair Commercial Practices Directive (UCPD)

       replaced Misleading and Comparative Advertising Directive
        84/450/EEC in consumer matters, but not in BtoB –relations
        (a codified version was published in year 2006)
           but what happened to comparative law rules?

       on the contrary to the most earlier consumer law directives,
        UCPD is a full harmonisation directive

     taste and decency –questions
      e.g. discriminatory (sex, etnic backgroung, religion)
       advertising has been left outside of the scope of the
       directive (recital 7)

    is based on a combination model
      general clause (art. 5)
      more specific rules (art. 6-9)
      black list of always forbidden practices (Annex I)
General clause (art.5)on unfair commercial practices

   commercial practice, which
       a)is contrary to the requirements of professional
       diligence (fairness test, e.g. false or misleading
       b)it essentially distorts or is likely to distort the economic
       behaviour of the average consumer (effect test),

    is regarded as unfair (art. 5.2)

   commercial practices which
       a)are directed to a clearly identifiable group of particular
       vulnerable consumers (children, sick or elderly people)

         b)are assessed from the perspective of the average
         member of that group (art. 5.3.)
Supplementary specific rules:

Misleading commercial practices (art.6-7):

A commercial practice shall be regarded misleading if

   a) it contains false information and is therefore
   b) it misleads or is likely to mislead the average
       consumer even if the information is factually correct
   c) it omits certain relevant information that the average
       consumer needs
in all three alternatives this practice causes or is likely to cause
a consumer to take an economic decision that he would not have
taken otherwise
Aggressive commercial practices (art.8-9):

A commercial practice shall be regarded as aggressive


  a) it by harassment, coercion, including the use of
  physical force, or undue influence

  b) significantly impairs or is likely to significantly impair the
  average consumer´s freedom of choice and thereby

  c) causes or is likely to cause him to take economic
  decision that he would not have taken otherwise
The flexible nature of the general clause

   the specific rules in art. 6-9 on misleading or aggressive
    commercial practices clarify, what practices may especially be
    regarded as unfair

   the general clause may be used in cases
    1) which do not fall under the scope of the specific rules,
                  but also in cases
    2) which fall under the scope of art.6-9

The black list
   annex I of the directive contains a list of commercial practices
    which are in all circumstances unfair (separate fairness or
    effect test is not needed)

Supervision of marketing
   should be organised in the MSs as during the former
    Misleading and Comparative Advertising Directice: state
    authorities or consumer organisations are entitled to start court
    or administrative procedure (art.11)
Problematic questions in the UCPD

1)what is the expected level of knowledge of the
  average consumers?
   the case law of the ECJ: average consumer is a reasonable
    well-informed and reasonable observant and circumspect
   the clear conflict between the common meaning of word
    average and this definition: the average consumer is certainly
    not reasonable well-informed and observant
   implementation in the Nordic countries:
      the main stress has been given to the common meaning of
       word “average” and the word average itself has been left
       away from the law text
      remember the different consumer images in EU and Nordic
       consumer law (an active information-seeker v. a passive ,
       irrational consumer)
      this implementation may cause different interpretations in
       MSs, as many MSs adopted also the word average to their
2)when the condition ”is likely to essentially distort the
  economic behaviour of consumers” is met?

   different wording is used in articles 6-9: “is likely to cause him
    to take economic decision that he would not have taken
       different wording – different meaning?
       the latter definition seems to require more stronger effect to
        the behaviour of consumers

   should we assess the effect of, e.g., false information
      separately, when it is hardly never decisive from the
       viewpoint of consumer´s decision-making procedure
       (separate effect)
      together with all other marketing information which effects
       on consumers (common effect)
      the choice between these two alternatives might have
       serious consequences
         • example: claims on environmental friendliness of
           marketed products
3)the effects of taste and decency –doctrine

   matters related to taste and decency were left outside of the
    scope of the directive (recital 7)
   these differ greatly among European countries, e.g.,
    concerning discriminatory (sex, ethnic background, religion)
   sometimes these values are overlapping with the protection the
    economic interests of consumers (which is the main target of
    the directive)
   example: marketing to minors in schools
      protection of economic interests: minors do not expect to
       face marketing at schools, especially marketing in which
       teachers are involved
      social value: schools should be marketing-free zones in a
       world which is coming more and more commercial
2.3. Regulation of Marketing in Finland

I. Former regulation
   relevant act: Consumer Protection Act 1978, ch. 2

   the former general clause in the Finnish Consumer Protection
    Act, ch. 2, art. 1:
       “Conduct that is contrary to good practice or that is
       otherwise unfair from the viewpoint of consumers is not
       allowed in marketing”
   specific articles, e.g., ch. 2, art. 2:
         ”False or misleading information shall not be conveyed in

   whether marketing had impact on the economic behaviour of
    consumers in the target group, was not relevant from the
    viewpoint of law text
   but was it an implied term which fulfillment was necessary
    before these rules could be applied?
II. Implementation of the UCPD to Finland

   amendments to chapter 2 of the CPA (561/2008) entered into
    force on 1 October 2008

   a new general clause (ch.2, art. 1)
        ”Marketing which is contrary to good practice or is unfair
        from the viewpoint of consumers, is not allowed in

   new separate general clauses on
    1) marketing contrary to good practice
       based on the taste and decency –restriction
    2) unfair marketing practices
       based on the idea to prevent the distortion of consumers´
        economic behaviour

   in addition, (3) the CPA contains new and old specific rules on
    unfair marketing practices
1) marketing contrary to good practice
   a new general clause (ch.2, art 2)
    ” in clear conflict with generally accepted social values,
    especially if
          a)it infringes human rights or religious or political

        b)it contains discrimination on the basis of sex, age,
        etnical or geographical origin, etc.

        c)it shows in a positive light activities where health,
        general safety or environment are put in danger”

   former Finnish case law on the protection of social values in
    marketing was based only on the interpretation of the general
    clause on the consequence that the competence of Consumer
    Ombudsman and Market Court was sometimes questioned
   the implementation of UCPD solved this problem and there is
    now a clear legal basis on CPA ch. 2, art. 2
Some examples from the former case law (still valid!)
a) violence in marketing
   Market Court decision 1998: 18
  The Raisio Group was forbidden from showing a TV
  commercial called Gone with the Winchester, where a soldier
  was shot in the back. According to the Court, violence is not an
  acceptable way of attracting attention in advertising, especially
  when violence has no connection with the product being
  advertised (in this case food stuff).

b)discrimination based on sex
  Market Court decision 2001:6 (Lola –case)
  Maskun Kalustetalo Oy was marketing sofas by using ex-Miss
  Finland who was lying in one of sofas dressed with her bikinis
  only. The advertiments contained, e.g. following text: ”Lola is
  not included in the price!”The court stated, that the use of half-
  naked woman in an advertisement may, as such, not be
  regarded as unfair. However, the ad may be considered as
  insulting due to a way how woman is treated in it. In this case
  the campaign was regarded as discriminative and unfair.
2) Unfair marketing practices

   a new general clause (ch. 2, art. 3) which scope of application
    covers also the specific rules (ch. 2, art. 4-14)
   the general clause is rather identical to art. 5 of the UCPD:
    unfair marketing is marketing, which is
        contrary to the requirements of professional diligence and
        is likely to distort the economic behaviour of consumers
         who belong to its target group
   one relevant difference: average consumer is not mentioned at
        according to Government´s Proposal (HE 32/2008), the
         concept of average consumer is equivalent to the concept
         of ordinary consumer on the consequence that there is no
         need to mention it in the law text
   similar choice has been made also in the other Nordic
   effects from the viewpoint of full harmonisation?
Protection of vulnerable consumers

   UCPD: a special attention should be given to the target group
    in the assessment of legality of a marketing campaign
   CPA contains now in its general clause a clear provision on the
    protection of vulnerable consumers (minors, elderly people etc)
   however, this protection is not new in the Nordic countries, but
    it was mainly based on rather large case law
   marketing aimed at minors provides here a good example
   main principle: marketing to minors is in principle allowed, but
    it must comply with much more stricter rules than marketing to
   Market Court 2000:12: Distribution of advertising magazine in
    schools and day-care centres
         Family 2000 -magazine was a publication intended for
         children and young people which contained marketing
         mainly in the form of articles. The Market Court banned the
         distribution of the magazine in schools and daycare
         centres without parents' permission
3) Specific rules in ch. 2 of the CPA

Identification of marketing (ch.2., art.4)
   consumers should always be able to make difference between
    commercial and non-commercial material and to identify the
    person behind marketing
   this rule it is not based on the UCPD, but was created in the
    case law, and amended to CPA in year 2002

   Market Court decision 1997:6: Commercials must be
    distinct from programming
    Kiss FM radio station was forbidden from broadcasting
    commercials unless they are distinguished from other
    programming by, for example, a distinctive tune used both
    before and after commercial breaks.
Misleading or false marketing(ch.2., art. 6-7)

   prohibition to
        a)give misleading information
        b)false information
        b)omit relevant information

    which is likely to cause a consumer to take a transactional
    decision that he would not have taken otherwise

   rather identical to art. 6-7 of the UCPD

   once again, the concept of the average consumer is not at all
    mentioned in the law text
Duty to disclose information (ch.2, art.8)

   corresponds article 7.4. of the UCPD
   marketing of individualized products or services should always
    contain at least the following information:

    a) the main features of a product and service
       in a scale which is appropriate when taking into account the
        marketed product or service and the used marketing tool
          • different requirements for TV and newspaper adds!
    b) trader´s – or his agent´s - name and geographical address
    c) price information: the total price of the product or service
    including all taxes
       this is based also on the former case law and Decree on
        Price Marking
       the price had to be mentioned in an advertisement where
        a certain product or service could be identified
       the price mentioned had to be the total price, included all
        taxes and service charges
   the most important information for a consumer is normally the
    total price of the product or service
   it does not matter, whether the procedure to count the total
    price would in practice be rather easy, the price informed to
    consumers in marketing has to be always the total price

    Market Court decision 1992:11: Price splitting
    in advertising of cruise prices
    Oy Viking Line Ab had marketed its cruise prices without
    mentioning the passenger tax. The Court stated, that passenger
    tax is a part of the price which consumers must pay for a
    cruise. From the viewpoint of the consumer it makes no
    difference that the business which sells the cruise forwards
    part of the price to the state in the form of tax. It is important for
    consumers that ads clearly indicate the total price charged by
    the business. Marketing, which do not contain the total price of
    the product or service is regarded as unfair.
Additional benefits (ch.2, art.12) and benefits based on
chance (lotteries etc.) (ch.2, art. 13-14)

   are accepted in marketing only if the following three conditions
    are fulfilled:
    a) the means of getting additional benefits are clearly explained
    in marketing
    b) consumers´ right to take part on lottery or in other kind of
    competition may not be connected to the fact whether he is
    purchasing a product or not
       change in June 2011: purchase may now be put as a
        condition to participate
       reform was argued on basis of ECJ recent case law
       but was the case law misunderstood?
    c) benefits should not have a dominant role in marketing

   the last condition is based on the general clause, not on the
    specific rules above
Market Court decision 1995:25: Free gifts and lotteries
in the direct marketing of time-shares

   Helsingin Resort Marketing Oy was direct marketing of
    timeshares by inviting consumers to a special meeting. The
    predominant focus of an invitation letter sent out by the
    company to a presentation and sales meeting was on free gifts
    and lotteries. Based on this information, consumers had
    difficulty in assessing the true nature of the meeting in
    question. Many of the consumers arriving at the meeting did so
    mainly to collect the free gift promised. The marketing was
    regarded to be in conflict with the general clause because the
    promised benefits had a dominant position in the marketing.
Other specific norms in ch.2 of the CPA:
   comparative or other marketing may not cause confusion
    between products of different traders (art.5)
      the former article concerning comparative advertising was
       removed to Unfair Competition Act
      what is the role of this removed article in consumer

   prohibition to use aggressive selling methods (art. 9)

   prohibition of inertia selling (art. 10)
      it is prohibited to deliver a products or a service without an
       express order in case a consumer is expected to pay it in
       case he does not clearly refuse or return the good

   the price should not be announced as being reduced more than
    it actually has been (art. 11)
       the promised discount should always be real
2.4. Case Law

   many leading principles of the Finnish marketing law have
    been created by the Market Court since 1978 in cases where the
    former general clause was applied
   during the years, for informative reasons many of these
    principles were added as new specific rules into ch. 2 of the
   however, there are still many principles which have not been
    codified, but are still based on the case only
   many of them are closely connected to the prevention of
    misleading and false marketing
   after implementation of the UCPD, especially the effect test, the
    central question will be, what is going to happen to these
   do they remain or disappear?
1) The principle of general impression

   lawfullness of marketing is evaluated on the basis of what kind
    of general impression consumers do get after a reasonable
    short acquaintance of advertisements
   relevant information may not be presented by small letters at
    the end of an advertisement

   Market Court 2001:9.
    In TV commercial subscription costs of mobile phones were
    shown at the bottom of the screen in very small print, while the
    call time and trade-in offer was spread across the screen. If a
    specific subscription is advertised, typical user costs must be
    indicated clearly. The commercial was regarded as unfair.

   the relevance of the new effect test?
2)The principle of trader´s burden of proof

   a trader must always be able to prove facts he presents in his

   however, relevant is the difference between facts and matters
    of taste
       “cheapest in the town” is a fact which must be proven
       “best service in town” is matter of taste which cannot be

   this principle may also be found in art. 12 of the UCPD, which
    mean that it will remain also in the future
Market Court decision 1997:2: Unproven Price Claims/
Price Guarantee

  Oy PC-Superstore used in its marketing, e.g., the following
       a)Finland’s cheapest computer chain store
       b)Price guarantee: we will pay you back the price
       difference at time of purchase if you could buy the same
       product at a lower price from another shop.”

  The company produced no proof that its products were
  cheaper than similar products marketed by its competitors.
  According to the Court, claims concerning a ‘lowest price’ are
  not proven merely by the fact that the advertiser promises to
  pay the customer the difference if he can find the same product
  on sale more cheaply somewhere else. The Court regarded
  marketing to be in conflict with the CPA.
3) The use of test results in marketing

   especially in comparative advertising presentation of test
    results plays often a central role
   the use of test results is accepted if the following conditions
    are fulfilled:
      tests itself have been made by objective third parties
      only relevant features have been tested and compared

   Market Court 2003:5 Use of EuroNCAP –test
    Veho Ltd was marketing: “Mercedes Benz is safer than the
    most safest Volvo on the basis of a recent EuroNCAP –test.”
    However, the cars which had been tested by EuroNCAP
    belonged to different classes. According to EuroNCAP-rules
    cars from different classes may not be compared with each
    others due to different technical and other features, e.g.,
    weight. Because this rule had been infringed and the cars were
    not directly comparable with each others, the advertising was
    regarded as unfair.
4) Claims on environmental friendliness of marketed

Consumer Ombudsman´s decision in 1999: Marketing
of green electricity.

    Kainuu Electricity had marketed eco-electricity using, e.g.
    slogans “Eco-electricity is the choice of families who care
    about the environment”. However, in fact electricity with an
    eco-label formed only 43% of the company’s total sales. The
    danger was that the entire company’s electricity production will
    be given an eco-label in consumers’ eyes. Emphasizing the
    environmental effects of consumers choice of electricity was
    therefore misleading and was regarded as unfair.

   the influence of effect test in environmental claims?
5) The use of word “guarantee” in marketing

   guarantee should always mean that a consumer receives a
    certain benefit compared to his legal rights which are based on
    the law

   Market Court decision 1994:14 Satisfaction
    A mailorder company used in its marketing concept ”satisfac-
    tion guarantee” which gave to consumers one week cooling off
    –period. Due to the fact, that consumers already had the same
    right on the basis of CPA ch. 6, the use of word guarantee in
    marketing was regarded as unfair.
   in principle there are different possibilities to
    organise supervision of marketing:
    1)supervision may be taken care by:
        a)state authorities or
        b)consumer organisations or
        c)self-regulatory bodies

    2)supervision may be taken care by only one of these
    alternatives (single model) or more than one at the same time
    (combined model)

    3)decision whether a marketing practice is
      unfair or not, may in principle be made in
         a)administrative procedure or
         b)court procedure
2.5. Supervision of marketing

Different models to supervise
   in principle there are different possibilities to organise
    supervision of marketing:
    1)supervision may be taken care by:
         a)state authorities or
         b)consumer organisations or
         c)self-regulatory bodies
    2)supervision may be taken care by only one of these
    alternatives (single model) or more than one at the same time
    (combined model)
    3)decision whether a marketing practice is unfair or not, may in
    principle be made in
         a)administrative procedure
         b)court procedure
Supervision according to the EU consumer law:

Unfair Commercial Practices Directive obliges (as the Misleading
and Comparative Advertising Directive before it) Member States to
ensure that:

   1)state authorities and/or consumer organisations are entitled
    to start

   2)court procedure or administrative procedure in order to
    prohibit unfair commercial practices (art. 11)

   self-regulatory bodies - based on business self regulation - are
    accepted only as a supplementary, but not as the only
    supervisory system (art. 10)
The Nordic Model in the Supervision of Marketing

   enforcement of consumers´ collective interests in the Nordic
    countries is taken care by a special state authority, called as
    the Consumer Ombudsman (CO)

   CO is a state authority, whose task is to
        1)supervise marketing practices
        2)supervise the use of standard contract terms
        3)promote consumer interests in general

   these authorities were established in all four countries between
    years 1973-1978
   the activities of the COs are in many Nordic countries
    connected to the National Consumer Agency: in these cases
    the CO is the head of the National Consumer Agency
The most relevant acts which regulate the activities of
the Nordic COs, are
   in Denmark the Marketing Act 2005
   in Finland the Consumer Protection Act 1978
   in Norway Marketing Act 1972
   in Sweden the Marketing Act 1995

English translations of these acts are available in the
following internet-pages:
   Danish National Consumer Agency (
   Finnish National Consumer Agency
   Norwegian Consumer Ombudsman
   Swedish National Consumer Agency
The competence of the Nordic Consumer Ombudsmen
in the supervision of marketing

1)preventive methods:

   an extremely typical feature for the supervision of marketing in
    the Nordic countries is the frequent use of preventive actions

   the aim is to prevent any infringements of law by informing the
    traders already when new advertising campaigns are under

   often these preventive actions are not based on the law, but
    have been created in practice during the years
Different preventive methods:

Advance opinion
   is an opportunity (but naturally never an obligation) for an
    individual advertiser to check beforehand whether a planned
    marketing campaign is infringing the marketing law or not
   on request, the CO will give an oral or written statement
    regarding his view of the lawfulness of the planned marketing
   once the CO has shown “green light”, he will not interfere on
    his own initiative with an arrangement covered by the advance
    opinion and implemented within a reasonable time of its
Marketing guidelines (soft law)
   COs have issued during the years non-binding marketing
    guidelines in several sectors of business
   they are mainly based on the existing case law
   their purpose is to inform traders what kind of marketing
    practices are infringing the law
   a new trend: CO and branch organisations have prepared
    guidelines together
2) repressive methods

In case infringements of law are observed:

a) in the first step, CO tries to persuade trader to abandon in a
   voluntarily way marketing which is regarded as unfair

b) in case persuasion fails CO is entitled to impose an injunction
   order together with conditional fines in clear cases and cases
   with minor importance
 if the trader resists, this injunction becomes void except in
   Norway, where the trader has to appeal in case he resists
 temporary injunction orders in urgent cases are available in all
   four countries

c) take legal action against a trader in the court
 special courts have jurisdiction to decide whether marketing is
    infringing the law or not
The Nordic Market Courts

Special courts whose jurisdiction is limited to a certain
areas of law only

   in Finland: the Market Court (collective consumer law, unfair
    competition, competition law)

   in Sweden: the Market Court (collective consumer law, unfair
    competition, competition)

   in Norway: the Market Council (collective consumer law, unfair

   In Denmark: the Maritime and Commercial Court of
    Copenhagen (also maritime law and other commercial law)
In case the Nordic Market Courts regards marketing
practice as unfair, these sanctions are available:

1) injunction order
   the purpose of this order is to prohibit the trader to carry on its
    illegal activities
   in most Nordic countries an injunction order is strengthen with
    a conditional fine (which has to be paid only if the same
    infringement is repeated)
   in Denmark criminal sanctions are used instead of conditional

2) corrective advertising

   an obligation to correct the information given in unfair
    marketing, normally by a totally new advertisement
   in practice the significance of corrective advertising has been
    rather small, because marketing campaigns have in practice
    ended a long ago before the judgment is given
3) market disruption fee

   has been available in Sweden since year 1996
   available if the trader acts intentionally or if he by carelessness
    violates the detail rules of the Swedish Marketing Act
   the ordered fee may be from SEK 5 000 to 5 000 000, (the latter
    about EUR 500 000), but not more than ten percent of the
    trader´s annual turnover.
   disruption fee is an alternative sanction to an injunction order
   it should be used in serious cases only, and in practice it has
    been used rather seldom

No criminal sanctions or compensation of damages
   these questions are dealt in general courts only
   in practice criminal sanctions have been used very seldom
Evaluation of the Nordic enforcement system
   from the viewpoint of effective consumer protection

1) from the very beginning of the establishment of Nordic
   consumer protection system, serious attention has been paid,
   not only to substantive law, but on the enforcement of
   consumers´ collective interests

2) enforcement of consumer protection is the sole task of the
   Nordic ombudsmen
     there have been no fear that the fulfilment of other tasks,
      for example, enforcement of competition law, would have
      started to dominate their activities by using majority of the
      available resourses

3) the channeling of consumers´ collective protection -cases to
   special courts instead of general courts has created more
   consumer –friendly case law
4) the wide use of soft law –methods has in practice been very
      most of the traders are willing to change their marketing
       practices voluntarily, especially in clear cases, in order to
       avoid bad publicity caused by a potential procedure in the
       Market Court
5) soft law need hard law as a backing
      without the possibility to use sanctions if necessary, the
       persuasive methods would not be so successful as they
       have been now in practice
6) the lack of other sanctions than injunction makes the system
    sometimes rather toothless
       It is, however, possible for unscrupulous traders to
        continue - at least for a while - and repeat the infringements
        in some similar, but also unfair form
       market disruption fees or similar kinds of monetary
        sanctions are needed also in other Nordic countries
7) larger competence to issue injunction orders?
       should Cos have larger competence to issue injunction
        order without a need to start a court case in Market Court?
 3. Regulation and Supervision of Cross-
             border Marketing
3.1. General
Cross-border Marketing
 marketing in which a trader is marketing consumer
   goods or services from one country (source country)
   to consumers who are domiciled in an other country
   (target country)
The basic problems in cross-border marketing:
1) the differences between the substantive rules in
   source and target countries
      even in areas, where EC has adopted consumer law
       directives, the aim has been to set a common minimum
       stardard of protection, not to harmonise national laws
      marketing which is full in accordance with the laws of the
       source country may infringe the laws of the target country
2) the marketing may be directed only to consumers
   domiciled in other countries than where the trader is
      the consumer authorities/organisations in the source
       country do not have interest to interfere in such marketing

3) there are often differences between MSs how
   actively the consumer authorities/organisations are
   supervising marketing
      these differencies are based on supervisory traditions, level
       of motivation, available resourses, etc.

4) the consumer authorities/organisations in the target
   country are often powerless: in practice it may be
   difficult to enforce remedies against a foreign trader
     Two opposite models of regulation and
There exists two opposite models to regulate and to supervise
cross-border marketing. These systems do not have to exclude
each others; they may also be parallel or supplementary

The home country principle (principle of the country of origin)
 the level and substance of regulation is determined by the
  country in which the trader is domiciled (the source country)
 also the compliance of regulation is supervised by the
  authorities and/or organisations of the source country
 political background: internal market -argument
The target country principle
 the level and substance of regulation is determined by the
  country or countries in which the effects of an infringement
  may be seen (the target country)
 also the compliance of regulation is supervised by the
  authorities or organisations situated in the target country
 political background: consumer protection -argument
                 3.2. Satellite advertising

TV directive (89/552/EEC, OJ N:o L 298, 17.10. 1989)

The transmitting state principle

   art. 2.2.: a receiving Member State must ensure the freedom of
    reception and it is not allowed to restrict retransmission of
    television broadcasters from other Member States, for reasons
    which fall within the fields coordinated by the directive

   is one application of the home country principle
   De Agostini-case: C-34/95 in the European
                Court of Justice
Facts of the case:
 De Agostini -company was using services of a British company
  which broadcasted television programmes by satellite from the
  UK to Denmark, Sweden and Norway
 De Agostini -company advertised a kids magazine which was
  published in series, each consisting of several issues
 with each issue came a part of a model dinosaur: in order to
  build one dinosaur, all issues of one series had to be collected
 the Swedish CO took legal action against the De Agostini-
  company in the Swedish Market Court for two reasons:
  1)television advertising to children under 12 years was
    forbidden according to the Swedish Broadcasting Law
  2)advertising was misleading because it did not contain
    information how many issues belong to each series and what
    was the total price of one series and one model dinosaur:
    it contained only the price of one individual issue
 the Swedish Market Court asked ECJ to a give a preliminary
Decision of the ECJ was quite predictable:

1) the TV-directive allows advertising to children in
   case certain basic conditions are fulfilled
 the Swedish authorities were not allowed to totally
   forbid cross-border television advertising which was
   directed to children

2) the TV-directive does not prevent the consumer
   authorities in the target country to take legal action
   against cross-border television advertising in those
   fields which are not coordinated by the TV-directive
 as the TV-directive is not regulating misleading
   advertising, the Swedish authorities were entitled to
   take legal action against cross-border misleading
So, in the satellite advertising the both principles may
be used at the same time:

  1) the home country principle in those fields which
  are coordinated by the TV-directive

  2) the target country principle in those fields, which
  are not coordinated by the TV-directive
              Cross-border e-commerce

   Electronic Commerce Directive (2000/31/EC, OJ L
    178, 17.7.2000) is mainly based on the home country
    principle (art.3.1.-3.2.)
   however, the target country may take measures
    against cross-border electronic marketing in case
    two conditions are fulfilled:
       measures are necessary in order to protect, e.g., public
        order, public health or consumers (art. 3.4.)
       the target country has asked - without adequate results - the
        home country to take measures against illegal marketing
   the influence of DeAgostini-case may be clearly seen
    in this directive
Audiovisual Media Services Directive
(2007/65/EC) (AVMSD)
   is in fact a revised version of TV-directive 1989
   its scope of application was expanded to cover also
    the so called on-demand AVM –services
   the content of the transmitting state principle was
    not changed, or even clarified!
   this means that target countries have still right to
    take legal actions against cross-border TV-
    advertising in those fields which are not coordinated
    by the AVMSD-directive
3.3.Different methods to develop the regulation
  and supervision of cross-border marketing

Even if we adopt the target country principle in the
regulation and supervision of marketing, one central
problem still remains: how the authorities in the target
countries may in practice enforce sanctions against
companies domiciled in other countries?

Different alternatives:
1)the principle of entity
2)free movement of actions for injunction
3)cooperation between the national supervisory bodies
4)harmonisation of the substantive marketing law
1)The Principle of Entity
 originates from competition law: all companies
  belonging to the same multi-national company are
  liable for infringements of law caused by any of its
  parent or subsidiary companies
 has already been used at least in Finland
    The Finnish Market Court 1987:13. McDonalds was marketing
    its products via satellite television from Britain to Finland. The
    Finnish CO took legal action in the Finnish Market Court
    against the Finnish subsidiary company of the multinational
    company in question – McDonalds Osakeyhtiö. The court
    stated that the Finnish CPA was applicable in the case due to
    the fact that marketing was intentionally targeted also to the
    Finnish consumers. The injunction order with a conditional fine
    was imposed to McDonalds´ Finnish subsidiary company.
2)The free movement of actions for injunction

The directive on injunctions for the protection of
consumers‘ interests (injunction directive) (98/27/EC,
OJ N:o L 166, 11.6.1998)

The basic idea in the injunction directive:
 traditionally the right to take legal action against
  traders have been reserved only to the consumer
  authorities/organisations of the same country where
  trader is domiciled
 according to the directive, the MSs were obliged to
  reform their legislation so that also authorities/
  organisations from other MSs – target countries –
  are entitled to take legal actions for injunction in
  source countries
Right of action
 is restricted to so called qualified entities which may
  be consumer authorities, consumer organisations or
  trade organisations
 they are entitled to bring an action for injunction in
  the source country against a trader, when the
  infringement affects to the interests of consumers in
  the target country where the qualified entity has its
 the right to bring an action for injunction is limited to
  those consumer issues where the EC has adopted
  consumer law directives (listed in the annex of
  injunction directive) as transposed into the internal
  legal order of the MSs
Evaluation of the injunction directive:

1)the injunction directive does not solve problems
which are based on differences in substantive law
between the Member States
 the right to bring an action for injunction in the
   source country is useless when the substantive
   rules or the case law are stricter in the target country
   than in the source country (as in De Agostini-case)
2)who finances the cross-border actions?
 legal expenses cause an economic risk which in
   practice prevents cross-border litigation in a quite
   effective way when authorities and organisations are
   working with limited financial resources
3) practical relevance of this directive
 how many times it has been used in practice?
        3)Cooperation Between the National
                  Supervisory Bodies
I. Informal cooperation
   the International Consumer Protection and
    Enforcement Network (ICPEN) (
   established in 1992
   it consists of national, normally supervisory bodies
    from more than twenty different OECD- countries
   exchange of information, collaboration (e.g. sweep
    days in internet), yearly meetings, etc.
   may be used between all OECD- countries, not only
    between the EC Member States
II. Formal collaboration
Regulation on Consumer Protection Cooperation
(N:o 2006/2004, OJ N:o L 364, 9.12.2004)
 every MS must have a consumer authority, which
  have jurisdiction to deal with cross-border marketing
       indirect effect in some countries, e.g., in Netherland
   consumer authority in the source country (requested
    authority) is obliged, on the request of consumer
    authority in the target country (applicant authority),
    to take all necessary measures to cease illegal
    cross-border marketing in source country (art. 8.1.)
   the requested authority may, however, determine
    which measures will be taken (art. 8.2.)
   in case legal action in a court is taken, the applicant
    authority has to pay the legal expenses which the
    plaintiff is liable to pay to the defendant if the case is
    lost (art. 15.1.)
4)Harmonisation of the Substantive Marketing

The starting points:

1) collaboration between supervisory bodies is
   useless if cross-border marketing which infringes
   the law of the target country is in accordance with
   the laws of source country

2) directives which are based on minimum clauses

   do not eliminate the differences in substantive
    rules between the MSs on the consuquence that
    they are conflicting with the Internal Market -
One alternative:
   full harmonisation of legislation on unfair marketing
First efforts:
   Unfair Commercial Practices Directive 2005
   shows the new trend in the EU Consumer Law
       instead of minimum clauses (and minimum level of
        protection), the aim is now full harmonisation (and
        abolishment of the differencies between the national
        legislation of the MSs)
   in case it works, the choice between home and target
    country principles becomes less important
UCPD: will its aims be achieved?

1) is it really possible to harmonise national rules
   concerning marketing by using general clauses?
     general clauses are legal instruments which
       delegate the decision-making power from the
       Parliament to courts
     general clauses will be applied by the national
       courts in 27 different MSs
     when taking into account

       a)unclear concepts used in the UCPD (e.g., average
       consumer, effects on consumers’ economic behaviour) and
       b)differencies in cultural and legal traditions of the MSs, it is
       more than obvious that the case law (created by national
       courts) will differ between MSs
      the consequence: the differences between the
       substantive laws of the Member States may not be
       abolished by the UCPD
2) is it really possible to ensure that the supervision of
   marketing would in practice be at the same level in
   all MSs?
       the effectivity of supervision often depends on motivation
        and available resourses of the supervisory bodies

   most probable there will be remarkable differencies

3) if full harmonisation of the national legal rules may
   not be achieved, the choice between home and
   target country principle still remains relevant from
   the viewpoint of consumer protection
       in the home country principle the lawfullness of marketing
        may be determined by a country in which the level is
        lowest if the trader is domiciled in that country

   the new directive leaves the choice between these
    two principles unclear!
    UCPD: home or target country principle?
   Commission´s first proposal (COM (2003) 356 final):
    Traders shall only comply with the national provisions falling within
    the field approximated by this Directive, of the Member State in which
    they are established. The Member State in which the trader is
    established shall ensure such compliance (art. 4.1.)
    Member States shall neither restrict the freedom to provide services
    nor restrict the free movement of goods for reasons falling within the
    field approximated by this Directive (art. 4.2.)

 Due to resistance of many MSs the article 4.1 was
  dropped away and only article 4.2 was left to the final
 What does it mean? Is the home country principle the only
    possible principle of regulation and supervision or may target
    countries also take measures against cross-border marketing
    which infringes the laws of target countries?
   this issue will be decided later on by the ECJ

Traditional view how contracts are concluded:

   basic presumption: (1)equal parties (2) agree
    individually each contract terms (3)after negotiations

   pacta sund servanda: the contract binds both parties
    according to its terms

   the legitimitation of pacta sund servanda –principle
    is grounded on the presumption of equal parties
Reality in consumer contracts:

The parties, consumers and traders, are in most cases
1) the lack of information: consumers do not in the
   most cases have enough information (quality, price,
   other terms) which is necessary to conclude a good
2) the unbalanced negotition power: even if well
   informed, consumers do not have as much as
   influence on the content of contract terms than
      good example: the wide use of standard contract
       terms in practice
 the presumption on equal parties does not
  correspond with the reality
 consumers need protection in their contractual
  relations with traders
    Different Methods to Provide Protection in
                 Consumer Contracts
1) Cooling off -periods
   definition: consumer's right to withdraw from a
    contract with in a certain time (normally from 7 to 14
    days), without penalty and not having to give a
   cooling off- periods, based on the law, are normally
    provided in those types of contracts in which it is
    typical that:
    a)consumers do not have the possibility to compare
    the price and quality of the marketed product with
    other similar products before making his decision
        Doorstep Selling Directive, art.5
    b)consumers do not have an opportunity to check
      the product before the contract is made
        Distance Selling Directive, art.6
    c)aggressive methods of marketing are often used
        Timeshare Directive, art. 6
    d)there is a risk of consumer´s over-indeptedness
        Consumer Credit Directive (2008), art. 14

   the length of cooling off-period in these directives
       depends on whether or not the trader has fulfilled his
        obligation to provide to a consumer certain information
        referred to in the directives

   Cooling off –periods based on a contract
       cooling off-periods based on law should not be confused
        with cooling off-periods based on an individual contract
        only (latters are usual, e.g., in big department stores)
2) Mandatory provisions of consumer contract
 definition: the parties are not entitled to conclude
  individual contracts imposing worse terms regarding
  to the weaker party than is provided by the
  mandatory provisions of law
Sale of Consumer Goods Directive (99/44/EC)
 especially in the sale of goods the essential
  questions on consumer contracts have often been
  regulated by mandatory provisions of law. These
  question are, for example:
  a) goods conformity with the contract
       when a product is defective
    Sale of Consumer Goods Directive, art. 2
b) burden of proof concerning when the lack of
  conformity exists
   Sale of Consumer Goods Directive, art. 5.3.:
 any lack of conformity which becomes apparent
   within six months of delivery is presumed to have
   existed at the time of delivery, unless proved
   otherwise (so called legal guarantee)
c) rights of the consumer (remedies) in the case of a
   lack of conformity
   Sale of Consumer Goods Directive, art. 3.:
 in the first place, repair free of charge or
 if not possible or if not done, reduction of price or
   the right to have the contract rescinded (the latter
   only in case the lack of conformity is not minor)
d) minimum time limit for liability
   Sale of Consumer Goods Directive, art. 5.1.:
 at least two years from the delivery of the goods
      in Finland there is no maximum time for seller*s liability
      however, consumer has the burden of proof whether a four
       year ago bought product was defectice already at the time
       of delivery
e) minimum time limit for complaining
   Sale of Consumer Goods Directive, art. 5.2.:
 consumer must inform the seller within two months
   from the date on which he detected the lack of
   conformity (in Finland no exact time limit, only in reasonable
However, it is not possible or even sensible to regulate
all potential contract terms by mandatory provisions
      a wide area of different kind of questions will always stay at
       the parties to agree
      that is why, there is also a need for other methods to
       balance the contractual relationship between the parties
3) Prohibition to use unfair contract terms in
  consumer contracts
   the main aim: to prevent the use of unfair terms in
    consumer contracts

Unfair Contract Terms Directive (93/13/EEC)

    Definition: unfair contract term is a contractual term
    which causes a significant imbalance in the parties´
    contractual rights and obligations
   scope of application:
       only standard contract terms, not individually negotiated
       co called core terms, included price terms, stays out of the
        scope of directive
   the MSs have a right to choose whether to regulate
    unfair contract terms by (1) a general clause or
    (2) more specific rules or by (3) a combination model
The annex of Unfair Contract Terms Directive

   it contains so called grey list of contract terms which
    may be regarded as unfair
   typically unfair contract terms in the list are often
    connected to the following items:
      trader has a right to make changes to the contract
        terms including the price without consumer´s
      trader has excluded or limited his legal liability in
        case he breaches the contract
      sanctions which are available for consumer´s
        breach of contract are very hard
      arbitration clause which exludes access to the
Supervision: Unfair Contract Terms Directive, art. 7:
 MSs are obliged to ensure that adequate and
  effective means exist in order to prevent the use of
  unfair contract terms in standard contracts
 the choice between different supervision systems
  has been left to the MSs: they may give to authorities
  and organisations
  1)a right to take legal action against a trader who is
  using unfair terms in standard contracts (court
  procedure) or
  2)only a right to complain to an authority which task
  it is to decide whether a contract term is unfair or not
  (administrative procedure)
 supervisory system is similar to the UCPD
In the Nordic countries the system to regulate and
supervise unfair contract terms is rather similar than
in the marketing:

1) the fairness of contract terms is mainly regulated by
   general clauses
      no combination model has been used here
      case law is in practice the main source of information
2) the Consumer Ombudsman tries to prevent the use
   of unfair contract terms
  a)the CO first tries to persuade a trader to abandon the use of
  unfair contract terms
  b)in case persuasion fails, the CO may issue a permanent (in
  case trader does not resist) or a temporary (in urgent cases)
  injunction order
  c)finally the CO is entitled to take legal action against trader in
  the Market Court
3)negotiations with branch organisations

 a preventive method
 is not based on the law, but has been created in
  practice during the years
 standard contract terms have been negotiated
  between CO and branch organisations in several
  branches of business
 a good example in Finland: Package Travel Contract
 negotiations does not necessarily mean that the CO
  approves all the contract terms in the negotiated
  standard contract terms, but he approves most of
Benefits connected to these negotiations:

    1)from traders´ point of view:
   the probability that CO would take actions against
    negotiated contract terms is in practice quite small
   it makes the system more predictable

    2)from consumers´ point of view:
   law prohibits only the use of unfair contract terms
   by negotiations it is possible to add to the standard
    contracts new terms which improve consumers´
    contractual position compared to the earlier used
    terms, and even compared to the mandatory
    provisions of consumer contract law
   example: consumer´s right to withraw from the
    contract with small expenses
4)voidness and adjustment of unfair contract
  terms in individual contracts
   it is a repressive control method

  Unfair Contract Terms Directive, art. 6.1:
 unfair contract term do not bind on a consumer in an
  individual contract
 in disputed cases consumer has to take the case to
  a court or another dispute settlement body, which
  will consider the unfairness of a contract term
 weakness of this method is that
    1)consumer has to be active - and sometimes wealthy enough -
    to take the case to a dispute settlement body
    2)it has directly legal effect on the disputed case only: other
    similar unfair terms in contracts made by other - passive -
    consumers stays still valid
Two possible legislative alternatives when a contract
term is regarded as unfair:
   a) the court or an other dispute settlement body
   declares the unfair contract term as void
   b) the court or an other dispute settlement body may
   adjust the unfair contract term

Adjustment of a contract term:
 a court or an alternative dispute resolution body
  changes the content of an individual contract term
 is a typical feature to the Nordic consumer law
 even the so called core terms inluding the price of
  the product may be adjusted in the Nordic countries
5) transparency and interpretation of contract

Unfair Contract Terms Directive, art. 5:

1)contract terms must always be drafted in plain and
  intelligible language

2)in case there is any doubt about the meaning of a
  standard contract term, the interpretation which is
  most favourable to the consumer prevails (in dubio
  contra stipulatorem)
TheFuture of EU Consumer Contract Law

   review of consumer protection rules (so called
    consumer acquis)
   all former contract law directives have been based
    on minimum clauses
   the review of the consumer acquis is based on the
    idea of full harmonisation
   this means that minimum clauses will no more be
   those MSs who have used their right to provide
    better protection to their consumers (especially the
    Nordic countries) are afraid that new directives will
    mean weaker consumer protection in the future
Proposal for Directive of Consumer Rights2008

   first draft was published in October 2008 (COM(2008)
    614 final)
   is based on full harmonisation
   its aim is to replace four former minimum directives
    from years 1985-1999
      Sale of consumer goods (99/44/EC)

      Unfair contract terms (93/13/EC)

      Distance selling (97/7/EC)

      Doorstep selling (85/577/EC)
The main problems in the proposal

1)from the viewpoint of consumer protection: the
   proposal is mainly based on the former minimum
   directives without any bigger changes
   minimum level of protection has suddenly became also the
    maximum level of protection!
   how does this fulfil the requirement of EC Treaty: high level of
    protection to consumers?
   those countries who have used the opportunity to give better
    protection to their citizens, will be forced to lower down their
    former level of protection
2)from the viewpoint of internal market: many relevant
   contract law issues (e.g. right to compensation),
   which harmonisation would have been utmost
   essential has been left totally open in the proposal
Some examples

Time limit for seller´s liability
 maximum time limit for seller´s liability will be two
  years from the delivery of the goods
       in the present directive two years is only the minimum time
       in Finland no fixed time limit is used
       however, consumer has the burden of proof
   new time limit and sustainable consumption
       cars, televisions and other durable goods
       what kind of message it will sent to the producers?
   the new role of commercial quarantees?

   the conditions for compensation of damages have
    been left totally unregulated
   the decision-making power on these questions has
    been left to the MSs:
      under what conditions is the seller liable to
       compensate the damages?
         • strict liability, liability based on negligence (with or
           without turned burden of proof)
       what damages should be compensated?
         • only direct damaged or also indirect damaged?
       calculation of the size of damages
         • only real damages or also punitive damages?
     Full harmonisation of EU Consumer Law

Is it desirable?

   this is naturally a highly political question

   answers to the question:
      from the viewpoint of businessmen: yes

      from the viewpoint of consumers: no, mimimum

       protection is enough, especially when the new
       directives seem not to be based on high level of
Is it possible?
1) practical problems: poor quality in law drafting
 the new full harmonisation directives are not based
   on careful preparation
 they contain a lot of unclear definitions, which will
   be most probable interpreted differently in the MSs
 they contain a lot of unregulated questions (e.g. tort
   law), which will be still regulated differently in MSs
2) principal problems: differences between the
   Members States in legal traditions, social values, etc.
 even full harmonisation directives are implemented
   in a way which fits to their legal system, correspond
   their social values, and enforced in way that fits to
   their traditions
3) experiences from the new UCPD do not convince
Basic division: product safety and product liability

I. Product Safety
   legislation and supervisory activities which aim is to prevent
    that dangerous products are sold to consumers
   is a part of the protection of the consumers´ collective interests
General product safety:
   all areas of product safety which are not regulated by sectoral
Special product safety:
   product safety regulation which scope of application is limited
    to a certain consumer goods only (e.g. toys, cosmetics,
    medicins, electrical appliancies )
General Product Safety
   Product Safety Directive (2001/95/EC, OJ N:o L 11,
    15.1. 2002)
   producers may place on the market only safe
    products (art.3.1)
   directive sets rules for market surveillance
   prior acceptance given by authorities
      is only needed in the Member State in which the

       product was first placed in the market
      this principle is not mentioned in the directive, but

       is based on the case law of the ECJ (Cassis de
       Dijon –principle)
Member States are obliged to:
1)establish or nominate authorities which task it is to
  take care of the supervision (art.6.2)
       the supervisory task may not be left to consumer
        organisations alone

2)take care that these supervisory authorities have
   necessary measures available in case they suspect
   (checks, information, samples) or notice unsafe
   products in the market (sale prohibition, recall,
   etc.)(art.6.2., art. 7, art.8)
       the authorities are entitled to make by themself a decision
        whether a product is dangerous or not without a need to
        take legal action in a court

   compare the system to the supervision of unfair
    marketing and unfair contract terms!!
II. Product liability
   it is a part of the protection of consumers´ individual rights
   is a part of tort law
   it is question of
        liability for damages caused by a defective product
        to a person or other property than the defective product

Product Liability Directive (85/374/EEC)
   it is a full harmonisation directive
   scope of application:
    a) personal injuries caused by defective products irrespective
    whether the product was in private use or not
    b) damages to property other than the defective product itself if
    the defective product was meant for private use or
    consumption and primarily used for such purposes
The liable parties:

1)a producer, who is domiciled in one of the MSs
2)if the product has been produced outside the internal market,
  the trader who has imported it to the internal market
3)a trader, who presents himself as its producer by putting, e.g.,
  his trade mark on the product

The injured person has to prove:
1)the damage or injury
2)the causal relationship between the defect and the injury or the
3)the lack of safety in the defective product

   producer´s liability is strict: negligent behaviour from his side
    is no more needed
   importer´s and seller´s liability is still based on negligence
The Cross-border Nature of Product Liability Cases

   a person who has suffered damages may have to start a cross-
    border litigation in case he prefers to claim compensation on
    the basis of strict liability
   for example, an Estonian consumer has bought in Estonia an
    electrical appliance, which has been made in Italy. In case this
    appliance causes an accident in Estonia due to its poor quality,
    the Estonian consumer has to take legal action against the
    Italian producer instead of Estonian seller or importer
   the court procedure may take place in Estonia, but the
    judgment has to be enforced in Italy
   it might be a better idea to take legal action against the
    Estonian seller or importer on the basis of negligence
    Case studies: Product Liability and Tobacco

Two Finnish court cases - is a producer of tobacco
products responsible for personal injuries caused by
his products?

The first case: Pentti Aho v. Rettig Oy and Suomen
Tupakka Oy
   the case started already in 1988 (being the first tobacco case
    in Europe), two years before the Finnish Product Liability Act
    (PLA) and strict liability entered into force: at that time
    producer´s liability was still based on negligence
   the plaintiff smoked from year 1941 to 1986 and got several
    serious diseases which are typical for heavy smokers,
    including cancer
   he died of these diseases during the procedure in 1992, but his
    inheritors continued the case
Before the PLA plaintiff had burden of proof on
   negligence of the tobacco companies
   causal relationship between smoking and his diseases
   damage and its size

   the medical relationship between smoking and cancer was
    statistically clear already in 1950´s
   the advertising of tobacco products was banned in Finland by
    the Tobacco Act 1976 and warning labels in cigarette boxes
    came compulsory in 1986
   before year 1976 tobacco companies had advertised their
    products decades without warning their customers about the
    dangers connected to their products
The Helsinki Court of First Instance dismissed the case
in 1992 for the following reasons:

1)the tobacco companies had not act in negligent way
a)because selling tobacco products had been legal
  during all these years
b)tobacco companies had not been shown to infringe
  the rules which regulated advertising of tobacco
  products before advertising of tobacco products was
  totally banned in 1976 (the CPA into force in 1978)

2)because the existence of negligence was a basic
  condition for liability, the Court did not study att all
  the causal relationship between plaintiff´s smoking
  and his diseases
The Helsinki Court of Appeal dismissed the case in
1998 :
1)the tobacco companies had mislead consumers – and had been
  negligent – because they had not informed consumers on the
  health risks connected to the smoking
2)however, the plaintiff had not been able to prove the individual
  causal relationship between smoking and his diseases

The Supreme Court dismissed the case in 2001:
1)the causal relationship between smoking and the diseases of
  the plaintiff had been shown by a strong statistical relationship
2)in spite of the fact that advertising of tobacco products had
  been misleading, the tobacco companies had not acted in a
  negligent way, because the plaintiff had been aware of the health
Assessment of the first tobacco case
1)The causal relationship between smoking and
 what amount of evidences is in practice needed to
  proof the causal relationship in tobacco liability
       smoking is not the only possible reason for these diseases,
        although it is the most probable reason when the patient
        has been a heavy smoker
       in individual cases it may be in practice impossible to prove
        that smoking has been the main reason for the plaintiff´s
   relevant questions in this context:
       should the case be dismissed always when there is even a
        small possibility that a cancer has not been caused by
       should the evaluation of evidences be based more on the
        fact which reason has been most probable?
       the Finnish Supreme Court chose the latter alternative in
        2001: a strong statistical relationship was enough
2)The significance of smoker´s contributory negligence

   smoker´s do nowadays certainly know that smoking
    may cause cancer because of health education and
    warning labels in each cigarette box
       should the compensation be totally or partly denied
        because of this reason?
       the Finnish Supreme Court in 2001: smoker´s own
        behaviour was a reason to deny the compensation totally
   interesting questions in this context are:
       how does the smoker`s impression on the size of risk
        correspond with the real size of the risk?
       smoking causes a strong addiction especially after long and
        continuous use. Is a heavy smoker in a position where
        he/she is able to make totally free choices any more?
       this latter question was not dealt at all in the first case!
The second case: the light cigarette case

   four light cigarette smokers took legal action against
    Amer-Yhtymä Oyj and British American Tobacco
    Nordic Oy in March 2005

   the plaintiffs claimed that the defendants had, by
    marketing light cigarettes, given intentionally an
    impression that smoking of light cigarettes was less
    dangerous than smoking of ordinary cigarettes

   concerning time period after September 1991, these
    cases are based on Product Liability Act and on
    strict liability
Finnish Product Liability Act (694/1990)

      “This Act applies to the compensation for injury or damage
       caused by a product
        a)to a person
        b)property meant for private use and primarily used for
        such purposes by the injured party” (Art. 1)
      “Compensation shall be paid for an injury or damage in
       case the product has not been as safe as could have been
       expected” (Art. 3)

Government´s Proposal on Product Liability Act
      “an injured person may not claim compensation for
       damages caused by well-known dangers, such as smoking
       of tobacco products”
Parliament´s Second Law Committee (II LaVM 4/1990)

   because tobacco industry still denies that smoking has
    negative consequences on health and has not warned
    consumers on the base of its own initiative, the official
    warnings (labels in tobacco packets) may not release
    producers from their liability
   attention should also be paid to the strong addiction
    caused by continuous smoking

Conclusions on the basis of Law Committee

   tobacco is without any doubts a product which is meant in
    Product Liability Act art. 1 and the Act is applicable also to
    tobacco products
   still open question: is tobacco always a product which is meant
    in art.3. :”a product which is not as safe as could have been
    expected (lack of safety)”
The Helsinki Court of First Instance dismissed the case
in 2008 for the following reasons:

1) the plaintiffs were able to prove the causal relationship
    between smoking and their deseases
2) the lack of safety did not exist as consumers must have been
    aware of the dangers connected to tobacco products at least
    starting from 1970´s
3) for the same reason, they had taken a concious risk
    by continying smoking
4) light cigarettes are less dangerous than normal cigarettes, so
    the marketing of light cigarettes had not been misleading
5) nicotine addiction makes its more difficult to stop smoking,
    but not impossible

The Helsinki Court of Appeal dismissed the case in
May 2010 (a leave to appeal has been left to the
Supreme Court in August 2010)
What happens if the plaintiffs win this time?

   the general effects may remain quite small, because the
    compensation of so called punitative damages is not known in
   tobacco companies have to take into account in their economic
    calculations the possibility of other similar cases in the future,
    which might rise the prices of tobacco products
   however, it is obvious that the amount of court cases will be
    quite small because the risk of legal expenses (which in these
    kinds of principal cases are normally very high)
   the public health care system reduces the need to seek
    monetary compensation by court actions
   are the court actions a right way to distribute the costs of
    tobacco deceases or are other methods, e.g., taxation, more
6.1. General

Different types of consumer disputes:
  1)individual consumer disputes: one consumer
  against one trader
  2)mass consumer disputes : several individual
  consumers have disputes in which both the facts
  and norms are identical to each others (mainly
  against the same trader)
  3)domestic and cross-border disputes: the disputing
  parties have domicile in the same country (domestic
  dispute) or in different countries (cross-border
Domestic Consumer Disputes

   consumer disputes in which consumers and traders
    have their domicile in the same countries

   in principle there are two alternative ways to settle
    individual consumer disputes if the two-party
    negotiations between a consumer and a trader have
    1) normal civil procedure in a court
    2) alternative dispute resolution (ADR) mechanisms,
        mainly some kind of out-of-court procedures
                     Civil Procedure
The basic problem in the normal civil procedure in courts: the
ordinary civil court procedure is in most cases inapplicable for the
settlement of consumer disputes for the following reasons:

1)expenses: the high costs of litigation especially when
  compared to the economic interest of the case
 the cost rules: a losing party is often obliged to pay also the
   legal expenses of the winner
2)the slowness of the procedure
 especially because of the appeals to the higher instances
3)psychological barriers: many people are not willing to
  participate in a court procedure even if the legal expenses stay
  in a moderate level
4)inapplicability to solve mass consumer disputes: in the present
  system all consumers who want to obtain redress have to take
  part to the trial
      6.2. Alternative Dispute Resolution

   means alternative to a normal civil procedure, in
    most cases some kind of out-of court procedure
   it is possible to identify several different ADR-
    models to settle individual consumer disputes in the
    EU Member States, e.g., the following ones:

1) the Nordic model: public dispute boards
   established and financed by the state
   decisions of these boards are only recommen-
    dations and cannot be put into force (except in
 general jurisdiction: they handle complaints
  concerning most sectors of business, including non-
  organised traders
 no firm and fast rules concerning how the procedure
  should be carried out
 the procedure is totally written: no oral hearings
 the number of decisions complied with varies
  between 70-75 per cent
 ensuring that decisions are obeyed:
      -the use of bad publicity (Finland)
      -guarantees given by trade organisations, etc.
      -enforceable decisions (Norway): the best
2)the Dutch model: the co-operative sectoral
 the system consists of separate boards in several
  branches of business
 these boards have been established and are run by
  trade and consumer organisations together
 there is a common umbrella organisation, e.g. to
  issue minimum procedural standards and to
  distribute economic resourses
 boards accept only complaints against organised
 oral hearings usual
 the decisions are enforceable
3)The Common law model: simplified
  court procedure
   special simplified procedures in ordinary courts of
    first instance or totally new and separate courts for
    small claims
   often called as small claims courts or tribunals
   originates and still most popular in common law -
   basic idea: there is no need for lawyers, parties
    should be able to appear in a court without a legal
   in Britain, Ireland and Malta
   nowadays possible also in Denmark and Norway
The common features of these courts:
   the procedure has been made simpler and more
    informal in comparison to the normal civil procedure
   a no-cost rule has been adopted
   the judge should try to mediate between the parties
    in order to achieve a conciliation
   the possibility of appealing to higher courts is
    strongly restricted
   the procedure is available in most civil law disputes,
    but only if the amount involved in the dispute does
    not exceed a certain sum of money
Disappointing experiences concerning small claims

   they are mainly used in collecting debts by traders
   attorneys are frequently used in these courts, largely by traders
   court personnel do not advise the ordinary citizens enough
   judges often find it difficult to change from a passive to a more
    active role

Legal reforms in some countries (at least in Ireland,
Australia, New Zealand and in some states in the USA):

   the use of attorney's has been prohibited in small claims courts
   the use of small claims courts in normal debt collecting by
    traders has been prohibited
4) the Iberian model: consumer arbitration procedure
   special arbitration procedure for consumer disputes, especially
    used in Spain and Portugal
   decisions are enforceable
   procedure covers only those traders
    a)who are members of a certain branch organisation or
    b)who have given their acceptance to the procedure in some
    other way
5) the Central-European model: private sectoral boards
   private, sectoral boards established and financed mainly by
    trade organisations only
   common, e.g., in Germany, Belgium and Austria
6) the Baltic model
   consumer disputes are solved by administrative bodies, who
    also has task to protect consumer´s collective interests
   administrative fines may be imposed to traders who neglect to
    comply with the decisions
   used in Estonia, Latvia, Lithuania
        6.3. Group Action for Compensation

Group action is a court action in which

   a)a plaintiff, either a member or a non-member of a
    specified group
   b)brings a legal action in a court for the benefit of a
    specified group
   c)without the express permission of the group
    members, and
   d)this results in a judgement that is binding both for
    and against all the members of the group
Based on who the plaintiff may be, group actions may be divided
into three different types:
   1) class actions (plaintiff is a private person)
   2) actions by organizations (plaintiff is, e.g.,
      a consumer or environmental organization)
   3) public actions (plaintiff is a state or municipial authority)

In the area of consumer protection, group action can be used:
    a) action for injunction
 in most European countries action for injunction is available as
    a method to protect consumer´s collectice interests
    b) action for compensation
 at this moment this kind action is quite rare in Europe (only in
    the Nordic countries)
 more common outside Europe (the United States, Canada and
    Australia as most famous examples)
Nordic group actions for compensation
1) The Swedish Group Action Act (SFS 2002: 599)
   entered into force in January 2003
   so far about 10 cases altogether, most still pending
2) The Norwegian Group Action
   chapter 35 of the new Norwegian Act on Civil Procedure
   entered into force in January 2008
3) The Finnish Group Action Act (444/2007)
   entered into force in October 2007
   so far no cases
4) The Danish Group Action
   entered into force in January 2008
   so far at least one pending case
Scope of application:
   is in most Nordic countries general: group action is possible in
    all kinds of civil disputes on the condition that they fulfil the
    general requirements of group actions, e.g.,
    1)it is question of disputes where the facts are identical or at
    least identical and
    2)it is sensible to handle these disputes together in one trial
   in Finland scope of application is restricted to only mass
    consumer disputes

Types of group action available
   in Denmark, Norway and Sweden the plaintiff may be a member
    of the group (class action), an organisation, who is protecting
    the interests of a certain group of citizens (action by
    organisation), or state authority, as the Consumer Ombudsman
    (public action)
   in Finland only the public action will be possible
How the group is formed?
   in group actions judgements have legal effect for all members
    of the group, although they are not parties to the case
   there are two opposite ways how the group may be formed: opt
    out or opt in
   opt out:
     •  all persons who fill certain requirements become
        automatically members of the group
     •  those, who do not want to be members of the group have to
        use their right to opt out
   opt in:
     •  only those persons, who have joined the group by
        registration, will be members of the group and will be
        covered by the judgement.
   in Sweden and Finland only opt in -alternative will be available
   in Norway and Denmark (in the latter country in public actions
    only) also opt out -alternative is possible in mass disputes,
    where individual court actions are not sensible, e.g., due to the
    fact that the monetary interest of individual cases is so low
The costs of litigation

   in all Nordic countries the main rule is that the losing party is
    obliged to pay the legal expenses of the winner
   in Finland and Sweden only the parties in the group action are
    responsible for the costs
   in Denmark and Norway the members may become partly
    responsible of the legal expenses

    •   the ceiling of members´ liability will be decided by the court
        already in the beginning of the trial
    •   in case the ceiling is individual and not collective, this
        makes it possible for the potential members of the group to
        assess, whether it is economically sensible to opt in or not
Evaluation of the Nordic group actions

1) who has afford to a group action for compensation?
The major obstacle to the use of group action for compensation in
the Nordic countries is the high costs of litigation
 so far there have been rather few cases, e.g., in Sweden only
   1-2 new cases per year since 2003

Several possible ways to reduce the high costs of litigation:
  a)no members liability as in Denmark and Norway
  b)ceiling for liability to pay the legal expenses of the winner
  c)no-cost rule (so called american rule)
  d)conditional fee -payment (no results, no payment -system)
  e)public or private funding systems (e.g. in Canada)
2) long duration of the procedure
 seems also to be one the main problems connected
   to these actions
 in Sweden most of the started group actions are still
   pending cases
 usual tactics for defendants: a plea of trial and
   separate appeal on the procedural requirements
 central questions:
      whether the defendant should have a right to make a
       separate appeal in the beginning of the procedure if his plea
       of trial concerning the preconditions for a group action has
       been rejected in the District Court
      whether there should be some kind of priority system in the
       Courts of Appeal, when these kinds of actions are dealt with
3) the problem of low-value claims
 in spite of the fact that the combined monetary
   interest of the mass dispute can be millions of euros,
   the damages suffered by individual consumers may
   be rather low
 this will often discourage consumers to register
   when a group action is based on opt in –model only
   one alternative would be the adoption of opt out -model at least
    when it is question of low-value claims also in Sweden and
   however, even opt out –model seems to be rather ineffective
    when the damages caused to individual group members are,
    e.g., only 100 euros or even less.
   second alternative: group action for collective compensation of
    damages (instead of distribution of the profit, the plaintiff e.g. a
    consumer organisation would keep it in order to finance future
  6.4. Cross-border Consumer Disputes

Cross-border consumer disputes:
 disputes, where a consumer and a trader are
  domiciled in different countries

Typical problems in cross-border consumer disputes:
  1)communicative problems
   •   language problems, identification of the trader, etc.
  2)what is the applicable law?
  3)what dispute settlement bodies are available/
  have jurisdiction – in case the parties do not reach
  a settlement
The Applicable Law in Cross-Border Consumer
The Rome I Regulation n:o 593/2008
 entered into force in December 2009
 replaced the Rome Convention on the Law
  Applicable to Contractual Obligations from year 1980
  except in UK and Denmark
 includes an article concerning consumer contracts
  (art. 6). According to it, if the trader
  a)is carrying on business activities in the country
  where the consumer has his habitual residence or
  b)direct such activities to that country
  the contract is governed by the law of the country in
  which the consumer has his habitual residence
 a trader cannot deprive the protection given by the
  Regulation by using a choice-of-law clause
       Jurisdiction of Courts in Cross-Border
                 Consumer Disputes
   the starting point: court decisions are traditionally
    not enforceable in other countries
    The Regulation N:o 44/2001 on Jurisdiction and the
    Recognition and Enforcement of Judgments in Civil
    and Commercial Matters (OJ L 12, 16.1.2001)
   contains a provision (art. 15) which gives protection
    to consumers if:
    1)it is question of credit or instalment contract
    connected to the sale of goods or
    2)it is question of consumer contract and the
    contract has been concluded with a trader
   a) who is carrying on business activities in the
    Member State where the consumer is domiciled or
   b) who is directing such activities to the Member
    State where consumer is domiciled
In case one of these conditions are fulfilled:

1) a consumer is entitled to take legal action against a
   trader in the courts of the Member State in which he
   is himself domiciled (art. 16.1.)

2) proceedings may be brought against a consumer
   only in the courts in which he is domiciled (art. 16.2.)

3) judgment given by the court of the Member State in
   which consumer is domiciled may be enforced in an
   other MS where trader has his domicile or property
     The European Consumer Centres
           Network (ECC-Net)
 the starting point: in cross-border litigation the costs
  are normally much higher than in purely domestic
  litigation and thus form a much higher obstacle to
  the use of ordinary court procedure
 ECC-Net started in the beginning of year 2005
 replaced the former European Extra-Judicial
  Network (EEJ-Net) which started as a pilot program
  in October 2001
The new network is based on
  1)at least one European Consumer Centre in each
     Member State
  2)ADR- bodies in all Member States
The activities of European Consumer Centres
 1)to give legal advice to consumers who have faced
  cross-border consumer problems
 2)to give assistance in the settlement of disputes by
  clarifying the facts and mediating between the
  disputing parties
 3)to serve as a special clearing house in unsettled
 a)to find out competent out-of-court dispute
  settlement body in MS where trader has his domicile
 b)translates consumer´s complaint and sends it to
  the competent dispute settlement body in other MS
   the idea is that cross-border disputes will be settled
    in some of the out-of-court procedures in the
    Member State where the trader is domiciled
   the existing ADR-bodies in MSs may be found in a
    database which is updated by the Commission:

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