Insights

The Court of Justice of the European Union (the “CJEU”) assessed the right of withdrawal from a contract concluded off-premises available to consumers in its preliminary ruling delivered on 17 May 2023 in the case of DC v. HJ (C-97/22). The CJEU confirmed that the failure by a trader to provide the consumers with pre-contractual information on the right to withdraw from the contract leads to the exemption of the consumers from any obligation to pay for the performance of such contract when exercising their right of withdrawal, even when the services would have already been rendered.

The dispute in the proceedings

HJ verbally engaged a company (the “Trader”) in October of 2020 to renovate the electrical fixtures in his house and it emerged that the Trader did not, prior to contracting with HJ, inform HJ of his right of withdrawal from such contract. The contract was performed by the Trader by December 2020 and the Trader issued an invoice for the payment of the services to HJ, which invoice remained unpaid. In March 2021, the Trader assigned all the rights arising under such contract to DC (the applicant in this case).

Following the assignment of the rights to DC, HJ informed DC of its withdrawal from the contract concluded for works on the electrical installation in his house, which triggered the institution of an action by DC before a German regional court. DC claimed that the Trader is entitled to the payment by HJ, and that precluding the Trader from such right of payment on the basis of the failure to inform the consumer of the right to withdrawal would constitute a disproportionate penalty.

Background on the law applicable to the dispute

The German regional court considered Directive 2011/83 (the “Consumer Rights Directive”) in assessing the dispute, which primarily aims to improve the protection consumers in their conclusion of distance and off-premises contracts with traders within the EU internal market. The Directive introduces the right of consumers concluding such distance and off-premises contracts to withdraw from the contract without reason and without incurring any costs within 14 days.

Prior to binding consumers in distance or off-premises contracts, this Directive obliges traders to provide such consumers with certain information, including:

1. the conditions, time limits and procedures for exercising their right of withdrawal from the contract; and
2. that if the consumer exercises this right of withdrawal after having made a request for the performance of the service to begin during the withdrawal period, the consumer shall pay the trader reasonable costs.

According to Article 14(4)(a)(i) of the Consumer Rights Directive, consumers shall not bear any costs for services provided to them during the withdrawal period in case the trader fails to provide the information in paragraph a) above. Furthermore, in case of such failure on the part of the trader, the right of withdrawal enshrined in the Consumer Rights Directive is extended to a further 12 months from the end of the initial withdrawal period.

Considerations of the German regional court and question referred to the CJEU

In applying the Consumer Rights Directive, the German regional court focused primarily on the principle emerging from Article 14(5) of the Directive, in that consumers shall not shoulder financial responsibility or be liable to pay the costs for services supplied to them pursuant to an off-premises contract, before the expiry of the withdrawal period, where the relevant trader concerned has failed to fulfil his or her duty of informing the consumer of the right of withdrawal.

The German regional court considered principally Article 14(5) of the Directive, which exempts consumers from liability as a consequence of the exercise of the right of withdrawal, save in the case of paragraph b) above wherein the consumer would be required to pay the trader for the services provided until the time the consumer informs the trader of the exercise of the right of withdrawal.

In analysing the above, the German regional court was faced with the question as to whether the above-mentioned exemption rules out the right of the relevant trader to ‘compensation’, including in the scenario where the right of withdrawal was only exercised by the consumer after the provision of the services in terms of the off-premises contract and, as a result, managed to benefit from an enhancement of the assets. The regional court questioned whether such enhancement could qualify as a breach of the general EU law principle of the prohibition of unjust enrichment.

Accordingly, the German regional court referred the question to the CJEU for its preliminary ruling on the matter.

The CJEU’s considerations and ruling

Primarily, the CJEU noted the fundamental importance of informing the consumer of the right of withdrawal in terms of the Consumer Rights Directive, which is particularly applicable in the context of the conclusion of distance and off-premises contracts. Quoting recital 21 of the Directive, the CJEU noted that in such scenarios, the consumer may be under psychological pressure or influenced by an element of surprise, even if the consumer sought the trader’s services directly. The consumer would be in a better position to make an informed decision on whether or not to conclude the contract if such information is obtained beforehand, according to the CJEU. Therefore, Articles 14(4)(a)(i) and 14(5) of the Consumer Rights Directive exempt a consumer who exercised the right of withdrawal from any obligation to pay the trader for the service provided during the withdrawal period.

In addressing the specific question of the German court on whether the enhancement of the assets obtained by the consumer contravenes the EU law principle prohibiting unjust enrichment, the CJEU primarily considered the objective of the Consumer Rights Directive. The scope of the Directive laid out in the provisions thereof is to offer a high level of consumer protection in line with Article 169 of the Treaty for the Functioning of the European Union and with Article 38 of the Charter of Fundamental Rights of the European Union.

On this basis, the CJEU remarked that a disapplication of the right of withdrawal, and the consumer’s right to be relieved from bearing costs for services subject to an off-premises contract pursuant to the trader’s failure to inform the consumer appropriately of the right of withdrawal, would run contrary to the objective of the Consumer Rights Directive.

The CJEU emphasised that the Directive should be interpreted to require the trader to bear all costs which he or she incurred during the withdrawal period of an off-premises contract, if such trader did not provide the relevant information on the right of withdrawal prior to conclusion of the contract.

In this context, the CJEU dismissed DC’s argument to avoid the costs incurred by the trader which was based on recital 57 of the Consumer Rights Directive, requiring that penalties imposed pursuant to the Directive are to be proportionate.

On a separate note, given the legal standing of DC, which was assigned the rights of the Trader that originally provided the services to HJ, the CJEU noted that its findings shall not prejudice the possibility of DC to seek indemnity against the Trader from whom the rights were assigned if this is permissible in terms of national law.

Concluding remarks

The CJEU decided that the Consumer Rights Directive shall be interpreted to exempt a consumer from any obligation to pay for the performance of services that are subject to an off-premises contract if the trader did not provide such consumer with the information on the right of withdrawal. Without delving into the principle enshrined in EU law in relation to the prohibition of unjust enrichment, and basing its decision on the spirit and intention of the law, the CJEU emphasised the importance of consumer protection, particularly in cases where the consumer’s judgement on the conclusion of a contract can be undermined.

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

This article was first published on The Malta Independent on 30/08/2023.