Out-Law News 3 min. read
08 Apr 2013, 3:54 pm
Under the EU's Unfair Terms in Consumer Contracts Directive, businesses are generally prohibited from relying on unfair contract terms, however the Directive is said not to apply to terms that "reflect mandatory statutory or regulatory provisions".
A German gas supplier, RWE, has challenged whether it should have to pay consumers compensation for raising the prices for its services during a period spanning approximately two and a quarter years to October 2005. During the period consumers subject to the price hikes "had no possibility of changing gas suppliers".
Following a legal challenge by a German consumer rights body, a German court had ruled that RWE had to reimburse consumers for the extra charges that had been levied. This was despite German law generally permitting gas suppliers to set changeable 'standard tariff' terms as long as consumers had the right to terminate their contract if they wished to.
However, the CJEU said that a term giving a gas supplier the right to change gas prices without informing consumers first could be assessed for unfairness if it was written into a contract which fell outside the scope of the German legal provision. RWE had included the right in "special contracts" concluded with consumers for the supply of natural gas to which the legal permission to vary standard gas tariffs did not apply. The CJEU said that, as a result, the RWE special contracts were within the scope of the Unfair Terms in Consumer Contracts Directive.
"In the present case ...the possibility for a supplier of unilaterally varying gas prices without stating the grounds, conditions or scope of a variation of the price was provided for by national legislation ... which did not apply to the special contracts for the supply of natural gas concluded by RWE with consumers on the basis of freedom of contract," the CJEU said in its judgment. "The German legislature deliberately decided not to apply to special contracts the rules laid down by the national legislation determining the content of terms in contracts for the supply of gas."
"[The Unfair Terms in Consumer Contracts Directive] applies to provisions in general terms and conditions, incorporated into contracts concluded between a supplier and a consumer, which reproduce a rule of national law applicable to another category of contracts and are not subject to the national legislation concerned," the CJEU ruled.
Under the Directive, terms are considered 'unfair' if they are not "individually negotiated" and cause "a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer" in breach of traders' requirement to act in good faith. If contract terms are set in advance and consumers have had no influence in the way they are drafted they are considered not to have been 'individually negotiated'.
A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. Written contract terms must be in "plain, intelligible language" for the consumer.
Terms are considered to be 'unfair' if they "have the object or effect of ... irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract".
In addition, terms that enable suppliers to alter the contract terms in future "unilaterally without a valid reason which is specified in the contract" are prohibited, although suppliers are allowed to change the terms of contracts providing they "inform the consumer with reasonable notice" and give them the freedom to "dissolve the contract".
Furthermore, terms that terms allow suppliers to "increase their price without ... giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded" are generally deemed to be 'unfair' unless lawful "price-indexation clauses" set out "explicitly" the "method by which prices vary".
A German court will now have to determine whether RWE's contract terms were "complies with the requirements of good faith, balance and transparency".
The CJEU said that the court, when determining the outcome of the case, should review "whether the contract sets out in transparent fashion the reason for and method of the variation of those charges, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges". It said that "the lack of information on the point before the contract is concluded cannot, in principle, be compensated for by the mere fact that consumers will, during the performance of the contract, be informed in good time of a variation of the charges and of their right to terminate the contract if they do not wish to accept the variation".
In addition, national courts must review "whether the right of termination conferred on the consumer can actually be exercised in the specific circumstances".
