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Clause on choice of foreign law not always effective in consumer transactions

Traders offering goods and services online often provide in their general terms and conditions that contracts with consumers will be governed by the law of the country there the seller has its registered office. EU law basically allows such contracts, but the choice of law must not deprive the consumer of the protection afforded him by mandatory provisions of law which would have been applicable if the contract did not contain the choice of law clause.

Choice of law clauses included in general terms and conditions are standard today in the world of e-commerce. Traders based in one EU member state target their goods and services to consumers from numerous jurisdictions. Consumers from all across Europe—from Lisbon to Helsinki—can take advantage of such offers on an equal basis. This situation presents undoubted advantages for consumers. They have access to a wide range of goods and services and can choose the seller who offers the best price.

As a rule, traders don’t draft separate versions of their contracts for each jurisdiction. Typically they use one form which states that the contract is governed by the law of the country where the trader has its registered office. This approach is convenient and also provides the e-commerce sector with optimal legal safety and enables services to be provided across borders at minimal risk.

Supreme Court of Poland: choice of law clauses impermissible

But the Supreme Court of Poland has held that choice of law clauses in consumer contracts included in general conditions of contract (clearly not negotiated individually with consumers) are prohibited and not binding on consumers (judgment of 17 September 2014, Case I CSK 555/13). That case involved the rules for sale of tickets to the Euro 2012 European Football Championship. The UEFA sales conditions provided that the contract of sale of tickets to the championship was subject to Swiss law. The Polish court took the view that the choice of law introduced an unfair imbalance between the trader and the consumer. It found that this imbalance was not sufficiently softened by the European conflict of laws rules, which provide for protection of consumers against a choice of foreign law (the choice of law is effective, but the consumer may rely on more favourable regulations from his own jurisdiction). In the court’s view, applying two different sets of laws is not transparent enough for the average consumer, who will not be in a position to determine which rights and obligations apply to him. This judgment has been criticised in the legal literature (as contrary to EU law and imposing excessive burdens on traders, who may decide not to bother offering goods and services in Poland), but it has nonetheless been followed by other Polish courts (see M. Jagielska & A. Kunkiel-Kryńska, “Choice of law as an abusive clause,” iKAR 2016 no. 3(5)).

Court of Justice: clauses are permitted if they aren’t misleading

A different position was taken by the Court of Justice of the European Union in the recent judgment in C-191/15 Amazon EU Sàrl, handed down on 28 July 2016. There the court held that a choice of law in the general terms and conditions is generally permissible, so long as it does not mislead the consumer with respect to the consumer’s right under EU conflict of law rules to protections afforded the consumer under mandatory provisions of the law that would be applicable without the choice of law.

The case before the Court of Justice involved the German-language Amazon site operated by the Luxembourg company Amazon EU Sàrl. Its general terms and conditions provided that contracts with consumers were governed by Luxembourg law. This clause was disputed by an Austrian consumer protection association. Like the consumers in the case before the Polish Supreme Court, the Austrians argued that the choice of law clause caused a significant imbalance in the parties’ contractual relations and as such should be held to be impermissible.

The Court of Justice pointed out that EU regulations expressly permit a choice of law in consumer contracts, but the choice of law must not deprive the consumer of the protection afforded him under mandatory provisions of law in the jurisdiction where the consumer has his habitual residence. Thus, the court held, a choice of law clause will be deemed unfair insofar as it leads the consumer into error by giving him the impression that only the law of the member state referred to in the choice of law clause applies to the contract, without informing the consumer that under the EU’s conflict of law rules, the consumer also enjoys the protection of the mandatory provisions of the law that would be applicable in the absence of a choice of law clause.

The court did not explain how choice of law clauses should be formulated to avoid misleading consumers, but held that this should be determined by the national court based on all the circumstances of the case. However, guidelines for formulating choice of law clauses were included in the opinion of Advocate General Henrik Saugmandsgaard Øe, where he wrote that online operators are required “to choose a wording clearly indicating in the choice of law clause that it operates without prejudice to the protection afforded to consumers by the mandatory laws of their State of residence, without it being necessarily required to list those laws.”

Clause must be clear for consumers

In light of the recent ruling from the Court of Justice in the Amazon case, it appears that the view expressed by the Supreme Court of Poland in Case I CSK 555/13 is too far-reaching and should no longer be followed by the Polish courts. As the Court of Justice explained in Amazon, the uniform European conflict of law rules provide an adequate level of consumer protection, and there is no need to deprive undertakings of the right to choose the law governing their contracts with consumers. Lacking that ability could work to the disadvantage of consumers, as undertakings might give up providing services in a given jurisdiction out of concern that unfamiliar provisions of consumer law might be applied to their contracts.

Nonetheless, following the judgment in the Amazon case, it is clear that the possibility of including a choice of law clause in consumer contracts requires undertakings to comply with certain informational obligations toward consumers. First, choice of law clauses must be stated clearly. Second, consumers must be expressly informed of their rights under EU law. Such a basic clause might read as follows: “This contract is governed by the law of [country of choice]. However, the choice of foreign law does not deprive the consumer concluding this contract of his rights under mandatory provisions of the law of his country of habitual residence.”

The judgment by the Court of Justice in the Amazon case is another step toward protection of consumers, but also appears to reach an appropriate compromise between the burdens imposed on e-commerce traders and the rights of consumers. A uniform practice of courts within the EU is expected to develop around this issue—including abandonment of the more restrictive approach previously adopted by the Supreme Court of Poland.

Michał Szczepański, Łukasz Lasek, Dispute Resolution & Arbitration practice, Wardyński & Partners