EU Law - Consumer Protection - Unfair Contract Terms

On 4 June 2009, the Court of Justice of the European Union in Strasbourg handed down its judgement in the case of Pannon GSM Zrt v Ert v Erzsebet Sustikne Gyorfi [2009] C-243/08. The defendant is a Hungarian consumer who had entered into a mobile telephone contract with Pannon.

The terms of the contract signed by Mrs Sustikne Gyorfi in December 2004 provided that the local court in the area in which Pannon is located, would have exclusive jurisdiction to determine disputes arising under the contract.

Taking the view that Mrs Gyorfi had failed to comply with her contractual obligations, Pannon commenced proceedings against her in their local court. The court noted that Mrs Gyorfi, a lady in receipt of invalidity benefit lived some 275 kilometres away and with limited transport. The Hungarian court made a reference under Article 234 to ask the ECJ whether the Hungarian court was permitted to consider the contractual term as being unfair under Council Directive 93/13/EEC of 5 April 1993 (OJ 1993 L 95, p. 29).) even though Mrs Gyorfi had not raised the issue of unfairness before the court.

The directive is applied in the United Kingdom under the Unfair Terms in Consumer Contracts Regulations (SI 1999/2083). As its title implies, it is a system of consumer protection which applies throughout the Union to protect consumers against unfair terms introduced by businesses in consumer contracts. 'Mirroring' the Directive, the Regulations contain, at Schedule 2, a non-exhaustive list of terms which may be regarded as unfair, which at sub-paragraph (q), is hindering a consumers’ right to take legal action or to exercise any other legal remedy.

The ECJ held that the protection which the directive confers on consumers extents to cases in which the consumer fails to raise the unfairness of a term whether because he is unaware of his rights or because he is deterred from enforcing them on account of the costs involved in judicial proceedings.

The ECJ held that as a consequence of this, the role of the national courts is not limited to a mere power to rule of the possible fairness or otherwise of a contractual term but comprises a positive obligation to do so of its own motion where the legal and factual elements exists for it to do so. Where a national court consider the clause to be unfair, it must be struck out unless the consumer states before the court that he or she wishes to be bound by it.

The ECJ went further in holding that a national law does not comply with the Directive where it provides that it is only in the event that the consumer has successfully contested the validity of a contract term before the national court that such a term is not binding on the consumer. Such a law would rule out the possibility of the national court assessing, of its own motion, the unfairness of a contractual term. As to whether an exclusive jurisdiction clause which was some distance away from the consumer was unfair, this was a matter for the national court (in this case, the Hungarian court) to rule.

The ECJ then address the jurisdiction clause. It held that a jurisdiction clause contained in a contract concluded between a consumer and a seller or supplier, which has been included without being individually negotiated and which confers exclusive jurisdiction on the court in the territorial jurisdiction of which the seller or supplier has his principal place of business, may be considered to be unfair since a court, designated in that way, may be a long way from the consumer’s place of residence, which is likely to make it difficult for him to enter an appearance. In the case of disputes concerning limited amounts of money, the costs relating to the consumer’s entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence. As to whether an exclusive jurisdiction clause which was some distance away from the consumer was unfair, this was a matter for the national court (in this case, the Hungarian court) to rule.
Hi Scoobish,

This is a legislative proposal from the European Commission which was first notified to member states on 1 March 2005 in the form of a Green Paper entitled Succession and Wills.

The Commission regularly publishes Green Papers to consult with citizens of the Union as well as representative bodies within the member states before embarking upon any legislative activity.

After consulting widely throughout the Union the Commission published its draft Regulation on 14 October 2009 a copy of which was sent to the European Parliament on 15 October 2009 and the British Government the same day (Note that following Lisbon, such future proposals will be sent by the Commission not to the UK government, but to the UK Parliament, who are better placed to scrutinise it than a government who are rather less open).

An Impact Assessment has also been produced.

The Ministry of Justice issued a Consultation Paper on 21 October 2009 which contained a questionnaire and details of how to respond. It was submitted to a list of interested parties and the general public were invited to respond by 2 December 2009.

Although the United Kingdom is not bound to ‘opt in' to the proposed Regulation, it has nevertheless chosen to do so.

What will now happen is that the proposed legislation will follow the normal legislative procedure which, if approved and adopted by the directly elected Parliament (who have the power to veto it) will become binding in its entirety throughout the Union.

It is unfortunate, although no less typical that the Daily Mail should, as usual, focus upon the negative aspects of the proposed legislation and then seek to convey the impression of a sinister undemocratic European beaurocracy at work in which the United Kingdom Government and its Subjects are but mere passive recipients.

The answer to your question is therefore, ‘yes’ they can, but you would be well advised to look at the documents I have hyperlinked rather than the hyperbole of the Daily Mail.


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