ECJ finds that a Supplier's choice of governing law clause is unfair for consumers

ECJ finds that a Supplier's choice of governing law clause is unfair for consumers

In Konsumenteninformation v Amazon EU Sàrl (“Amazon”) (Case C-191/15), the European Court of Justice (“ECJ”) held that a supplier’s standard term choosing the law of the supplier’s place of establishment as governing law was unfair for the purposes of the Unfair Terms in Consumer Contracts Directive (“Directive”) insofar as it failed to inform consumers that any mandatory statutory protections available in their country of residence would also apply.

Amazon addressed its website to consumers in Austria. Its standard terms stated that Luxembourg law applied to its contracts with consumers. VKI, an Austrian consumer protection body, asked the Austrian courts to prohibit the use of the terms because they were contrary to legal prohibitions or accepted principles of morality. The Austrian Supreme Court referred the question of whether the governing law clause was an unfair term pursuant the Directive to the ECJ.

The ECJ held that such a term would be unfair if it misled a consumer into thinking that they would not also be afforded the protections of any mandatory provisions of the law in their own country of residence. EU law did allow a choice of law in principle (Article 2(6) Rome I Regulation), but a standard term imposing the governing law of the supplier’s place of establishment would be unfair on consumers if it caused a significant imbalance in the rights and obligations of the parties (and whether the term used plain and intelligible language was a relevant consideration when determining this). Where the law of the consumer’s place of residence imposed mandatory statutory protections, then it was essential that the supplier informed consumers of those provisions.

The ECJ said that, although it was for national courts to determine whether a term met the Directive’s requirements of good faith, balance and transparency, it could state the criteria which the national court must apply.

The ECJ also decided on two other questions relating to the applicable law for the purposes of the injunction proceedings (the ECJ held this should be determined pursuant to the Article 6(1) Rome II Regulation), and the applicable law for the purposes of processing of personal data (the ECJ reconfirmed its decision in last year’s Weltimmo case).

In light of this decision, businesses with EU cross-border trading may wish to review the governing law clauses in their consumer contracts to ensure that, where relevant, they have informed consumers in plain and intelligible language that, regardless of the choice of law specified, they will also be entitled to the mandatory statutory protections applicable in their country of residence. 

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