The Commission’s Second Report on the Injunctions Directive: A Stamp Mark for EU Regulatory Architecture?
5 December 2012
The Commission’s Second Report concerning the application of the Directive on injunctions for the protection of consumers’ interest was recently published. While the publication of the report went rather unnoticed it does merit a short comment for the following reason. The report illustrates well how the Commission’s general policy is developing with regard to consumer law enforcement. In particular, it clarifies the way in which the EU influences the Member States’ autonomy in deciding on the public-private divide of consumer law enforcement.
By Kati Cseres
This report is relevant considering the fact that the injunctions Directive in 1998 was the first legislation that made the enforcement of consumer rules in the EU a key priority of the Commission. Even though consumers’ access to justice and consumer redress has been part of the Union’s policies since 1975 it has only been reinforced in soft law documents. A specific legal basis for consumer redress is also absent in the EU Treaties. Although the Treaty establishes EU consumer protection as an independent field, the Member States retain almost exclusive competence in enforcing EU consumer rights, in accordance with the so-called national procedural autonomy. Consequently, there used to be a general lack of guidance from the EU on how to enforce EU law and what kind of institutional design is optimal for law enforcement. This changed with the adoption of Directive on injunctions.
An ‘injunction’ is an order granted by a court whereby someone is required to perform or to refrain from performing a specific action and as such it is a powerful enforcement to compel business to comply with consumer protection rules. The injunctions Directive of 1998 introduced a court or administrative procedure enabling consumer organizations and/or public authorities (qualified bodies) to seek an injunction to stop a trader’s practice that infringes specific EU rules on consumer protection in all Member States. Qualified bodies are usually consumer representative bodies recognised by Members States authorities. In particular, a qualified body can bring an injunction for infringements of national provisions transposing the EU Directives, for example, infringements of the consumer rights as set out by the Directives on consumer credit, package travel, unfair commercial practices, unfair terms in consumer contracts, distance selling contracts, sale of consumer goods and associated guarantees.
Throughout the years the scope of the injunctions Directive of 1998 has been extended to new Directives and a Directive in 2009 has codified the numerous amendments, which is currently in force.
Significance of the Injunctions Directive
The relevance of the injunctions Directive can be understood by briefly looking at its function in the overall enforcement of EU consumer law. It has been argued that since the adoption of Directive on misleading advertising in 1984, the action of injunction has become the core of consumer law remedies. It is enshrined in two major fields of consumer law; unfair commercial practices law and the law on unfair contract terms. Moreover, the European Commission could rely on a longstanding regulatory strategy among others in Austria, Germany and some other old Member States. This background allowed the European Commission to harmonize the regime for injunctions, a development that nevertheless stimulated changes in quite a number of Member States. The injunctions Directive is meant to give shape to the remedy in national and in cross-border litigation. Injunctions are to put an end to unfair or misleading advertising or the use and recommendation of unfair standard contract terms. It is a stop order mechanism that can prohibit future infringements but also include cease and desist orders.
The relevance of the injunctions Directive can also be seen in the present wish of the EU Member States to develop enforcement tools that go beyond injunctions and lead to some sort of collective redress in the form of compensation. The action for injunction also constituted the bottom-line of reform in the Central and Eastern European Member States and here too served as a springboard to develop collective redress schemes.
This is the Commission’s second report concerning the application of Directive 2009/22/EC since 2008.
The first report was adopted in November 2008, which concluded that the major benefit of the Directive on injunctions was the fact that it introduced a procedure enabling an entity to bring injunctions to protect the collective interest of consumers in each Member State. While these procedures proved successful for national infringements, they had a more limited impact on cross-border infringements. The Member States and interested parties explained that the small number of injunctions sought in another Member State was due to the cost, complexity and length of time involved in taking action in another Member State. The second report brings similar findings and comes to similar conclusions.
According to the second report the economic sectors which were most affected by injunctions are telecommunications, banking and investments, tourism and package travel. With regard to the most common infringements of consumer protection rules the report states that unfair contract terms gave most frequently rise to an action for injunction. Further, unfair commercial practices and misleading advertising have equally resulted in highly frequent application of injunctions.
The report details both the positive impact of the Directive on law infringements and thus its impact on safeguarding consumers’ rights as well as its downside explaining the reasons behind its ineffectiveness.
On the positive side, the report concludes that injunctions proved to be a successful tool for policing markets, especially to ensure fair contract terms. In this respect, they have brought substantial benefits to consumers as a whole. However, the report acknowledges that their impact is projected more towards the future rather than being useful for correcting past damage and it is very difficult to quantify in monetary terms. Although injunctions do not, as such, provide a remedy for claiming damages for the past, the possibility of using injunctions can in itself be of value. As a governance tool, injunctions can be used as a deterrent without being applied in Court. The obstacles that prevent the injunctive actions to be effective are financial risks, length of the proceedings, complexity of the proceedings, limited legal effect of the rulings and enforcement of the rulings.
There is one particular issue in both the Commission’s first and second report on the Directive that illustrates very well the impact of the Commission’s policy on Member States’ modalities of consumer law enforcement and more in particular the way it influences the Member States’ autonomy in deciding on the public-private divide of consumer law enforcement.
Directive 98/27/EC left the type of enforcement – whether judicial or administrative – to the Member States. While the Member States could determine whether the competent entity was an administrative authority or a consumer organization, the Directive was guided by the overall spirit to foster private judicial enforcement through consumer organizations’ (Recital 2 of the Regulation). This attempt, however, failed because very few trans-border cases have been brought to court. This was acknowledged in both reports as well and has been argued to be due to underdeveloped, understaffed and underfinanced consumer organizations all over Europe.
In the light of the Directive’s primary goal and the wish to encourage private enforcement, it is remarkable what both reports stated with regard to the interaction between the injunctions Directive and Regulation 2006/2004 on trans-border cooperation between consumer authorities, the so-called CPC Regulation. The CPC regulation establishes a mutual assistance framework for national enforcement authorities, which allows authorities to call on each other to seek investigative and/or enforcement assistance in order to stop practices that are not compliant with the EU legislation. The 2008 report on the injunctions Directive, indicated that since the entry into force of the CPC Regulation, most public authorities have opted to use its mutual assistance mechanisms when combating an illegal practice by a trader in another Member State, instead of directly seeking an injunction before the courts of that Member State, as the first possibility could be less costly for them. The second report confirmed this trend. Thus the CPC Regulation partially explained the limited recourse by public authorities to the injunctions procedure for cross-border infringements, as the mutual assistance mechanisms under the Regulation are less costly. While the success of the CPC Regulation and the network it has established can be applauded it has clearly prioritized public enforcement and tilted the national institutional framework towards public authorities.
Unfortunately, Regulation 2006/2004 on trans-border cooperation between consumer authorities indirectly has excluded consumer organizations from its personal scope and imposed such conditions under which national authorities responsible for enforcing consumer rules must cooperate with each other. By prioritizing public enforcement the Regulation clearly tilted the national institutional framework towards public authorities. While the Commission acknowledged the essential role consumer organizations play in the enforcement of consumer law, but it has not involved them in the process of achieving effective enforcement EU wide.
The Regulation requires public enforcement mechanism for a set of 15 directives that mostly concern private law rules. While the Regulation was to coordinate at EU level the enforcement activities of the Member States in cross-border infringements and to raise the standard and consistency of enforcement, its impact on the domestic institutional structure of consumer protection in the Member States can be criticized. Even though there is an increasing trend to empower public authorities to ensure effective consumer law enforcement, especially in the liberalized sectors such as energy, telecommunications or financial services, the role of consumer organizations and private enforcement is central to a policy framework that builds on ‘[E]mpowered consumers who complain and assert their rights’ and who ‘are the most effective consultants in helping businesses to innovate and improve’. The Commission perceives consumer redress, in fact, as one of the preconditions of consumer empowerment. The Commission’s definition of consumer empowerment also relies on effective institutions such as consumer organizations and public authorities.
A recent Working Group Report from the Citizens’ Energy Forum on Transparency in EU Retail Energy Markets has pronounced the need for modernisation of consumer law enforcement and the empowerment of regulators. However, it is equally important to empower consumer organisations and make private enforcement channels such as injunctions an effective way of consumer law enforcement in this new regulatory architecture envisaged by the EU Commission.
Dr. Kati Cseres is Associate Professor of law at Amsterdam Centre for European Law and Governance. Her personal page can be accessed here.acelg