OPINION OF ADVOCATE GENERAL
delivered on 21 November 2007 1(1)
Volksbank Filder eG
(Reference for a preliminary ruling from the Oberlandesgericht Stuttgart (Germany))
(Consumer protection – Contracts negotiated away from business premises – Contract for a loan for the acquisition of shares in a real property fund – Conditions for cancellation)
1. In this reference for a preliminary ruling, the Court is asked whether, having regard to Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (2), national legislation may place a time‑limit on the right of cancellation of a consumer who has concluded a contract in a doorstep-selling situation, notwithstanding the fact that the consumer was given incorrect information regarding that right.
I – The main proceedings, the legal framework and the questions referred for a preliminary ruling
2. In 1992, the plaintiff in the main proceedings, Ms Hamilton, concluded at her home, with a representative of Volksbank Filder eG, a contract for a loan in order to finance the acquisition of shares in a real property fund.
3. In 1998, Ms Hamilton noted a significant reduction in the monthly distributions from the fund, which were intended to cover a substantial part of the loan interest. She therefore decided to reschedule her debt by concluding a building society savings contract and taking out a bridging loan with the result that, at the end of April 1998, she had repaid in full the amount owed to the Volksbank Filder eG and, consequently, the bank returned the security for the initial loan.
4. Although, as required under the third sentence of Paragraph 7(2) of the Law on consumer credit (Verbraucherkreditgesetz), Ms Hamilton had received a notice concerning her right of cancellation, that notice was incorrect inasmuch as it did not concern the conditions for the exercise of the right of cancellation in a doorstep-selling situation.
5. It should be pointed out that, in German law, an incorrect notice concerning the right of cancellation is equivalent to no notice. In such a situation, the fourth sentence of Paragraph 2(1) of the Law on the cancellation of doorstep transactions and analogous transactions (Gesetz über den Widerruf von Haustürgeschäften und ähnlichen Geschäften)(3) provides that:
‘If that notice is not given, the consumer’s right of cancellation shall not lapse until one month after both parties have performed in full their obligations under the agreement’.
6. Ms Hamilton did not cancel the initial loan contract until 16 May 2002, that is to say, several years after all the obligations thereunder had been performed by both parties whereas, under the fourth sentence of Paragraph 2(1) of the Law on the cancellation of doorstep transactions and analogous transactions, cancellation is only possible within the month following full performance of the contract.
7. However, the national court has doubts as to whether the fourth sentence of Paragraph 2(1) of the Law on the cancellation of doorstep transactions and analogous transactions complies with Directive 85/577.
8. Article 4 of Directive 85/577 provides as follows:
‘In the case of transactions within the scope of Article 1, traders shall be required to give consumers written notice of their right of cancellation within the period laid down in Article 5, together with the name and address of a person against whom that right may be exercised.
Such notice shall be dated and shall state particulars enabling the contract to be identified.
Member States shall ensure that their national legislation lays down appropriate consumer protection measures in cases where the information referred to in this Article is not supplied.’
9. By virtue of Article 5 of Directive 85/577:
‘1. The consumer shall have the right to renounce the effects of his undertaking by sending notice within a period of not less than seven days from receipt by the consumer of the notice referred to in Article 4, in accordance with the procedure laid down by national law. It shall be sufficient if the notice is dispatched before the end of such period.
2. The giving of the notice shall have the effect of releasing the consumer from any obligations under the cancelled contract.’
10. The Court has already had occasion to rule on the interpretation of the third paragraph of Article 4 and Article 5(1) of Directive 85/577 in Heininger(4). The applicant in that case had received no information about his right of cancellation. The German legislation none the less laid down a time-limit of one year from the conclusion of the contract for the exercise of that right in such circumstances. The Court decided as follows:
‘45. It should […] be pointed out that the doorstep-selling directive thus expressly provides that the minimum period of seven days prescribed for cancellation must be calculated “from receipt by the consumer of the notice” concerning his right of cancellation, and that it is on the trader that the obligation falls to provide that information. Those provisions are explained by the fact that if the consumer is not aware of the existence of the right of cancellation, he will not be able to exercise that right.
46. Having regard to the wording and purpose of Article 5 of the doorstep-selling directive, it is not possible to construe the third paragraph of Article 4 as enabling the national legislature to provide that the consumer’s right of cancellation must in any event be exercised within a period of one year, even if the trader has not notified the consumer of the existence of that right.
47. Finally, as regards the argument that it is essential, for reasons of legal certainty, to restrict the period within which the right of cancellation may be exercised, such reasons cannot prevail since they imply a limitation of the rights expressly conferred on consumers by the doorstep-selling directive in order to protect them against the risks arising from the fact that the credit institutions have chosen to enter into agreements away from their business premises. …’
11. It was precisely after becoming aware of the judgment in Heininger, cited above, that Ms Hamilton cancelled the initial loan contract on 16 May 2002. On 27 December 2004, she brought an action for reimbursement of the interest and the amount of the loan that she had paid, and for compensation for the interest she had paid to the building society.
12. The national court is unsure as to the precise implications of the Heininger judgment, cited above, inasmuch as it cannot clearly deduce from that case whether Directive 85/577 precludes the national legislature from limiting the right of cancellation in all situations.
13. By decision of 2 October 2006, the Oberlandesgericht (Higher Regional Court) Stuttgart therefore decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:
‘1. May the first paragraph of Article 4 and Article 5(1) of Directive 85/577/EEC be interpreted as meaning that the national legislature is not precluded from placing a time-limit on the right of cancellation given by Article 5 of the Directive, despite the consumer having been given defective notice, so that it expires one month after both parties have performed their obligations under the agreement in full?
In the event that the Court answers the first question referred in the negative:
2. Should Directive 85/577/EEC be interpreted as meaning that the right of renunciation cannot be forfeited by the consumer – in particular after the completion of the contract – if he has not been given notice in accordance with the first paragraph of Article 4 of the Directive?’
II – Assessment
14. Article 4 of Directive 85/577 lays down the principle that ‘traders shall be required to give consumers written notice of their right of cancellation within the period laid down in Article 5’.
15. Consistently with the purpose of Directive 85/577, that principle is intended to protect consumers who have concluded contracts in a doorstep-selling situation. In accordance with that approach, the right of cancellation must be understood as an extension of the consumer’s right to information.
16. Moreover, where the consumer is not supplied with adequate information, Directive 85/577 leaves it to the national legislature concerned to lay down ‘appropriate consumer protection measures’. (5)
17. However, the Court has explained that if the consumer is not informed of the existence of his right of cancellation, reasons of legal certainty cannot prevail to justify a limitation of the rights expressly conferred on consumers by Directive 85/577 in order to protect them against the risks arising from contracts concluded in a doorstep-selling situation. (6)
18. It should be pointed out in that regard that, for the purposes of Directive 85/577, an incorrect notice is equivalent to no notice.
19. In support of that interpretation, the third paragraph of Article 4 of Directive 85/577 provides that ‘Member States shall ensure that their national legislation lays down appropriate … measures in cases where the information referred to in this Article is not supplied’. (7) It follows that if the information supplied does not fulfil the requirements laid down in the first paragraph of Article 4 of Directive 85/577, that information cannot be regarded as valid and it is thus for the Member States to determine what measures are appropriate to ensure protection of consumers, in the same way as if no information had been supplied concerning the right of cancellation. There is no reason to distinguish between no information and incorrect information since both situations are equally misleading for the consumer as regards his right of cancellation.
20. None the less, the situation before the referring court is not absolutely identical to that which gave rise to the judgment in Heininger, cited above. In fact, it requires some refinement of the approach adopted in that case.
21. It appears from the facts which were communicated to the Court at the hearing that Ms Hamilton became aware of her right of cancellation as a result of the Heininger judgment and, on that basis, decided, several months later, to cancel the contract for the initial loan.
22. That situation raises questions as to whether it would be appropriate to allow the right of cancellation to subsist independently of any time-limit when it is established that the consumer became aware, or could have become aware, of his right of cancellation notwithstanding the fact that the information was not supplied by the trader with whom he had entered into contractual relations.
23. It is not a matter of calling into question the approach whereby, if no information is supplied concerning the right of cancellation, that right may be exercised at any time, but rather of considering whether it would be justified, where the person entitled to that right was able to become aware of its existence, to regard the Member States as entitled, in the exercise of the discretion granted to them under the third paragraph of Article 4 of Directive 85/577, to fix a time-limit during which the right of cancellation may validly be exercised.
24. There are several arguments in favour of that solution. It should be pointed out that the placing of a time-limit on the exercise of a right, most often referred to as ‘limitation’, is a principle common to the laws of the Member States. (8) That principle might well ultimately appear at Community level in the context of the creation of a common frame of reference for European contract law. (9) The existence of a general principle of limitation should therefore be recognised, while leaving the Member States the necessary discretion to implement it in their respective legal systems.
25. However, since limitation is justifiable essentially for reasons of legal certainty (10), such reasons cannot, in accordance with Heininger, prevail over the obligation to inform the consumer. (11) As long as the consumer has not been supplied with information concerning his right of cancellation, he is unable to become aware of the full extent of his right. Consequently, the limitation of the right of cancellation cannot be relied on against the consumer where such information has not been supplied. The protection of that right is recognised in Heininger as being of fundamental importance in ensuring that consumers are informed as to their rights under Directive 85/577, with the result that the informing of the consumer is the essential guarantee of the effectiveness of Directive 85/577. To accept a time-limit on the right of cancellation when that essential condition is not fulfilled would not only fail to ensure the protection of the consumers but would protect traders, a situation which would directly contravene the objective which Directive 85/577 seeks to attain.
26. However, once it is possible to establish that the consumer – who, according to the case-law of the Court, is supposed to have ‘a certain measure of alertness and discrimination’ (12) – was able to become aware of his right of cancellation, or actually did so, a time-limit on the possibility of relying on the right of cancellation appears to be justified, even though the information did not come from the trader.
27. In so far as it is established that that information was made known to the person concerned, then the consumer protection objective of Directive 85/577 has been attained. That approach does not cause the consumer to lose his right of cancellation but merely places a time-limit on the exercise thereof if the consumer, notwithstanding the fact that he was aware of, or could have been aware of, the information concerning his right of cancellation, did not invoke that right within a certain time. Under those circumstances, the stability of legal relations and even the fairness of commercial transactions require that a fair balance should be struck between the protection of the consumer (ensured by his right to be informed and his right of cancellation) and the stability of legal relations, which requires that when it is established that the consumer knew or could have known, of the existence of his right, it should not be possible to call the contract into question beyond a certain period starting from the point at which the necessary information was obtained.
28. Directive 85/577 does not require wider protection, which would leave a consumer who was aware of his right of cancellation free, to a disproportionate extent, to choose the most appropriate moment to call the contractual relationship into question. To my mind, the absence of any time-limit on the right of cancellation where the consumer was aware of his right clearly goes beyond the objective which the directive sought to attain. Protection of the consumer does not rule out the possibility of a time-limit on the right of cancellation, inasmuch as Article 5(1) of Directive 85/577 expressly provides for such a possibility where the information required under the directive is supplied in accordance with the conditions laid down therein. Thus, even if the information is supplied to the consumer late and by means other than those provided for in the directive, the objective of protecting the consumer in respect of contracts negotiated away from business premises will not be affected.
29. Moreover, Directives 94/47/EC (13) and 97/7/EC (14), dealing with timeshare and distance contracts respectively, expressly fix a time-limit beyond which the right of cancellation my not be exercised even if no information has been supplied concerning that right.
30. Certainly, it seems difficult to me to claim, as the German Government does, that those directives constitute, together with the doorstep selling directive, a ‘package of protection’ implying, in the interests of legal consistency, that there must necessarily be a three-month time-limit on the exercise of the right of cancellation. (15) The distinguishing feature of Directive 85/577 is the need for a higher level of protection of the consumer once he is in physical contact with the seller who may therefore exercise a greater influence on him. (16) That view seems to have been confirmed by the Court in Heininger when it decided that, in a doorstep-selling situation, a limit on the right of cancellation may be relied on against the consumer only from the time at which the latter becomes aware of the existence of his right. None the less, it cannot be denied that those directives suggest the existence of a principle common to the laws of the Member States, and which is also found at Community level, to the effect that a time-limit should be placed on the exercise of a right which has not been exercised during a period such that a doubt arises as to whether it will ever be exercised by the person entitled to it.
31. Thus, once it has been established that the consumer became aware – or could have become aware – of his right, it could be said that there is a principle common to the laws of the Member States according to which both the fairness of commercial transactions and the stability of legal relations imply that in the context of the discretion conferred on them under the third paragraph of Article 4 of Directive 85/577, the Member States may fix a time-limit within which cancellation may be validly exercised, starting from the time – however late that may be – at which the information was received by the consumer.
32. The answer to the questions referred by the national court should therefore be that Directive 85/577 must be interpreted as meaning that a limit on the right of cancellation may be relied on against the consumer only from the time at which he became aware, or could have become aware, of his right. That condition must be assessed independently of the date at which the contract was concluded or at which the contractual obligations were performed in full. Thus, national legislation which fixes the starting point of the time-limit during which the right of cancellation may be exercised as the time at which both parties have performed in full their contractual obligations, even if the consumer has not become aware of his right, cannot attain the objectives of Directive 85/577.
33. On the other hand, the first and third paragraphs of Article 4 and Article 5(1) of Directive 85/577 do not preclude the Member States from fixing, in the exercise of their discretion, a time-limit during which the right of cancellation may be exercised, starting from the time at which it is established that the consumer became aware, or could have become aware, of his right.
III – Conclusion
34. In the light of the foregoing considerations, I propose that the Court of Justice give the following reply to the questions referred for a preliminary ruling by the Oberlandesgericht Stuttgart:
‘Council Directive 85/577/EEC of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises must be interpreted as meaning that it does not permit a limit on the right of cancellation to be relied on against the consumer if he has not received information concerning his right or if that information is incorrect.
On the other hand, Articles 4 and 5 of Directive 85/577 do not preclude the Member States from fixing, in the exercise of their discretion, a time-limit during which the right of cancellation may be exercised, starting from the time at which it is established that the consumer became aware, or could have become aware, of his right’.
1 – Original language: French.
2 – OJ 1985 L 372, p. 31.
3 – That provision was amended subsequently by the Law on the modernisation of the law of obligations (Schuldrechtsmodemisierungsgesetz, BGBl 2001 I, p. 3138). That law came into force on 1 January 2002 and provides that the right of cancellation no longer lapses if the consumer has not been properly notified of that right. However, since that new provision does not have retroactive effect, the dispute is governed by the fourth sentence of Paragraph 2(1) of the Law on the cancellation of doorstep transactions and analogous transactions.
4 – Case C‑481/99  ECR I‑9945.
5 – Third paragraph of Article 4 of Directive 85/577.
6 – Heininger, paragraph 47.
7 – My italics.
8 – See, in particular, the study carried out by the Lando Commission, Principles of European Contract Law, Part III, O. Lando, E. Clive, A. Prüm and R. Zimmermann (Kluwer Law International, The Hague, 2003), especially Chapter 14; Le code européen des contrats, (Pilot study prepared by the Academy of European Specialists in Private Law), Book One, coordinator G. Gandolfi, A. Giuffrè, Milan, 2004, especially Title X and p. 260 et seq. and Principles of existing EC Contract Law (Acquis Principles), Contract 1, Part 1, Pre-contractual Obligations, Conclusion of Contract, Unfair Terms, Volume I, Sellier, 2007, especially p. 98 et seq. and p. 166 et seq.
9 – The Commission has come out in favour of a common frame of reference. See, inter alia, the Communication of the Commission to the European Parliament and the Council on European Contract Law and the revision of the acquis: the way forward (COM(2004) 651 final) and Report from the Commission - First Annual Progress Report on European Contract Law and the Acquis Review (COM(2005) 56 final). Other studies on this point might also usefully be consulted, in particular, W. Van Gerven ‘Comparative law in a texture of communitarization of national laws and europeanization of community law’, in Judicial Review in the European Union –Liber amicorum in honour of Lord Slynn of Hadley, Kluwer Law International, The Hague, vol. I, 2000, pp. 433 to 445; R. Schulze ‘The Acquis Communautaire and the Development of European Contrat Law’, in Schulze/Ebers/Grigoleit (No 25), p. 15 and, more generally, on the technique whereby the Community Courts have recourse to the principles common to the legal systems of the Member States: Y. Galmot ‘Réflexions sur le recours au droit comparé par la Cour de justice des Communautés européennes’, RFDA, 1990, p. 255.
10 – See the studies mentioned in note 9.
11 – Heininger, paragraph 47.
12 – See, in particular, Case C‑220/98 Estée Lauder  ECR I‑117, paragraphs 17 and 30.
13 – Directive 94/47/EC of the European Parliament and of the Council of 26 October 1994 on the protection of purchasers in respect of certain aspects of contracts relating to the purchase of the right to use immovable properties on a timeshare basis (OJ 1994 L 280, p. 83).
14 – Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts (OJ 1997 L 144, p. 19).
15 – The three-month time-limit is laid down both in the context of Directive 94/47 (in the second indent of the first subparagraph of Article 5) and in the context of Directive 97/7 (fourth sentence of Article 6(1)).
16 – Thus, it has been pointed out that ‘the [Community] legislature has found that being in possession of all objective data concerning a transaction does not prevent the consumer being won over by a contracting party who knows very well – and such is the art of his profession – how to be convincing’, in N. Rzepecki, Droit de la consommation et théorie générale du contrat, Institut de droit des affaires, Aix-en-Provence, 2002, p. 100.