CJEU on choice of law clauses in general terms and conditions for consumers

The CJEU has decided that choice of law clauses in general terms and conditions for consumers must refer specifically to the precedence given to the more favourable regulations that apply in the country where the consumer has right of residence.

The law of which country should be applicable to a contract can essentially be agreed by means of a choice of law clause between the parties. In a much heralded judgment, the European Court of Justice has decided that a choice of law clause in general terms and conditions for consumers is only effective if it indicates that the consumer can, despite the choice of law, invoke the more favourable regulations applicable in the country where he or she has right of residence (CJEU judgment of 28 July 2016, Case C-191/15 Verein für Konsumenteninformation v. Amazon EU Sàrl).

The case at issue concerned the general terms and conditions of Amazon for Germany and Austria, according to which Luxembourg law should apply to all purchasing contracts. The European subsidiary of Amazon has its headquarters in Luxembourg. In accordance with Article 6 (2) of Regulation (EC) No. 593/2008 (Rome I), a choice of law must not however result in the consumer being deprived of the protection afforded to him through the law of his or her home country, if the scope of the company’s activities also includes this country. The CJEU therefore regarded the Amazon clause as misleading and thus unfair within the meaning of Directive 93/13/EEC on unfair clauses in consumer contracts, because it gives the customer the impression that only Luxembourg law is applicable, even though consumer protection standards in the country where he or she has right of residence would be more favourable for the consumer, e.g. because of a later limitation period in relation to defect claims.

For users of general terms and conditions that are (also) used for consumers and contain a choice of law, the judgment means that they must now include an appropriate reference, according to which more favourable standards of the law applicable in habitual place of residence of the consumer take precedence over the law referred to in the clause. Otherwise, not only is the choice of law clause void, but this might also give rise to warning letters due to the application of misleading clauses, for which the users have to pay.

Dr. Sven Ufe Tjarks
Certified Specialist in Corporate and Commercial Law