In a decision that comes as a surprise to the industry and regulators alike, the European Court of Justice has provided a new perspective on legislation that has been regarded as primarily designed to protect consumers buying online and through other media where they are not involved in face-to face-contact with the seller. This decision, although unexpected, goes a small way to redress the balance in favour of an online industry that has been struggling under the burden of numerous pieces of recent legislation, many of which emanate from
On 10 March, the ECJ declared victory for Stelios Haji-Ioannou’s easyCar in its case with the Office of Fair Trading over the interpretation of the Distance Selling Directive (97/7/EC). The ruling marks the end of a long-running legal action between easyCar and OFT. The OFT maintained before the High Court and the ECJ that the cancellation terms applied by easyCar to Internet bookings breached the “cooling off” requirement in the Directive.
The decision is likely to have significant financial and operational consequences for the online car-hire industry whilst removing the cancellation right, which many consumers had previously enjoyed. This decision should also be viewed positively by all operators in the hospitality, leisure and catering industries, as the ECJ confirmed that the relevant exemption is intended to provide “protection for the interests of suppliers of certain services, in order that the latter should not suffer disproportionate consequences arising from the cancellation at no expense and with no explanation of services which have given rise to a booking”.
The
The Distance Selling Directive is implemented in the
- the right to receive clear information about goods and services before deciding to buy
- confirmation of this information in writing
- a cooling off period of seven working days in which the consumer can withdraw from the contract for any reason.
However, the Regulations do not apply to “contracts for the provision of transport services” on a specific date or within a specific period. The construction of this phrase lay at the heart of this case.
Background
easyCar offers car hire service, via the Internet and telephone, based on the model that if the customer books early he will pay less. This model is at the heart of easyCar’s offering, as Stelios explains of his Web site “easyCar can offer consumers great prices but it must ask them to make a firm commitment and, whenever possible, to book online.” easyCar drafted their terms on the assumption that agreements with customers were exempt from the cancellation rights which apply to the majority of consumer distance contracts under the Regulations. The OFT, who are responsible for enforcement of the Regulations, did not support this view. The OFT’s opinion, in relation to the distance selling regime, was that self-drive agencies provide a vehicle to travel in, rather than a transport service. easyCar sought clarification from the High Court, which in turn referred the interpretation of the transport services exemption to the ECJ under Article 234 for a preliminary ruling.
Prior to the ECJ’s ruling, in her opinion of
The Law
The case concerns the core feature of the legislation, the right of customers to cancel a contract for goods or services for no reason and receive a full refund within a defined “cooling-off” period. There are certain limited exemptions from this cancellation right. One of these is set out in Article 3(2) of the Directive. This states that the information and cancellation provisions do not apply to:
contracts for the provision of accommodation, transport, catering or leisure services, where the supplier undertakes, when the contract is concluded, to provide these services on a specific date or within a specific period.
Article 3(2) is transposed word for word by Regulation 6(2)(b) of the UK Regulations. It is generally accepted (including by the OFT), that this exemption includes bookings for air travel and train travel. However, because easyCar’s customers drove the cars independently (as opposed to being driven by the supplier), the OFT argued that easyCar’s business operations fell outside the exemption and the cancellation provisions should apply. The question referred to the ECJ by the
The ECJ’s Decision
The ECJ concluded that Article 3(2) of the Directive is to be interpreted as meaning that “contracts for the provision of transport services” include contracts for the provision of car hire services. The ECJ based this decision on the following reasoning. First, it said that neither the Directive nor the underlying preparatory documents clearly identified the exact scope of the concept of “transport services”, and so the phrase must be given its usual meaning taken from “everyday language”. Taking into account the “everyday language” of “transport”, the ECJ considered that this was not limited to the action of moving persons or goods from one place to another. The ECJ considered that transport included the “mode of transport” and the means used to move those persons or goods. According to the ECJ, the term “transport services” must, like the other categories of services listed in the same exemption (leisure etc), be interpreted as impacting upon an entire business sector, ie relating to “services in the transport sector“. In the court’s view, the purpose of the exemption was to protect suppliers, such as easyCar, who would otherwise suffer “disproportionate consequences” if customers were able to cancel contracts “at no expense and with no explanation”. The ECJ applied a wholly different approach from that of the AG. The AG had made a distinction between “normal” car hire (which in her view would not be exempt) and more complex bundled services (which might, in certain circumstances, be capable of being exempt). The ECJ took the view that it was clear that “car hire undertakings carry on an activity which the legislature intended to protect” by means of the transport services exemption and there was no such distinction.
Previous Misunderstanding?
The OFT had accepted that the exemption for transport services covers services provided by train operators, bus companies and airlines. However, the OFT’s view had always been that self-drive car hire is not a “transport service” and that easyCar’s customers were entitled to all of the protection offered by the Distance Selling Regulations, including, most importantly, the cooling-off period and cancellation provisions. It also appears that the car hire industry itself may have also been operating under a similar misapprehension. Recently during responses to the DTI consultation regarding amendments to the Distance Selling Regulations, the British Vehicle Rental and Leasing Association played an active part in this process by suggesting that compliance with the Regulations placed a significant financial burden on the whole industry. The Association supported the DTI’s proposed changes as allowing for a reduction in compliance costs by approximately £29m. The emphasis was placed on reducing compliance costs rather than suggesting that the industry should not or were not required to comply. The ECJ’s ruling should remove many of these £29m costs and more.
Comment
From a legal perspective, opinion on the merits of the ECJ’s decision is divided. Nevertheless, the outcome of this case clearly removes a commercial headache for the car-hire industry who are no doubt grateful for the lowering of the regulatory burden. easyCar argued that, without the benefit of the exemption, suppliers cannot afford to offer, and customers cannot take advantage of, savings in return for early commitment to a car hire sale. The ECJ supported the view that the financial dynamics of car hire are similar to those of airline or train travel. This is the requirement for the supplier to know how much capacity remains available on a date in order to manage (and price) the remaining capacity accordingly. The extent to which this decision can be applied to other transport hire services is as yet untested. This decision was clearly not expected by a number of government bodies, not least the OFT. Stelios claimed the decision as “a victory for both easyCar and the consumer”, with certainty of price for both the consumer and online providers. The OFT are likely to disagree. However online traders would argue that other legislation (eg the E-commerce Directive) provides consumers with adequate protection. Many in the industry, and outside, have welcomed the ECJ’s decision as providing a sensible position which reinstates commercial good sense.
Matthew Pryke is a solicitor based in the
