Unfair Terms in Low-Cost Airline Contracts: A Spanish Court Takes a Bold Step

Many thanks to Cristian Oró Martínez, Senior Research Fellow at the MPI Luxembourg.

The Commercial Court (Juzgado de lo Mercantil) nº 5 of Madrid delivered on 30 September 2013 a judgment in an action brought by the Spanish consumer association Organización de Consumidores y Usuarios (OCU) against the Irish airline Ryanair. OCU asked the Commercial Court to declare that 20 of the general terms and conditions used by the airline are unfair, and hence should not be binding on consumers, as provided by the Spanish Law on the protection of consumers and users (which transposed Directive 93/13, on unfair terms in consumer contracts). OCU also sought an injunction to prevent Ryanair from continuing to use these allegedly unfair terms and conditions.

 In its judgment, the Commercial Court held that 8 of the general terms issued by Ryanair are unfair, and hence void. These terms deal with a variety of issues relating to the contract of carriage concluded between the airline and its customers: (i) the choice of Irish law and the submission to Irish courts (Art. 2.4); (ii) the limitation of accepted travel documents (Art. 3.1.1 and annex on travel documentation); (iii) the 40 € fee for the re-issue of a boarding card at the airport (annex with table of optional fees); (iv) the possibility for the airline to refuse to carry passengers or their baggage (Art. 7.1.1); (v) the prohibition to carry in the checked baggage certain items, including money, jewels, cameras, computers, medicines, glasses, mobile phones, tobacco or passports (Arts. 8.3.2 and 8.3.3); (vi) the possibility for the airline to charge a storage fee for luggage not collected within a reasonable time (Art. 8.8.1); (vii) the possibility for the company to change the flight timing without having to justify it, and without giving the passenger the option to terminate the contract (Arts. 9.1.1 and 9.1.2); and (viii) the prohibition to pay in cash any fee or tax charged at the airport (Art. 18). According to the judgment, Ryanair should refrain from using these terms in future contracts.

To date, all these clauses continue to appear on the airline’s website. The judgment of the Commercial Court of Madrid can of course be appealed – and it is highly likely this has been the case. Its effective impact, therefore, remains to be seen. However, it may constitute a first step for the protection of consumers against alleged abuses by low-cost airlines.

Nevertheless, from a PIL perspective, the question which arises is whether the Spanish court was right in assessing the compatibility of the contract with Spanish consumer legislation. Ryanair claimed that the choice of Irish legislation was valid under Art. 5(2) of the Rome I Regulation, which allows parties to choose, among others, the law of the country where the carrier has its habitual residence. The court fails to address this allegation, and simply states that the choice of court and choice of law clause is invalid under Art. 90.3 of the Law on the protection of consumers and users. The reason would be that it causes a significant imbalance in the parties’ rights and obligations and hinders the consumer’s right to take legal action, insofar as it forces this weak party to litigate in a foreign country and under a foreign law, thus increasing the costs of the suit.

The Commercial Court bases its reasoning not only on the Spanish Law on consumer protection, but also on the provisions of Directive 93/13 and on some judgments in which the ECJ has interpreted it. It is arguable that, under Art. 23 of the Rome I Regulation, the Directive on unfair terms could trump the conflictual solution of Art. 5(2) of the Rome I Regulation. However, even in such scenario, the Commercial Court should have justified the reason why the Spanish transposition of the Directive on unfair terms should prevail over the Irish transposition. The problem stems from the Spanish Law on the protection of consumers and users, which purports to apply when the contract is closely connected with the territory of a State party to the EEA, irrespective of the law chosen by the parties (Art. 67.1). It is arguable that this provision should be read in light of Art. 6(2) of Directive 93/13, which states that “Member States shall take the necessary measures to ensure that the consumer does not lose the protection granted by this Directive by virtue of the choice of the law of a non-Member country”. Thus, the Spanish legislation should only prevail over the parties’ choice of a third-State law, but not over the choice of the law of a Member State. Indeed, in the latter case the protection granted by the Directive is in principle guaranteed – at least as long as the ECJ does not declare that that particular Member State failed to correctly transpose it.

Therefore, the assessment of all the allegedly unfair terms should have probably been carried out under Irish law. The ensuing question is: would they be held unfair under Irish law? Or even: should they be considered unfair under the Directive itself? If so, the ECJ may end up having its say in the issue. We shall keep an eye on future developments – just as low-cost airlines will surely also do.

Comments on this entry are closed.

  • Giacomo Pailli November 21, 2013, 7:20 am

    Dear Cristian, thanks for this interesting note.
    Two thoughts:
    1) why should, from a PIL perspective, Spanish courts interpret Ryanair’s terms under Irish law? Can’t we easily state that consumer law, especially that targeting unfair terms, has a mandatory nature?
    2) what is the relation between the Directive and national implementing law on the protection of consumers? Is the Directive a plateau, a minimum standard that can be “improved” (not a neutral term, by the way: read “improve” as “pro consumer”) by the States, or is it a floor and a ceiling, setting the rules once and for all?

  • Cristian Oro Martinez November 21, 2013, 1:59 pm

    Dear Giacomo,
    Thanks to you for your questions. Here’s my view on your thoughts:
    1) Indeed, unfair terms law has a mandatory nature. But in my view this nature derives not from the provisions of national law, but from the Directive itself. Art. 6(2) states this clearly. Therefore the choice of a Member State law (e.g. Irish law), insofar as it guarantees the level of protection of consumers foreseen by the Directive, should be respected. Although the issue has been debated, since the Directive is not crystal clear in this respect, my view is that the protection granted by the implementing laws would be mandatory in an absolute sense only when parties choose the law of a third State, but not when they choose the law of a Member State, which in principle has to be deemed to protect consumers under the requirements of the Directive. That is why I consider that a choice of a Member State law which is valid under Art. 5(2) of the Rome I Regulation cannot be disregarded, as in this case, by raising a vague “consumer law defence” – at least unless it is demonstrated that the chosen law (Irish law) does not sufficiently protect consumers against unfair terms (something which was not done in this case). On top of that, the validity of the choice of law clause should be checked against the designated law, by virtue of Art. 10(1) of the Rome I Regulation.
    2) The level of protection of the Directive can of course be “improved” by national legislators (see Art. 8). But again, I do not see why this potentially enhanced protection should mean that the choice of the law of another Member State should automatically be invalidated, as long as it respects the Directive’s minimum standard.

  • FJGA November 21, 2013, 2:53 pm

    With due respect, I do not agree, Cristian.
    1. It is true that according to Art. 5 (2) Rome I, the parties may choose Irish law as the law governing the contract. Hence, if the choice of law clause between Ryanair and the passenger were individually negotiated, the clause would be valid and effective.
    2. However, since that is not the case, i.e. the clause is included in a pre-formulated standard contract, such clause is subject to the “test of unfairness” laid down by Directive 93/13. I do not see any convincing reason why a choice of law clause in a transport of passenger contract should be excluded from such “test of unfairness”.
    3. Having said that, it seems clear that the selection of Irish Law to govern such contract is unfair. The Spanish consumer is subject to a foreign law, precisely the law of the place of incorporation of the professional, and this causes an imbalance between the rights and obligation between the parties (it imposes on the consumer the information costs on the content of the applicable, i.e. the contract is governed by a law which is familiar to the professional but completely un-familiar to the consumer) and therefore hinders the consumer´s right to take legal action.
    4. Note that traditionally, the “test of unfairness” is linked to the default rules. A clause is unfair when -in prejudice to the consumer- it significantly departs from the rules applicable by default. If we project this parameter to our case, the conclusion is very clear. According to Article 5.2 Rome I, the law applicable by default is Spanish law (habitual residence of the passenger + place of departure). Therefore, the designation in a choice of law clause of another law, within the standard terms of a contract, is unfair. It is not a question of the content of Irish law, nor on Art. 10 (1) (the unfair terms Directive prevails).

    Best.
    Paco

  • Cristian Oro Martinez November 21, 2013, 3:23 pm

    Dear Paco,
    Thank you very much for your comment. Maybe I did not make myself clear, but what I was trying to convey was not whether the clause has to be deemed unfair or not, but rather which is the national legal framework under which such assessment should be carried out. If the clause is to be held unfair under the Directive, which I essentially agree with, then this analysis may just as well be carried out under Irish law, and the result reached should be the same – if this is a matter of interpretation of the Directive, then even potentially with the help of the ECJ.

  • FJGA November 21, 2013, 7:06 pm

    Ok. Then I think we all basically agree (and the Spanish judge is right). The “standards” to assess the unfairness of the clause are determined by the Directive (=”EU standards”) and it should be essentially the same in Ireland and in Spain. What I think is important to underline is the idea that as regards transport of passengers (consumers), the designation of a law different from the law applicable by default is unfair, unless individually negotiated. Altough I think so, I guess this is not the dominant view among EU scholars.

  • Giacomo Pailli November 22, 2013, 11:30 am

    I am not sure whether I agree. I think that the framework for assessing the validity of the clause is essentially given by Spanish, and European, PIL rules (which, as far as mandatory rules are concerned, will point to Spanish law), rather than “the Directive” which is not directly binding. That is why I put forward the question of whether Spanish law could be more rigid than the Directive, and I think that the answer is positive.

    I agree with Paco that “the designation of a law different from the law applicable by default is unfair, unless individually negotiated”.

  • Giacomo Pailli November 26, 2013, 6:49 am

    Did we get kind of an authoritative answer to our doubts?

    http://conflictoflaws.net/2013/ecj-rules-on-freedom-of-member-states-to-consider-statutes-implementing-eu-directives-mandatory-rules/

    Articles 3 and 7(2) of the Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980 must be interpreted as meaning that the law of a Member State of the European Union which meets the minimum protection requirements laid down by Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents and which has been chosen by the parties to a commercial agency contract may be rejected by the court of another Member State before which the case has been brought in favour of the law of the forum, owing to the mandatory nature, in the legal order of that Member State, of the rules governing the situation of self-employed commercial agents, only if the court before which the case has been brought finds, on the basis of a detailed assessment, that, in the course of that transposition, the legislature of the State of the forum held it to be crucial, in the legal order concerned, to grant the commercial agent protection going beyond that provided for by that directive, taking account in that regard of the nature and of the objective of such mandatory provisions.