WRITTEN QUESTION E-0875/97 by Amedeo Amadeo (NI) to the Commission (12 March 1997)

Subject: Green Paper on financial services and consumers

In the Green Paper 'Financial Services: Meeting Consumers' Expectations' (COM(96) 209 final), as regards the jurisdiction of the courts over contracts concluded by consumers, it is impossible to agree with the view that the application of the law of the country where the consumer has his/her main residence 'may create a potential conflict with the principle of mutual recognition applicable within the single market, which tends towards the application of the law of the service provider'.

Could the Commission perhaps refer to Article 5 of the Rome Convention of June 1980, according to which the law applicable is that of the country in which the consumer usually resides. This would be a clearer and more satisfactory solution, since the principle of mutual recognition only applies to the field of economic public law and not to the law governing contractual obligations, especially as regards consumer protection provisions.

Answer given by Mr Monti on behalf of the Commission (22 April 1997)

In the case of contracts concluded with a consumer, Article 5 of the Rome Convention stipulates that, in the absence of an explicit choice on the part of the contracting parties, the law applicable is that of the country in which the consumer has his habitual residence if the contract was concluded under one or other of the following sets of circumstances:

- in that country the conclusion of the contract was preceded by a specific invitation addressed to the consumer, and the consumer had taken there all the steps necessary on his part for the conclusion of the contract;

- the other party or his agent received the consumer's order in that country.

On the other hand, if the parties have chosen the law they wish to be applied to the contract, this choice cannot have the result of depriving the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence, provided that one of the two sets of circumstances described above pertains.

What is more, according to the Convention, the 'mandatory rules' (Article 7) and 'public policy' (Article 16) of Member States may equally be applied to the choice of the parties or, if no choice has been made, to the rules laid down in the Convention for determining which law is applicable.

This solution, however clear, does not necessarily always satisfy the requirements of Community law.

In accordance with the principle of precedence of Community law, the application of certain national laws by a consumer's country of residence to contracts signed by him may, if it gives rise to an infringement of the free movement of services, have to satisfy the test of 'the general good', as introduced by the case law of the Court of Justice ((Case C-205/84 Commission v Federal Republic of Germany [1986] ECR 3755. )).

The laws of Member States governing contracts for financial services contain examples of rules (usually mandatory rules) which, although regarded as de jure rules governing obligations, actually affect commerce. As far as their effect is concerned, such rules can constitute a restriction if they oblige a bank or an insurance company, for example, to adapt its services (and therefore its standard contracts) to comply with the laws of the country in which those services are provided.

The Commission takes the view that such rules must not be allowed to evade control under Community law simply because they are part of the law of obligations. All rules under national law must be compatible with Community law, whatever the field concerned ((Case 82/71 Pubblico Ministero della Repubblica Italiana v Società Agricola Industria Latte (SAIL) [1972] ECR 119. See also Case C-20/92 Anthony Hubbard v Peter Hamburger [1993] ECR I-3777. )).

As far as rules on consumer protection are concerned, it is highly likely that these rules of substantive law will satisfy the 'general good' test. Indeed, the Court of Justice has recognized that consumer protection is a 'public interest' objective that can justify the imposition of restrictions on fundamental freedoms ((Case C-205/84 Commission v Federal Republic of Germany (see above). )). However, there can be no presumption that such rules will satisfy the above test. Indeed, national rules adopted with the declared aim of protecting consumers can be subjected to control by the Court of Justice and, where necessary, repealed (for example, if they are no longer necessary or are disproportionate) ((Case C-362/88 GB-INNO-BM v Confédération de commerce luxembourgeois [1990] ECR I-667. See also Case C-240/95 Criminal proceedings against Rémy Schmit [1996] ECR I-3179 and Case C-470/93 Verein gegen Unwesen in Handel und Gewerbe Köln e.V. v Mars GmbH [1995] ECR I-1923. )).

In the context of the single market, this additional level of reasoning is, therefore, necessary in order to check whether, in the absence of harmonization, Member States are not using the pretext of consumer protection to maintain in force laws which have the sole purpose of restricting or preventing the provision of different or unknown financial services on their territory.