Self-regulation
in European Contract Law
Fabrizio Cafaggi*
I. Introduction
This essay focuses on rule-making procedures in European Contract Law (hereinafter ECL) and the role of self-regulation (hereinafter SR). SR may serve different purposes in this respect.[1] It operates as a standard-setting mechanism for contracts, in particular through standardisation. It may interpret European and national law offering firms and consumers guidelines. It contributes to monitoring the conduct of contracting parties to ensure compliance, and it provides enforcement mechanisms.
Self-regulation plays already a significant role at European level, it is already relevant for European Contract Law and may perform important functions in the process of drafting the Common terms of references (hereinafter CFR) and more broadly in the process of harmonisation of ECL. This paper addresses self-regulation as a complementary means to harmonize and regulate ECL.
Two main choices may characterize the use of Self-regulation as a means of harmonising European Contract Law:
1)
Complement or substitute. Self-regulation can be a partial or a total device for harmonization, i.e.
(a) it can be a complement to hard or soft law harmonisation or (b) it can, in
certain areas, substitute hard law harmonization .
2)
General or sector-specific. Self-regulation can be general and/or sector specific, i.e. it
can operate within the general CFR or it can specify the general standard forms
to be used for individual sectors, unregulated or regulated (banking,
insurance, securities).
The choice between the
first two alternatives, complementarity or substitution will partly depend on
the form of legislation. The role of self-regulation will increase in a
principle-based legislative framework and decrease in a rule-based framework.
In practical terms SR
operates both as a complement and as a substitute. It is a complement when it
specifies or interprets existing legislation. It is a substitute when
harmonises, by means of Standard contract forms (hereinafter SCF), Framework
contracts or Master Agreements, contractual relationships otherwise regulated
at State level in different fashions. In turn from the perspective of the State
or the European institutions the use of self-regulation in ECL may imply a
functional change: from the ‘theoretical’ monopoly of law making to a duopoly.
But the change could be even more radical if the public legislator, be it at
European or national level, becomes a coordinator and/or a mediator among
different self-regulatory bodies, negotiating among themselves contract law
rules. The evolution of the regulatory state in
The main aims of the paper are (1) to demonstrate the necessity to consider self-regulation as a significant component of the debate concerning the definition of Common Frame of References related to European Contract law, (2) to identify the role and the limits of self-regulation in the formation of European Contract Law, and (3), more in general, to show the strong correlation between the governance of self-regulatory bodies and the substance of European Contract Law .
II. Rule making in
European contract law
Self-regulation can operate through contractual or organizational models.
Self-regulation can perform standard setting functions both in the area of consumer protection and in that of business to business transactions. It may play a role in defining general standard terms and conditions of Contract law.[2] The functions may differ, given the complementary nature of SR to state regulation, in the areas of BtoC, BtoB, and Btob.[3] SR can play, and de facto plays, a more relevant role in BtoB relationships and more in general in relation to lex mercatoria.
Self regulation can also operate as a monitoring system to identify different modes of implementation of European Contract Law intertwined with the uses of private autonomy. If the intuitions of neoinstitutional economics are correct, there might be good reasons to believe that the exercise of freedom of contract differs in relation to institutional frameworks, but also to behavioural patterns of contracting parties. It is therefore likely that different contract clauses might be introduced due to the presence of different socio-economic actors within the same market. Self-regulatory bodies can monitor these processes and help to coordinate and govern the differences. The role of self-regulation would differ if monitoring concerns BtoB or BtoC relationships.
In addition, SR can
operate to solve contractual disputes by complementing the judiciary with the
use of ADR and arbitration.
In this paper, I focus on standard-setting and distinguish between
its different dimensions.
SR can contribute to the
definition of general terms and conditions within the CFR envisaged by the
European Commission. It can play a more significant role in the design of
framework contracts and standard contracts in specific sectors (banking,
insurance, security, electricity, transport, etc.).[4] We observe several
SCF provided by trade associations in each field.[5] Given the enabling
nature of many contract clauses, self-regulation may complement legislative
activities to provide default models that can standardise terms. Several
initiatives are already in place, especially for those industries with relevant
network effects such as insurance, banking, telecom and transport.[6]
Within private
regulation different players and forms of rule-making are examined.
In relation to players
different private organizations are considered: independent organizations and
self-interested organizations, which will be further differentiated according
to the nature of the represented interests. In particular a key distinction for
competition law which plays a less significant role in contract law is that
between interest-based versus knowledge- or expertise-based organisations.[7]
In relation to the
institutional environment a distinction is assumed between different modes of
rule-making supply. Private organizations provide rules, including SCF, for a
price or more generally for remuneration or for free. Often private
organisations do both, depending on the type of rules or on the potential
users.
In
Collective private standardisation of contract forms may represent a partial response to these problems. Standardised contracts lower transaction costs but limit the space of choice for contracting parties and therefore may reduce freedom of contract. Furthermore they might decrease competition for innovative contract clauses among rival firms.
In relation to standard setting, SR can often be an agent of harmonisation operating (1) outside of legislation in the realm of freedom of contract, or (2) as a complement of European legislation contributing to producing soft law instruments or (3) as a means of implementing European harmonising legislation in place of national legislation when there is formal delegation to private organizations.
This function should be strengthened and can become part of a more structured institutional design aimed at ensuring that European private law integrates the different private competences and legal traditions. Furthermore to acknowledge the role of SR may shed light on the necessity to widen the choice among different regulatory strategies and to incorporate regulatory contracts into the domain of the new European Contract Law.
But self-regulation is not the only regulatory mode through which private regulation operates. Different regulatory strategies have developed at EU and State level and they can all contribute to the formation of ECL. But their legal regimes imply different constraints. More specifically different rules apply to pure self-regulation, to co-regulation, and to delegated self-regulation due to the role of public authorities and their duties to comply with European law, in particular with competition law principles.
SR is certainly limited
by several constraints. In particular it is subject to competition law and to
mandatory contract law limitations that can be found in the acquis
communautaire and in the common principles of contract law in MS.[9] Competition law
and contractual fairness control both what can be standardised and how it
should be standardised. The following analysis is devoted to a comparative
examination of these two techniques and to illustrate the different yet
consistent goals they pursue. In this contribution I want to compare
competition, contract and organisational limitations to private rule making to
define the potential and current role of self-regulation in European Contract
law.
SR is concerned with
different types of contractual relationships. It encompasses lex mercatoria, BtoB, and BtoC relationships.
The use of self-regulation in contract practices has a long history and
precedes the formation of nation states.[10] A sharp divide
seems to characterize policy options concerning consumer contract law and inter-firm
contracting at the European level. The combination between legislation and
self-regulation, and within the former between mandatory and enabling rules are
different. Yet a general approach to the use of self-regulation in ECL is
possible and desirable. The main focus of the essay is related to the consumer
law but some references will also be made to the role of lex mercatoria on the formation of European Contract Law. By
choosing consumer contract law I take the hard case to analyse both the
potential for self-regulation as a descriptive and normative standpoint.
Self-regulation has been
indicated by the Commission and the Parliament as one of the possible means to
harmonize European Contract Law. Building on the indications provided by the
Action Plan, the following Communication suggested promoting the use of EU-wide
standard terms and conditions.[11] Such a measure is definitely related
to the development of a CFR. It can operate at the European level in the
framework of a multilevel system. The Commission has however subsequently modified
its initial position, rejecting the idea of operating as a facilitator hosting
a website for the presentation of EU-wide standard terms and conditions.[12]
It is useful to
distinguish an institutional set of functions from a substantive one performed
by SR.
From an institutional
perspective SR can complement :
(1)
legislative functions by contributing to the
definition of contractual terms, code of conducts, framework contracts;
(2)
Regulatory functions by defining (a) sector
specific guidelines or, more specifically in the area of information
regulation, (b) by introducing cognitive intermediaries;[13]
(3)
Interpretive functions by offering guidelines
to individual firms when they contract with other firms or consumers;
(4)
Monitoring functions of European Contract Law
by verifying correct implementation of EU law at MS level;
(5)
Enforcement
by defining sanctions to their members in case of violations.
From a substantive
perspective it can contribute to the creation of SCF according to different
models and to their correct administration, to produce codes of conducts that
affect (1) the content of contract, (2) the bargaining procedures, ensuring
compliance with EU legislation, and (3) more in general economic activities of
the regulated. For example they can impose mandatory licensing for certain
activities, quality control for other activities, i.e. certification.[14]
Private bodies define
SCF concerning their members, often firms, but also standard contract forms
between their members (firms or professionals) and third parties (consumers,
investors, clients). Therefore they would produce both contract rules in BtoB
and BtoC relationships. Then implementation can occur at national level either
through national self-regulatory systems or directly through enterprises applying
the framework contract to specific transactions. The Commission in this context
is seen as a ‘facilitator’ of self-regulated production of contracts standard
terms.[15]
The role of SR in consumer contract law specifically illustrates an
intermediate hypothesis between the general approach which would concern the
entire contract law and the sector-specific approach, regarding for example
banking, electricity, telecom or securities. Consumer law stands somehow in the
middle: it is a policy area which is not sector specific but is limited to transactions
between firms and consumers.[16]
SR in the field of consumer law can support regulatory functions, pursued
by legislation, aimed at ensuring competition and improving freedom of choice
by consumers related to different contractual terms. In particular, the
comparability of different costs and quality of services can play a major role
to ensuring the consolidation of an internal competitive market. It is
generally held that it is the responsibility of MS to ensure such comparability
either by imposing obligations directly on undertakings or by promoting
self-regulation as a response to high research costs.[17] The Commission
could promote European initiatives to foster coordination.
In which domains can self-regulation contribute to rule-making?
Self-regulation, as a form of private regulation, can in principle only concern
enabling rules. A different conclusion can be reached in relation to delegated
self-regulation and co-regulation when a legislative act can legitimise the use
of self-regulation and its ability to deviate from mandatory rules.[18] But what is the
current balance between mandatory and enabling rules in European contract
consumer law?[19]
From a substantive
viewpoint, the key strategic question relates to the distinction between
mandatory and enabling rules. Harmonisation of mandatory rules should differ
functionally from harmonisation of enabling rules. It is debatable whether
similar rationales for harmonisation can be used in relation to the two sets of
rules. As to the former, the main institutional consequence of harmonisation at
European level may be the decrease of MS’ power; as to the latter, harmonisation
reduces private parties’ ability to choose, primarily in the realm of freedom
of contract.
Therefore in order to
ensure consumer protection, interpreted as a means to expand consumers’ choices
and thus consumers’ freedom of contract, divergent strategies may be defined as
to mandatory and enabling rules. But the matter is further complicated by
potential different legislative choices. A principle-based legislation
concerning mandatory rules would permit higher level of differentiation than a
rule-based legislation. Even within the realm of mandatory rules the form of
the provision may affect the level of differentiation across Member States.[20]
European legislation in consumer contract law has followed different
patterns over time. While the initial stream was
characterized by mandatory rules and the main goal of legislation by consumer
protection, a second stream (the Consumer sales Directive 99/44) has opened to
different types of contract rules that also encompass enabling rules.[21] In the future, it
is likely that European consumer legislation and more in general European
Contract Law will encompass both mandatory and enabling rules. A new culture
concerning the harmonising role of enabling rules is developing although not
always institutionally perceived.
The debate concerning the use of SR in consumer law has somehow followed
this pattern. The dominant mandatory nature of consumer contract rules has led
many scholars and legal systems to oppose the use of SR in the field, with the
preoccupation that it would reduce the level of consumer protection. Now that
consumer contract law is characterised by a combination of mandatory and
enabling rules (see Directive 99/44), and that there is growing awareness of
the regulatory capacity of enabling rules, the role of SR in consumer contract
law should be re-discussed.[22] Furthermore,
the important changes concerning regulatory techniques and the development of
co-regulation suggests that the fears then put forward might be today largely
ungrounded.
Perhaps the most significant area
is that of drafting SCF. Standardising contract forms can at the same time
benefit both firms and consumers. This activity can certainly reduce consumer
search costs; however the regulatory function of consumer self-regulation
should not be overestimated. The limits of consumers associations to operate as
co-regulators are still quite significant.
Contemporary standardisation is often not only the result of traditional trade associations’ activity but the outcome of negotiating processes involving consumers associations and, in many countries, public authorities. The latter can be subdivided into two main categories: (1) public interest representation organizations, such as ombudsman, and (2) public regulators (i.e Independent Regulatory Agencies, IRAs, or governmental departments).[23] IRAs are involved primarily when markets are highly regulated, affecting contracts content and the contracting parties (imposing obligation to contract). Their intervention may modify the role of competition law as a limit to standardisation. In the field of competition negotiations between national authorities and trade associations used to take place in many countries. In some notification was mandatory in other it was just an informal practice. Regulation 1/2003 has modified the system and now ex ante control is not allowed. This is not to say that informal consultations do not still take place.
But standardisation is not the only form of SR affecting ECL. In specific
regulated sectors different forms have been employed. Master Agreements among
banking associations have contributed significantly to the development of
European contract banking law in both the field of BtoC and BtoB relationships.[24]
Beyond standardisation SR can provide general rules as it is the case for
codes of conducts. In the field of professional associations individual
contracts between clients and professionals are drafted in compliance with the
rules defined by the codes. Rules about Contracts for professional services are
therefore mainly defined by self-regulatory or co-regulatory arrangements.
Outside the field of ECL, Directive 2005/29 EC of 11th may
2005 concerning unfair trade practices provides another good illustration of
the potential role of self-regulation and co-regulation in the consumer field.[25] This role has
been strongly reduced in the final version of the directive, while being much
wider and better articulated in the initial proposal.[26] However,
the importance of self-regulation to define what constitutes a misleading practice
is clear, as are the responsibilities arising when a binding code of conduct is
in place. A new general principle is introduced: when a firm has committed
itself to a code of conduct, non-compliance will be considered a misleading
practice if the commitment is firm and verifiable and the trader has indicated
in commercial practice that he is bound by the code.[27]
Certainly the modes of self-regulation play a very important role to ensuring that a high level of consumer protection is achieved in the building of a European system of contract law. However the analysis of different modes through which SR can contribute to the creation of ECL can not be limited to consumer law and should encompass also business to business relationships. A general model of SR related to all contractual relationships should thus be devised.
C. The different
models of private and self regulation in European contract law and their
relevance to competition and contract law
Different models of SR
are employed in the domain of ECL. The most significant distinction is related
to the alternative between contractual and organizational modes.
Within the contractual
model of SR different private rule making activities can take place:
·
creation
of SCF, or
·
broader
engagements aimed at defining a complex set of rules associated with consumer
transactions or other firms such as codes of conduct
·
even
more broadly to different types of transactions defined in scope by the
regulatory field (energy, telecom, environment, etc.) concerning relationship
with customers and end-users such as master agreements and framework contracts.
When the contractual
model is employed, the parties design a contract to regulate conducts
concerning contractual and non-contractual relationships. To some extent
regulatory contracts may coincide with framework contracts but they may be very
detailed or, on the contrary, very general, simply defining principles to be
detailed in framework contracts then to be implemented by individual contracts.
The regulatory chain can be very long.
The obligations arising
out of these contracts can in principle only affect signatories of the
contract, but in fact often also regulate relationships between signatories and
third parties. For example, these contracts may oblige parties to introduce or
to refrain from introducing clauses in contracts with third parties, be they
firms or consumers. In BtoB relationships this often occurs both in relation to
the supply chain for subcontractors or in relation to the end consumers in distribution
contracts. The performance of these obligations is monitored by parties through
the conventional apparatus of contract law. Although these contracts are
generally not specifically regulated by civil codes or common law, with some
adjustments, general contract law should be deemed applicable to them.[28]
The main issue is
related to the effectiveness of these contracts in relation to third parties.
For example, if the signatory of a code of conduct is bound to refrain from
inserting a clause in a contract with a consumer, how can the breach of the
code affect the contract between the firm and the consumer? Does it only have
consequences among signatories, usually firms, or can the consumer, technically
a third party, sue the enterprise on the grounds of the breach of regulatory
contract or the code of conduct?[29]
Third parties
beneficiary contracts can provide only a partial solution to the problem. The
consumer can be considered the beneficiary of these regulatory contract and
enforce them if one of the party does not comply. Legal systems of European
Member States differ quite significantly but reasonable reliance on the binding
nature of the regulatory contract can be a relatively strong basis for such a
claim. The principle of reliance is becoming a strong basis for enforceability
in contract law and more broadly in consumer law as the Directive on unfair
trade practices shows.[30] Similar problems may arise when SCF
are employed along the chain. SCF involving the whole production chain may
imply the necessity of alternative means of enforcement. It may be difficult
for the consumer to enforce an obligation contained in the contract between
supplier and distributor. These limitations are not limited to SR. To the
contrary a good SR design can contribute to improve legal limitations
concerning the use of functionally correlated contracts.
The complexity of these
regulatory arrangements may require a stronger and broader set of devices than
those currently provided by national contract laws. Parties may thus decide to
set up an organization with different legal forms: association, foundation,
company, cooperative, etc. Such an organization would produce rules through the
enactment of codes of conduct and regulatory contracts, but also guidelines,
codes of best practice, etc. dealing both with internal governance and with the
activity concerning members and their relationship with third parties. The
organization will generally monitor its compliance through a specific apparatus
or delegate this function to an independent body unlike the contractual system
which will generally refer to a public judge or an arbitrator.[31]
So far we have
considered models employed by private parties and implicitly assumed that these
would be firms. In the real world there may be higher diversity. Both the
contractual and organizational alternative can involve different categories. In
the realm of BtoC relationships there are framework contracts or organizations
composed of trade and consumer associations. In the realm of BtoB relationship
we observe the same phenomena with the development of framework contracts and
mixed organizations. Here the main problem is connected to the relationship
between these contracts and/or organizations and the individual positions of
members and non-members. Do these contracts bind only members? Or can they bind
non members too? In the case of consumers can a framework contract signed by
consumers’ associations prevent individual consumers from bringing a legal
action against the firm belonging to the trade association which signed the
contract? The answer, according to the general contract and organizational law,
is in many legal systems negative. The main role of these contracts in relation
to third parties and organizations is only persuasive due to the privity
constraints. However, the rules defined by these contracts and/or organizations
may have some legal effects to the extent that they are recognised as custom or
practices and thus constitute minimum standards.[32]
The current relative
weakness of these instruments as regulatory tools has been in part the driver
for the development of co-regulation or delegated self-regulation at European
and national levels.[33]
There is a diffused scepticism about the credibility of self-regulation and its
ability to deal with conflict of interests and with market complexity. In
addition and perhaps most importantly enforcement of self-regulatory
arrangement is generally deemed insufficient.
The development of
regulated self-regulation in ECL has taken different forms. Worth mentioning
are co-regulation and delegated self-regulation:
a)
where
the government or an IRA themselves become part of the regulatory arrangement.
They can sign codes of conducts, promote or favour their drafting, they can
approve them ex post;[34]
b)
when
there is a formal delegation by a legislative or administrative act without
direct intervention of a public authority.[35] Delegation can concern one
organisation or identify bargaining actors.[36]
These two models can be
briefly analysed in relation to the alternative between contract and
organizations. In the first case, co-regulation, we can further sub-divide the
typologies. Contracts are generally trilateral with the participation of trade
and consumer associations, and some public entity. Here the legal regimes may
vary if the legal systems distinguish between government contracts and private
contracts. The applicable law would depend upon the meaning attributed to the
participation of a public entity to the self-regulatory arrangement. In some
case it would be contract law in other cases administrative law.
In the second case
contracts are still produced by one category (firms) or by two private groups
(firms and consumers) but the public entity can provide the legitimacy to
broaden the effects of those contracts beyond the signatories.
Symmetrically for the
organizational model: we can have dual-stakeholder model in which firms and
consumers, individually or associated, create an organization whose activity is
legitimated ex ante or ex post by the government or
multi-stakeholder organizations where the government participates directly into
the organization. Direct or indirect governmental participation may affect not
only governance issues but also the nature of the regulatory activity and its
effects on third parties.
It should be mentioned
that in countries where consumer protection is perceived as a public interest
function, the role of the associations is mainly performed by public or
quasi-public entities. In these cases contracts are signed by the trade
associations and the Consumer Ombudsman or Consumer Agency.[37]
To conclude, we can have
different types of contractual and organizational arrangements aimed at
contributing to produce contract rules in BtoC and BtoB relationships.
Contractual agreements, designed to define contract terms, can take
the following forms:
A1) Single-stakeholder agreements (only among
firms)
A2) Dual-stakeholder agreements (between firms
and consumers or different firms)
A3) Multi-stakeholder agreements (firms, consumers, government, IRAs, etc).
Organizational arrangements can also be subdivided in three categories:
O1) Single stakeholder organization (only among
firms)
O2) Dual stakeholder organization (between firms
and consumers or different firms)
O3) Multi-stakeholder organization (firms, consumers, government, IRAs, etc.)
These distinctions are relevant for the reasons outlined above, ie the effects of contracts, and the activity of the organizations may be different according to the identity and powers of the participants.
Table 1
|
|
One-sided (single stakeholder) |
Bilateral (dual- stakeholder) |
Multilateral
(multi-stakeholder) |
|
Contractual |
Only
among firms |
Between trade and consumer (or other trade)
associations |
Among trade, consumer associations and public
actors |
|
Organizational |
Composed
only of firms |
Composed
of trade and consumer (or other trade) associations |
Among
trade, consumer associations and public actors |
The content of these
contracts when they regulate BtoC transactions has to be scrutinized under both
competition law and contractual unfairness. The content of these contracts when
they regulate BtoB transactions has to be scrutinized under competition law and
unfairness either partially (see the case of late payment directive) or
totally, when unfair contract terms scrutiny is applicable to all contractual
relationships, including business to business. As we shall see these variables
have a legal relevance both in contract for the purpose of determining fairness
and in competition law.
Table 2
|
|
Contract |
Organization |
|
Regulatory contracts |
Agreements Concerted
practices |
Decisions
by associations of undertakings |
I will first explore in
greater depth the alternatives above defined. Then I will identify some
features of the competition scrutiny and unfairness scrutiny, and finally
examine some possible reasons for variations of competition and (un)fairness
evaluation in different legal systems.
To what extent might the nature of the self-regulatory body that defines the standard terms affect the regulatory output, i.e. the contractual models?
The organizational alternative implies the relevance of the composition of the self-regulatory body and the representation of different interests.
In the contractual alternative, the nature of the parties who participate in the agreement affects the nature of the regulatory contract. If the regulatory contract is defined only by undertakings it is a unilateral act, if both manufacturers and consumers participate it is a bilateral contract, if other constituencies participate is a multilateral contract. To the extent that legal systems differentiate the legal regimes of these acts there are differences.
The organizational perspective incorporates the alternative as a
matter of composition of the body. If, within the self-regulatory body, only
manufacturers are represented, the regulatory contract would only be a
unilateral act or a contract of adhesion.[38] If in the
organization both categories are represented, would the framework contract or
the code of conduct have contractual basis? If this approach is accepted then
the composition of the regulator would affect the nature of the act. If the
composition is multi-stakeholder then the contract will be multilateral.
When contract terms are defined by an association of undertakings a question might arise as to the nature of that organization and the amenability to judicial review of the activity it performs. The regulatory contract in this case could be scrutinized under aspects impossible to scrutinize if the standard forms were simply the outcome of a contractual agreement of a purely private self-regulatory body.
Other relevant factors concerning the organizational models may be the for-profit or non- profit form of the organization and the gratuitous or non-gratuitous nature of the activity. The question is whether we can expect different outputs (standard terms and contracts) from for profit or non-profit organizations, and from selling arrangements or gratuitous ones but also how these differences may play out in competition and contract law.
Most of the
organizations that produce standard contract terms and forms have a non profit
form. However, this should lead not to the conclusion that they pursue
charitable goals. They are typically mutual and they supply these forms to
their members, which are for profit enterprises. They act in their own
self-interest and in the interest of their affiliates. As it is the case for
competition law purpose this distinction should not play a big role.
A more convincing perspective
to distinguish among private rule makers supplying standard contract forms, is
related to the distinction between mutual and public interest organizations.
The former pursuing exclusively the interests of its members, the latter aiming
at public interests.
The real difference
among private rule makers might be between independent and not independent
organizations.[39] There are some
organizations that are independent from both suppliers and consumers that
produce SCF. They generally operate in the international market. If we were to
make a distinction between different regulations concerning standard forms this
distinction, more than for profit/non profit, should be the one to look at.
There are two final
points worth mentioning, concerning both contractual and organizational models.
One aspect is related to
the nature of the produced services or goods. Whether these terms and contracts
are sold in the market or are simply supplied gratuitously might make a
difference in terms of the nature of the output and may play a role in the
institutional design concerning the use of self-regulation and co-regulation at
European level.
The other aspect is
related to the legal protection of the regulatory output. Often SCF are
copyrighted or protected through unfair competition law. An open and relatively
unexplored question concerns the relationship between the modes of diffusion (for
sale/gratuitous) and the nature of protection (copyright/unfair competition).[40]
Furthermore suppliers
and users of contract terms and forms may have different preferences. Often
there is segmentation on both sides and private organizations that are
monopolists try to balance these interests internally through their governance
systems, those which operate in a competitive setting tend to maximize their
members’ welfare at the expenses of other segments of the contracting
population. Analogous reflections can be made for contractual models. In both
cases competition law preserves the heterogeneity of the preferences system.
D. Contract
standardisation and the nature of SCF: Coupling competition and contract law
controls
SR and more generally private rule making encounter limits based on:
(1) competition law and policy, related to questions of both whether and how to regulate, and
(2) contract law, mainly related to the mode of standardisation and the content of contract clauses, particularly unfairness.
Competition law
addresses a broad range of regulatory activities performed by private
regulators, through the use of contract and organisational laws. The forms may
vary when there is pure self-regulation, delegated self-regulation or
co-regulation.[41] Unfairness
analysis under contract law also differs if standardisation is purely private
or is mandated by a public authority.
I would like to focus
specifically on the limits on standardisation as a form of self-regulation.
Standardisation and differentiation of contracts represent one feature of
self-regulation of contract law worth focusing upon.[42] Trade and
professional associations generally operate as contract standardisers
but there are other forms of governance concerning standard contract terms
which are less one-sided. Examples within SCF range from stock exchanges to
sports associations. At the international level the different organisations of
Chambers of Commerce define SCF. In the latter case the role of contractual or
organizational arrangements is to govern differentiation of contractual terms
in ways compatible with the functioning of industry. In addition to drafting
contract forms they can issue guidelines concerning principles or general rules
that ought to be implemented in drafting SCF. Negotiated private regulation
operates also as a revision mechanism when clauses in SCF, previously held
legitimate, are considered void due to new legislative intervention.
At transnational level
the problem is concerned with the governance of lex mercatoria and the different models of self-regulation.[43] The question of standardisation in
this case takes different forms. They may produce both positive and negative
effects. It is very difficult, if not impossible, to define ex ante the
optimal level of contract standardisation/differentiation.
The benefits of
standardisation concern both firms and consumers.[44]
The incentives to
standardise may exist independently from anticompetitive goals. The problem
thus is to distinguish between competitive and anticompetitive standardisation.
The proposed criterion is the incompleteness of standardisation: to be
compatible with competition, standardisation of contracts should not be
complete.[45]
Differentiation of SCF
may produce positive effects. It promotes competition among firms and it
enhances freedom of consumers’ choice.[46] Differentiation
can also produce negative effects by increasing consumers’ research costs and
decreasing contracts and products comparability.
There are limits to standardisation in the interest of consumers and that of competitors. Standardisation can be scrutinized under competition law and under unfair contract terms. In addition, further scrutiny of contract standardisation may occur in regulated sectors where public or private regulators have to control the content of contracts and their compliance with regulatory goals.
According to competition law, standardisation should not be abusive, i.e. it should not be a means to introduce contract clauses imposing unfair burdens on consumers. Consumer welfare would be negatively affected in both cases but in different ways. In fact there can be anticompetitive but not abusive contract standardisation.[47] On the other hand there might be abusive standardisation, unlawful under the Unfair Contract Terms Directive, but compatible with competition law.[48] As we shall see abusive standardisation is different from anticompetitive and has a different meaning under competition and consumer contract law.
A second issue
concerning the limits of self-regulation in relation to standardisation is
related to the modes of negotiating standard contract terms. Under directive
93/13, Article 3 § 2, individually negotiated terms
fall outside the scope of the directive and judges can test unfairness only
using general contract law.[49] When terms have
not been individually negotiated they are subject to scrutiny under the unfair
contract terms directive. A standard contract term is considered unfair if,
contrary to the requirement of good faith, it causes a significant unbalance in
the parties’ rights and obligations.[50] The good faith requirement has been
differently interpreted in MS according to their national traditions.[51] The ECJ has explicitly recognised the
importance of national laws for the evaluation of unfairness.[52] The unfair contract clause is not
binding on the consumer.[53]
No specific rules are
provided in the Directive to distinguish between individual and collective
negotiations. The specific reference to individual negotiation implies that
collectively negotiated SCF fall within the scope of the Directive, since the
directive is aimed at conferring rights upon individual consumers. Thus
bilateral or multilaterally negotiated SCF, as defined above, should be subject
to judicial scrutiny to test their compliance with rules concerning unfair
contract terms. The legal effect of collective negotiation is not to deprive
individual consumers of their individual rights if the terms negotiated by
consumer associations are unfair. This interpretation, while increasing the
level of individual consumer protection, weakens the strength of collective
negotiations. It is worth suggesting that a different interpretation of
fairness may be introduced if the clause not being individually negotiated has
been collectively negotiated.
In competition law,
negotiated SCF have not been treated much differently from unilaterally defined
standard contract forms.[54] While collectively
negotiated SCF may have a strong political impact on the rate of litigation,
legally they do not deprive individual consumers of their rights to claim
unfairness. To acknowledge the role of collective negotiations and more in
general of self- and co-regulation may imply some changes in current European
law.[55]
Proposals for reform,
though in a different domain, have been advanced by the Green Paper on the Acquis
Communautaire.[56] In particular it is worth mentioning
three aspects (1) the scope of application of the EU rules on unfair contract
terms, (2) the list of unfair terms, and (3) the scope of unfairness test.
In relation to the scope
of application one of the three options is to apply the unfair contract terms
to individually negotiated terms while no specific indications are provided for
collectively negotiated terms.[57] As to the
fairness test, one of the options is to extend fairness evaluation to the main
subject matter of the contract and to price adequacy.[58]
The more general
question raised by the Green Paper on the Acquis Communautaire concerns
the opportunity to introduce at the EU level a general duty to good faith and
fair dealing in consumer law.[59] Here the question
is related to the interpretation that such a clause would have if SCF are negotiated
between trade and consumer associations. But also to the effect that
negotiations among associations over SCF may have on the fairness of individual
clauses.
E. The competition
law limits to using self-regulation in European contract law
The relationship between competition and consumer law has been the
recent focus of scholarly debate, echoed by institutional interventions.[60] The nature of
this relationship is very relevant for the questions we are addressing from
both an institutional and a substantive standpoint. The main issues concern the
nature of the relationship between the two areas, their scopes and functions.[61] Are consumer and
competition law functional complements or equivalents when promoting consumer
welfare? If consumer law is mainly interpreted as a regulatory field how can it
complement competition law?[62]
It should be pointed out at the outset that in MS there are very different traditions concerning the role of trade associations, consumer associations and public authorities for the creation of contract law rules, SCF in general and specifically consumer contracts. While in Nordic countries the role of consumer associations is relatively weak and trade associations negotiate their standard terms with public entities, Ombudsmen and Consumer Agencies, in other MS they are more powerful because entrusted of public functions.[63] Finally in a third group of MS bilateral negotiations are more common and the public authority intervenes, if at all, only ex post.[64] In a multilevel system the institutional design related to the use of SR should be able to incorporate these different traditions.
As described elsewhere the concept of private regulation goes beyond
pure self-regulation.[65] Thus not only
pure forms of self-regulation but also delegated self-regulation and
co-regulation translating into drafting of standard contract forms will be
considered to examine competition law controls.[66]
The competition limits are defined in articles 81 and 82 of the Treaty as interpreted by the Commission and the ECJ, and specified in Guidelines issued by the Commission.[67] The ECJ case law, applying competition law principles to self-regulatory arrangements, is very rich in relation to agreements or decisions where there is some public intervention either ex ante or ex post. Less rich is the case law regarding bilateral agreements between trade and consumer associations concerning SCF, except for cases in which these agreements are imposed by law featuring mandated or delegated self-regulation.
The analysis is focused in general on SR arrangements with special but not exclusive emphasis on SCF concerning business to consumer transactions. It is related both to consumers of goods and services.
There are normative differences related to sectors and in particular between those where contract terms define the product, as it is the case for insurance, credit or securities, and those where contract terms are instrumental to the exchange. In certain areas, for example insurance, European Regulations with block exemptions have been enacted so as to permit contract standardisation.[68] When looking at the limits imposed by competition law on self-regulatory arrangements, it becomes clear that they differ between firms producing goods and undertakings producing professional services.[69] This distinction is less relevant in relation to industry-provided services as the banking and insurance sectors show.[70]
To evaluate competition limits to the use of SR in ECL three issues have to be addressed:
a) The framing of these agreements/arrangements for competition law purposes.
b) The applicability of competition law to different types of private regulatory arrangements.
c) The types of control and the effects on these arrangements once competition law is deemed applicable.
How are self-regulatory arrangements framed for the purpose of competition law scrutiny?[71] There is a relative symmetry between SR arrangements and the different typologies considered by competition law as the following table shows.
Table 3
|
|
Single-stakeholder |
Dual-stakeholder |
Multi-stakeholder |
|
Contractual
SR Agreements
(Art. 81) |
Contracts
only among firms |
Bilateral
contracts between associations. I.e. between trade and consumer (or
other trade) associations |
Multilateral
contracts. Among
trade, consumer associations and public actors |
|
Organizational
SR Decisions
of undertakings (Art. 81) |
Organizations
composed only by firms |
Association
of associations. Composed by trade and consumer associations |
Association
of associations. Among trade, consumer associations and public actors |
|
Usages/Customs Concerted
practices |
|
|
|
As the table shows the different models of SR examined above are well reflected in the competition law regime.[72] Certainly the formal differences between contract and competition law are still very relevant and for good reasons since contract and competition law perform different functions.[73] However, these differences are not such as to prevent a comparison between competition and contract for the purpose of a unified theory of self-regulation in European Contract Law.
The contractual model of self-regulation is reflected in the category of agreements in competition law while the association of undertakings can be related to the organizational model.[74] It is unclear what the functional equivalent of concerted practices can be in the field of self-regulation. Perhaps some correlation with customs and usages can be drawn but a full analysis of this comparison is beyond the scope of this essay.[75] We can therefore distinguish between contractual and organizational self-regulatory arrangements in competition law as well.
Within this framework, is the distinction between single, dual and multistakeholder agreements/organizations relevant in competition law?
Can organizations where there is bilateral (firms and consumers, or firms with different market powers) or trilateral representation (including public actors or other private organizations) be considered associations of undertakings or agreements for the purpose of Article 81? Is the applicable test different from that applied to single-stakeholder agreements and organizations? Can agreements, signed by trade and consumer associations and approved by public authorities, be considered scrutinisable under Article 81 EC? In the case of an affirmative response, should they be scrutinized under competition law, or should they be exempted, if their main goal is to pursue consumer protection and/or public interest?
At the core of these questions is the issue concerning the relevance of the nature of different participants to self-regulatory arrangements.
On the one hand the difference between single and dual stakeholder organizations, and in particular the role of consumers associations may suggest that a different set of rules may be put in place. On the other hand the participation in different ways of public authorities may affect the nature of the self-regulatory body and its activity. In simple words, what is decisive to define the threshold for the application of competition law? Who they are, or what they do?[76]
The European Commission and the European Court of Justice are always
forced to enter a functional examination of the role played by the participants
to the self-regulatory arrangements and of which interests they are meant to
represent. The difference between the private or public nature of the
regulatory body is crucial for the purpose of state action defence. But, even
when the regulator is clearly private, the applicability of competition law may
be questioned if there has been delegation or ex post approval by a public
entity of the regulatory activity performed by the private regulator. The
inapplicability of competition law provisions, due to the public nature of the
regulator, may bring about a control under the principles related to the four
freedoms.[77] Though not necessarily alternative
instruments often the boundary between private and public has been associated
to that of competition and freedoms.[78] Competition law control and “four freedoms”
based control can complement each other in relation to private regulation. In
terms of the applicability of the relevant treaty provisions, it should be
noted that the free movement of workers and the freedom of establishment/to
provide services clearly have “horizontal direct effect”,[79] so that private
regulation can be voided and private entities can incur civil liability for restricting
these freedoms. With respect to the free movement of goods and the free
movement of capital, the situation is not entirely clear, in the absence of a
direct judicial pronouncement from the ECJ.[80] Many Article 28
cases have demonstrated a willingness on the Court’s part to interfere with
decisions made by private actors, albeit always with some linkage to “state
action”, either in the form of legislation allowing
a restrictive decision to be taken or the public powers of a professional
association that took a restrictive decision.[81]
Let us first examine the criteria to define the public/private nature of the regulatory body.
The nature of the participants in the association defining standard forms, or the signatories to the agreement is certainly a significant feature but not a decisive element to decide whether or not ‘competition law control’ should apply. If they represent the public interest and not only that of one category, particularly of firms, these decisions are more likely to be held compatible with competition law.[82] A frequent example is setting tariffs. In case of delegation to private bodies the rule defined does not loose its legislative character if two requirements are met (a) the explicit considerations of public interest (b) the expertise based nature of the deliberative body. If they do not occur the private body is exercising rule making power subject to competition law scrutiny unless it is subject to ex post approval by the State.[83] From a normative perspective the path along the public/private nature of the participants to the agreement or the association does not seem very promising. While relevant, this criterion should not be decisive to decide on the applicability of competition law.
Let us now move to an analysis of the differences among private participants. How does the composition of the rule-making body impact on the applicability of competition law, whether it is a formal organisation or a group of parties engaged in a contractual relationship? While it would be inappropriate for the purpose of deciding the applicability of competition law to distinguish between associations composed only by undertakings and associations with mixed composition, i.e. associations composed by both undertakings and consumers’, it is clear that the latter should require a different approach when internal power’s allocation reflects public interest’s concern. This should imply the recognition of the specificity of negotiated self-regulation, both when it is bargained only among firms or between firms and consumers, and when public actors also participate in the drafting of codes of conduct or of standard forms contracts. Currently the negotiated nature of the agreement among different private associations does not play any meaningful role but the presence of signatories, such as consumer associations, may be revealing of public interest. In this case it should affect not the applicability of competition law but the nature of the applicable test.
A more difficult question concerns organizations and agreements where the State or a public agency is directly represented in the regulatory body. We call these bodies as hybrids. Here the divide between pure self-regulation and delegated private regulation becomes blurred. In other contexts, the substitution power by the public entity, when the activity of the self-regulatory body is unlawful, has been used to decide on the applicability of Article 81.[84]
Anticipating the conclusion: the question of whether and how competition law is applicable to standardisation of contract forms should be dealt using a different approach from that currently employed by Commission and ECJ. The scrutiny should address the rationale for public participation into the self-regulatory arrangement in order to evaluate whether the public interest, represented by public actor’s intervention, (1) justifies the limits to competition introduced by standardization, (2) should bring about modifications for the test used to analyse anticompetitiveness or (3) should permit exemption.[85]
F. Applicability of competition law to codes of conduct and other
self-regulatory arrangements influencing the formation of European contract law
I now turn to a more
detailed analysis of the distinction between different self-regulatory
arrangements, characterized by the absence/presence of public authorities in
competition law, and delegated self-regulation or co-regulation.
When is competition law
applicable to self-regulatory arrangements? The answer is related to different
kinds of SR arrangements, and in particular to the distinction between pure SR
and delegated SR or co-regulation.[86] Do EU
institutions have different criteria according to the regulatory model employed
in each sector to decide whether and how competition law is applicable?[87] When do self-regulatory arrangements
become state measures and the state action defence becomes applicable?
Two hypotheses should be
distinguished: one where it is possible to decide whether the regulator is
public or private, the other where the private regulator acts within delegation
by a public entity or its activity is subject to ex post approval. For example
whether (1) the principles concerning SCF are ex ante defined by the legislator
or by the public regulator and then specified by the private regulator, or (2)
when the latter is given the power to directly draft SCF but they have to be
approved by a public entity before becoming effective.
The two major sets of
cases concern the breach of competition law provisions by undertakings (Articles
81, 82 and 86) on the one hand, and the breach of the same provisions read
together with Article 3 § 1 (g) and Article 10 of the Treaty by state
measures, on the other hand.
Before entering a more specific
analysis concerning different regulatory modes, some general remarks on the
distinction between the legal nature of the rule-maker and that of the
regulatory activity, may be useful.
The Commission and the
Court are not always clear when they use criteria to decide the applicability
of Articles 81 and 82 to private regulator, to regulatory activity, or to both.
In other words they sometimes apply the private-public divide to the regulator
and sometimes to the regulatory activity. As I shall show later, the preferable
criterion is that related to the activity, and those elements associated with
the legal form of the private regulator should only be used as a proxy for
defining the relevant features of the activity and its potential effect on competition.[88]
The question of
applicability of competition law is partly related to the legal form of the
regulator and partly to the regulatory strategy. When the public-private nature
of the regulator is at stake an analysis of the nature of the association of
undertakings is needed. In particular, the issue is: when does a
professional body or a trade association, engaging in delegated self-regulation
or co-regulation, act as an association of undertakings for the purpose of
article 81 EC Treaty?[89] An association of undertakings does not
have to engage in economic activity itself in order to be subject to Art 81.[90] The
criterion is that its action should affect the economic sphere.[91] Private rule making can therefore be
considered an economic activity for the purpose of competition law.[92]
Competition law is applicable only if the private regulator can be considered an association of undertakings for the purpose of Article 81 or a dominant undertaking for the purpose of Article 82. Alternatively it would be possible to consider the undertakings as separate entities and evaluate whether the code of conduct or the framework agreements they sign qualify as an agreement for the purpose of Article 81.
It is important to consider, from a competition law perspective, two features, already underlined in the definition of organizational models.
a)
Does
the legal nature of the association have any relevance?
b)
Does
the composition of its membership play a significant role? In particular, how
does the distinction between associations of experts and association for
interest representation play out?[93]
The first question can
be broken down into more sub-questions related to the definition of association
of undertakings for the purpose of applying competition law to self-regulation.
i. Is it relevant that the association is
itself qualified as an undertaking?
ii. Is it relevant that the association is a
for profit or non profit organization?
iii. Is it relevant that the association has
public or private status? In particular whether its board is nominated by
private organizations, or by public entities? Whether the nominees, even if
appointed by public entities, represent specific private interests or the
public interests?[94]
The answers provided by
ECJ can be summarised as follows. Professional associations can be controlled
by competition law for their economic activity but not for their deontological
activity, insofar as the specific deontological measures are necessary for the
proper conduct of the relevant profession.[95] The association
does not have to carry out economic activity itself to be subject to
competition law scrutiny.[96]
As to the distinction between pure self-regulation, delegated regulation and co-regulation in relation to competition law, ECJ has developed taxonomy of different possible roles of public authorities in relation to agreements and decisions of associations, most of them related to the role of SR.[97] This taxonomy is due to the general principle that competition law applies to undertakings, and does not apply directly to States. However, early on the ECJ pointed out that according to articles 3(1), 10, 81, 82 of the EC treaty States have to comply with the duty of loyal cooperation and can not enact measures that violate community law.[98] Private regulatory arrangements in which not only individual firms and trade associations but also public authorities are involved can be scrutinized under competition law as long as they translate into economic activity and the agreement has been made or the decision has been taken by an undertaking or an association of undertakings.[99] An association of undertakings, which has been delegated regulatory power, has to comply with competition law rules.[100] When there is delegation, the main question is whether the delegated activity can be considered state action, thus subject to the state action defence, or can be qualified as private action, subject to competition law rules. The applicability of article 81 and 82 can only be excluded if the association is a public authority and does not exercise economic activity.[101] Such a development has broadened the scope of economic activity and has widened the definition of undertaking and associations of undertakings.[102] Article 10 in conjunction with Articles 81 and 82 of EC Treaty limits delegability of rule making powers, including drafting of SFC, to private organisations by States and other rule making public authorities.[103] When the principles set out in the delegating Act violate competition law, national competition authorities and Courts can dis-apply the delegating Act and scrutinise the activity of the delegate.[104] The crucial question is the level of discretion the delegatee enjoys when exercising the delegated power to define SCF. The higher the level of the discretion in setting tariffs or determining other potentially anticompetitive clauses the more likely the scrutiny of competition law.
In sum: when competition law is
not applicable alternative control can be exercised under the four freedoms.[105] Regulation by
hybrids can be scrutinized according to the subject matter in relation to the
different principles and if it amounts to an obstacle the regulation can be
voided. It is well known that different principles apply to freedom of goods,
services and capitals. In the former the distinction between public and private
entities still plays an important role, although the application of Article 28 of
the Treaty has, arguably, been applied effectively to private organisations,
while Article 56 may also be found to have the same effect.[106] In relation
to freedom of services and establishment, the applicability to private
organisations has been admitted explicitly by the ECJ.[107] A full
account of the control over private regulation under the four freedoms is
however beyond the scope of this essay.
G. Distinguishing self-regulatory arrangements in competition law
When competition is deemed applicable to self-regulatory arrangements, then agreements, decisions of undertakings and concerted practices are scrutinized to verify whether they are, in fact, anticompetitive.
The Commission considers contractual terms and SCF as an agreement or decision of undertakings within Article 81 § 1.[108] The ECJ confirms such a view.[109] Within agreements, not only binding contracts between different categories of firms but also unilateral acts (i.e. codes of conduct) enacted by firms of the same sector can be scrutinized.[110] These unilateral acts may have effects on third parties regardless of their formal consent. However, recently greater attention has been paid to effective consent in relation to agreements between producers and distributors.[111]
Agreements are generally made among firms.[112] But agreements concerning unfair contract terms can take place among undertakings and consumers, therein endorsing the dual-stakeholder pattern. The participation in the agreement of a consumer association or its consent does not however alter the applicable test. In the absence of a direct precedent on this specific point,[113] we can reach the conclusion that, according to current interpretation, collectively negotiated agreements would be subject to the same scrutiny as unilateral acts unless this negotiation reflects public interest concerns that may trigger exemption (or even downright exclusion from the scope of Article 81 altogether).[114]
The problem of standardisation is well known. To the extent that SCF are defined by associations or groups of firms they have to meet the competition threshold. How far should firms go in standardising contract terms so as to maintain a sufficient level of competition?[115] Economic theory has provided useful insights on the degree and the content of standardisation compatible with competition law.[116] National authorities apply this standard to some extent.
As to the organizational model, both the constitution of an association and its operations may be scrutinized under competition law. When SR operates through an organizational model, the scrutiny mainly concerns the decisions by associations of undertakings. The very constitution of a trade association has been qualified both as a decision and as an agreement.[117] The Commission also considers recommendations concerning the adoption of SCF to be decisions of associations of undertakings under Article 81 § 1.[118]
The boundaries between agreements and decisions of associations of undertakings are not well defined but, since the consequences do not greatly differ for the purpose of application of Article 81, I will not focus on this distinction.[119] One distinction that may be quite relevant is that between conduct scrutinised under Article 81 and conduct scrutinised under Article 82. For example, Article 82 is of little help when one deals with price-fixing (or fixing of other trade terms) as such, as that article looks at whether the prices or conditions - howsoever determined - are abusive.[120] Similarly, Article 81 may be less useful than Article 82 when one deals with conduct that consists of simple discrimination between categories of consumers, with no adverse impact on the process of competition.[121] In the latter scenario, an argument could, perhaps, be made to the effect that Article 82 scrutiny of such conduct may approach the fairness standard adopted under Directive 93/13.
Under article 81 the crucial points concern the nature of the decision and its effects, in relation to the members of the association and third parties. It is relevant whether these decisions are binding or non-binding on the members, and whether they are price-related, directly or indirectly, or not.[122]
Generally, associations define SCF to be used both by their members among themselves, and with third parties, other firms in case of BtoB transactions, or consumers in relation to BtoC transactions.
If these recommendations are binding they tend to be considered almost per se unlawful, particularly when they define prices or determine contractual clauses relevant for price determination or when they offer absolute territorial protection to distributors.[123]
Non binding yet price-related recommendations concerning contract clauses are scrutinised under article 81; if they affect competition, they are generally found to be unlawful.[124]
Binding but non-price related decisions are generally considered less strictly.[125] The category more likely to be held compatible with competition law is that of non binding and non price-related SCF.[126]
Thus the test for binding and non binding recommendations tends to be different, the former stricter, the latter lighter,[127] not least due to the significant reduction in the evidentiary burden effectively borne by the competition authority in the former case. It is clear, however, that non-binding decisions and agreements can be unlawful under Article 81.[128] Thus, the position with regard to Article 81 may be summarised as in the following table:
Table 4
|
|
Price-related |
Not-price related |
|
Binding recommendations |
Almost always unlawful |
Depends |
|
Not binding recommendations |
Often unlawful |
Generally lawful |
National competition law authorities have developed different criteria concerning the test of compatibility of SCF recommended by associations with competition laws.
What is the relationship between the scrutiny of standard forms concerned with competition law and that of administrative or judicial authorities concerned with fairness in contract law? To what extent is the evaluation of the anticompetitive nature of agreements or decisions affected by considerations of fairness? Do competition and contract law overlap in this respect?
Contract fairness in standard contract terms affects how standardisation can occur more than what can be standardised. In relation to the selection of what can be standardised it has been held that time and method of delivery of goods should be left to individual agreements.[129] Fairness affects primarily modes of standardisation. A standardised contract clause may be allowed or forbidden according to its fairness i.e. depending whether it creates an unbalance of rights and obligations and violates the good faith principle (Article 3, Directive 93/13 EC).[130]
It is very rare that fairness, as defined by directive 93/13 and
national laws, is explicitly mentioned by competition authorities, but there
are important signs that often the scrutiny concerning the anticompetitive
nature of standard contract may be influenced by implicit fairness
considerations.[131]
Firstly, Regulation 358/2003, where exemption is conditional upon the absence of a significant imbalance between rights and obligations arising from the contract.[132] The language reflects that of Dir. 93/13. Many of the listed clauses, whose presence would not allow exemption, seem to be inspired more by fairness conditions than by anticompetitive effects.[133] This is so, to a large extent, due to the fact that one of the four requirements for exemption under Article 81 § 3 is “a fair share” being given to consumers. Clauses which are directly prejudicial to consumer interests may, therefore, preclude the Commission from finding that a restriction of competition is offset by countervailing improvements for consumers.
Secondly case-law at ECJ level and national level consider fairness aspects; even if no explicit references to fairness occur, often the same clauses considered unfair are objectionable from a competition law perspective.[134]
An open question concerns the influence of the institutional framework on the degree of overlap between competition and contract law. While functionally distinct, these two limits can certainly influence each other. We can distinguish between the different timing of control in competition and contract law. Ex ante competition control is exceptional and more so after Regulation 1/2003.[135] It normally occurs only when informally the Commission or a national authority is asked to give an opinion on the SCF. When only ex ante competition law control was available because the individual MS had chosen judicial ex post control and rejected ex ante administrative control in contract law it may have happened that the Competition authorities were influenced also by fairness consideration. On the contrary, when two different institutions control ex ante the potential anticompetitive nature and the potential unfairness, it is more likely that the two tests are kept separate and independent. Now that ex ante control has been abolished no institutional overlap can occur. Therefore competition law and contract law control can bring about different results if the substantive tests concerning anti-competitiveness and fairness are kept functionally separate though coordinated.
Two different sources of self-regulation have been distinguished in
relation to European Contract Law: one is concerned with general contract law
the other with SCF. We have recalled the distinction between purely private
self-regulation, delegated private regulation and co-regulation.[136]
Different forms of
private regulation operate within each sector. The influence of self-regulation
on contract law making is relevant in financial markets but also significant in
telecom, media, and, to a lesser extent, in energy, gas and transport, except
for the environmental aspects.[137] In regulated
markets the use of co-regulation is higher than in unregulated markets where
pure self-regulation is more relevant, and direct or indirect participation of
IRAs or governmental actors is relatively frequent in the definition of SCF,
thereby determining co-regulatory arrangements.
Currently, the
differences between purely privately negotiated agreements among associations
of undertakings and agreements simply favoured, promoted or required by the law
is significant. In this field the legitimacy of regulated self-regulation is
much higher than that of purely privately negotiated self-regulation. However
further research, in particular empirical research, is needed to verify whether
standard contracts, produced by pure self-regulation, differ extensively from
those produced within a regime of regulated self-regulation or co-regulation.
The contribution of SR to European Contract Law is mainly related to enabling rules. Trade and consumer associations define standard contract terms and other rules within the space left by the European or the national legislator either by deviating from legislative default rules or by specifying and integrating them. There is some role for specifications of mandatory rules and general clauses such as good faith or public policy.[139] In the first hypothesis SR can substitute enabling rules, in the second it integrates mandatory rules or general principles.
The relationship between co-regulation and European Contract Law is potentially different. Co-regulation, being generally based on a legislative act, allows changes of mandatory rules by private organizations to the extent permitted by the statute. It may empower private organizations with limited law making power. Unlike national systems, where co-regulation can affect the mandatory nature of a contract rule by transforming it into an enabling one, the European legislation in contract law has so far not used this approach extensively.[140]
We have seen that
different self-regulatory models are used to concur to the creation of European
Contract Law: contractual and organizational.[141] In terms of its
effectiveness the relevant distinction is between unilateral and negotiated
formation of contract law. Unilateral definition of rules should be subject to
stricter control to prevent abusive exercise of private regulatory power.
However, according to Directive 93/13, while individually negotiated contracts
are subject to a different regime, collectively negotiated SCF are usually
treated as unilaterally enacted standard forms in relation to the fairness
control, therefore subject to the principles stated in the directive. Fairness
control over SCF ensures that self-regulation is directed at enhancing freedom
of choice and therefore freedom of contracts of consumers.[142]
Competition law contributes
to define the limits and constraints of the use of self-regulation. The
benefits of self-regulation are particularly high in relation to contract
standardization. Furthermore it can favour the integration of European market
by coordinating undertakings operating in different national markets willing to
widen their field of activity. Competition law limits the scope of
self-regulation in relation to the creation of SCF. The competition control
used to differentiate very strongly the test for applicability of Article 81
between pure self-regulation and delegated private regulation, qualifying the
latter state actions and subjecting them to the state action defence. The
reasons for such a disparity are far from clear, especially when delegation of
self-regulation is attributed unilaterally only to one category as it is the
case in many services supplied by professionals. Intuitively unlike purely
private self-regulation co-regulation and delegated self-regulation can pursue
public interests goals that can be balanced with the costs of reducing
competition.
Limitations are less relevant in relation to codes of conducts, where the nature of the framework rules is less likely to reduce competition among undertakings.
These limits are not in opposition to the rationale of using SR to create a European Contract Law. On the contrary they are consistent with a concept of freedom of contract based on the principle of private autonomy even if collectively exercised. Competition law is aimed at enhancing or preserving the space of contractual freedom of parties with lower market power. It only prevents abusive standardisation that reduces contractual and in particular consumers’ choices and therefore would constrain freedom of contract.
Ensuring freedom of contract constitutes the main objective of both fairness control and competition control. In this respect they should be seen as functional complements more than as alternatives expressing conflicting values.
A coordinated system of SCF provided sector by sector can reduce undertakings and consumers’ search costs without decreasing competition. General guidelines at EU level should be provided to define SCF at European level in BtoB and BtoC transactions.
In conclusion: rule-making in contract by private organizations is already very relevant at European level. This activity is subject to different types of scrutiny: the first is that of contract law, in particular the fairness control required by the unfair contract term directive. The second is provided by competition law. The limits on standardisation are quite relevant and formally they do not overlap with those of contract law because they pursue complementary goals.
IV. Some (modest) proposals
State monopolies on rule-making of
European contract law show significant weaknesses. If they ever existed
certainly they have today disappeared. The necessity to complement the role of
the States as rule makers with that of private, non necessarily market, actors,
is emerging in the field of contract law in relation to the formation of the
Common frame of reference (CFR).
In this contribution I have argued
that democratically legitimated private organizations, both consumers and trade
associations, currently have and in the future may play an even more important
role as producers of European Contract Law rules. However private rule-making
organizations differ quite substantially. Most represent private interest groups,
others, still a minority, are independent organizations that produce contract
terms and forms as part of their cultural mission. Some of them sell contract
forms together with other services other provide them as public goods making
them available for free. These distinctions should be considered both in
designing the governance system related to European Contract Law and in
regulating the boundaries between self and co-regulation.[144] Promotion
of co-regulation should favour the birth and consolidation of independent
regulatory private organizations without penalising current for profit
organizations. The governance of these organizations and their accountability
has overarching importance to ensure their legitimacy.
Contract rule makers can
complement mandatory rules and general principles, enacted at EU level, by
specifying them and substitute enabling rules when they do not fit with
specific needs of their members and are compatible with general interests. The
activity of private rule-making, both in the form of pure self-regulation and
in that of co-regulation and delegated private regulation, is and should be
limited by both competition law and contract law. Competition law defines what
can be standardised, and what ought to be left to individual contracting
parties. Standardisation has to be incomplete and does not have to define
prices directly, and to some extent, even indirectly to be compatible with
competition law principles. Contract law focuses on how standardisation should
occur to preserve fairness.
As the essay demonstrated these
limits do not contradict the general principles of European Contract Law, in
particular freedom of contract. On the contrary they ensure that private
rule-making operates to achieve the enhancement of freedom of contract and
freedom of choices for consumers and small and medium enterprises. Competition
law provides legitimacy together with democratic governance principle
concerning the rule making function of these organizations. A regulatory
framework should prevent private organizations exercising rule making from
externalising costs on third parties to the extent that competition law does
not cure the problem.
While taken separately rule-making
and monitoring, self-regulation seem to be quite effective, when burdened with
multiple tasks and in particular with sanctioning their own members private
organizations show some significant flaws. Compliance and enforcement has been
one of the major weaknesses of the self-regulatory system.
New principles, emphasising liability
to monitor and to enforce these rules have been introduced at national and
European level in relation to State institutions. Stringent obligations on
private organizations whose compliance is to be monitored by public authorities
may warrant better results. New co-regulatory arrangements have to be
introduced if private regulation is to gain a significant role in European
Contract Law. Pure self-regulation may not warrant sufficient effectiveness.
The institutional design currently
in place needs thus to be improved.
First the necessity to separate
rule making and monitoring. When private organizations that complement public
rule-making (state or international) also exercise monitoring powers some
devices must be introduced like those provided by separation of powers and
judicial review to avoid conflict of interest. Otherwise the organizations
responsible for rule-making would coincide with those responsible for
monitoring compliance with their own rules. Capture may be a risk and it has to
be contrasted with adequate institutional devices. In this context it is very
important to distinguish between single, dual and multi-stakeholder contractual
arrangements and organizations. The higher the number of participants with
conflicting divergent interests the lower the probability of conflict of
interest. Or at least the lower the probability that such conflict will remain
hidden.
On the side of contract law, the
role of trade and consumer associations should be explicitly recognised and
regulated at EU level but only through general principles. Even leaving in
place the current significant differences among national models, where national
legal systems adopt either more market oriented self-regulatory arrangements or
more co-regulatory instruments, the function of private organizations can be
further promoted as a concurring agent of harmonisation of European law. This
is particularly relevant in heavily regulated market such as securities,
banking, energy and telecom, where the dialogue with national regulators and
European Committees is a necessary condition of ECL development.
On the side of competition law,
the rationales for the differences concerning the tests to scrutinize these
agreements or decisions of undertakings have to be clarified. Two areas appear
particularly problematic:
1) the differences between pure
and delegated self-regulatory arrangements which affect the applicability of
competition law and its effects;
2) the conditions for granting
exemptions related to consumer interest protection and to public interest
protection.
Private organizations have to
change their cultural and organizational clothes as well. If they want to
become democratically legitimated actors of Europeanisation of private law,
they clearly have to operate in a coordinated dimension and to revise their
internal governance rules. While it is appropriate that a process of
coordination and integration among private organizations takes place, it would
be useful that a certain degree of pluralism is preserved so that different
legal cultures can continue to exist and some degree of competition takes
place. This should occur at national but more importantly at transnational
level. It is important that the networks of consumer organizations overcome
national boundaries. They should have a transnational dimension and represent
competing legal cultures. Their legal status as well as some general principles
concerning their governance structure should be re-defined accordingly.
The role of self-regulation in the
process of the creation of ECL is relevant but substantial changes at the
institutional level are needed to improve the quality of its contribution. A
challenge for European scholars and institutions is in front of us.
* This paper was presented at the
SECOLA conference in
[1] On the
relationship between self-regulation and contract law see H. Collins, Regulating contracts (Oxford: OUP, 1999).
[2] An example in this area is provided
by the activity of the International chamber of commerce which provides terms
for international commercial contracts: The Uniform Customs and practice for documentary
credits (UCP) and Incoterms (international commerce terms).
[3] BtoB refers
to business to business relationships operating on equal arms. Btob, instead,
refers to relationship between firms that operate in an asymmetric context be
it asymmetric market power or asymmetric information or caused by other
factors.
[4] In securities the rulebooks
developed by Stock exchanges, particularly Euronext. See infra note 141.
[5] On the role of private
organisations in producing SCF within a governance perspective see F. Cafaggi, ‘New modes of
governance in EPL’ in F. Cafaggi
and H. Muir Watt, The making of European Private Law. Governance Design (working title), forthcoming, EE, 2007
[6] Examples at a European level are: model
forms of contracts (Agency, Distributors abroad, Consortium Agreement and
International Technology License Agreement) and general conditions of contracts
developed by the European Engineering
Industries Association (Orgalime) available at http://www.orgalime.org/publications/forms.htm
and http://www.orgalime.org/publications/conditions.htm
(last visited March 18, 2007); standardised energy contracts developed by the
European Federation of Energy Traders available at http://www.efet.org/Default.asp?Menu=5
(last visited March 18, 2007); the European Master Agreement (EMA) sponsored by
the European Banking Federation (FBE) in cooperation with the European Savings
Banks Group and the European Association of Cooperative Banks; The SEPA (Single
Euro Payments Area) Cards Framework developed by the European Payments Council
available at http://www.europeanpaymentscouncil.eu/documents/SEPA%20Cardsframework_027_05_Version2%200.pdf
(last visited March 18, 2007); Code of Conduct for EONIA SWAP INDEX prepared by
the Euribor FBE available at http://www.eoniaswap.org/Content/Default.asp?PageID=143
(last visited March 18, 2007); the Euribor Code of Conduct drawn up by the
European Banking Federation (FBE), the Financial Markets Association (ACI), the
European Savings Banks Group and the European Association of Cooperative Banks
available at http://www.euribor.org/html/content/euribor_code.html
(last visited March 18, 2007); codes of conduct (Code towards consumers and
Code towards direct sellers) adopted by the Federation of European Direct
Selling Associations available at http://www.fedsa.be/main.html (last visited
March 18, 2007); Code of Conduct for European lawyers
adopted by the Council of Bars and Law Societies of Europe (CCBE) and national codes of conduct available at http://www.ccbe.org/en/documents/code_deonto.htm (last
visited March 18, 2007).
Examples at national level: Allgemeine Geschäftsbedingungen der privaten
Banken und andere Klauselwerke (General contract terms and clauses of private
banks) prepared by the Bundesverband Deutscher Banken (Association of German
Banks) available at http://www.bankenverband.de/index.asp?channel=101758&art=936
(last visited March 18, 2007); Codice di Autodisciplina (Code of conduct)
adopted by the Associazione Bancaria Italiana (Italian Banking Association)
available at http://www.abi.it/doc/home/conoscereBanche/sistemaItaliano/sistemaBancario/doc/tmp986312354513_3Codice_di_autodisciplina2.pdf
(last visited March 18, 2007); Banking Code (March 2005) – Setting standards
for banks, building societies and other banking service providers adopted by
the British Bankers’ Association available at http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=347 (last
visited March 18, 2007); Zasady Dobrej Praktyki Bankowej (Code of Best Banking
Practice) adopted by the Zwiazek Bankow Polskich (Chamber of Polish Banks)
available at http://www.zbp.pl/site.php?s=NGQ3ZTBkNzIxMDc4
(last visited March 18, 2007).
[7] See below text and footnote 86 the
Reiff case and the following jurisprudence.
[8] See Green Paper on the Review of
the Consumer Acquis,
[9] Concerning the relationship between
the use of self-regulation, Standard Terms and Conditions and competition law,
the Commission explicitly acknowledge the limits associated with competition
law:
“The
Commission does not intend at this stage to publish separate guidelines
relating to the development and use of STC. It has already pointed out that it
generally takes a positive approach towards agreements that promote economic
interpenetration in the common market and encourage the development of new
markets and improved supply conditions. Although agreements on the development
or use of EU-wide STC will therefore generally be looked upon positively, in
certain cases agreements or concerted practices to use STC may be incompatible
with the competition rules”. See European Contract Law and the revision of
the acquis: the way forward,
[10] For an historical account until
contemporary times see F. Galgano,
La globalizzazione nello specchio
[11] See the Communication from the
Commission to the European Parliament and the Council – A more coherent
European Contract Law, an Action Plan, COM (2003), 68, final, part. 81-88. See
also ECL and the revision of the acquis: “The second measure sought to
promote the development by private parties of
Standard Terms and Conditions (STC) for EU wide use rather than just in
one single legal order.” , cit., supra note 10, p. 6.
See
on these questions D. Staudenmayer,
‘European Contract Law-what does it mean and what does not mean?, in
[12] See U. Bernitz, ‘The Commission’s Communication and standard
contract terms’, in S. Vogenauer
and S. Weatherill , The
Harmonisation of European Contract Law, cit., supra note 12, pp. 185-ff,
part. 189.
[13] See on information intermediaries S. Grundmann, W. Kerber, ‘Information Intermediaries and party autonomy
– The example of securities and insurance markets’, in S. Grundman, W. Kerber, S Weatherill, Party autonomy and the role if information in the internal market,
Berlin, Walter de Gruyter, 2001, p. 267.
[14] See for
example in the sports domain the regulations enacted by FIFA concerning
mandatory licensing of agents for football players.
[15] See ECL and the revision of the acquis: “the content of STC is for market participants to determine
and decision whether to use STC is also one for economic operators. The
Commission only intends to act as a facilitator and an “honest broker” i.e.
bringing interested parties without interfering with substances.”, supra note
10, p. 6
[16] See
[17] See for
example Art 21 and 22, Universal service directive 2002/22. In particular, Article
22 imposes on national regulatory authorities the obligation to ensure that
undertakings ‘publish comparable, adequate and up-to-date information for
end-users on the quality of their services’. However, national regulatory
authorities can use different organizational models to ensure such achievement,
among which certainly self-regulatory arrangements.
[18] A
relatively structured regime of co-regulation in consumer law has been
introduced in the
[19] See S.
GrundmaNn et al., Party
autonomy, supra note 14.
[20] This level
of complexity is not quite captured by the Green Paper on the review of the
consumer acquis which on the one suggests the move to a more
principle-based legislation and on the other seems to favour a move towards
total harmonisation. See Green paper on consumer acquis, supra
note 9, p. 6 and 10
[21] See the description of
[22] For a
general and relevant scholarly contribution on these questions see H. Collins, Regulating
contracts, supra note 2.
[23] For example
in
[24] European Central Bank, Guideline of The European Central Bank of
[25] See
Directive 2005/29/EC of the
European Parliament and of the Council of
[26] On the
Proposal see the contributions in H. Collins (ed.) The forthcoming Ec Directive on unfair
commercial practices, The Hague, Kluwer international, 2004; G. Howells, H. Micklitz, T. Wilhelmsson, European Trading
Law, Aldershot, Ashgate, 2006
[27] See art 6.2
(b), i and ii, Dir Directive 2005/29, supra
note 26.
[28] Adjustments may be required in the
area of causa/cause/consideration, and in that of remedies, where
sanctions for breach should not be focused on damages but on specific
performance (i.e. to enforce the regulatory obligations) and the typical
contractual sanctions can be combined with reputational ones. See F. Cafaggi, Regulatory contracts, Codes of conducts, reasonable reliance and third
parties, unpublished manuscript.
[29] The implications of this
alternative are clear. If the consumer is allowed to bring a legal action on
the ground of the regulatory contract she can claim damages even in case of
void contracts and pre-contractual unlawful conduct breaching obligations
determined in the code of conduct. Otherwise she will only be able to sue on
the grounds of a valid contract and therefore will have no contractual remedy
in case of breach of regulatory obligations by the firm when the contract is
void.
[30] See F. Cafaggi, Regulatory contracts,
cit., supra note 29.
[31] For example
the management systems built around international framework agreement concerning
corporate social responsibility. See F.
Cafaggi, Regulatory contracts, cit., supra note 29.
[32] See F.
Cafaggi, The regulatory
function of customs and usages in European Contract Law, unpublished
manuscript.
[33] See F. Cafaggi, ‘Rethinking Self-regulation’,
in F. Cafaggi, Reframing self-regulation, cit., supra note 17.
[34] A recent
example concerns German legislation see EG-Verbraucherschutz-Durchsetzunggesetz
20.12.2006 implementing Regulation 2006/2004. See in part. Article 1 § 7 Beauftragung dritter. In relation to
[35] For example a clear relation
between the use of expertise and co-regulation is expressed in the European
Commission, European Governance - A White Paper, Brussels, 25.7.2001,
COM(2001) 428 final: “Co-regulation combines binding legislative and regulatory
action with actions taken by the actors most concerned, drawing on their
practical expertise. The result is wider ownership of the policies in question
by involving those most affected by implementing rules in their preparation and
enforcement. This often achieves better compliance.”
[36] A recent example concerning
delegation to a ‘framework contract’ to be signed by trade and consumer
associations draws from the Italian experience. D.L 223/2006 (Decreto Bersani),
Article 7, n. 5, 6 where it is stated:
“5.
L’Associazione bancaria italiana e le associazioni dei consumatori
rappresentative a livello nazionale, ai sensi dell’articolo 137 del Codice del
consumo di cui al decreto legislativo 6 settembre 2005, n. 206, definiscono
entro tre mesi dalla data di entrata in vigore del presente decreto, le regole
generali di riconduzione ad equità dei contratti di mutuo in essere
mediante in particolare la determinazione della misura massima dell’importo
della penale dovuta per il caso di estinzione anticipata e parziale del mutuo.
[37] For example
in
In
Germany The only agreement sometimes referred to as such and involving
government representatives is the “Vergabe- und Ver-tragsordnung für Bauleistungen
Teil B (VOB/B)” (Awarding and Contracting Code for Construction Services). It
is sometimes argued that the different State agencies involved in its
negotiation do actually not only represent state interest, but also private
homeowners/builders. For a critique of
this viewpoint see H.-W. Micklitz, ‘Die Richtlinie
93/13/EWG des Rates der Europäischen Gemeinschaften vom 5.4.1993 über
missbräuchliche Klauseln in Verbraucherverträgen und ihre Bedeutung für die VOB
Teil B’, available at http://www.vzbv.de/start/index.php?page=themen&bereichs_id=2&themen_id=55&dok_id=290&search_1=vob&search_2=&hiliting=yes
(last visited July 7, 2006).
[38] The regulatory contract has a
double identity. On the one hand, it is a contract in relation to the parties
who signed, binding them in their relationship with other parties. On the
other, it can be defined as a unilateral act towards external parties, or as a
contract of adhesion, depending on its features.
[39] See F. Cafaggi, Private
organizations and transnational contract law, unpublished manuscript.
[40] See F. Cafaggi, Private
organizations, cit., supra note 40.
[41] These different forms reflect a
balance between interests protected by competition law and other public
interests, different from those related to purely private entities. The
anticompetitive nature of specific contract clauses may be disregarded if the
overall purpose of standardised contract terms, or that of the code of conduct,
is consumer protection or public interest protection, (as it would be the case
for certain environmental agreements). Often these conflicts concern EU
competition law and national public interest, thus they can be articulated as
vertical conflicts; however it may happen that they relate to different EU
rules (competition and environment, competition and consumer protection) even
if they take place at national level, in the latter case we can speak of horizontal
conflicts. The distinction between vertical and horizontal conflicts reflects
different balancing tests to decide between competition policy and other
interests.
[42] See E. Hondius, ‘Self-regulation in consumer matters’, cit., supra note 17, p.
237 ff.; J. Calais Auloy and
F. Steinmez, Droit de la
consomation, 6° ed, Precis, Dalloz, 2003.
[43] On this
question see A. Stone Sweet,
‘The new lex mercatoria and transnational governance’, 13 Journal of European environmental policy (2006), 627 ff. and U. Bernitz, ‘The Commission’s
Communication’, cit., supra note 13, p. 191.
[44]
For
firms, contract standardisation may generate product standardisation thereby
producing economies of scale and scope, and reduction of production costs. The
effects are quite different if contracts are related to products or to
services. In the latter case, when the contract is the product itself, as it is
the case for banking, securities or insurance, standardisation of contracts and
products coincide and are likely to reduce competition among firms to a higher
degree. For consumers, contracts’ standardisation reduces consumers’ research
and learning costs. There might also be a functional link between
standardisation and transparency, as a normative requirement. Market
transparency may in fact require a certain level of contract standardisation to
ensure comparability. Sometimes standardisation is a precondition for the
creation and the efficient functioning of a market. Secondly, contracts’
standardisation may reduce switching costs. Switching costs operate in relation
to repeat contractual relationships. When switching costs are high, consumers
may be locked in. When they are low consumers’ ability to choose and move is
enhanced. However depending on the context standardization may also increase
switching costs and constitute the primary achievement of the drafter. The
nature of switching costs may affect the interpretation of the standardisation
and contribute to decide whether or not is anticompetitive. Switching costs may
be exogenous or endogenous (produced by the firms to lock consumers in).
Endogenous switching costs tend to be anticompetitive and may influence the
evaluation concerning compliance with competition law. An illustration of the
benefits of standardisation is provided by recital 14 of Commission Regulation
(EC) No 358/2003 of 27 February
2003 on the application of Article 81(3) of the Treaty to certain categories of
agreements, decisions and concerted practices in the insurance sector, OJ
[2003] L 53/8 ’Standard policy conditions or standard individual clauses and
standard models illustrating of a life assurance policy can produce benefits.
For example, they can bring efficiency gains for insurers; they can facilitate
market entry by small and inexperienced insurers; they can help insurers to
meet legal obligations; and they can be used by consumer organizations as a
benchmark to compare insurance policies offered by different insurers’. See
more specifically Art 5, Condition for exemption, and Art 6, Agreements not
covered by the exemption.
[45] See M. Grillo and M. Polo, ‘La standardizzazione dei
contratti bancari con particolare riferimento alle Norme bancarie uniformi’, in
Cooperazione e credito (1997) 475.
‘La sola condizione che deve essere soddisfatta affinché la standardizzazione
possa essere compatibile con un equilibrio non collusivo è che essa non
sia completa’.
[46] It should
be pointed out again that contracts’ differentiation in services contracts
implies product differentiation.
[47] There are cases from Sweden, where
the Competition Authority has scrutinized standard agreements negotiated and
entered into between different Trade Associations and the the Swedish National
Board for Consumer Policies (headed by the Conusmer Ombudsman). These
agreements are consumer friendly. However, at least on one occasion the
Competition Authority declared anticompetitive an agreement negotiated and
entered into by the Consumer Ombudsman, see Case Dnr. 1788/93 Sveriges
Trähusfabrikers Riksförbund (A Case concerning individual exemption of an
agreement under the equivalent of Article 81 (3)). See also Case Dnr. 1837/93 Sparbankerna
and Case Dnr. 1867/93 Bankföreningen regarding standard agreements
drafted by Trade organizations or co-operations after consultation with both
the Swedish Financial Supervisory Board and the Swedish National Board for
Consumer Policies and scrutinized by the Swedish Competition Authority.
See also, N.
Averitt and R. Lande,
‘Consumer sovereignty: A unified Theory of Antitrust and Consumer Protection
Law’, 65 Antitrust L.J. 713 (1996); F.
Gomez, ‘EC Consumer Protection Law and EC Competition Law: How
related are they? A Law and Economics perspective’, InDret Working Paper, 2003,
available at www.indret.com; F. Gomez, ‘European
Contract Law and Economic Welfare: A View from Law and Economics’, InDret
working paper, 2007, available at www.indret.com.
[48] Often, however, abusive standardisation is
considered anticompetitive. It should always be kept in mind that the abusive
nature of contract clauses is the effect and not the cause of the
anticompetitive nature of the agreements.
[49] On the
debatable rationale see
[50] See ECJ, C-240/98 to 244/98 Oceano
Grupo Editorial SA/Rocio Marciano Quintero, [2000] ECR I-4941, par. 24: “where
a jurisdiction clause is included without being individually negotiated in a
contract between a consumer and a seller or supplier within the meaning of the
Directive and where it confers exclusive jurisdiction on a court in the
territorial jurisdiction in which the seller or the supplier has his principal
place of business, it must be regarded as unfair within the meaning of article
3 of the directive in so far as it causes, contrary to the requirement of good
faith, a significant imbalance in the parties rights and obligations arising
under the contract, to the detriment of the consumer.”
[51] See EC Consumer law compendium -
Comparative analysis (edited by H. Schulte –Nolke, in collaboration
with C. Twigg-Flessner and
M. Ebbers),
[52] See ECJ, C-237/02, Freiburger
Kommunalbauten and Hofstetter, [2004] ECR I-3403, par. 19 and 21. Par. 19 “in
referring to concepts of good faith and significant imbalance between the
rights and the obligations of the parties, Article 3 of the Directive merely
defines in a general way the factors
that render unfair a contractual term that has not been individually
negotiated” and par. 21 “As to the question whether a particular term is, or is
not, unfair, Article 4 of the directive provides that the answer should be reached
taking into account the nature of the goods and services for which the contract
was concluded and by referring at the time of conclusion of the contract to all
the circumstances attending the conclusion of the contract. It should be
pointed out in that respect that the consequences of the term under the law
applicable to the contract must also be taken into account. This requires that
consideration be given to the national law.”
[53] The ECJ has held that national
courts can assess of its own motion whether the contractual term is unfair. See
ECJ, C-168/05 Elisa
[54] See below
text and footnotes.
[55] See below the conclusions par. IV.
[56] See Green
paper on consumer acquis, cit., supra note 9.
[57] See Green
Paper on consumer acquis, supra note 9, par. 4.4. p. 18
[58] See Green Paper on consumer
acquis, supra note 9, par.. 4.6, p. 19
[59] See Green
Paper on consumer acquis, supra note 9, par. 4.3 p. 17. On the role
of general clauses and standards in European contract law see S. Grundmann and D. Mazeaud, (eds.), General
Clauses and standards in European Contract Law: comparative law, EC law and
contract law codification,
[60] See A. Albor Lorens, ‘Consumer Law,
Competition law and the Europeanization of private law’, in F. Cafaggi, Reframing
self-regulation, , cit., supra note 17, p. 245 ff.; T.
Wilhelmsson, ‘Cooperation and competition regarding standard
contract terms in consumer contracts’,
17 European Business Law Review(2006)
49; J. Stuyck, ‘EC Competition law after modernisation: More than ever in the
interest of consumers’, Journal of
Consumer Policy [2005] 1; G.
Howells and S. Weatherill,
cit., supra note 19, p. 517 ff.; N.
Reich, ‘The “Courage” doctrine: encouraging or discouraging
compensation for antitrust injuries?’,
42 Common Market Law Review (2005)
35.
[61] These
questions are addressed in the Green paper on Damages actions for breach of
EC antitrust rules,
Recent
ECJ case law has further specified the
rule defined in C-453/99, Courage v. Crehan, [2001] ECR I-6297, stating that :
‘Article 81 must be interpreted as meaning that any individual can rely on the
invalidity of an agreement or practice prohibited under that article and, when
there is a causal relationship between the latter and the harm suffered, claim
compensation for harm. In the absence of Community rules governing the matter,
it is for the domestic legal system of each member state to prescribe the
detailed rules governing the exercise of that right’. Then the Court points out
what MS have to specify the concept of
causal relationship, the identification of the competent courts and the rules
of civil procedure, the limitation period, the etent of damages and in
particular punitive damages. See ECJ, C-295/04, Manfredi v. Lloyd adriatico and
others,
[62] The answer to this question may very well
depend on the functional approach to consumer law. It is important to underline
the two-way relationship existing between consumer and competition law.
Competition law presupposes that market failures, particularly asymmetric
information, have already been addressed through administrative regulation or
consumer contract law. Does Consumer law presuppose a competitive market? In
case it does not do its features change if the market is monopolistic or
competitive?. Many devices, for example rules on information, would be deprived
of their most important functions, ensuring freedom of choice, in a
non-competitive market. Market forms affect substantially the function and the
structure of consumer law. This variable should be explicit and different rules
allowed according to the structure of the market.
[63] See
[64] See supra note 38 and also J. Hellner, ‘The Consumer’s Access to Justice in
[65] See F. Cafaggi, ‘Rethinking
self-regulation’, cit., supra note 34.
[66] I will
particularly concentrate on contract standardisation but refer to many other
forms of private regulations that private bodies engage. For example the
imposition of mandatory licensing by private regulators examined under a
competition law perspective by European Courts.
See CFI, T-193/02 Piau v.
Commission paragraphs 100 and 101. Para 101 states : “ The actual principle of
the license , which is required by FIFA and is a condition for carrying on the
occupation of players’ agent, constitutes a barrier to access to that economic
activity and therefore necessarily affects competition. It can therefore be
accepted only in so far as the conditions set out in Article 81(3) EC are
satisfied with the result that the amended regulations might enjoy an exemption
on the basis of this provision if it
were established that they contribute to promoting economic progress, allow
consumers a fair share of the resulting benefit , do not impose restrictions
which are not indespensable to the attainment of these objectives, and do not
eliminate competition.”
[67] See in particular Guidelines on
the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements,
OJ [2001] C3/2.
[68] In the
insurance sector see Reg 358/2003,
[69] It is true that suppliers of
professional services are considered undertakings and therefore subject to
competition law, nonetheless the application of the test to self-regulatory
arrangements concerning products is different from that related to services
produced by professionals. According to the case law of ECJ the proper practice of the profession may
require regulations that produce anticompetitive effects. See ECJ, C-309/99
Wouters [2002] ECR I-1577, § 110. For a wider examination see Communication
from the Commission, Report on Competition in professional services,
[70] Some
specificities are however significant. See in the sector of insurance the block
exemption regulation 358/2003, cit., supra note 69.
[71] Within this
frame I shall consider not only standard forms but also codes of conducts and
governing rules of trade associations that can affect drafting of standard
contract terms employed by members in their contractual relationships. The
constitution of a trade association, its governing rules have been considered
decisions of associations of undertakings for the purpose of the application of
Article 81. See Commission Decision in Aspa, JO [1970] L148; and Nuovo Cegam
Commission Decision
[72] See the tables
1 and 2 above.
[73] On the
relationships between competition and contract law a lively debate has
developed recently: see R. Pardolesi,
‘Il contratto e il diritto della concorrenza’, in G. Gitti (ed.) L’autonomia privata e le autorità
indipendenti, Bologna, Il Mulino, 2006, 159 ff.; M. Maugeri, Abuso di dipendenza economica e autonomia
privata, Milano, Giuffrè, 2003; G. Vettori, ‘Contratto e concorrenza’, in G. Vettori
(ed.), Concorrenza e mercato. Le tutele civili delle imprese e dei
consumatori, Padova, Cedam, 2005, 1.
[74] The organizational
model from a private law perspective can employ different forms beyond association, such
as foundations, companies, cooperatives.
[75] For a
broader examination see F. Cafaggi,
‘Rethinking self-regulation’, cit., supra note 34.
[76] According
to the case law the fact that an association with regulatory functions consist
of members other than only representatives of the industry is taken into
account in assessment of whether competition law rules will apply to the
activity of the association or not.
[77] Such was
the situation in ECJ, C-94 and C-202/04, Cipolla,
judgment of 5 December 2006 (nyr), where, in connection to the joint fixing of
out-of-court legal fee levels by the Italian Bar and Ministry of Justice, it
was submitted (and accepted by the ECJ) that Article 49 could be used to hold a
practice lawful under Article 81 unlawful: see paras 54-70 of the Judgment.
[78] This was
evident from the earliest case law of the ECJ on competition. In ECJ, C-56 and
58/64, Consten and Grundig v. Commission,
[1966] ECR Eng. Spec. Ed. 299, the Court stated, at p. 340, “an agreement between producer and distributor which might
tend to restore the national divisions in trade between Member States might be
such as to frustrate the most fundamental object[ives] of the Community. The
Treaty, whose preamble and content aim at abolishing the barriers between
states, and which in several provisions gives evidence of a stern attitude with
regard to their reappearance, could not allow undertakings to reconstruct such
barriers. Article [81(1] is designed to pursue this aim”
[79] See, e.g. ECJ, C-281/98, Angonese v. Cassa di Risparmio di Bolzano [2000]
ECR I-4319 (Article 39-free movement of workers) and ECJ, Wouters, cit.,
supra note 70 (Article 49-freedom to provide services). See P. Craig and
G. de Burca, EU law: Text, Cases and Materials, 3rd ed.,
[80] For Article 28 and the free movement of goods, see the
following footnote. Article 56 (free movement of capital) definitely has “vertical”
direct effect, at least since ECJ, C-163, 165 and 250/94, Sanz de Lera [1995] ECR I-
[81] Article 28 has been applied in many
intellectual property cases, wherein the ECJ did not allow the IPR holder to
use his IPR to resrict the free movement in the Community of goods that were
previously lawfully marketed in a
[82] See ECJ, C-185/91, Bundesanstalt fur den Guterfernverkehr v.
Gebruder Reiff GmbH and Co. KG, [1993] ECR I-5801, par. 24 : “It must be
therefore be stated that in reply to the question submitted that Article 3(f)
the second paragraph of article 5 and article 85 of EEC Treaty do not preclude
rules of a Member State which provide that tariffs for the long distance
transport of goods by road are to be fixed by tariff board and are to be made
compulsory for all economic agents, after approval by the public authorities if
the member of those boards, although chosen by the public authorities on a
proposal from the relevant trades sectors, are not representatives of the
latter called on to negotiate and to conclude an agreement on prices but are
independent experts called on to fix the tariffs on the basis of considerations
of public interest and if the public authorities do not abandon their
prerogatives but in particular ensure that the boards fix the tariffs by
reference to considerations of public interest and, if necessary substitute
their decision for that of the board.”
Compare
with ECJ, C-35/96 Commission v.Italy [1998] ECR I-3851 § 60.
[83] See ECJ, C-35/99, Criminal
Proceedings Against Manuele Arduino [2002] ECR I-1529 para 36-37,38-39
[84] For a notable (and somewhat
controversial) recent case, see ECJ, Arduino, cit., supra note 84, where
the Court of Justice found that the practice, used by the Italian Bar, of
fixing attorney’s fees in decisions, which were binding (to a large extent) on national
courts when awarding legal costs, is not caught by Article 81(1),
predominantly because the tariffs, once decided by the Bar, had to be approved
by the Minister for Justice who, in turn, had to consult the Interministerial
Committee on Prices and the Council of State. The Opinion of Advocate General Léger in that case is highly
insightful for, although he reaches effectively the same conclusion as the
Court, his approach is more subtle, as he places great emphasis on effective
control by the Member State of the common pricing scheme.
[85] This is also explicit in the
reasoning of the Advocate General in the case cited previously.
[86]
For a taxonomy see F. Cafaggi,
‘Rethinking self-regulation’, cit., supra note 34.
[87] On this
question see J. Szoboszlai,
‘Delegation of State regulatory powers to private parties- Towards and active
supervision test’, 29 World competition
(2006) 73; F. Castillo de
[88] For example
the non-profit or for profit nature of the organization can be a relevant
feature to qualify the regulatory activity of the association but can not be
decisive. A functional analysis concerning the goals and nature of
standardization is always needed.
[89] In relation to professional bodies
the Report on Competition in professional services, cit., supra note
70, summarised the current law in the following way:
“5.1.2
Self-regulation as a decision of an association of undertakings.
§
§ 70
It makes no difference that some professional bodies have public law status or
have certain public interest tasks to perform or allege they act in the public
interest
Para
[90] ECJ, Joined
Cases C-209/78 to 215/78 and C-218/78 Van Landewyck and Others v Commission
[1980] ECR 3125, par. 87 and 88; and ECJ, Joined Cases C-96/82 to 102/82,
C-104/82, C-105/82, C-108/82 and C-110/82 IAZ and Others v Commission
[1983] ECR 3369, par. 19 and 20.
[91] See ECJ, Wouters, cit., supra
note 70, par. 63.
[92] A further distinction can be drawn
between private rule making that has only internal effects and private rule
making that has external effects. In relation to sport associations a
difference between freedom of internal organisation and private rule making
with external effects has been made (case Bosman, par., 81 and case Deliege,
par. 47).
[93] The role of this distinction is to
prevent application of competition law in cases where the regulatory body is
acting in the public interest and not in the interest of the industry.
[94] It is
unlikely to be the case, depending on the exact composition of the board. See
ECJ, Joined Cases C-180/98 to C-184/98, Pavlov and others, [2000] ECR
I-6451, par. 87; ECJ, C-96/94 Centro Servizi Spediporto [1995] ECR
I-2883, para 23.
[95] See e.g. ECJ, Wouters,
cit., supra note
[96] See e.g. AG
opinion , Wouters, [2002] ECR I-1577, at para 77.
[97] European
Courts have also addressed the more general question concerning the legitimacy
of private rule making power and the boundaries to be drawn between public and
private regulation. For a narrow perspective see CFI, Piau , cit., supra
note 67, par. 77-78: “The very
principle of regulation of an economic activity concerning neither the specific
nature of sport nor the freedom of internal organisation of sport associations
by a private law body, like FIFA, which has not been delegated any such power
by a public authority, cannot from the outset be regarded as compatible with
Community law, in particular with regard to respect for civil and economic
liberties. In principle such regulation which constitutes policing of economic
activities and touches on fundamental freedoms, falls within the competence of
the public authorities.”
[98] The general proposition was laid
down by the ECJ in C-13/77, INNO v. ATAB
[1977] ECR 2115. For the present
purposes, there are two questions: (1) whether the rule-making power can be
delegated and (2) how it can be delegated without violating competition law. As
to the first question a preliminary issue is when there is delegation. In this
framework both ex ante delegation and ex post approval are considered. If there
is delegation the question is whether it is lawful or unlawful. Unlawful
delegation can constitute a violation of the duty of loyal and sincere
cooperation between EU and MS. See C-267/86 Pascal Van Eycke v. ASPA NV,
[1988] ECR 4769 ff,. part 16. “It must be pointed out … that articles 85 and 86
of the Treaty are concerned only with the conduct of undertakings and not with
national legislation. The Court has consistently held, however, that articles
85 and 85 of the Treaty in conjunction with article 5 require the member states
not to introduce or maintain in force measures even of a legislative nature,
which may render ineffective the competition rules applicable to undertakings.
Such would be the case, the Court has held, if a Member state were to
require or favour the adoption of agreements, decisions or concerted practices
contrary to article 85 or to reinforce their effects or to deprive its own
legislation of its official character by delegating to private traders
responsibility for taking decisions affecting the economic sphere”
(italics of the Author).
[99] See ECJ, Van
Eycke, cit. supra note 99, par. 16, and following case law. For a
Swedish case where the Swedish Competition Authority scrutinized standard
agreements negotiated between the Swedish National Board for Consumer Policies
(headed by the Consumer Ombudsman) and Trade Associations, see e.g. Case
Sparbankerna, Case Sveriges Trähusfabrikers Riksförbund, and Case Branchföreningen Svenska Värmepumpföreningen, cit., supra note 48.
[100] See ECJ,
C-250/2003, Mauri, Order of the Court,
[101] See ECJ, Wouters, cit., supra
note 70, par. 56.
[102] See ECJ, Bundesanstalt, cit., supra note 83.
[103] See ECJ, Van
Eycke, cit., supra note 99.
[104] See ECJ,
C-198/01 Consorzio Industrie fiammiferi (CIF),
[105] In terms of
public bodies, the ECJ has explicitly stated, in ECJ, INNO, cit., supra
note 99, at par. 35: “A national measure which has the effect of
facilitating the abuse of a dominant position capable of affecting trade
between Member States will generally be incompatible with Articles [28] and
[29], which prohibit quantative restrictions on imports and exports and all
measures having equivalent effect.”
Equally,
the possibility of concurrent and alternative application of Articles 49 and 81
was allowed by the Court in ECJ, Wouters,
cit., supra note 70, and more recently in ECJ, Cipolla, cit., supra note 78, esp. par. 58-70.
[106] It is not clear yet whether the
Court would apply Art 56 to strike down a “purely private” act, i.e.
whether it would allow voidance and/or other remedies in the absence of a
question concerning the validity of a public act.
[107] ECJ, Wouters, cit., supra note 70.
[108] See Putz v.
[109] ECJ, Sandoz, cit., supra
note 109.
[110] The distinction between
what has or has not been accepted by distributors may be vital in these cases. Contrast,
for example ECJ, Sandoz,
cit., supra note 109, with the more recent Bayer case. In the latter
case (Case IV/34.279/F3 - ADALAT, OJ [1996] L201/1, recitals. 189-199, 211 and
Article 1 of the Decision), the Commission found that the practice, engaged in
by subsidiaries of Bayer in France and Spain, of restricting supplies to
wholesalers in areas where parallel exports to the UK may occur, is a
restrictive agreement within the meaning of Article 81.1. Both the CFI (T-41/96
[2000] ECR II-3383) and the ECJ (C-2 and C-3/01, Bundesverband der
Arzneimittel-Importeure EV and the Commission v. Bayer A6, [2004] ECR
I-23), rejected the Commission’s interpretation, not least because the
restriction of supplies by the Bayer subsidiaries was not beneficial for the
wholesalers-nor was it explicitly endorsed by them. For a comment on the case,
with the relevant history of the concept of agreements, see C. Brown, ‘Bayer v. Commission-the
ECJ Agrees’, 25 ECLR (2004) 386. It will be remembered, of course that,
notwithstanding the difficulties encountered when trying to prove the existence
of an agreement, when a producer is dominant, the same or similar conduct vis-à-vis
its retailers may be scrutinised under Article 82: Cases No. IV/34.073,
IV/34.395 and IV/35.436 - Van den Bergh Foods Limited, OJ [1998] L 246/1,
upheld in CFI, T-65/98, Van den Bergh Foods Ltd v Commission, [2003] ECR
II-4653).
[111] P. Fattori e M.
Todino, La disciplina della
concorrenza in Italia,
[112] Within this category we can
distinguish between agreements among firms belonging to the same association
and agreements among firms belonging to different associations. Equally, it must be noted that Community competition law uses the
term “undertaking”, which includes “every entity engaged in an economic
activity”: ECJ, C-41/90, Höfner and Elser v. Macroton GmbH [1991] ECR
I-1979, § 21. Thus, it may also include individuals, as was the case, for
example, in Reuter/BASF [1976] OJ L254/40, where the Commission examined an
agreement between an inventor and the company which bought up his patents.
[113] Although there have been notable
cases concerning groups of purchasers, such as ECJ, C-250/92, Gøttrup-Klim
e.a. Grovvareforeninger v Dansk Landbrugs Grovvareselskab AmbA [1994] ECR
I-5641, where an association of farmers was formed for the purpose of
purchasing collectively (and at lower prices) certain types of farming
equipment.
[114]
[115] T. Wilhelmsson claims that there is
an interest of consumers to promote business cooperation in order to enable
ombudsmen and consumer associations to negotiate contract terms with business.
It follows that it would be in consumers’ interest to reduce the level of
competition. See T. Wilhelmsson,
‘Cooperation and competition’, cit., supra note 61, p. 58 ff. It is
unclear however why coordination among business, instrumental to negotiations,
should necessarily reduce competition. A high level of negotiation can be
perfectly compatible with competitive markets to the extent that the goal of
negotiation is to exclude unfair terms and make firms compete about fair terms.
[116] See M. Grillo and M. Polo, ‘La standardizzazione dei contratti bancari’, cit., supra note 46.
[117] See Commission Decision, Nuovo CEGAM, cit., supra
note 72. Also, according to Whish: “It has been held
that the constitution of a trade association is itself a decision, as well as
regulations governing the operation of an association. An agreement entered
into by an association might also be a decision. A recommendation made by an
association has been held to amount to a decision and it has been clearly
established that the fact that the recommendation is not binding upon its
members does not prevent the application of article 81 (1)…Regulations made by
a trade association may amount to a decision within the meaning of Article
81(1)”. R. Whish, Competition Law, 5th ed.,
[118] See, e.g.
Publishers' Association (Net Book Agreements), OJ [1989] L22/12.
[119] Compare for example ASPA with Nuovo
Cegam, cit., supra note
[120] For example, under Article 82(a),
by “directly or indirectly imposing unfair purchase or selling prices or other
unfair trading conditions”. Price-fixing can be caught by Article 82 when it is
used to damage the competitors of the dominant undertaking(s).
[121] For example, in 1998 World Cup, OJ [2000] L5/55, the
Commission found that the French Organisation Committee, formed by the French
Football Association for the purposes of distributing tickets to the 1998 World
Cup, had abused its dominant position by making it excessively difficult for
consumers who are not French residents to buy tickets. Contrary to the
submissions of the Committee, the Commission found that there can be an abuse
even in the absence of an effect on the structure of competition in the
relevant market. See recitals 99-100 to the decision.
[122]
Proofs of these criteria may be found in Commission Regulation (EC)
358/2003 on the application of Article 81(3) of the Treaty to certain
categories of agreements, decisions and concerted practices in the insurance
sector (“the Insurance Block Exemption”), whereby standard policy conditions
may not be exempted when they are binding and create a significance imbalance
between rights and obligations. According to recital 15, “standard policy conditions must not lead
either to the standardisation of products or to the creation of a significant
imbalance between the rights and obligations arising from the contract.
Accordingly, the exemption should only apply to standard policy conditions on
condition that they are not binding, and expressly mention that participating
undertakings are free to offer different policy conditions to their customers.
Moreover standard policy conditions may not contain any systematic exclusion of
specific types of risk without providing for the express possibility of
including that cover by agreement and may not provide for the contractual relationship
with the policy holder to be maintained for an excessive period or go beyond
the initial object of the policy. This is without prejudices to obligations
arising from community or national law to include certain risks in certain
policies.”
[123] See ECJ, BNIC, cit., supra
note 120, par. 22: “for the purpose of article 85(1) it is
unnecessary to take account of the actual effects of an agreement where its
object is to restrict, prevent or distort competition. By its very nature, an
agreement fixing a minimum price for a product which is submitted to the public
authorities for the purpose of obtaining approval for that minimum price, so
that it becomes binding on all traders on the market in question, is intended
to distort competition in the market.” In a similar vein, see ECJ, C-234/83, SA
Binon & Cie v. SA Agence et Messageries de
[124] ECJ, IAZ, cit., supra note
91, par. 20: “Article [81(1)] of the treaty applies also to associations of
undertakings insofar as their own activities or those of the undertakings
affiliated to them are calculated to produce the results which it aims to suppress.
It is clear particularly from the latter judgement that a recommendation, even
if it has no binding effect, cannot escape article [81 (1)] where compliance
with the recommendation by the undertakings to which it is addressed has an
appreciable influence on competition in the market in question.” See also
FENEX, [1996] OJ L181/28, where recommended tariffs were viewed in their wider
context of co-ordinating market conduct, not least pricing conduct. In either
case, however, some degree of compliance by the members of the
association was found, in the sense that the recommendations were not ignored. How
much compliance exactly is required in order to find a restriction within
the meaning of Article 81 § 1 can be a very tricky question, as
was evidenced in the Bayer case (n. 76 above), as well the seminal judgment of
the ECJ in C-89, C-104 and C-114//85, Ahlström Oy v. Commission
(Woodpulp) [1988] ECR 5193.
[125]
This is due to the fact that restrictions on price form part of the set
of restrictions by object or “hardcore restraints”, which trigger the automatic
application of Article 81 § 1-provided, of course, there is an appreciable effect on interstate
trade. The other restrictions are, in the case of horizontal agreements, restrictions
of output and the sharing of markets/customers and, in the case of vertical
restrictions, an absolute restriction of parallel trade. Any conduct falling
outside of the hardcore set must be assessed in the light of its effects on the
relevant market. See Communication from the Commission-Notice, Guidelines on
the application of Article 81(3) of the Treaty, OJ [2004] C101/97, point
23; Commission Notice, Guidelines on the applicability of Article 81 of the
EC Treaty to horizontal cooperation agreements, OJ [2001] C3/2, points
18-20; Guidelines on Vertical Restraints, cit., supra note 124,
points 46-47.
[126] The prime example of this
phenomenon may be found in Recital 14 and Articles 1(1)(c) and 5 of the
Insurance Block Exemption, cit., supra note 123. Standard policy conditions
in insurance contracts are exempt under that Regulation, under the condition
that it must be explicitly provided that undertakings are not in any way obliged
to adopt them.
In
Sweden, the Swedish Competition Authority has on a number of occasions stated
that non-binding standard contract not encompassing stipulation regarding price
is compatible with the Swedish Competition Act, see e.g. Case Branchföreningen
Svenska Värmepumpföreningen and Case Sveriges Trähusfabrikers
Riksförbund, cit., supra note 48.
[127] P. Fattori e M. Todino, La disciplina della concorrenza, cit., supra note 112. Citando
C. Dec. Fedetab 20.7.1978, OJ
Formally
speaking, the ECJ and the Commission make no distinction between “agreements”
and “concerted practices” under Art
[128] See ECJ, IAZ, cit., supra
note 91, par. 20-21: “Article [81 (1)] of the Treaty applies also to
associations of undertakings in so far as their won activities or those of the
undertakings affiliated to them are calculated to produce the results which it
aims to suppress. It is clear particularly from the latter judgement that a
recommendation even if it has no binding effect, cannot escape article [81(1)]
where compliance with the recommendation by undertakings to which it is
addressed has an appreciable influence on competition in the market in
question.
In
the light of that case law it must be emphasized, as the commission has
pertinently stated, that the recommendation made by Anseau under the agreement
to the effect that its member undertakings were to take account of the terms
and the purpose of the agreement and were to inform consumers thereof, in fact
produced a situation in which the water supply undertakings in the built-up
areas of Brussels, Antwerp and Ghent carried out checks on consumers premises
to determine machines connected to the water supply system were provided with a
conformity label. Those recommendations therefore determined the conduct of a
large number of Anseau’s members and consequently exerted an appreciable
influence on competition.”
The
non binding recommendation is illegal to the extent that actually produces
effects on market’s participants behaviour. If that influence was only
potential because no evidence of behaviour exists would that be still enough to
consider it unlawful? Article 81 covers agreements, decisions and concerted
practices, the object or effect of
which is to distort competition. Therefore, even cases where no actual effect
has been achieved the mere purpose of the decision might breach this rule, if the agreement restricts competition by its
object. See the text in notes 126 and 128.
[129] For example in
[130] See O. Troiano, ‘Buona fede e contratti standard: riflessioni sull’impiego della clausola
generale nel diritto privato comunitario’, Contratti, 2/2006, p. 191, where it
is affirmed that the national courts evaluating the relationship between the
principle of good faith and the existence of an unbalance of rights and
obligations provide three possibile solutions: “Un primo gruppo di sentenze
decide sulla vessatorietà di una clausola senza nemmeno menzionare nel
loro testo il principio di buona fede. Queste sentenze decidono la fattispecie
controversa applicando il test del significativo squilibrio. Un secondo gruppo
di sentenze richiama inizialmente in motivazione il principio della buona fede
ed il criterio del significativo squilibrio, ma, quando poi si passa a
ragionare sulla fattispecie, l’iter logico seguito dal giudice si
sviluppa tutto sul criterio del significativo squilibrio e l’iniziale richiamo
alla buona fede si perde per strada. Infine, un terzo gruppo di sentenze fa
riferimento all’elenco delle clausole grigie per giudicare vessatorie quelle
ivi contemplate e considera (talvolta) il solo criterio del significativo squilibrio,
ma non la buona fede.”
Moreover, in the EC
Consumer Law Compendium, cit., supra note 52, p. 366, the Authors
affirm that “the relationship of
the principle of good faith to the criterion of “imbalance” remains unclear.
The wording of the Directive suggests that a clause is unfair only if it causes
an imbalance and this imbalance is furthermore contrary to the principle
of good faith. Following this reading, a clause can therefore cause an
imbalance without at the same time being contrary to good faith. Others however
assume that any clause which generates a significant imbalance is always
(automatically) contrary to the principle of good faith. It is ultimately worth
considering whether the criteria “significant imbalance” and “good faith” are
to be understood as alternatives in the sense that the two criteria operate
independently of one another, so that a clause is unfair if it results in a
significant imbalance, or if it is contrary to the requirement of good
faith. In view of these multifarious interpretation possibilities it is not
surprising that the member states have constructed their general clauses very
differently.”
[131] One rare exemption would be a
Swedish case from 1993 where the Competition Authority did not make a
distinction between abuse as stipulated in the equivalent to Article 82
and the contractual stipulation of unfair. See Case Drn. 760/94 Ånge
Elverk, a case concerning Abuse of Dominance.
[132] See recital 15, Reg 358/2003, cit.,
supra note 69.
[133] See for example, Reg. 358/2003,
cit., supra note 69, at Art 6 Agreements not covered by the exemption; Article
6 § 1 (e) allow the insurer to modify
the term of the policy without the express consent of the policy holder; Article
6 § 1 (f) impose on the policy holder in
the non life insurance sector a contract period of more than three years.
Certainly these clauses can also have an anticompetitive effect but they sound
more related to fairness consideration.
[134] See, for example, the Commission’s
decision in Zanussi, OJ [1978] L322/36, where it was found that, by drafting the manufacturer’s warranty in such
a way that the consumer could only seek servicing from a dealer who imported
the appliance into his own
[135] Under Article 1 of the Regulation,
the whole of Article 81 (including its third paragraph) is applicable “no prior
decision to that effect being required”. Thus, formal ex ante scrutiny under Article 81, found in the old
regulation-Council Regulation (EEC) 17/62, First Regulation implementing Articles 85 and 86 of the Treaty, OJ Eng.
Spec. Ed. [1959-1962] 87 was abolished. Informal guidance may still be sought
from the Commission in cases raising new issues: see Recital 38 to the
Regulation and Commission Notice on informal guidance relating to novel
questions concerning Articles 81 and 82 of the EC Treaty that arise in
individual cases (guidance letters)[2004]C101/6. In terms of remaining ex ante scrutiny, one example is still
found, at the time of writing, under Italian competition law: Law Number 287 of
[136] See above par. B.
[137] An interesting
example in area of financial markets is provided by Stock exchanges. Stock
exchanges are private regulators that exercise rule making powers in relation
to listed companies. Within the European framework there are different ways in
which the stock exchanges can act as self regulators. Firstly, they can
regulate the way in which they are governed and managed. This is mainly done by
the articles of association of the stock exchange. However they often elaborate
other sets of rules complementing the articles of association or the legal
provisions and which are devoted to regulate in more detail specific aspects of
the internal governance. Some examples are the rules of conduct of the
personnel, personal dealing rules, whistleblower policies (see for example, the scheme
established by Euronext: http://www.euronext.com/editorial/wide/editorial-2002-EN.html,
or the dispositions of the Corporate Governance Code of the Italian Stock
Exchange: http://www.borsaitaliana.it/chisiamo/ufficiostampa/comunicatistampa/2006/codiceautodisciplina.en_pdf.htm
).
Apart from the governance regulation, the stock exchanges also regulate,
in a different degree according to the jurisdiction, the markets they operate.
In this sense we can distinguish different instruments of regulation whose
purpose is to regulate the relations of the stock exchange with its members,
the listed firms and the investors . They internally establish the requisites
to become a member of the exchange, how to be listed on it… (For example in the
case of the Madrid Stock Exchange in relation to the conditions to become a
member of the
Sometimes, when the stock market is operated by different merged stock
exchanges, a holding company establishes a common set of rules which must be
observed by each of the stock exchanges under that operating structure (see for
example the Euronext Rulebook: http://www.euronext.com/fic/000/019/401/194016.pdf)
In some cases the stock exchange complements this self regulation by the
voluntary adoption of a given corporate governance code already existing which
the listed firms operating in the exchange shall follow (this is the case of
the London Stock Exchange with the adoption of the City Code on Corporate
Governance: http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf).
Finally, another way in which the Stock Exchanges can regulate the markets is
by establishing standard contract terms. This is very common in the derivatives
markets, in which the stock exchange regulates the terms of the relation
between the member of the market and the investor aiming to buy or sell a
future or and option (an example of these type of contracts for the Spanish
Derivatives Market: www.meff.com/docs/Contrato.doc).
For an overview see F.
Cafaggi, Rethinking self-regulation, cit., supra note 17.
[138] On these questions see F. Cafaggi, Reframing
self-regulation , cit., supra note 17.
[139] On the role of good faith in
European standard form contract law, see H.
Micklitz, The politics of judicial cooperation, cit., supra
note 130. More in general on general clauses and standards see
[140] Within the Unfair contract term
directive there is some sign that collectively negotiated agreements may affect
the nature of the unfairness control though specific reference was
intentionally made only to individually negotiated agreement. See the examples
in the national legal system concerning tenancy law, F. Cafaggi, ‘Tenancy law and European Contract Law’,
comparative report in the framework of the Tenancy law Project, European
University Institute, available at http://www.iue.it/LAW/ResearchTeaching/EuropeanPrivateLaw/tenancyLaw.shtml
(last visit 28 September 2006).
[141] See above par. III.
[142] But see on these questions T. Wilhelmsson, ‘Cooperation and
competition’, cit., supra note 61.
[143] See ECJ, Arduino, cit., supra note
84, and ECJ, CIF, cit., supra note 105.
[144] On these questions see F. Cafaggi, ‘New modes of
governance’ , cit., supra note 6