European Union: ECJ Finds Spanish General Prohibition On Selling At A Loss Incompatible With EU Law

Last Updated: 18 December 2017
Article by Koen T’Syen

Most Read Contributor in Belgium, August 2018

On 19 October 2017 the Court of Justice of the European Union (the "ECJ") held that Directive 2005/29/EU concerning unfair business-to-consumer commercial practices (the "Directive") outlaws Spanish legislation which establishes a general prohibition of selling at a loss and provides for different criteria for derogating from same (ECJ, 19 October 2017, Case C-295/16, Europamur Alimentación SA v. Dirección General de Comercio y Protección del Consumidor de la Comunidad Autónoma de la Región de Murcia).

The ECJ delivered its judgment in response to a request for a preliminary ruling from the Administrative Court of Murcia in a dispute between Europamur Alimentación SA ("Europamur") and the Regional Consumer Affairs Authority of Murcia (the "Authority"). Europamur is a wholesaler which provides food and household products to smaller retailers who participate in a collective purchasing scheme. The Authority fined Europamur EUR 3,000 for selling certain goods to its retailer clients at a loss, and Europamur appealed this administrative penalty on the grounds that the Spanish legislation allowing for the fine should have been amended when the Directive was transposed into Spanish law. The Administrative Court of Murcia referred two related questions of interpretation to the ECJ, essentially asking whether the Directive allows for national legislation which (i) contains a general prohibition on offering for sale or selling goods at a loss; and (ii) lays down grounds for derogation from that prohibition that are based on criteria which do not appear in the Directive.

The Spanish legislation, Article 14 of Ley 7/1996 de Ordenación del Comercio Minorista (the "Law regulating retail commerce"), prohibited "selling or offering to sell to the public at a loss". Two exceptions were permitted to this general principle, namely if the objective of the loss-making practice was to match the prices of competitors who had the ability to affect the seller's sales, or if the sale involved perishable goods. A later amendment to the Law regulating retail commerce clarified that this prohibition applied equally to business-to-business (i.e., wholesale) sales as to business-to-consumer (i.e., retail) sales.

Article 5 of the Directive provides for a prohibition of unfair commercial practices including those that are contrary to the requirements of professional diligence and which "materially distort or [are] likely to distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed". Annex I to the Directive includes a list of unfair commercial practices that apply uniformly across the EU. The list does not include a general prohibition on selling at a loss.

The ECJ first declared that it has jurisdiction in the case. In principle, the Directive applies to business-to-consumer relationships – the aim being to prohibit practices which directly harm consumers' economic interests rather than regulate practices between traders. Nonetheless, the ECJ has jurisdiction to give a preliminary ruling "in situations where the facts in the main proceedings [fall] outside the scope of EU law, but where the provisions of EU law [are] rendered applicable by national law, which, in dealing with situations outside the scope of EU law, follow the same approach as that provided for by the latter". In other words, the Spanish legislation sought to transpose the Directive by extending the prohibition more broadly than necessary and therefore must be interpreted in a manner consistent with EU law.

The ECJ then proceeded to find that the Directive expressly sought to harmonise fully the rules relating to business-to-consumer commercial practices across the EU. This means that Member States must not adopt measures that are stricter than those provided for in the Directive. This is the case even if the national legislation aims to achieve a higher level of consumer protection. It was not contested that the Spanish legislation prohibited selling at a loss without the court having to consider the specific facts of the case in light of the criteria set forth in Article 5 of the Directive, such as the need to establish that the practice would distort the economic behaviour of consumers.

For these reasons, the ECJ held that the Spanish legislation established a stricter prohibition of selling at a loss than that provided for by the Directive and deviated from the Directive's set criteria for a derogation from that prohibition. As a result, the national legislation was found to be incompatible with EU law.

This judgment is reminiscent of the ECJ's order of 7 March 2013 in Case C-343/12, Euronics Belgium CVBA v. Kamera Express BV and Kamera Express Belgium BVBA. In this order, the ECJ held that the Directive precluded the general prohibition of selling at a loss as laid down in Article 101, §1 of the now repealed Law of 6 April 2010 on market practices and consumer protection (Wet van 6 april 2010 betreffende marktpraktijken en consumentenbescherming/Loi du 6 avril 2010 relative aux pratiques du marché et à la protection du consommateur – the "Law") "in so far as that provision pursues objectives relating to consumer protection" (See VBB on Belgian Business Law, Volume 2013, No. 3, p. 15, available at www.vbb.com). Following the ECJ's order, Article 101, §1 of Law was replaced by Article VI.116, §1 of the Code of Economic Law (Wetboek van Economish Recht/Code de droit économique). This provision re-establishes the general prohibition of selling at a loss, but expressly on the grounds of ensuring fair market practices "between companies". It remains to be seen whether such an express objective is sufficient to exclude the Belgian general prohibition of selling at a loss from the scope of the Directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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