On 28 July 2016, the Court of Justice of the European Union ("ECJ") ruled that a standard choice of law clause in favour of the law of the EU Member State in which the seller or supplier is established, is unfair in so far as the clause fails to specify that under EU law the consumer also enjoys the protection of the mandatory provisions of law that are applicable in the consumer's home country (ECJ, 28 July 2016, Case C‑191/15, Verein für Konsumenteninformation v. Amazon EU Sàrl).

The ECJ delivered its judgment in response to a request for a preliminary ruling from the Austrian Supreme Court (Oberster Gerichtshof) in the context of legal proceedings between the Austrian consumer protection organisation Verein für Konsumenteninformation ("VKI") and the Luxembourg company Amazon EU sàrl ("Amazon EU"). Amazon EU is the entity which conducts Amazon's online businesses in Europe via websites aimed at consumers in the different EU Member States, such as www.amazon.fr, www.amazon.nl and www.amazon.de.

VKI sought an injunction to prohibit Amazon EU from using its general terms and conditions of sale in Austria, including, amongst others, the clause specifying that "Luxembourg law shall apply, excluding [the United Nations Convention on the International Sale of Goods]" (the "Clause"). VKI argued that the Clause breaches Article 3(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts ("Directive 93/13"). This Article 3(1) provides that "[a] contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer".

The case went up to the Austrian Supreme Court, which decided to stay the proceedings and to question the ECJ on, amongst other matters, this point.

In its judgment, the ECJ notes that a term may be unfair within the meaning of Article 3(1) of Directive 93/13 if it is not drafted in plain and intelligible language. It continues that where the effects of a term are specified by mandatory statutory provisions, it is essential that the seller or supplier informs the consumer of those provisions. The ECJ further adds that that is the case of Article 6(2) of Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (the "Rome I Regulation"), which provides that the choice of applicable law in consumer contracts must not have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which would have been applicable in the absence of choice of law (i.e., by virtue of the law of the country where the consumer has his habitual residence).

In view of the above, the ECJ finds the Clause to be unfair in so far as it leads the consumer into error by giving him the impression that only the law of Luxembourg applies to the contract, without informing him that under Article 6(2) of the Rome I Regulation he also enjoys the protection of the mandatory provisions of Austrian law. However, the ECJ leaves it to the Austrian Supreme Court to ascertain this in the light of all the relevant circumstances of the case.

In view of this ruling, companies trading cross-border with EU consumers on terms which do not apply the law of the consumer's home country are well advised to review and, if need be, update their standard choice of law clauses. These clauses should explain in plain and intelligible language that consumers will always benefit from any mandatory consumer protection rules applicable in the country where they live.

The ECJ's judgment is interesting in that it also clarifies which EU Member State's data protection legislation applies to a data processing operation established within the EU but directed at a number of EU Member States (See VBB on Belgian Business Law, Vol. 2016, No. 8, p. 7, where the data protection aspects of the judgment are discussed, available at www.vbb.com).

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.