What costs can a trader charge a consumer of services who changes their mind? A cautionary tale…


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The Consumer Rights Directive 2011/83/EU (CRD) gives a number of protections to consumers purchasing goods and services online within the EU. One key protection is the right of a consumer to cancel a contract for services it has purchased online within a 14 day ‘cooling off’ period, for any reason and without incurring costs (other than those specifically permitted under the CRD). This withdrawal right, along with most of the CRD, is implemented into UK law by the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCR). In the recent case of EU v PE Digital GmbH (Case C-641/19), concerning the cancellation of a subscription to a dating website, the ECJ has considered what costs traders might be entitled to claim from customers who cancel a contract for services within the cooling off period, where some services have been provided but the contract has not been fully performed. The case is a useful reminder to traders selling services online of the importance of well-drafted, CRD/CCR compliant, terms and conditions.

Background to the law

Consumers’ rights of withdrawal in distance contracts for services

Under Article 9 CRD, a consumer has a period of 14 days to withdraw from a distance or off-premises service contract (e.g. where services are purchased online). This ‘cooling off’ period starts from the date the contract is concluded, provided the contract notifies the customer of the time limit and procedure for exercising this right of withdrawal. If this information is not provided in the contract, then the withdrawal period will start from the date the information is subsequently provided (and, if the information is never provided, will continue until 12 months and 14 days after the contract has been concluded!). This right of withdrawal is subject to a number of exceptions listed in Article 16 CRD, including where the contract is for the supply of digital content which is not supplied on a “tangible medium” (i.e. it is accessed through downloading or streaming) and the consumer has expressly (i) asked for some or all of the content to be provided before the cooling off period has expired, and  (ii) acknowledged that in doing so, he/she no longer has a right of withdrawal (Article 16(m) CRD). This is the exception which was relevant in this case.

Traders’ rights to recover costs

Article 14(3) CRD provides that if a consumer has requested the services to commence within the 14 day withdrawal period, but then exercises this right of withdrawal before the contract has been fully performed, the consumer must pay the trader “an amount which is in proportion to what has been provided until the time the consumer has informed the trader of the exercise of the right of withdrawal, in comparison with the full coverage of the contract“. In order to benefit from this provision, the trader must have informed the consumer of his/her right of withdrawal, and that he/she will be liable to pay reasonable costs if this right is exercised.

The ECJ’s ruling in EU v PE Digital GmbH

Background

PE Digital, a company registered in Germany, is the operator of the dating website ‘Parship’ (www.parship.de). The website offers free, basic membership, and a paid ‘premium’ membership for a period of 6, 12 or 24 months. ‘Premium’ subscribers have access to a number of services, including a short personality test regarding partnership-relevant characteristics, habits and interests, which is carried out immediately following registration.

In this case, the member in question had signed up for a 12-month ‘premium’ membership for a price of 523.95 EUR (which was almost double the price charged to other users purchasing the same membership around the same time). PE Digital informed the member of her right of withdrawal, and she confirmed she wanted the services – namely the personality test – to start before expiry of the 14 day withdrawal period. PE Digital provided the member with the results of the personality test, via a personality report, and the member subsequently exercised her right of withdrawal. PE Digital charged the member a total amount of 392.96 for the services used prior to withdrawal, and the member sought repayment of all sums.

Did the right of withdrawal apply in this case?

As part of one of the questions referred to it, the ECJ considered whether the generation of a personality report by a dating website could fall within the exception for the supply of digital content (Article 16(m) CRD – see (1) above). The ECJ concluded that a service provided by a dating website like Parship (i.e. one that allows members to “create, process, store or access data in digital form and allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service”) cannot, as such, be regarded as the supply of ‘digital content’ within the meaning of the CRD. Neither can the generation of a personality report by a dating website be considered as falling within this exception. The consumer therefore had a 14 day right of withdrawal.

What costs can the trader recover?

The ECJ held that, when determining the proportionate amount to be paid by a consumer who has expressly requested that the services begin during the withdrawal period, and then exercises his/her right of withdrawal before the contract has been fully performed:

(a)   it is appropriate, in principle, to take account of the price for all the services covered by the contract over its term (i.e. the principal service and any ancillary services); and

(b)   if one or more services are provided in full at the beginning of the contract (before cancellation), the trader can only charge the full price for them (as opposed to a proportion of the price, pro-rated over the contract term) if the contract expressly provides that such service will be provided in full from the beginning of the contract and that it will be charged and paid for separately.

In this case, the contract did not specify a separate price for the personality test and report (or indeed any of the other services). Therefore, the personality report could not be seen as separable from the principal contract and PE Digital was only entitled to a pro-rated proportion of the total price of the contract, as opposed to the total price of the personality report.

What if the contract price is excessive?

Under Recital 50 CRD, if the total price of the contract is “excessive”, the proportionate amount shall be calculated on the basis of the market value of what has been provided. Despite being charged almost twice as much as other subscribers, the ECJ held that 523.95 EUR was not excessive when taking into account:

(a)   the price of the service offered by PE Digital to other subscribers under the same conditions; and

(b)   the price of an equivalent service supplied by other traders at the time of the conclusion of the contract.

Comment

This case raises a number of useful ‘take-home’ points for suppliers of online services:

(a)   Where services are ‘front loaded’, and the consumer will be expected to pay a large proportion of the price if they cancel within the 14 day withdrawal period, the contract must expressly state this, and must make it clear that the service(s) will be charged and paid for separately. This will enable the trader to recover the full price for these services.

(b)   If the overall contact price is excessive (determined by reference to the price offered by the trader to other consumers, and the price of an equivalent service offered by other traders) the court will look at the market value.

(c)   It is important to check that all of the information prescribed by the CDR/CCR is provided to the consumer in the contract, including information on the right of withdrawal, and on the requirement to pay reasonable costs if the consumer exercises this right having asked for the services to commence. Failure to provide the prescribed information may prevent a trader from recovering the costs it may otherwise be entitled to.

Alexandra is an Associate in the Commercial team at Fladgate, and has experience in advising businesses on consumer rights issues.

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