Introduction

On 20 March, the CJEU published its preliminary ruling regarding how the Directive on unfair terms in consumer contracts (Council Directive 93/13/EEC) (the “Directive”) applies to the facts of a dispute regarding a revenue share agreement with a rising sports star.  

The ruling provides helpful new detail and clarity on the EU law requirement that even ‘core contract terms’ (eg, pricing terms), which benefit from an exemption under the Directive, must be in “plain, intelligible language”.  While Irish law on this point is already more detailed than EU law, by virtue of the transparency requirement included in the 2022 Consumer Rights Act, this ruling is a helpful legal authority for practitioners which may be relied on in interpreting requirements under the 2022 Act.

Overview

In 2009 a sportsperson of minor age entered into a contract with a Latvian undertaking who support sportspeople in the development of their professional careers.  This provided for payment to the Latvian undertaking of 10% of their future net income related to their sports career for the next 15 years.  The sportsperson signed professional contracts worth €16 million during that duration, the Latvian undertaking therefore sought renumeration of €1.6 million, and the player claimed that was unfair and unenforceable under the Directive.

Legal Issues

The CJEU ruled that the Directive is applicable to the situation.  It confirmed that the question of whether the Directive applies to a contract is determined at the date of contract inception (when the player was a minor and a consumer) and not later (when the player was a professional / trader). 

In addition, the CJEU ruled that the Directive does not permit a national court to redraft any term that is found to be unfair so as to reduce the amount payable, to the benefit of the consumer.  The logic for this ruling was that any such “power would contribute to eliminating the dissuasive effect on sellers or suppliers” of the Directive.

Finally, the CJEU confirmed that the ‘core contract terms’ exemption applied to the facts (ie, a national court cannot conduct a full assessment of the unfairness of the term under the Directive because it is a term in respect of the main subject matter of the contract / price), such that the term in dispute is only prohibited by the Directive if it was not drafted in “plain, intelligible language”.

What is “plain, intelligible language”?

The ruling states that the “consumer must be provided with all the information necessary to enable him or her to assess the financial consequences of the commitment undertaken by him or her”.  Failure to do so may lead to the term to be deemed not to have been drafted in “plain, intelligible language”. 

The above ruling is very similar to pre-existing language in the 2022 Irish Act as described below, but some additional detail about the meaning of “all the information necessary” which was provided by the CJEU includes that the contractual terms must set out:

a. in a transparent manner;

b. the specific functioning of the mechanism of which the relevant terms relate;

c. the relationship between the mechanism and the mechanism laid down by other terms (where appropriate);

d. so the consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences they derive from the contract;

e. in light of the broad view that the consumer is in a position of weakness.

In applying the above to the case the court stated that the contractual term must not merely stipulate the contractual term as described above.  The consumer must have all the “information necessary” to assess the financial consequences of the commitment undertaken by them and communicated to them before the conclusion of the contract.  Where this is not done, the term will be deemed not to have been drafted in plain, intelligible English.

In light of the above the referring Latvian court must consider if the information provided prior to the conclusion of the contract allowed the sportsperson to make a prudent decision in full knowledge of the consequences of entering the contract, taking into account the specific characteristics of the contract and the relevant factors surrounding the conclusion of the contract in 2009. 

Irish Law Requirements

In Ireland the Consumer Rights Act 2022 (the “Act”) elaborates the Irish law  transparency requirement for consumer contracts subject to the Directive by references to requirements for, in particular:

a. plain language;

b. presented clearly;

c. made easily available;

d. any novel terms are brought to the consumer’s attention;

e. the financial consequences of the terms are understandable; and

f. it complies with other prescribed requirements.

The meaning of the above Irish law requirements is clearer following the CJEU ruling, and in particular the new guidance from the Court in b and c above about the importance of making transparent:

• the specific functioning of the mechanism of which the relevant terms relate; and
• the relationship between the mechanism and the mechanism laid down by other terms (where appropriate).

Consequences

It is important to ensure that consumer contracts are drafted correctly from the outset, and in particular make clear the financial consequences of the terms, to avoid the risk of unenforceability.  

In addition to the risk of unenforceability, the Competition and Consumer Protection Commission (CCPC) has a range of enforcement options against unfair terms.  First, the CCPC can apply for a Court declaration that a term is unfair and/or an injunction to prevent use of the term. In addition, the CCPC can seek prosecution for the offence of entering into a new contract with a consumer using a term that was declared unfair or seeking to enforce the same.  Finally, the CCPC can require seek Court order requiring that a consumer is compensated for the effects of an unfair term.

Further information on this topic can be found here and here.

Footnotes

Judgment of the Court in Case C-365/23