The right of cancellation: Consumer protection or protection from consumers?

European Union Directive 2011/83/EU on consumer rights requires retailers to provide consumers with a wide range of information in distance selling contracts. Art. 246a EGBGB -German Introductory Act to Civil Code- contains details on the information requirements, among others, the necessary information about the consumer’s right to cancel the contract within two weeks (Art. 246a Para. 2 EGBGB, Sections 355 Para. 1, 356 BGB -German Civil Code-).

Suppose the retailer needs to provide the consumer with the mandatory information or provide it properly. In that case, the cancellation period is extended by twelve months after the expiry of the original cancellation period.

The consumer has an unconditional right of cancellation in the cases stipulated by law. Therefore, every retailer must adequately inform the consumer of his cancellation right, and the retailer should not provide services before the right of cancellation has expired unless the consumer, who has been adequately informed of the cancellation right, waives it under Section 356 (4) BGB:

4) The right of cancellation shall also expire for contracts for the provision of services under the following conditions:

1. in the case of a contract that does not oblige the consumer to pay a price when the trader has provided the service in full,

2. in the case of a contract that obliges the consumer to pay the price, with the complete provision of the service, if the consumer, before the start of the provision of the service

a) has expressly consented to the trader commencing the provision of the service before the expiry of the cancellation period,

b) in the case of an off-premises contract, has provided the consent referred to in point (a) on a durable medium and

c) has confirmed his knowledge that his right of cancellation expires upon complete fulfillment of the contract by the trader,

3. in the case of a contract where the consumer has expressly requested the trader to visit him to carry out repair work upon full performance of the service if the consumer has fulfilled the conditions set out in point 2(a) and (b),

The consumer expressly instructs the trader to commence the service before the expiry date under Article 7(3) of the Directive.

In brief, the trader must inform the consumer of the existence of a right of cancellation and obtain written confirmation from him that he instructs the trader to commence performance immediately, i.e., before the end of the cancellation period. The customer can still cancel the contract within the cancellation period but must pay the trader for the services already provided. If the retailer has already fully offered his services before cancellation, he is entitled to the contractually agreed consideration. Furthermore, under Section 312g (2) No. 11 BGB, there is already an exception for contracts where the consumer has expressly requested the trader to visit them for urgent repair or maintenance work. However, this exception is limited to urgent repair or maintenance work. The exception only applies to other services provided during the visit or subsequently that the consumer has not expressly requested or to goods supplied during the visit that are not necessarily required, such as spare parts for maintenance or repair. Disputes are inevitable when it comes to delimitation.

But what happens if the trader needs to inform the consumer of an existing right of cancellation properly but has already provided the service entirely and adequately?

One solution to this problem could be that, following cancellation of the contract, the retailer could, in any case, settle the services rendered up to that point based on the provisions on unjust enrichment or demand the return of, for example, installed appliances. This solution could be in the consumer’s interests because, in this case, the consumer would only have to reimburse the objective value of the enrichment to which he is entitled or return the goods. Under restitution law, the consumer shall be adequately protected; thus, sec. 818 para. 3 BGB denies the obligation to reimburse the value insofar as the enrichment has been eliminated. If the retailer’s performance personally has no objective value, they do not owe any compensation. This consequence is a high risk for the retailer, who could also not demand the trader’s remuneration to which he is entitled. This legal consequence would be a sufficient sanction and, thus, an incentive for traders to comply with the consumer protection regulations, particularly under cancellation.

However, the ECJ rejected this with the decision of 17 May 2023, as discussed here.

The case concerned a contract concluded verbally by distance selling on 6 October 2020 for the renewal of the electrical installation of a house without the trader having adequately informed the consumer of his right of withdrawal. The trader provided its services in full, relying on the conclusion of a valid contract, and issued an invoice on 21 December 2020 following acceptance of the work. The consumer did not pay the invoice. The trader then appealed to the court.

The consumer invoked the cancellation of the contract. On the other hand, the retailer argued that denying the right to payment would constitute a disproportionate sanction and, therefore, a breach of recital 57 of Directive 2011/83. According to this recital, the Member States must lay down penalties for infringements of the Directive, thereby ensuring that it is enforced. The penalties should be effective, proportionate, and dissuasive. However, the complete refusal of consideration in the event of the proper provision of a service is not proportionate, primarily as the case at hand concerned the probably not entirely cheap renewal of the electrical installation of a residential building, from which the consumer will probably benefit in the future according to the facts communicated.

The Regional Court of Essen (a city in western Germany), which dealt with the matter, assumed correctly, following the Directive, the consumer is, in principle, not liable for the contractually agreed remuneration for the services provided before the expiry of the cancellation period if the trader fails to inform the consumer of his right of cancellation. The complete exclusion of any compensation for lost value could be suitable for violating the general principle of the prohibition of unjust enrichment, which is recognized by the ECJ under EU law. For example, this regulation could apply if the consumer cancels the contract after the service has been provided. The Regional Court, therefore, referred the matter to the ECJ for a ruling on the interpretation of Art. 14 (5) of the Directive.

However, the ECJ did not share the concerns of the Regional Court. Under Art. 169 TFEU and Art. 38 of the Charter of Fundamental Rights of the European Union, the Directive aims to ensure a very high level of consumer protection. This objective is paramount, as the ECJ had already stated in the grounds of the Amazon decision of 10 July 2019.

The ECJ therefore ruled:

Article 14(4)(i) and Article 14(5) of Directive 2011/83/EU must be interpreted as exempting a consumer from any obligation to pay for services provided in the performance of an off-premises contract where the trader concerned has not provided him with the information referred to in Article 14(4)(a)(i) and the consumer has exercised his right of withdrawal after performance of that contract.

In short, the trader does not even receive compensation for the undisputed services he provided, particularly the installed equipment.

The decision makes it clear that all companies that conclude distance selling contracts are well advised to pay close attention to the provisions of the cancellation policy. If, in individual cases, it is necessary to provide the service before the cancellation period has expired, the trader must obtain express written confirmation of the customer’s consent.

In case of doubt, the trader should only start providing the service after the expired cancellation period.

The wording of the decision indeed refers to services. However, services in the European diction are also contracts for work and services, which are generally characterized by the fact that not only immaterial services are provided but that the entrepreneur makes a considerable financial contribution with the delivery of, for example, the electrical installation or a heating system in dispute.

Whether the ECJ is ultimately doing consumers a favor remains to be seen. The willingness of a retailer and a service provider, such as a therapist, a lawyer, etc., to rush to the aid of a consumer who urgently needs help at short notice will certainly not be favored by this decision.