The notion of financial services in European Law

EU law contains no uniform definition of financial services. The broadest definition of financial services is given in Article 2(b) of the Distance Marketing of Financial Services Directive (2002/65/EC), according to which ‘financial services’ includes all banking, credit, insurance, pension, investment and payment services. An equally broad view of financial services is set out in Annex II of the Distance Selling Directive (97/7/EC) which lists, for example, banking and investment services, operations relating to dealings in futures or options, and insurance and reinsurance services. However, Article 3(1) of the directive (which excludes the application of its provisions to financial services) explicitly stipulates that this list of financial services is not exhaustive. As regards banking services, these should be considered first and foremost as comprising the services defined in Annex I of the Credit Institutions Directive (2006/48/EC). These services may be rendered by credit institutions and by financial institutions, including electronic money institutions. The services listed in Annex I of the Markets in Financial Instruments Directive (MiFID) (2004/39/EC), which may be rendered by investment firms, must also be considered to be financial services. Financial services include payment services which may be rendered not only by credit institutions, electronic money institutions, the European Central Bank and the central banks of Member States, but also by payment institutions created under the Payment Services Directive (2007/64/EC). Insurance services, both those provided in respect to life assurance and other forms of direct insurance, as well as reinsurance services, may also be distinguished as financial services. Credit mediation services, which are now partially governed by the new Consumer Credit Directive (2008/48/EC), and insurance mediation services, governed by the Insurance Mediation Directive (2002/92/EC), also constitute financial services. Yet, in some instances, Community regulations differentiate between financial services and banking and insurance services, the latter being regarded as a separate category of activity, for example, for tax purposes.

Introduction

In the last decade European private law has firmly established itself as a new field of academic study: with its own professorial chairs, academic journals, annual conferences and – most importantly – its own debate, European private law has turned into a real ‘industry’. Whereas for at least the last 200 years, private law was essentially a national topic, often dealing with the intricacies of national statutory provisions and case law, increasing Europeanisation has profoundly changed this, leading to a whole new and highly international field of study. The purpose of this chapter is to examine the relationship between this field and the much older discipline of comparative law. Although it is often assumed that there is a close relationship between the two fields, it is not very clear exactly what this relationship consists of. At first sight, one is inclined to say that comparison among the twenty-eight European jurisdictions is the essential tool for establishing a uniform private law for Europe. However, careful scrutiny of the European legislation in place and of the reasoning of the European Court of Justice (ECJ) may reveal a more nuanced picture.

This chapter is structured as follows. First, it is helpful to consider the relationship between legal harmonisation and the comparative method in general (section II). This allows us to look in more detail at the various ways in which the comparative method plays a role in European private law: in harmonisation through European legislation (section III); in the case law of the ECJ (section IV); and in legal scholarship (section V). Section VI contains some concluding remarks.

Introduction

This Companion is about European Union private law (EUPL). It concentrates on the impact of European Union (EU) legislation and case law on private law. The field of ‘private law’ is broad and covers such fundamental areas as contract, tort and property law, but also includes family law, the law of succession and others. It is the law that governs the mutual rights and obligations of individuals (both natural and legal persons). In this book, the focus will be primarily on the law of obligations, that is, contract and tort law with some reference to property law. It is in these areas where one can see the most sustained influence of EU law on private law.

The objective of a Companion is to provide a concise account of specific topics, and this is also the approach adopted in this book. The purpose of this introductory chapter is to set out the key features of EUPL. As with all the contributions to this book, the focus will be on the salient issues. A reader who seeks more detail on any of the issues discussed is advised to consult the Further Reading section at the end of this Companion.

European Union private law

As mentioned above, the objective of this Companion is to discuss the impact which the various legislative measures adopted by the EU have had on private law. It must be noted from the outset that the EU does not have an all-encompassing competence to legislate in the field of private law; indeed, there is nothing in the treaties that confers a direct power on the EU to adopt legislation in the private law field at all (see Chapter 5). Rather, measures adopted in the context of specific EU policies have had private law elements to them.

Introduction:

It is not surprising, considering European integration and increasing migration, that non-discrimination law in the European Union has developed significantly. Europe has experienced many terrible events due to intolerance. The development of non-discrimination law in Europe attempts to create a community of tolerance and reciprocal respect in order to avoid future experiences born of discrimination. The right not to be subjected to discrimination is mentioned in numerous sources of international law, such as the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights. The right not to be discriminated against is embodied in the European Convention on Human Rights (Article 14) and in Article E of the Revised European Social Charter. Therefore, European legislation also identifies the right not to be discriminated against as a fundamental freedom.

There is another explanation for non-discrimination law: discrimination is an obstacle to the free movement of people. In order for the EU to attain its fundamental objectives, it needs to combat every form of discrimination. The cultural diversity of Europe, which is of great value, is also endangered by discriminatory practices. Therefore, the basis of EU non-discrimination law is prominently placed in the primary Sources of the Union. Articles 12 and 13 EC [Articles 18 and 19 TFEU] deal directly with the issue of discrimination. Article 12 [Article 18 TFEU] prohibits any kind of discrimination based on nationality (that is, Member State nationality). It also contains a basis for the Council to adopt rules designed to prohibit such discrimination. Article 13(1) [Article 19(1) TFEU] provides the Council with a further competence to adopt unanimously, following a proposal of the Commission and after consultation with the European Parliament, appropriate measures in order to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation.

Overview

Product liability is an important field of European private law, because when the Product Liability Directive (85/374/EEC) was adopted in 1985, it was one of the first areas to be harmonised at a European level. Before considering the directive’s operation in more detail, some more general comments on the lessons for the European harmonisation process are appropriate. First, the Product Liability Directive sought to achieve full harmonisation, a fact stressed by the European Court of Justice (ECJ) on a number of occasions. However, it was a special form of ‘non-exhaustive’ full harmonisation: Article 13 expressly retains contractual and non-contractual liability, as well as special liability systems existing at the moment the directive was notified. This might become an important model given the debates about the extent of full harmonisation to be achieved under the proposed Consumer Rights Directive. While it cannot be denied that the fact that the harmonisation is non-exhaustive undermines at least part of its rationale, such a model can nonetheless be apposite in the sphere of strict product liability, where the EU can be seen to have added an extra protective layer over pre-existing liability regimes. It is harder to justify in an area like sales law, where general contractual principles are more closely intertwined and/or substantively altered as part of the harmonisation process. Further, as we shall see, the Product Liability Directive relies upon an open-textured general norm to assess defectiveness. Experience has shown that, in practice, this has been applied in very different ways by the various national courts, in part because of the nature of the judicial process and the willingness of judges to infer defect from surrounding circumstances. This localisation of a general clause even seems to be accepted by the ECJ in the context of unfair terms (Freiburger Kommunalbauten (Case C-237/02)), and so should not, perhaps, be surprising, but rather a salutary reminder of the limits to which directives can harmonise laws when imposed into local cultural, legal and procedural environments. That said, the Product Liability Directive has done much for the convergence of the law and practice of Member States and has brought about the integration of the previously novel principle of strict liability in all legal systems of the EU.

Introduction

Today, Europe is in the process of creating a new common law; and to a certain extent this is not a new situation, but rather a return to how things used to be, as for many centuries a ius commune, a common law, dominated Europe. It may even be that future generations, looking back at our times, will see the nineteenth and twentieth centuries as nothing but a temporary interruption in the history of this common law of Europe.

The early Middle Ages:

The Romans excelled at two things: fighting and law making. The crowning achievement of the latter, however, arrived rather late. In the sixth century the Emperor Justinian had a compilation of Roman law made, the Corpus iuris civilis (the body of civil, that is, Roman, law). By then, Germanic tribes had overrun the west of the empire and they preferred their own customary law over the sophisticated Roman law of the Corpus. Likewise, the conquered Roman population had a law which was Roman in origin, but was just as primitive as the law of the Germanic tribes. Very few Germanic customs have been written down, and those that were, above all reveal the poor quality of the law at that time. When around 800 ad Charlemagne ruled an empire which incorporated a large part of western Europe, he tried to bring more legal unity, though without success. After all, the needs of contemporary society were best served by local and customary law.

Introduction

The Unfair Contract Terms Directive (93/13/EEC) represents not only a significant contribution to the development of EU consumer policy, but is also the cornerstone of the EU private law architecture.

The first draft proposals for a directive on unfair terms date back to the 1970s, when an intense burst of legislative activity on the part of the Member States also took place: in 1976, the Federal Republic of Germany adopted a statute on unfair contract terms; in 1977, the United Kingdom did so, too; and France followed in 1978. The introduction of different regulatory frameworks for unfair terms in several Member States somehow delayed reaching a sufficient consensus at the European level to proceed with work in that area. In addition, there were conflicting visions of the appropriate intensity of social regulation on the matter and of the acceptable degree of Community involvement in its realisation. Work resumed in 1984, but it took another nine years before the final text was eventually approved on 5 April 1993. As a whole, almost twenty years passed before the idea of a directive on unfair terms became reality. Such a long lapse of time made the directive increasingly difficult to fit within the existing domestic frameworks, which had, meanwhile, consolidated over the years. As a result, the originally innovative force of the directive turned into a ‘disturbing’ element for the national legislators, and Community intervention ended up following, rather than triggering and leading, law reform in the Member States.

When Miss Hamlyn signed her will on 12 June 1939, less than three months before the Second World War began, the world was on the brink of radical change. But she was secure in her Britishness, confident in the superior virtue of the law developed in these islands. So, when bequeathing the residue of her will, she wished what she called ‘the Common People of this country’ to be instructed by lectures or otherwise in ‘the Comparative Jurisprudence and the Ethnology of the chief European Countries including our own and the circumstances of the growth of such Jurisprudence’, but she did so for a very specific purpose: ‘to the intent that the Common People of our Country may realise the privileges which in law and custom they enjoy in comparison with other European Peoples and realising and appreciating such privileges may recognise the responsibilities and obligations attaching to them’. Thus Miss Hamlyn sought to promote responsible, law-abiding citizenship, and to do so by impressing on her British fellow-citizens the advantages their national law conferred on them as compared with their less fortunate European counterparts. So the jurisprudence of the chief European countries was firmly marked ‘Not for import’. As Lord Hailsham once observed, ‘Abroad is for hols.’

As the daughter of a solicitor practising in the West Country, who also sat as a Justice of the Peace for some years, Miss Hamlyn no doubt grew up with some knowledge of legal matters, and she is said to have studied the law herself, although little or nothing is known of her progress as a student. She was, however, described as ‘very intellectual’ and may therefore have warmed – unlike many practitioners – to the more philosophical aspects of the subject. Be that as it may, she clearly regarded our law in this country as something quite separate and distinct from the law of other countries. Her mental picture was of British (more probably, in truth, English) judges administering a body of indigenous, home-made law, some of it statutory, some of it made by the judges in case after case decided over the centuries, some of it customary, but all of it ‘Made in Britain’.

Sale of goods:

The sale of goods is essential for the daily life of everybody, so it is no wonder, therefore, that this type of contract is at the centre of private law. All the European codifications grant it a prominent place. Even jurisdictions which rely on the doctrine of precedent have codified aspects of sales law by enacting legislation, such as Great Britain in the Sale of Goods Act 1979, or Denmark, Finland, Iceland, Norway and Sweden in their Nordic Uniform Act on the Law Applicable to International Sales of Goods 1964. Moreover, since Roman times, the solutions developed for legal problems of sales have regularly been the forerunner and model for general contract law.

Astonishingly, when the European Community cautiously began to harmonise and ‘Europeanise’ commercially relevant private law, particularly consumer contract law, in the mid-1980s it did not start with sales, but with doorstep contracts. But it took until the early 1990s for the EU to extend its activities to the core of civil law and into the field of sale of goods. Finally, on the eve of the new millennium in 1999, Directive 99/44/EC of the European Parliament and the Council of 25 May 1999 on Certain Aspects of the Sale of Consumer Goods and Associated Guarantees was enacted, and the Member States had to implement the directive by the end of 2001.

Introduction

This chapter is about the role of the European Court of Justice (ECJ) in the development of private law. The ECJ has done so by modelling private law through the interpretation of primary law (for example, the fundamental freedoms and the competition rules) and secondary Union law (such as consumer directives and regulations) and by creating rights on the basis of the nature of the Union legal order and/or of general principles of Union law (liability for infringement of Union law). Institutional aspects, private international law (like the Rome Regulations), the role of the court in settling private law disputes according to the law applicable to the contract under Article 238 EC [Article 272 TFEU] (‘arbitration clause’) and the impact of EC sector-specific regulation on contract law will be disregarded. The future role of the ECJ, if and when some form of general European contract law emerges, or the court’s case law on unjust enrichment, which basically concerns the relationship between individuals and the administration, are also omitted. Six areas in which different aspects of the role of the court become apparent have been selected. Three relate to fundamental freedoms, two to secondary Union law and one to general principles of Union law. These different areas will also show differences in the degree of readiness of the court to interfere in national legal orders.

Private law and the constitutional limits of EU competence

Article 5(1) EC [Article 5 TEU] provides that the EU shall act within the limits of the powers conferred upon it by the Treaty and of the objectives assigned to it therein. There is no competence to be found in the Treaty which confers any general authorisation on the EU to operate in the field of private law. There are, however, particular legal bases that can feasibly be exploited to adopt legislation that touches private law. One is found in Article 153(3)(b) EC [Article 169(2)(b) TFEU], which provides that the Community may adopt measures which support, supplement and monitor the policy pursued by the Member States in order to promote the interests of consumers and to ensure a high level of consumer protection. This was an innovation of the Treaty of Maastricht, so it has been available as a legislative competence only since 1993. Judicial cooperation in civil matters may be pursued by reliance on Articles 61–65 EC [Articles 67–81 TFEU] as a basis for legislation. This has a pedigree in the EC Treaty which goes back only as far as the Treaty of Amsterdam, so the key date here is 1999. Both legal bases have been employed sporadically for the making of legislation affecting private law. But in neither case has anything of radical significance emerged.

Yet ‘EU private law’ – most of all ‘EU contract law’ (of a sort) – was already envisaged by the Treaty of Rome when it came into force in 1958. EU competition law intimately affects private law, for Article 81 EC [Article 101 TFEU] requires that contracts which fall foul of its demands be treated as void. The Treaty rules governing free movement affect private law insofar as they have been interpreted as capable of direct application to the activities of private parties – this is especially true of those concerning the free movement of persons (Bosman (Case C-415/93); Angonese (Case C-281/98)). Also gender equality rules (Defrenne v. SABENA (Case C-43/75)) and, more recently, the wider equality rules covering, inter alia, race and sexual orientation have an important impact on private relations. There is even a general principle of EU law prohibiting discrimination on grounds of age which is capable of application in cases involving exclusively private parties (Mangold (Case C-144/04)).

European private law and European legal language(s)

Whenever a new political entity with legislative powers is set up, this entity will need some linguistic means for formulating its norms. The European Community and its predecessors are no exception in this respect. Making European private law raises a number of problems concerning the language(s) in which European law must be expressed, its terminology and the style of legislative drafting to be adopted. And, as all norms are put into practice when they are applied to a given case, the interpretation and construction of European law are part and parcel of the same set of problems. This chapter provides a short survey and critical discussion of how these problems have been addressed for European private law as developed in the context of the European Community. Within that context, one could argue, on the one hand, that the continental European divide between public and private law is not entirely suited to capturing the spirit and the reality of European law, as the regulatory competence of the EU transcends that classical distinction in many ways. On the other hand, the issue of language and terminology in European private law requires some treatment simply because in the recent decades EU law has regulated subjects that in many European countries form part of ‘private law’, such as the laws on natural and legal persons, contracts, torts, property, family and succession. As a consequence, these areas of law can no longer be considered as belonging exclusively to the law of the Member States. They have gained a European dimension. What makes this so interesting and challenging in the present context is the fact that the particularly rich and, in many ways, unique sets of terminology that the legal systems of Member States have developed for private law had little equivalence in the terminological acquis communautaire at the time when the EU embarked on a large-scale regulation of issues belonging to private law.

Introduction

Directives have been the main legislative instrument used by the EU when acting in areas affecting private law. Directives are addressed to the Member States and leave to them the choice as to the form and method of achieving the end established by the directive (Article 249(3) EC [Article 288(3) TFEU]). The use of directives invariably entails a complex interaction between different actors at national and Union level because, unlike regulations, directives do not, generally speaking, have direct effect. To have direct effect they require transposition into national law; and even where certain provisions of a given directive have been held to be capable of having direct effect, in the field of private law this will be of little assistance to claimants, given the traditional position that directives do not have horizontal direct effect (that is, against other private parties). Directives offer some clear advantages in achieving their goals, but also suffer from certain defects: both sides of this equation are due to the nature of directives and the roles that they provide for the EU and national legislators, and the EU and national courts. First, we will discuss these matters in general, before considering the different types of harmonisation of private law sought through directives and then conclude with a discussion of the practical implementation and enforcement of such directives in the EU.