In its Judgment in Costea, C-110/14, EU:C:2015:271, the Court of Justice of the European Union (CJEU) has engaged in extreme formalism in the interpretation of the notion of 'consumer' under EU law [and, more precisely, under Article 2(b) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts]. Costea is, in my view, a criticisable Judgment because it pushes legal fiction too far and departs from what I would have considered a sensible functional approach to the concept of consumer. It is worth looking closer at the reasoning of the CJEU.
The CJEU provides a very useful summary of the facts of the case:
Mr Costea practises as a lawyer and, as such, primarily handles cases in the field of commercial law... he concluded a credit agreement with Volksbank. The repayment of that loan was secured by a mortgage registered against a building belonging to Mr Costea’s law firm ... That credit agreement was signed by Mr Costea, not only in his capacity as borrower but also in his capacity as representative of his law firm, owing to the latter’s status of mortgage guarantor (C-110/14, para 9, emphasis added).
In short, then, Mr Costea was legally acting in several capacities in a single commercial transaction, where he was both borrowing money personally and representing the legal entity that acted as his guarantor. However, he claimed protection under EU law so as to detach both legal positions and avoid his professional qualification from reducing the protection that he would otherwise be afforded as a lay consumer.
His claim was, in very simple terms, that he was at the same time a commercial lawyer acting for his firm and a consumer acting for himself. Given the impossibility of splitting the human mind and detaching oneself from knowledge already acquired, it is very hard to understand how--beyond the legal fiction derived from his ability to represent a legal entity created and owned by himself, as well as his own personal interests--he could ever be considered to functionally hold two very opposite positions: ie that of the knowledgeable commercial lawyer that acts under the general duties of his lex artis, and that of the unknowing consumer that deserves special protection when it enters into complex transactions.
However, the CJEU does precisely that. Following the Opinion of AG Cruz Villalón (see a comment here), the CJEU engages in the following reasoning:
17 It is ... by reference to the capacity of the contracting parties, according to whether or not they are acting for purposes relating to their trade, business or profession, that the directive defines the contracts to which it applies (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 30, and Šiba, C-537/13, EU:C:2015:14, paragraph 21).
18 That criterion corresponds to the idea on which the system of protection implemented by that directive is based, namely that the consumer is in a weaker position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge. This leads to the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms (judgments in Asbeek Brusse and de Man Garabito, C-488/11, EU:C:2013:341, paragraph 31, and Šiba, C-537/13, EU:C:2015:14, paragraph 22).
21 The concept of ‘consumer’, within the meaning of Article 2(b) of Directive 93/13, is ... objective in nature and is distinct from the concrete knowledge the person in question may have, or from the information that person actually has (C-110/14, paras 17-18 and 21, emphasis added).
In setting up this analytical framework, the CJEU conflates two arguments. The first one relates to the weak position of the consumer in terms of unequal bargaining power. The second one relates to the information imperfection that can affect the consumer. At least on this second point, the CJEU is extremely formalist and engages in an interpretation of EU law that is not adjusted to commercial reality, but simply aimed at the world of ideas. By flatly rejecting that the specific knowledge and expertise of the consumer can alter its legal position, the CJEU preempts any granularity in EU consumer law, at least when it comes to a potential reduction of the standard of protection of the savvy consumer--which is also functionally in stark contrast with the increased protection afforded to the particularly vulnerable consumer, and thus creates a clear imbalance in the development of this area of EU economic law.
Moreover, this formalism exacerbates the paternalism of the CJEU in its aim to protect consumers, even when they are in a situation where they do not actually deserve protection because they are not affected by an information asymmetry or imperfection [for extended discussion on this rationale for consumer protection law, see F Gomez Pomar, 'EC Consumer Protection Law and EC Competition Law: How related are they? A Law and Economics perspective' (2003) InDret 113, pp. 10 and ff]. Thus, the Costea Judgment is bound to expand consumer protection beyond its desirable remit.
The line of argument based on the consumer's limited bargaining power is the one that allows the CJEU to afford protection to Mr Costea as an individual. It is harder to take issue with the reasoning of the CJEU in paras 24-27 because the CJEU assesses the relative bargaining power of a lawyer in the abstract and concludes that 'even if a lawyer were considered to display a high level of technical knowledge ..., he could not be assumed not to be a weak party compared with a seller or supplier'. However, this should have been left for a factual assessment under the circumstances of the case, in which it could actually be proven (not presumed or assumed) that the lawyer was in no weaker position.
This is where the CJEU again engages in a line of reasoning that is extremely formalistic, particularly because it loses perspective of the fact that several legal persons are actually embodied in a single natural person. According to the CJEU
28 As regards the fact that the debt arising out of the contract in question is secured by a mortgage taken out by a lawyer in his capacity as representative of his law firm and involving goods intended for the exercise of that lawyer’s profession, such as a building belonging to that firm, it should be held that ... it has no bearing on the assessment carried out in ... this judgment.
29 The case in the main proceedings concerns the determination of the status (that of consumer or of seller or supplier) of the person who has concluded the main agreement (the credit agreement) and not the status of that person under the ancillary agreement (the mortgage), securing the payment of the debt arising from the main agreement. In a case such as that at issue in the main proceedings, the categorisation, as a consumer or as a seller or supplier, of the lawyer in the context of his taking out a mortgage cannot, consequently, determine his status under the main credit agreement (C-110/14, paras 28-29, emphasis added).
In my view, this is simply functionally absurd. The CJEU failed to look at the transaction as a whole and afforded protection beyond what might have been necessary. Moreover, the reasoning seems exceedingly simplistic in its dichotomy: ie in a given contract, each of the parties is either a consumer or a seller/supplier. This is not in line with the fact that, as AG Cruz Villalón pointed out in his Opinion, 'the contrast between the concepts of seller or supplier and consumer does not operate in completely symmetrical terms' (para 21). A functional approach should certainly allow for a more nuanced approach, so that a specific party (ie the one that demands the services in the transaction) can be categorised as consumer/no-consumer. This is certainly the case with legal entities [Judgment in Cape and Idealservice MN RE, C-541/99 and C-542/99, EU:C:2001:625, para 16], and there seems to be no good reason to automatically exclude such analysis in the case of professionals.
Overall, then, the Costea Judgment seems like an exceedingly formalistic exercise and leaves a flavour of undue expansion of consumer protection that could well backfire by allowing professionals to access unnecessary protection by the simple use of separate legal entities (which they can create and control). Will this lead to a future extension of the doctrine of lifting the corporate veil to the area of consumer protection? That would certainly be bonkers...