Implications for Member States

Table of Contents:

As was shown, EU law leaves it essentially to the Member States whether they rely primarily on public or private enforcement or a combination of them. The UCP Directive only requires that Member States ensure that adequate and effective means to combat unfair commercial practices and effective, dissuasive and proportionate penalties exist. However, based on the rulings of the ECJ in Munoz, Courage and Manfredi, under certain circumstances the full effectiveness of the UCP Directive would be put at risk if Member States do not grant individuals a right to claim. Furthermore, in cross-border cases injunction procedures according to the Consumer Injunctions Directive and cooperation between national authorities responsible for enforcement under the Regulation on consumer protection cooperation are required.

Private and Public Enforcement

The effectiveness of enforcement depends firstly and foremost on the specific nature of the area of law. While in some cases public enforcement by means of administrative or criminal sanctions may be necessary (for example, in the financial market regulation), in other instances private enforcement and civil liability may be appropriate (for example, for the non-fulfillment of contractual obligations).[1] Whether private or public law instruments are appropriate to enforce national provisions adopted in connection with the application of the UCP Directive will depend on the specific advantages and disadvantages of private and public enforcement.[2]

3.1.1 Advantages of private enforcement

Firstly, private enforcement mechanisms make it possible to generate private information and to detect unfair commercial practices which would have otherwise remained undetected. Public authorities are not able to investigate and prosecute all unfair commercial practices.[3] In contrast, private parties might be directly involved in unfair commercial practices and, therefore, acquire immediately knowledge of an infringement of the law. Secondly, private enforcement enables exploitation of private incentives and motivation to enforce the rules. Injured private persons are often better motivated and possibly more tenacious in enforcing their rights than employees of public authorities, in particular if their own interests are at stake. Thirdly, some scholars argue that private enforcement allows adjustment to new policies and altered circumstances because judges have more room to refine vague and general standards contained in law, and private parties are more likely than public authorities to develop and pursue novel legal theories and new techniques of investigation and proof.[4] Finally, private enforcement is able to handle cross-border infringements by applying international private law. In contrast, administrative competences are regularly restricted to national borders according to the principle of territoriality. That renders cross-border public enforcement more difficult in practice.

3.1.2 Advantages of public enforcement

Compared hereto, the advantages of public enforcement are the following: Firstly, European and national public authorities must ensure that not only individual, but also public interests and, more broadly, the Union interest are taken into account whilst private parties have no such duty when taking steps to enforce their rights. They may initiate proceedings if they have an individual interest to enforce their rights irrespective of whether or not the public interest would require such action.[5] Private interest may coincide with the public interest but it might also diverge. Due to administrative discretion, public authorities may take targeted actions.[6] If it is in the public interest not to enforce the law in a particular case, public authorities may exercise discretion not to enforce the law, if the law permits it. However, a

private person may still file a claim even though enforcement in the particular case would not be beneficial to the society.[7] On the other hand, private enforcement mechanisms may also result in under-enforcement if there is no private interest at stake but public interest in enforcing the law. Overall, it is difficult to determine the right level of deterrence by private enforcement mechanisms in practice.

Secondly, the risk of erroneous decisions in administrative proceedings might be lower than on the basis of private enforcement. As public authorities handle such cases repeatedly they have gained experience and expert knowledge.[8] Having mentioned that, this can also be true for private bodies such as consumer associations in civil courts having jurisdiction. Thirdly, in contrast to private parties, public authorities are able not only to enforce one-off but may follow a continuous and reliable strategy of enforcement.[9] But again this may also apply to private associations. Fourthly, if private enforcement mechanisms should work well it is often linked to the danger of abuse. In particular, in the United States negative effects of private enforcement are visible by means of the so-called strike suits by which the plaintiff seeks no more than a settlement offer from the defendant.[10] Against this background, the Commission warns that elements should be avoided which are said to encourage a 'litigation culture'.[11] However, the existing national private enforcement mechanisms in the European Union show that there are various effective safeguards to combat abusive or frivolous lawsuits. Those safeguards could be, for example, confining causes of action to qualified bodies or imposing sanctions for abusive claims. Admittedly, whether these safeguards are sufficient in a strong private enforcement system has not been proven and tested yet.

However, the most important argument in favour of public enforcement is the broad variation of instruments that public authorities may use for their investigation in order to detect infringements and to ascertain the facts. Enforcement authorities may have special investigation powers, such as powers to obtain information, powers of entry and to enter premises (see, for example, part 4 of the Consumer Protection from Unfair Trading Regulations 2008). Private persons might lack the necessary information on the identity of the wrongdoer or the fact of an infringement at all.[12] Compared to this, public authorities are better prepared to collect information required for proof of infringements and claims. In addition, administrative and criminal sanctions fines could be better targeted at general deterrence by determining them according to the overall economic losses and the achieved benefits.[13] Thus, in the first instance of Munoz, Laddie J commented that public authorities were the most appropriate body to enforce the regulations' duties, being the one that possesses the necessary expertise: 'They not only know what they are doing but, importantly, they should be neutral. Their remit is not to advance one trader's interests at the expense of another's'.[14]

3.1.3 Private and public enforcement of unfair commercial practices

As has been shown both private as well as public enforcement can have benefits and drawbacks.[15] According to the UCP Directive, it should basically be up to the Member States to choose the most effective enforcement instruments for their respective jurisdiction.[16] Apart from the situation in cross-border cases there is no need to strengthen the requirements for any particular enforcement instrument in the Member States.[17] Only if public enforcement mechanisms should prove to be ineffective, individual Member States must strengthen private enforcement mechanisms, for example, by establishing a collective redress system. The same applies in reverse. The seminal decision of the ECJ in Munoz shows that the existence of public enforcement does not automatically render private enforcement unnecessary. The relative weight of the advantages and disadvantages of private and public enforcement depends on the situation and practice at issue in the respective Member States.[18] Due consideration should also be given to the cultural environment in the Member States as well as the efficiency of the existing public or private enforcement mechanisms.

However, in many Member States one finds a combination of public and private enforcement. Due to the Regulation on Consumer Protection Cooperation, public law enforcement is an essential element of enforcement in all Member States, at least in cross-border cases. However, private enforcement is also an effective instrument in many Member States. Correspondingly in Germany or Austria, private enforcement of unfair commercial practices by competitors and consumer associations as well as other qualified entities has proved to be effective for a long time.[19] Conditions for private enforcement mechanisms in regard to unfair commercial practices are relatively good. As has been shown, private enforcement as a right of action is basically effective if concerned persons have free access to the necessary information to prove their case. Practices such as misleading advertising can typically be identified easily by individuals concerned by this unfair commercial practice. Therefore, in many cases, specific investigative measures by public authorities that are required, for example, in competition law are not necessary to detect unfair commercial practices. However, by combining public and private enforcement, deficits of one system may be compensated by the other system. Thus, the supervisory authorities' powers of investigation and coercion may contribute to the detection of unfair commercial practices which would otherwise have remained undiscovered or unascertainable. On the other hand, fostering private enforcement may help administrative authorities to focus on the functions they are best placed to carry out. Thus, a combined enforcement system would strengthen the impact of the UCP Directive.

  • [1] Commission, 'Communication from the Commission to the Council and the European Parliament' (n 4) 6.
  • [2] From an economic point of view see William M Landes and Richard A Posner, 'The Private Enforcement of Law' (1975) 4 Journal of Legal Studies 1, 14; A Mitchell Polinsky, 'Private versus Public Enforcement of Fines' (1980) 9 Journal of Legal Studies 105, 107; Richard A Posner, Economic Analysis of Law (8th edn, New York: Aspen Publishing, 2010) 659 et seq.; Steven Shavell, 'The Optimal Structure of Law Enforcement' (1993) 36 Journal of Law & Economics 255, 272. As to the efficient design of enforcement of misleading advertising laws see Weber, 'Law and Economics of Enforcing Misleading Advertising Laws' (n 5), in this volume.
  • [3] Christoph Kern, 'Private Law Enforcement versus Public Law Enforcement' (2007) 12 Zeitschrift für Zivilprozeß International 351, 360.
  • [4] Lars Klöhn, 'Private versus Public Enforcement of Laws - A Law and Economic Perspective', in Reiner Schulze (ed.), Compensation of Private Losses: The Evolution of Torts in European Business Law (Munich: Sellier, 2011) 195.
  • [5] See also Weber, 'Law and Economics of Enforcing Misleading Advertising Laws' (n 5), in this volume.
  • [6] See for Competition Law Wernhard Möschel, 'Behördliche oder privatrechtliche Durchsetzung des Kartellrechts?'(2007) Wirtschaft und Wettbewerb 483, 487; Wernhard Möschel, 'Should Private Enforcement of Competition Law Be Strengthened?', in Dieter Schmidtchen, Max Albert and Stefan Voigt (eds), The More Economic Approach to European Competition Law, Conferences on New Political Economy (Tübingen: Mohr Siebeck, 2007) 101, 106.
  • [7] Poelzig, Normdurchsetzung durch Privatrecht (n 6) 380.
  • [8] Matthew Stephenson, 'Public Regulation of Private Enforcement: The Case for Expanding the Role of Administrative Agencies' (2005) 91 Virginia Law Review 93, 116; Klöhn, 'Private versus Public Enforcement' (n 76) 194.
  • [9] Harald Koch, Prozessführung im öffentlichen Interesse (Frankfurt am Main: Metzner, 1983) 85.
  • [10] Kern, 'Private Law Enforcement versus Public Law Enforcement' (n 75) 366.
  • [11] Commission, 'Green Paper on Consumer Collective Redress' COM (2008) 794 final, 27 November 2008, para 48.
  • [12] Van den Bergh, 'Should Consumer Protection Law Be Publicly Enforced?', in van Boom and Loos (eds), Collective Enforcement of Consumer Law (n 7) 180, 201.
  • [13] Glöckner, Europäisches Lauterkeitsrecht (n 43) 612 et seq. Alternatively Glöckner suggests public authorities be granted standing in civil proceedings (Glöckner, 614).
  • [14] Antonio Munoz y Cia SA v Frumar Ltd [1999] 3 CMLR 684 (Ch), para 59 (Laddie J).
  • [15] See Howell E Jackson and Mark J Roe, 'Public and Private Enforcement of Securities Laws: Resource-Based Evidence' (2009) 93 Journal of Financial Economics 207; Kern, 'Private Law Enforcement versus Public Law Enforcement' (n 75) 359 et seq.
  • [16] On German law Poelzig, Normdurchsetzung durch Privatrecht (n 6) 76 et seq.
  • [17] Illustrating design suggestions for efficient enforcement see Weber, 'Law and Economics of Enforcing Misleading Advertising Laws' (n 5), in this volume.
  • [18] Kern, 'Private Law Enforcement versus Public Law Enforcement' (n 75) 378.
  • [19] Helmut Köhler, in Helmut Köhler and Joachim Bornkamm, Gesetz gegen den unlauteren Wettbewerb (UWG), Kommentar (Munich: C.H. Beck, 2013) ยง 8 UWG, para 3.1.
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