Withdrawal Rights as a Pillar of
European Private Law
Insights on the role of withdrawal rights in European Private
Law gained from Endress
M
ASTER‘ST
HESISMaster’s Track European Private Law 2019/2020
Lucas Link
lucas.link@me.com
Student No. 12867705
June 2020
Thesis supervisor:
Dr Candida Leone
University of Amsterdam Faculty of Law Wordcount: 12.997
Abstract: European (Union) legislation has introduced withdrawal rights into several fields of private law in the past decades. Whereas the European Regulatory Private Law ac-count would suggest that within each field in which these rights have been intro-duced a specific rationality would justify them, both the case-law of the CJEU and the explanations provided for in the recitals speak a different language. This is viv-idly demonstrated in the 2013 Endress v Allianz, a case that established an eternal right to withdrawal in the insurance sector by applying a logic from distance sales. Analysis of the case suggests a fundamental role of withdrawal rights. With regard to European Private Law this implies the existence of a legal principle, one that goes beyond the purely regulatory character of consumer law.
Index
INTRODUCTION ... 4
I. TWO ACCOUNTS OF EUROPEAN PRIVATE LAW ... 7
A. EUROPEAN REGULATORY PRIVATE LAW ... 7
B. PRAGMATIC PRIVATE LAW ... 8
II. THE ETERNAL RIGHT TO WITHDRAWAL ... 9
A. REGULATORY BACKGROUND ... 10
B. ENDRESS V ALLIANZ ... 11
C. IMPLICATIONS OF ENDRESS IN THE INSURANCE SECTOR. ... 13
D. JUSTIFICATION DIFFICULTIES IN ENDRESS ... 15
III. WITHDRAWAL RIGHTS: A CONSUMER LAW INSTRUMENT? ... 17
A. HISTORY OF WITHDRAWAL RIGHTS IN CONSUMER LAW ... 17
B. FUNCTIONS OF WITHDRAWAL RIGHTS ... 18
1. INFORMATION ASYMMETRY ... 19
2. PROTECTION FROM AGGRESSIVE COMMERCIAL PRACTICES ... 20
3. FACILITATING TRADE ... 21
4. COMPLEX CONTRACTS ... 22
IV. WITHDRAWAL RIGHTS: A PRIVATE LAW INSTRUMENT? ... 25
A. THE IMPACT OF WITHDRAWAL RIGHTS ON PRIVATE LAW ... 27
B. EFFICIENCY AND THE NOTION OF JUSTICE ... 28
V. WITHDRAWAL RIGHTS AND EUROPEAN PRIVATE LAW ... 30
CONCLUSION ... 33
INTRODUCTION
W
ithdrawal rights are a hallmark of European consumer law. Among other legal in-struments like unfair terms control and conformity of goods, all of which have been serially implemented in European legislation in the past decades, withdrawal rights define the expec-tations of private law subjects towards each other.1 They grant a unilateral right to terminate,without legal or material repercussions, a contract formerly entered by free will. What is more, withdrawal does not require reason. With these properties, withdrawal rights fundamentally shape the legal relationship of consumers and traders, and also among traders. Anyone who has engaged in online-shopping knows about the right to return the purchased goods which is often even taken for granted. The same is true of practically any type of contract concluded via telecommunication measures and, therefore, for a considerable portion of contracts concluded in general. Naturally, the advent of this legal instrument has been under some scrutiny by pri-vate lawyers. An enthusiasm for comprehensive European Pripri-vate Law theories accompanying several normative endeavours that arose in the beginning 2000s vaguely took up on the issue of withdrawal rights. But the topic appears to have lost some of its appeal after the grand pro-jects – notably the proposal of a Common European Sales Law – had been abandoned. Con-ceptions of private law in Europe have since been boiled down to an account that pronounces the regulatory character of the legislation. There seems to be no room for a basic set of rules that guide European Private Law, like formation and dissolution of contracts, defects of will or ill-performance. These topics are hinted at by legal instruments such as unfair terms control, non-conformity or, most interestingly, the right to withdrawal. But withdrawal rights and their consumer law ‘relatives’ have fallen off the picture, in part because the rationale that they convey sits cross with an intuitive understanding of private law in general. The attempts to incorporate a theory of withdrawal rights into existing private law rationales have to engage with its incommensurateness with conventional principles like pacta sunt servanda. What is more, the structural imbalance of a withdrawal right calls for a high degree of justification inter
partes. Both undertakings have not been concluded satisfactorily, albeit not for a lack of
1 Due to their origin being Union Law for the most part, terminology with regard to withdrawal rights differs
vastly. The different terms, such as ‘résiliation’, ‘révocation’, ‘rénonciation’ & ‘rétractation’, ‘Rücktritt’ & ‘Widerruf’, ‘diritto di recesso’ or ‘withdrawal’ & ‘cancellation’ describe the same legal instrument for the most part. See Bénédicte Fauvarque-Cosson and Denis Mazeaud, European Contract Law: Materials for a Common Frame of Reference: Terminology, Guiding Principles, Model Rules (2009), 343
elaborate discussion of the ways in which withdrawal rights could be justified and aligned with an existing private law rationale.
The significance of withdrawal rights for private law relationships and the notion of contract shows strikingly in the CJEU judgment made in Endress v Allianz.2 The Court here
upheld the policy-holder’s right to withdrawal3 against a national provision4 that would limit
the exercise of the withdrawal to one year after the payment of the first premium, thereby paving the way for an ‘eternal’ withdrawal right. The economic implications of the judgment are one side, but the structure of the argumentation that the Court employs is another. It indi-cates a perception of withdrawal rights that goes well beyond the compartmentalisation of the regulatory account, because it cross-references verdicts from other fields of law with ease. With a view to the intricate rules of some of the directives that contain withdrawal rights, the ques-tion arises how sector-specific and distinct their raques-tionales actually are. If one right to with-drawal can be ‘transposed’ to another, unrelated situation, a conclusion might be had that indi-cates a more systemic picture of European Private Law.
This paper examines the insights that can be gained from the Endress judgment and the subsequent eternal right to withdrawal in insurance law on what constitutes European Pri-vate Law. I will start by briefly displaying two slightly different accounts of European PriPri-vate Law, the European Regulatory Private Law (ERPL) project, and a more pragmatic stance that introduces a pillar structure (Ch. I). Following this, a description of the status quo of insurance law in Germany shall be given, with a focus on the European legislation that factors into the establishing of the so-called ‘eternal withdrawal right’ (Ch. II). This entails an account of the withdrawal right as provided for in the second and third Life Assurance Directives. Subse-quently, I will introduce the judgment made by the Court in Endress and discuss, in the interest of expressing the magnitude of the decision, the implications it had on the insurance sector. This will reveal some inconsistencies that the judgment bears with regard to justification and substantive legitimacy. The third and fourth chapter will bring an analytical stake into the sideration. First, I will examine the functions that withdrawal rights as an instrument of con-sumer law are accredited with both in the respective directives and in the academic debate (Ch. III). A discussion of this reasoning will shed a light on the uniformity of withdrawal right rationality that, eventually, underlies the Endress judgment. Following this, I will examine the private law properties of withdrawal rights, that is, mainly the effects of withdrawal rights on
2 Case C-209/12, Endress v Allianz [2013].
3 Art. 15 (1) Council Directive 90/619/EEC from 5 March 1990. 4 § 5a II VVG (Versicherungsvertragsgesetz), version from 1990-2002.
contract law (Ch. IV). Finally, an attempt shall be made to provide an explanation as to what function withdrawal rights serve and, ultimately, what conclusion this allows for European Private Law (Ch. V).
Some of the research done for this paper relies on personal experience. I have worked for a German consumer law firm for a period of time, where a large part of my work consisted of withdrawals from life insurances and the subsequent legal procedures. The insights gained in that respect are what inspired this paper to some extent. Particularly, the large scale of the phenomenon and the vigorous adherence to withdrawal rights that the CJEU and German higher courts displayed led to the assumption that an analysis could yield some findings with regard to the rationality of European Private Law.
I. TWO ACCOUNTS OF EUROPEAN PRIVATE LAW
The nature of European Private Law has been subject to broad discussion. While na-tional legal systems are usually very explicit when it comes to a distinction of fields of law, European law seems to evade a clear definition of private law. The clear-cut distinction be-tween public and private does not align well with the functionalist approach of European (Pri-vate) Law.5 A definition is at all difficult because a positivist account of European Private Law
legislation cannot easily be given. Civil law systems ordinarily provide for a set of basic prin-ciples and rules laid down in a code, like the Code Civile, the Bürgerliches Gesetzbuch or the
Código Civil. European law in that regard is reminiscent of common law systems, where a
body of law is constituted mainly by principles and precedents found in an elaborate system of case-law. Conversely, European law consist of a number of legislative acts, with case-law tak-ing over a role that is more common to civil law systems. European law cannot be described with either. Among the different accounts that have been given of what constitutes European Private Law, one stands out that stresses the regulatory character of the law (I.A.).6 But another
perspective can be had, one, where the vertical logic of regulatory law is supplemented with a horizontal foundation (I.B).
A. European Regulatory Private Law
The most prominent account of European Private Law nowadays? is one that concen-trates on its regulatory nature.7 The work delivered by Hans-Wolfgang Micklitz and several
other private law scholars is the result of a project that aimed to propose a concept that is independent from traditional notions of private law as they can be found in national legal sys-tems, but rather pronounces distinct rationales of European Private Law. Whereas the ERPL project was motivated by a normative focus, it is its empirical findings that provide for an account of what constitutes European Private Law today. These findings provide a ‘map’ of the different areas in which EU legislation actively shapes private law, thereby contouring a picture of European Private Law that consists of several different, widely independent sectors
5 Rafał Mańko, ‘EU Competence in Private Law: The Treaty Framework for a European Private Law and
Chal-lenges for Coherence’ (2015) 14.
6 Hans-W Micklitz and others, ‘European Regulatory Private Law: Autonomy, Competition and Regulation in
European Private Law’ (2016).
(or silos) with differing principles and logics.8 A sector is governed by its own, sector-specific
rationality and private law is only one normative tool among others.9 This rationality does not
align with the conventional perception of national and international, of public and private law.10
The appeal of such a perspective on private law is that it is extremely flexible. It allows for sector specific regulation on the one hand, which can, taken as a descriptive account, be ob-served in many legislative pieces of the EU. Additionally, it allows for a better regime over individual areas of law, because it acknowledges that the normative force of industry standards, codes of conduct or network rationales can display the needs of a sector much better than gen-eral regulations. The ERPL account proclaims that European Private Law is composed of dis-tinct regulatory silos that each follow their specific rationality. Conventional theories of private law that involve fundamental principles like formation and validity of contracts, good faith or consent are not covered by this account.
B. Pragmatic Private Law
A slightly different picture of European Private Law can be drawn which entails a common foundation resembling the principles of private law inherent to national legal systems. This account claims that the compartmentalised view of the regulatory ‘silos’ fails to provide for a comprehensive theory. Whereas regulatory law does amount for a large part of what Eu-ropean Private Law entails, this one-sided appreciation leaves no room for EuEu-ropean law where it is not regulatory, that is, where a clear cut allocation of a rule in a specific sector is not possible.11 It disregards the existence of a basic canon of principles that is expressed in several
crucial directives, namely those of consumer law.12 It would be going too far to assume that
these form a cohesive system of private law principles, but nevertheless some degree of coher-ence can be distinguished. It is outlined by a series of transformative directives with a strong private law implication that all contain, quasi as a default, a right to withdrawal.13 This, taken
in conjunction with the doctrines of unfair terms and non-conformity has established a frame-work of basic rules that apply to the vast majority of private law relationships within the scope of European law. And that scope is expanding, both because new legislation with the same
8 Martijn W Hesselink, ‘Private Law, Regulation, and Justice’ (2016) 10.
9 Other normative tools are, eg. industry standards, network rationales and enforcement mechanisms, see
Hans-W Micklitz and others, ‘European Regulatory Private Law : The Paradigms Tested’ (2014) 78.
10 ibid.
11 Hesselink, ‘Private Law, Regulation, and Justice’ (n 8) 3. 12 ibid 4.
logic is being introduced continuously and because that logic has a radiating effect on other fields of European law.14 Withdrawal rights, for instance, provide a simple and effective tool
for dispute solution, because they ‘normalise’ adverse effects of defective contracts, like com-plaints, claims of error or defect of consent (see infra III.A and B). This effect is attractive to all agents of a fast-paced market, because it implies less transaction costs: Dispute resolution is comparably quick and easy, and it does not require specialised (and expensive) advisors. Another factor that plays into the consolidation of basic principles is the gradual adaptation of transaction habits by the operators of the market. In a way that is reminiscent of the ‘normative power of the factual’, withdrawal rights, non-conformity and unfair terms have become such a standard in everyday economic conduct that the rights connected with them are downright ex-pected by the legally untrained. This shift is vividly demonstrated in the approach that the Consumer Rights Directive takes on withdrawal rights, when it establishes a default right to withdrawal and then continues to merely nominates exemptions from this setting.15
II. THE ETERNAL RIGHT TO WITHDRAWAL
The CJEU has decided on a number of cases with withdrawal rights at their centre.16
Most notably, it has established that a withdrawal period in a doorstep sales contract does not begin until the consumer is made aware of it by the seller.17 In insurance law this principle has
similarly been adopted with the Endress-Judgment in 2013.18
14 ibid 6.
15 Art. 9 and 16 of Directive 2011/83/EU.
16 See, for example Case C-66/19, JC v Kreissparkasse Saarlouis [2020] ECLI:EU:C:2020:242; Case C-412/06
Annelore Hamilton v Volksbank Filder eG [2008] ECR I-2383; Case C-489/07 Pia Messner v Firma Stefan Krüger [2009] ECR I-7315; Case C-511/08 Handelsgesellschaft Heinrich Heine v Verbraucherzentrale Nord-rhein-Westfalen eV [2010] ECR I-3047.
17 Case C-481/99, Heininger v Bayrische Hypo- und Verieinsbank AG [2011] ECR I-9945, p. 42. 18 Case C-209/12, Endress v Allianz [2013].
A. Regulatory Background
Insurance law to the extent that it is private law19 has been subject to several pieces of
European legislation, of which the most notable ones are the Life Assurance Directives I-IV20.
These directives, in conjunction with other more general instruments21, amount for what can
be called ‘insurance contract law’.22 That is not to say that the directives concerning life
insur-ances are primarily works of private law legislation. In fact, the bulk of regulation is concerned with the business of life assurance23 the creation of an integrated insurance market24 and
su-pervisory norms. A mere five paragraphs of the fourth Life Assurance Directive is dedicated to contract law, regulating the law applicable, information and disclosure requirements on part of the insurer and cancellation rights.25 The latter were first introduced in 1990 when the second
Life Assurance Directive came into force.26 The right to cancellation was initially only
appli-cable to life insurance contracts in a cross-border scenario.27 The third directive in 1992
intro-duced a general right to cancellation in all life insurance contracts, that is, regardless of whether the contract was concluded between an insurer and an insured from different Member States, or not.28 But the major novelty that was introduced in this directive came with Art. 31 that
required Member States to demand quite extensive precontractual information duties of the insurers. Among others, the insurance companies were thus required to inform about the ‘ap-plication of the cooling-off period’, referring to the right to cancellation that was installed in Art. 15 (1).29 Although the directive contained no arrangement as to the consequences of a
19 This distinction is appropriate because the bulk of what is considered to be ‘European insurance law’ does not,
in fact, refer to the law governing the relation between privates (i.e. consumers/insured businesses and insurance companies), but deals with supervision, risk management regulation and distribution schemes, see for example Directive 2002/92/EC (Insurance Mediation Directive), Directive 2003/41/EC (IORP Directive) or Directive (EU) 2016/97 (Insurance Distribution Directive).
20 Council Directive 79/267/EEC from 8 November 1979 (I), Council Directive 90/619/EEC from 5 March 1990
(II), Council Directive 92/96/EEC from 10 November 1996 (III) and Directive 2002/83/EC from 5 November 2002 (IV).
21 i.e. Directive 2002/65/EC (Distance Marketing) and Directive 2009/138/EC (Solvency II Directive), which only
came into force in 2016.
22 Jürgen Basedow, ‘Insurance Contract Law as Part of an Optional European Contract Act’ (2003) 58. 23 Directive 2002/83/EC, recital (2).
24 Directive 2002/83/EC, recital (5).
25 Directive 2002/83/EC, Art. 32, 36 and 35, respectively.
26 Art. 15 (1) of Council Directive 90/619/EEC provided for a right to unconditioned cancellation within 14-30
days after giving notice of the conclusion of the insurance contract.
27 Martin Schauer, ‘Spätrücktritt in Der Lebensversicherung - Die Entscheidung EuGH Endress/Allianz Und
Ihre Konsequenzen Für Das Österreichische Recht’ (2017) 3–4.
28 Art. 15 (1) of Council Directive 92/96/EEC 29 Annex II/A a.13 of the Directive.
failure to comply with the information duties, this went on to play a decisive role in the appli-cation of cancellation rights.
B. Endress v Allianz
In a seminal judgment the CJEU was requested for a preliminary ruling on a dispute between Walter Endress and the Allianz Lebensversicherung AG. Mr Endress had concluded a life insurance contract with Allianz in 1998 that was scheduled to award him a pension from 2011 forward. In 2007 Mr Endress terminated the contract in accordance with the terms and conditions and subsequently received the repurchase value of his insurance. Shortly after, Mr Endress made use of his right to cancellation of the contract under § 5a VVG
(Versicherungs-vertragsgesetz, ‘Insurance Contract Act’). He argued that his right to cancellation had not yet
expired because Allianz had failed to give due notice toward him at the time of the conclusion of the contract. Undisputedly, Mr Endress had not received notice of the existence of his right to cancellation. Therefore, he had not been aware of his rights.30
A German norm implemented Art. 15 (1) of the second Life Assurance Directive which was then still applicable. It held that the cancellation period of 14 days was to begin only when the policy documents with all associated information were made fully available to the policy-holder. Where the policy-holder would not have received sufficient information in compliance with the requirements set out in Art. 31 and Annex II/A of the Directive respectively, the right to cancellation would, however, expire one year after payment of the first premium.31
Upon request the Court had to decide whether the provision imposed an infringement of the essential objective pursued by the second and third Life Assurance Directives.32 In a
single assurance market the consumer is confronted with a wide array of different insurance products. In lieu of that diversity of possible contract choices, the Court identified the purpose of information duties as stated in recital 23 of the third Life Assurance Directive to be that the ‘policy-holder receive precise information concerning, inter alia, his right of cancellation’.33
Having access to comprehensive information would be necessary as consumers usually enter into contracts of a long duration.34 The Court declared that, in order to ensure effet utile, a
30 Case C-209/12, Endress v Allianz [2013], p. 13-17. 31 § 5a (2) VVG.
32 Case C-209/12, Endress v Allianz [2013], p. 26. 33 Case C-209/12, Endress v Allianz [2013], p. 25. 34 Case C-209/12, Endress v Allianz [2013], p. 24.
national provision implementing Art. 15 (1) of Council Directive 90/619/EEC must respect the objective of providing sufficient information to the consumer ahead of the conclusion of an insurance contract. In a rather brief conclusion it held that a provision like § 5a VVG was thus incompatible with the goals of the Directives because it could deprive a consumer of his/her right to cancellation even where he/she had not been properly informed about that right.35 A
consumer who is not aware of his/her rights cannot exercise said rights.36 The implication of
this is that the cancellation period does not begin before proper information has been given to the consumer. Consequentially, failure to provide the required information ahead of the con-clusion of the contract results in an eternal right to cancellation.37
Additionally, the Court ruled out a counterargument that was brought up by Allianz in the initial proceedings claiming that such an interpretation of the Directive would severely undermine legal certainty. Hence, an ultimate limitation of the right to cancellation to one year would be needed.38 The reasoning behind the dismissal thereof is especially interesting because
the Court refers to another consumer-oriented ruling made with regard to distance sales con-tracts, thereby establishing a connection between the right to cancellation and the information asymmetry of consumers and sellers.39 In principal it argues that, where an insurance company
had failed to comply with the information duties and therefore on its own behalf caused the lack of precontractual information on the side of the policy-holder, it could not rely on the principle of legal certainty to restrict the cancellation period.40 The Court went on to map out
the similarities of the cases in reference. In Heininger it had established that a provision that limited the consumers right to cancellation to one year where the seller in an off-premises concluded contract had failed to give notice to the consumer about his/her 7-day cancellation right was incompatible with the objective of Council Directive 85/577/EEC (Doorstep Sales Directive).41 Although there are significant differences between the Doorstep Sales Distance
and the Life Assurance Directives42, they both serve to mitigate the risk that a consumer takes
when entering into the contract. That risk is fundamentally equal in insurance contracts and contracts concluded off-premise.43 Accordingly, the right to cancellation from the Life
35 Case C-209/12, Endress v Allianz [2013], p. 26.
36 Case C-209/12, Endress v Allianz [2013], p. 27 with reference made to Heininger, C-481/99. 37 Or, to be accurate, in preliminary indefinite withdrawal right
38 Case C-209/12, Endress v Allianz [2013], p. 27. 39 Ibid. with reference made to Heininger, C-481/99. 40 Ibid.
41 Case C-481/99, Heininger v Bayrische Hypo- und Verieinsbank AG [2011], p. 45. 42 Opinion of AG Sharpston on C-209/12, p. 47.
Assurance Directives has – at least implicitly – the purpose of combatting information asym-metry vis-á-vis the insurance company.44
C. Implications of Endress in the Insurance Sector.
In order to understand the impact Endress had in the insurance industry in Germany it is necessary to apprehend the economic dimensions of life insurances on one hand, and the far-reaching dissemination of ‘defective’ cancellation rights notices in insurance contracts. The severity of the judgment is hinted at already in the request made by Allianz to the CJEU to uphold the German limitation of one year. It stated that up to 108 million individual contracts in Germany could be affected by the judgment, because the use of ‘defective’ or insufficient information in particular with regard to withdrawal rights was very common.45
In the 1990s and early 2000s, life insurances had been widely regarded as the showpiece of stable financial products not only in the pension sector, but with investment in general and thus enjoyed considerable popularity. This was also due to the fact that, in an effort to relieve public pension funds, private life insurance investment had been exempt from taxation.46 That
is, depending on the type of insurance product policy-holder could sometimes deduct the whole premiums from their taxable income. A shift in the social security agenda of the Federal Gov-ernment after the election of Angela Merkel as chancellor in 2005 made life insurances gradu-ally less attractive as an investment product. However, it was not until the financial crisis of 2008/2009 that the weaknesses of life insurances became widely apparent. In the aftermath of the collapse many pension plans on life insurances lost a substantive amount of their value. Whereas old contracts still had the benefit of a guaranteed 3-4% annual interest, newer con-tracts with lower interest rates relied heavily upon the development of the funds they invested in – and were thus subject to the disastrous financial situation.
It is always possible to terminate a life insurance contract within the means of the terms of the contract. However, termination will result only in a reimbursement of the ‘repurchase value’, that is, the sum of premiums paid up until the point of termination but with a subtraction of administrative and closure costs. In most cases, the costs associated with the closure and
44 Case C-209/12, Endress v Allianz [2013], p. 29. 45 Case C-209/12, Endress v Allianz [2013], p. 33, 34.
46 Raimond H Maurer and Barbara Somova, ‘German Insurance Industry: Market Overview and Trends’ (2005)
administration are distributed by ‘zillmerisation’, that is, they are gradually paid for by the insured within the first couple years after the contract has been concluded. Therefore, termi-nating a contract soon after its closure comes at immense losses for the insured because it is only later that the whole sum of the premiums is invested in the insurance funds. For some types of insurance contracts, the insured will also have to bear the loss in funds – which can in some cases amount for up to 50 % of the premiums. In contrast, a cancellation of the contract results in a mere obligation of restitution on both parts. This means that, except for a due amount for the factually provided insurance protection during the time between conclusion and revocation47, the insured would receive back all premiums paid in that period. Affected insured
could thus avoid all financial losses that insurance companies suffered in the years since they entered into the contract. Naturally, thus, cancellation of a ‘bad’ insurance contract would be much more financially attractive compared to mere termination.
The Endress-judgment gave rise to a campaign by a number of specialised law firms that sought out contracts with missing or insufficient notice on cancellation right. A series of ground-breaking decisions by the Federal Court of Justice48 following the referred
Endress-case49 paved the way for a largely consumer-friendly jurisdiction on the matter and the public
in Germany began to pick up on the fact that the vast majority of life insurance contracts were revocable even to date.50
The CJEU was clearly aware of the magnitude of its decision when it established what is now known as the ‘eternal withdrawal right’51 in Endress. This becomes apparent in the last
few paragraphs where the Court discusses a request made by Allianz to limit the temporal ef-fects of the judgment so as to prevent the revocation of millions of contracts to the detriment of the insurance companies.52 These concerns were rather justified, as the development in
Ger-many has come to prove. Although closure of new contracts had been on decline from 2005, life insurances still amount for a considerable share of privately held value. In fact, life
47 In the case that the insured had died in the meantime, surely his/her beneficiaries would have made use of the
life insurance. Furthermore, many life insurances contain a disability insurance that had granted insurance protec-tion during the duraprotec-tion of the contract.
48 See BGH IV ZR 384/14 and BGH IV ZR 448/14 49 BGH IV ZR 76/11
50 See, for example, the major public pieces by Finanztest, one of the most read and trusted magazines on financial
products in Germany, https://www.test.de/Lebensversicherung-Widerspruch-kann-Tausende-Euro-bringen-5204790-0/. Other consumer oriented newspapers reported extensively, such as Finanztip ( https://www.fi-nanztip.de/lebensversicherung/lebensversicherung-widerrufen/), Spiegel Online ( https://www.spiegel.de/spie-gel/lebensversicherung-wann-sich-der-widerruf-lohnt-a-1159239.html) and many more.
51 Veronika Fill, ‘Das “Ewige” Rücktrittsrecht in der Lebensversicherung und dessen Rechtsfolgen.
Bespre-chung von OGH 7 Ob 107/15h’ (2016) 38.
insurance funds are one of the largest single market assets in the German economy with life insurances alone managing approximately 930 billion Euros in 2018.53 The Court nonetheless
opted to uphold the right to withdrawal and even reaffirmed its verdict in a joined case on three Austrian life insurance contracts in 2019.54
D. Justification Difficulties in Endress
The verdict given in Endress is interesting here not only for its economic and legal implications in the insurance industry, but more importantly for the conclusions it foreshadows with regard to the role of withdrawal rights in European Private Law. It appears to blur the boundaries between withdrawal rights in different directives, taking the reasoning from door-step sales and transferring it to insurance contracts. The judgment carefully ascertains the scope of withdrawal rights but then fails to deliver a sound justification of these rights. This is not to say that justification issues were ignored. On the contrary, justification of an ‘eternal right to withdrawal’ was necessary beyond the doctrinal derivations, and the Court clearly realised that. Upon the concerns that Allianz raised with a view to legal certainty55 it made some brief, yet
fundamental remarks on the importance of withdrawal rights for consumer protection. But whereas the Court defines the scope and content of withdrawal rights under the second Life Assurance Directive with reference to decisions and principles from that same field of law56, it
justifies the extensive withdrawal right with a simple reference to Heininger and Hamilton57,
two cases involving the withdrawal right from the Doorstep Selling Directive. In other words, decisions from the life insurance sector are referenced only where the content of the withdrawal right is questioned. Where its justification is at stake, the lines begin to blur.
The Court delivers an interpretation of the wording of the directive that emphasises the goal of providing the consumer ‘with whatever information is necessary to enable him/her to
choose the contract best suited to his/her needs’.58 This reasoning is well in line with the
53 Gesamtverband der Deutschen Versicherungswirtschaft (GDV), ‚Statistical Yearbook of German Insurance
2019, p. 43.
54 Joined cases C-355/18, C-357/18, C-479/18, concerning requests for preliminary rulings by the Regional Court
Salzburg and the District Court for Commercial Matters Vienna.
55 Case C-209/12, Endress v Allianz [2013], p 27.
56 Case C-386/00, Axa Royale Belge [2002] ECR I-02209; Case C-48/74, Royer v Belgium (1976) ECR 1974 -
01383.
57 Case C-412/06, Hamilton v Volksbank Filder eG [2008] ECR I-2383. 58 Case C-209/12, Endress v Allianz [2013], p 24.
purpose of the directives stated in the recitals.59 Withdrawal rights, as follows, are supposed to
put the consumer in a position where he/she can make the best suitable choice about his/her personal life insurance contract. In lieu of these findings the provision of § 5a VVG could not persist. However, the Court does not go at length in justifying its perception of the right to withdrawal as provided for in the second Life Assurance Directive. Rather, it relies on the considerations set out in Heininger and proclaims their transferability on the case at hand.60
This is even more interesting as the directive referred to in Heininger had been repealed in 2011 by the Consumer Rights Directive. In particular, the Court recognises that ‘[t]he risks
connected, for the consumer, with the conclusion of a contract far away from the business premises of the other contracting party, first, and those connected, for the policy-holder, with the conclusion of an insurance contract in the absence of information in accordance with the requirements […] are similar’.61 This recurrence on Heininger is problematic, if not
implausi-ble, already because other than Directive 85/577/EEC, the second Life Assurance Directive does not only provide withdrawal rights for consumers, but for ‘policy-holders’ in general. This should technically put Heininger out of the question for a verdict on withdrawal rights in the life insurance sector because the scope of the withdrawal right is not limited to the B2C area, as it is in the Doorstep Selling Directive. Also, the material scope is a different one. The withdrawal right in Directive 85/577/EEC applies to contracts concluded during an excursion or a visit of the trader at the consumer’s home or place of work.62 It does not, principally, attach
to the type of contract, but to the circumstances under which it has been concluded. Withdrawal rights for life insurances, on the other hand, are specifically linked to that very type of contract. Regardless of these apparent differences the Court refers to Heininger, following AG Sharp-ston’s considerations on the matter. What leads the Court to employ a reasoning that concerns such a fundamentally different case? The question of how the different rights to withdrawal are to be distinguished from one another arises in face of such uniform justifications.
59 Recital 23, Council Directive 90/619/EEC 60 Case C-209/12, Endress v Allianz [2013], p. 28. 61 Ibid.
III. WITHDRAWAL RIGHTS: A CONSUMER LAW INSTRUMENT?
In order to assess the judgment given by the CJEU in Endress it is important first to delineate the purpose withdrawal rights serve in the different directives that contain such rights. We need to analyse the function, which will lead us to the question of justification of with-drawal rights. The approach that is probably the most intuitive and self-evident is one that takes withdrawal rights as a vehicle of consumer law.63 Granting a right to withdraw from a contract
provides for a degree of protection for consumers in several ways. In that regard, a right to withdrawal safeguards the consumer from rash decisions, aggressive sales techniques or de-ceptive advertising.64 Depending on the subject of regulation, however, different functions can
be ascribed to withdrawal rights. Different directives have introduced withdrawal rights that are, prima facie, taken to have different functions and reasons. This distinction has been some-what loosened when the Consumer Rights Directive introduced a general withdrawal right for B2C distant sales and off-premises contracts. Specific directives with withdrawal rights for specific sectors have yet been maintained. Justification of withdrawal rights is – at least upon first look – closely connected to the respective function of the right. It will become apparent, however, that neither function of withdrawal rights is capable of delivering a comprehensive explanation of the judgment given by the CJEU in Endress with a view to the ambiguity of the justification efforts therein.
A. History of Withdrawal Rights in Consumer Law
Whereas today withdrawal rights are a main feature of consumer law, it was only in 1969 that they were first introduced in Germany.65 Withdrawal rights are, meanwhile, largely
a device of European Union Law.66 The first European withdrawal right came about in the
1985 Doorstep Selling Directive, where the consumer would be released from all obligations after cancellation of the contract.67 The directive contained an information obligation on part
of the seller, however consequences of a failure to comply with that obligation were left un-regulated.68 Hereinafter, several directives periodically introduced new withdrawal rights: the
63 See, for example, recitals 5 and 37 of Directive 2011/83/EU. 64 Marco Loos, Rights of Withdrawal, (2009) 9.
65 The Auslandsinvestitionsgesetz (Abroad Investment Act, AIG) was introduced in 1969, see also Loos (n 60) 3. 66 Reiner Schulze and Jonathan Morgan, 'The Right of Withdrawal' (2013) 294.
67 Art. 5 (1) Council Directive 85/557/EEC. 68 Art. 4 (1) Council Directive 85/557/EEC.
second Life Assurance Directive 199069, the Time Share Directive 199470, the Distance Selling
Directive 199771, the Distance Marketing of Financial Services Directive 200272, the Consumer
Credit Directive 200873 and, sweepingly replacing some of its predecessors, the Consumer
Rights Directive 201174. The recitals of these directives go at different length to explain the
introduction of a withdrawal right in their respective field of regulation. The second Life As-surance Directive, for instance, does not provide any specific reasoning on why a withdrawal right for policy-holders should be included. In Recital 11 of the Timeshare Directive, with-drawal rights are briefly justified as ‘[…]to give the purchaser the chance to realize more fully
what his/her obligations and rights under the contract […].
Initially these directives were introduced with a minimum harmonisation approach, leaving the Member States with the option to adopt a higher standard of protection. But during the mid 2000s, a shift towards maximum harmonisation can be observed.75 The EU legislator
now assumed an approach that aimed to unify regulation in all Member States rather than to preserve the highest level of protection. The Consumer Rights Directive vividly illustrates this, as it not only provides for a maximum harmonisation76, but sets a withdrawal right as a default
rule for all distance selling and off-premises contracts, to which Art. 16 only enumerates a list of exemptions. The directive goes further than previous legislation in its efforts to motivate the broad scope of withdrawal rights.77 This development is in line with the at the time prevalent
legislative endeavours, namely the attempt to introduce a Common European Sales Law or even a European Civil Code. A look at the history of withdrawal rights reveals steady rise of withdrawal rights since 1985.
B. Functions of Withdrawal Rights
Several functions can be ascribed to withdrawal rights in a consumer-law perspective, like the protection of consumers from aggressive sales technique78 or providing for an extra
69 Council Directive 90/619/EEC. 70 Art. 5, Annex (l) Directive 94/47/EC. 71 Art. 4 (1) (f), 6 (3) Directive 97/7/EC. 72 Art. 3 (3) (a), 6 Directive 2002/65/EC. 73 Art. 5 (1) (o), 14 Directive 2008/48/EC. 74 Art. 6 (1) (h-j), 9, 11 (1) Directive 2011/83/EU. 75 Schulze and Morgan (n 69) 295.
76 Recital 40 of Directive 2011/83/EU. 77 Recitals 37-44 of Directive 2011/83/EU. 78 Loos (n 69) 9.
purchase incentive so as to promote market participation.79 The various withdrawal rights
con-tained in the directives following the Doorstep Selling Directive have in common that they provide a unilateral right to avoid the contract.80 A functional distinction at first glance appears
to roughly follow the different directives of consumer law that all introduced withdrawal rights in their specific field, because for each instance in which a withdrawal right is granted by the directives, a more or less convincing justification can be found, as will be shown. With a natural degree of overlapping there appear to be several distinguishable justifications for withdrawal rights that can be applied depending on the situation in which they are granted.81 This view
lends itself to a perspective on European Private Law as a patchwork of distinct regulatory silos, as it is proposed by the ERPL project.82 However, it does not hold upon further
investi-gation. With the exception of distance sales contracts, where the right to withdraw from the contract essentially extends the consideration time for the consumer to the point where he/she can actually inspect the good, all other legal instances in which European directives grant with-drawal rights are not fundamentally different from each other.83. A closer look will reveal that
the justification of withdrawal rights in all instances follows a similar logic.
1. Information asymmetry
With a rapidly growing online trade and an internal market that allows sellers to offer their products at virtually the same conditions across all Member States of the EU it becomes increasingly important to provide the consumer with dependable information on the products. Online trade, as opposed to a store purchase, lacks the opportunity to inspect a good prior to the purchase. This lack of information is detrimental to the consumers liberty of will.84 The
less they know about the good – or service – to be acquired, the less freely assumed their decision. Although trade has not yet come to a point where actual shops are extinct and online shopping is the only viable option, with certain goods and services there is a stark tendency towards such a scenario. That in mind a withdrawal right in distance sales contracts serves to bridge the information gap with regard to the quality and suitability of the product that would
79 Joasia A Luzak, ‘To Withdraw Or Not To Withdraw? Evaluation of the Mandatory Right of Withdrawal in
Consumer Distance Selling Contracts Taking Into Account Its Behavioural Effects on Consumers’ (2014) 94.
80 Peter Rott, ‘Harmonising Different Rights of Withdrawal: Can German Law Serve as an Example for EC
Con-sumer Law?’ (2006) 1112.
81 Loos (n 65) 9.
82 Micklitz and others (n 3), 78.
83 Domenik Henning Wendt, Zum Widerruf im Versicherungsvertragsrecht: Motive, Probleme und Lösungen
(2013) 38.
not exist if the consumer was to inspect it before making a purchase decision.85 Strictly
speak-ing, such a justification is only convincing where there is an actual information gap and the usage of the product or the sheer hands-on scrutiny – that is, ‘experience’ of the good – closes this gap (‘experience goods’).86
2. Protection from aggressive commercial practices
The most “original” purpose of withdrawal rights is the protection of consumers against rash decisions made when put under pressure by aggressive sales tactics. It was the pronounced objective of the first directive that included withdrawal rights, the Doorstep Selling Directive of 1985, to protect consumers from unfair commercial practices by granting them a right to withdrawal.87 It is interesting to note that the introduction of withdrawal rights in that directive
did not, in fact, necessarily improve consumer protection across the EU as a primary function.88
Although it certainly was introduced with a protective agenda, it is fair to assume that most Member States had a relatively well functioning system of doctrines such as good faith, illicit cause and deceit. These would provide for a way to avoid contracts entered into under psycho-logical stress, like in the case of a doorstep sale. The withdrawal right rather simplified these remedies. Furthermore, the introduction of a withdrawal right led to the abandoning of more strict rules, for instance in Germany, where a former prohibition of doorstep-concluded credit contracts was replaced by a mere mandatory withdrawal right for such contracts.89 The major
shift brought about by the Doorstep Selling Directive can thus be seen as one of user friendli-ness rather than one of the level of protection.
The rationale of withdrawal rights as protection from rash decisions is very straightfor-ward. It acts as a counterweight to the seller’s potential negotiation advantage vis-à-vis the consumer, may it result from their superior knowledge on the facts of the matter or simply from the suddenness of the sales approach.90 In particular with doorstep sales, the sales strategy often
relies on relentless harassment of the consumers until they give in and buy the product or con-clude the contract just to get rid of the seller. Such a sales situation constrains decisional delib-eration, which is why the consumer should be granted a right to revoke the otherwise legally binding declaration of will.91 The most prominent application of this withdrawal right would
85 Loos (n 65) 11. 86 Eidenmüller (n 87) 8.
87 Art. 5 Council Directive 85/577/EEC, with reference to Council Resolution OJ No. C 92, 25. 4. 1975, 24 (iii).
88 Canaris (n 66) 347. 89 Rott (n 83) 1113. 90 Loos (n 65) 9. 91 Canaris (n 66) 346.
be the (today outdated) doorstep selling schemes, but a similar logic applies to contracts con-cluded outside of business facilities, for instance on fairs, at conventions or even on a cruise ship. However, protection against rash decisions went on to be employed as a justification for withdrawal rights in the Timesharing Directive and is, to some degree, found in all following directives.92
In its essence, the justification for a withdrawal right in these situations touches on the core of what constitutes a contract, the will of the parties. What motivates the withdrawal right is the presumed defective will on part of the consumer. The law, in a paternalistic manner, assumes that the consumer is by default less capable of making the best decision in his/her interest. The consumer is, therefore, equipped with a second chance – i.e. a quiet moment to rethink the purchase decision and maybe come to a better conclusion.
3. Facilitating trade
Promotion of the internal market, one of the major objectives of European consumer law, also finds application as a justification of withdrawal rights. Cross-border trade and dis-tance selling have to cope with the fact that the consumer has no or only diminished opportunity to inspect the goods and will thus be less likely to make a purchase.93 Withdrawal rights can
contribute to overcome a lack of trust on side of the consumer and hence incentivise market participation. It is doubtable, however, whether this logic holds as a justification for withdrawal rights.94
For once, the argument suffers from a categorical problem: Withdrawal rights are ef-fective inter partes, and that to a quite drastic extent. The exertion by the consumer avoids all contractual obligations on his/her part, which imposes a considerable limitation not only of fundamental principles of private law, but also of the subjective rights of the other party. Jus-tification should, therefore, be rooted in that very relationship if it wants to avoid questions of (dis-)proportionality in the individual case. It would have to take up on the relative unfairness that is created by a unilateral withdrawal right. Although it is easily understandable how the internal market can, at face value, profit from the existence of withdrawal rights95, exogenous
considerations are not fit to justify withdrawal rights in view of the individual rights at stake.
92 Loos (n 65) 9. 93 ibid 10.
94 Eidenmüller (n 66), 12.
95 i.e. because consumers would be more inclined to make a purchase given that they are entitled to full
reim-bursement without having to give any reason. Behavioural science has questioned this logic, see Georg Borges and Bernd Irlenbusch, ‘Fairness Crowded Out by Law: An Experimental Study on Withdrawal Rights’ (2007) 99.
Furthermore, it is not at all sure whether the market actually benefits, in an overall view, from mandatory withdrawal rights.96 It could be noted that default withdrawal rights deprive
sellers of high quality products of the option to consolidate on the market by offering a delib-erate right to withdraw from the purchase, which in turn can open the market for low-quality products.97 In extreme cases, this could even lead to market failure.98 This remark cuts into the
core of the argument of facilitating trade and questions the overall objective of the approach. It shows that trade facilitation cannot reasonably justify the grave intervention of private law relationships that a right to withdraw constitutes. Promotion of the internal market may, there-fore, stand as an objective of withdrawal rights, but does not provide well as a justification.
One argument that is closely connected to this is that withdrawal rights incentivise dig-ital market usage.99 However, this argument, whereas it might have had some justification to it
in the early beginnings of online shopping and trade, has since lost its bite; digital consumption has come to a point where it does not need any further incentive.100
4. Complex contracts
Another rationale is that of complex contracts.101 This argument is usually employed to
justify withdrawal rights in life insurances, but it holds for consumer credit and timesharing contracts as well. Particularly in the field of financial services, contracts tend to make use of a language that is often obscure to the layperson and that happens to be very voluminous at that. The terms and conditions of a life insurance contract, for instance, often exceed 20 pages in fine lettering and the usage of technical terms is rather exuberant. This is, curiously, to a con-siderable extent the result of information duties imposed on the provider of the financial ser-vices by the very directives that contain the right to withdrawal.102 However, the long duration
of the contractual obligations and the multitude of contingencies that have to be covered also contribute to the complexity of such contracts. The argument presumes that the consumer is in a position where he/she cannot at the time of the conclusion of the contract oversee the impli-cations of his/her actions or whether the contract meets his/her demands.103 He/she would
96 Daniel Krahmer and Roland Strausz, ‘Optimal Sales Contracts with Withdrawal Rights’ (2015) 765. 97 ibid 778.
98 Eidenmüller (n 66), 8. 99 Loos (n 65) 12.
100 Omri Ben-Shahar and Eric A Posner, ‘The Right to Withdraw in Contract Law’ (2010) 4. 101 Loos (n 65) 12–14.
102 The second Life Assurance Directive introduced not only the right to withdrawal, but extensive information
duties: Insurance companies would have to provide the insured with tables on the expected and guaranteed repur-chase value for the duration of the contract, the foreseeable value of the contract in case of a suspension of pre-miums, comprehensive information on the volume and type of investments.
benefit from the option to consult independent advise after the conclusion, which is made pos-sible by a cooling-off period.104
The arguments in favour of a withdrawal right for complex contracts are persuasive at first glance. Upon further inspection, however, their logic does not hold. The withdrawal period granted towards policy-holders, loan debtors or subscribers to a time-sharing contract could only fulfil its purpose if one were to assume that consumers, after concluding such a contract, would go on to consult an independent expert so as to evaluate the contract or otherwise gain any considerable insights as to the terms of the contract. Then they would decide whether they wish to be bound to it, or not.105 The argument presumes that the information deficit on part of
the consumers vanishes during the 14 or 30 days after conclusion of the contract and that this puts them in a position to more accurately and deliberately form their will. However, there is no reason to assume that either the consumer would miraculously by him/herself gain a better insight in the consequences of the contract or, and that seems to be even less realistic, that he/she would seek external advice on the financial product in the ‘cooling-off’ period granted by the withdrawal right.106 On the contrary, the more realistic assumption is that, upon
conclu-sion of a life insurance contract or a loan from the bank, the contract papers are safely stored away.
It is fair to assume that a ‘reasonably well-informed and reasonably observant and cir-cumspect consumer’, as is stipulated by the CJEU in several occasions, would make sure that he/she is at least informed about the fundamentals of a contract before entering into such a long-term obligation. Any further consequences of the contract, that is, the suitability for the financial needs of the consumer or the actual performance of the financial product, are typically beyond of what can be reviewed within the withdrawal period.107
This conundrum becomes clearer when we exemplify the right to withdrawal as is pro-vided for in the second Life Assurance Directive: A consumer who wishes to obtain a life insurance will (some other form of internet closure kept aside) either consult his/her insurance consultor or, and that is the most common way, talk to his/her bank clerk. An offer will be made to him, containing basic mandatory information, such as the duration of the contract, the total sum of premiums to be paid, the expected development of the insurance’s value and a variety of specifications on investments and supervision. It is true that this information is rather
104 ibid 13.
105 Eidenmüller (n 66) 17. 106 Eidenmüller, ibid.
107 Jan M Smits, ‘The Right to Change Your Mind? Rethinking the Usefulness of Mandatory Rights of Withdrawal
complex and the average consumer might not be in a position to overlook all implications that the contract might have for him. However, such a contract is typically concluded only after lengthy consultation by either the insurance agent or the bank clerk has taken place. The rele-vant information is quite comprehensible: Price, duration of the insurance, possible value de-velopment and performance. To assume that the consumer does not comprehend this infor-mation at the time of the closure is rather far from reality.108 Therefore, it has been noted that
in the case of complex contracts and insurance policies in particular, other remedies like a stricter terms control would be preferable.109
What is the justification for withdrawal rights in these types of contracts, if the mere complexity of the contract fails to deliver sufficient reason? It appears that the purpose under-lying all deliberation is nothing more than to grant the consumer a prolonged ‘consideration period’ when he/she concludes an ‘important’ contract. The concept of giving the consumer a consideration period adheres to the above described aim of protecting consumers from rash decisions regarding conclusions of both a long duration and high economic value (see 1). In that sense, a justification that draws on the complexity of contracts is a mere variation of the argument that relates to doorstep sales, because ultimately it aims to provide more room for consideration to the consumer who is deemed to be easily compelled to conclude contracts that are detrimental to him. The right to withdrawal equips the consumer – or business110, as in the
case of insurance contracts – with a second chance. It reflects a conception of private law sub-jects that does not conform with a responsible, circumspect actor, but with an erratic consumer who is inclined to conclude contracts without much deliberation. This of course, is in part the implied goal of the internal market. The complexity of the contract is not a convincing justifi-cation for withdrawal rights in consumer credit or life insurance contracts. It is less the com-plexity of the contract, but more so the long duration and the financial consequences it might have for the consumer that motivates withdrawal rights in these situations. The justification is convincing only when assuming that a consumer will enter into the contract without properly evaluating the contract itself, not its specific terms.111 This, however, is the same logic that also
applies to doorstep sales and other instances in which EU directives grant withdrawal rights.
108 Canaris (n 66) 350.
109 Pamaria Rekaiti and Roger Van den Bergh, ‘Cooling-Off Periods in the Consumer Laws of the EC Member
States. A Comparative Law and Economics Approach’ (2000) 23 Journal of Consumer Policy 371, 388.
110 Concerning life insurance contracts, a withdrawal right is not only granted for consumers, but for any
policy-holder. This, in practice, often means that an employer will conclude a contract for the benefit of his employees.
In the same manner as described above the consumer is provided with a cooling-off period to rethink his/her decision.
The one-sidednessthat characterises these justification efforts is understandable if we keep in mind that the driver that is most frequently employed by EU legislation is the internal market. From that view, the main subjects of legislation are traders and consumers. It could be noted that, on a European level, private law regulation is consumer law. At least the vast ma-jority of private law legislation by the EU is concerned with consumer law and thus a heavy influence of its rationales on the way private law is constructed can be expected.112 In that
perspective, any piece of private law legislation is oriented on the concept of the consumer. A law that governs the formation of contracts is thus necessarily a law that takes the consumer as a yardstick.
IV. WITHDRAWAL RIGHTS: A PRIVATE LAW INSTRUMENT?
The above considerations show that, in essence, there are a mere two justifications for withdrawal rights that are being employed in the directives: Information asymmetry and the protection of the consumer from rash decisions. The first only convinces in the case of a dis-tance purchase of so-called ‘experience goods’, that is, products whose characteristics can be examined only when actually holding or using them.113 Withdrawal rights in these cases can
be justified without much effort. For once, it appeals to the natural procedure of a purchase face-to-face, where the consumer has the chance to inspect the goods before buying them.114
The right to withdraw serves as an ‘extension’ of the consideration period. In addition, with-drawal rights do not demand such a profound justification here because both parties benefit from them: The consumer, because he/she can make a purchase without having to worry about making a wrong decision and having to bear the costs thereof, and the seller, because a sweep-ing withdrawal right provides for a high degree of legal certainty as to the outcome of a dispute or a solution of a ‘bad’ contract compared to other doctrines of contractual deficits. 115
The second argument by which withdrawal rights are commonly justified needs further elaboration. It is not difficult to imagine how in the case of a doorstep sale a consumer could
112 Vanessa Mak, ‘The Character of European Private Law’ (2015) 10; Loos, ‘The Influence of European
Con-sumer Law on General Contract Law and the Need for Spontaneous Harmonisation’ (2006) 4.
113 Eidenmüller (n 66) 8.
114 Eidenmüller, ‘Die Rechtfertigung von Widerrufsrechten’ (2010) 74. 115 Canaris (n 66) 346.
be pressured into a contract and how, therefore, a withdrawal from the contract is justified. Cancellation of the contractual obligations in these cases would have been admissible long before the introduction of the Doorstep Selling Directive under already existing doctrines, such as illicit cause or usury.116 Withdrawal rights here only take up on an existing rationale and
simplify the means of protection. But this reasoning cannot plainly be transposed to the with-drawal rights granted in the second Life Assurance Directive, the Distance Marketing of Fi-nancial Services or the Consumer Credit Directive, that is, to complex contracts. Complex con-tracts do not commonly impend to take the consumer by surprise, hence coercing him/her to conclude an undesirable contract. On the contrary, it is often the consumer that initiates the negotiations in these contracts. As shown above, the fact that the contract is complex alone does not provide for justification. It appears that the same reasoning that is being applied to justify withdrawal rights in doorstep sales has been seamlessly transferred over to life insurance and consumer credit contracts although the situation that is being governed is a fundamentally different one.117 This is particularly true for life insurances, because here the right to
with-drawal is not limited to consumers vis-à-vis the insurance company, but it accounts for the other directives as well.118 If those considerations do not deliver a plausible reason for
with-drawal rights, then a motivation of withwith-drawal rights might be found outside of the consumer law rationalities.
One such explanation can be had when taking a look at the interplay of withdrawal rights and private law. Outside of the regulatory functions that they may serve (that is, outside of their purpose as a consumer rights instrument), there is another rationality of withdrawal rights. Here, they promote a different notion of justice, one that is more concerned with access to markets and efficiency of trade than with a corrective and social function as it is commonly perceived in the Member States.119 In that regard the lack of justification that is manifest in
many cases of withdrawal rights is pushed into the background because withdrawal rights do not mainly serve a purpose of corrective justice. Rather, withdrawal rights are a means to grant access to the market by simplifying dispute dissolution and contract conclusion.
116 In Germany, for instance, under the rule of § 134 BGB such contracts would have been void. 117 See Wendt (n 86) 38.
118 Under the second Life Assurance Directive, any policy-holder was entitled to a withdrawal right, not only
consumers. This is particularly interesting because, after Endress established the ‘eternal withdrawal right’, some cunning law firms started to buy life insurances, with the prospect of withdrawing from the contract and regaining the premiums paid.
A. The Impact of Withdrawal Rights on Private Law
It is important to note that in a traditional coherent and systematic concept of private law, withdrawal rights are foreign matter. They pose a somewhat alien concept that does not align well with the remainder of the system. Naturally, there has been much debate on the nature of a right to withdrawal, particularly among scholars from national legal systems with a pro-nounced contract theory. Whether the assumption of a unilateral right to invalidate the contract or the concept of a delayed conclusion or pending validity prevails, it is widely recognised that withdrawal rights impose a major erosion of one of the most fundamental principles of private law, private autonomy, and the closely connected pacta sunt servanda.120 The latter stipulates
that a contract entered into freely binds the parties and obliges them to carry out their respective performances. From the moment of conclusion of a contract only mutual acknowledgement or performance can free the parties from their obligations. This concept is undermined where the law establishes a unilateral right to walk away from the contract without any material or legal repercussions. It has been noted that the erosive impact on private autonomy is only a formal one, because the right to withdrawal exists only in response to a lack of free will regarding the decision to enter into a contract on part of the weaker side.121 Private autonomy would not be
achieved substantially where the consumer has a right to withdrawal, hence no impairment thereof is to be expected. But even if we are to assume that withdrawal rights do not impose major restrictions on substantive private autonomy but only formally limit it, it remains clear that the consequences for the other party (i.e. the seller/trader) are grave.122 The addressee of
the withdrawal notice loses his/her legally obtained position vis-à-vis the other party without any conceivable fault on his/her side.
It might seem obvious and profane that a right to withdrawal has a major impact on private law, particularly on contract law. But with regard to European Private Law this impact is of twofold importance: For once, withdrawal rights introduce a shift in the private law of the Member States.123 For this reason withdrawal rights have received express rejection from some
120 See, for example Eidenmüller (n 87) 2.; Loos (n 65) 4.; Borges and Irlenbusch (n 98) 85. 121 Rekaiti and Van den Bergh (n 112) 373.
122 Canaris, for instance, sees an ‚antagonism of formal and material private autonomy’ that is expressed in
drawal rights. In that sense, withdrawal rights do limit formal private autonomy, but the factual effects of with-drawal rights, that is, the personal freedom they grant to the consumers, enable material private autonomy, Canaris (nr 63) 344.
