In accordance with Article(2) of the Distance Selling Directive, the only costs that may be charged to the consumer upon their exercising the right to cancel are the costs of returning the goods.

Discussions have been going on for a long time as to whether the costs of the original delivery have to be refunded to the consumer if they exercise their right to cancel. The German Federal Court of Justice (resolution of October 1st 2008 – VIII ZR 268/07) presented this question to the European Court of Justice in 2008, and they made their decision today (verdict of April 15th 2010, Case C-511/08) and declared:

“that the Directive breaches a national regulation according to which in a closed distance selling contract the supplier may not charge the consumer with the costs of the delivery of the products if the consumer exercises their right to cancel.”

Objectives of the Directive

The Federal Court of Justice justifies its decision with the argument that the conditions of the Directive regarding the consequences of cancellation have the objective of ensuring that the consumer is not discouraged from exercising their right to cancel. If however it were permitted to charge these delivery costs to the consumer, that objective would be contravened.

Balanced sharing of risks

Furthermore, the Court of Justice considers the sharing of risks to be balanced if the retailer must cover the delivery costs, and the consumer the return postage costs. Making the consumer liable to pay the original delivery costs as well would, according to the European Court of Justice, burden the consumer too much.

Court follows Advocate General

With this verdict, the Court of Justice has adopted the Advocate General’s final submission which already came to the following result (as we reported):

“Article 6(1), second sentence, and Article 6(2) of Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts must be interpreted as precluding national legislation which allows the supplier under a distance contract to charge the costs of delivering the goods to the consumer where the latter exercises their right to cancel.”

The initial case

The European Court of Justice firstly takes up proceedings again. The starting point was a claim made by the Verbraucherzentrale NRW (Consumer Advice Centre NRW) against the Heinrich Heine GmbH, a mail order company. They demanded a fixed fee of 4.95 euro delivery costs per consignment. According to their General Terms and Conditions, these 4.95 euro would not be refunded in the event that the customer exercised their right to cancel. The Consumer Advice Centre filed a complaint about this clause at the LG Karlsruhe (District Court) and won the case in the first instance. Heinrich Heine GmbH appealed against this, and that appeal was rejected by the OLG Karlsruhe (Higher District Court) (verdict of September 5th 2007, Ref. 15 U 226/06).

Review at the German Federal Court of Justice

This decision was appealed against and the German Court of Justice declared that there is no regulation in German law which states that the consumer is entitled to a refund of the delivery costs.

“However, in the view of that court, if Directive 97/7 were to be analysed as precluding the charging of the costs of delivering the goods to the consumer where they cancel the contract, the relevant provisions of the BGB would have to be interpreted in conformity with that directive as meaning that the supplier would then be required to reimburse such costs to the consumer.”

Interpretive difficulties

It is not clear in the Directive itself as to how it is to be construed. The German Federal Court of Justice put forward several arguments as to why the consumer ought to be liable for delivery costs.

1. 1. “As a consequence of the right to cancel”, only the direct costs of return postage may be charged to the consumer. This does not however affect the original delivery costs, because they are not incurred as a result of the right to cancel.
2. 2. The retailer could have a right to compensation for loss of value because the goods returned by the consumer cannot be resold because they have been used. Thus the retailer could have a claim to compensation for loss of value to the sum of the delivery costs.
3. 3. In the case of a conventional purchase, the consumer is also liable to cover the costs of travelling to the shop and collecting the product.

Question referred by German Federal Court of Justice for preliminary ruling

Due to the various possible interpretations of the relevant regulation, the German Federal Court of Justice suspended the case and presented the following question to the European Court of Justice for preliminary ruling.

“Are the provisions of Article 6(1), [first subparagraph], second sentence, and Article 6(2) of Directive [97/7] to be interpreted as precluding national legislation which allows the costs of delivering the goods to be charged to the consumer even where they have cancelled the contract?”

Response of the European Court of Justice

As in all cases at the European Court of Justice, the governments of the various nations may represent their own opinion about the issue. The Spanish, Austrian and Portuguese governments as well as the EU Commission were of the opinion that it should be not be permitted to charge the consumer with the delivery costs if they exercise their right to cancel.

“First of all, they claim that the words “sums paid by the consumer”, in Article 6(2), first sentence, of Directive 97/7, should be interpreted broadly so as to encompass all money paid by the consumer to the supplier in performance of the contract, including the cost of delivering the goods.”

Furthermore, it is provided for in the Directive that the consumer is only liable to cover the costs of the return postage. The other costs can therefore not be invoiced to the consumer, in particular not the delivery costs.

“Finally, they claim that the consumer should be reimbursed the costs which they bore in respect of an ancillary service from the supplier, such as the delivery of the goods, which, once the consumer has cancelled the contract, does not serve to protect the consumer from risks related to the impossibility in practice of seeing the goods prior to the conclusion of the distance contract.”

Opinion of the German government

The German government represented a different opinion in the negotiations.

“The German government alleged that Directive 97/7 does not reach any regulation regarding the issue of the payment of delivery costs following the cancellation of the contract by the consumer. Therefore, the invoicing of these costs pertains to the “further conditions and details for the event of the exercising of the right to cancel”, the definition of which is the responsibility of the member states, as described in recital 14 of this Directive.”

The Directive differentiates between costs that are incurred “as a consequence” of the right to cancel and other costs that result in connection with the completion and the execution of the contract.

Furthermore, the German government represented the opinion that the imposition of delivery costs could not discourage the consumer from exercising their right to cancel. The consumer is informed about these costs before concluding the contract and it is the consumer’s decision to cancel the contract regardless of the delivery costs, because they are already payable.

The European Court of Justice responded that the Directive clearly states that the consumer may cancel the contract within a certain time period with no penalty and without having to give a reason.

The consequence of this cancellation is that any payments already made by the customer must be refunded by the retailer with no further charges. The only costs that may be charged to the consumer as a consequence of their exercising the right to cancel are the costs of the return postage.

European Court of Justice contradicts government

The European Court of Justice clearly contradicts the German opinion:

“Contrary to what the German Government submits, it is not apparent from the wording of Article 6 of Directive 97/7 or from the general scheme thereof that the term ‘sums paid’ must be interpreted as referring solely to the price paid by the consumer, excluding the costs borne by them.”

The Directive does indeed require a distinction to be made in the obligatory pre-contractual information between the price of the product and the delivery costs, however not with regard to the legal consequences of the right to cancel. Reference is made in the Directive to ‘sums paid’, however no appropriate distinction is made.

“as a consequence” of the right to cancel

The term “as a consequence” in Article 6(1) subparagraph 1 sentence 2 and (2) sentence 2 of the Directive is to be so construed that it includes all costs incurred in conjunction with the conclusion, the execution or the termination of the contract that the consumer could be liable for in the event of their cancelling the contract. That conforms with the classification and the purpose of the Directive.

“As regards the purpose of Article 6 of Directive 97/7, it should be made clear that recital 14 in the preamble to that directive states that the prohibition of imposing on consumers, where they cancel the contract, the costs incurred under that contract serves to ensure that the right to cancel guaranteed by that directive is ‘more than formal’.”

Customers want a say too

The subject of trust will become increasingly important for online retailers over the next few years. Until now, online retailers have essentially had two strategies to convince potential customers that their shop is reliable, customer-friendly and service-oriented.

One strategy is to have their shop certified by a recognised provider of online seals of approval. It is then the provider’s expertise that generates trust. The other strategy is to strengthen their brand awareness, that is to say, use brand marketing. However, experience shows that that is a very costly and time consuming strategy that is only of limited relevance to many online shops.

Customer ratings are now establishing themselves as the third pillar of online trust-creating methods. This trust comes directly from the users themselves because a customer rating has the effect of a personal recommendation. The opinions and experiences of “virtual friends” are slowly but surely gaining the same value as those from personal acquaintances in the real world. Other people who have made purchases in the same online shop become part of the potential customer’s peer group. Potential customers then rely on their opinions when deciding whether to make a purchase.

Transparency and credibility

The success of all rating systems depends on the credibility of their customer opinions. Usability expert Johannes Altmann from the eCommerce consultancy firm Shoplupe considers a customer rating to be especially reliable when

• the opinions are activated “by an additional email confirmation”
• the opinions are checked “for credibility and reliability by the provider”
• “negative opinions are also included in the ratings, because having only positive ratings appears unreliable”
• the provider of a customer rating widget is able to also “make their end customers aware of their rating system”, that is to say they have enough “marketing power”.

The way that online customers can rate a shop is also an indication of the transparency of the system. Many users and providers have also become accustomed to so-called multi-dimensional ratings. The overall rating of a shop comprises many different sub-ratings. With the Trusted Shops rating system, customers can rate a shop’s website, the delivery, the product and the service quality on a scale of one to five stars after completing an order.

Customer ratings – quick and easy

You can integrate Trusted Shops Customer Ratings quickly and easily in your shop. Find out more here

Can you describe your situation in 3 phrases?
PrestaShop is an e-commerce open source solution used throughout the world, in more than 50 countries and translated into 45 languages. It permits every retailer to create a high-performance online shop and combines more than 200 features. PrestaShop is a solution adapted to all types of activities and is characterised by its user friendliness and optimal technical performance.

What are the strong points of your e-commerce solution? How many shops have you registered online?
PrestaShop is a lightweight solution characterised by constant innovation thanks to its open source community of more than 130,000 members, who support its development. Reliable, high-performance and user-friendly are terms that perfectly reflect the situation. Today, PrestaShop is used by more than 40,000 shops throughout the world and major accounts such as the Pompidou Centre, Peugeot, the Zannier group, Prado, and smaller companies.

Which license models and offers do you propose?
PrestaShop is an open source solution, published under the OSL 3.0 licence. It is available free-of-charge at Prestashop.com. PrestaShop also provides an official market place, PrestaShop Addons, which brings together more than 1,000 modules and topics to enrich its e-commerce solution. Finally, PrestaShop publishes the ready-to-use PrestaBox solution, an SAAS offer that permits retailers to simply launch into e-commerce, without consideration of technical aspects, assured of technical support and optimal hosting.

When did you first offer your e-commerce solution?
The solution has existed since 2005, and was initially created at the Epitech IT school. In 2007, Bruno Lévêque, one of the creators of PrestaShop, collaborated with Igor Schlumberger (founder of LeGuide.com) to create the company of the same name and make PrestaShop an international open source software product.

How many people do you employ to perfect this solution?
PrestaShop has put together a team of more than 30 people who are working together daily to perfect the solution. This team, mostly comprising developers who are working on the software core, is constantly researching innovations.

Which role does security play in your solution?
Security is a crucial point in our software publishing work because of the number of transactions conducted via the 40,000 PrestaShop shops every day among other things. We attach great importance to the code security of our software. Our team includes a dedicated expert who regularly performs verfication.

Do you already have an international presence?
Translated into 45 languages, managing an infinite number of taxes, currencies and languages, PrestaShop is, above all, an international software product! It is already used in more than 50 countries throughout the world and on 5 continents.

What are your strong points?
The trump cards of PrestaShop are its many features (more than 200 features in version 1.3 and more than 250 in version 1.4), it’s high-speed execution in conjunction with all types of hosting, and its technical performance especially with regard to its high scalability, making it an essential e-commerce solution.

Which projects are you currently working on?
Our team is currently focusing on developing PrestaShop version 1.4. This new version is a major step in the evolution process of PrestaShop and boasts more than 50 new features. By the time you read these lines, it will be available in the Alpha verison from our open source community.

Find out more about the company at www.prestashop.com

Read more about Tailor Store in the following interview.

Mr Höjman, what is the idea behind your online store?
We want to be the natural choice for online shopping of customized clothing.

When did you start your online shop?
We started in 2004 because we had interest in online shopping, contacts with textile sourcing alternatives and we saw an opportunity to create a site that nobody had offered before.

What measures have you taken to increase consumer confidence?
We are Trusted Shops certified as well as “Trygg e-handel” certified.

Why did you choose the Trusted Shops products?
Trusted Shops gives the customer confidence to continue shopping and to actually buy and pay.

Where are your customers located?
We have customers in more than 30 countries. Sweden is our domestic market and still the single biggest market. We export more than 50% of our sales and the western european countries are the most important to us.

Which shop system do you use?
We have developed the user interface as well as all systems internally.

Which payment systems does your shop offer?
We offer bank transfer, credit card and invoice in most markets.

What are the advantages of your online shop as compared to a high street store?
24/7 availability, lower price, possibility to create your own designs.

What special features or functions does your shop offer?
You can design your own unique clothes and we make them to your measurements.

Do you work full-time or part-time for your online business?
We are working full time and are 12 people all together.

Which web 2.0 applications, such as Twitter or Facebook, do you use for marketing?
We are using twitter in a limited way and have tried facebook. We will invest more in these communication channels starting this fall 2010.

Where do you gather information about online shopping and e-retail?
Newsletters about e-tailing, blogs, online magazines for internet and e-tailing.

What recommendations would you give to other e-tailers?
User friendliness is extremely important- develop, test, develop, test ….

What are you currently working on?
We are developing new products that will be launched during fall and early spring.  We are improving the check-out process in order to even further increase the user friendliness.

What is your favourite online shop as a consumer?
www.grandshoes.se

Find more information about this shop at www.tailorstore.co.uk or have a look at the tailorstore profile and Tailor Store Customer Reviews.