ONLINE CONSUMER CONTRACTS – IS YOUR BUSINESS CONCERNED?

25 November 2020

Black Friday is once again around us: the time when online shops and the consumer protection authority cash in some extra income every year. We guess you’ve already read about the extreme discounts and the record-breaking fines by the authorities, so in our article, we will explain, that without your knowledge, your own business can easily step into the field of consumer protection, in which case, your contracts are subject to special rules. In our article, we show you how you can recognize these situations and, of course, summarize the obligations.

When it comes to consumer protection, huge online marketplaces, aggressive marketing, and fake web stores usually come to mind first. However, this is just the tip of the iceberg, unless you are contracting with another company, you should always be aware that your natural person client may be a consumer. In the Covid situation, when online methods advance against face-to-face encounters, you should also consider the fact that online contracts with a consumer are considered so called “distance contracts”. Not only webshop purchases are included in this category, but even an order via email or phone. Distance contracts is a special category of consumer protection, for which the legislation lays down additional criteria[1].

1. Which contracts are included?

Your primary task is to identify which contracts are subject to special consumer protection rules. The rules examined in our article apply to one type of consumer contract, “distance contracts”, so other contracts are not concerned.

First Question: Consumer contract?

A consumer contract is a "contract between a consumer and a business". The concept of consumer is defined in the Civil Code[2]:

“a natural person acting outside his profession, independent occupation or business activity”

It is important that only natural persons may qualify as consumer, so a contract between two businesses or other legal entities is never a consumer contract.

However, the fact that our partner is a natural person does not in itself mean that it is a consumer. A person qualifies as a consumer only if he concludes the contract outside the scope of his profession, self-employment or business.

The determination of the above is rarely evident, as it is not always known by the business whether a customer is acting in connection with his profession of for private purposes, in some cases, this cannot even be inferred (eg.: applying for language training, buying common products).

Therefore, if you are contracting with a natural person, there is always the possibility that the contract will qualify as a consumer contract.

If the contract is a consumer contract, we can continue with the second question.

Second Question: Distance contract?

The definition of a distance contract is set forth in the Hungarian government decree implementing the EU Consumer Contracts Directive[3]:

“any contract concluded between the trader and the consumer under an organised distance sales or service-provision scheme without the simultaneous physical presence of the trader and the consumer, with the exclusive use of one or more means of distance communication”

Although the “organized distance sales scheme” in the provision can best be applied to webshops, you also enter into a distance contract with the consumer if the product or service you offer can be purchased or used without a personal meeting (eg.: order by phone, e-mail).

Therefore, if you enter into a contract with a consumer without a personal meeting, you must comply with the obligations listed in the government decree:[4]

2. What are the additional obligations?

Information: In the case of a distance contract, the business must inform the consumer (in detail) about the details of the business and its contact and the main features of the product or service. Clear information should be provided on the price of the product / service, the progress of the order and the rights of the consumer, e.g. withdrawal, warranty.

Contracting: It is not enough for the business to make the above information available in a hidden corner of its website, it should be made available to the consumer as part of the contracting process and certain aspects should be explicitly highlighted.

Right of withdrawal: In case of distance contracts, the consumer shall have a period of 14 days to withdraw from the contract, without giving any reason. If the business does not inform the consumer thereof, the right of withdrawal is extended by 12 months.

In addition, you should also take into account the consumer protection rule in the Code of Civil Procedure, according to which an action brought by a business against a consumer for the enforcement of a claim arising from a contractual relationship shall fall within the exclusive territorial jurisdiction of the court of the domicile in Hungary of the defendant[5].

3. Consequences of a breach of the provisions

If your business fails to recognize that the relationship with the other party is subject to consumer protection rules, you may face two type of consequences:

- In case of non-compliance with the obligations specified in the Government Decree (information, right of withdrawal), the consumer protection authority may apply sanctions of a consumer protection nature: fines, blacklisting your e-shop, prohibition of activities…

- In addition, if you don’t take into account the specific consumer rules (e.g. right of withdrawal, longer warranty period), you can easily find yourself in a lawsuit where your chances of winning are not very good.

4. Conclusion

In our article, we pointed out that special consumer protection rules for online contracting do not only apply to large online stores, but even an e-mail order received by your business may be subject to these rules. If your business concludes online contracts with consumers without meeting them in person, we recommend reviewing the contracting process with the involvement of a legal expert.