On 12 February 2016, The Dutch Supreme Court (Hoge Raad) handed down a judgment on “all-in telephone subscriptions”, responding to preliminary questions raised by the District Court The Hague. In essence, the Supreme Court ruled that courts can find ex officio that “all-in telephone subscriptions” that have been sold to consumers may be partially void, avoidable or ineffective, if no separate price for the handset has been determined by the parties. The Supreme Court also discussed the practical consequences of such a finding. The present judgment is in fact an elaboration on a judgment of 13 June 2014 (ECLI:NL:HR:2014:1385), in which the Supreme Court also responded to preliminary questions of the District Court The Hague relating to “all-in telephone subscriptions”.

All-in telephone subscriptions: qualification and legal requirements

An “all-in telephone subscription” is a product that grants the customer not only a right to the telecommunication services of the provider, but also offers the customer a handset. In the earlier judgment of 13 June 2014, the Supreme Court ruled that an all-in telephone subscription that includes a handset “for free”, can be qualified as both instalment sale (koop op afbetaling) and a consumer credit (consumentenkrediet). The qualifications as consumer credit and instalment sale only concern the part of the agreement pertaining to the provider furnishing a handset to the consumer and the consumer obtaining ownership of the handset. The law determines that the parties to an instalment sale must determine the price of the sold good – in this case: the handset – for the instalment sale to be enforceable. The rules on consumer credit include a requirement that the contract must specify the credit amount.

Courts to assess all-in telephone subscriptions Ex officio

In the 12 February 2016 judgment (ECLI:NL:HR:2016:236), the Supreme Court further developed its view on all-in telephone subscriptions, in its answers to further preliminary questions asked by the District Court The Hague (Rb. Den Haag 20 July 2015, ECLI:NL:RBDHA:2015:8764).

The Supreme Court held that, if an all-in telephone subscription can be qualified as an instalment sale and/or a consumer credit, the court must – ex officio, but after hearing the present party or parties – establish whether the mandatory requirements of such agreements have been met, e.g. that the purchase price of the handset and the credit conditions have been mentioned.

If the requirements with regard to ‘consumer credit’ have not been met, the court can nullify the ‘handset part’ of the contract. The (partial) nullification of the contract has retroactive effect.

Supreme Court’s practical Guidelines

As a result of the contract being partially void, avoided, or ineffective, the consumer is obliged to return the handset to the provider. In principle, the handset can be returned in the condition at the time of return, although the consumer will be liable for a decline in value of the handset if it is due to the consumer’s lack of care after it has been made clear to the consumer that the handset must be returned.

If the consumer does not return the handset, a compensation is due, based on the value of the handset at the time of the occurrence of default. A default notice from the provider to the consumer may be required for this purpose. Remarkably, the Supreme Court held that the consumer is in principle not obliged to pay compensation for enjoyment or usage of the handset.

The provider is obliged to refund the amounts it received for the handset to the consumer. Therefore, the court should establish what part of the monthly payments can be attributed to the purchase price for the handset, or repayment of the credit, including any related costs paid by the consumer.

All-in price unfair or unreasonably burdensome?

Finally, the Supreme Court ruled that a contractual term providing for an all-in price will usually qualify as a term that pertains to ‘the actual subject matter of the agreement’ as provided in article 4 sub 2 of the unfair terms Directive (93/13/EEG), and as a ‘core term’ as provided for in article 6:231, sub a, Dutch Civil Code. Consequently, the question whether the term is ‘unfair’ or ‘unreasonably burdensome’ need not be addressed.