The Scottish Courts have recently considered whether a distance learning student at a Scottish University was a “consumer” for the purposes of determining jurisdiction, and accordingly whether he had to be sued in the courts of his domicile, Germany, or could be sued in the Scottish courts. While the court held that it could not reach a final view without hearing evidence, the decision provides useful guidance on the approach the courts will take to this issue.
Mr Schlamp is a German domiciled individual who, from 2003-2009, worked in finance and business administration. In 2009, Mr. Schlamp enrolled in a distance learning programme at Heriot-Watt University (“HWU”). He undertook his studies on a self-funding basis, conducting all aspects of the course either online or by telephone from Germany. HWU argued that the purpose of Mr. Schlamp’s studies was to further his career. There was a factual dispute between the parties as to whether Mr. Schlamp continued to work during his studies. At the conclusion of his studies, Mr Schlamp received a doctorate in business administration.
In February 2020, HWU brought an action in the Scottish Courts against Mr. Schlamp for £7,000 of unpaid fees. In response, Mr. Schlamp argued that he was a “consumer” and as such, the Scottish courts lacked jurisdiction; he had to be sued in Germany.
The court at first instance found in favour of Mr. Schlamp and dismissed the action. HWU appealed this decision.
Note: While the appeal hearing took place after the end of the transitional period following the UK’s exit from the EU, the action was commenced prior to it. This meant that the question of jurisdiction was governed by EU law, in particular, the Brussels Regulation 2012.
The Legal Arguments
The Brussels Regulation 2012 contains rules of jurisdiction applicable to commercial disputes generally, and rules applicable in specific types of disputes that derogate from those general rules. One of the general rules, relied upon by HWU, is Article 7 which states that jurisdiction arises: “in matters relating to a contract, in the courts for the place of performance of the obligation in question”. Both Mr. Schlamp and HWU agreed that, were the Court to find that Mr. Schlamp was not a consumer, the “place of performance” would be Scotland and as such the Scottish Courts would have jurisdiction.
However, Article 18(2) sets a specific rule of jurisdiction for disputes involving consumers; providing that a consumer may only be sued in the courts of their domicile. This special protection recognises the typically weaker bargaining position of consumers compared to their contractual counterparties. Mr. Schlamp argued that he was a consumer within the meaning of the Brussels Regulation 2012 and as such could only be sued in his domicile, Germany.
The parties were in agreement that:
if Mr. Schlamp was acting outside of his trade or profession, he would be a consumer; and
whether Mr. Schlamp was a consumer was a question of fact to be answered objectively.
There was also a “measure of agreement” between the parties that the contract between them could be described as a “mixed” contract, having both consumer and non-consumer elements. However, the parties disagreed as to the weight to be attributed to the respective elements, and regarding the appropriate test to be applied to balancing these elements to determine consumer status.
The appeal court’s decision
The court at first instance determined that, on the basis of the parties’ own pleadings, the court did not have jurisdiction and dismissed the action. It was central to the court’s decision that it held that there was no onus on Mr. Schlamp to show that he was a consumer. The court was of the view that the onus was rather on HWU to show that Mr. Schlamp was not a consumer by demonstrating that any trade purpose in the mixed contract was “predominant”. Since the court was of the view that HWU’s pleadings were insufficient to meet that test, HWU were bound to fail.
The appeal court overturned the first instance decision.
In doing so, the appeal court identified two particular errors made by the court at first instance:
the onus was on Mr. Schlamp, as the party invoking the consumer jurisdiction, to prove he had the status of a consumer, not on HWU; and
the relevant test to be met was not a “predominant” test but a “non-negligible” test.
The court at first instance had erred in adopting the “predominant” test from the case of Costea. Costea concerned the definition of “consumer” in the Unfair Contract Terms Directive, which does not share the same policy goals as the Brussels Regulation 2012 and as such adopts a less strict definition of “consumer” than the Brussels Regulation 2012. The appeal court noted that, by contrast, it was well-established in case law that the definition of “consumer” in the Brussels Regulation 2012 falls to be strictly construed.
The appeal court held that the appropriate test was that set out in the earlier case of Gruber v BayWa AG, which states that when a contract is partially a consumer and partially a professional contract, the individual will not be regarded as a consumer “unless the trade or professional purpose is so limited as to be negligible in the overall context of the supply, the fact that the private element is predominant being irrelevant in that respect”. The Court also noted that a later case, Schrems, endorsed the “non-negligible” test set out in Gruber.
The appeal was allowed and the case remitted to the first instance court for a preliminary evidential hearing to establish Mr. Schlamp’s consumer status and determine whether the court has jurisdiction.
The decision is of particular interest to, and will be welcomed by, universities and other distance learning providers, particularly as remote distance learning becomes more popular – recognising at the same time that most students will be regarded as consumers, there being no question of a trade or professional purpose to their contract with a university. It will also be welcomed by other organisations providing goods and services to persons whose status as a consumer may be unclear.
For more information about jurisdiction in civil and commercial disputes post-Brexit, see our guidance here.
The authors would like to thank Sarah McGowan, trainee solicitor, for her assistance in writing this article.