3 june 2010: ECJ case C-484/08 Caja de Ahorros v. Ausbanc
Today ECJ decided a case on the interpretation of the Directive 93/13/EEC on unfair terms in consumer contracts.
A Spanish company Caja de Madrid enabled consumers to enter into variable-rate loan agreements for the purchase of residential property. The contracts concluded between Caja de Madrid and the consumers contained a written clause, introduced in advance in a model contract, pursuant to which norminal interest rate laid down in the contract, variable from time to time in accordance with the agreed reference index, is to be rounded up, with effect from the first revision, to the next quarter of a percentage point. This is so-called 'the rounding-up term'. A Spanish organization protecting clients in the banking sector - Ausbanc - brought an action seeking annulment of the rounding-up term in loan contracts and prohibition of its use in the future.
The Article 4(2) of the Directive on unfair contract terms excludes from the assessment whether the contract term is unfair such terms which concern, in particular, the subject-matter of the contract, in so far as these terms are in plain intelligible language.
The Spanish legislation implementing the Directive on unfair contract terms did not implement this Article 4(2) of the Directive, which means that in Spain all contractual terms are subject to the test of unfairness, regardless whether their pertain to the core of the transaction or not, and regardless the language in which they have been drafted. (Par. 15)
The Spanish courts had no doubts that the rounding-up term was unfair to the consumers, even if it constituted an essential element of a contract for a bank loan. The question referred in these proceedings was whether the Spanish legislation is in accordance with the provisions of the Directive if it submits such a term to the test of unfairness as established in the Directive.
The ECJ clearly stated that the Directive on unfair terms in consumer contracts does not preclude national legislation which authorizes a judicial review as to the unfairness of contractual terms which relate to the definition of the main subject-matter of the contract, even in the case where those terms are drafted in plain, intelligible language. (Par. 44)
The ECJ reminded that the Directive introduces a system of partial nad minimum harmonisation, which means that the Member States may afford consumers a higher level of protection than that for which the Directive provides. (Par. 28) Article 8 of the Directive clearly gives that possibility to the Member States. (Par. 29)
It has been argued by Caja de Madrid that Article 8 of the Directive should not apply to Article 4(2) since: (Par. 25)
'That provision, it argues, defines, in a binding way, the scope of the system of protection provided for by the Directive, thereby excluding any possibility for Member States to derogate from it, even in order to provide for national legislation which is more favourable to consumers.'
However, the ECJ does not see Article 4(2) of the Directive as defining the scope of it, instead it is concerned: (Par. 31-35)
'(...)solely with establishing the detailed rules and the scope of the substantive assessment of contract terms which have not been individually negotiated and which describe the essential obligations of contracts concluded between a seller or supplier and a consumer.'
Caja de Madrid made also an argument based on its interpretation of the ECJ's earlier case C-144/99 Commission v. Netherlands in which the Netherlands were held to have infringed the provisions of the Directive by incorrectly implementing Article 4(2) of the Directive, that the Article 4(2) is binding and mandatory. Therefore, according to Caja de Madrid, provision of Article 8 of the Directive should not apply to it. ECJ had no problem rejecting this argument. The Netherlands, originally, excluded from the unfairness test all core contractual provisions, regardless whether they were drafted in the plain language or have been obscure and ambiguous. This led to the decrease in the consumer protection. (Par. 36-40) In contrast, Spain offers more protection to the consumers by submitting all core contractual terms to the unfairness test. The Article 4(2) is binding and mandatory for the Member States in as far as they need to introduce the minimum protection that it grants to the consumers, it does not, however, exclude the possibility for the Member States to give more protection to the consumers based on Article 8 of the Directive. (Par. 42-43)
Interestingly enough, the new proposal for the Directive on consumer rights contains Article 32(3) according to which the unfairness test is not supposed to be applied to the assessment of the main subject matter of the contract, provided such terms have been expressed in plain, intelligible language. According to the proposal, the Directive on consumer rights is supposed to introduce maximum harmonization, which would mean that Member States may not adopt other rules in their national consumer law than those expressed in the Directive, even if such national rules would grant more protection to the consumers. According to the comparative research on the impact of introduction of the new Directive on national consumer protection, not only Spain, but also: Austria, Denmark, Finland, Greece, Latvia, Luxemburg, Poland, Slovenia and Sweden subjected core contract terms to the unfairness test. The new proposal might then significantly lower consumer protection in such countries and enable companies like Caja de Madrid to make free use of this gaphole. This judgment of the ECJ is, therefore, interesting and important but may have a short life of application ahead of it...
