Today, the Court of Justice of the EU handed down its judgment in Case C-415/11 Aziz v. Catalunyacaixa, concerning the assessment of standard terms in a loan agreement in the context of mortgage foreclosure proceedings, a very topical matter in Spain. For a summary of the facts of the case, the preliminary questions raised by the referring Spanish court, and the opinion of Advocate General Kokott, I refer to an earlier post on this blog. Given the legal and social significance of the judgment, a relatively extensive summary follows here:
The first preliminary question concerned the compliance of the Spanish system of levying execution on mortgaged property with the Unfair Terms Directive. In reply to this question, the CJEU holds:
'Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as precluding legislation of a Member State, such as that at issue in the main proceedings, which, while not providing in mortgage enforcement proceedings for grounds of objection based on the unfairness of a contractual term on which the right to seek enforcement is based, does not allow the court before which declaratory proceedings have been brought, which does have jurisdiction to assess whether such a term is unfair, to grant interim relief, including, in particular, the staying of those enforcement proceedings, where the grant of such relief is necessary to guarantee the full effectiveness of its final decision.'
Spanish law is, thus, considered to infringe the Directive, in particular because it precludes the court that has jurisdiction to declare unfair a term of a loan agreement relating to immovable property from staying the mortgage enforcement proceedings initiated separately. The Court observes:
'59 It must therefore be held that such procedural rules impair the protection sought by the directive, in so far as they render it impossible for the court hearing the declaratory proceedings – before which the consumer has brought proceedings claiming that the contractual term on which the right to seek enforcement is based is unfair – to grant interim relief capable of staying or terminating the mortgage enforcement proceedings, where such relief is necessary to ensure the full effectiveness of its final decision (see, to that effect, Case C-432/05 Unibet 2007 ECR I-2271, paragraph 77).
60 As also observed by the Advocate General in point 50 of her Opinion, without that possibility, where, as in the main proceedings, enforcement in respect of the mortgaged immovable property took place before the judgment of the court in the declaratory proceedings declaring unfair the contractual term on which the mortgage is based and annulling the enforcement proceedings, that judgment would enable that consumer to obtain only subsequent protection of a purely compensatory nature, which would be incomplete and insufficient and would not constitute either an adequate or effective means of preventing the continued use of that term, contrary to Article 7(1) of Directive 93/13.'
The second preliminary question concerned the legal framework provided by the Directive for the assessment of specific terms in mortgage contracts. In reply to this question, the Court holds:
'Article 3(1) of Directive 93/13 must be interpreted as meaning that:
- the concept of "significant imbalance" to the detriment of the consumer must be assessed in the light of an analysis of the rules of national law applicable in the absence of any agreement between the parties, in order to determine whether, and if so to what extent, the contract places the consumer in a less favourable legal situation than that provided for by the national law in force. To that end, an assessment of the legal situation of that consumer having regard to the means at his disposal, under national law, to prevent continued use of unfair terms, should also be carried out;
- in order to assess whether the imbalance arises "contrary to the requirement of good faith", it must be determined whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to the term concerned in individual contract negotiations.
Article 3(3) of Directive 93/13 must be interpreted as meaning that the Annex to which that provision refers contains only an indicative and non-exhaustive list of terms which may be regarded as unfair.'
Concerning the assessment of the specific terms at stake in the Aziz case, the CJEU followed the Advocate General in giving specific guidelines to national courts regarding the factors that should be taken into account:
'73 In particular, with regard, first, to the term concerning acceleration, in long-term contracts, on account of events of default occurring within a limited specific period, it is for the referring court to assess in particular, as stated by the Advocate General in points 77 and 78 of her Opinion, whether the right of the seller or supplier to call in the totality of the loan is conditional upon the non-compliance by the consumer with an obligation which is of essential importance in the context of the contractual relationship in question, whether that right is provided for in cases in which such non-compliance is sufficiently serious in the light of the term and amount of the loan, whether that right derogates from the relevant applicable rules and whether national law provides for adequate and effective means enabling the consumer subject to such a term to remedy the effects of the loan being called in.
74 Second, regarding the term concerning the fixing of default interest, it should be recalled that, in the light of paragraph 1(e) of the Annex to the Directive, read in conjunction with Articles 3(1) and 4(1) of the directive, the national court must assess in particular, as stated by the Advocate General in points 85 to 87 of her Opinion, first, the rules of national law which would apply to the relationship between the parties, in the event of no agreement having been reached in the contract in question or in other consumer contracts of that type and, second, the rate of default interest laid down, compared with the statutory interest rate, in order to determine whether it is appropriate for securing the attainment of the objectives pursued by it in the Member State concerned and does not go beyond what is necessary to achieve them.
75 With regard, finally, to the term concerning the unilateral determination by the lender of the amount of the unpaid debt, linked to the possibility of initiating mortgage enforcement proceedings, it must be held that, taking into account paragraph 1(q) of the Annex to the directive and the criteria contained in Articles 3(1) and 4(1) thereof, the referring court must in particular assess whether and, if appropriate, to what extent, the term in question derogates from the rules applicable in the absence of agreement between the parties, so as to make it more difficult for the consumer, given the procedural means at his disposal, to take legal action and exercise rights of the defence.'