Merry Christmas to all our readers!

All the best wishes for the upcoming festive season to our readers! Enjoy your Christmas shopping, delicious meals and family time. Be aware of your consumer rights, too!

Burden of proof of fulfilment of pre-contractual information duties on credit provider - CJEU judgment in Case C-449/13 CA Consumer Finance

Today, the Court of Justice of the EU delivered its judgment in the case of CA Consumer Finance v Bakkaus and Bonato, concerning the pre-contractual obligations of credit providers. For a summary of the facts of the case, I refer to an earlier blog post on AG Wahl's opinion in the case ('Evidence of disclosure in consumer cases').

In line with the AG's opinion, the Court places the burden of proof of having fulfilled pre-contractual information duties on the credit provider. Moreover, the credit provider cannot shift the burden of proof to the consumer through a standard term. 

The Court rules:

'1.      The provisions of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC must be interpreted to the effect that:

–        first, they preclude national rules according to which the burden of proving the non-performance of the obligations laid down in Articles 5 and 8 of Directive 2008/48 lies with the consumer; and

–        secondly, they preclude a court from having to find that, as a result of a standard term, a consumer has acknowledged that the creditor’s pre-contractual obligations have been fully and correctly performed, with that term thereby resulting in a reversal of the burden of proving the performance of those obligations such as to undermine the effectiveness of the rights conferred by Directive 2008/48.

2.      Article 8(1) of Directive 2008/48 must be interpreted to the effect that, first, it does not preclude the consumer’s creditworthiness assessment from being carried out solely on the basis of information supplied by the consumer, provided that that information is sufficient and that mere declarations by the consumer are also accompanied by supporting evidence and, secondly, that it does not require the creditor to carry out systematic checks of the veracity of the information supplied by the consumer.

3.      Article 5(6) of Directive 2008/48 must be interpreted to the effect that, although it does not preclude a creditor from providing the consumer with adequate explanations before assessing the financial situation and the needs of that consumer, it may be that the assessment of the consumer’s creditworthiness means that the adequate explanations provided need to be adapted, and that those explanations must be communicated to the consumer in good time before the credit agreement is signed, without this, however, requiring a specific document to be drawn up.'

See also the CJEU's press release.

European scrutiny of data processing by natural persons - CJEU judgment in Case C-212/13 Ryneš

This morning, the Court of Justice of the EU handed down a judgment that has important implications for the processing of personal data by private persons. In the Czech case of Ryneš v Úřad pro ochranu osobních údajů the Court established that the European Data Protection Directive applies to a video recording made with a surveillance camera installed by a person on his family home and directed towards the public footpath. It thus clarified to what extent horizontal legal relationships among natural persons fall within the sphere of scrutiny of the Directive.

The case concerned Mr Ryneš, whose family and home had been subject to attacks by unknown individuals between 2005 to 2007. In response to the attacks, he installed a surveillance camera under the eaves of his home, which recorded the entrance to his home, the public footpath and the entrance to the house opposite. A video recording made it possible for the police to identify two people who attacked Ryneš's home in October 2007, breaking a window by a shot from a catapult. In the criminal proceedings against the two suspects the question arose whether the Data Protection Directive applied to Ryneš's use of the camera. This question is of relevance for private legal relationships, since the 'processing of data in the course of a purely personal or household activity' is excluded from the scope of the Directive and, therefore, not subject to the rules on data protection laid down in this instrument.

The CJEU reaches the conclusion that Mr Ryneš's use of the surveillance camera cannot be included in the exemption and, therefore, falls within the scope of the Directive:

'The second indent of Article 3(2) of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data must be interpreted as meaning that the operation of a camera system, as a result of which a video recording of people is stored on a continuous recording device such as a hard disk drive, installed by an individual on his family home for the purposes of protecting the property, health and life of the home owners, but which also monitors a public space, does not amount to the processing of data in the course of a purely personal or household activity, for the purposes of that provision.'

According to the Court, the use of the camera does not qualify as 'processing of data in the course of a purely personal or household activity', since this provision should be narrowly interpreted:

'27. As is clear from Article 1 of that directive and recital 10 thereto, Directive 95/46 is intended to ensure a high level of protection of the fundamental rights and freedoms of natural persons, in particular their right to privacy, with respect to the processing of personal data (see Google Spain and Google, C‑131/12, EU:C:2014:317, paragraph 66)

28. In that connection, it should be noted that, according to settled case-law, the protection of the fundamental right to private life guaranteed under Article 7 of the Charter of Fundamental Rights of the European Union (‘the Charter’) requires that derogations and limitations in relation to the protection of personal data must apply only in so far as is strictly necessary (see IPI, C‑473/12, EU:C:2013:715, paragraph 39, and Digital Rights Ireland and Others, C‑293/12 and C‑594/12, EU:C:2014:238, paragraph 52).

29. Since the provisions of Directive 95/46, in so far as they govern the processing of personal data liable to infringe fundamental freedoms, in particular the right to privacy, must necessarily be interpreted in the light of the fundamental rights set out in the Charter (see Google Spain and Google, EU:C:2014:317, paragraph 68), the exception provided for in the second indent of Article 3(2) of that directive must be narrowly construed.'

Natural persons can, therefore, not easily escape scrutiny of data processing under the Directive. Only such activities as correspondence or keeping an address book are exempted. Camera surveillance, insofar as it, even partially, covers a public space is 'directed outwards from the private setting of the person processing the data in that manner' and is therefore not excluded from the Directive's scope.

Importantly, the Court adds that the national court, when assessing the data processing, should take into account legitimate interests pursued by the data controller (in casu, Mr Ryneš) in protecting the property, health and life of his family and himself. Thus, it is up to the national court to balance the interests of the parties within the legal framework set out by the Data Protection Directive. An interesting example of both Europeanisation and constitutionalisation of private legal relationships.

See also AG Jääskinen's Opinion in the case and the CJEU's press release.

Ex Officio Examination of the Status of the Buyer and Burden of Proof in Consumer Sales - Opinion AG Sharpston in case Froukje Faber (C-497/13)

27 October 2014: Opinion AG Sharpston in case Froukje Faber (C-497/13)

Today AG Sharpston handed down her opinion in a case where the consumer Froukje Faber bought a used car from Autobedrijf Hazet. The Dutch court of second instance dealing with the case asked for an interpretation of the  consumer sales directive. 

The car caught fire four months after having been handed over to Ms Faber. Neither in the proceeding in the first nor in the second instance Ms Faber claimed that she had bought the car for private purposes. The court asked if it had to examine out of his own motion - in violation of national rules and as a duty arising from the directive - whether the purchaser is a consumer. Unsurprisingly, GA Sharpston argued that national courts have this duty (due to the principle of effectiveness).

The wreck had been dismantled before the cause of the fire was found out. The Dutch court asked if it had to apply Art 5 (3) which partially reverses the burden of proof for the benefit of consumers ex officio, a question the GA answered in the affirmative. According to GA Sharpston, the consumer has to proof the lack of conformity if the latter becomes apparent within six months of delivery. He or she, however, does not have to show the cause for the lack of correspondence. For the present case this means that Ms Faber has to show that the fire occurred and '...why, as a result of the fire, she considers that the car which was delivered to her did not correspond with the car which, based on the contract and other relevant information, she had expected to receive. ... in the present case, it may be sufficient for Ms Faber to show that the product can no longer (properly) perform the function for which it was purchased...'. It is then up to the seller to proof that the car was in conformity with the contract at the moment of delivery. 

The Netherlands made use of the possibility to introduce a rule under which the buyer has to notify the seller about the presumed lack of conformity of the good in due time (Art 5 [2] consumer sales directive). The Dutch court asked how far this duty to notify goes. AG Sharpston highlighted that the buyer, when notifying the seller, does not yet have to proof the lack of conformity.

Press digest

Mobile banking

The Financial Times Adviser discusses the ongoing plans to regulate on the European level mobile banking (Getting mobile banking working). Currently, the revision of the Payment Services Directive and of the Regulation on Multilateral Interchange Fees is being negotiated among the European institutions. 

On review of the mobile banking industry in the UK conducted by the Financial Conduct Authority see: Mobile Banking and Payments - FCA Industry Review. Important: no evidence of consumer harm was found in the mobile banking and payments area.

Tobacco Products Directive

Another company - Philip Morris International - was granted a right by the English courts to apply for a preliminary ruling in front of the Court of Justice with regards to the interpretation of the Tobacco Products Directive. This time it is the competence of the EU to regulate in this area that is being questioned: the argument is that the Directive does not aim to improve the internal market (e.g. it prohibits menthol even though it's legal in all Member States); that the Directive infringes consumers fundamental rights to information about the products they are choosing (through forcing companies to adopt plain packaging); as well as whether the delegation of power to the Commission to specify certain issue was validly defined (Philip Morris International Granted Right to Challenge EU's Tobacco Products Directive Before the Court of Justicce of the European Union).

Mortgage Credit Directive

Telegraph reports on the uncertainties related to the implementation of the new Mortgage Credit Directive in the UK - who exactly may be seen as consumer and fall under the Directive's scope? "Accidental landlords" - that is persons who became landlords "as a result of circumstance rather than through their own active business decision" will be seen as consumers. Who is that exactly? And what rules shall apply to buy-to-let mortgages? (Would this buy-to-let couple be caught out by new EU rules?)

Privacy online

If you are interested to see which applications and which online tools have what sort of privacy protection, check this data on the Secure Messaging Scorecard (A project of the Electronic Frontier Foundation).

US consumer news (just for fun)

Verizon fights against the Federal Communications Commission plan to introduce net neutrality, threatening to take them to court: Verizon: We Will Sue FCC Again If "Hybrid" Net Neutrality Happens.

Berkeley, California becomes the first American city to introduce a tax on sugary drinks: California City Votes In The Nation's First Soda Tax

Apple is being sued for an equivalent of wiretapping due to users who switched from an iPhone to an Android phone not receiving their iMessages (More Former iPhone Users Suing Apple, Claiming iMessage "Intercepts" Texts Meant for Android Phones).

Federal Trade Commission sues Gerber Products Co. for falsely advertising that its Good Start Gentle formula prevents or reduces the risk of children developing allergies (FTC Sues Gerber For False Advertising Over Claims Its Formula Can Prevent Allergies).

Air passengers' rights - Sandy Siewert and Others v Condor Flugdienst (Order in Case C-394/14)

Travelers become more and more familiar with their rights as stipulated by Regulation 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights. A “long delay” means that passengers have a right to compensation starting once the airplane is delayed by three hours. Passengers simply have to fill in a special complaint form. Alternatively, various claims handlers operate in the sector.

Air carriers are, however, relieved of their obligations if the respective cancellation or delay was caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken (see Art. 5 (3) regulation). This provision continuously leads to court cases. In an order the Court of Justice of the European Union clarified another matter in this context on 14 November 2014. The reason for the delay of the airplane in the case at hand was that a set of mobile boarding stairs had collided with the aircraft, causing structural damage to a wing, as a consequence of which the aircraft had to be replaced.

Whereas it is established case-law of the Court that technical problems may be regarded as ‘extraordinary circumstances’, provided that they stem from an event which, owing to its nature or origin, is not inherent in the normal exercise of the activity of the air carrier and is beyond its actual control (Case C-549/07 Wallentin-Hermann), the situation at hand judged to be of a different nature.  Mobile stairs or gangways can be regarded as indispensable to air passenger transport and, therefore, air carriers are regularly faced with situations arising from the use of such equipment. A collision between an aircraft and a set of mobile boarding stairs is, hence, an event inherent in the normal exercise of the activity of the air carrier. As a consequence, the air carrier was not relieved of its payment obligation.

Rightly, by issuing an order and not a judgment the Court signals that this outcome is undisputed.

Please find the full text of the order here.

Producers of medicines must share information on their adverse effects - CJEU in Novo Nordisk Pharma (C-310/13)

20 November 2014: CJEU judgment in Novo Nordisk Pharma GmbH (C-310/13)

We wrote before on this blog about the problem presented in the case Novo Nordisk Pharma (Consumer's right to information about medicine's side effects - AG Szpunar in Novo Nordisk Pharma (C-310/13)). Yesterday, the CJEU gave its judgment, deciding that the Product Liability Directive and its maximum harmonisation character do not preclude such national legislation that imposes on trader's information duties not mentioned in this Directive. (Par. 33)

As a brief reminder, Article 13 of the Directive allows Member States to uphold such national special systems of liability that existed in a given Member State at the moment of notification of this Directive to the Member State. Germany has a special system of liability applicable to cases when consumers' health is damaged due to the use of medicines. This special liability system was, however, amended after the Directive has been notified by introducing a consumer's right to request from the producer of the medicinal product information on the adverse effects of that product. The German courts were unsure whether this requirement was, therefore, compliant with the Directive.

The CJEU confirms one of the views expressed by AG Szpunar, namely, that since the Directive does not regulate information duties of the producers, the consumer's right to request such information falls outside its scope (Par. 25, 29). Recital 18 of the Directive confirms that it doesn't aim to exhaustively harmonise the sphere of liability for defective products beyond the matters regulated by it (Par. 24). While the Directive places the burden of proof that the product was defective and caused damage on the consumer, the national legislation allowing consumers to request information on side effects of the medicinal products does not reverse that burden of proof but rather may only alleviate it (Par. 26-29). The CJEU does not see a possibility for the German provision to distort the effectiveness of the Directive's system of liability either (Par. 30-31).

All in all, this is good news for German consumers who may continue to require producers of medicinal products to send them detailed information on adverse effects of their medicines, which may enable consumers' claims for damages.

15th conference of the International Association of Consumer Law

FINAL CALL

Tomorrow is the deadline for submitting your abstracts if you wish to present at the 15th conference of the International Association of Consumer Law in Amsterdam next year. Of course, we will be happy to welcome you whether you decide to present or not, but just in case you wanted to share your research/ experiences with other attendees, please see this as a gentle reminder to notify us of your intentions. Details about submissions.

Conference on online gambling in the EU

Conference Announcement

If you are interested in consumer protection against remote gambling and want to stay up-to-date with the current developments on this subject, we would like to inform you about the upcoming conference on these issues.

Date: 25 November 2014 

Location: University of London Institute in Paris 

Theme: Regulating Online Gambling in the EU - Recommendation 2014/478/EU on Player Protection - Where Do We Go From Here?

More information: Link to conference website

Press digest

Cloud computing

New research suggests that 72% of European cloud users still are not able to answer any questions as to where their data is being transferred to, which means that even if they have been informed about this by their cloud service providers, this information clearly has not reached them. (see Many cloud systems 'not meeting EU data protection rules')

Mobile banking and mobile advertising

The European Banking Authority is consulting its new guidelines for providing more security to online payments market. The new guidelines of the European Banking Authority so far correspond to the rules of the EU Payment Services Directive. The question is whether it makes sense to adopt them as such as of August 2015 or whether to strengthen them already in the anticipation of the new PSD2. (New payment security guidelines to apply to online retail from August 2015) A brief summary of a current EU regulatory landscape with respect to mobile banking and payments may be found here: FCA thematic review - mobile banking and payments September 2014.

 Another article presents well how the use of smartphones influences modern advertising strategies. (3 Truths About Mobile Advertising In The Era Of Hyper-Connectivity)

 

Morality & consumers

The Archbishop of Bukavu and President of the Provincial Assembly of Bishops of Bukavu and Kindu addresses the European Parliament and other European institutions to guarantee that the resources used in consumer goods are not linked to human right violations and conflicts. (EU must give assurances on the morality of trade in natural resources)

Consumer behaviour

Interesting article on what went wrong with the consumer culture/ consumer image. (Viewpoint: How the consumer dream went wrong) Another survey shows us that at least in the US trust of consumers in using their credit cards have diminished recently; is it turn to popularize fingerprint-protected credit cards? (Data Breaches Are Affecting Consumer Behaviour and Trust in Credit Cards...)

BEUC on transparency in the TTIP

One of the most discussed issues regarding the Transatlantic Trade and Investment Partnership (TTIP) that is being negotiated by the EU and US concerns transparency. The TTIP negotiations have been heavily criticised for not giving enough clarity; it has been put forward that an open democratic debate is needed to legitimise the agreement (eg by Marija Bartl and Elaine Fahey, 'Transatlantic Partnership requires open democratic debate').

European consumer organisation BEUC has now published a number of suggestions for improving the input of an important group of stakeholders, ie consumers. Its recommendations are aimed at enhancing transparency and engagement in the TTIP, thus improving accountability to the public. BEUC's demands include: public access to documents, stakeholders' consultation, a more active role for the Advisory Group on the TTIP, and involvement of other EU institutions beside the Commission.

See also BEUC's new blog.

Information to a single consumer can not be regarded as a commercial practice - AG Wahl’s opinion in case C-388/13 UPC Magyarország

Yesterday, AG Wahl delivered an opinion in case C-388/13 UPC Magyarország concerning the Unfair Commercial Practices Directive. 

The Hungarian Court referred two questions to the CJEU on the basis of a claim filed by Mr S alleging that he had been provided with erroneous information by UPC Magyarország – a provider of cable television services.

The first question raised no new issues and the answer was easily to foreseen. The CJEU has already assessed in the judgment CHS Tour Services, that the UCPD must be interpreted as meaning that, if a commercial practice satisfies all the criteria specified in Article 6(1) of that directive for being categorised as a misleading practice in relation to the consumer, it is not necessary to determine whether such a practice is also contrary to the requirements of professional diligence as referred to in Article 5(2)(a) of the UCPD in order for it legitimately to be regarded as unfair and, therefore, prohibited in accordance with Article 5(1) of the UCPD (par. 16).

AG Wahl focused on the second question and denied that a communication of false information to a single consumer may be regarded as a commercial practice within the meaning of the UCPD. According to AG Wahl, an act may be regarded as a commercial practice within the meaning of the UCPD, when either or both of the two following conditions are fulfilled: 

- the conduct is directed towards an unspecified group of addressees; 

- the conduct is repeated in relation to more than one consumer (par. 23). 

The CJEU has not yet dealt with a question concerning the classification of an isolated act of a trader affecting a single consumer in light of the UCPD. AG Wahl is of the disputable opinion that the UCPD is aimed at the protection of the collective interests of consumers (par. 32). It is, of course, possible that the CJEU will not share the opinion delivered yesterday, but whatever the judgment may decide it will be certain to further clarify the scope of the UCPD.

New Commissioner for "Justice, Consumers and Gender Equality"

Yesterday the European Parliament has enacted the Juncker Commission. It will thus start its term of office on 1 November 2014 after being formally appoined by the European Council. The Czech politician Vĕra Jourová will be the new Commissioner for Justice, Consumers and Gender Equality. 

The key files she mentions in her introductory statement are:

- reform of data protection rules;

- the European Public Prosecutors Office;

- the Women on Boards proposal;

- the Consumer Product Safety Regulation.

Press digest

Telecommunication

The European Commission announces not to further regulate fixed telephone lines, since the market moved towards mobile and online telecommunication. (Europe says goodbye to fixed line regulation, hello to mobile era)

Tobacco Products Directive

UK e-cigarette manufacturer, Totally Wicked, challenges the validity of art. 20 of the Tobacco Products Directive at the CJEU, claiming that e-cigarettes should not be regulated as "tobacco related products" if they don't contain tobacco. (E-cig manufacturer wins right to challenge Brussels in EU courts; Totally Wicked vs. the EU's tobacco directive; First e-cig TV adverts from next month)

EU Data Protection and ePrivacy rules

Worries are being expressed about strengthening existing data protection rules even when businesses do not seem to be able to hold to currently existing ones (EU set to strengthen data protection laws). Data Protection Authorities across the EU are currently stepping up enforcement of the compliance with the existing EU data protection rules, by conducting a widespread cookie sweep (Are you ready? The EU "Cookie Sweep" is upon us). Other sources report widespread non-compliance of cloud-based storage service providers with the existing EU data protection rules (Most cloud apps flout EU data protection rules - study).

Tourism sector

TUI Travel argues in the UK for more support to be given to the reform of the Package Travel Directive and the Regulation No 261/2004 on air passenger rights. (TUI Travel calls on UK government to support the travel and tourism sector at home and abroad)

Competition

European booksellers plead with the European Commission and BEUC to set up investigation into the monopoly position of Amazon in the online book market, which harms European consumers by depriving them of a rich and diversified online book offering. (Booksellers raise Amazon monopoly concerns with European Commission)

Health claims

The new rules on food labelling (EU Regulation 1169/2011 on food information to consumers) are to enter into force as of December 2014 (nutrition information as of December 2016). Especially the sport nutrition sector may have to invest time and money to adjust the labels of their products to the new rules. While this regulation forces producers to be very specific in listing ingredients of their products, it may be even more difficult for the producers to justify placement of easy claims on how certain products may boost energy etc. (which are also regulated by Regulation 1924/2006). (Claim, set and match)

Consumer behaviour

Two new survey results have been published showing us growing trends of consumer online shopping habits. (UK leads European online shopping; Northern European web shoppers spent €1,780 each in 2013) In the meantime, Facebook sets up a new division - Facebook IQ - to try to understand consumer behaviour better... (Facebook forms new unit to study consumer behaviour).

Medicinal product recall allows to claim damages for surgical removal thereof? - AG Bot in case Boston Scientific Medizintechnik GmbH (C-503/13 & C-504/13)

21 October 2014: Opinion AG Bot in case Boston Scientific Medizintechnik GmbH (C-503/13 & C-504/13)

Imagine you had a pacemaker installed. It's already quite a stressful and invasive procedure, but then you find out from your doctor that the type of pacemaker that was used in your surgery has been found out to fail "from time to time". Since the producer of the pacemaker advises your doctor to think about exchanging your pacemaker due to a defect in their design for another one, with less chances of a failure, you agree to a new surgery. Who's going to pay for it though? The German courts were pretty certain that it should be the producer of the faulty product (a faulty pacemaker in case C-503/13 and a faulty defibrillator in case C-504/13) but some questions have been asked to the CJEU to ascertain the rules of the Product Liability Directive in such cases.

First, to claim damages under the Product Liability Directive the consumer needs to prove that the product he acquired was faulty. In the given case, there was a presumption that the medical products could fail working at one point (based on the extensive testing of copies of this product) and due to the increased risk of such a failure these products were deactivated. This means, however, that in these specific cases the defect did not manifest itself, since the removal of the medicinal products prevented this occurrence. The AG Bot nonetheless considers such medicinal product to fulfill the requirements posed in the Product Liability Directive to a faulty product. (Par. 26) Art. 6 of this Directive states that when the product does not offer consumers expected by them safety standards, it should be perceived as faulty. Recital 6 determines that "to protect the physical well-being and property of the consumer, the defectiveness of the product should be determined by reference not to its fitness for use but to the lack of the safety which the public at large is entitled to expect". The AG Both is, therefore, convinced that the test is an abstract one, not necessarily relying on the specific consumer's case, but rather during which it is justified to assume that if a consumer has a product identical to the one that already showed serious defects, he may reasonably question the safety of his product as well. (Par. 29, 33) Additionally, AG Bot claims that effective consumer protection requires that consumers could claim liability for defective products also prior to these products causing any damage. (Par. 38) While this statement is true, it needs to be said that this effective protection could be granted to consumers through measures other than Product Liability Directive, which is very much focused on compensating consumers for specific damage that was caused by a defective product. This opinion seems to be broadening the scope of application of the Directive, which until now was very narrowly interpreted.

Second, as mentioned above, the Product Liability Directive is meant to facilitate easy compensation of consumer's damage resulting from the defective product. The question was whether the costs of a surgery to remove a defective product (removal of a pacemaker or a defibrillator) could be seen as damage caused by personal injury. (Par. 56) While not all language versions of the Directive used a term with the same meaning of a 'personal injury', the theological interpretation points out that the Directive aims at protecting, in general, the 'health' of the consumer as well as his 'physical integrity'. (Par. 61) Therefore, excluding from the scope of the notion of 'damage' such damage that is caused due to a surgical intervention to remove a defective medical product would undermine this legislative purpose. (Par. 63) The causal link between the damage and the defect would then be for the national courts to prove (Par. 70) but the fact that the producer of the defective products recommended their removal to the doctors could be perceived as such evidence. (Par. 71)

It's a very interesting case that may influence the scope of application of the Product Liability Directive. Considering its limited application in practice and the fact that in such important cases as product recall due to increased risk to consumer health the compensation rules in the EU should be harmonized, it is clear why the AG Bot took the stand he did. It remains to be seen whether the CJEU shares this point of view.

Spanish mortgages continued - AG Wahl's Opinion in cases Unicaja Banco and Caixabank

Today, Advocate-General Wahl delivered his Opinion in a number of joined cases regarding the assessment of standard terms in mortgage contracts under Spanish law. The cases of Unicaja Banco and Caixabank address the question whether the Spanish procedural rules governing the enforcement of a mortgage satisfy the requirement of Directive 93/13 (Unfair Terms in Consumer Contracts) according to which Member States must ensure that consumers are not bound by unfair clauses.

A brief recapitulation of earlier case law may be helpful to understand the currently pending disputes, which all relate to the consequences of the European economic crisis for the Spanish housing market: In the CJEU's judgment in Aziz (see a previous post), the court established that Spanish procedural law did not comply with the Unfair Terms Directive, insofar as it did not provide a court assessing the unfairness of standard terms in a mortgage contract to offer interim relief, in particular the possibility to stay mortgage execution proceedings, as a result of which a home owner could already have been evicted from the property before a judgment on the fairness of the bank's standard terms had been given. Spanish law was amended so as to repair these and other flaws in the legal framework for mortgage enforcement (in Law no 1/2013). In the case of Sánchez Morcillo, the CJEU recently established that Spanish procedural law was still not up to standard, as the assessment of the unfairness of the relevant terms was left to the discretion of the judge and, moreover, consumers were not given equal procedural defences as banks (see a summary in a previous post).

Unicaja Banco and Caixabank now focuses on another provision resulting from the law reform, which 'imposes a ceiling on the default interest recoverable through the enforcement of a mortgage: the rate of default interest must not be more than three times the statutory interest rate. If that ceiling is exceeded, the courts are to give creditors the possibility of adjusting the default interest rate so that it falls within the statutory limit.' (para. 3, 12-13 of the AG's Opinion) In the contracts at issue default interest rates range from 18% to 22.5%. The referring courts in essence asked whether they, in case they found these clauses to be unfair in light of Directive 93/13, should declare the clauses to be void and not binding or rather moderate the interest clauses. Furthermore, the national judges questioned the compatibility of the reform law with the EU Directive.

AG Wahl is, first of all, of the opinion that Article 6 of the Directive 'requires national courts to exclude the application of an unfair contractual term so that it does not produce binding effects with regard to the consumer, but does not authorise them to revise the content of that term. The consumer contract must continue to exist, in principle, without any amendment other than that resulting from the deletion of the unfair terms, in so far as such continuity of the contract is possible under national law.' This is in line with the CJEU's judgment in Case C-618/10 Camino, in which the Court held that national judges in principle should not replace unfair terms by ones that do comply with the Directive: 'The contract containing the term must continue in existence, in principle, without any amendment other than that resulting from the deletion of the unfair terms, in so far as, in accordance with the rules of domestic law, such continuity of the contract is legally possible.' The CJEU's more recent judgment in Case C-26/13 Kasler seems to be the odd one out, to the extent that in this case the contracts at issue could not remain in existence without the clause at issue and, given the negative consequences this would have on consumers, the national court was allowed to replace the unfair term by a supplementary provision of national law. 

AG Wahl distinguishes Unicaja Banco and Caixabank from Kasler, considering that '[i]t is unclear how invalidation of an unfair default-interest clause, such as the clause at issue, would be detrimental to a borrowing consumer' (para. 30). Whether that observation holds true does not seem self-evident, as the further existence of the mortgage contract might be at stake in case the bank will not receive any interest anymore, which may be considered to be a quite essential part of the mortgage agreement.

In the second place, the AG is of the opinion that: 'A provision of national law, such as the Second Transitional Provision of Law No 1/2013 of 14 May 2013 laying down measures for the strengthening of the protection of mortgagors, the restructuring of debt and social rent (Ley 1/2013 de medidas para reforzar la protección a los deudores hipotecarios, reestructuración de deuda y alquiler social), under which a creditor seeking enforcement, on the basis of a mortgage agreement containing a clause setting default interest at a rate higher than three times the statutory interest rate, may adjust the amount of default interest recoverable through the enforcement of a mortgage so that it does not exceed that threshold, is compatible with Directive 93/13 and, in particular, with Article 6(1) thereof, in so far as the application of such a provision is without prejudice to the obligation of national courts under that directive to exclude the application of an unfair contractual term in consumer contracts so that it does not produce binding effects with regard to the consumer, but without revising its content. It is for the referring court to determine whether that is the case, taking the whole body of national law into consideration and applying the interpretative methods recognised by that law.' In other words, the Spanish reform law is compatible with EU law, insofar as it does not interfere with the national courts' duty to hold unfair terms to be not binding on the consumer, without revising the terms' content (again cf. Camino).

The AG reaches this conclusion by observing that the Spanish provision on default interest applies to all standard terms alike, regardless of whether they fall within the material scope of the Directive (and can, thus, be assessed on their unfairness) and whether the mortgage contract is a consumer contract in the sense of the Directive or not (para. 36-37). As a consequence, in regard to standard terms that can be regarded as unfair under the Directive, consumers are protected by EU law, which entails non-bindingness of unfair terms. As concerns terms that either fall outside of the scope of the Directive or are not considered to be unfair, the national law protects debtors (incl. consumer-debtors) by providing a ceiling on default interests rates. While one may follow the AG's line of reasoning on this point, some more thought may be given to its implications: first of all, to what extent are parties able to assess beforehand under which of the two regimes their contract clause falls (which depends on the judge's assessment of its unfairness); in the second place, could this construction give an incentive to judges to rather assess a term to be fair in order to be able to amend it, instead of establishing its non-bindingness under the Directive?

To be continued.