Some time ago, we had reported on AG Wahl's opinion in Árpád Kásler and Hajnalka Káslerné Rábai v OTP Jelzálogbank Zrt (C-26/13), concerning a Hungarian credit contract in which the outstanding amounts are calculated in Swiss Francs in order to diminish inflation-related volatility.
Yesterday, the Court of Justice delivered its decision in the case. The decision is mostly important - and very interesting!- for (consumer) lawyers, since it touches several interesting legal issues but leaves the substantive points essentially undecided. The main "practical" consequence arising from it is that, in certain cases, it opens the door for the possibility to replace unfair terms by the legal provisions which would have been applicable had the terms never been introduced in the contract.
But there's much more to be said. As a consequence, we will first provide a brief recap of the facts and then analyse the questions raised by the remitting court and the answers given by the CJEU.
The facts (in short)
The controversy had arisen because what might seem a detail: while the outstanding amount was calculated considering the buying rate of Swiss Francs (at the day when the contract was concluded), the installments were based on the currency's selling rate, which is usually higher.
The lenders challenged the term establishing the installment calculation mechanism under Directive 93/13, and had the term declared unfair by two successive judgments. The last instance court had to decide over the bank's appeal, claiming that the clause was exempted from control since, considered that it provides the bank a remuneration for the provision of credit in foreign currency, it falls under the exception for testing core terms established by Hungarian law in accordance with article 4(2) of the directive. It consequently asked the CJEU two questions on the standard of control to be applied and one on the consequences to be drawn were the term to be found unfair.
The first question: was the term exempted from substantive scrutiny?
Article 4(2) of the Directive, which according to the Court has to be given autonomous interpretation, exempts terms defining the contract's main subject matter and the "remuneration" for the good or service exchanged.
The Court excluded under circumstances of this case that the contested term can be considered as establishing an autonomous "remuneration", since the bank did not provide any additional service in relation to the credit agreement (in particular, it did not provide the lenders currency exchange services).
Still, it could be perceived as a core term, falling under exemption of Article 4(2), if the national Court found, all the relevant elements taken into account, that the term "constitutes an essential element of the debtor's obligation" (para 51). In interpreting the notion, the guidelines given by the CJEU articulate in particular that:
- "main subject matter" of the contract are the terms which "lay down the essential obligations of the contract and, as such, characterise it" (para 49);
- on the other hand, "terms ancillary to" the essential ones, cannot fall within the exemption's scope (para 50).
In short, the term is not exempted as "remuneration"; it could, however, be exempted as "essential element of the obligation", which is for the national Court to decide.
The second question: (I) if it is a core term falling under exemption of article 4(2), can a transparency test be applied - although the applicable law did not contemplate this possibility?
This point is a complex one. The Directive's exemption only applies to terms which are drafted in "plain, intelligible language". Hungarian law has only implemented this limitation in 2009, with the result that the law applicable to the contract at hand - signed in 2008 - did not make the exemption conditional on transparent drafting. The AG had claimed that the Directive's harmonious interpretation requires that condition to be read in the implementing provision in spite of its textual absence. We had had the chance to rise some doubts on the obviousness of a similar proceeding. What did the court decide?
Well, the CJEU did not decide on this point. It started off by saying that "in order to safeguard in practice the objectives of consumer protection pursued by the Directive, any transposition of Article 4(2) must be complete [...]" (para 62). However, this was clearly not the case of the relevant Hungarian provision (para 63). In principle, the principle of consistent interpretation of national law requires the national court to
"consider the whole body of rules of national law and to interpret them, so far as possible, in the light of the wording and purpose of the directive in order to achieve an outcome consistent with the objective pursued by the directive." (para 64).
But that principle is not unconstrained, and in particular
"it is limited by general principles of law and cannot serve as the basis for an interpretation contra legem" (par. 65). So what?
The CJEU basically leaves the hot potato with the Hungarian court, which will have to consider whether "the national provision [...] may be understood as meaning that it includes the requirement that contractual terms are to be drafted in plain intelligible language" (para 66).
If this were the case, however, a further question would arise.
The second question: (II) what should then transparency entail?
In analogy to what the Court had already affirmed with reference to the general requirement of the Directive's article 5, the requirement "cannot be reduced merely to [the term's] being formally and grammatically intelligible" (para 71).
In short, with reference to a term such as the one considered in this case should "set out transparently the reasons for and the particularities of the mechanism for converting the foreign currency and the relationship between that mechanism and the mechanism laid down by other terms relating to the advance of the loan, so that the consumer can foresee, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it" (para 72).
How this extensive information obligation should be fulfilled by the contract is not completely clear, since the CJEU goes on to explain that the referring court should determine whether
"having regard to all the relevant information, including the promotional material and information provided by the lender in the negotiation of the loan agreement, the average consumer, who is reasonably well informed and circumspect, would not only be aware of the existence of the difference [...] between the selling rate of exchange and the buying rate of exchange of a foreign currency, but also be able to assess the potentially significant economic consequences for him resulting from the application of the selling rate of exchange for the calculation of the repayments for which he would ultimately be liable and, therefore, the total cost of the sum borrowed." (para 74)
So even though from the answer's summary one could infer that the contract alone should be a sufficient source of reference for the consumer, it is not excluded that the transparency assessment articulated by the Court also encompasses a contextual evaluation (based on the circumstances of the specific case, but also mediated by the "average consumer" notion, which is used here for the first time in the context of unfair terms control).
It isn't easy, I know, but we are almost there. Only one (easier) question is left.
Third question: in case the term is found unfair, could the national court replace it by applying default legal rules?
The answer to the question is yes. Previous decisions of the CJEU had legitimated the doubt by stating that in principle lacunae ensuing from a finding of unfairness should not be filled, in order to preserve the Directive's dissuasive function. However, in cases such as the one at issue, leaving the fallen clause unreplaced would entail the contracts nullity, with unpleasant consequences for the lenders in the first place (since they would have been required to immediately return the outstanding amount). Thus, the Directive allows the term to be replaced by a supplementary provision of national law.
This in both an interesting and strangely drafted decision. The answer to the first question is relatively straightforward (especially as far as "remuneration" is concerned), but seems to undermine the very concept of "autonomous interpretation" in applying a sort of "Freiburger-doctrine" to the interpretation of "core terms". The answer to question two, part I, which is hardly a real answer indeed, is not even mentioned in the decision's summary. The standard applied for the term's transparency is taken "by analogy" from a decision concerning a very specific group of terms, without much ado or reflection. It is not clear by what means exactly the standard is to be met. Also, the issue of transparency is getting increasingly mingled, in the case-law of the CJEU, with that of unfairness; this is partially a matter of chance, since Hungarian law (now) provides that lack of transparency constitutes an autonomous (vis à vis the "unfair imbalance" general clause) ground of unfairness.The answer to the third question might have a certain value for practice, in that the replacement of fallen terms by default legal provisions is commonly accepted, for instance, in Germany.