In the wake of the European Court of Justice's groundbreaking judgment in Aziz (on which we reported last year), a number of cases regarding the compliance of Spanish law on mortgage enforcement with EU consumer law is now making its way through preliminary reference proceedings. In a judgment handed down this morning, the CJEU again came to the conclusion that the Spanish rules on enforcement of mortgages do not live up to the standards of the Unfair Terms Directive. This time, moreover, on invitation of the referring judge, the Court explicitly grounded its assessment on Article 47 of the EU Charter of Fundamental Rights, which safeguards the right to an effective remedy and a fair trial in accordance with the principle of equality of arms.
The case of Sánchez Morcillo and Abril García v Banco Bilbao once more concerns the weak position of consumers under Spanish law regarding the enforcement of mortgage contracts by banks. The home owners found themselves in the position where the contract allowed the bank to claim payment of the entire amount of the mortgage loan upon the failure to pay a certain number of monthly instalments. Since a considerable number of Spanish debtors are not able to pay back the entire sum at once - they are already having difficulty keeping up with the monthly instalments because of the consequences of the economic crisis -, many find themselves at risk of losing their family homes. In the present case, the CJEU showed awareness of this societal context by accelerating the preliminary reference procedure so as to diminish the risk that the house would already be sold before the Court's ruling (see the Court's order on this matter).
The referring judge particularly questioned the (in)equality of procedural defense mechanisms available to the parties involved in mortgage enforcement proceedings. Article 695(4) of the Spanish Law on Civil Procedure stipulates that in such cases appeals may only be brought against a judicial order staying the proceedings or displaying an unfair contract term. This effectively offers the bank a possibility to immediately appeal against the sustenance of a home owners objection to enforcement, whereas the party against whom enforcement is sought (the owner of the house) may not appeal if his or her objection is dismissed. The national judge in the present case doubts whether this is in line with the consumer protection offered under the Unfair Terms Directive, read in combination with Article 47 of the EU Charter.
An interesting side note: As the CJEU points out (par. 30), the question arising in this case is a direct consequence of the reform of Article 695(1) of the Law on Civil Procedure following the Aziz judgment. Following this reform, the court hearing the enforcement proceedings can now stay these while a judgment on the (un)fairness of the contract terms is pending. In that situation, Article 695(4) allows the bank to appeal against the staying of proceedings, whereas the debtors do not have similar possibilities in case their objection to enforcement is dismissed.
According to the CJEU, the relevant provisions of EU law indeed preclude a rule such as Article 695(4) of the Spanish procedural code, which gives the bank (creditor) an unjustified advantage in respect to the home owner (debtor). The Court considers that the Spanish system of mortgage enforcement does neither offer adequate nor effective protection (in the sense of Article 7 of the Unfair Terms Directive) to home owners, insofar as it still does not effectively prevent unjustified evictions: A judge in enforcement proceedings may assess the unfairness of contract terms, but this assessment is not mandatory and bound by time restrictions. Furthermore, in case a judge in parallel proceedings eventually establishes that the terms of the mortgage contract were unfair, the consumer can only claim monetary compensation (par. 43; this is what happened in Aziz). In addition, now, the procedural defenses available to the consumer are of a much weaker nature than those available to the bank, as is underlined in the present case - Spanish law does, thus, not respect the principle of equality of arms or procedural equality, safeguarded by Article 47 of the Charter.
In sum, Sánchez Morcillo is another quite far-reaching decision of the CJEU which has important implications for the development of adequate remedies against the infringement of EU consumer law. A point that draws the attention is the interaction between national and supranational judiciaries in this field, in which the principle of effectiveness functions as leverage for 'upgrading' national laws to EU standards. The constitutionalisation of this process is something that has already drawn the interest of scholars (e.g. Norbert Reich, in his new book on 'General Principles of EU Civil Law') and is likely to obtain greater significance while the percentage of references to the Charter in CJEU case law is growing.
