Thursday, 28 July 2016

Océano meets Francovich (part II): CJEU judgment on State liability and unfair terms
Today the EU Court of Justice rendered its judgment in Case C-168/15 (Tomášová; available here in several languages). We reported on this case earlier (see our blog post 'Oceano meets Francovich: AG Wahl on state liability and unfair contract terms'). It concerns the question of State liability for the violation of EU law by a national court.

Ms. Tomášová, a consumer from Slovakia, alleged that the district court of Prešov, in pending proceedings for the execution of an arbitral award, had failed to examine ex officio the potential unfairness of contract terms in consumer credit agreements between her and Pohotovost' s.r.o., which included an arbitration clause. She claimed damages from the Slovakian Republic, because the enforcement of the arbitral award against her was based on an unfair term. Now, two crucial details here are that - according to the Slovakian court seized of the matter, the same district court of Prešov - execution proceedings had not been terminated yet and Ms. Tomášová had not made use of the possibility to claim restitution of the unduly paid amounts. The district court asked the CJEU, in short, (i) whether State liability arises if not all legal remedies made available by the law of the Member State have been exhausted and (ii) whether there is a sufficiently clear and serious breach of Community law in the present case. In its preliminary reference, the district court emphasised "the absolute inactivity" of Ms. Tomášová in the arbitral procedure and the ensuing execution proceedings. It also asked the CJEU about the relationship of compensation for damages on the one hand and unjust enrichment on the other, probably because Ms. Tomášová held both the Slovakian Republic and Pohotovost' liable. 

AG Wahl: balance between effective protection of rights derived from EU law and State liability? 
Advocate-General Wahl concluded, perhaps unsurprisingly, that it follows from the CJEU's case law (in particular, Köbler, Traghetti del Mediterraneo and Târșia) that State liability is limited to infringements of EU law by national judicial authorities whose decisions cannot be remedied in a higher instance. Decisive is whether the court involved is the court in final instance which has given a final and binding decision, so that the violation of EU law can no longer be remedied. Then, State liability may arise. AG Wahl observed that in the present case, a legal remedy seemed to be available against the decision in the execution proceedings, in any case for the party seeking enforcement. In her turn, Ms. Tomášová could have tried to annul the arbitral award. Therefore, AG Wahl stated that it was not possible to establish with certainty that the court involved - the district court of Prešov - would be a court in final instance, as long as a final and binding decision had not been given in the main dispute about the execution of the arbitral award. In other words, Ms. Tomášová's action for damages was premature. In AG Wahl's view, consumers do not enjoy special protection in this respect. 

The balance between the effective protection of rights derived from EU law and State liability is nevertheless a delicate one. AG Wahl's reasoning to conclude that the breach of EU law in the present case was not sufficiently serious, another condition for State liability, is not entirely convincing. For example, he puts forward that the court involved in the execution proceedings does not have all factually and legally relevant information before it to perform an ex officio examination of contractual terms. It can be contested that, while such an examination at the enforcement stage may not be desirable, it may be the only way to ensure the effectiveness of the Unfair Contract Terms Directive; see also AG Szpunar's opinion in Case C-49/14 (Finanmadrid), para. 62: "[A]s an exception and for lack of a better solution, where national procedural rules make no provision for such a review at any earlier stage, the onus is on the court with responsibility for enforcement to ensure that it takes place in the last resort." 

CJEU: the court involved could not have known...
The CJEU begins the present judgment with restating its case law on State liability for the violation of EU law by national judicial authorities. It then moves on to reiterate that there is a sufficiently clear and serious breach of EU law when the court involved fails to apply the applicable law and the CJEU's existing case law on the matter. In this respect, the CJEU refers to, inter alia, its famous judgment in the Océano case. In addition, the CJEU had said in 2006 (Case C-168/05, Mostaza Claro) that "the nature and importance of the public interest underlying the protection which the Directive confers on consumers" justifies "the national court being required to assess of its own motion whether a contractual term is unfair, compensating in this way for the imbalance which exists between the consumer and the seller or supplier" (para. 38). However, it was not until 2009 that the CJEU acknowledged the obligation of the national court to examine of its own motion the unfairness of contractual terms of its own motion, where it has available to it the legal and factual elements necessary for that task (Case C-243/08, Pannon). In the present judgment, the CJEU is careful not to undermine its subsequent case law on this obligation, in particular Asturcom (2009) and Pohotovost' (2010 and 2014). 

Yet, the CJEU jumps a little too fast to the conclusion that the fact that the decisions at issue in the present case date from 15 and 16 December 2008 precludes a sufficiently serious breach. The application in the Asturcom case dates from 5 February 2008, and thus predates those decisions. The present case was brought before the district court of Prešov, which had to rule upon the enforcement of the arbitral award. Regardless of Ms. Tomášová's inactivity or passivity, it must have been obvious to the court that the arbitral procedure resulting in the arbitral award was based on an agreement including an arbitral clause. Arguably, the court could have known that it might be required, when hearing an action for the enforcement of an arbitral award made in the absence of the consumer, to examine of its own motion whether the arbitration agreement was unfair term to the detriment of the consumer. It could be argued that the court could at least have considered to request a preliminary ruling itself, especially if it is possibly the court in final instance (cf. paras. 26 and 41 of AG Wahl's opinion, referring to Article 267(3) TFEU). Apparently, the CJEU does not want to burn its fingers on assessing whether the court involved was indeed a court in final instance, perhaps because it was not obvious from the case file whether or not all legal remedies available at the national level had already been exhausted (cf. para. 25 of AG Wahl's opinion). 

Last but not least, the CJEU considers that the rules for the compensation of damage as a consequence of a violation of EU law are determined by national law, subject to the principles of equivalence and effectiveness. For Ms. Tomášová, all hope is not lost: if it is true that the execution proceedings have not been terminated yet and/or if she can still challenge the validity of the arbitral award, she might be able to get her money back - whether in the form of damages or restitution.

Thursday, 21 July 2016

Debt collection agencies as credit intermediaries - opinion of AG Sharpston in Verein für Konsumenteninformation (C-127/15)

The wild wild West of the financial markets knows no boundaries to creativity... Inko is an Austrian debt collection company that helps banks and other consumer credit lenders to recover their payments from consumers defaulting on credit payments. In such circumstances, Inko approaches a consumer on the lender's behalf and gives them a choice of either paying the outstanding debt in full or entering into a repayment agreement. Consumers are given just 3 days to make their choice, i.e. to complete a pre-printed form (instalment agreement) and return it to Inko. Under the terms of this agreement consumers: acknowledge that the outstanding debt is due together with the costs for the default under the initial credit agreement; agree to the repayment plan in monthly instalments; and accept that the payments they make would first cover Inko's fees and only after the due credit amounts. Inko's fees are thus paid by defaulting consumers, as well as Inko receives the interest. 

Since Inko acts on behalf of the lenders, the repayment agreement is concluded between the lender and consumers. Inko claims thus that they have no (pre-)contractual duties towards consumers, such as information duties on the basis of the Consumer Credit Directive (Directive 2008/48). The Austrian Consumer Organisation (Verein für Konsumenteninformation) disagreed and started injunction proceedings against Inko.

Two questions that were referred to the ECJ in these proceedings pertain to the status of Inko under the CCD, i.e. whether they can be seen as a credit intermediary, and the status of an instalment agreement - whether it's a 'deferred payment, free of charge', as defined in Article 2(2)(j) of the CCD. The reason for the agreement to classify as a deferred payment free of charge could be that the fees and interest paid to Inko do not seem to exceed what consumers would need to pay to lenders under Austrian law due to being in default with credit payments.

AG Sharpston considers that Inko acted indeed as a credit intermediary (I) and consumers did not conclude agreements for a deferred payment free of charge (II), as defined by the CCD.  

Ad (I)
There are four requirements in the test for a credit intermediary, pursuant to Art. 3(f) of the CCD: natural or legal person (1) may not act as a creditor (2) while operating in the course of his trade, business or profession (3) and charging a fee for his services (4). (Par 25) The services to be provided should be related to presenting, offering credit agreements to consumers, or preparing or concluding them for them. (Par 26) All these conditions are satisfied in this case, when Inko presents instalment agreements to consumers on behalf of creditors in order to recover their outstanding debts for a fee. Moreover, the notion of the credit intermediary should be broadly interpreted to provide genuine consumer protection. Credit intermediaries are obliged to provide consumers with 19 items of mandatory pre-contractual information from Article 5 (1) CCD "in good time" before the agreement is binding. The AG assesses that:

"The three days indicated in Inko’s specimen agreement is inadequate to enable a borrower to assess his position. Where a borrower is confronted with the option of repaying the outstanding debt in full or completing the instalment agreement, it is unlikely that he has a genuine choice. If he could readily repay the outstanding amount (the less expensive option as his liability for further costs would be reduced), he would probably not be in default. Three days is also insufficient time for the borrower to compare the costs of agreeing to the instalment arrangement with alternative solutions offered by other lenders." (Par 28)

Provision of a high level of consumer protection that the CCD aims at requires that Inko provides pre-contractual information to consumers and in a timeframe longer than the three days offered, unless lenders would provide this information themselves. (Par 29) AG Sharpston continues that the principle of responsible lending also demands such an interpretation. (Par 30)

Ad (II)
AG Sharpston does not consider the instalment agreement as a deferred payment free of charge, pursuant to Article 2(2)(j) CCD. 'Free of charge' should be referred to the definition of a charge as a 'total cost of the credit to the consumer' in Article 3(g), which covers with its scope also recovery costs "incurred where a borrower is in default under the initial agreement, whether those costs are charged by the lender himself or by a debt collector acting on his behalf". (Par 41) It does, therefore, not matter that without the intermediation of Inko, consumers would need to likely pay the same costs to their lender for debt recovery. As long as debt recovery is not free of charge, it cannot be seen as a 'deferred payment free of charge' pursuant to AG Sharpston. (Par 46-51).

Monitoring the application of EU law - EC 2015 Annual Report
The European Commission has published its 33rd Annual Report on monitoring the application of EU law (click here for the full report; see the press release here). The Commission, as "guardian of the Treaties", monitors the Member States' measures for the implementation and application of EU law to ensure that they comply with EU law. This Annual Report highlights the main developments in enforcement policy in 2015, and gives some facts and figures. 

As regards the acquis on consumer protection, the Commission reports that it has raised the implications of the Court of Justice's case law based on the principles of ex officio control by national courts, equivalence and effectiveness with individual Member States, in 'EU Pilot dialogues for non-compliance' and in infringement procedures (pp. 7-8). These mainly concerned the transposition of the Directive on alternative dispute resolution (see also p. 15) and the Consumer Rights Directive. In its press release, the Commission proudly refers to the online Single Market Scoreboard, which monitors the performance per Member State in a number of policy areas and governance tools. Taking all evaluated areas into account, Croatia, Cyprus, Estonia, Ireland and Slovakia performed best in 2015. 

In addition, the Annual Report mentions that the Commission received less complaints about potential breaches of EU law than in 2014 (p. 17). The three Member States against which the most complaints were filed were Italy, Spain and Germany. Many of those complaints were related to justice and consumers (p. 18). On its website, the Commission has published - among other things - National Factsheets for all Member States, containing graphs per country on EU Pilot files and infringement cases. These factsheet also refer to some key preliminary rulings of the Court of Justice per country. For example, for Spain, the Court's BBVA judgment of 29 October 2015 (reported by us here) is briefly summarised. 

Wednesday, 20 July 2016

Towards a true European Market for retail financial services- responses published

On 14 July 2016 the EU Commission has published the responses (those authorized for publication out of 428 responses received), including a very informative summary of responses (available here) in regard to the Green Paper on retail financial services.

The Green Paper is part of the comprehensive public consultation towards a 'true European market for retail financial services' that the EU Commission launched on 10  December 2015 (on which we have reported earlier). The Green Paper aims to explore the ways in which the EU market for retail financial services, i.e. insurance, loans, payments, current and savings accounts and other retail investments could be further opened up while maintaining an adequate level of consumer protection. It seeks to identify the barriers that consumers and firms face in making full use of the Single Market and the ways in which these barriers could be overcome, including the best use of technology.

Wednesday, 13 July 2016

A victory for the banks? Opinion in high-profile cases on Spanish 'floor clauses'

Opinion of Advocate-General Mengozzi in Joined Cases C-154/15, C-307-15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López
This morning, Advocate-General Mengozzi presented his Opinion in three high-profile cases that have generated a lot of attention in Spain. These cases go far beyond the parties' interests and are perceived as being part of an ongoing battle between "the banks" on the one hand and "the consumers" on the other. They originate from a disagreement between the Spanish Supreme Court (Tribunal Supremo) and lower courts about the required level of protection under the Unfair Contract Terms Directive (93/13/EEC). The subject matter of the three cases are the so-called cláusulas suelo (literally: 'floor clauses'), i.e. minimum interest rate clauses, used by banks in mortgage loan agreements. In Spanish media, today has already been called "D-Day" for cláusulas suelo. 

What are cláusulas sueloAG Mengozzi explains: "Those clauses allow a banking institution which grants a variable rate mortgage loan to impose a lower limit on the variable interest rate, so that even if the applicable interest rate [e.g. EURIBOR] is below a certain threshold (or 'floor'), the consumer will continue to pay minimum interest equivalent to that threshold." Such 'floor clauses' were common practice in Spain. In a judgment of 9 May 2013, the Tribunal Supremo declared cláusulas suelo to be unfair. In short, it found that those clauses were not transparent: consumers were unable to foresee the economic and legal burden the contract would place upon them.

The present cases concern the effects of this judgment, more specifically the question of retroactive effect. Under Spanish law, the general penalty for unfair terms is invalidity, which creates a right to full restitution. To what extent can consumers claim restitution of the amounts paid on the basis of 'floor clauses'? According to the Tribunal Supremo, such a refund is only due from the date of the judgment, 9 May 2013. It held that the temporal effects of its judgment could be limited under the principles of legal certainty, fairness and prohibition of unjust enrichment, because the banks had acted in good faith and there was a risk of serious economic difficulties (cf. the CJEU's judgment of 21 March 2013, C-92/11, RWE Vertrieb). However, lower courts have questioned the date from which the refund should begin. Is the Tribunal Supremo's limitation of the restitutory effects produced by an unfair - and therefore, under Spanish law, invalid or void - contract term compatible with the interpretation of "non-binding" in Article 6(1) of Directive 93/13? Should the refund of the amounts paid by the consumer on the basis of the unfair term arise only on the date of a court decision confirming the unfairness, or from the date the contract was concluded?

Advocate-General: Tribunal Supremo's approach is permissible 
AG Mengozzi first establishes that the Tribunal Supremo, by classifying 'floor clauses' as unfair terms in particular because of a lack of sufficient prior information, has not afforded a higher level of protection to consumers than that offered by Directive 93/13 and that thus, ascertaining the requested interpretation is relevant (paras. 43-50). He refers to the CJEU's case law (inter alia, its judgment of 30 April 2014, C-26/13, Kásler) to conclude that the requirement of transparency within the meaning of Article 4(2) of Directive 93/13 must be understood in a broad sense: not only should the relevant term be grammatically intelligible to the consumer, but the consumer should also be able to assess the economic consequences resulting from the application of that term, including the calculation of the repayments and interests.

As regards Article 6(1) of Directive 93/13, AG Mengozzi considers that the expression "non-binding" is neutral. He then moves on to say that the CJEU seems to have considered the invalidity of unfair terms not as the only way to satisfy the requirement that unfair terms are non-binding (para. 60). The CJEU has not decided that national courts must declare those terms invalid and create a corresponding right to restitutio in integrum (para. 64). From 9 May 2013, 'floor clauses' must cease to exist in the Spanish legal order: they must be eliminated from existing contracts and can no longer be included in new contracts. Therefore, the full effects of invalidity under Spanish law are guaranteed from 9 May 2013 and the effectiveness of Directive 93/13 is fully assured pro futuro. With regard to the prior period, AG Mengozzi observes that EU law harmonises neither the applicable penalties nor the circumstances in which a supreme court decides to limit the effects of its judgments. This means that the present situation falls within the national procedural autonomy of the Member States (para. 68). In AG Mengozzi's view, the Tribunal Supremo's approach - the temporal limitation - is permissible in the light of the principles of equivalence and effectiveness, provided that it remains quite exceptional (p. 73). While he disagrees with the alleged "innovative nature" of the judgment of 9 May 2013, AG Mengozzi points out that the Tribunal Supremo struck a balance between the protection of consumers and "the macroeconomic challenges to the already weakened banking system of a Member State" (para. 72). The safeguarding of legal certainty is "a concern shared by the EU legal order", "on account of the many legal situations which are potentially affected and which could undermine the stability of an economic sector" (para. 74).

A victory for the banks?
AG Mengozzi's consideration of "macroeconomic challenges" is in line with the Tribunal Supremo's argument that its judgment, without a restriction of the retroactive effect, would cause a risk of serious economic difficulties. It has been said that the risk for the Spanish banking sector is 3.500 million euros; no wonder that the AG's Opinion is perceived as a victory for the banks. Yet, the Opinion passes over a number of counter-arguments, brought forward on behalf of the consumers involved as well as by the referring courts.

First, it has been doubted whether the banks have actually acted in good faith.[1] As AG Mengozzi concludes, the judgment of 9 May 2013 was not really "innovative"; the CJEU's case law after that date is "nothing other than the logical continuation of a series of earlier judgments" (para. 49). Can it be said that the banks' "good faith" only ceased to exist on 9 May 2013? In addition, the banks themselves, who drafted and used the highly disputed 'floor clauses', were the cause of the lack of transparency making those clauses unfair. In this respect, AG Mengozzi's remark that the conditions governing the circumstances in which a supreme court may limit the effects of its own judgments fall within the scope of the Member States' national procedural autonomy (para. 80) is unsatisfactory, especially given the emphasis he puts at the same time on the balance struck by the Tribunal Supremo (paras. 72-74). If the Tribunal Supremo's reasoning is subjected to scrutiny in the light of the principle of effectiveness, the part on good faith could be more closely examined as well.

Secondly, the question has been raised whether the Tribunal Supremo's approach is contrary to the prohibition imposed on national courts of revising or altering the content of an unfair term (see, e.g., the CJEU's judgment of 14 June 2012, C-618/10, Banco Español de Crédito). AG Mengozzi does not answer this question directly. Perhaps limiting the effects of invalidity is not the same as varying the content of contract terms, the ratio behind this prohibition might nevertheless apply equally.[2] It is not entirely clear why the required "deterrent effect" (para. 71) should not date further back than 9 May 2013. One could argue that the banks are now rewarded for awaiting the Tribunal Supremo's judgment before changing their practice. In the words of Prof. Francisco de Elizalde (footnote [1]): "It could lead possible infringers to believe that the greater the damage, the more lenient the remedies."

Thirdly, AG Mengozzi appears to pay strikingly little attention to the position of consumers. Admittedly, achieving the balance sought by Directive 93/13 is not the same as favouring the consumer. But AG Mengozzi dismisses the plight of Spanish consumers too easily, where he says that a consumer who had concluded a loan agreement containing a 'floor clause' could simply repay one loan with another from a different banking institution, and that application of the 'floor clause' would not have led to a substantial change in the monthly amounts payable by consumers anyway (para. 73). He seems to overlook the economic risk mortgage loan agreements and 'floor clauses' pose to the consumer's household finances. His statement is all the more curious in relation to the finding of unfairness of those very same 'floor clauses'.

Finally, it is a pity that AG Mengozzi only spends one brief paragraph at the very end of his Opinion on the relationship between collective and individual actions (para. 81). In Case C-308/15, a specific question was asked by the referring court about the meaning of the right to effective judicial protection as enshrined in Article 47 of the EU Charter of Fundamental Rights in this respect (see para. 32). Not only does AG Mengozzi seem to deny the precedent effect of the Tribunal Supremo's judgments, he also does not seize the opportunity to propose a more systematic solution to the disparities between the Tribunal Supremo and lower courts (see also para. 23). He just presumes that the implementation by the lower courts is "likely to safeguard the principle of equality and the principle of economy of procedure" (para. 81), without even mentioning Article 47. Is this another missed opportunity? We will know when the CJEU renders its judgment in the cláusulas suelo saga. To be continued. 


[1] See further: Francisco de Elizalde, 'The Rain in Spain Does Not Stay in the Plain - Or How the Spanish Supreme Court Ruling of 25 March 2015, on Minimum Interest Rate Clauses, affects European Consumers', EuCML 5/2015, pp. 184-187; link.
[2] The Commission, for example, has argued that the declaration of an unfair term as invalid "is not compatible with a limitation of the effects of such invalidation, unless such limitation is necessary to preserve the principle of res judicata" (see EurActiv).

Thursday, 7 July 2016

Beware when buying a car: CJEU judgment on information regarding transfer costs of a motor vehicle
Cars and consumer information prove to be a tricky combination. 

Today the EU Court of Justice gave judgment in a German case concerning an advertisement for a Citroën motor vehicle (C-476/14). The Court ruled that, pursuant to Directive 98/6/EC on consumer protection in the indication of the prices of products offered to consumers, costs in connection with the transfer of a motor vehicle from the manufacturer to the dealer, which are payable by the consumer, must be included in the selling price of that vehicle indicated in an advertisement made by the trader. Such costs form a component of the final price, which enables consumers to evaluate and compare the price of products indicated in an advertisement with the price of other similar products and thereby to make an informed choice on the basis of simple comparisons.

Earlier this year (March 2016), an ECC-Net report has been published about cross-border car purchases and registration, which are prone to fraud. Consumers are recommended to thoroughly check what is being offered, including whether the price of the car is comparable to that of similar models, whether the seller is acting lawfully, and that all the car's documentation is in order. 

So consumers, beware when buying a car!

Monday, 4 July 2016

Blog 'Brexit and European Consumer Law: Now What?' by Catalina Goanta

Just over a week after the 'Brexit' referendum, it is still too early to draw any conclusions about the future relationship between the EU and the UK. The (potential) legal consequences of a 'Brexit' are also unknown, but worth exploring - if only tentatively. In a blog posted this morning, Catalina Goanta of Maastricht University argues that it would not make much sense for the UK to entirely "undo" the EU's influence on national private law, in particular consumer law. Read the blog here.