Thursday, 28 July 2016

Océano meets Francovich (part II): CJEU judgment on State liability and unfair terms

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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.

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