Extrajudicial procedures and effective consumer protection: CJEU in Margarit Panicello (C-503/15)

Today's judgment of the EU Court of Justice in Margarit Panicello (C-503/15) is part of a set of cases on the compatibility of extrajudicial procedures with (the effectiveness of) Directive 93/13/EEC on unfair terms in consumer contracts and Article 47 of the EU Charter of Fundamental Rights. The common feature seems to be that the CJEU does not consider extrajudicial procedures as such to be necessarily problematic, as long as there are judicial remedies available to consumers to contest enforcement. In Kušionová, for example, the possibility for the national court to adopt interim measures suggested that adequate and effective means existed as required by the Directive, read in conjunction with Article 47. In ERSTE Bank Hungary, it was deemed sufficient that consumers could bring legal proceedings against the disputed contract, including in the enforcement phase. By contrast, in Finanmadrid, the involvement of a Secretario Judicial (court registrar) instead of a judge, who could issue a binding and enforceable order for payment, was found to undermine the effectiveness of the protection intended by the Directive. 

Today's judgment in Margarit Panicello concerns the compatibility of Spanish procedural rules providing for an extrajudicial procedure for the recovery of unpaid legal fees - called 'jura de cuentas' - with Article 47 of the Charter. 

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Article 47 of the Charter safeguards the fundamental right to an effective remedy and a fair trial before a court of law for the violation of rights and freedoms guaranteed by EU law. As we have reported on this blog, Advocate General Kokott concluded that the procedural rules at issue were indeed contrary to Article 47 of the Charter as well as Directive 93/13/EEC (and Directive 2005/29/EC concerning unfair business-to-consumer commercial practices). Before coming to this conclusion, the AG extensively argued that the Secretario Judicial who had made the preliminary reference should be considered as a "court or tribunal" within the meaning of Article 267 TFEU (and Article 47 of the Charter). Her main arguments were that the procedure at issue was very similar to the order-for-payment procedure in Banco Español de Crédito and Finanmadrid. The Secretario Judicial adjudicates independently and autonomously on a legal dispute in inter partes proceedings, which result in a decision that can be enforced in the same way as judicial decisions. 

The CJEU, however, holds that the Secretario Judicial is not a "court or tribunal" for the purposes of Article 267 TFEU. Therefore, it has no jurisdiction to rule on the Secretario Judicial's request for a preliminary ruling. The CJEU suggests that it should be the court that can order the enforcement of the decision to refer a question to the CJEU. Although this outcome may be not so surprising, the CJEU's reasoning is more difficult to follow. The judgment contains several considerations that are hard to reconcile with the CJEU's substantive assessment in, in particular, Finanmadrid. 

The extrajudicial procedure at issue

Ms. Hernández Martínez (the client) had engaged the services of a lawyer, Mr. Margarit Panicello (the lawyer), to represent her in proceedings about the custody of her children. Unfortunately, after the proceedings had ended, a dispute arose over the amount owed by the client to the lawyer. It appeared that the lawyer had failed to inform the client of the estimated costs of his services. The lawyer brought an action against the client for the recovery of legal fees before the Secretario Judicial at the court seized of the matter those fees had been incurred in. The extrajudicial procedure at issue ('jura de cuentas') is intended to ensure the rapid determination of the enforceability of specific legal fees, when it can be demonstrated that the claim is well-founded.

The Secretario Judicial had doubts whether the applicable procedural rules are compatible with Directives 93/13 and 2005/29, and Article 47 of the Charter in so far as they (i) do not allow the Secretario Judicial to verify ex officio whether there were any unfair terms or unfair commercial practices, (ii) restrict the possibility for the client to produce evidence to contest the amount claimed by the lawyer, and (iii) result in a decision that may not subject to appeal but enables the lawyer to request enforcement immediately. During the 'jura de cuentas', it is not possible for the client either to lodge a suspensory objection based on the (alleged) existence of unfair contract terms. 

A "court or tribunal" within the meaning of Article 267 TFEU?

As mentioned above, the CJEU's conclusion is that the Secretario Judicial was not entitled to refer a request for a preliminary ruling. According to settled case law, the Court takes into account several factors when determining whether a certain body is a "court or tribunal" for the purposes of Article 267 TFEU:

- Is it a body established by law?
- Is it permanent?
- Are rules of law applied?

AG Kokott concluded that there was no question about these factors.

- Is the procedure inter partes?

The AG concluded that this was indeed the case: the 'jura de cuentas' becomes adversarial when the client opposes the claim. The CJEU does not find it necessary to examine the above-mentioned factors, because other criteria were not satisfied in its view. 

- Is it an independent body?

The CJEU finds that the Secretario Judicial satisfies the internal aspects of independence (i.e. objectivity and impartiality as regards the parties and their respective interests), but not the external aspects: the Secretario Judicial is a civil servant and answerable to the Minister of Justice. 

By contrast, the AG argued that, despite their status as civil servants rather than members of the judiciary, Secretarios Judiciales exclusively act in accordance with the competences conferred to them by law. Their employer may not exert any influence over ongoing proceedings or issue instructions in relation to specific cases. 

- Is jurisdiction compulsory? 

The AG pointed out that once the lawyer initiates the 'jura de cuentas', the client automatically becomes party to the procedure. Thus, it is not voluntary for the client. The CJEU nevertheless finds that the 'mandatory' nature is lacking; the 'jura de cuentas' is purely ancillary and discretionary. It is only available if the original court proceedings have already ended. The lawyer can freely choose between this procedure and a judicial action for a declaration or an injunction to pay. The CJEU acknowledges that the Secretario Judicial's jurisdiction does not depend on the agreement of the parties, but considers that the procedure at issue is "placed on the periphery of the national court system" (par. 34). The 'jura de cuentas' does not preclude the commencement of a judicial action before a court of law, and it does not result in a decision with the force of res judicata. 

The AG made a distinction between 'procedural' res judicata and 'substantive' res judicata. The decision of the Secretario Judicial is not subject to appeal, but it is without prejudice to any subsequent proceedings on the substance of the matter. Thus, it lacks substantive res judicata.

- Judicial or administrative capacity?
- Decision of a judicial nature?

The CJEU finds that the proceedings lack a clear judicial nature, and that the Secretario Judicial does not exercise a judicial function. The proceedings result in a decision that appears to be of an administrative nature, and that may still be amended in subsequent ordinary proceedings. 

The CJEU adds that it is for the court with jurisdiction to order the enforcement of the decision to examine, if necessary of its own motion, whether there is any unfair contractual term in the contract between the lawyer and the client. 

Compatibility with Directive 93/13/EEC and Article 47 of the Charter?

The CJEU's findings, especially in respect of the last three factors mentioned above, would be difficult to follow if they were to be considered from the perspective of effective (judicial) protection. Of course, the question what constitutes a "court or tribunal" for the purposes of Article 267 TFEU is not the same as the question what level of judicial protection is required by Directive 93/13/EEC, read in conjunction with Article 47 of the Charter. However, today's judgment indicates that if a similar preliminary reference would be made by a court (instead of the Secretario Judicial), it is not unlikely that the 'jura de cuentas' will be found to be compatible with EU law.

The main difference with Finanmadrid seems to be that the order-for-payment procedure at issue there resulted in a binding and enforceable instrument. The 'jura de cuentas', on the other hand, results in a decision lacking substantive res judicata. However, as AG Kokott observed, while judgments in interim relief proceedings also lack substantive res judicata, they are still of a judicial nature. Consumers might not even be able to tell the difference between the 'jura de cuentas' and ordinary proceedings. The 'jura de cuentas' may not be mandatory for the lawyer, it is certainly not voluntary for the client/consumer. Yet, like in Finanmadrid, the procedural initiative is shifted to the consumer, who must oppose the claim or the decision, otherwise it will be enforced. This is one of the elements of the 'jura de cuentas' - highlighted by AG Kokott - that could be problematic. Like in Finanmadrid, there is a risk that consumers will not file any objection. They may be forced to settle or to pay before the enforcement phase, which might pave the way for the payment of unfair claims. Thus, the mere existence of a possibility to oppose enforcement may not always be enough to ensure a truly effective remedy. Perhaps the CJEU should go a step further by holding that judicial review of potentially unfair contractual terms must take place before the enforcement phase, either by the Secretario Judicial or by an actual court. 

First case on new ADR Directive - Menini and Rampanelli (C-75/16)

AG Saugmandsgaard Øe issued the first opinion in a case concerning interpretation of the new ADR Directive (2013/11/EU) and its relation to the Mediation Directive (2008/52/EC).

An Italian bank obtained a court order against two consumers for payment of a debt balance owed under a current account credit agreement. Consumers appealed against the payment order, claiming that the bank repeatedly gave them credit to invest in purchasing shares - shares in the bank itself or in other companies belonging to the same group - disregarding the consumers' modest income and presenting the investments as safe. Italian law requires consumers to engage in a mandatory mediation procedure before the appeal becomes admissible, which national provisions the Italian courts consider as compliant with the Mediation Directive but possibly contrary to the new ADR Directive.

First, the AG Saugmandsgaard Øe had to ascertain whether the dispute in this case would be covered by the scope of the ADR Directive, in general. Art. 2(2)(g) of this Directive excludes from its scope complaints and claims brought by a trader against consumers, as the purpose of the Directive is to grant consumers' access to ADR and not to traders. However, in the current case by lodging an appeal and raising claims of improper / invalid credit being given to them, consumers seem to be making new claims, additional to the ones brought by the trader previously, which is ultimately for the national courts to determine. This could qualify this situation as one where consumers' right to benefit from ADR procedures should be safeguarded and thus makes the CJEU competent to look into this case (paras. 41-42).

The AG Saugmandsgaard Øe does not agree with the referring Italian court that in the given case there is necessarily a conflict between provisions of these two directives. However, if such a conflict existed then she concludes Mediation Directive's provisions would prevail, as Recital 19 of ADR Directive constitutes an express derogation, taking into account the already established framework specific for mediation in cross-border disputes (para. 63).

An important observation regards the scope of uniformity of ADR procedures in the Member States. the AG Saugmandsgaard Øe observes that the ADR Directive is a minimum harmonisation measure that aims at establishing certain harmonised quality requirements for the evaluation of consumer complaints against traders. It does, however, not require harmonisation of the whole ADR procedure in all sectors thereof (para. 67). This means, that if in Italy there is a requirement of mandatory mediation for banking and other financial disputes, such a special requirement would not be per se incompatible with the ADR Directive. This assessment is not changed if one considers provisions of Art. 1 and Recital 49 of the ADR Directive, which seem to suggest that mediation should have a voluntary character for the consumer, at least. The AG Saugmandsgaard Øe refers to the interpretation of the voluntary nature of the mediation procedure as established under the Mediation Directive, which means that parties are in control of the procedure and can organise it how they want. This does not prevent Italian law from making such a procedure a pre-requirement to enter into judicial process (paras. 72-74). Moreover, if according to Mediation Directive the use of mediation could be made mandatory for cross-border disputes, but under ADR Directive this would have been prohibited for national disputes - this difference could not be easily justified (para. 77). In order, however, not to restrict consumers' access to judicial dispute resolution, the outcomes of such mandatory mediation procedures should not therefore be binding on the parties and allow for granting provisional measures, in accordance with the conditions previously set out for settlement procedures in Alassini and Others (paras. 82-86). 

While the Italian mediation procedure seems to comply with the requirements set so far in EU consumer law for ADR procedures, it does also prescribe a mandatory use of legal services for consumers, which is expressly prohibited by Art. 8(b) of the ADR Directive (para. 89). Moreover, it requires that if parties withdraw from the mediation without valid grounds, they should be penalised. This again does not comply with consumer protection as set out  by the ADR Directive, which requires that withdrawal for consumers is free at any stage and can occur on purely subjective grounds (para. 94). In these two regards, it seems that the Italian law will need an adjustment (or flexible interpretation by national courts, e.g. acknowledging that valid grounds may include consumer dissatisfaction).

Cláusulas suelo: the aftermath (Real Decreto-ley 1/2017)

In the aftermath of the judgment of the EU Court of Justice on Spanish 'floor clauses' (cláusulas suelo) of 21 December 2016, reported by us here, the Spanish government has issued a 'Royal Decree' which establishes an extrajudicial mechanism for the swift resolution of disputes concerning these clauses: Real Decreto-ley 1/2017 (full text available here, in Spanish). According to the Decree, it is foreseeable that the CJEU's judgment will lead to an increase in claims of affected consumers, who demand repayment of the amounts overpaid by them on the basis of 'floor clauses' in their mortgage contracts. The Decree's aim is to facilitate consumers and credit institutions to settle any claims by reaching an agreement about the amount to be paid back. The Decree also seeks to prevent high costs for the administration of justice.

Article 3 of the Decree obliges credit institutions to implement a (free) system for alternative dispute resolution, which is voluntary for consumers and allows them to file a request for repayment. The credit institution then must calculate the amount to be repaid and make an offer to the consumer within three months after the request has been filed. If this does not result in an agreement, the consumer may still go to court. This is not only the case if the consumer rejects the offer, but also if the credit institution rejects the consumer's request, or if the three-month period expires without an offer having been made or without the offered amount having been paid to the consumer. During the three-month period, however, neither party may bring a judicial action. Credit institutions must ensure that consumers are aware of the availability of this ADR system.

In addition, Article 4 of the Decree stipulates that, in case court proceedings are initiated after the conclusion of the out-of-court procedure, the credit institution can only be ordered to pay costs if the consumer has rejected the offer and obtains a more favourable judgment in court. A similar rule applies if the credit institution commits itself to pay a certain amount before submitting a defence: it can only be ordered to pay costs if the judgment is more favourable.

The Decree has already been criticised for not being specific enough as to the substantive right to repayment. It only defines the general scope (Article 2), but leaves the question what constitutes an unfair term for lack of transparency open to interpretation. The methods of calculation of amounts and interests are left entirely for the credit institutions to decide. Therefore, the Decree may induce litigation when parties ask the courts for further guidance. Moreover, it is unclear to what extent consumers' right to effective judicial protection - safeguarded by Article 47 of the EU Charter of Fundamental Rights - is limited and whether such a limitation is justified (cf. Alassini, C-317/08). The regulation of costs in Article 4, in particular, could be problematic from the perspective of access to court. It might deter consumers to go to court and compel them to accept the credit institution's offer.

In the next few months, we will see how effective the Degree will be in practice.

Can a hypermarket compare its prices with those of a supermarket? CJEU in C-562/15

Today, on 8 February 2017, the Court of Justice delivered its judgment in case C-562/15 Carrefour Hypermarchés. The case dealt with an advertising campaign carried out by the French retailer back in 2012. The contested marketing strategy of Carrefour featured a series of TV spots in which the company compared the prices charged in its hypermarkets with the prices of its competitors. Importantly, the advertisement did not make clear that it did not apply to smaller shops from the Carrefour group and that the prices selected for comparison referred to competing supermarkets, not hypermarkets. 

A competing retail chain, Intermarché, challenged the legality of this practice and obtained a favourable ruling in the court of first instance. Carrefour appealed. In these circumstances, the Court of Appeal in Paris decided to stay proceedings and ask the Court of Justice for clarification of Article 4(a) and (c) of Directive 2006/114/EC concerning misleading and comparative advertising. The provision in question lays down conditions under which comparative advertising is permitted. It requires, among others, that advertisement compares prices objectively and is not misleading within the meaning of Article 7 of Directive 2005/29/EC.

CJEU judgment

According to the Court, comparative advertising based on prices charged in shops having different formats and sizes is not in itself prohibited, but has to comply with conditions set out in Directive 2006/114/EC. 

With regard to objectivity, the Court held that where the advertiser and competitors belong to retail chains which each have a range of shops of different sizes and formats and where the advertiser compares the prices charged in shops in its retail chain having larger sizes and formats with those identified in shops having smaller sizes and formats in competing retail chains, without that fact appearing in the advertising, the objectivity of the comparison may be distorted. [para 26]

The Court went on to analyse whether such an advertisement is also liable to be misleading, meaning that it is capable of, firstly, deceiving the average consumer and, secondly, causing him to take a transactional decision that he would not have taken otherwise.

In line with the opinion of Advocate-General Saugmandsgaard Øe, the Court held that advertising, such as the one described in the case at hand, is liable to both deceive the average consumer by giving him the impression that all shops forming part of competing retail chains have been considered in the comparison, and to influence his economic behaviour. This would not have been the case if consumers were informed, in the advertisement itself, that comparison was made between prices charged in shops of different sizes or formats [paras 36, 38].

To conclude, the question posed in the title of this post should be answered in the affirmative. The analysed judgment does not go as far as to say that price comparisons are permitted only if the goods are sold in shops having the same format or size. Such an advertisement may, nevertheless, be classified as non-objective or misleading if conditions set out in Directive 2006/114/EC are not fulfilled. Main consideration for advertisers is thus to make sure that all relevant circumstances are duly disclosed.

Modernising copyright: watching Netflix while abroad

Yesterday, the Council and the Parliament have informally agreed on new rules that will allow subscribers to paid online content (online music, games, films and TV shows) in any Member State to access this content in another Member State - while they are temporarily visiting it (also when they travel for business, so this protection would be applicable not only to consumers). Readers of this blog who travel abroad have probably been frustrated by geo-blocking rules (set up to protect exclusive licensing) that often prevented accessing online content when abroad. Free of charge services would still be excluded from the scope of these new rules, which means that such service providers will have a choice whether to enable their customers to access their services cross-border (Accessing online films and TV while abroad: deal with Council). The intention is for these rules to start applying as of the beginning of 2018 (DSM: EU negotiators agree on new rules allowing Euorpeans to travel and enjoy online content services across borders).

Where does it end? CJEU judgment in Banco Primus (Case C-421/14)

Source: news.bbc.co.uk

'Lites finiri oportet' - every dispute should come to an end. The principle of res judicata (literally: "a matter [already] judged") entails, in short, that a matter that has been adjudicated may not be pursued further by the same parties; they are bound by the court's decision. In the case of Banco Primus v. Gutiérrez García (C-421/14), the EU Court of Justice was asked whether this principle meant that a court, when ruling upon a consumer's objection against mortgage enforcement proceedings, is precluded from re-examining the unfairness of the terms of the loan agreement, because the lawfulness of that agreement has already been ascertained in a final and binding decision. In other words: where does it end?

This question as been answered by the CJEU in a judgment of 26 January 2017, or rather: the CJEU has specified where it does not end. The judgment also answers questions regarding Articles 4(2) and 7(1) of the Unfair Contract Terms Directive (93/13/EEC). In this blog, I will discuss the CJEU's main findings. For a report on the Opinion of Advocate General Szpunar in the present case, click here.

Where it does not end...
Readers of this blog will know that this is not the first judgment on the (in)compatibility of Spanish procedural rules governing mortgage enforcement proceedings with Directive 93/13. Aziz (C-415/11), reported on this blog, has triggered a legislative reform in Spain, in particular Law 1/2013. Law 1/2013 contains transitional provisions, which grant consumers whose mortgage enforcement proceedings have not yet been concluded the right to bring an objection on the basis of (alleged) unfairness of contractual terms, subject to a one-month time limit calculated from the day of publication of Law 1/2013. Several consecutive judgments - including Sánchez Morcillo (C-169/14), Unicaja Banco and Caixabank (Joined Cases C-482/13, C-484/14, C-485/13 and C-487/13) and BBVA (C-8/14) - concerned particularities of the new legislative framework.

In the present case, the consumer - Mr. Gutiérrez García - had made a final attempt to stop the mortgage enforcement proceedings by filing an application for 'extraordinary opposition'. Strictly speaking, Mr. Gutiérrez was too late: the applicable statutory time limits had lapsed, both the normal period of 10 days and the one-month 'transitional' time limit of Law 1/2013. The transitional provisions apply to all enforcement proceedings that have not yet been completed because possession of the property has not been taken, as in the case of Mr. Gutiérrez. In his 'extraordinary opposition', he alleged the unfairness of Clause 6 in the loan agreement relating to accelerated repayment, on which the initial repayment procedure was based. This previous procedure had already resulted in a court decision, which had become enforceable, and which ascertained that the loan agreement was lawful. It should be noted that this was not the first objection lodged by Mr. Gutiérrez, but the suspension of his eviction had been terminated nevertheless. He filed his application for 'extraordinary opposition' two months later.

The CJEU starts by reiterating its settled case-law under Directive 93/13, referring to (inter alia) Sánchez Morcillo, Asturcom (C-40/08) and, most recently, Gutiérrez Naranjo and Others (Joined Cases C-154/15, C-307/15 and C-308/15). It reaffirms its conclusion in BBVA that the one-month 'transitional' time limit of Law 1/2013 does not guarantee consumers the effective exercise of their rights (para. 37). In her blog on the BBVA case, Candida Leone has observed that the CJEU seemed to suggest that such a time limit should only start running after the consumers are individually notified of their rights. The CJEU then proceeds to emphasize the importance of the principle of res judicata (para. 46). Consumer protection is not absolute. National courts are not required to disapply domestic procedural rules conferring finality on a court decision, even if the decision's finality makes it impossible to remedy an infringement of Directive 93/13 (para. 47). According to the CJEU, the principle of effective judicial protection of consumers does not afford a right of "access to a second level of jurisdiction", but only to a court of tribunal (para. 48). Perhaps the CJEU means to convey that, if the consumer does not appeal the decision, which consequently becomes final and binding, the consumer's right to effective judicial protection does not trump the principle of res judicata.

However, it does not end here. If the national court has limited itself in its previous decision to examining of its own motion one or certain terms instead of the contract taken as a whole, it must still rule on the potential unfairness of other terms of the contract when a consumer properly lodges an objection (para. 52). It is for the national court to assess whether this is the case. Thus, if Clause 6 has not been reviewed yet, it must still do so. Rather than establishing an exception to the principle of res judicata, it appears that the CJEU interprets this principle as not to cover contractual terms of which the potential unfairness has not been examined during an earlier judicial review of the contract in dispute resulting in a decision which has become res judicata.

[NB: the CJEU seems to base its conclusion on the general principle of effectiveness of EU law (cf. para. 51). It is unclear why the right to effective judicial protection could not lead to the same conclusion, especially given the emphasis on the right to an effective remedy before a court in Article 47 of the EU Charter of Fundamental Rights; see also my blog here.]

Plain and intelligible language
In addition, the CJEU was asked to clarify the criteria to be taken into account in order to evaluate the potential unfairness of terms such as those at issue in the present case. Clause 3 of the loan agreement related to the calculation of ordinary interest. The CJEU first summarizes its case-law on Articles 3 and 4 of Directive 93/13 (paras. 57-62). It points out that the terms relating to the main subject matter of the contract or the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, are exempt from the assessment as to whether they are unfair only in so far as the national court considers that they have been drafted by the seller or supplier in plain, intelligible language. The CJEU gives specific instructions as to how the national court must examine whether the terms at issue cause "a significant imbalance in the parties' rights and obligations under the agreement, to the detriment of the consumer" (para. 64). The national court must, for example, assess the method of calculation of the rate of ordinary interest (para. 65), and the conditions for the bank exercising its right to call in the totality of the loan (para. 66).

Unfair is unfair, even though the term has not been applied in practice
Lastly, the CJEU was asked whether, in case of a finding of unfairness, the terms at issue can be declared null and void, even if they have not been applied in the case at hand. Clause 6 of the loan agreement related to accelerated repayment, pursuant to which Banco Primus may demand immediate repayment of interest and other costs in the event the borrower fails to pay, on the agreed date, any amount - however small - owed to the bank. Banco Primus had satisfied the applicable procedural requirements laid down in the Spanish Code of Civil Procedure and initiated the mortgage proceedings only after non-payment of seven successive monthly instalments. The CJEU holds that, in order to ensure the dissuasive effect of Article 7 of Directive 93/13, a ruling on whether a term is unfair cannot be contingent on whether that term was actually applied or not (para. 73). Therefore, Banco Primus' conduct cannot exonerate the national court from its obligation to draw the appropriate conclusions from the potentially unfair nature of Clause 6.

The latter conclusion confirms what the CJEU had already held in a court order following a preliminary reference from the same Spanish court, the Juzgado the Primeria Instancia no. 2 de Santander, in another case (C-602/13). Where the national court finds that a term is unfair within the meaning of Directive 93/13, the fact that the term has not been applied in practice does not preclude the court from determining all the consequences to be drawn from such a finding.