Thursday, 16 February 2017

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. 

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