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.