"La protection du consommateur est ainsi devenue un des chapitres essentiels du droit de l’Union qui, avec une double dimension – tant économique que sociale –, touche à la vie quotidienne des consommateurs de l’Union."
~ Advocate General Szpunar, Opinion in Cases C-70/17 and C-179/17 (point 53)
Introduction
Consumer protection has become "an essential chapter of EU law", as Advocate General Szpunar rightly observes in one of his Opinions that were published this week. It is a focal point in the interplay between different actors at different levels in EU law. In 3 Opinions, AG Szpunar discusses 5 separate cases that touch on the relation between the national (civil) courts of the EU Member States and the EU Court of Justice in respect of the interpretation and application of national (procedural) law in the light of the Unfair Contract Terms Directive. It appears that the CJEU provides an avenue for lower courts to 'second-guess' the approach of courts that are higher in hierarchy, to the extent that they challenge the instructions of their own appellate court or the case law of the Supreme Court. Through preliminary references, the CJEU may be called upon to settle differences between courts of different instances. This raises questions as to the division of competences between the EU and the Member States, as well as the link between the substantive and procedural protection of EU citizens in their role as consumers. In the absence of harmonised procedural rules, who is the ultimate interpretor of national provisions governing civil proceedings (involving consumers)? Is there any room for a balancing of interests, other than the 'overriding objective' of the protection of consumers against unfair terms? And who decides what's in the consumers' best interest?
Five cases, three Opinions
The 3 Opinions this blog post is concerned with pertain to the following 5 cases:
- C-70/17 (Abanca v. García Salamanca Santos) and C-179/17 (Bankia v. Lau Mendoza), hereinafter referred to as the Abanca-case; click here
- C-486/16 (Bankia v. Sánchez Martínez); click here
- C-92/16 (Bankia v. Rengifo Jiménez) and C-167/16 (BBVA v. Quintano Ujeta); click here
Especially the Opinion in the
Abanca-case is worth reading. AG Szpunar analyzes the background of consumer protection against unfair terms elaborately, and summarises the development of the CJEU's case law in this area. He also tries to distinguish the legal issues from socio-economical considerations, and to clarify the role of national (civil) courts from an EU law perspective. In this blog post, we will focus on two aspects:
- the power of national courts to substitute a national legislative provision for an unfair term, or rather: the lack of such a power (cf. Joined Cases C-96/16 and C-94/17, discussed here), and
- the possibility of lower courts to 'circumvent' guidance given by a higher court by making a preliminary reference to the CJEU.
Both aspects illustrate the tension between the requirements flowing from EU (consumer) law and a more traditional view on private law and civil procedure as a matter of national law. On the one hand, AG Szpunar's answers to the questions posed by the referring courts could be seen as a logical continuation of the CJEU's case law. On the other hand, those answers could be seen as limiting the room for discretion of national (civil) courts even further. However, AG Szpunar carefully considers the different interests involved, and explains that while he understands the concerns,
his proposed solution is in line with previous judgments.
First, we will examine the type of contractual terms at issue in these cases. It is not so much about the assessment of the (un)fairness of those terms as such, as it is about the
consequences of a finding of unfairness. Secondly, we will take a closer look at the procedural implications. At the end of this blog post, we will get back to the position of lower courts vis-à-vis higher courts.
Accelerated repayment and mortgage enforcement: differences of interpretation between Spanish courts
The 5 above-mentioned cases are all requests for preliminary rulings from Spanish civil courts: in the Abanca-case, the Spanish Supreme Court (Tribunal Supremo) itself, in the other cases courts in first instance (Juzgados de Primera Instancia). All 5 cases relate to so-called 'early maturity' or acceleration clauses in mortgage loan agreements, i.e. terms containing an advanced expiration date (vencimiento anticipado): when the debtor fails to meet his payment obligations, the creditor can claim repayment of the totality of the loan after the expiration of a stipulated time period and initiate mortgage enforcement proceedings. The CJEU's judgment in
Aziz gave rise to a debate in Spain as to, among other things, when the debtor's non-compliance was "sufficiently serious" - in the light of the duration and amount of the loan - to justify the creditor's exercise of the right to invoke accelerated repayment (cf.
Banco Primus). Since 2013, Article 693.2 of the Spanish Code of Civil Procedure (
Ley de Enjuiciamiento Civil; hereinafter
LEC) sets the minimum time period that the parties may agree on at
3 months. However, many contracts predating that provision allowed the creditor to invoke the clause after only
1 month. In this respect, it is relevant to know that in Spain, the creditor needs leave from the court to enforce his security rights. Therefore, the question arose
how the court should deal with unfair acceleration clauses. Should the mortgage enforcement proceedings - which were based on the clause - be terminated even when the creditor has waited 3 months or longer?
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| The Tribunal Supremo. (source: informativojuridico.com) |
According to the
Tribunal Supremo, the answer to this question was negative.
As long as the right to invoke accelerated repayment was exercised fairly, the creditor would still have access to mortgage enforcement. The unfair clause would effectively be replaced by Article 693.2 LEC. One of the reasons given by the
Tribunal Supremo was that the mortgage enforcement procedure is also more beneficial for consumers. The parties would not have to resort to ordinary proceedings. Thus, consumers would avoid the risk of having to pay high legal costs and default interest.
Some lower courts
disagreed with this interpretation, and openly questioned it before the CJEU. They found that an unfair acceleration clause could not be replaced by reference to Article 693.2 LEC. Where the clause was the basis of the mortgage enforcement, the proceedings should be declared inadmissible or suspended; whether the clause had been invoked after 1, 3 or 38 months did not matter. Moreover, the creditor’s chances of success in ordinary proceedings were regarded to be low; this cast doubt on the
Tribunal Supremo’s reasoning as to which procedure was actually more beneficial for consumers. Lastly, the referring court in Case C-92/16 wondered whether giving consumer-debtors procedural advantages in one procedure, as opposed to another, was compatible with the EU Charter of Fundamental Rights if it was up to the creditor, not the consumer, to choose between procedural mechanisms and thus, to decide whether or not the consumer could enjoy those advantages.
AG Szpunar: no ‘reparatory revision’ of unfair terms
AG Szpunar disagrees with the Tribunal Supremo's interpretation as well, and refers to Banesto and in this regard. The Unfair Contract Terms Directive imposes a result obligation on the Member States and their national courts to ensure that unfair terms are not binding on consumers. As we have seen in e.g. Gutiérrez Naranjo, this obligation is far-reaching. The Directive does not have 'direct horizontal effect', i.e. it cannot be relied on directly by private parties in 'horizontal' disputes. Yet, "not binding" really means "not binding", and the deterrent or dissuasive effect of the Directive requires that an unfair term cannot be revised or replaced by the court (only in exceptional circumstances, see e.g. Kásler). The acceleration clause must be struck out from the loan agreement, regardless of when it has been invoked by the creditor. The loan agreement will continue to exist without the clause. 'Reparatory revision' is not possible; the clause cannot be substituted with Article 693.2 LEC. That provision cannot be qualified as 'supplementary law', although this is ultimately for the national court to decide.
A reference to the so-called 'blue pencil test' of the German Bundesgerichtshof does not help either, because the acceleration clause cannot be split up: it would lose its meaning if the unfair parts were to be crossed out. Without the stipulation of a specific time-period, the clause would practically be deprived of its purpose.
Procedural implications
If AG Szpunar's conclusion is followed, creditors would be sanctioned for including unfair acceleration clauses in their standard terms and conditions by denying them access to the mortgage enforcement procedure. Once the acceleration clause is struck out,
there is no longer a basis for enforcement of the entire loan. This would allegedly negate the creditor's security rights, which are crucial for the financial market. Another argument used by the
Tribunal Supremo was that this would have economic repercussions. It should nevertheless be noted that the existence of an acceleration clause in the mortgage loan agreement is not a necessary precondition for enforcement (cf. Articles 578 and 693.1 LEC). Without the acceleration clause, the creditor would not be able to claim repayment of the entire loan at once, but he could still claim unpaid instalments due.
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Advocate General Szpunar.
(source: curia.europa.eu) |
This raises the question whether it is justified that, as soon as the creditor relies on an unfair acceleration clause, he should be denied access to mortgage enforcement. AG Szpunar acknowledges that this constitutes
a limitation of the creditor's rights, but not an extinction, if only because the loan agreement remains valid for the rest. From the Directive's point of view, the legal issue is whether the acceleration clause is unfair and should therefore be declared null and void, rather than whether the creditor would have provided the loan without the clause. According to AG Szpunar, it is not relevant whether the mortgage enforcement procedure is more beneficial to consumers. Yet, he illustrates with clear examples that is doubtful if this is indeed the case. The decision should ultimately be left to
the consumer herself, who can be informed by the court about (procedural) advantages and disadvantages and then decide if she wants to avail herself of the protection offered to her; see e.g.
Banif Plus Bank.
In Cases C-92-/16 and C-167/16, AG Szpunar observes that there is not enough information available to conclude that the Spanish mortgage enforcement procedure in general is incompatible with the Charter or the principle of effectiveness. If it is true that this procedure awards certain procedural advantages, it may be contrary to the principle of effectiveness. The specific characteristics of court proceedings, which are governed by national (procedural) law, cannot constitute a factor that is liable to affect the legal protection of consumers under the Directive.
Lower courts as EU-judges
In Case C-486/16, the creditor - Bankia - had initiated mortgage enforcement proceedings on the basis of an acceleration clause. The court found the clause to be unfair, and refused to grant leave for the enforcement. Pursuant to Article 552.3 LEC, the creditor then has recourse to ordinary proceedings. Instead, Bankia waited more than two years to try again, arguing that this time the non-compliance was sufficiently serious. We understand this second attempt was based on Article 693.2 LEC (not 693.1).
The court in first instance held that the decision in the earlier proceedings had the status of (formal)
res judicata; it was
final in the sense that it could no longer be appealed. This entailed that Bankia should be
denied a second opportunity. The Court of Appeal, however, allowed the enforcement. The case was referred to the court in first instance, which subsequently made a preliminary reference to the CJEU. In line with his Opinion in the
Abanca-case, AG Szpunar considers the Court of Appeal's approach to be contrary to EU (consumer) law. He points out that EU law gives lower courts the possibility to make a request for a preliminary ruling (Article 267 TFEU); they are EU-judges as well. National legislation or case law cannot stand in the way of this possibility.
From the perspective of (national) civil procedure, it is quite revolutionary for lower courts to go against the instructions of their own appellate court in the same case. These instructions are, in principle, binding upon the parties and the lower court. It may be seen as problematic
if lower courts start to second-guess their appellate courts and/or come to view the CJEU as a second instance, insofar as this undermines legal certainty. Of course, this is not to say that lower courts cannot or should not make preliminary references. It is just to show that the objectives of EU law and national law are not always aligned.
Lower courts and the highest (civil) court of a Member State are both entitled to ask questions to the CJEU. That the
Tribunal Supremo was first in the
Abanca-case, could not stop the
Juzgado de Primera Instancia de Barcelona from making a preliminary reference as well. For the
Tribunal Supremo this is a sensitive issue, as it appears to be a direct confrontation by the court in Barcelona. In addition, AG Szpunar's Opinion suggests that the
Tribunal Supremo has overstepped its power to give guidance to lower courts as to how to apply national (procedural) law in unfair terms cases. The summary of the Opinion in this blog post does not do justice to its thoroughness, which demonstrates that AG Szpunar is aware of the context in which the CJEU must answer the questions put before it.
With the introduction of the Lisbon Treaty EU citizens' empowerment increased due the setting up of the European Citizens' Initiatives. One such initiative has been registered this month - "Eat ORIGINal! Unmask your food". The goal thereof is to ensure that all food products have a mandatory declaration of origin. This could not only better inform consumers on their food products' choices but also aims to protect their health and prevent fraud. The registration of this Initiative is to take place on October 2nd. This will be followed by collection of signatures in support of this project - 1 million is necessary within a year, from at least seven different Member States. If this threshold is achieved then the Commission will need to react to the Initiative. 
