This morning, the CJEU published a much-awaited decision (only available in French and Polish ATM) on unfair terms in foreign currency-indexed loans. In Dziubak, a Polish couple has sued Raffeisen bank over the terms setting the indexation mechanism in the credit contract that the consumers had concluded with the bank. Said terms applied a known mechanism - indexing outstanding amounts in line with the PLN-CHF buying rate and quantifying instalments (due in Zloty) via the selling rate. The particularity in this case was that the bank used its own exchange rate tables, hence being able to directly determine the applicable rates.
The referring Polish court had no doubts that the terms were, as the Dziubaks had claimed, unfair. However, the court was in doubt as to what the consequences of such finding should be.
The concerned consumers maintained that the contract should be invalidated. In the alternative, they demanded the court to remove the indexing mechanism and leave the interest determination terms in place - meaning that the contract would become one in national currency, but with an interest rate indexing which is not the one typical for contract in Zlotys.
According to the referring court, such a solution would transform the nature of the contract and hence be in contrast with basic principles of the Polish legal order, such as freedom of contract. As the parties had concluded a foreign currency-indexed credit contract, replacing it with a regular variable interest mechanism would denature the original agreement.
Raffeisen, on the other hand, suggested that the gap resulting from the removal of the unfair terms could be filled by resorting to general principles of fairness and customs. Interestingly, according to the referring court, one possible outcome of such exercise would be... to reintroduce the unfair terms to the affected contracts, as a reflection of what is "customary" in the relevant market.
As we know, previous CJEU case-law has set very strict limits to the possibility of replacing an unfair term by means of national rules - in particular, the Kásler decision allowed making use of national supplementary or default rules when the contract would otherwise be invalid and such invalidity would be contrary to the consumer's interest. But one crucial question in Dziubak is precisely this - who decides what is (not) in the consumer's interests? Can a court decide that maintaining an unfair term in place is better for the consumer than invalidating the whole contract, even as the consumer maintains otherwise?
Against this background, the CJEU (by and large in line with AG Pitruzzella's opinion, that we discussed earlier) reached a number of conclusions:
1) If national legislation requires a contract to be considered invalid when the removal of an unfair term would change its nature given the resulting difference in its main object - such as could be the case if a foreign-currency indexed rate is turned into a regular variable interest mortgage - such legislation is compatible with the Directive;
2) In this case, the Kasler standard means that invalidation of the contract must be the outcome where the consumer so prefers: given that the Court's case-law grants the consumer final word on whether an unfair term must be considered as binding on them, a fortiori they must be able to decide whether rescuing the contract is or not in their own interest. In this respect, the "interest of the consumer" can only be assessed with reference to the moment when the controversy takes place;
3) General principles or rules are not tantamount to supplementary or default rules which apply when the parties have not made specific provisions. As these rules do not equally express the legislator's view as to what would make a reasonable balancing of interests in a specific constellation, the application of general principles by a national court cannot be considered to enjoy the same "presumption of fairness" as default rules and hence cannot be used to replace unfair terms; they can thus not be used to supplement the contract in order to prevent its invalidity.
Back in Poland, the Dziubaks' legal team seems to have taken this judgement as a victory:
This appears slightly puzzling from a legal point of view: in fact, by indicating that no replacement by means of general principles can take place, the Court seems to have indicated that either the unfair terms are maintained or the contract (and other similar contracts) must be invalidated - would this not be getting many consumers "stuck" with unfair terms if they do not have the money to return all the outstanding capital immediately?
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| Source: twitter |
The concrete circumstances may however be of importance - since in 2015 the Swiss franc underwent a major appreciation against (the Euro and, as a consequence, other European currencies such as) the Zloty, which had already depreciated significantly in 2008-2009, many consumers have paid very high instalments which were supposed to mainly cover interests. If the original contracts are invalid, however, it could be possible to claim that only the capital sum is due - and then a settlement of accounts may counterintuitively play in favour of quite a few consumers. Furthermore, it could be that the decision will trigger a wave of settlements or renegotiation, which again may turn out as a gain for Polish lenders.
As far as other consumers are concerned, however, the decision looks like a mixed bag - first, the deference to national rules of contract law may mean quite diverging levels of protection across Member States; second, the Court's resolve to prevent all sort of gap filling interventions when no supplementary rules are readily at hand may actually have a chilling effect on consumers who may not want to start proceedings if the result is that they have to choose between an invalid contract and the original unfair term. On the bright side, the prospective of courts starting to replace unfair terms with equally unfair customs seems to have been washed away. Congratulations to Ms Dziubak and her lawyer's daytime drinking improv!
