Amid the current crisis it is worth taking a step back in order to catch up on some of the ongoing cases before the Court of Justice. Case C-81/19 Banca Transilvania is one of such noteworthy disputes. On March 19th the Advocate-General Kokott issued the opinion in the case, addressing a number of important points concerning consumer protection against unfair terms in foreign currency loan agreements. The opinion engages with the scope of fairness assessment, focusing on the exclusions of the terms reflecting mandatory statutory provisions and conditional exclusion of core terms. It further elaborates on the legal consequences to be drawn by national courts if a term governing the exchange rate risk is found to be unfair. In the latter regard, the dispute follows up on the widely commented Dziubak ruling, decided by the Court at the end of last year.
Facts of the case
The case was brought by a number of Romanian consumers, who, despite receiving their income in Romanian leu, entered into a credit agreement for a sum denonminated in Swiss francs. As a result of the fall in value of the leu, the amount to be paid increased very significantly. The consumers argued that the bank failed to provide them with adequate information on the exchange rate risk, which they found unreasonably disadvantagous. The bank responded that the contested term reflected the principle of monetary nominalism expressed in the Romanian Civil Code and, therefore, fell outside the scope of the unfairness test in line with Article 1(2) of Directive 93/13.
Opinion of AG
Against this background, the referring court firstly asked whether a contractual term that reflects a general principle established by law (such as the principle of monetary nominalism) is subject to the provisions of Directive 93/13. According to the AG, the exemption in Article 1(2) extends to the statutory provisions - including both mandatory and default rules - which were adopted "specifically for the type of contract concerned" or which are applicable to the contract according to a legislative reference. This conclusion was justified by a teleological argument, according to which it is only possible for the national legislature to "strike a balance" between the parties inasmuch as the specific arrangement between the parties was indeed envisaged by it (para. 42). If the provision is not intended to create a balance between consumers and sellers or suppliers, the trader should not be able to rely on Article 1(2), which is for the national court to verify. Although the interpretation does not actually lie too far off from the previous case law of the Court of Justice, such as RWE Vertrieb or Aqua Med, it could potentially further reduce the improtance of Article 1(2) exemption.
Assuming the referring court should go forward with a substantive fairness assessment, a further question was raised as regards the analysis of core terms under Article 4(2) of Directive 93/13. In this regard the AG recalled, following the Andriciuc case, that a term under which a loan denominated in a foreign currency is to be repaid in that currency may concern the 'main subject matter of the contract' within the meaning of Article 4(2) of Directive 93/13. Terms of this kind escape fairness assessment under UCTD (provided Member States have not increased the level of consumer protection, see Ahorros) in so far they are in plain intelligible language. According to the AG, the relevant criteria have already been explained by the Court. The trader is thus required to comprehensively inform the consumer about the potential risks of variations in the exchange rate and the fact that they must be borne entirely by the borrower (para. 59).
Finally and perhaps most importantly, the referring court sought to find out whether freezing the exchange rate at the rate applicable on the date of signature of the agreement offers a solution which ensures the full effectiveness of the consumer’s rights under UCTD. According to that court, the agreement could not continue to exist without the contested term, yet its annulment would not be favourable to the consumer either, as it would put the latter at the risk of having to repay the entire loan at once. To recall, full annulment was an outcome welcomed by the consumers in the Dziubak case. This, however, has not been case in Banca Transilvania. According to AG Kokott, previous case law of the Court of Justice significantly limits the scope of actions that the national court can take in situations of this kind: among others, the court may not assume that the consumer is bound by the unfair term and may not modify the contract by revising the content of the unfair term. However, in view of the AG, a national court cannot be prohibited from plugging a gap in a contract left by the removal of the unfair term with a supplementary rule that restores the balance between the reciprocal rights and obligations of the parties, simply because one of the parties is a consumer (para. 73). Such a conclusion is not to be mistaken with a judicial interpretation of the term and with reduction of its content to a permissible extent, as this would indeed reduce the directive's dissuasive effect. However, where disuassive effect is also not achieved by the anullment, national courts should be able to substitute the unfair term with a supplementary rule that replaces the formal balance between the rights and obligations of the parties with an effective balance which re-establishes equality between them (paras. 79, 87). While the possibility of, exceptionally, replacing an unfair contract term with a supplementary provision of national law if the nullity of the contract would have particularly negative consequences for the consumer has already been recognized in prior case law (Kásler, Abanca), the interpretation of the concept of 'supplementary provisions of national law' has remained underdeveloped (see Guidance Notice to the UCTD, p. 42). Reference of the AG to the rules that "replace the formal balance between the rights and obligations
of the parties with an effective balance which re-establishes equality
between them" could be of help in this regard. The AG herself, however, did not give her opinion whether freezing the exchange rate at the rate applicable on the date of signature could provide such a solution. The mission given to national courts, therefore, remains quite challenging.
Concluding thought
Overall, the opinion brings the discussion on the legal consequences to be drawn by national courts if a contract term is found to be unfair back on its previous track, following the more fact-specific Dziubak judgment delivered last year. It does not go against the prior case law of the Court, since one of the proposed conditions for allowing the court to replace the unfair term with a supplementary rule is the finding that annulement would have particularly unfavourable consequences for the consumer. With this condition in mind, it does not seem unlikely the interpretation laid down in the opinion will eventually be followed by the Court.
On a more general note, the commented case reminds us of the crucial role of the UCTD as a vehicle of consumer protection following the financial crisis of 2008. While the potential economic downturn caused by the COVID-19 pandemic would likely have a different nature, it is worth remembering the lessons learnt from previous times of hardship. In her opinion, AG Kokott seeks to provide for a high level of consumer protection while highlighting the importance of an "effective balance" between the rights and obligations of both parties, in line with their reasonable expectations. Lifting the economy following current crisis will be a challenging endevour and will likely require a similar balance to be struck. Yet the consumers' weaker position should not be forgotten along the way.
