Is unfairness, like beauty, foremost in the eyes of the beholder('s Member State)?
Yesterday, the Court of Justice has decides a seemingly obvious case the systematic implications of which may be a bit more serious than they seem at first glance. In First Bank SA, the Court was asked to interpret the scope of application of Directive 93/13, in particular to the extent that its Article 1(2) declares that
"contractual terms which reflect mandatory statutory or regulatory provisions and the provisions or principles of international conventions to which the Member States or the Community are party, particularly in the transport area, shall not be subject to the provisions of this Directive."
This is a more radical exclusion than the one dictated by Article 4 for core terms, which was inserted at a relatively late stage in the legislative process and in any event requires terms to be drafted in plain and intelligible language, in accordance with the same Directive's Article 5.
The justification for this exclusion is a presumption in favour of national laws - the latter being trusted to have established a fair balance between the rights and duties of the parties to the contract. The exclusion of Article 1(2), in this sense, is an absolute presumption: As the Court has put it, the idea of a national fair balance is not a requirement for the exclusion, but just a rationale. Whether the legislatively established balance is fair or not does not really matter.
Against this background, some Romanian customers tried to challenge terms in credit contracts that put all the risk for currency exchange fluctuations onto them. It appeared plausible, however, to claim that such terms were in line with a general provision in Romanian contract law expressing the principle of "monetary nominalism", namely the idea that the debtor always owes the amounts agreed in the given currency and not a specific value in terms of purchase power.
Two questions were raised in this context: 1) whether the exception only applies when the contract terms literally reproduce legal provisions; 2) whether it matters, to the ends of applying the exception, that the consumer may have not understood that the term at stake was in fact equivalent to valid provisions of national law.
Both questions were answered rather swiftly and without intervention of an AG. As to the first, the Court [see para 25] concluded that national courts must ascertain whether the clause at stake incorporates the same "normative content" as the corresponding provisions of national law; in that case, the terms can be assumed to "reflect" legal provisions, with no need for literal reproduction.
Only slightly more interestingly, the Court dismissed the idea that understanding by the consumer may matter: relying on an unpublished order [see para 32], the Court clarifies that it has already once established that the professional's compliance with its disclosure and transparency obligations is not relevant to the ends of Article 1(2). This is ultimately the necessary implication of assuming that the exclusion must be interpreted objectively and not on the basis of parties' understandings.
All in all, this is hardly a surprising decision. However, from a consistency perspective, it brings to the fore interesting questions concerning the tensions implied in the Directive's original choices - isn't it a problem [that this not-all-too-restrictive interpretation of] Article 1(2) further undermines the harmonising effects of the Directive? How does it fit with the role of transparency in respect of core terms? Is it acceptable that obviously extractive interest fluctuation clauses are assessed differently in the different Member States?
In other words, if the Directive trusts both states (in respect of national rules) and private autonomy (in respect of core terms and price-service ration), why does the subjective understanding of the consumer not play even the least role in (applying) the exception? It looks like the stark reliance on the exemption rules as entirely formalistically interpreted and objectively applied reinforces the differences between Member States and takes the position of individual contractual parties in very little consideration. The reader will point to the obviously different formulation of the two provisions in Article 1(2) and 4 explained at the beginning of this post; whether a different formulation in the future would be acceptable to Member States and not end up diluting rather than improving consumer protection, in all honesty, is a prediction we will have to leave for another day.
PS In case you are wondering, immediate inspiration for today's title was provided by a paper written by my colleague Chantal Mak in re Gutierrez Naranjo a few years ago - also on dynamics of EU and national unfair terms rules. You find it on SSRN.