The ‘proceduralization’ of Directive 93/13 and its limits

The CJEU's judgment in Banco Santander (C-598/15) that came out this week is the latest addition to a growing body of case law on procedural obstacles to consumer protection under Directive 93/13. The focus on procedures and the role of national (civil) courts in ensuring the effectiveness of the Directive, i.e. its 'proceduralization', has been the subject of debate between judges, legal practitioners and academics for a while now. It receives attention from the European Commission as well (see, e.g., the REFIT report of the European Commission, the RE-Jus project aimed at providing judicial training, and a much-anticipated study of the Max Planck Institute Luxembourg). However, Banco Santander reveals the limits of 'proceduralization' driven by preliminary references to the CJEU.

In this case, the referring Spanish court was confronted with a fait accompli, which made the judicial review of unfair contract terms impossible. It all started with a mortgage loan agreement between Banco Santander and Ms. Sánchez Lopez. The contract contained a clause - Clause 11 - by which Ms. Sánchez not only expressly agreed to enforcement through extrajudicial proceedings, but also authorised the bank to execute the sale of the mortgaged property on her behalf. Thus, the bank could represent Ms. Sánchez before the notary drawing up the sale instrument without her attendance. The bank had initiated (compulsary) mortgage enforcement proceedings, the property was acquired by the bank for 59.7% of the value, and the sale instrument had been entered into the land register, while Ms. Sánchez continued to owe the residual debt. At first, the bank had allowed her to stay on the premises as a tenant. Later, it brought a claim seeking an order for the eviction of Ms. Sánchez from the property. 

The referring court questioned the compatibility of the applicable procedural framework with Directive 93/13. The problem was that it was 'too late' for ex officio control of the unfairness of the terms - in particular Clause 11 - of the underlying mortgage contract: the transfer of ownership had already taken place. The court was merely required to enforce and protect the bank's property right. One the one hand, it could be said that Ms. Sánchez should have challenged the mortgage enforcement in time. On the other hand, the question could be raised (a) if she had any incentive to do so, because the bank initially allowed her to stay, and (b) whether she was actually aware of her rights, given the fact that the extrajudicial proceedings and the sale had taken place entirely without her involvement. 

Last June we reported on this blog that Advocate General Wahl's answer to the referred questions in this case was, in short: "we can't help you". Directive 93/13 simply does not apply to proceedings concerning property rights. The CJEU basically gives the same answer, but with two important nuances: (i) the proceedings are independent of the legal relationship between the creditor (the bank) and the consumer; and (ii) the consumer has not availed herself of the legal remedies provided. We will discuss these nuances below.

I. No link between the present proceedings and the mortgage

The scope of application of the Directive and the CJEU's competence are limited to proceedings concerning contractual relationships, whereas the present proceedings concerned property rights. Here, the party who had lawfully acquired the property happened to be the bank, but any (other) interested third party could have become the owner. Against such a third party, the consumer-debtor cannot invoke a defence based on the mortgage contract between her and the bank. 

Yet, the CJEU does not stop here. It recalls that "it has been held, in particular as regards enforcement proceedings for mortgages, that, failing effective review of the potential unfairness of contractual terms in the instrument on the basis of which the property is seized, observance of the rights conferred under Directive 93/13 cannot be guaranteed" (para 46; emphasis added). The CJEU refers to, in particular, Finanmadrid and Aziz. As the CJEU explains, the difference between this case and Aziz is that here, the action is brought on the basis of an ownership instrument as entered in the land register. This suggests that the CJEU is sensitive to the doubts of the referring court as to the course of events in the present case. It almost seems to regret that no question was asked about the unfairness of the terms in the mortgage contract, within the meaning of Article 3 of the Directive (cf. the obiter dictum in para 48). In this respect, it is a pity that the question regarding the role of the notary was inadmissible (para 31). 

II. Availability of legal remedies

The CJEU also reiterates the importance of guaranteeing effective judicial protection to consumers (cf. Article 47 of the EU Charter of Fundamental Rights), by enabling them to contest the contract at hand in legal proceedings, including in the enforcement phase, and under reasonable procedural conditions (para 38). The CJEU considers that "it appears" that legal remedies were available to Ms. Sánchez, "subject to verification by the referring court" (para 49). The choice of words - the CJEU uses "opportunity" - is interesting. What if such an opportunity existed from a strictly legal perspective, but Ms. Sánchez was, in fact, deterred from using it as a consequence of Clause 11 and the bank's conduct, reinforced by the procedural rules at issue? The effective judicial protection of consumers under Directive 93/13 is based on the presumption that a case comes before a court, as was observed in an Opinion by AG Sharpston last week. Here, we run into the limits of 'proceduralization'. Perhaps it is time to recognise that the mere existence of a legal remedy is not enough; perhaps, there is a need for a shift in focus to the more fundamental question whether a certain procedural regime is justified in light of the interests it aims to protect [*].

[*] See for a first exploration: Anna van Duin, 'Metamorphosis? The Role of Article 47 of the EU Charter of Fundamental Rights in Cases Concerning National Remedies and Procedures Under Directive 93/13/EEC', available on SSRN. 

"Sorry, we can't help you": AG Wahl to referring court in Case C-598/15 on mortgage enforcement procedure

This case is one of the latest in a string of cases relating to Spanish mortgage enforcement procedure (see previously e.g. Aziz, Sánchez Morcillo and, more recently, Banco Primus). In preliminary references to the CJEU, Spanish courts have been questioning the compatibility of their national legislation with, in particular, Directive 93/13/EEC on unfair terms in consumer contracts. The present case, Banco Santander v. Sánchez López (C-598/15), concerns the extrajudicial enforcement of a mortgage before a notary, followed by a simplified procedure in order to evict the consumer-debtor from her home. There were several potential problems from the perspective of effective consumer protection, including:
- a clause in the mortgage agreement allowing for extrajudicial enforcement and empowering the bank to represent the mortgage debtor at the signature of the public deed of sale;
- the fact that the immovable property had been sold (to the bank, or so it appears) for only 59.7% of the attributed value, leaving the debtor with a significant debt;
- the fact that the public deed of sale, transferring the property, was drawn up without the participation of the debtor;
- the absence of judicial control, except in the simplified procedure for eviction when review of the terms of the mortgage agreement was no longer possible.

The procedural regime at issue enables the bank to swiftly enforce the mortgage, while the referring court seems to have had doubts whether the rights of consumers are sufficiently protected in light of the Directive.

AG Wahl: "I am perplexed"...
Yesterday, Advocate General Wahl presented his Opinion. He observes that he is "perplexed by the wording of the referred questions" (para. 35). His answer to these questions can be summarised as: "sorry, we can't help you". In his view, the present case must be distinguished from previous cases on the basis that, in short, this case is not - or rather: no longer - about the enforcement of a mortgage agreement. Instead, it concerns a property right ("right in rem"), which is not based on a contract but on the extrajudicial recognition of that right. The transfer of the property had already taken place; the contract supposedly containing an unfair term was extinguished, together with the mortgage itself. Therefore, Directive 93/13/EEC is not applicable.

A 'Catch-22'?
The purpose of the simplified procedure brought before the referring court is to recognise and give effect to a property right entered in the land register. The court could only verify the bank's property right with a view to the exercise of that right, resulting in eviction of the debtor. This presents the referring court with a 'Catch-22': the term alleged to be unfair is the very term which ultimately led to the contract and the mortgage being extinguished. Thus, the mortgage agreement between the consumer-debtor and the bank does no longer exist and its terms cannot be assessed by the court.

If the referring court can neither assess the mortgage agreement nor - according to AG Wahl - question the procedural regime at issue, then who can? Probably not the notary, who is not a "court of tribunal" that can make a preliminary reference to the CJEU (cf. Margarit Panicello regarding the position of the Secretario Judicial). The notary can apparently warn consumers of the existence of unfair terms or give them an opportunity to lodge a claim in separate legal proceedings (see question 4 of the referring court). In ERSTE Bank Hungary, the CJEU has deemed it sufficient that consumers were able to bring the matter before a court that could then provide interim relief. In the present case, the consumer could also oppose the enforcement or seek a suspension (Opinion of AG Wahl, para. 70). However, one could question whether this is indeed an effective remedy, because it places the burden entirely on the consumer (cf. the Opinion of AG Kokott in Margarit Panicello). Thus, there is a risk that the matter never comes before a court at all, until it is "too late".

The relevant question here is whether the interpretation of EU law that is sought by the referring court "bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer" (Aziz, para. 35). Unlike Mr. Aziz, Ms. Sánchez López had had - technically speaking - the opportunity to contest the terms in the mortgage agreement. The referring court lacked jurisdiction to determine the unfairness of those terms. However, the problem seems to be that cases like this might never come before a court, exactly because the existence of a term allowing for extrajudicial enforcement and the transfer of property in the absence of the consumer-debtor.

In the interest of the consumer...?

Later on in his Opinion, AG Wahl draws attention to some circumstances of the case that possibly explain the "inertia" on the part of Ms. Sánchez López herself. The bank allowed her to remain on the premises as a tenant. It would not necessarily be in her interest to challenge the definitive transfer of the property right. In the words of AG Wahl, "effective consumer protection includes the option not to exercise consumer rights" (para. 80). It might be true that invalidity of the mortgage agreement and annulment of the property transfer would endanger the social tenancy agreement subsequently concluded between the bank and Ms. Sánchez López. But was Ms. Sánchez López, who still owes a significant residual debt to the bank (as far as we know), actually aware of her rights? Has she ever appeared before the notary at all? Is the whole course of events and the current arrangement truly in her interest? Such an argument is less convincing. In this respect, it is telling that AG Wahl also refers to the principle of legal certainty and the security of acquired property rights (para. 77), where the conclusion that the case does not fall within the scope of Directive 93/13/EEC would have sufficed. This, as well as his earlier astonishment at the referred questions, suggests that AG Wahl does not really see any problem with the procedural regime at issue, even if the Directive would be applicable. 

Where does it end? CJEU judgment in Banco Primus (Case C-421/14)

Source: news.bbc.co.uk

'Lites finiri oportet' - every dispute should come to an end. The principle of res judicata (literally: "a matter [already] judged") entails, in short, that a matter that has been adjudicated may not be pursued further by the same parties; they are bound by the court's decision. In the case of Banco Primus v. Gutiérrez García (C-421/14), the EU Court of Justice was asked whether this principle meant that a court, when ruling upon a consumer's objection against mortgage enforcement proceedings, is precluded from re-examining the unfairness of the terms of the loan agreement, because the lawfulness of that agreement has already been ascertained in a final and binding decision. In other words: where does it end?

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.

Spanish 'floor clauses' (cláusulas suelo) - EU Court of Justice steps in: nullity is nullity

Judgment of the EU Court of Justice in Joined Cases C-154/15, C-307/15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López)

Yesterday the EU Court of Justice gave its long-awaited judgment in the joined cases from Spain on the infamous 'floor clauses' (cláusulas suelo). It is a real Christmas present to Spanish consumers and house-owners: the CJEU has "overruled" national case law that limits the temporal effects of the declaration of nullity of an unfair term. Nullity is nullity. The impact of this judgment on the Spanish banking sector is huge: banks will have to pay back an estimated amount of 3.000 to 5.000 million euros (source: El País). The judgment has already been called a "formidable varapalo judicial a la banca", a tremendous judicial blow to the banks.

'Floor clauses' in mortgage loan agreements establish a minimum rate below which the variable rate of interest cannot fall. Until the Spanish Supreme Court (Tribunal Supremo) found them to be unfair in 2013 due to a lack of transparency, they were widespread. The biggest question for Spanish consumers after yesterday's judgment, which has been widely covered in Spanish media, is: how much money do we get back?

The reason why they ask this question, is the Supreme Court's decision to limit the temporal effects of its judgment to after the date of its publication, 9 May 2013, both in respect of collective actions for an injunction and individual actions by consumers claiming repayment. Only the amounts overpaid on the basis of 'floor clauses' after that date had to be paid back. One of the considerations of the Supreme Court was that retroactive (i.e. restitutory) effect of the invalidity of the clauses at issue would give rise to serious economic repercussions. Lower courts in Spain, however, doubted whether the Supreme Court's approach was compatible with Directive 93/13/EEC on unfair terms in consumer contracts. Last July, we reported on this blog that it was permissible in the opinion of the Advocate General. The CJEU has now decided otherwise, which means that Spanish consumers can also claim repayment of the amounts overpaid to the banks on the basis of 'floor clauses' during the period before 9 May 2013, from the beginning of their contract.

For the readers of this blog, the judgment may not be entirely unexpected. The CJEU refers extensively to its previous case law about the interpretation of "not binding on the consumer" under Article 6(1) of Directive 93/13. It reiterates that it is for the national court "purely and simply" to exclude the application of an unfair term (para. 57). The national court may not revise the content of unfair terms, "lest it contribute to eliminating the dissuasive effect of the straightforward non-application with regard to the consumer of those unfair terms" (para. 60). The determination of unfairness "must, in principle, have the consequence of restoring the consumer to the legal and factual situation that he would have been in if that term had not existed" (para. 61). Thus, the national court must impose the repayment of amounts that prove not to be due, which entails "a corresponding restitutory effect" (para. 62). The absence of such restitutory effect would call into question the dissuasive effect that Articles 6(1) and 7(1) of Directive 93/13 are designed to attach to a finding of unfairness.

The CJEU then proceeds to consider that national (case) law may not alter the scope and, therefore, the substance of the protection guaranteed to consumers by the Directive. The Supreme Court was entitled to hold that its judgment did not affect situations in which a judgment with the force of res judicata had been given. While it is compatible with EU law to lay down reasonable time-limits for bringing proceedings, only the CJEU can decide upon a temporal limitation of the effects of a rule of EU law. National (case) law may not aversely affect the substance of the right that consumers acquire under that rule. The temporal limitation made by the Supreme Court is tantamount to depriving any consumer having concluded a mortgage loan contract before 9 May 2013 containing a 'floor clause' of the right to obtain repayment in full of the overpaid amounts. The CJEU concludes that national case law, such as that following from the Supreme Court's judgment of 9 May 2013, ensures only limited protection for consumers. Such protection is incomplete and insufficient and does not constitute either an adequate or an effective means of preventing the continued use of 'floor clauses'.

The CJEU rejects the argument brought forward by, among others, the Spanish government that the question of the effects of the finding of unfairness as regards 'floor clauses' does not fall within the scope of Directive 93/13, because that finding would afford a higher level of consumer protection than guaranteed by the Directive. The review of the substantive unfairness of a clause relating to the main subject-matter of the contract, where the consumer did not have the necessary information on the conditions and consequences of that contract before entering into it, falls within the scope of the Directive.

The CJEU brushes aside the Supreme Court's considerations in one fell swoop. It does not matter whether the 'floor clauses' were in themselves lawful, that their use had long been tolerated on the market, that the banks had complied with the regulatory requirements for information, or that there could be serious economic repercussions. The judgment was a bombshell: "Ahora mismo sale gratis disparar contra la banca" ("Right now, the banks have been made fair game"; source ABC). It is perceived as yet another setback for the Spanish banking sector. A string of preliminary references to the CJEU, starting with the well-known Aziz case, has strengthened the judicial protection of consumers against unfair contract terms. Still, yesterday's judgment comes as a surprising end to a long-running battle between Spanish consumers and the banks, supported by the government. It remains to be seen how the European judgment will be implemented at the national level; most banks do not seem eager to accept an obligation to automatically repay all their clients.

A missed opportunity? CJEU judgment in Case C-49/14 (Finanmadrid)

Today the Court of Justice of the European Union delivered its judgment in Case C-49/14 (Finanmadrid). We have reported earlier on AG Szpunar’s opinion in this case. The questions referred for a preliminary ruling gave the CJEU an opportunity to clarify the relation between the general principles of effectiveness and equivalence in EU law and Article 47 of the EU Charter of Fundamental Rights, which safeguards the right to effective judicial protection.

The Court’s judgment

The Court has not seized this opportunity. Instead, it deals with the case entirely and exclusively in the framework of the effectiveness of Directive 93/13/EEC (Unfair Contract Terms), without any reference to Article 47 of the Charter. The Court merely concludes that the referring court “has not stated the reasons which have led it to doubt the compatibility” with Article 47 of the national legislation at issue and that, for lack of “information which is sufficiently precise and complete”, it is not able to give “a useful reply” (para. 57). The Court does not clarify why it is “not necessary” to answer the questions concerning Article 47, nor does it state what (additional) information would be needed exactly. At the same time, the Court does examine the case in detail in the light of the principle of effectiveness. It seems that the Court’s consideration that the questions by the referring court must be understood broadly (para. 31) applies only to the questions concerning Directive 93/13.

What was this case about? The referring court was confronted with an application for the execution of an order for payment obtained by Finanmadrid against the defendants in enforcement proceedings, which had only involved a Secretario judicial (court registrar), not a judge. Spanish procedural law provides for intervention by a court only where the amount claimed is apparently not correct or where the debtor contests the proceedings. The referring court was precluded from an examination of the potentially unfair nature of the terms of the contract which gave rise to the enforcement proceedings, because the Secretario judicial’s decision (the order for payment) is an enforceable instrument with the force of res judicata.

The Court’s conclusion that such a procedural arrangement is liable to undermine the effectiveness of the protection intended by Directive 93/13 is, perhaps, not very surprising. The Court refers, among other things, to its judgments in Banco Español de Crédito and Sánchez Morcillo (reported by us here and here) to conclude that effective protection under Directive 93/13 can only be guaranteed if the national procedural system allows the court, either during the order for payment proceedings or before granting leave for execution, to check of its own motion whether the terms of the contract at issue are unfair. The involvement of a Secretario judicial is insufficient, because they can only check formalities; it does not fall within their powers to assess the potentially unfair nature of a term in a contract on which the debt is based (para. 50). There is also a significant risk that the consumers concerned will not lodge any objection (para. 52). In these circumstances, the Spanish rules on res judicata appear to run counter to the principle of effectiveness.

A missed opportunity?

While the Court performs an extensive analysis of the Spanish procedural rules at issue, it makes no reference to Article 47 of the Charter.

Article 47 of the Charter safeguards the (fundamental) right to an effective remedy and a fair trial before a court of law for the violation of rights within the scope of EU law. In a speech at a conference on the Charter (Brussels, 17-18 December 2014; click here), Mr. A. Rubio González, Agent for the Spanish Government before the CJEU, pointed out the growing importance of the Charter and Article 47 in particular for Spanish legal practice and effective consumer protection. In this respect, he specifically mentioned Finanmadrid as a pending case, and he observed that AG Jääskinen believes that the principles of effectiveness and equivalence should be brought under the umbrella of Article 47 of the Charter (opinion in Case C-562/12, para. 47).

However, in Finanmadrid, the relation between the principle of effectiveness and Article 47 seems to be overlooked by the Court. In his opinion, AG Szpunar remarks that it is as yet unclear whether Article 47 offers additional protection, or whether it replaces the principle of effectiveness. Other judgments (e.g. Sánchez Morcillo, paras. 35 and 50) suggest that the effectiveness of consumer protection intended by Directive 93/13 should be read in conjunction with Article 47 of the Charter. It is unclear why AG Szpunar disconnects Article 47 and the principle of effectiveness, but his opinion may have given the Court an argument to avoid answering the questions concerning Article 47 altogether.

The judgment is therefore inconclusive as regards Article 47 of the Charter. There are more (Spanish) cases pending before the CJEU referring to this Article in the context of Directive 93/13 (see, e.g., here and here). What role Article 47 has to play in this context remains yet to be seen.

AG Szpunar's opinion in case C-421/14 (Banco Primus)

Enforcement proceedings and unfairness continued: AG Szpunar in Case C-421/14 (Banco Primus)

In yet another case following a preliminary reference from a Spanish court, Advocate-General Szpunar has delivered an opinion about the implications of Directive 93/13 for the ex officio assessment of unfair contract terms. The most important feature of this case is the fact that an ex officio assessment had already taken place at an earlier stage. The referring court has asked whether this limits its obligation to assess other potentially unfair terms which have not been part of the initial assessment. This case is of interest both from a procedural and a substantive perspective.

The consumer, Mr. Jesús Gutiérrez García, had started extraordinary opposition proceedings (incidente extraordinario de oposición) against Banco Primus SA in a final attempt to stop the mortgage enforcement proceedings initiated against him. These proceedings were “extraordinary” in that the normal opposition period of 10 days had lapsed, and even the expiry period of 1 month (on the basis of transitional law after the introduction of Ley 1/2013 in Spain, on which the Aziz judgment had a determining effect). In previous proceedings, the contractual default interest had already been assessed and diminished to zero, and the stay of the enforcement proceedings (predating Ley 1/2013) had been terminated. In the subsequent extraordinary opposition proceedings, the referring court noted that several other clauses in the mortgage agreement could be considered as unfair, but it was prevented from assessing these clauses because the proceedings were brought too late under the applicable transitional law.

The referring court asked various questions concerning the scope of the obligation to assess the unfairness of contract terms of its own motion, touching on the interpretation of Articles 3, 4, 6 and 7 of Directive 93/13 and the principles of equivalence and effectiveness (interestingly, there is no reference to Article 47 of the EU Charter of Fundamental Rights). In his opinion (paras. 28 ff.), AG Szpunar first comments that the Spanish government’s and Banco Primus’ arguments that Mr. Gutiérrez García’s claim is inadmissible do not preclude the admissibility of the request for a preliminary reference. Spzunar then refers to the BBVA case to conclude that the expiry period of 1 month is unlawful. He moves on to explain his view that the mere fact that an ex officio assessment has been carried out previously does not limit the referring court’s obligation to assess the unfairness of contract terms that have not been assessed yet. Szpunar does not address the (hypothetical) question what should happen if the terms at issue have already been assessed and the previous decision has acquired res judicata force.  

In the second part of his opinion (paras. 52 ff.), AG Szpunar gives an overview of the EU case law on the assessment of the unfairness of contract terms. Spanish law allows for early termination / acceleration of the mortgage agreement insofar as a serious breach on the part of the consumer is foreseeable. According to Szpunar, this is not contrary to Directive 93/13 as such, as long as the national court’s assessment of the unfairness of a contractual clause providing for early termination is not anticipated, and as long as the national court can still declare the clause at issue to be not binding on the consumer. However, in the present case, the mortgage agreement offered Banco Primus the option of early termination in the event of a minor default on the part of Mr. Gutiérrez García. Although the bank did observe the national procedural requirements in practice, Szpunar puts forward that the court's assessment should not depend on whether an unfair term is actually applied or not. The clause may be unfair even if the bank acts within the limits indicated by the law, but the clause would open the possibility for going beyond that.

ECJ in BBVA v Gabarro: personal notification of new rights, please!

In today's decision concerning the case of BBVA SA v Gabarro et al (case C-8/14)- another episode in the post-Aziz saga, the Court of Justice sets fairly high requirements for transitional rules including time limitations for the exercise of new rights. In doing so, it follows and specifies the opinion of AG Szpunar, which we had reported on earlier this year. 

The case concerns a provision in the 2013 Spanish law reinforcing the protection of mortgage debtors. With reference to cases in which enforcement proceedings were pending and no unfair terms control had been exerted under the pre-existing (consumer-unfriendly) procedural rules, the law granted consumers a one-month period to bring an action based on the claimed unfairness of a given contractual term. The period started to run with the publication of Law 1/2013.

Already the AG had concluded that, while the one-month limitation seemed proportionate to the needs to legal certainty and all in all did not appear excessively short, the moment at which the period started to run was problematic. The Court follows the same approach. It observed that under Spanish law consumers were informed of the fact that enforcement proceedings against them had been instituted and of their right to oppose enforcement within 10 days of the notification. The new law, however, did not provide for such a notification. As a consequence, consumers "could not reasonablt take advantage of a further opportunity to make an application objecting to enforcement", since "they were notified about it through the same procedural means used to convey the initial information"[para 38]. On light of that, the transitional provision was not such as to guarantee full enjoyment of that period and, therefore, the effective exercise of the new right" [para 39]. 

In other words, the court seems to suggest that such a time limit should only start running after the consumers are individually notified of the fact that an adopted law grants them a new right. While consumer-friendly and also respectful of legal certainty, following it might entail imposing a non-negligible burden on court offices. It is hard, however, to imagine a different solution. What do you think?

Unfair terms, mortgage enforcement and a consumer's fundamental right to accomodation - CJEU in Kušionová (C-34/13)

10 September 2014: CJEU judgment in Kušionová (C-34/13)

Today the CJEU handed down another important judgment in the field of mortgage enforcement (for previous case law have a look at Aziz and Sánchez Morcillo). This time it was not the Spanish, but the Slovak law of mortgage enforcement that was looked at by the CJEU. Contrary to the previous judgments, the national legislation was deemed to be in line with EU law.

In 2009, Mrs Kušionová took up 10.000 Euros. The loan was secured with the family home. The terms of Mrs Kušionová's bank (SMART Capital A.S.) contained a clause relating to extrajudicial enforcement of the charge on immovable property. This specific term stated that the creditor is able to enforce the charge without a court having the opportunity to review the clause. 

Under Slovak law, the sale by auction may be contested within 30 days of the notice of enforcement of the charge. After a public auction, the contesting person has a period of three months to take steps against the conditions under which the sale took place. According to Slovak civil procedure law, national courts may furthermore adopt any interim measure to prevent an auction from going ahead during an extrajudicial enforcement of a charge (like the one in the proceeding).      

The CJEU suggests that interim measures stopping the auction of a family home are adequate and effective means to prevent the continued use of unfair terms and are thus in line with the Unfair Terms Directive. Interim measures in general constitute an effective and dissuasive penalty for businesses infringing EU law. They are furthermore a proportional penalty if the national court deciding over the measures takes into account the fact that the property subject to the charge is immovable property forming the consumer's family home, the right to accomodation being a fundamental right guaranteed under the Charter of Fundamental Rights of the EU.

Although the Slovak legislation has already been changed (see nr 31 and 32 of the judgment), the CJEU's decision is interesting on a theoretical level as it  puts a strong emphasis on consumers' fundamental rights under EU law.