Reversed burden of proof under strict conditions to exercise early repayment rights of consumer credit- the CJEU in C-326/22

Case C-326/22 Z  arose regarding Article 16(1) of Directive 2008/48/EC on consumer credit and the right to early loan repayment, which provides consumers with a right to repay their loan early and to the costs of the loan reduced accordingly.

The facts

Six consumers assigned to Z their claims regarding 15 consumer credit contracts that were repaid early, who intended to claim the total cost of credit reduction. However, under the applicable Polish law, Z needed to prove the claim's existence, which could have been only done by reference to the contract, but the consumers did not have the contract anymore. Consequently, Z requested access to the contracts, which the bank refused, saying there was no legal duty to do so. However, the referring national court rightly noted that the absence of such duty of the bank would lead to a contrary result to Article 16(1), which may, as in this case, effectively make the right to cost reduction unenforceable.

The legal question

The referring Polish court asked the CJEU whether Article 16(1), read in the light of the principle of effectiveness of EU law, must be interpreted as meaning that a consumer may request, from the creditor, a copy of that agreement and information concerning the repayment of the credit not featured in the contract when this is necessary to verify the calculation of the sum owed by the creditor connected to the early loan repayment right and for allowing that consumer to bring an action for the recovery of that amount.

The ruling

The answer was not apparent from the wording of Art. 16 (1). However, the CJEU noted that in interpreting the provisions of EU law, it is necessary to consider not only the wording but also the context of the provision and the objectives it aims to pursue, which is, achieving a high level of consumer protection.

Crucial is paragraph 26:

In that regard, it is relevant that Article 16(1) of Directive 2008/48 implies that the consumer is entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the agreement, without needing to adduce evidence other than that of the early repayment of the credit. It follows that it is for the creditor to provide the information necessary to establish the amount of the reduction in the total cost of the credit to which the consumer is entitled.

If the information is unavailable in the contract, the creditor must provide that information to the consumer where it is necessary to calculate the amount owed by the creditor (para 27).

The CJEU ruled that Article 16(1) must be interpreted as meaning that a consumer may request, from the creditor, a copy of that agreement and all information concerning the repayment of the credit not featured in the agreement itself which is necessary for verifying the calculation of the sum owed by the creditor under the reduction in the total cost of the credit due to its early repayment and for allowing the consumer to bring a possible action for the recovery of that amount.

The approach was justified by the banks' duty to provide information to consumers via Article 10, which ensures a high level of consumer protection. This duty includes information to be incorporated into the contract and a copy of the agreement provided to the consumer. A credit agreement must be drawn up on a durable medium that should enable the consumer to easily access and store the information provided.

Our analysis 

This rare interpretation of Article 16 follows the only case so far (Lexitor). A seemingly very technical judgment on access to documents turns into a decision that establishes an important legal principle. The court effectively reversed the burden of proof in exercising the rights connected to early loan repayment. Depending on how we define the burden of proof, this might not technically be a reversal of the burden. However, it is based on the same idea of easing the burden of proof. This is based on an understanding that the consumer cannot access the documents and that this access is an essential condition for realising the consumer's rights. The judgment is a significant development, given that the burden of proof was only previously reversed in connection to Article 5 -providing evidence that the creditor complied with pre-contractual information duties (CA Consumer Finance). However, the reversal of the burden of proof here has important limits. It only applies when:

1)    the consumer does not have a copy of the credit agreement or if the agreement does not contain the relevant information, and

2)  the information is necessary for verifying the calculation of the sum owed by the creditor to reduce the total cost of credit due to its early repayment, and

3)   the information is necessary to allow the consumer to take action to recover the sum owed by the creditor. 

The question is whether the judgement will have a broader effect of reversing the burden of proof regarding Article 10 more generally. This seems to be the direction, but it is yet to be confirmed by further CJEU judgments. 

Notification without naming the cause of non-conformity possible - CJEU in Faber (C-497/13)

4 June 2015: CJEU in Faber (C-497/13)

And important judgement has been issued today by the CJEU in the Dutch case Froukje Faber v Autobedrijf Hazet Ochten BV. Ms Faber bought a second-hand car from the Hazet garage. The contract was a pre-printed form entitled 'contract of sale to a private individual'. A few months after the purchase (26 Sep 2008) Mrs Froukje was driving her car with her daughter, on her way to a business meeting, when it burst into flames and was completely destroyed. It's in dispute between the parties whether immediately after the accident they discussed the matters of liability of the garage. A few months after the accident the garage contacted Mrs Faber and was told she was waiting for the police report on the fire. The police informed her that no technical report had been compiled. The vehicle was scrapped in May 2009, upon which event Ms Faber informed Hazet garage that she held them liable for her damage (purchase price of the car + value of items in the car). Since the car had been scrapped, investigation into the fire cause was no longer possible. In her claim against the company, Ms Faber raised the issue of non-conformity of the car, without, however, alluding to her status as a consumer. If she was seen as a consumer, she could have used the non-conformity presumption reversing the burden of proof as to the defect's cause when the defect materialised within 6 months from the delivery.

The Dutch court of appeals asked among other 1) whether it should investigate ex officio whether consumer protection granted by the Consumer Sales Directive should apply in this case to preserve effectiveness of these rules, 2) especially when the court did not have sufficient information to establish consumer status, 3) also on the appeal when the matter was left open in the proceedings of first instance. Moreover, 4) the Dutch court asks whether Art 5 (3) of CSD on the presumption of non-conformity within 6 months from delivery should be seen as equivalent in status to rules of public policy. Furthermore, 5) it is questioned whether Dutch law requiring consumer to notify the seller about non-conformity could be validly combined with a duty to present facts and evidence with regard to that non-conformity at the same time. Finally, 6) it is inquired what standard of proof should be placed on the consumer with regard to presenting facts and adducing evidence on non-conformity and its apparent character within six months of delivery. Should the consumer prove which defect caused the goods to malfunction or only that they malfunction?

The first three questions were easiest to predict the answer to. Consistent with its case law (Par. 42), the CJEU establishes the duty of national courts to ex officio determine whether the buyer could be classified as a consumer, even if the buyer did not rely on that status. This holds true when the court "has at its disposal the matters of law and of fact that are necessary for that purpose or may have them at its disposal simply by making a request for clarification" (Par. 48). It is for the national court to undertake necessary investigation as to these facts. (Par. 40)

Art. 5 (3) of the CSD changes the burden of proof with regard to the non-conformity, considering that it is usually easier for the professional to disprove the existence of the default at the moment of purchase. The CJEU declares this provision as of equal standing to national rules of public policy. (Par 56)

Dutch law used the option from the CSD and adopted the notification duty for the buyer within two months after the discovery of the lack of conformity. Some case law of the Dutch Supreme Court accepted also as valid notification delivered after this period of time, if circumstances of the case (difficulties in gathering evidence) justified this. It is the buyer who has the burden of proof that he fulfilled this notification duty.  (Par 59) The aim of the CSD was to encourage diligence of the buyer and increase the legal certainty for the seller, without imposing an obligation on the consumer to carry out a detailed inspection of the goods. (Par 61) "As is apparent from the wording of Article 5(2) of Directive 1999/44, read in the light of recital 19 in the preamble thereto, and from the purpose of that provision, the obligation thereby imposed on the consumer cannot go beyond that of informing the seller that a lack of conformity exists." (Par 62) Most interesting is the following paragraph 63 giving detailed instructions as to the requirements for the notification duty:

"As regards the content of that notification, the consumer cannot be required, at that stage, to furnish evidence that a lack of conformity actually adversely affects the goods that he has purchased. In view of his weak position vis-à-vis the seller as regards the information relating to the qualities of those goods and to the state in which they were sold, the consumer cannot, in addition, be required to state the precise cause of that lack of conformity. By contrast, in order for the notification to be of use to the seller, it must include a certain number of particulars — the degree of precision of which will necessarily vary depending on the specific circumstances of each case — relating to the nature of the goods in question, the wording of the contract of sale in respect of those goods and the way in which the alleged lack of conformity became apparent."

Dutch law may not, therefore, make it difficult for consumers to fulfil their notification duties by obliging them to provide excessive evidence with regard to the lack of conformity. What is then for the consumer to prove?

"In the first place, the consumer must allege and furnish evidence that the goods sold are not in conformity with the relevant contract in so far as, for example, they do not have the qualities agreed on in that contract or even are not fit for the purpose which that type of goods is normally expected to have. The consumer is required to prove only that the lack of conformity exists. He is not required to prove the cause of that lack of conformity or to establish that its origin is attributable to the seller.

In the second place, the consumer must prove that the lack of conformity in question became apparent, that is to say, became physically apparent, within six months of delivery of the goods." (Par. 70-71)

The seller would then need to prove that the cause or origin of that lack of conformity lies in circumstances that occurred after the delivery. (Par. 73)

Very important case for all aficionados of notification duties and evidence rules! I would think that in this case Ms Faber could then rest by stating that her car caught fire within 6 months from delivery and it would be the seller who would need to establish the cause of that fire as not resulting from a lack of conformity. This would eliminate the need for consumers to await the professional reports on the non-conformity potential origins, which often delay them in making notifications to the seller.