AG Opinion in Bankia: UCPD is not applicable in mortgage enforcement proceedings

Introduction

On the 20^th of March, AG Wahl published his opinion on the Bankia case. The case revolves around the application of Directive 2005/29/EC (The Unfair Commercial Practices Directive) to mortgage enforcement proceedings in Spain. The case is added to the growing case law of the application of consumer law to contracts and illuminates the aim and field of application of the UCPD according to the AG.

Facts of the case

The debtors, Juan Carlos Marí Merino, Juan Pérez Gavilán, María de la Concepción Marí Merino took out a loan, secured by a mortgage in 2006 with the following terms: 166.000 € capital, 25 years repayment and the value of the mortgage was set at 195.900€. In 2009, the loan capital was increased and the repayment term extended. Finally, in 2013, as the debtors were falling behind with payments for more than a year and their outstanding debt had reached 102.750 € there was a final modification of the loan terms. The repayment period was extended to 40 years and the mortgage asset was re-evaluated at 56.689 €, a value far lower than the 2006 one, due to the housing market crisis in Spain.

As the debtors continued to default on payments, the bank initiated mortgage enforcement proceedings in 2015. The bank requested an order for payment and if the debtors were unable to pay the mortgaged asset would be auctioned with a starting price of 57.684,90 €. The starting price for the auction was calculated according to the 2013 re-evaluation and the lower price meant it was unlikely the proceeds from the auction would suffice to cover the amount owed.

The debtors objected to the enforcement proceedings on two grounds. Firstly, arguing for the existence of unfair terms in their contract, as the aim of the modification of the loan terms was to get them to agree to a decreased evaluation of their property. Secondly, that according to the Spanish Code of Good Banking Practice they could be discharged of their debt due to their financial situation. Finally, they also asked for the enforcement proceedings to be stayed.

Questions

The following questions were referred to the Court:

(      1)    Must Directive 2005/29 be interpreted as meaning that national legislation such as that currently regulating Spanish mortgage enforcement — Article 695 et seq. in conjunction with Article 552(1) of the [Law of Civil Procedure] — which does not provide for the review by the courts, of their own motion or at the request of one of the parties, of unfair commercial practices, is contrary to Article 11 of that directive because that national legislation hinders or prevents review by the courts of contracts or acts which may contain unfair commercial practices?

(     2)    Must Directive 2005/29 be interpreted as meaning that national legislation such as the Spanish law which does not ensure actual compliance with the code of conduct if the party seeking enforcement of a debt decides not to apply that code (Articles 5 and 6 of Royal Decree-Law No 6 of 9 March 2012, read in conjunction with Article 15 thereof) is contrary to Article 11 of that directive?

(     3)    Must Article 11 of Directive 2005/29 be interpreted as precluding Spanish national legislation which does not allow a consumer, during mortgage enforcement proceedings, to request compliance with a code of conduct, in particular as regards the giving of a property in payment and extinguishment of the debt — Point 3 of the Annex to Royal Decree-Law No 6 of 9 March 2012, Code of Good [Banking] Practice?’

The novelty of the case revolves around whether the UCPD can be applied to halt mortgage enforcement proceedings, in a similar way as the Unfair Contract Terms directive has been applied in the past. The the significance of the Opinion is on the enforcement of the UCPD as per art. 11 UCPD and whether it grants remedies to individual consumers.

Answer to question 1

AG Wahl provides a lengthy answer to the first question. He recognises the main tension of EU consumer law between a high level of consumer protection and encouraging cross-border trade as well as the broad scope of the UCPD (para 35, 38) According to art.11 (1) UCPD, Member States must ensure that ‘adequate and effective means’ exist for the enforcement of the Directive. Is effectiveness of enforcement achieved when unfair commercial practices cannot be reviewed in the context of mortgage enforcement proceedings? The Opinion points out that the UCPD does not provide a right to a contractual remedy for consumers against unfair commercial practices, instead focus is on providing penalties for traders. The Spanish law provides for declaratory proceedings to establish the existence of unfair commercial practices. The next step is to establish whether to satisfy the effectiveness test, declaratory procedure is not enough, and there is also the need to allow for mortgage enforcement proceedings to be stayed.

In the well-known Aziz case it was held that precluding the review of an unfair contract term in mortgage enforcement proceedings was contrary to EU law. The referring court and the Commission wish to draw a parallel between Aziz and Bankia arguing that the same reasoning should be followed and precluding consideration of unfair commercial practices in mortgage enforcement proceedings should be found contrary to EU law.(para 30) Yet, the AG is of another opinion, differentiating between Directive 93/13 (The Unfair Contract Terms Directive) and the UCPD. According to the Opinion, Directive 93/13 does offer a remedy to individual consumers, while Directive 2005/29 only provides for penalties for the trader and therefore cannot prevent the enforcement of the mortgage. Therefore, the lack of suspensory effect of the declaratory proceedings does not influence the effectiveness of the enforcement of the UCPD. (para 61) The AG allows for one exception, in the case where the unfairness of a commercial practice may play a role in assessing the unfairness of a contract term. However, as was found in Pereničová and Perenic, the unfair practice is only a factor for assessing the unfairness of a term. (para 64)

Consequently, the answer to the first question was that national legislation which does not provide for the review of unfair commercial practices during mortgage enforcement proceedings is not contrary to the UCPD.

Answer to questions 2 and 3

The second and third questions focus on codes of conduct and whether a code of conduct can be enforced using the UCPD. According to the AG Opinion, codes of conduct offer an additional means of control to that of the UCPD, and non-compliance with a code of conduct does not automatically amount to an unfair practice. (paras 74-75) In any case, same as for question 1, the AG found that any consequences from the breach of the code of conduct would be for the trader as the UCPD does not offer any individual contractual remedy for the consumer (para77).

Therefore, the answer to the second and third question was the national legislation which does not provide consumers with an individual contractual remedy in the case of breach of code of conduct, is not contrary to the UCPD.

Conclusion

The AG opinion may at first fight appear as one that reduces the level of protection for consumers; as consumers who are at risk of losing their homes as a result of mortgage enforcement proceedings cannot rely on the UCPD in the same way they can rely on the Unfair Contract Terms Directive. Yet the AG opinion accurately reflects the current state of the UCPD and as highlighted by the AG the main issue of the debtors was the re-evaluation of the property rather than the existence of an unfair practice (para 59). This does not mean that it would not be appropriate for consumers to have individual remedies against unfair practices, but rather that this is not the case at the moment. This issue has been highlighted in the Consumer and Marketing Law Fitness Check where one of the suggestions has been to amend the UCPD in order to provide contractual remedies for consumers. It remains to be seen whether the ECJ will follow the AG Opinion or whether they will decide that the UCPD should be considered in the context of mortgage enforcement proceedings, or whether a legislative intervention is the only way to resolve this problem.

Judges in Utopia

Happy New Year, dear readers! For those among you whose interest in European consumer law extends to the broader theoretical framework within which developments in this field may be embedded, I would like to take the opportunity to combine good wishes for an eventful consumer law year with an announcement of my new blog on 'judicial law-making in European private law'. 

The blog will present results of a research project named 'Judges in Utopia', which is funded under NWO's Vidi scheme and aims to further develop private law theory on the interaction among European and national judges in the resolution of private legal disputes within the EU, including cases on consumer contracts.

You can visit my blog on judgesinutopia.blogspot.com

Readers with an interest in possibly joining the research project might also wish to check out two current vacancies in the project, one for a PhD researcher and one for a post-doc researcher (deadline for applications: 30 January 2015).

Finally, blog entries with a relevance to both European consumer law and the role of the judiciary will be posted on both blogs.

Ex Officio Examination of the Status of the Buyer and Burden of Proof in Consumer Sales - Opinion AG Sharpston in case Froukje Faber (C-497/13)

27 October 2014: Opinion AG Sharpston in case Froukje Faber (C-497/13)

Today AG Sharpston handed down her opinion in a case where the consumer Froukje Faber bought a used car from Autobedrijf Hazet. The Dutch court of second instance dealing with the case asked for an interpretation of the  consumer sales directive. 

The car caught fire four months after having been handed over to Ms Faber. Neither in the proceeding in the first nor in the second instance Ms Faber claimed that she had bought the car for private purposes. The court asked if it had to examine out of his own motion - in violation of national rules and as a duty arising from the directive - whether the purchaser is a consumer. Unsurprisingly, GA Sharpston argued that national courts have this duty (due to the principle of effectiveness).

The wreck had been dismantled before the cause of the fire was found out. The Dutch court asked if it had to apply Art 5 (3) which partially reverses the burden of proof for the benefit of consumers ex officio, a question the GA answered in the affirmative. According to GA Sharpston, the consumer has to proof the lack of conformity if the latter becomes apparent within six months of delivery. He or she, however, does not have to show the cause for the lack of correspondence. For the present case this means that Ms Faber has to show that the fire occurred and '...why, as a result of the fire, she considers that the car which was delivered to her did not correspond with the car which, based on the contract and other relevant information, she had expected to receive. ... in the present case, it may be sufficient for Ms Faber to show that the product can no longer (properly) perform the function for which it was purchased...'. It is then up to the seller to proof that the car was in conformity with the contract at the moment of delivery. 

The Netherlands made use of the possibility to introduce a rule under which the buyer has to notify the seller about the presumed lack of conformity of the good in due time (Art 5 [2] consumer sales directive). The Dutch court asked how far this duty to notify goes. AG Sharpston highlighted that the buyer, when notifying the seller, does not yet have to proof the lack of conformity.

Looking for the heart

Many topics of European consumer law have by now been harmonised through EU Directives. Still, as many (or maybe even more) questions related to consumer contracts in the Internal Market remain subject to rules of national laws, e.g the boundaries of what is enforceable under the law (incl. immorality of contracts) and the meaning of parties' agreement (interpretation of contracts). Insofar as national rules yield similar results, a basis for further harmonisation of laws may be found. 

In the coming days, a discussion of the similarities and differences of European laws on a variety of matters of private law will take place at the 19th meeting of the project on 'The Common Core of European Private Law' in Torino. For more information, see the website and conference programme.

Keeping up to date on European regulatory private law

Would you like to receive more news about developments in European private law, such as e-mail alerts regarding recent judgments of the Court of Justice of the European Union?

Apart from having created a very informative website, the researchers conducting the ERC-funded project 'European Regulatory Private Law' at the European University Institute in Florence offer regular e-mail updates on the topics falling within the scope of their studies.

The project, which is coordinated by Professor Hans Micklitz, involves the study of a normative model that could shape a self-sufficient European private legal order in its interaction with national private law systems. Activities developed within this context include the distribution of quarterly monitoring reports and updates on preliminary references submitted by national courts, opinions rendered by the Advocate-Generals and judgments given by the Court of Justice on the day that they are published in the Official Journal.

In order to subscribe to the ERPL project's newsletter, please send an e-mail to: erpl@eui.eu

Public policy, good morals and social justice in European private law

On 26 and 27 October, the Groningen Centre for Law and Governance (GCL) organises a conference on the theme of 'Public policy, good morals and social justice in European private law':

'The focus of the session on Friday will be social-justice-inspired interpretations and applications of legal concepts of public policy and good morals as limitations to the validity of contracts and other acts of private autonomy (e.g. testaments). For what concerns contract law, the EU Commission, at least for the time being, does not seem to be willing to include a norm over immoral contracts or contracts contrary to public policy in its proposed Regulation on a Common European Sales Law (CESL). In the CESL preparatory works, a norm over illegality/immorality was proposed by scholars but this was not included in the Commission draft. Does this mean that there will be no European harmonisation of interpretations and applications of private law concepts of public policy and good morals altogether? Will this playing field for socio-economic justice in contract law remain the domain of national law? Or could perhaps some sort of European harmonisation take place through horizontal governance, especially horizontal judicial governance? A spontaneous, step-by-step convergence could be fostered by increasing judicial cooperation, especially if public policy and immorality norms are interpreted and applied in the light of the common European fundamental rights.

The Saturday session will be a round table on the comparison of the interpretation and application of public policy rules in private law, private international law and primary EU law in the light of EU fundamental rights and principles of social justice.'

More information regarding the programme will follow shortly on the conference website.

Conference visitors interested in questions of European private law might want to combine this event with (a part of) the Maastricht conference on 'EU law and the private sphere' that was announced on this blog earlier.

EU law in the private sphere

On 26 October 2012, Gary Low and Elise Muir (Maastricht University) organise a conference on the theme 'EU law in the private sphere - helping hand or officious intermeddler?' As they write in the conference announcement:

'The aim of this one-day international conference is to evaluate EU Law’s evolution from one initially limited to the sphere of public law to its increasing stake in regulating private relationships. Such an evaluation has fundamental and applied consequences for how a multi-levelled European legal order ought to be regulated: What is the extent to which EU Law’s regulation of private relationships is justifiable? How is the State’s traditional role affected? What is its impact on the current system of rights and remedies?'

More information and a tentative programme is available on the website of the Maastricht European Private Law Institute.

Cross-border succession in the EU

A few months ago we have posted about a new Regulation in matters of succession (An elderly uncle living in another Member State?...). This regulation becomes European law tomorrow - upon its publication in the Official Journal. New provisions aim at simplifying the procedure of inheritance of properties located in different Member States by determining that it is the country of habitual residence of the deceased whose laws will apply to establishing the jurisdiction and the law applicable in cross-border cases. It also provides for a European Certificate of Succession, allowing heirs to prove their claims to the inheritance throughout the EU. Member States have three years to implement them into their national laws. (EU rules to ease cross-border successions are now law)

An elderly uncle living in another Member State? - on cross-border inheritance

Two days ago, on the 13th of March 2012, the European Parliament adopted the proposed Regulation on jurisdiction, applicable law, recognition and enforcement of decisions and authentic instruments in matters of succession and the creation of a European Certificate of Succession (PE 441.200v03-00). The text of this Regulation still needs to be adopted by the Council before it comes into force (EU-wide rules in matters of succession - Background).

The new regulation will directily apply in all Member States, except Denmark, United Kingdom and Ireland. These new rules would simplify succession in cross-border situations, when laws of more than one Member State may be applicable, making inheritance within Europe easier, cheaper and faster. The regulation intends to treat succesion to the estate of a deceased person as a whole irrespective of the nature or the location of the assets. It will give authority to decide over succession to one body and only one law would be applicable. In general, the law applicable to the succession will be the law of the State of the deceased's habitual residence at the time of his death. However, he will have a possibility to choose the law of a State of which he is a national, as well. This is believed, to enable anyone living abroad within the EU to retain a close link with his home country. Succession decision issued by any court within the EU, as well as notary issued documents, will be recognised and enforceable throughout the EU. The creation of a European Certificate of Succession will enable the person who draws up the will to safeguard the rights of his heirs, as well as of his creditors, and to make the legal position of successors clearer. (Making cross-border inheritances easier)