On 19th September 2018, the ECJ issued its ruling on the Bankia case (Case C‑109/17). The
case concerned the application of the Unfair Commercial Practices Directive in
mortgage enforcement proceedings and gave the Court the opportunity to comment
on the different mechanisms used by the Unfair Commercial Practices Directive
and the Unfair Contract Terms Directive (hereafter UCPD and UCTD respectively).
This blog has previously covered also the AG
opinion on this case. You can find the previous post here.
Facts of the case
In 2006 Mr Marí Merino, Mr Gavilán and
Ms Marí Merino took out a loan with Bankia secured by a mortgage in
respect of a capital of EUR 166 000, repayable over a 25-year period.
That agreement set the amount of the ‘starting price’ of the mortgaged property
at EUR 195 900.
In 2013, after a second novation, the amount
of the starting price of the property was reduced to EUR 57 689 and
the period for repayment of the outstanding loan capital of
EUR 102 750 was extended to 40 years. In addition, the extrajudicial
sale of the property was authorised and the agreement now states that that
property is the habitual residence of Mr Marí Merino, Mr Gavilán and
Ms Marí Merino.
Bankia used that novated loan agreement secured by
a mortgage to initiate mortgage enforcement proceedings. Mr Marí Merino,
Mr Gavilán and Ms Marí Merino lodged an objection to those
proceedings claiming that the agreement contained unfair terms. First, the
amount of the starting price was reduced to their detriment, with the extension
of the period for repayment being merely a means of inducing the borrowers to
accept the novation of the agreement.
Furthermore, they argued that Bankia acted in a way
that was contrary to the requirements of professional diligence inasmuch as it
took advantage of restructuring the debt in order to alter the valuation of the
property in question, meaning that Bankia employed an unfair practice.
Finally, Bankia was not adhering to the Code of
Good Banking Practice, by which it is bound, by not allowing the borrowers to
discharge the debt by giving the property in payment while remaining there as
tenants, even though they satisfied the conditions set in the Code for doing
so.
Questions referred
The following questions were referred to the ECJ:
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?’
Review of unfair practices in mortgage enforcement proceedings
The first question is asking whether national law
which prohibits the review of unfair commercial practices is contrary to art.
11 UCPD. The Court pointed out that the UCPD prohibits unfair practices, but
leaves it to the discretion of the Member States to decide what measures to use
to combat unfair practices. Such national measures need to be adequate and
effective and that the penalties thus laid down are effective, proportionate
and dissuasive (para 31). Furthermore, the Court underlines that the UCPD is
without prejudice to national contract law and individual legal action, as set
out in art. 3(2) UCPD.
Therefore, the ECJ found that it is not necessary
for national courts during mortgage enforcement proceedings to be able to
review whether the enforceable instrument breaches the UCPD, as the UCPD does
not place such an obligation on the Member States (para 34).
The Court elaborates on the differences between the
well-known Aziz case,
also concerning mortgage enforcement proceedings in Spain and the present one,
as well as the differences between UCTD and UCPD. It states that both the UCTD
and the UCPD aim to ensure a high level of protection; however, each one pursues
that objective using different means (para 36).
The reasoning put forward by the Court is that the
UCTD clearly sets out in art.6 UCTD that unfair terms are not to be binding on
the consumer, while the UCPD merely prohibits unfair practices (paras 37, 41).
The UCTD seeks to address the inequality of power between the parties which is
created by the unfair term, while the UCPD only seeks to put an end to unfair
practices, without an impact on the validity of the contract.
Contrary to Aziz, where compensatory
protection was found to not meet the requirements of art. 7(1) UCTD, in the
case of unfair practices, compensatory protection can be sufficient (paras
45-46). Still, the Court clarifies that it is possible for the unfairness of
practices to be considered during mortgage enforcement proceedings in the
context of review of unfair terms. As established in Pereničová and Perenic the finding of an
unfair practice doesn't have a direct effect on the validity of the contract
(paras 49-50).
For the first question, the court agrees with the
AG opinion that the answer to the first question should be negative.
Codes of Conduct
The second and third questions referred to codes of
conduct, and whether national law which does not confer a legally binding
nature to a code of conduct is contrary to art. 10 UCPD. The Court notes that
it is not up to them to establish whether the Code in question falls under the
definition of code in art. 2(f) UCPD.
The court stated that even though non compliance
with a code may constitute an unfair practice, the UCPD does not require for
the Member States to provide for direct consequences when the traders do not
adhere to the code they subscribed to (para 58). This decision undermines the
effect of codes of conduct, if traders face no consequences when they do not
adhere to them. More precisely, it transfers that responsibility to the Member
States, even though the UCPD is a maximum harmonisation directive and intended
to strengthen the relevance of codes of conduct.
This judgement appears to weaken the importance of
the UCPD, making it clear that it is less able to protect individual consumers
than the Unfair Contract Terms Directive. While the judgement is firmly based
in the letter of the law, it shows the resulting gaps in protection and the
need for individual remedies for the UCPD, in order to achieve the proposed aim
of a high level of consumer protection.
