Wednesday, 22 May 2019

A consumer's preference for invalidity? AG Pitruzzella on the consequences of unfairness under the UCTD

Last week, AG Pitruzzella submitted an interesting Opinion on unfair terms in case C-260/198 (Dziubak) (the English version of this opinion is not yet available).

This case concerns a foreign currency-indexed loan undertaken by Polish consumers. The consumers claimed that the term establishing the conversion rate was unfair because it essentially allowed the bank to unilaterally determine the conversion rate. The competent Polish court agreed with the claim, raising the problem of what should happen to the contract given that the conversion mechanism determined the main interest rate. Should it be declared invalid?

There are two layers to this question, as correctly observed by the AG: first of all, it is to be ascertained whether the contract really cannot be upheld without the unfair term or a replacement thereof. Whether this was the case in Dziubak is something the referring court, the AG thinks, needs to ascertain in light of its national law. According to Pitruzzella, the Directive requires that this assessment be carried out objectively, ie without reference to the parties' will or preference, but also in light of the applicable national law. In this case, it would depend on Polish law whether the fact that the contract's "type" would change - from a foreign currency-indexed loan to a loan in Polish currency subject to a pretty low - would lead to invalidity of the agreement without the original clause.

Invalidity was the solution preferred by the consumers, while the bank claimed that, rather than invalidating the contract in its entirety, the court should set an exchange rate in accordance with general principles contained in the Polish Civil code, such as preserving the parties' intentions and customs.

In previous case-law, the AG says, the CJEU has repeatedly asserted that in principle unfair terms are never to be replaced, but exceptions can be made when the contract as a whole could become invalid as a result of removing the unfair term and the consumer would be worse off if the contract falls (see para 34 opinion).

The referring court had a number of questions as to the application of these principles to the case at stake: concerning the objective possibility of continuing the contract, is this to be assessed with reference to the moment of adjudicating, or to the moment of concluding the contract? And did the fact that the consumer in this case preferred invalidity over preservation make the "Kásler exception" inapplicable?

To the first question, the AG answers that the assessment must take place with reference to the moment of adjudication. This is, according to the opinion, in line with the Directive's aim to re-establish an effective balance between the parties and in line with the Kàsler requirements.

As concerns the relevance of the consumer's preference for invalidity, according to the AG this is enough to make the Kàsler rule inapplicable - as an exception, the requirements on which it is based must be applied strictly (para 66) and one of them failing no exception to the general rule can be made.

As to the feasibility of the solution preferred by the bank - integrating the contract by means of general rules - the AG takes an interesting approach in his reasoning: he says that the Kásler rule presupposes replacement of the unfair term with terms which enjoy a presumption of fairness under the directive's article 1, ie the somewhat obscure class of "statutory mandatory provisions" that, case-law adds, "apply to the contract when nothing else has been agreed between the parties". From a contract lawyer's perspective, this is essentially a non-sense combination - conflating mandatory and supplementary  (or "default") provisions. However, it is interesting that the AG elaborates on the Leitbild function: replacement, in his view, is only possible when the resulting rules express the legislator's view of what a fair balance of the parties' interests in a specific contract would be. The general principles possibly relevant to this case, however, do not satisfy this requirement. As a consequence, a judge's intervention in the contract according to these principles would represent an excessive interference with contractual autonomy. Such intervention would, furthermore, again go beyond the strict limits set in Kásler, which did not intend to allow for any sort of judicial discretion. (79)

The referring court finally also wants to know whether maintaining the unfair terms in place is an option when this is "objectively" to the consumer's advantage. The CJEU has stated in Pannon that such upholding of the clause is an option when the consumer chooses not to avail themselves of the invalidity - replacing the adjudicating court's assessment for this expression of the consumer's will is, according to the AG, not an option. This is arguably the lease surprising part of the opinion.

Whether the Court will follow the conclusions, and the reasoning therein, is not obvious. As usual, we will keep you posted!  

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