Consumers' access to interim relief - the CJEU in Myszak (C-324/23)

In case C-324/23 (Myszak) the Court of Justice of the European Union was asked again to deal with the consequences of mortgage loan agreements indexed in Swiss francs. 

The case concerns a mortgage loan contract indexed in Swiss francs whose voidance was claimed by three consumers against the Getin Noble Bank S.A. Consumers claimed the unfairness of the contractual term in question, according to Directive 93/13/EEC. Accordingly, sought interim relief in court, in order to suspend the execution of the contract containing unfair terms.

Meanwhile, however, the Bank went through a resolution procedure. Polish law bars the possibility to ask interim measures against bank dealing with special resolution procedures, according to the law implementing Directive 2014/59/EU (the Bank Recovery and Resolution Directive). 

The Polish court asked the CJEU about the compatibility with Articles 6(1) and 7(1) of UCTD and Article 70(1) and (4) of the Bank Recovery and Resolution Directive of the national law. Pursuant to relevant Polish law it is not possible to grant a consumer’s application for an interim measure to suspend, during the course of the court proceedings, the obligation to pay the loan instalments under a loan agreement which is likely to be declared invalid, on the sole ground that it was granted by a bank declared to be under special resolution.

The CJEU affirmed that a statutory provision barring consumers to obtain interim relief during resolution procedures impairs consumers to exercise their rights, and thus goes against EU law.

The Court invoked the principle of effectiveness, claiming that impeding consumers to exercise their rights because of a bank’s resolution would impact on the effective enforcement of the UCTD. The Court of Justice has, on a number of occasions, made general statements on the need for national courts to be able to adopt interim measures for the full effectiveness of court decisions concerning rights granted by EU law (see, among others, Case C-213/89, Factortame).

Although the Bank Recovery and Resolution Directive allows Member States’ laws to specify and define the procedural means of its implementation, national laws implementing it should not impede consumer protection. Accordingly, a provision barring the enforcement of UCTD, precluding adoption of interim measures, is contrary to EU law.

The decision reinforces a well-established pattern in the Court of Justice’s rulings: when in doubt, in favour of the consumer!

On the Transparency Requirements of Arrangement Fees – CJEU in Justa v Banco Bilbao Vizcaya Argentaria SA (Case C-39/24)

Consolidating Caixabank SA (C‑224/19) and CaixaBank SA (C‑565/21) in Case C-39/2024 of 30 April 2025, the Court of Justice (CJEU) ruled on the transparency of arrangement fees and further clarified the threshold for meeting its requirements. 

Facts of the case

In November 2005, Just and Banco Bilbao Vizcaya Argentaria concluded a loan agreement secured by a mortgage. According to the contract, upon signing the agreement, Justa had to pay an arrangement fee equal to 0.25% of the capital loan. Justa brought an action before the Court of First Instance of Ceuta against Banco Bilbao seeking a declaration that the term establishing the arrangement fee was unfair. 

Question referred

The Court of First Instance of Ceuta referred two questions, one of which is admissible. The second, regarding the application of Directive 2014/17/EU is inapplicable ratione temporis.

By the admissible question, the referring court is asking whether Article 4(2) of Directive 93/13/EEC on Unfair Terms in Consumer Contracts (hereinafter, UCTD) must be interpreted as precluding the case law of the Tribunal Supremo (Supreme Court) which considers the term imposing an arrangement fee to remunerate services ‘connected with the examination, granting or processing of the mortgage loan’, to be transparent without the term specifying the services supplied in exchange for the fee or the time needed to perform them (para 28). 

Ruling

First, the CJEU observes that a term establishing an arrangement fee cannot be considered as pertaining to the main subject matter of the contract. The essential obligations of a credit contract are in fact that the lender ‘undertakes (…) to make available to the borrower a certain sum of money and that the latter undertakes (…) to repay that sum’ (para 31). With this, the CJEU further consolidates its ruling in Caixabank and Banco Bilbao Vizcaya Argentaria (C-224/19 and C-259/19, EU:C:2020:578, para 64). 

Irrespective, Article 5 of the UCTD imposes the same requirement for transparency for contractual terms in writing, which, as per that provision, must ‘always’ be written in plain and intelligible language. As already noted in 2023 in Caixabank (Loan arrangement fees), C-565/21, the requirement for transparency of Article 4(2) has the same scope as the requirement laid down in Article 5. Therefore, the question of the referring court must be reformulated with reference to Article 5 instead of Article 4(2). 

The CJEU holds that the requirement should not be understood as only demanding that the terms are formally and grammatically intelligible. The transparency of the terms must be understood broadly, in light of the provision’s rationale that is to protect consumers’ weaker position vis-à-vis businesses (see also Caixabank (Loan arrangement fees), C-565/21, EU:C:2023:212, para 30). The consumer must be able to understand what ‘economic consequences’ derive for her or him from the term (para 38, emphasis added) and the ‘nature of the services’ she or he receives (para 39, emphasis added). 

The national court will be in charge of determining whether the financial institution has provided sufficient information for her or him to understand the content and functioning of the term (para 40). The court will thus assess the transparency of the terms, taking into consideration ‘all the relevant factual elements’, which include also the advertising that the bank makes of the particular agreement (para 41; see also Caixabank (Loan arrangement fees), C-565/21, EU:C:2023:212, para 40). 

To summarise, the transparency requirement is intended to ensure that the consumer can assess the financial consequences of the term. Crucially, the requirement does not entail that the bank must detail the nature of the services supplied or the number of hours devoted to offering those services (para 44). 

The Court concludes that, like in the case at hand, where the legislation defines the term imposing the arrangement fee as remuneration for services connected with the examination, granting or processing of the mortgage loan, it is not necessary that the term includes ‘a detailed description of the nature of those services or an indication of the time devoted to their performance’ (para 47). 

It is however necessary that ‘the consumer has indeed been placed in a position to assess the economic consequence for him or her, to understand the nature of the services (…) and to ascertain that there is no overlap between the various costs provided for in the contract or between the services for which those costs are paid’ (para 47).

The national case law of the Supreme Court is thus not precluded by Article 5 of the UCTD. 

A milestone for Polish consumers claiming unfairness of Swiss francs mortgage loans - CJEU in Lubreczlik (C-396/24)

Yesterday, the CJEU issued a new judgment in the Swiss franc mortgage loans and their unfair contract terms saga, following a referral from a Polish court, in the case known as Lubreczlik (C-396/24). The referral was based on two cases, in which consumers concluded mortgage loans indexed to the Swiss franc rate. In both cases consumers claimed repayment of sums they had paid to the bank on the basis of their mortgage contracts being void due to unfair contract terms they contained. The bank counterclaimed seeking that consumers paid the full loan amount back to the bank. 

Previously, the Polish Supreme Court issued a judgment with a so-called 'two claims' theory (see declaration III CZP 11/20 from 16 February 2021 - in Polish here). This theory acknowledged that after a loan agreement is declared invalid, both parties (consumer and lender) have a right, "distinct and independent of each other, to repayment of monetary payments made in performance of that agreement. Each of the parties could therefore claim full repayment of the sums paid, whether or not it is still a debtor of the other party and regardless of the amount of its own debt" (para 26).

Imagine now situations (very common in practice), in which consumers have already paid the whole amount of their loan to the bank, or even paid to the bank sums exceeding the total loan value, on the basis of high interest rates. While waiting for their claims of unfairness to be adjudicated by Polish courts or the judgments to become final and the bank to return their money to them, they receive a lawsuit from the bank for the repayment of the full amount of the loan. Often, such a (de facto, repeated) repayment would either be financially impossible or significantly detrimental to consumers (even if made in the expectation of the eventual repayment by the bank of the same or higher sum of money) (para 27). Further procedural rules make it also feasible that any repayment by a consumer of the money to the bank will be immediately enforceable, while the bank's obligation to repay the consumer may take a long time to reach that stage (para 32). Consumers could theoretically argue for a set-off of reciprocal claims, but Polish procedural rules make such a declaration complex and not necessarily favouring consumer interests (para 28).

Repayment of the loan amount by a consumer

The CJEU leaves no doubt that Polish (case) law may not allow banks to claim repayment of the full loan amount, regardless of the value of repayments already made by consumers in performance of the loan agreement and "irrespective of the amount remaining due" (para 44). The CJEU recalls the need for the Member States to ensure that the national protection against unfair contract terms is a deterrent for sellers and suppliers against embedding such terms in their contracts (para 38). Further, national law needs to protect consumers against the detriment of having their contract's annulled as a result of them containing unfair contract terms (para 39). These obligations may result in Polish courts being required to "change established case-law", if following such national case law would lead to undermining EU consumer protection's objectives (para 43).

Polish courts should then disregard the Polish Supreme Court's theory of "two claims" in assessing the banks' claims for repayment of the full amount of loan by consumers, if consumers already had paid back at least part of the mortgage loan to the bank. This should mean in practice that banks claims filed against consumers should be scaled down in consideration of the actual repayments that consumers have already made. Strategic litigation by banks against consumers for the repayment of full loan amounts becomes much more risky as a result of this judgment.

Immediate enforceability of consumer repayments

The CJEU also addressed the matter of Polish courts being required to award of their own motion immediate enforceability to repayment claims made by banks against consumers, if consumers accepted such claims (and they may have good reasons to accept them - see para 51 of the judgment for more information). The Court considers also this practice contrary to EU consumer protection objectives, as long as Polish courts are not allowed to consider in their decision-making detriment to the consumer that such an immediate enforceability order would have (para 58). 

This part of the CJEU's judgment protects consumers against the immediate need to repay the money to the bank, which could have dissuaded them from progressing with their unfairness claims.

Overall, this judgment raises financial risks for these banks that were not keen so far to settle consumer cases and which have used various intimidation tactics to dissuade consumers from pursuing their claims. It may also lead to banks proposing more beneficial settlements to consumers and encourage consumers to negotiate settlement terms.

CJEU rules on excessive fees in consumer contracts (C‑321/22, Provident Polska)

Last Thursday, the Court of Justice delivered another interesting ruling on unfair terms in consumer credit contracts. The focus this time was not on mortgage loans, but on credit agreements for relatively low sums, often concluded by consumers in financial distress. The judgment deals with three separate issues: 1) the scope and interpretation of the fairness test; 2) the principle of effectiveness as applied to the proof of an interest in bringing legal proceedings; 3) consequences of finding a term unfair, i.e. invalidity of the term vs. invalidity of the entire contract. The focus of this comment is on the first and the last point.

 

Facts of the case

 

Case C‑321/22, Provident Polska, involved three consumers who concluded credit contract with a non-bank credit institution. The contracts were quite similar: in each case the loan amounted to less than 2000 EUR and the interest rate was between 7.2% and 10%. The dispute was not about those sums, however, but about non-interest costs, which could be almost as high as the amount loaned. The relevant costs included a 'disbursement commission', 'administrative charges' as well as non-optional 'flexible repayment plan fees'. In addition, the amounts were payable only in cash in hand to an agent of the lender during visits made at consumer's home.

Fairness test

Contrary to first intuitions, the focus of the case was not transparency (although it does come up later in the judgment). Rather, what the referring court wanted to know was whether a term which provides for payment of amounts which are manifestly disproportionate to the service provided may be unfair. And, in short, the answer of the Court was yes (kind of).

Now, there are several issues to unpack.

Significant imbalance

First, can a "significant imbalance in the parties' rights and obligations arising under the contract" (Article 3(1) UCTD) at all be established on the basis of an quantitative economic evaluation, involving a comparison between the total value of the transaction and the costs charged to the consumer? According to the Court, it can.

Such a perspective differs from the focus that the Court normally takes in its UCTD case law. As a typical passage goes: "a significant imbalance can result solely from a sufficiently serious impairment of the legal situation in which the consumer (...) is placed" (para. 45). To establish such an imbalance a comparison needs to be made between the rights and obligations of the consumer under the contract and the relevant rights and obligations under otherwise applicable national rules. However, as the judgment in Provident Polska prominently shows, the reference to "resulting solely" does not mean that there can be no other source of a significant imbalance, but rather that a "legal imbalance" is sufficient. Thus, an imbalance of rights and obligations can also be established on the basis of a quantitative economic evaluation (para. 47).

Article 4(2) UCTD

Of course, this does not mean that all contract performances can now be analysed for fairness by comparing the value of the transaction to the costs charged to the consumer. Nevertheless, this follows not from the concept of a "significant imbalance", but rather from the exclusion in Article 4(2) UCTD. Pursuant to this provision

assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language.

The exception from Article 4(2) consists of two parts. The first one relates to the terms defining the "main subject matter of the contract". Not all fees charged by the trader are captured by that notion. For example, commission fees covering remuneration for services connected with the examination, grant or treatment of the loan do not (para. 51). The second part, however, is more relevant for our context and provides little space for assessing performances in economic terms. As noted by the Court:

terms relating to the consideration due by the consumer to the lender or having an impact on the actual price to be paid to the latter by the consumer thus, in principle, fall within the second category of terms covered by Article 4(2) of Directive 93/13 as regards the question whether the amount of consideration or the price as stipulated in the contract are adequate as compared with the service provided in exchange by the lender (para. 52).

Does it mean that excessive fees can never be assessed for fairness? Not quite. The Court is offering three ways out. The first two are well-known: minimum harmonisation (Article 8 UCTD) and transparency (Article 4(2) UCTD in fine). The third suggests that one cannot speak of assessing the adequacy of the price/remuneration as against the services or goods supplied, if no goods or services are supplied at all. In the words of the Court:

[I]f the unfairness of such a term is alleged before the national court on the basis of the lack of any actual service provided by the lender that could constitute consideration for a commission fee that it provides for, the issue thus raised does not concern the adequacy of the amount of that commission fee as compared with a service provided by the lender, and does not therefore fall within the scope of Article 4(2) of Directive 93/13 (...) (para. 54).

Overall, there are quite some hurdles to finding excessive fees unfair, but it is not impossible. The formulation of the Court's response is rather telling:

[P]rovided that the examination of the possible unfairness of a term relating to the non-interest costs of a loan agreement concluded between a seller or supplier and a consumer is not precluded by Article 4(2) of [the UCTD], read in conjunction with Article 8 thereof, such a term may be held to be unfair as a result of the fact that that term provides for the payment by the consumer of charges or a commission fee in an amount that is manifestly disproportionate to the service provided in exchange.

Partial removal of the clause

Another question concerned payment arrangements. The national court was quite convinced that the term requiring the consumer to pay in cash during the agent's visits at his or her home was unfair. Such a term - the court observed - could only be explained by the possibility it offered the lender to exert emotional pressure on the borrower. However, the court was not quite sure about the consequences it should draw from finding the unfairness.

Part of the problem was that the term formed part of a longer clause, which also defined other payment arrangements, e.g. amounts and dates. The referring court was thus unsure if it can remove part of the clause containing the unfair term (about paying in cash to the agent), or if it should rather invalidate the whole term. Since the latter would result in the inability to enforce the contract, the question was raised if the whole contract had to be annulled.

The Court of Justice considered it possible to remove part of the clause containing the unfair term and keep the remaining part in force. At first glance, this may seem incompatible with its previous case law. Indeed, the Court repeatedly found that the UCTD precludes a term that has been found to be unfair from being maintained in part, with the elements which make it unfair removed, where that removal would be tantamount to revising the content of that term by altering its substance (para. 89). However, this has to be distinguished from a situation "where the unfair element of a term consists of a contractual obligation distinct from the other requirements and capable of being the subject of an individual examination of its unfairness (...) since the stipulation laying down such an obligation may be regarded as severable from the other requirements under the term concerned" (para. 90).

This seems quite understandable. A clause can consist of several terms and it should not be generally impossible to remove only some of them. In the remainder of the judgment, the Court attempts to help with this assessment by drawing a distinction between "ancillary terms" and the "substance of the terms". In the words of the Court:

[I]t appears that a stipulation determining such specific arrangements for the performance of the consumer’s payment obligation constitutes a contractual obligation distinct from the other stipulations of a single term, as described in the preceding paragraph of the present judgment, and is ancillary to the elements of the contract which define the substance of that term, such as those relating to the determination of the amounts to be paid and the dates on which those payments must be made. Furthermore, the deletion of that stipulation does not appear to be such as to affect the very substance of the term concerned, since the consumer continues to be obliged to perform his or her repayment obligation in accordance with the other conditions laid down in that term by choosing any method of payment from among those which are permissible under national law (para. 93).

The added value of this distinction is yet to be seen. Was it not enough to say, as the Court did previously, that a clause can contain several distinct requirements which can be separately assessed for unfairness and which, therefore, can be invalidated independently of each other? The distinction between the substance of the terms and ancillary terms suggests a hierarchy, but a single clause can also refer to apples and oranges. Overall, the outcome is certainly well-founded, but the case law on the consequences of finding unfairness is not the easiest one to navigate.

Unfair terms case law in the first half of 2021: a retrospect

With the fall approaching, and the new case law season gradually unfolding, we decided to take a look back at the first half of 2021 and survey the developments in various consumer protection domains. In this post we present a short recap of the CJEU unfair terms case law, highlighting the cases we have not yet commented upon.

Firstly, for your convenience, here is a list of judgments on unfair terms on which we already reported in past months:

• Unfair terms and supplementary rules after Dexia (Joined Cases C‑229/19 and C‑289/19): rolling a dice?
  
• Of unfair terms, novation agreements and other not so magical creatures - CJEU in C-19/20
  
• No, Escobedo Cortés does not imply that double interest rates must be secured for traders (but nice try, Prima banka Slovensko)
• Sanctions for breaching national rules on consumer credit: the CJEU in C-303/20 [focused on Directive 2008/48/EC, but referring also incidentally to Directive 93/13/EEC]
• Cancelling credit contracts due to unfair terms: when does the view of the consumer matter? A quick judicial recap in OTP Jelzálogbank (C‑932/19)
  

As seen from above, credit agreements (including contracts for loans denominated in a foreign currency) continue to be of primary concern to the courts applying legislation implementing Directive 93/13/EEC. The same was also true the other decisions delivered by the Court in the first half of 2021. Most of them revolved around the questions which the Court had already considered before - the procedures thus often skipped written opinions or led up to the reasoned orders. 

 

Consider the following decisions - each concerned with the loan agreements denominated in a foreign currency:

• Case C‑364/19 Credit Europe Ipotecar IFN  

Should a contested term (here: relating to the exchange rate risk) be examined, as a matter of priority, in the light of the exception of the terms reflecting mandatory statutory or regulatory provisions (here: the principle of monetary nominalism) set out in Article 1(2) of the UCTD or in the light of the requirement of transparency arising from Article 4(2) of the Directive? This was the key question considered in case C‑364/19. According to the Court, the former is correct. In reaching this conclusion the Court referred among others to the judgment in Banca Transilvania, in which it similarly denied a stronger consumer protection in the context of Article 1(2). Accordingly, the second part of the preliminary reference, pondering the consequences of finding non-transparency, was deemed irrelevant.

• Case C-609/19 BNP Paribas Personal Finance 

The judgment in case C-609/19 considered three main questions. Firstly, do the terms stipulating that repayments at fixed intervals are allocated first to interest and providing for an extension of the term of the agreement to pay the account balance, and for an increase in monthly instalments qualify as the ‘main subject matter of the contract’ within the meaning of Article 4(2) UCTD? The Court recalled that the latter concept relates to the terms that lay down the essential obligations of the contract and, as such, characterise it - as opposed to ancillary conditions. As emerging from prior case law, terms that merely determine the conversion rate of the foreign currency, without any foreign exchange service being supplied by the lender, do not fall under Article 4(2) exception. By contrast, terms which relate to the foreign exchange risk define the main subject matter of that agreement. In the present case, the terms relating to the conditions for the repayment of the loan could be regarded as ancillary repayment arrangements, but could also be seen as giving concrete expression to the foreign exchange risk. It was ultimately for the national court to verify whether contested terms "relate[d] to the actual nature of the debtor’s obligation to repay the amount made available to it by the lender" (para. 38), and thus laid down an essential element characterising the agreement.

 

As regards the assessment of transparency the Court reiterated and systemathised its prior findings. Ultimately, the transparency requirement in foreign currency loans is seen as satisfied where the seller or supplier has provided the consumer with sufficient and accurate information to enable the average consumer, who is reasonably well informed and reasonably observant and circumspect, to understand the specific functioning of the financial mechanism in question and thus to evaluate the risk of potentially significant adverse economic consequences of respective terms on his or her financial obligations throughout the term of the agreement. The judgment higlighted the temporal dimension of B2C relationships (long term) and listed relevant factors, such as the scope of information, the language used in the pre-contractual and contractual documentation and the potential existence of unfair commercial practices. The judgment also specified conditions under which quantitative simulations can be useful to the consumer.

 

Finally, as regards substantive unfairness, the Court recalled that non-individually negotiated terms in B2C contracts are liable to cause a significant imbalance in the parties’ rights and obligations where the seller or supplier could not reasonably expect, in compliance with the transparency requirement, that the consumer would have agreed, in individual contract negotiations, to a disproportionate foreign exchange risk. The Court stressed the importance of transparency, as referred to in Article 5 UCTD, among the elements to be taken into account in the assessment of whether that term is unfair. Attention was further drawn to recital 16, referring to the strength of the bargaining positions and inducement of the consumer to agree to the term concerned.

• Joined cases C‑776/19 to C‑782/19 BNP Paribas Personal Finance

Considerations of the Court in these multiple joined cases were largely similar to those recounted above in respect of case C-609/19. This is especially the case in relation to the main subject matter to the contract, transparency and substantive unfairness. A further part of the judgment engaged with the principle of effectiveness in the context of transparency as well as limitation periods. Most notably, the Court elaborated that the burden of proving that a contractual term is plain and intelligible, for the purposes of Article 4(2) of the UCTD, should not be borne by the consumer (para. 79 et seq.). Pro-consumer findigns were also made in respect of limitation periods - both in the commented decision and in an earlier judgment C‑485/19 Profi Credit Slovakia.

Cancelling credit contracts due to unfair terms: when does the view of the consumer matter? A quick judicial recap in OTP Jelzálogbank (C‑932/19)

Yesterday the Court of Justice delivered its judgment in case C‑932/19 OTP Jelzálogbank, which like many previous cases dealt with unfair terms of foreign currency-denominated loans. The judgment largely reiterates CJEU prior case law - especially related to the possibility for national authorities to deem particular terms unfair and void and replace them retroactively with state-mandated provisions (see e.g. our previous comment on Dunai) and to the finding whether a contract is capable of continuing to exist without the unfair terms. An aspect of the judgment which is especially worth highlighting is the role of the consumer in the latter context.

Facts of the case

 

The case involved a Hungarian consumer who entered into several contracts for loans denominated in a foreign currency in 2007 and 2008. The loans contained terms which later proved very problematic, ultimately leading to a legislative action by the Hungarian legislature finding that terms establishing an asymmetry between the exchange rates applied when the loan was paid out and when the loan was repaid were to be void. Instead such unfair clauses were to be replaced by a provision intended to apply a single exchange rate, fixed by the National Bank of Hungary.

The consumer in the case at issue was not quite happy with the above solution and would rather have had the entire agreement cancelled. The consumer believed that this view found support in the CJEU decision in Dziubak, published in 2019. However, in the case at hand the Court did not quite share the consumer's opinion and instead reiterated prior case law related more specifically to legislative actions aimed at replacing terms deemed void. In doing so, the Court also recalled some limitations of such actions, remarked when courts can contuinue to review unfairness and remarked on the role of the consumer at the stage of finding whether an agreement containing unfair terms should be cancelled or not.

 

Judgment of the Court

 

When it comes to legislative actions mentioned above, attention should be drawn to the Dunai case. Here the Court found that, firstly, terms replacing unfair term under national legislation, in so far as they reflect mandatory statutory provisions, do not fall within the scope of Directive 93/13 in line with Article 1(2) of that directive. Secondly the Court observed that "in so far as the Hungarian legislature has remedied the problems connected with the practice relating to agreements containing a term relating to the exchange difference, by requiring the replacement of that term and by safeguarding the validity of the agreements concerned, such an approach corresponds to the objective pursued by the Union legislature in the context of [Directive 93/13 on unfair terms], namely to restore the balance between the parties while in principle preserving the validity of the agreement as a whole, and not to cancel all agreements containing unfair terms" (para. 40). 

While the Court had indeed made that finding in Dunai, and has now reiterated it in OTP Jelzálogbank, it is interesting to have a look at it once again in the light of recent judgment in Banca Transilvania. Here the Court explicitly found, disagreeing with the AG, that the fact that a balance between the rights and obligations of the parties has been struck does not constitute a condition for the application of the exclusion in Article 1(2) of Directive 93/13, but a justification for such an exclusion. In the present context, however, the question whether mandatory provisions aim to restore a balance seems more consequential. Such a dissonance can arguably be exaplained by the ex post nature of the intervention in the commented case and the Dunai judgment.

Nothwithstanding the above, the judgment in Dunai also contained an important caveat which the Court reiterated in OTP Jelzálogbank. Specifically, the Court recalled that Article 6(1) of Directive 93/13 does not preclude national legislation preventing the court seised from granting an application for the cancellation of a loan agreement on the basis of the unfair nature of a term relating to the exchange difference, provided that the finding that such a term is unfair allows the legal and factual situation that the consumer would have been in in the absence of that unfair term to be restored (para. 42). The consumer should, in particular, be provided with a right to repayment of the sums wrongly received by the sellers or suppliers concerned (para. 44).

Finally, the Court also made clear that any legislative action taken in respect of one term does not preclude the court from reviewing the unfairness of other terms of the contract, such as those relating to exchange rate risk (para. 45). Such a review can also lead to court to conclude that the contract is no longer capable of continuing in existance without unfair terms and should be cancelled in its entirety. The latter finding, however, cannot be based solely on a possible advantage for the consumer of the annulment of the agreement as a whole. The decision should rather be based on the criteria laid down in national law, and the situation of one of the parties to the agreement cannot be regarded, under national law, as the decisive criterion determining the fate of the agreement (para. 49). There is therefore a subtle, yet important, difference between the role of consumer's opinion in OTP Jelzálogbank and in Dziubak. In the former case, we consider an objective assessment whether the contract can continue in existence or not. In the latter, we speak about a situation when the court had already found that the contract cannot continue in existence without the unfair terms and the question is whether the entire agreement should thus be cancelled or rather gaps therein should be filled - here, following Dziubak, the view of the consumer remains decisive.

=> Blog updates: We will soon publish a wrap-up post about the developments in unfair terms case law over past months, signalling judgments we have not yet commented upon. Stay tuned!

No, Escobedo Cortés does not imply that double interest rates must be secured for traders (but nice try, Prima banka Slovensko)

Earlier this week the Court of Justice delivered a brief, yet noteworthy judgment in case C-192/20 Prima banka Slovensko. The case seems fairly stratightforward and the Court, in fact, proceeded to the judgment without a written opinion from the Advocate General. The judgment, nonetheless, provides a useful clarification of where Directive 93/13/EEC on unfair terms in consumer contracts (UCTD) and the associated CJEU case law do not reach. 

Facts of the case

The case involed a Slovak consumer, who concluded a loan agreement with a local bank for the amount of EUR 5 700 at an interest rate of 7.90%. Several months from the conclusion of the contract, the consumer began to default on his/her payments. After appox. 4 months of non-payment, the bank declared the early termination of the term of the loan and demanded the immediate repayment of outstanding ammount along with a default interest as well as an ordinary interest. 

The court hearing the case in first instance upheld the bank's action in part. Specifically, the court considered the claim for default interest to be valid, but dismissed the claim for ordinary interest, on the ground that Slovak law did not allow such accumulation. Indeed, national law appears to have posed certain limits on what creditors can claim in the event of consumer's default and the claims put forward by the bank arguably exceeded those limits. 

Here is where the case get interesting. In the appeal, the bank decided to invoke the previous judgment of the CJEU in joined cases C-96/16 and C-94/97 Banco Santander and Escobedo Cortés (see our earlier comment here). Specifically, the bank argued that the judgment required national legislation to ensure that a borrower who has failed to fulfil his/her contractual obligations should pay not only default interest but also ordinary interest.

Judgment of the Court

The grounds of the judgment essentialy consist of two parts. First, the Court considered the main legal questions in the case at hand. For the Court, these were actually linked not to the provisions of Articles 6(1) and 7(1) of the UCTD, referenced by the national court, but rather to the Directive's scope. Second,  doubts about the consequences of Escobedo Cortés were addressed.

In respect of the Directive's scope, the Court referred to Article 1(2) of the UCTD, which provides that contract terms which reflect mandatory statutory or regulatory provisions shall not be subject to the provisions of the Directive. This may not be immediately inntuitive, since controversy in the case at hand was rather that the terms did not reflect national provisions. The well-established reasoning of the Court in respect of Article 1(2), however, turned out to be useful to make a more general point: that it is not the goal of the UCTD to analyse the content of national mandatory statutory or regulatory provisions, which parties can incorportate into their contracts. It is presumed that national legislature has struck a balance between all of the rights and obligations of the parties to certain contracts, and the UCTD does not intend to interfere with that balance (para. 32). This has to be distinguished from the national provisions relating to the control of unfair terms, whose compliance with the UCTD can be investigated. In the case at hand, however, the contested provisions did not appear to relate to the review of unfair terms and were therefore excluded from the scope of the UCTD (para. 35). Therefore, the Court did not even have to recall that the UCTD is a minimum harmonisation directive.

While this would have sufficed to provide the refering court with useful guidance (that the UCTD was not applicable to the national provisions in question), the Court went on to dispell some doubts related to its previous judgment in Escobedo Cortés. The Court reiterated the context of that case: that it involved an assessment whether national case law that did not prevent the accumulation of interest rates complied with the UCTD. The Court considered that it did; however, it did not follow from that judgment that an accumulation of interests rates must always be ensured under national law (para. 41). It would indeed be rather odd if a directive that seeks to eliminate unfair terms from consumer contracts were to produce such a result.

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!  

Arbitration and effective consumer protection: a field of tension

The judgment of the EU Court of Justice (Grand Chamber) of 6 March 2018 in Slovak Republic v Achmea (C-284/16), a case concerning investor-state arbitration under a bilateral investment treaty (BIT), has raised a dust. The CJEU found that arbitration clauses common to almost 200 BITs between EU Member State violate EU law. The judgment is likely to have far-reaching consequences for intra-EU investment arbitration; it has even been called a "death sentence" for autonomous arbitral tribunals.

For consumer lawyers, the CJEU's findings as regards the relation between arbitral tribunals and State courts will be of special interest. A recurring issue in the context of unfair terms control is whether and to what extent judicial review of arbitral awards - in particular the arbitration clause on which they are based - is still required. Mostaza Claro and Asturcom are two well-known cases in this respect. They both pertain to the scope of the national court's power / obligation to assess of its own motion (i.e. ex officio) the unfairness of the arbitration clause, either in annulment proceedings or at the enforcement stage. Judicial review and ex officio control play a key role in the effective protection of consumers under Directive 93/13.

Source: 24x7newscast.com

In the Netherlands, the discussion about arbitration in consumer cases has recently resurfaced. The modus operandi of e-Court, an online platform offering digital dispute resolution, appeared to be contrary to EU (consumer) law.[*] First, the independence of e-Court was questionable: its main clients were health insurance companies who brought claims against consumer-debtors on a large scale. Secondly, consumers were not given a realistic choice between arbitration or litigation before a State court. Thirdly, the procedure was so short that consumers hardly had any time to defend themselves. Fourthly, undefended claims were automatically awarded by an algorithm (a 'robo-judge'). This 'robo-judge' did not seem to exercise unfair terms control. Fifthly, judicial review of e-Court's awards turned out to be limited, which could be problematic in light of the case law of the CJEU.

The example of e-Court shows tension between the 'efficiency' of alternative (out-of-court) dispute settlement and the effective (judicial) protection of consumers. In Achmea, the CJEU emphasised the importance of State courts in ensuring the full application of EU law and the judicial protection of the EU rights (and freedoms) of individuals. Insofar as an arbitral tribunal may be called on to interpret or to apply EU law, while it is not a court or tribunal of a Member State and thus not part of the judicial system, its awards must be subject to judicial review in order to ensure that questions of EU law which the tribunal may have to address can be submitted to the CJEU for a preliminary ruling. The CJEU also recalled that requirements of efficient arbitration proceedings may justify the judicial review of arbitral awards being limited in scope, provided that the fundamental provisions of EU law can be examined in the course of that review. The right to an effective remedy before a court of law (Article 47 of the EU Charter of Fundamental Rights), which includes the right of access to court, is such a provision.

Achmea may not be a "death sentence" for commercial arbitration in general, but as far as the application of EU law is concerned State courts - and, through preliminary references, the CJEU - have the final say. This could have implications for the assessment of arbitration clauses in consumer contracts as well.


[*] For our Dutch readers, click here for more background information. A debate about the 'robo-judge' of e-Court is organised at the University of Amsterdam on 22 March 2018 (programme in Dutch). 

Océano meets Francovich (part II): CJEU judgment on State liability and unfair terms

presov.virtualne.sk

Today the EU Court of Justice rendered its judgment in Case C-168/15 (Tomášová; available here in several languages). We reported on this case earlier (see our blog post 'Oceano meets Francovich: AG Wahl on state liability and unfair contract terms'). It concerns the question of State liability for the violation of EU law by a national court.

Ms. Tomášová, a consumer from Slovakia, alleged that the district court of Prešov, in pending proceedings for the execution of an arbitral award, had failed to examine ex officio the potential unfairness of contract terms in consumer credit agreements between her and Pohotovost' s.r.o., which included an arbitration clause. She claimed damages from the Slovakian Republic, because the enforcement of the arbitral award against her was based on an unfair term. Now, two crucial details here are that - according to the Slovakian court seized of the matter, the same district court of Prešov - execution proceedings had not been terminated yet and Ms. Tomášová had not made use of the possibility to claim restitution of the unduly paid amounts. The district court asked the CJEU, in short, (i) whether State liability arises if not all legal remedies made available by the law of the Member State have been exhausted and (ii) whether there is a sufficiently clear and serious breach of Community law in the present case. In its preliminary reference, the district court emphasised "the absolute inactivity" of Ms. Tomášová in the arbitral procedure and the ensuing execution proceedings. It also asked the CJEU about the relationship of compensation for damages on the one hand and unjust enrichment on the other, probably because Ms. Tomášová held both the Slovakian Republic and Pohotovost' liable. 

AG Wahl: balance between effective protection of rights derived from EU law and State liability? 

Advocate-General Wahl concluded, perhaps unsurprisingly, that it follows from the CJEU's case law (in particular, Köbler, Traghetti del Mediterraneo and Târșia) that State liability is limited to infringements of EU law by national judicial authorities whose decisions cannot be remedied in a higher instance. Decisive is whether the court involved is the court in final instance which has given a final and binding decision, so that the violation of EU law can no longer be remedied. Then, State liability may arise. AG Wahl observed that in the present case, a legal remedy seemed to be available against the decision in the execution proceedings, in any case for the party seeking enforcement. In her turn, Ms. Tomášová could have tried to annul the arbitral award. Therefore, AG Wahl stated that it was not possible to establish with certainty that the court involved - the district court of Prešov - would be a court in final instance, as long as a final and binding decision had not been given in the main dispute about the execution of the arbitral award. In other words, Ms. Tomášová's action for damages was premature. In AG Wahl's view, consumers do not enjoy special protection in this respect. 

The balance between the effective protection of rights derived from EU law and State liability is nevertheless a delicate one. AG Wahl's reasoning to conclude that the breach of EU law in the present case was not sufficiently serious, another condition for State liability, is not entirely convincing. For example, he puts forward that the court involved in the execution proceedings does not have all factually and legally relevant information before it to perform an ex officio examination of contractual terms. It can be contested that, while such an examination at the enforcement stage may not be desirable, it may be the only way to ensure the effectiveness of the Unfair Contract Terms Directive; see also AG Szpunar's opinion in Case C-49/14 (Finanmadrid), para. 62: "[A]s an exception and for lack of a better solution, where national procedural rules make no provision for such a review at any earlier stage, the onus is on the court with responsibility for enforcement to ensure that it takes place in the last resort." 

CJEU: the court involved could not have known...

The CJEU begins the present judgment with restating its case law on State liability for the violation of EU law by national judicial authorities. It then moves on to reiterate that there is a sufficiently clear and serious breach of EU law when the court involved fails to apply the applicable law and the CJEU's existing case law on the matter. In this respect, the CJEU refers to, inter alia, its famous judgment in the Océano case. In addition, the CJEU had said in 2006 (Case C-168/05, Mostaza Claro) that "the nature and importance of the public interest underlying the protection which the Directive confers on consumers" justifies "the national court being required to assess of its own motion whether a contractual term is unfair, compensating in this way for the imbalance which exists between the consumer and the seller or supplier" (para. 38). However, it was not until 2009 that the CJEU acknowledged the obligation of the national court to examine of its own motion the unfairness of contractual terms of its own motion, where it has available to it the legal and factual elements necessary for that task (Case C-243/08, Pannon). In the present judgment, the CJEU is careful not to undermine its subsequent case law on this obligation, in particular Asturcom (2009) and Pohotovost' (2010 and 2014). 

Yet, the CJEU jumps a little too fast to the conclusion that the fact that the decisions at issue in the present case date from 15 and 16 December 2008 precludes a sufficiently serious breach. The application in the Asturcom case dates from 5 February 2008, and thus predates those decisions. The present case was brought before the district court of Prešov, which had to rule upon the enforcement of the arbitral award. Regardless of Ms. Tomášová's inactivity or passivity, it must have been obvious to the court that the arbitral procedure resulting in the arbitral award was based on an agreement including an arbitral clause. Arguably, the court could have known that it might be required, when hearing an action for the enforcement of an arbitral award made in the absence of the consumer, to examine of its own motion whether the arbitration agreement was unfair term to the detriment of the consumer. It could be argued that the court could at least have considered to request a preliminary ruling itself, especially if it is possibly the court in final instance (cf. paras. 26 and 41 of AG Wahl's opinion, referring to Article 267(3) TFEU). Apparently, the CJEU does not want to burn its fingers on assessing whether the court involved was indeed a court in final instance, perhaps because it was not obvious from the case file whether or not all legal remedies available at the national level had already been exhausted (cf. para. 25 of AG Wahl's opinion). 

Last but not least, the CJEU considers that the rules for the compensation of damage as a consequence of a violation of EU law are determined by national law, subject to the principles of equivalence and effectiveness. For Ms. Tomášová, all hope is not lost: if it is true that the execution proceedings have not been terminated yet and/or if she can still challenge the validity of the arbitral award, she might be able to get her money back - whether in the form of damages or restitution.