Don't forget about the price tag: judgment in Spanish cases on mortgage costs and legal costs

Another judgment we haven't yet reported on this blog is the CJEU's judgment in Joined Cases C-224/19 CY/Caixabank and C-259/19 LG and PK/BBVA. In short, the judgment pertains to a clause that imposes the costs of vesting and cancelling a mortgage on the (consumer-)debtor, which can be viewed as an unfair term. Moreover, the judgment pertains to the limitation period that applies to claims for reimbursement - the topic of the day, see our previous blog - and legal costs.

The cases on mortgage costs, "gastos hipotecarios", have drawn a lot of attention in Spain. The CJEU 's judgment of 16 July 2020 in Caixabank opens the door to an estimated 8 million consumers who have taken out a mortgage and can now bring a reimbursement claim against their bank. Click here for an overview of costs that may be involved, including a registration fee. From the perspective of EU consumer law, the first part of the judgment is not even that revolutionary: if the cost clause at issue is found to be unfair, the consumer is entitled to reimbursement of the costs paid on the basis of that clause. In this respect, the CJEU confirms what it held earlier in Gutiérrez Naranjo: nullity is nullity. An exception is only possible if there is a national legislative provision - i.e., not the clause itself - that serves as a basis to impose costs on the consumer. In Spain, such an exception only exists for the so-called "Impuesto de Actos Jurídicos Documentados" (IADJ, a mortgage tax).

The second part of the judgment confirms earlier case law, in particular Gómez del Moral Guasch and Kiss and CIB on core terms and transparency. Articles 4(2) and 5 of the Directive preclude national case law that deems a contractual clause to be transparent in itself, without an analysis of whether it constitutes a core term and whether it is drafted in plain and intelligible language. The CJEU adds that the mere fact that the costs involved are part of the total price of a mortgage loan does not mean that they must be considered as relating to the main subject matter of the contract. In respect of opening costs - a fixed fee for setting up the mortgage - the CJEU concludes that the clause may cause a significant imbalance to the detriment of consumers when the bank cannot prove those costs reflect actual services or expenses.

According to the Spanish Supreme Court, the bank must pay 100% of the registration fee; the notary fee and administration costs must be split 50/50 between the parties. One of the referring judges in the Court in First Instance of Palma de Mallorca doubts this, because administration and taxation costs are made in the interest of the bank and the consumer has no other choice.

Your blogger is not the only one who finds the part of the judgment on the limitation period for reimbursement claims more interesting. Such a limitation period should not make it practically impossible or excessively difficult for consumers to exercise their rights. The CJEU reiterates that if the limitation period would start at the conclusion of the contract, irrespective of consumers' knowledge or awareness of their rights, this could run counter to the principle of effectiveness and the principle of legal certainty. In national case law, a 5-year period is applied that starts running from the moment a term is found to be unfair. The first time the cost clause at issue was declared unfair by the Spanish Supreme Court was on 23 January 2019. This would mean the limitation period does not expire until 5 years later, but there is no legislative provision currently governing this.

As regards legal costs, the CJEU holds that they may be an obstacle that deters consumers from exercising their rights. Pursuant to Article 394 of the Spanish Code of Civil Procedure, no cost order is issued - and the parties bear their own costs - if the claim is only partially awarded. If the consumer's request for nullity is granted, but the cost order is made dependent on the amount to be reimbursed by the bank, this may have a deterrent effect. Therefore, the principle of effectiveness precludes the application of Article 394 along these lines. Once the clause is found to be unfair, the bank should pay the legal costs.

CJEU in Lovasne Toth: 0-0 for AG Hogan and consumer protection

Dear readers, yesterday the Court of Justice (third chamber) published its decision in Lovasné Toth, a Hungarian case concerning the potential unfairness of contractual mechanisms facilitating debt recovery on the side of banks.

The referring court doubted the compatibility with the Directive - and with Hungarian law - of a clause allowing the lending bank to ask a notary, who had also underwritten the contract containing the clause itself, to certify the consumer's non-performance and turn the agreement into an executive title on the basis of the bank's own records.

In the proceedings before the CJEU, it appeared that there was some disagreement, in Hungary, whether such term did or did not have as a result an inversion of the burden of proof, to the consumer's detriment, in comparison with the otherwise applicable rules. The Kuria, ie the highest court, deemed the term to merely repeat Hungarian law. Some lower courts, however, disagreed.

Terms inverting the burden of proof to the consumer's disadvantage are blacklisted in Hungary and they are included in the Directive's annex at point q, concerning terms having the object or effect of:

excluding or hindering the consumer's right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.

Hence, if the terms in question did invert the burden of proof, they were illegal under Hungarian law, but Hungarian courts were divided on the issue. Was there possibly a different way of considering the terms unfair? This question must have been in the mind of the referring court when they formulated their preliminary ruling request - resulting in four possibly quite confusing questions. 

The first question sought to ascertain whether the Directive's annex on its own was tantamount to a total prohibition of terms reverting the burden of proof upon consumers. The CJEU's answer to this question is quite straightforward - no it does not. Member States legislators can include such terms in a so-called "black list" of forbidden terms, but otherwise the annex is always subject to the interpretation of national courts, who must consider the list in connection with the general criteria of article 3.

The second question tried to push the interpretation of the annex: if the list envisages terms that have the object or effect of hindering the consumer's access to justice, what about terms that legally do not do so while in practice making the consumer believe that their redress options are limited? To this question the court of justice answers in the negative, affirming that only an actual legal impediment is covered by the provision. On the other hand, should a notary stipulation such as the one in consideration make it possible for the creditor, under the applicable law, to have a final incontestable claim to the outstanding amounts - then the stipulation would be covered by the annex and very possibly be unfair.

The third preliminary question is the one that gets the potentially most controversial answer: if a clause if grammatically clear but its effects can only be understood by interpreting a controversial provision of the applicable law, should the professional provide the consumer with additional information in order to comply with the duty to use clear and comprehensible terms? This question arises in connection with a number of cases in which the court had said that clear and comprehensible means that the consumer must be able to understand what the consequences of a certain term are for their economic (Invitel) or legal (VKI v Amazon) position. Where provisions of national law actually directly impacted the meaning of a certain term, the cases suggested, not recalling them in the contract amounted to intransparent drafting. The Court explains that none of its previous decisions are directly relevant to this case. In the present case, according to the court, it would go beyond what can reasonably expected of the professional to require them to reconstruct the general rules of civil procedures and the allocation of the burden of proof - and related jurisprudence - in order to clarify the meaning of a term. (see para 69)

The problem with this answer, it seems to me, is the utter lack of reasoning leading to the statement - making the outcome very difficult to turn in guidance or a semblance of a legal rule. We now know that this would be unreasonable - but what would be reasonable? The previous case law could be made sense of by inferring a principle that, wherever possible, the consumer should be able to infer what a certain term meant for their interests. Do we need to take this as a case which still falls under this rule of thumb, but represents a situation where achieving clarity was not reasonably possible? Or should we take the court literally and interpret the decisions in Invitel, Andriciuc and Amazon to be entirely separate and each limited to a specific type of term and rule? 

The first interpretation makes more sense as a matter or legal logic, but the second is easier to square with the extremely casuistic language used by the Court throughout paras 61-68. I would still like to suggest that the quite sensible interpretation of transparency which transpired from the court's previous case-law should be maintained, and the case-by-case language put down to bad arguing on the side of a Court that had to make do of the absence of a sensible AG opinion (the very intense plead by AG Hogan may well have influenced the results in this case, but is not once quoted in the decision).

The fourth and last preliminary question concerned again the content of the annex: the referring court wanted to know whether item m), concerning terms giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract,, could also be interpreted to cover terms enabling the seller to unilaterally appreciate the appropriateness of the consumer's performance. According to the Court, it doesn't. It seems quite reasonable to claim, as the court does (at para 74), that the consumer's performance is clearly not what the provision is aimed at. A different interpretation, albeit possibly very welcome in terms of consumer protection, would have required a significant manipulation of the text's plain meaning and intentions.

To conclude, reading the decision feels a bit like one of those football matches where both teams have another game in a couple of days and little stakes in the night's result. A few nice passes, some questionable moves and in the end it's a draw and it's time to go to bed. Let's see whether there will be more games to come. 

Ex officio control of unfair terms presupposes an effective remedy: CJEU order in PKO Bank Polski

On 28 November 2018, the EU Court of Justice issued an order in PKO Bank Polski (C-632/17), which concerns the same issue as Profi Credit Polska (C-176/17), a case we have reported on earlier. In short, the question raised by the referring Polish court was whether the order-for-payment procedure at issue is incompatible with Article 7(1) of the Unfair Contract Terms Directive (93/13/EEC), because:

(i) the procedural rules restrict the consumer's right to lodge an objection against such an order for payment in such a way that there is a significant risk that she will not exercise that right, and

(ii) in the absence of the consumer, the court does not have the power to examine (a) the unfairness of the terms of the underlying credit agreement and (b) compliance with the requirements deriving from the Consumer Credit Directive (2008/48/EC).

Thus, there were two problems:

• The court's role is, in principle, limited to a review of formalities; it does not have available to it all the elements of fact and law arising from the credit agreement and thus, is not in the position to examine unfair terms. 
• The legal relationship resulting from the credit agreement is reviewed only if the consumer lodges an objection; the objection must meet various procedural requirements in an extremely short period (two weeks); and the consumer-defendant must pay a court fee that is three times greater than the claimant; see also our blog on Profi Credit Polska. 

In Profi Credit Polska, the CJEU already held that the Member States' obligation "to lay down procedural rules that ensure observance of the rights which individuals [i.e. consumers] derive from Directive 93/13", which "implies a requirement that there be a right to an effective remedy", also enshrined in Article 47 of the EU Charter of Fundamental Rights. The two above-mentioned problems combined prevented the court from carrying out the required assessment under the EU consumer protection legislation at issue. This is reiterated in PKO Bank Polski. The CJEU concludes that the Polish order-for-payment procedure is precluded by Article 7(1) of Directive 93/13 and Article 10 of Directive 2008/48/EC.

We can tentatively draw two conclusions from the CJEU's decisions:

1. While the CJEU (still) does not make a clear distinction between Article 7(1) of Directive 93/13 (which requires "adequate and effective means" against unfair terms) and Article 47 of the Charter, it appears that the first presupposes the latter. If a case is not brought before the court, it cannot perform unfair terms control (either ex officio or at the consumer's request). In case of an "inversion of the dispute", i.e. it is the defendant – here: the consumer-debtor – who must initiate adversarial proceedings by lodging an objection, the court must determine whether the procedural rules infringe the consumer's right to an effective remedy (or rights of the defence, for that matter) as guaranteed by Article 47 of the Charter. If the obstacles are too high, there is a significant risk that consumers will not lodge and objection. 
2. The CJEU seems to suggest that the national court must be able to perform ex officio control, whether the consumer involved invokes the existence of unfair terms or not. This is in line with its earlier case law, see e.g. Banesto and Radlinger. But how does the referring Polish court obtain the necessary information? One possible answer is that the creditor must submit the underlying credit agreement in evidence. This calls into question the entire order-for-payment procedure, which is based on only a banking ledger excerpt. Is such an excerpt sufficient? And what should happen in the absence of the consumer? Should she be required to lodge an objection at all? The CJEU does not answer these questions. 

In its case law on other types of debt collection proceedings, the CJEU did not consider an "inversion of the dispute" to be contrary to EU (consumer) law in itself, as long as there were judicial remedies available to consumer. We have brought this up in previous blog posts.

However, PKO Bank Polski shows why a reliance on the consumer's initiative might be problematic, exactly because of the procedural obstacles discussed in light of Article 47 Charter. Removing those obstacles is a first step. Preventing creditors from circumventing judicial control – by allowing them to resort to extrajudicial enforcement procedures or to withhold information from the court – would be the next.

Conference and call for papers on New Deal for Consumers

On 11-12 April 2019, the conference A New Deal for Civil Justice? The New Deal for Consumers and the Justiciability of EU Consumer Rights will take place in Amsterdam. It is organised by the Centre for the Study of European Contract Law (CSECL) and revolves around the New Deal for Consumers that was proposed by the European Commission on 11 April 2018. The conference focuses on issues of civil justice that the New Deal aims to address – as well as, crucially, the questions it appears to raise. It will bring together researchers interested in (the future of) European private law, civil procedure, consumer law and, possibly, others with an interest in the enforcement of EU law and EU constitutional law.

For more information and the call for papers, click here. 

CSECL particularly welcomes papers that expressly address the interaction and tension between different functions of (consumer law) adjudication and enforcement mechanisms, as well as the converging or diverging (public and private) interests involved at the different relevant levels. Who or what is the New Deal for?

Are 'effectiveness' and 'effective judicial protection' synonyms? Judgment of the CJEU in Case C-483/16

Today the EU Court of Justice issued its judgment in Case C-483/16 Sziber v ERSTE Bank Hungary. We have reported earlier on the Opinion of Advocate General Wahl in this case, which touches on the relation between the principles of equivalence and effectiveness on the one hand and the right to effective judicial protection, as guaranteed by Article 47 of the EU Charter of Fundamental Rights, on the other.

According to the referring court, the problem in this case was that the consumer - Mr. Sziber - had not amended his application as requested; under the new Hungarian legislation (also discussed on this blog here) he should have specified which legal consequences he wished to obtain if the contract were to be found invalid and, in particular, to which repayments he would be entitled to exactly. Because he did not do so, the referring court could not examine the case on the merits. Therefore, it asked the CJEU whether it was compatible with the Charter as well as with Article 7 of Directive 93/13/EEC to require the consumer to provide additional information in civil proceedings.

The CJEU refers to its judgments in Unicaja, Pereničová and Gutiérrez Naranjo to reiterate that consumers have, in principle, the right to restitution of amounts that have been unduly paid on the basis of unfair terms. As regards the procedural rules governing claims falling within the scope of Directive 93/13/EEC, the EU Member States have procedural autonomy, subject to the principle of equivalence and - here it gets interesting - Article 47 of the Charter (Sziber, para 35). The CJEU does not (separately) mention the principle of effectiveness, even though it still did so in Sales Sinués, the judgment it refers to in this respect. Has the 'effectiveness' of the Directive been replaced with 'effective judicial protection', or are they synonyms?

The answer seems to be: not necessarily. In paras 49-53, the CJEU focuses on the question whether there is an infringement of the (individual) right to effective judicial protection and if so, if this can be justified because it is legitimate and proportionate (paras 51-52). This is very similar to the test of Article 52(1) Charter. In principle, the existence of special procedural requirements for consumers does not mean that they do not enjoy effective judicial protection; they can be requested to provide the court with additional information. The purpose of those requirements is to relief the burden on the judicial system due to the great number of cases, which serves the general interest of a proper administration of justice. This may prevail over individual interests. It appears that the procedural rules at issue are not so complicated or severe that they disproportionally affect the consumer's right to effective judicial protection, but it is up to the referring court to determine this.

Moreover, ERSTE Bank and the Hungarian government have emphasised that consumers have the possibility to claim repayment and compensation under the new legislation. The CJEU holds that, if this indeed turns out to be the case, or if consumers have other effective procedural means at their disposal, the effectiveness of the protection intended by the Directive does not preclude the procedural rules at issue (para 54). Here, the focus is on the availability of "adequate and effective means" (Article 7 of the Directive) rather than on justification(s) for a possible infringement of Article 47 of the Charter.

Today's judgment suggests that that 'effectiveness' and 'effective judicial protection' call for different tests, in the context of Directive 93/13/EEC. This could be seen as a confirmation that they entail different perspectives. In the case of Sziber this may not lead to a different outcome, but there are cases where it would arguably have made a difference [*].

Lastly, it should be noted that the CJEU leaves it up to the referring court to decide whether the principle of equivalence has been met (paras 37-48). It also concludes - unsurprisingly - that Directive 93/13/EEC applies in domestic consumer disputes as well, where there is no cross-border element.


[*] See e.g. Anna van Duin, 'Article 47 EUCFR and Civil Courts: The Case of Arbitration Clauses in Consumer Contracts (the Netherlands vs Spain)', Working Paper 5/2018, Jean Monnet Chair of European Private Law, available at https://ssrn.com/abstract=3186531. 

POLITICO publishes draft Commission proposal on collective redress for European consumers

POLITICO, a well-known news website on European affairs, reports that it has obtained a draft proposal of the European Commission for a new Directive on representative actions for the protection of the collective interests of consumers, and repealing the Injunctions Directive (2009/22/EC; referred to as "ID"). Last year, the Commission already announced a 'New Deal for Consumers', including an EU-wide class action and collective redress; see our blog post here.

One of the drivers of this development has been the "the inquiry into emission measurements in the automotive sector", i.e. 'Dieselgate'; see our previous blogs here, here and here. Not all Member States provide for collective redress mechanisms tailored for mass harm situations, so not all consumers have access to effective redress opportunities. According to the Commission, the significant disparities among Member States require EU intervention, particularly in light of the cross-border implications; although the proposal applies to domestic infringements of EU law as well.

The draft proposal is a follow-up to the REFIT Fitness Check of EU Consumer and Marketing Law, which also covered the ID, and to Commission Recommendation 2013/396/EU. The Commission states its intention to further strengthen the redress and enforcement aspects of consumer protection (Article 114 TFEU and Article 38 EUCFR), through the establishment of a complementary EU framework supported by procedural rules on the national level. This should also facilitate access to justice (cf. Article 47 EUCFR); possible benefits of collective judicial actions are lower costs and more legal certainty. The proposal is meant as an additional procedural tool: it does not replace existing mechanisms, nor does it affect substantive rights.

The proposed Directive establishes "certain key aspects", but its lack of further detail is also its weakness. For example, it does not specify which divergences between Member States or gaps in the protection of collective consumer interests are most problematic. It does not make a clear distinction either between injunction orders, redress orders and declaratory decisions, nor does it address corresponding procedural complications and modalities.

The Commission does not explain why the ID needs to be improved and which specific elements need an update. It only observes that the key shortcomings of the ID are its limited scope, the limited effects of injunctions on redress for consumers and the costs and length of the procedure. The Commission therefore proposes to enlarge the scope of the future Directive to other horizontal and sector-specific EU instruments, e.g. in the field of financial services, energy, telecommunication, health or the environment. Consumers who have been harmed must be able to rely on a final decision in a representative action (Article 8 draft proposal). The proposal aims to improve the effectiveness of injunctions in terms of deterrence of unlawful practices, as well as fair and adequate compensation for consumers, but how exactly those goals are to be achieved is not elaborated. Moreover, the proposal aims to strike a balance between facilitating access to justice and ensuring adequate safeguards from abusive litigation (frivolous claims), but again modalities are not defined. The proposal works with 'qualified entities' that must satisfy certain criteria (Article 6 draft proposal), and it emphasises the importance of 'due procedural expediency'. However, how this is to be realized is left to the Member States.

In the Netherlands, for instance, a legislative proposal is pending for the introduction of a collective damages action. The ongoing discussion shows how difficult it is to find a balance between access to justice and effective redress on the one hand, and the prevention of abuse on the other; see here and here for more background information. The most controversial issues, such as the designation of a lead plaintiff, opt-in/opt-out possibilities and the calculation of damage, are not addressed in the Commission's draft proposal. 

It is expected that the Commission will announce its proposal (this draft or an amended version) in the next few months. It is far from certain that it will eventually result in a Directive. Whether it will be adopted or not, the proposal is likely to have an impact on the debate on collective redress.

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). 

Report on the procedural protection of consumers

The European Commission has published a long-awaited report (see our previous blog posts here, here and here) on the impact of national civil procedure on the protection of consumers under EU law; click here for the press release and the full report. The report has been prepared by a consortium of European universities led by the MPI Luxembourg for Procedural Law. The study, which is based on national reports from the EU Member States as well as an online questionnaire and interviews, evaluates whether and to what extent national procedural laws and practices ensure the effective procedural protection of European consumers. The report clearly illustrates that "procedural law matters" [scroll down for more].

Source: www.mpi.lu

As the report points out (p. 28), the application and enforcement of (substantive) EU consumer law largely takes places at the national level. However, there is no equal or level playing field across the EU, and national courts are facing difficulties in understanding and implementing the case law of the CJEU concerning procedural consumer protection. The main uncertainties and divergences pertain to the concept of a 'consumer' (e.g. how to recognise a 'consumer dispute', especially in case of default), the approach to judicial activism and ex officio control (in 'ordinary' proceedings, appeal, payment order and enforcement proceedings), jurisdiction and arbitration issues (cf. the Brussel Ibis Regulation) and the interfaces between individual and collective actions. 

The report consists of an executive summary, followed by five Chapters: (1) the general structure of procedural consumer protection (different systems and mechanisms for enforcement), (2) access to justice (costs, legal aid and knowledge), (3) consumer actions before national courts ('party disposition' vs. an active court, ex officio application of EU consumer law, different types of procedures), (4) actions for collective redress (injunctive vs. compensatory relief, staying of claims, binding effect), and (5) alternative dispute resolution (scope, voluntary or mandatory nature, judicial review). Each chapter provides a summary of the status quo, identified problems and, finally, proposals, improvements and recommendations. In addition, the Annex contains selected data from the national reports. 

The report finds that (p. 29) it "might be advisable to consider providing for minimum standards of consumer protection in civil proceedings in order to improve consumers’ access to justice and increase legal certainty and transparency in these proceedings" [emphasis added]. It also "appears advisable to clarify and strengthen the role of consumer protection associations when filing individual or collective claims". See in this respect the report on collective redress mechanisms, published simultaneously. 

The Commission has already announced a 'New Deal for Consumers', to further strengthen ways of enforcement and redress for consumers. 

Procedural autonomy and effectiveness - a delicate balance; Opinion of AG Wahl in C-483/16 Sziber

For those who are interested in consumer credit agreements in a foreign currency, the legal consequences of unfair terms and the 'proceduralization' of Directive 93/13, we will discuss the Opinion of Advocate General Wahl in Sziber (Case C-483/16) that came out last week. This case is a successor to the much-discussed Kásler judgment (C-26/13). In short, the questions asked to the EU Court of Justice by the referring court from Hungary pertain to national legislation adopted after Kásler and follow-up case law of the Kúria, the Hungarian Supreme Court.[*]

Source: ERSTE Bank Hungary

Mr. Zsolt Sziber - a consumer - had brought an action against ERSTE Bank Hungary, claiming that the agreement he concluded with the bank was invalid in its entirety, inter alia because the bank had not carried out a credit assessment, because the contract contained a foreign currency conversion without clearly stipulating the exchange rate , and because he could not evaluate the extent of the risk on the basis of unintelligible information. Alternatively, he sought a declaration that some of the contractual terms were unfair and thus invalid. During the proceedings, the applicable national laws were amended and additional requirements were introduced. The new legislation applies to consumer credit agreements concluded between 2004 and 2014. It declares standard terms void that set, for the purpose of repayment of the debt, a different exchange rate from the one set when the loan was paid out. Those terms are replaced by the official exchange rate for the foreign currency concerned. Standard terms that permit the unilateral increase of the interest rate, costs and commissions are also deemed to be unfair (and void). The sums paid in excess have to be refunded, and the credit institution must carry out a 'settlement of accounts' with the customer. 

In addition, to harmonise the case law, transitional procedural rules provide that the contracting parties may make an application to the court for a declaration of (partial) invalidity, but only if they also request determination of the legal consequences of invalidity, including the settlement of accounts between them. Otherwise, the application is inadmissible and the court may not examine the case on the merits. 

The referring court found that Mr. Sziber was entitled to a refund and invited him to amend his application in line with the new legislation, but he failed to do so. Therefore, the referring court considered itself unable to rule on the merits of the case, which meant that Mr. Sziber would be left empty-handed. Subsequently, the referring court raised doubts as to whether the national laws involved were compatible with EU law, in particular Articles 38 and 47 of the EU Charter of Fundamental Rights, Directive 93/13 and Directive 2008/48 (which, according to AG Wahl, does not apply to the present case; see para 29). In the referring court's view, the additional requirements were prejudicial to consumers, whether applicant or defendant. Moreover, these additional requirements did not apply to consumers who had not entered into a credit agreement between 2004 and 2014 or who entered into a different kind of agreement. Then, it suffices to merely seek a declaration of invalidity, without having to specify the legal consequences. 

AG Wahl's Opinion is divided in two parts: (i) admissibility, and (ii) substance, i.e. the 'equivalence and effectiveness' test. 

First, AG Wahl remarks that the national legislation at issue already seems to have the effect of rendering the contractual terms that Mr. Sziber regarded as unfair null and void (para 32). In Kásler, the CJEU held that Directive 93/13 does not preclude provisions of national law "enabling the national court to cure the invalidity of that term by substituting for it a supplementary provision of national law". So far, so good: new legislation has indeed been adopted in Hungary. The problem in this case, however, is that the referring court was prevented from 'curing the invalidity', due to the applicable procedural rules. In this respect, the case appears to be a classic example of national procedural law that could make the exercise of consumer rights under e.g. Directive 93/13 "impossible or excessively difficult". Although the Member States have procedural autonomy, they must still observe the principles of equivalence and effectiveness. Furthermore, according to established case law of the CJEU, the full effectiveness (effet utile) of Directive 93/13 requires that national courts offer consumers ex officio protection against unfair contract terms. 

Yet AG Wahl's Opinion shows how delicate the balance is between procedural autonomy and effectiveness. He even concludes that the case is inadmissible, because Mr. Sziber's claims regarding unfair terms have already been addressed by the national legislation at issue. The remaining claims are unrelated to EU law, says Wahl (para 32). At the same time, Wahl acknowledges that, as a consequence of Mr. Sziber's inaction, the referring court had to dismiss the claims before it could substitute the terms and/or order a refund (cf. para 64 of the Opinion). Why, then, the case would be inadmissible is a bit of a mystery.

AG Sharpston states in a recent Opinion - referring to Asturcom (C-40/08) - that, while the national court does not have to make up fully for 'total inertia' on the part of a consumer, the Directive must be applied irrespective of the parties' procedural actions or submissions, except (of course) if none of them has brought proceedings. Indeed, the CJEU has held in Asturcom that the national court must assess the potential unfairness of contractual terms of its own motion, "in so far as, under national rules of procedure, it can carry out such an assessment in similar actions of a domestic nature. If that is the case, it is for that court or tribunal to establish all the consequences thereby arising under national law, in order to ensure that the consumer is not bound by that clause". This appears to seamlessly apply to the present case.

In light of the CJEU's case law, AG Wahl's Opinion is all the more curious. Not only does he seem to defend a rather 'passive' role for national courts (cf. para 54), he also argues that placing a heavier burden on the consumer is justified. In his view, the new procedural rules are "more favourable" than the ordinary rules: they would make the enforcement of consumer rights more simple, quicker and cheaper (paras 51-52). It may be true that specific, possibly more effective procedures have been introduced for consumers, but in Mr. Sziber's case they are not of any help. For Mr. Sziber, the new requirements do have "unfavourable consequences" (para 64). Thus, the question should not be whether the new system "taken as a whole" (para 50) is compatible with EU law, but whether Mr. Sziber and other consumers in a similar position are afforded sufficient protection of the rights they derive from Directive 93/13. Wahl does not substantiate why it would be legitimate and necessary to request that claimants like Mr. Sziber make an extra effort by submitting an 'express' and 'quantitatively defined' claim (cf. paras 54-55 and 59-62). He does not explain either why the adoption of such additional steps would not prejudice the effective judicial protection of Mr. Sziber's rights, in particular his right of access to court, guaranteed by Article 47 of the Charter (cf. para 65). Unfortunately, the referring court does not seem to have provided much more information. For instance, why could the desired outcome - a settlement of accounts - not be achieved by requiring the bank to provide the necessary documents? We hope that the CJEU's judgment will clarify which test is to be applied here, as well as how procedural autonomy, effectiveness and, finally, effective judicial protection are (inter)related.

[*] For more details, see: Judith Fazekas, 'The consumer credit crisis and unfair contract terms regulation - Before and after Kásler', Journal of European Consumer and Market Law 3/2017, pp. 99-106.

The ‘proceduralization’ of Directive 93/13 and its limits

The CJEU's judgment in Banco Santander (C-598/15) that came out this week is the latest addition to a growing body of case law on procedural obstacles to consumer protection under Directive 93/13. The focus on procedures and the role of national (civil) courts in ensuring the effectiveness of the Directive, i.e. its 'proceduralization', has been the subject of debate between judges, legal practitioners and academics for a while now. It receives attention from the European Commission as well (see, e.g., the REFIT report of the European Commission, the RE-Jus project aimed at providing judicial training, and a much-anticipated study of the Max Planck Institute Luxembourg). However, Banco Santander reveals the limits of 'proceduralization' driven by preliminary references to the CJEU.

In this case, the referring Spanish court was confronted with a fait accompli, which made the judicial review of unfair contract terms impossible. It all started with a mortgage loan agreement between Banco Santander and Ms. Sánchez Lopez. The contract contained a clause - Clause 11 - by which Ms. Sánchez not only expressly agreed to enforcement through extrajudicial proceedings, but also authorised the bank to execute the sale of the mortgaged property on her behalf. Thus, the bank could represent Ms. Sánchez before the notary drawing up the sale instrument without her attendance. The bank had initiated (compulsary) mortgage enforcement proceedings, the property was acquired by the bank for 59.7% of the value, and the sale instrument had been entered into the land register, while Ms. Sánchez continued to owe the residual debt. At first, the bank had allowed her to stay on the premises as a tenant. Later, it brought a claim seeking an order for the eviction of Ms. Sánchez from the property. 

The referring court questioned the compatibility of the applicable procedural framework with Directive 93/13. The problem was that it was 'too late' for ex officio control of the unfairness of the terms - in particular Clause 11 - of the underlying mortgage contract: the transfer of ownership had already taken place. The court was merely required to enforce and protect the bank's property right. One the one hand, it could be said that Ms. Sánchez should have challenged the mortgage enforcement in time. On the other hand, the question could be raised (a) if she had any incentive to do so, because the bank initially allowed her to stay, and (b) whether she was actually aware of her rights, given the fact that the extrajudicial proceedings and the sale had taken place entirely without her involvement. 

Last June we reported on this blog that Advocate General Wahl's answer to the referred questions in this case was, in short: "we can't help you". Directive 93/13 simply does not apply to proceedings concerning property rights. The CJEU basically gives the same answer, but with two important nuances: (i) the proceedings are independent of the legal relationship between the creditor (the bank) and the consumer; and (ii) the consumer has not availed herself of the legal remedies provided. We will discuss these nuances below.

I. No link between the present proceedings and the mortgage

The scope of application of the Directive and the CJEU's competence are limited to proceedings concerning contractual relationships, whereas the present proceedings concerned property rights. Here, the party who had lawfully acquired the property happened to be the bank, but any (other) interested third party could have become the owner. Against such a third party, the consumer-debtor cannot invoke a defence based on the mortgage contract between her and the bank. 

Yet, the CJEU does not stop here. It recalls that "it has been held, in particular as regards enforcement proceedings for mortgages, that, failing effective review of the potential unfairness of contractual terms in the instrument on the basis of which the property is seized, observance of the rights conferred under Directive 93/13 cannot be guaranteed" (para 46; emphasis added). The CJEU refers to, in particular, Finanmadrid and Aziz. As the CJEU explains, the difference between this case and Aziz is that here, the action is brought on the basis of an ownership instrument as entered in the land register. This suggests that the CJEU is sensitive to the doubts of the referring court as to the course of events in the present case. It almost seems to regret that no question was asked about the unfairness of the terms in the mortgage contract, within the meaning of Article 3 of the Directive (cf. the obiter dictum in para 48). In this respect, it is a pity that the question regarding the role of the notary was inadmissible (para 31). 

II. Availability of legal remedies

The CJEU also reiterates the importance of guaranteeing effective judicial protection to consumers (cf. Article 47 of the EU Charter of Fundamental Rights), by enabling them to contest the contract at hand in legal proceedings, including in the enforcement phase, and under reasonable procedural conditions (para 38). The CJEU considers that "it appears" that legal remedies were available to Ms. Sánchez, "subject to verification by the referring court" (para 49). The choice of words - the CJEU uses "opportunity" - is interesting. What if such an opportunity existed from a strictly legal perspective, but Ms. Sánchez was, in fact, deterred from using it as a consequence of Clause 11 and the bank's conduct, reinforced by the procedural rules at issue? The effective judicial protection of consumers under Directive 93/13 is based on the presumption that a case comes before a court, as was observed in an Opinion by AG Sharpston last week. Here, we run into the limits of 'proceduralization'. Perhaps it is time to recognise that the mere existence of a legal remedy is not enough; perhaps, there is a need for a shift in focus to the more fundamental question whether a certain procedural regime is justified in light of the interests it aims to protect [*].

[*] See for a first exploration: Anna van Duin, 'Metamorphosis? The Role of Article 47 of the EU Charter of Fundamental Rights in Cases Concerning National Remedies and Procedures Under Directive 93/13/EEC', available on SSRN. 

Flight cancellation saga continues: enforcement action against Ryanair in the UK

Following up on our previous blog post and on the ongoing Ryanair scandal, our readers may be interested that the Civil Aviation Authority (CAA), the UK's aviation regulator, started an enforcement action against Ryanair. The CAA alleges that Ryanair persistently mislead passengers by providing inaccurate information regarding their rights guaranteed by Regulation 261/2004 in respect of the cancelled flights, particularly their rights about re-routing, and reimbursement of expenses caused by the cancellation (for example, meals, hotels and transfer costs).  With these omissions Ryanair has breached the Consumer Protection from Unfair Trading Regulation 2008 (implementing Directive 2005/29/EC on Unfair Commercial Practices), the breach of which triggered the empowerment of the CAA to use enforcement actions for the protection of collective interest of consumers based on the Enterprise Act 2002. With the enforcement action the CAA now asks Ryanair to change its practice (voluntarily), should this not be the case, the CAA will then seek a court injunction against Ryanair (see for more here).

As we have discussed previously, enforcement matter of EU-wide infringements such as this (where a large number of EU consumers in various Member States are affected) essentially remain national (see our posts here and here). So the question that logically follows is, what have other countries do to make Ryanair to protect their customers? Has there been a similar action in your Member State? Please share this information with our readers in comments below.

Extrajudicial procedures and effective consumer protection: CJEU in Margarit Panicello (C-503/15)

Today's judgment of the EU Court of Justice in Margarit Panicello (C-503/15) is part of a set of cases on the compatibility of extrajudicial procedures with (the effectiveness of) Directive 93/13/EEC on unfair terms in consumer contracts and Article 47 of the EU Charter of Fundamental Rights. The common feature seems to be that the CJEU does not consider extrajudicial procedures as such to be necessarily problematic, as long as there are judicial remedies available to consumers to contest enforcement. In Kušionová, for example, the possibility for the national court to adopt interim measures suggested that adequate and effective means existed as required by the Directive, read in conjunction with Article 47. In ERSTE Bank Hungary, it was deemed sufficient that consumers could bring legal proceedings against the disputed contract, including in the enforcement phase. By contrast, in Finanmadrid, the involvement of a Secretario Judicial (court registrar) instead of a judge, who could issue a binding and enforceable order for payment, was found to undermine the effectiveness of the protection intended by the Directive. 

Today's judgment in Margarit Panicello concerns the compatibility of Spanish procedural rules providing for an extrajudicial procedure for the recovery of unpaid legal fees - called 'jura de cuentas' - with Article 47 of the Charter. 

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Article 47 of the Charter safeguards the fundamental right to an effective remedy and a fair trial before a court of law for the violation of rights and freedoms guaranteed by EU law. As we have reported on this blog, Advocate General Kokott concluded that the procedural rules at issue were indeed contrary to Article 47 of the Charter as well as Directive 93/13/EEC (and Directive 2005/29/EC concerning unfair business-to-consumer commercial practices). Before coming to this conclusion, the AG extensively argued that the Secretario Judicial who had made the preliminary reference should be considered as a "court or tribunal" within the meaning of Article 267 TFEU (and Article 47 of the Charter). Her main arguments were that the procedure at issue was very similar to the order-for-payment procedure in Banco Español de Crédito and Finanmadrid. The Secretario Judicial adjudicates independently and autonomously on a legal dispute in inter partes proceedings, which result in a decision that can be enforced in the same way as judicial decisions. 

The CJEU, however, holds that the Secretario Judicial is not a "court or tribunal" for the purposes of Article 267 TFEU. Therefore, it has no jurisdiction to rule on the Secretario Judicial's request for a preliminary ruling. The CJEU suggests that it should be the court that can order the enforcement of the decision to refer a question to the CJEU. Although this outcome may be not so surprising, the CJEU's reasoning is more difficult to follow. The judgment contains several considerations that are hard to reconcile with the CJEU's substantive assessment in, in particular, Finanmadrid. 

The extrajudicial procedure at issue

Ms. Hernández Martínez (the client) had engaged the services of a lawyer, Mr. Margarit Panicello (the lawyer), to represent her in proceedings about the custody of her children. Unfortunately, after the proceedings had ended, a dispute arose over the amount owed by the client to the lawyer. It appeared that the lawyer had failed to inform the client of the estimated costs of his services. The lawyer brought an action against the client for the recovery of legal fees before the Secretario Judicial at the court seized of the matter those fees had been incurred in. The extrajudicial procedure at issue ('jura de cuentas') is intended to ensure the rapid determination of the enforceability of specific legal fees, when it can be demonstrated that the claim is well-founded.

The Secretario Judicial had doubts whether the applicable procedural rules are compatible with Directives 93/13 and 2005/29, and Article 47 of the Charter in so far as they (i) do not allow the Secretario Judicial to verify ex officio whether there were any unfair terms or unfair commercial practices, (ii) restrict the possibility for the client to produce evidence to contest the amount claimed by the lawyer, and (iii) result in a decision that may not subject to appeal but enables the lawyer to request enforcement immediately. During the 'jura de cuentas', it is not possible for the client either to lodge a suspensory objection based on the (alleged) existence of unfair contract terms. 

A "court or tribunal" within the meaning of Article 267 TFEU?

As mentioned above, the CJEU's conclusion is that the Secretario Judicial was not entitled to refer a request for a preliminary ruling. According to settled case law, the Court takes into account several factors when determining whether a certain body is a "court or tribunal" for the purposes of Article 267 TFEU:

- Is it a body established by law?
- Is it permanent?
- Are rules of law applied?

AG Kokott concluded that there was no question about these factors.

- Is the procedure inter partes?

The AG concluded that this was indeed the case: the 'jura de cuentas' becomes adversarial when the client opposes the claim. The CJEU does not find it necessary to examine the above-mentioned factors, because other criteria were not satisfied in its view. 

- Is it an independent body?

The CJEU finds that the Secretario Judicial satisfies the internal aspects of independence (i.e. objectivity and impartiality as regards the parties and their respective interests), but not the external aspects: the Secretario Judicial is a civil servant and answerable to the Minister of Justice. 

By contrast, the AG argued that, despite their status as civil servants rather than members of the judiciary, Secretarios Judiciales exclusively act in accordance with the competences conferred to them by law. Their employer may not exert any influence over ongoing proceedings or issue instructions in relation to specific cases. 

- Is jurisdiction compulsory? 

The AG pointed out that once the lawyer initiates the 'jura de cuentas', the client automatically becomes party to the procedure. Thus, it is not voluntary for the client. The CJEU nevertheless finds that the 'mandatory' nature is lacking; the 'jura de cuentas' is purely ancillary and discretionary. It is only available if the original court proceedings have already ended. The lawyer can freely choose between this procedure and a judicial action for a declaration or an injunction to pay. The CJEU acknowledges that the Secretario Judicial's jurisdiction does not depend on the agreement of the parties, but considers that the procedure at issue is "placed on the periphery of the national court system" (par. 34). The 'jura de cuentas' does not preclude the commencement of a judicial action before a court of law, and it does not result in a decision with the force of res judicata. 

The AG made a distinction between 'procedural' res judicata and 'substantive' res judicata. The decision of the Secretario Judicial is not subject to appeal, but it is without prejudice to any subsequent proceedings on the substance of the matter. Thus, it lacks substantive res judicata.

- Judicial or administrative capacity?
- Decision of a judicial nature?

The CJEU finds that the proceedings lack a clear judicial nature, and that the Secretario Judicial does not exercise a judicial function. The proceedings result in a decision that appears to be of an administrative nature, and that may still be amended in subsequent ordinary proceedings. 

The CJEU adds that it is for the court with jurisdiction to order the enforcement of the decision to examine, if necessary of its own motion, whether there is any unfair contractual term in the contract between the lawyer and the client. 

Compatibility with Directive 93/13/EEC and Article 47 of the Charter?

The CJEU's findings, especially in respect of the last three factors mentioned above, would be difficult to follow if they were to be considered from the perspective of effective (judicial) protection. Of course, the question what constitutes a "court or tribunal" for the purposes of Article 267 TFEU is not the same as the question what level of judicial protection is required by Directive 93/13/EEC, read in conjunction with Article 47 of the Charter. However, today's judgment indicates that if a similar preliminary reference would be made by a court (instead of the Secretario Judicial), it is not unlikely that the 'jura de cuentas' will be found to be compatible with EU law.

The main difference with Finanmadrid seems to be that the order-for-payment procedure at issue there resulted in a binding and enforceable instrument. The 'jura de cuentas', on the other hand, results in a decision lacking substantive res judicata. However, as AG Kokott observed, while judgments in interim relief proceedings also lack substantive res judicata, they are still of a judicial nature. Consumers might not even be able to tell the difference between the 'jura de cuentas' and ordinary proceedings. The 'jura de cuentas' may not be mandatory for the lawyer, it is certainly not voluntary for the client/consumer. Yet, like in Finanmadrid, the procedural initiative is shifted to the consumer, who must oppose the claim or the decision, otherwise it will be enforced. This is one of the elements of the 'jura de cuentas' - highlighted by AG Kokott - that could be problematic. Like in Finanmadrid, there is a risk that consumers will not file any objection. They may be forced to settle or to pay before the enforcement phase, which might pave the way for the payment of unfair claims. Thus, the mere existence of a possibility to oppose enforcement may not always be enough to ensure a truly effective remedy. Perhaps the CJEU should go a step further by holding that judicial review of potentially unfair contractual terms must take place before the enforcement phase, either by the Secretario Judicial or by an actual court. 

Cláusulas suelo: the aftermath (Real Decreto-ley 1/2017)

In the aftermath of the judgment of the EU Court of Justice on Spanish 'floor clauses' (cláusulas suelo) of 21 December 2016, reported by us here, the Spanish government has issued a 'Royal Decree' which establishes an extrajudicial mechanism for the swift resolution of disputes concerning these clauses: Real Decreto-ley 1/2017 (full text available here, in Spanish). According to the Decree, it is foreseeable that the CJEU's judgment will lead to an increase in claims of affected consumers, who demand repayment of the amounts overpaid by them on the basis of 'floor clauses' in their mortgage contracts. The Decree's aim is to facilitate consumers and credit institutions to settle any claims by reaching an agreement about the amount to be paid back. The Decree also seeks to prevent high costs for the administration of justice.

Article 3 of the Decree obliges credit institutions to implement a (free) system for alternative dispute resolution, which is voluntary for consumers and allows them to file a request for repayment. The credit institution then must calculate the amount to be repaid and make an offer to the consumer within three months after the request has been filed. If this does not result in an agreement, the consumer may still go to court. This is not only the case if the consumer rejects the offer, but also if the credit institution rejects the consumer's request, or if the three-month period expires without an offer having been made or without the offered amount having been paid to the consumer. During the three-month period, however, neither party may bring a judicial action. Credit institutions must ensure that consumers are aware of the availability of this ADR system.

In addition, Article 4 of the Decree stipulates that, in case court proceedings are initiated after the conclusion of the out-of-court procedure, the credit institution can only be ordered to pay costs if the consumer has rejected the offer and obtains a more favourable judgment in court. A similar rule applies if the credit institution commits itself to pay a certain amount before submitting a defence: it can only be ordered to pay costs if the judgment is more favourable.

The Decree has already been criticised for not being specific enough as to the substantive right to repayment. It only defines the general scope (Article 2), but leaves the question what constitutes an unfair term for lack of transparency open to interpretation. The methods of calculation of amounts and interests are left entirely for the credit institutions to decide. Therefore, the Decree may induce litigation when parties ask the courts for further guidance. Moreover, it is unclear to what extent consumers' right to effective judicial protection - safeguarded by Article 47 of the EU Charter of Fundamental Rights - is limited and whether such a limitation is justified (cf. Alassini, C-317/08). The regulation of costs in Article 4, in particular, could be problematic from the perspective of access to court. It might deter consumers to go to court and compel them to accept the credit institution's offer.

In the next few months, we will see how effective the Degree will be in practice.

Effective judicial protection in unfair terms cases – mixed signals from Luxembourg

Also yesterday the Court of Justice delivered its ruling in case C-119/15 Biuro podróży Partner. The judgment may come as a surprise to some commentators as it markedly deviates from the opinion of Advocate General Saugmandsgaard Øe presented earlier this year (see our previous post here). The Court adopted a more consumer-friendly approach and accepted a national solution, according to which the use of terms equivalent to those included in the register of unfair clauses may lead to an imposition of administrative sanctions, even the term included in the register was declared unlawful in a different factual context. The Court made it clear, however, that effective judicial remedies must be available to traders, on whom the sanctions are imposed.

Underlying dispute and questions referred for a preliminary ruling

Reference for preliminary ruling came from the Court of Appeal in Warsaw, which examined an appeal from the decision of the Polish consumer protection authority (President of UOKiK) imposing a fine of PLN 27 127 (approx. EUR 4 940) on the travel agency Partner. Imposition of sanctions was based on the finding that supplier, in its contracts with consumers, made use of standard provisions equivalent to terms previously declared unlawful by a court and introduced into the public register of unfair terms. The referring court expressed doubts as to the interpretation of Directives 93/13/EEC (Unfair Contract Terms Directive) and 2009/22/EC (Injunctions Directive). It explicitly referred to the Invitel case (C‑472/10), in which the Court held, that its case-law that the effects of a judicial decision declaring unfair terms unlawful may be extended to all consumers having concluded a contract containing the same terms with the same seller or supplier, even if they did not participate in the proceedings brought against that trader. The referring court asked for clarification whether an analogous interpretation can apply to consumers who concluded a contract containing the same terms with a different seller or supplier.

The judgment

According to the Court, in light of Article 6(1) and Article 7 of Directive 93/13/EEC, read in conjunction with Articles 1 and 2 of Directive 2009/22/EC and in the light of Article 47 of the Charter of Fundamental Rights of the EU, the use of standard contract terms with content identical to that of terms which have been declared unlawful by a judicial decision having the force of law and which have been entered in a national register of unlawful standard contract terms can be regarded as an unlawful act also in relation to a seller or supplier which was not a party to the proceedings culminating in the entry in that register.

However, it is essential that the seller or supplier is provided with an effective judicial remedy against the decision which finds that contested terms are equivalent. In particular, the following two elements should be subject to a review:

a) the question whether, in the light of all relevant circumstances particular to each case, those terms are materially identical, having regard in particular to their harmful effects for consumers,

b) the amount of the fine imposed.

Comment

The judgement is noteworthy for several reasons. First of all, it elaborates on the role of the Charter of Fundamental Rights in the context of unfair contract terms. This time the Court explicitly referred to the Charter (paras. 23-27), although it had refrained from doing so in other important cases like Aziz (C-415/11). The Court also made it clear that not only consumers, but also the sellers and suppliers enjoy the fundamental right to effective judicial remedy which must be respected.

Secondly, the judgment sheds some light on the role of unfair contract terms registers, which can be adopted by Member States. The Court did not delve into the debate about the erga omnes effect of judgments, but appeared to have taken it for granted that lists of unfair terms may also be based on court rulings (para. 36), thus differing quite fundamentally from the Advocate-General's opinion (paras. 54-56 of the opinion). Instead of questioning the legitmacy of such registers, the Court focused on the way in which they work in practice and emphasised that not only the formation, but also management of such registers must comply with EU law. In particular, registers should remain transparent and up-to-date. Possible consequences of noncompliance with these requirements have not been specified, though. In case of a serious mishandling of unfair terms registers, initiation of infringement proceedings could perhaps be envisaged. It is worth mentioning that with respect to the abovementioned parameters, the Polish register – with more than 6500 often overlapping entries – left much to be desired. However, as we have already reported, legal framework in Poland has meanwhile undergone a substantial reform and no longer provides for an erga omnes effect of judgements entered into the register. Interestingly, the lack of transparency was mentioned as one of the reasons for the reform.

In the analysed case particular importance was attached to the trader’s possibility to challenge the decision. Emphasis was placed on two elements: assessment of the conduct itself (material equivalence) and the amount of the fine. In this respect the Court aligns, to a certain extent, with the Advocate General, who also stressed the need to analyse contractual terms in a broader context and to allow traders to present factual arguments. Nevertheless, the Court's understanding of the Polish system of judicial review differs rather significantly from the Advocate-General's view (see paras. 42-43 of the judgment and para. 65 of the opinion).

Notwithstanding these discrepancies, it seems justified to say that a system in which administrative sanctions are imposed based on the register of unfair clauses is only acceptable if the reviewing court is competent (obliged?) to analyse the case on the merits. In the Polish judicial practice several reviewing courts have expressed the view that conducting such an assessment should not be their task, as there is a separate procedure adopted specifically for this purpose. In the light of CJEU judgment, such an argument may be contested. According to the Court, assessment of material equivalence undertaken by the reviewing court is sufficient from the point of view of effective judicial protection. At the same time, the Court does not preclude the existence of stronger procedural guarantees for traders. In particular, it does not address the issue whether an alternative solution, in which every contractual term needs to be first assessed by the court in a dedicated procedure and only afterwards the trader can be subject to administrative sanctions, would undermine the effectiveness of EU consumer law.

The assessment of the second element – the amount of fines – has similarly been left to national courts. In this respect, however, the judgment is less controversial as it clearly refers to the well-established principle of proportionality (paras. 44-46).

Concluding remarks

The judgment in Biuro podróży Partner may be regarded as a development of Invitel jurisprudence. The Court seems to have accepted that a judicial ruling recognising particular contract terms as unfair may also produce, at least indirectly, legal effects vis-à-vis other sellers and suppliers. Nevertheless, this was not the main angle of the Court's analysis. While the CJEU acknowledged that administrative proceedings against different traders may be based on registers on unfair clauses, it did not attach much importance to the fact that the register in the case at hand was composed of clauses which had previously been declared unfair by courts in different individual cases. Emphasis was rather placed on the need to provide both consumers and traders with effective judicial remedies in light of Article 47 of the Charter. The Court provided some guidance as to the interpretation of this principle, although this can hardly be regarded as clear and comprehensive. The judgment also sheds some light on requirements concerning the management of unfair term registers, which should remain transparent and up-to-date. Furthermore, it clarifies that even if the administrative sanction is based on equivalence of contract terms, judicial review should seek to establish whether the terms are indeed materially – and not only formally – identical and sanctions are proportional. The question of what should be done if the earlier court had simply erred in its finding was not explored.

Due to a recent reform of the Polish law on unfair terms, the judgment of the Court will be particularly relevant to a number of pending proceedings, initiated before the reform came into force, which were often stayed in anticipation of the CJEU ruling. In this context, it is crucial that the Court did not reject the consumer-friendly interpretation of the previous Polish scheme in its entirety. As regards the availability of effective judicial protection, the assessment has largely been left to national courts. Limited evaluation performed by the CJEU did not disclose any significant shortcomings of the analysed legal framework, contrary not only to the opinion of the AG, but also the part of Polish jurisprudence and academia. It will thus be very interesting to see the impact of the judgment on the ongoing proceedings.