Crossing Paths: AG Bobek on jurisdiction in consumer cases under Regulation 1215/2012 and Directive 93/13

Yesterday, Advocate-General Bobek published his Opinion in a case where the Brussels I Regulation (Recast) and the Unfair Contract Terms Directive cross paths (C-347/18 Salvoni v Fiermonte). The case concerns the question what happens if a national court fails to check - ex officio - whether the rules on jurisdiction over consumer contracts have been observed in a cross-border dispute and the court issues an order for payment, even if there are indications that the consumer involved lives abroad? Once the order becomes final, can judicial review still take place in the country of origin before the order is enforced in another Member State?

When the defendant is a consumer, only the courts in the Member State where the consumer is domiciled have jurisdiction under the Brussels I Regulation (Article 18). In the case at hand, the consumer involved - Ms Fiermonte - appeared to live in Hamburg, Germany, which would mean that the Italian court where the order-for-payment procedure was brought did not have jurisdiction. In so far as Ms Fiermonte did not enter an appearance, the court should have declared of its own motion that it had no jurisdiction (Article 28). And if she did appear in court, she should have been informed of her right to contest jurisdiction (Article 26(2) of the Regulation).

Source: e-justice.europa.eu

The court in Milan nevertheless issued an order for payment against Ms Fiermonte, who did not oppose it. The court was subsequently requested to issue a so-called 'Article 53 Certificate'. Under the Regulation such a Certificate is necessary for cross-border enforcement (i.e. in Germany) to demonstrate that the order is enforceable in the country of origin (i.e. in Italy). The court then concluded that it should have verified its jurisdiction.
It found - ex officio - that the order in question was based on a legal relationship between a consumer and a professional. Thus, the order was issued in breach of the jurisdiction rules in the Regulation. The court asked the CJEU whether it should rectify this in the course of the Certificate-procedure. In this respect, it referred to the CJEU's case law on effective consumer protection under the UCTD and pointed out that the automatic issue of the Certificate might deprive Ms Fiermonte of an effective remedy as guaranteed by Article 47 of the EU Charter of Fundamental Rights.

Before we discuss AG Bobek's Opinion, let us briefly recall that in the context of the UCTD, the CJEU has repeatedly held - e.g. in Océano, Pénzügyi Lízing, and most recently Aqua Med - that costs or distance may deter consumers from taking legal action or exercising their rights of the defence. This would be the case where proceedings are brought before a court which is very far away from the consumer's place of residence (see Aqua Med, para 54). If this is already the case in domestic disputes, it applies all the more strongly in cross-border disputes. Moreover, the CJEU has held that rules conferring final and binding effect (res judicata force) on a decision must still meet the requirements of equivalence and effectiveness; see e.g. Finanmadrid. For instance, short time-periods to oppose an order for payment or to challenge its enforcement are problematic, also from the perspective of Article 47 Charter; see e.g. Profi Credit Polska.

Against this background, the referring court's question whether it should review the order and/or inform the consumer of the possibility to challenge its enforcement in Germany is not so strange. In addition, it was unclear whether the documents were properly served and thus, whether Ms Fiermonte had had an actual opportunity to oppose the order for payment. In a domestic situation, it would therefore be questionable whether the requirements of effectiveness and Article 47 Charter are complied with. The court responsible for the enforcement may operate as a last resort.

However, AG Bobek makes a strict separation between the CJEU's case law on the UCTD and the system of the Regulation. In his view, judicial review (ex officio) in the course of the Certificate-procedure is neither permitted nor required by EU law. It would run against the logic and spirit of the Regulation, which is aimed at the rapid and efficient enforcement of judgements abroad. The court must issue the Certificate automatically when the formal conditions are satisfied. It cannot re-evaluate the underlying judgment on points of substance and jurisdiction. This would compromise the Regulation's effectiveness.

Whereas AG Bobek's view is understandable in light of the Regulation's framework, his explanation of the distinction between the Regulation and the UCTD seems a bit artificial. On the one hand, he states that the Regulation lays down rules of a procedural nature, which are not as result-oriented and far-reaching as the (substantive) provisions of the UCTD. Yet, the rationale of the CJEU's case law on the UCTD is that consumers must be enabled to exercise their rights and that, because of their weaker (procedural) position in terms of knowledge and financial means, courts fulfil a compensatory role.
On the other hand, Bobek submits that the Regulation recognises that consumers are worthy of specific protection as defendants and that it contains additional procedural guarantees for that reason. Doesn't this mean that courts should play a role in enabling consumers to exercise their rights under the Regulation as well? It might be true that Ms Fiermonte can make an application for refusal of enforcement of the order in Germany on the grounds of lack of jurisdiction or the absence of due service of documents, but this depends on her initiative (Articles 45 and 46 of the Regulation). To what extent will it be taken into account that Ms Fiermonte is a consumer who might not be aware of her rights or not be able to pay lawyer's fees? (Ironically, the case was about unpaid lawyer's fees.) Shouldn't she at least be informed of her defence possibilities?
Bobek observes that it would be strange for the court to issue a Certificate for enforcement of the order while simultaneously pointing out its allegedly erroneous nature. This would be contrary to the principle of legal certainty. It would also undermine the principle of fair trial if the court would take on the role of the defendant's legal counsel.

Still, one cannot help but wonder why "an extra layer of protection for consumers" as proposed by the referring court could not "be ‘read into’ the provisions of Regulation No 1215/2012". That would be a true crossing of paths.

National supreme courts and their binding (but not really) decisions - CJEU in Dunai (C-118/17)

The CJEU has published its judgment in the Dunai case (C-118/17) last Thursday, in which it continues to specify the terms of declaring unfair foreign currency-denominated loans, following on the Kásler case. We have previously commented on the complexity of the arguments raised in the opinion of AG Wahl in the Dunai case (Consumer protection and rule of law...), evaluating the compliance of Hungarian law with the Unfair Contract Terms Directive. The most interesting part of the judgment is actually the last one - on the competence of national supreme courts in setting binding guidelines for lower courts how to assess unfairness.

To briefly remind the facts of the case: Mrs Dunai concluded a credit agreement denominated in Swiss francs in 2007, even though the loan was advanced to her in Hungarian florints. Just like in the Kásler case, various exchange rates (buying and selling ones) applied to different calculations between the Swiss francs and Hungarian florints - i.e. between the conversion of the loan and its repayments. After the Kásler judgment, Hungarian legislator adopted new laws in 2014 trying to protect Hungarian credit consumers from the harsh effects of having taken out a loan denominated in Swiss francs, but it did not protect them against unfair terms placing the whole of the exchange-rate risk on the borrowers. One such clause was found in Mrs Dunai's contracts.

Terms on exchange difference

The CJEU considers Hungarian 2014 laws, which allow to replace banks' own buying and selling rates of Swiss francs to be replaced by the official exchange rates set by the National Bank of Hungary, effectively altering terms and conditions of the contract, as compliant with the purpose that the UCTD attempts to achieve. This purpose being restoring contractual balance between the parties. However, the CJEU places a condition on this assessment: to the extent that such an assessment prevents the contract terms on exchange difference from being found unfair (as they will be amended to be fair), this may not place the consumer in a worse position than if the unfairness were found. This means that the consumer has to be restored to the legal and factual situation that he would have been in the absence of that term (para. 40-43). Therefore, the national court will need to ascertain "whether the national legislation, which declared terms of that nature to be unfair, allowed the legal and factual situation in which Mrs Dunai would have been in the absence of such an unfair term to be restored, in particular by giving rise to a right to restitution of advantages wrongly obtained, to her detriment, by the seller or supplier on the basis of that unfair term" (para. 44).

Terms on exchange rate risk

Terms on exchange risk rate differ from terms on exchange difference, as the first ones fall within the concept of core contract terms, excluded from the unfairness test provided they are transparent, pursuant to Art. 4(2) UCTD (para. 48). If such terms are non-transparent and found unfair, the national court should generally declare the whole contract annulled as a result of finding a core term, without which the contract cannot survive, unfair and thus non-binding (para. 52). Here, Hungarian 2014 laws seem to be in breach of the UCTD as they imply that national courts will keep the contract valid instead (para. 53). The national court may also not substitute the core term by supplementary provisions of domestic law, as this is only possible when the cancellation of the contract would have been to the detriment of the consumer, which was not the case in Mrs. Dunai's situation (para. 54-55).

Competence of national supreme courts to adopt 'binding decisions' on how to examine unfairness

The last part of the judgment considers the scope that national supreme courts have in adopting binding decisions on how to interpret national provisions implementing EU law, so as to guarantee uniformity of this interpretation by lower courts. This is a tricky question, as issuing such binding decisions might lead to national supreme courts deciding on de facto interpretation of EU law provisions rather than just of national law, which competence belongs to the CJEU. Still, the CJEU seemingly recognises the benefit of leaving the scope for national supreme courts to adopt such binding decisions, clarifying certain criteria in which light national lower courts must examine unfairness of standard terms, to ensure consistency in the interpretation of law and legal certainty (para. 63). Why is this recognition illusory though? Because this competence left to the national supreme courts may not take away the lower court's rights to apply for a preliminary reference from the CJEU in these matters or to ensure full effectiveness of EU law and provide consumers with effective protection (para. 64). Consequently, I would not really see it as the CJEU providing the scope for national supreme courts to adopt 'binding' decisions, but rather to issue certain guidelines, which lower courts may still disagree with and not follow.

Second-guess or second instance: Opinion of AG Szpunar in five cases on the EU Court of Justice and differences of interpretation between lower, higher and highest national (civil) courts

"La protection du consommateur est ainsi devenue un des chapitres essentiels du droit de l’Union qui, avec une double dimension – tant économique que sociale –, touche à la vie quotidienne des consommateurs de l’Union." 

~ Advocate General Szpunar, Opinion in Cases C-70/17 and C-179/17 (point 53)

Introduction

Consumer protection has become "an essential chapter of EU law", as Advocate General Szpunar rightly observes in one of his Opinions that were published this week. It is a focal point in the interplay between different actors at different levels in EU law. In 3 Opinions, AG Szpunar discusses 5 separate cases that touch on the relation between the national (civil) courts of the EU Member States and the EU Court of Justice in respect of the interpretation and application of national (procedural) law in the light of the Unfair Contract Terms Directive. It appears that the CJEU provides an avenue for lower courts to 'second-guess' the approach of courts that are higher in hierarchy, to the extent that they challenge the instructions of their own appellate court or the case law of the Supreme Court. Through preliminary references, the CJEU may be called upon to settle differences between courts of different instances. This raises questions as to the division of competences between the EU and the Member States, as well as the link between the substantive and procedural protection of EU citizens in their role as consumers. In the absence of harmonised procedural rules, who is the ultimate interpretor of national provisions governing civil proceedings (involving consumers)? Is there any room for a balancing of interests, other than the 'overriding objective' of the protection of consumers against unfair terms? And who decides what's in the consumers' best interest? 

Five cases, three Opinions

The 3 Opinions this blog post is concerned with pertain to the following 5 cases:

• C-70/17 (Abanca v. García Salamanca Santos) and C-179/17 (Bankia v. Lau Mendoza), hereinafter referred to as the Abanca-case; click here
• C-486/16 (Bankia v. Sánchez Martínez); click here
• C-92/16 (Bankia v. Rengifo Jiménez) and C-167/16 (BBVA v. Quintano Ujeta); click here

Especially the Opinion in the Abanca-case is worth reading. AG Szpunar analyzes the background of consumer protection against unfair terms elaborately, and summarises the development of the CJEU's case law in this area. He also tries to distinguish the legal issues from socio-economical considerations, and to clarify the role of national (civil) courts from an EU law perspective. In this blog post, we will focus on two aspects:

1. the power of national courts to substitute a national legislative provision for an unfair term, or rather: the lack of such a power (cf. Joined Cases C-96/16 and C-94/17, discussed here), and
2. the possibility of lower courts to 'circumvent' guidance given by a higher court by making a preliminary reference to the CJEU.

Both aspects illustrate the tension between the requirements flowing from EU (consumer) law and a more traditional view on private law and civil procedure as a matter of national law. On the one hand, AG Szpunar's answers to the questions posed by the referring courts could be seen as a logical continuation of the CJEU's case law. On the other hand, those answers could be seen as limiting the room for discretion of national (civil) courts even further. However, AG Szpunar carefully considers the different interests involved, and explains that while he understands the concerns, his proposed solution is in line with previous judgments.

First, we will examine the type of contractual terms at issue in these cases. It is not so much about the assessment of the (un)fairness of those terms as such, as it is about the consequences of a finding of unfairness. Secondly, we will take a closer look at the procedural implications. At the end of this blog post, we will get back to the position of lower courts vis-à-vis higher courts.

Accelerated repayment and mortgage enforcement: differences of interpretation between Spanish courts

The 5 above-mentioned cases are all requests for preliminary rulings from Spanish civil courts: in the Abanca-case, the Spanish Supreme Court (Tribunal Supremo) itself, in the other cases courts in first instance (Juzgados de Primera Instancia). All 5 cases relate to so-called 'early maturity' or acceleration clauses in mortgage loan agreements, i.e. terms containing an advanced expiration date (vencimiento anticipado): when the debtor fails to meet his payment obligations, the creditor can claim repayment of the totality of the loan after the expiration of a stipulated time period and initiate mortgage enforcement proceedings. The CJEU's judgment in Aziz gave rise to a debate in Spain as to, among other things, when the debtor's non-compliance was "sufficiently serious" - in the light of the duration and amount of the loan - to justify the creditor's exercise of the right to invoke accelerated repayment (cf. Banco Primus). Since 2013, Article 693.2 of the Spanish Code of Civil Procedure (Ley de Enjuiciamiento Civil; hereinafter LEC) sets the minimum time period that the parties may agree on at 3 months. However, many contracts predating that provision allowed the creditor to invoke the clause after only 1 month. In this respect, it is relevant to know that in Spain, the creditor needs leave from the court to enforce his security rights. Therefore, the question arose how the court should deal with unfair acceleration clauses. Should the mortgage enforcement proceedings - which were based on the clause - be terminated even when the creditor has waited 3 months or longer?

The Tribunal Supremo. (source: informativojuridico.com)

According to the Tribunal Supremo, the answer to this question was negative. As long as the right to invoke accelerated repayment was exercised fairly, the creditor would still have access to mortgage enforcement. The unfair clause would effectively be replaced by Article 693.2 LEC. One of the reasons given by the Tribunal Supremo was that the mortgage enforcement procedure is also more beneficial for consumers. The parties would not have to resort to ordinary proceedings. Thus, consumers would avoid the risk of having to pay high legal costs and default interest.

Some lower courts disagreed with this interpretation, and openly questioned it before the CJEU. They found that an unfair acceleration clause could not be replaced by reference to Article 693.2 LEC. Where the clause was the basis of the mortgage enforcement, the proceedings should be declared inadmissible or suspended; whether the clause had been invoked after 1, 3 or 38 months did not matter. Moreover, the creditor’s chances of success in ordinary proceedings were regarded to be low; this cast doubt on the Tribunal Supremo’s reasoning as to which procedure was actually more beneficial for consumers. Lastly, the referring court in Case C-92/16 wondered whether giving consumer-debtors procedural advantages in one procedure, as opposed to another, was compatible with the EU Charter of Fundamental Rights if it was up to the creditor, not the consumer, to choose between procedural mechanisms and thus, to decide whether or not the consumer could enjoy those advantages.

AG Szpunar: no ‘reparatory revision’ of unfair terms

AG Szpunar disagrees with the Tribunal Supremo's interpretation as well, and refers to Banesto and in this regard. The Unfair Contract Terms Directive imposes a result obligation on the Member States and their national courts to ensure that unfair terms are not binding on consumers. As we have seen in e.g. Gutiérrez Naranjo, this obligation is far-reaching. The Directive does not have 'direct horizontal effect', i.e. it cannot be relied on directly by private parties in 'horizontal' disputes. Yet, "not binding" really means "not binding", and the deterrent or dissuasive effect of the Directive requires that an unfair term cannot be revised or replaced by the court (only in exceptional circumstances, see e.g. Kásler). The acceleration clause must be struck out from the loan agreement, regardless of when it has been invoked by the creditor. The loan agreement will continue to exist without the clause. 'Reparatory revision' is not possible; the clause cannot be substituted with Article 693.2 LEC. That provision cannot be qualified as 'supplementary law', although this is ultimately for the national court to decide. 

A reference to the so-called 'blue pencil test' of the German Bundesgerichtshof does not help either, because the acceleration clause cannot be split up: it would lose its meaning if the unfair parts were to be crossed out. Without the stipulation of a specific time-period, the clause would practically be deprived of its purpose. 

Procedural implications

If AG Szpunar's conclusion is followed, creditors would be sanctioned for including unfair acceleration clauses in their standard terms and conditions by denying them access to the mortgage enforcement procedure. Once the acceleration clause is struck out, there is no longer a basis for enforcement of the entire loan. This would allegedly negate the creditor's security rights, which are crucial for the financial market. Another argument used by the Tribunal Supremo was that this would have economic repercussions. It should nevertheless be noted that the existence of an acceleration clause in the mortgage loan agreement is not a necessary precondition for enforcement (cf. Articles 578 and 693.1 LEC). Without the acceleration clause, the creditor would not be able to claim repayment of the entire loan at once, but he could still claim unpaid instalments due.

Advocate General Szpunar.
(source: curia.europa.eu)

This raises the question whether it is justified that, as soon as the creditor relies on an unfair acceleration clause, he should be denied access to mortgage enforcement. AG Szpunar acknowledges that this constitutes a limitation of the creditor's rights, but not an extinction, if only because the loan agreement remains valid for the rest. From the Directive's point of view, the legal issue is whether the acceleration clause is unfair and should therefore be declared null and void, rather than whether the creditor would have provided the loan without the clause. According to AG Szpunar, it is not relevant whether the mortgage enforcement procedure is more beneficial to consumers. Yet, he illustrates with clear examples that is doubtful if this is indeed the case. The decision should ultimately be left to the consumer herself, who can be informed by the court about (procedural) advantages and disadvantages and then decide if she wants to avail herself of the protection offered to her; see e.g. Banif Plus Bank.

In Cases C-92-/16 and C-167/16, AG Szpunar observes that there is not enough information available to conclude that the Spanish mortgage enforcement procedure in general is incompatible with the Charter or the principle of effectiveness. If it is true that this procedure awards certain procedural advantages, it may be contrary to the principle of effectiveness. The specific characteristics of court proceedings, which are governed by national (procedural) law, cannot constitute a factor that is liable to affect the legal protection of consumers under the Directive.

Lower courts as EU-judges

In Case C-486/16, the creditor - Bankia - had initiated mortgage enforcement proceedings on the basis of an acceleration clause. The court found the clause to be unfair, and refused to grant leave for the enforcement. Pursuant to Article 552.3 LEC, the creditor then has recourse to ordinary proceedings. Instead, Bankia waited more than two years to try again, arguing that this time the non-compliance was sufficiently serious. We understand this second attempt was based on Article 693.2 LEC (not 693.1).
The court in first instance held that the decision in the earlier proceedings had the status of (formal) res judicata; it was final in the sense that it could no longer be appealed. This entailed that Bankia should be denied a second opportunity. The Court of Appeal, however, allowed the enforcement. The case was referred to the court in first instance, which subsequently made a preliminary reference to the CJEU. In line with his Opinion in the Abanca-case, AG Szpunar considers the Court of Appeal's approach to be contrary to EU (consumer) law. He points out that EU law gives lower courts the possibility to make a request for a preliminary ruling (Article 267 TFEU); they are EU-judges as well. National legislation or case law cannot stand in the way of this possibility.

From the perspective of (national) civil procedure, it is quite revolutionary for lower courts to go against the instructions of their own appellate court in the same case. These instructions are, in principle, binding upon the parties and the lower court. It may be seen as problematic if lower courts start to second-guess their appellate courts and/or come to view the CJEU as a second instance, insofar as this undermines legal certainty. Of course, this is not to say that lower courts cannot or should not make preliminary references. It is just to show that the objectives of EU law and national law are not always aligned.

Lower courts and the highest (civil) court of a Member State are both entitled to ask questions to the CJEU. That the Tribunal Supremo was first in the Abanca-case, could not stop the Juzgado de Primera Instancia de Barcelona from making a preliminary reference as well. For the Tribunal Supremo this is a sensitive issue, as it appears to be a direct confrontation by the court in Barcelona. In addition, AG Szpunar's Opinion suggests that the Tribunal Supremo has overstepped its power to give guidance to lower courts as to how to apply national (procedural) law in unfair terms cases. The summary of the Opinion in this blog post does not do justice to its thoroughness, which demonstrates that AG Szpunar is aware of the context in which the CJEU must answer the questions put before it.

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. 

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). 

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.

Effective consumer protection in light of Article 47 EUCFR: Opinion of AG Kokott (C-503/15 Margarit Panicello)

Yesterday, Advocate General Kokott presented her opinion in yet another case on Spanish procedural law and the effective protection of consumers against unfair contract terms (Case C-503/15, Margarit Panicello). We have reported on this blog on earlier cases, most notably Banco Español de Crédito, Sánchez Morcillo and Finanmadrid. 

The present case stands out, because of the explicit reference to Article 47 of the EU Charter of Fundamental Rights in the request for a preliminary ruling. The 'referring court' (one of the questions at issue is whether the Secretario Judicial - court registrar - can actually be regarded as a court or tribunal for the purposes of Article 267 TFEU) has asked the EU Court of Justice whether certain procedural rules are incompatible with Article 47, in that they preclude the possibility of judicial review. In Spain, there is a special procedure (jura de cuentas) available to lawyers for the recovery of unpaid fees that are owed to them by their clients. Unpaid fees could be a sign of a soured relationship, and lawyers would rather not litigate against their clients; for them, jura de cuentas is a preferably 'evitable' (avoidable) evil. AG Kokott's opinion makes clear why it might be an 'evitable' evil in light of EU law as well.

To relieve the judiciary, the exclusive competence to deal with the jura de cuentas procedure has been transferred to the Secretarios Judiciales. The procedure is optional; lawyers can still choose to initiate court proceedings. The applicable procedural rules preclude the Secretario Judicial to examine ex officio whether the contracts between lawyers and their clients (natural persons), on the basis of which recovery of unpaid fees is claimed, contained possible unfair terms or unfair commercial practices. AG Kokott's conclusion that those rules are incompatible with Directive 93/13/EEC (on unfair terms in consumer contracts) is perhaps not very surprising, against the background of the CJEU's case law. The opinion is more interesting from the perspective of Article 47 of the Charter, which safeguards the right to effective judicial protection against violations of the rights and freedoms guaranteed by EU law. 

In the case of Finanmadrid, the referring court had made a similar reference to the Charter, but the CJEU avoided answering the question related to Article 47 (click here for some reflections on this case). In yesterday's opinion, AG Kokott explicitly adopts the reference to Article 47 of the Charter. And rightly so, because the procedural rules at issue do not only impede the (full) effectiveness of Directive 93/13/EEC, they may also constitute an intolerable interference with "the right to an effective remedy before a tribunal" enshrined in Article 47. As AG Kokott observes (para. 114), when provisions of national law fall within the scope of EU law, it must be assessed whether they are compatible with EU fundamental rights (click here for a further analysis of Case 617/10, Åkerberg Fransson). Moreover, the CJEU has held in Sánchez Morcillo (para. 35) that: 

"the obligation for the Member States to ensure the effectiveness of the rights that the parties derive from Directive 93/13 against the use of unfair clauses implies a requirement of judicial protection, also guaranteed by Article 47 of the Charter, that is binding on the national court (see, to that effect, judgment in Banif Plus Bank, C‑472/11, EU:C:2013:88, paragraph 29). That protection must be assured both as regards the designation of courts having jurisdiction to hear and determine actions based on EU law and as regards the definition of detailed procedural rules relating to such actions (see, to that effect, the judgment in Alassini and Others, C‑317/08 to C‑320/08, EU:C:2010:146, paragraph 49)."

According to AG Kokott, several elements of the jura de cuentas procedure are problematic in light of the required level of consumer protection. These elements are partly considered with respect to the question whether the request for a preliminary ruling is admissible. They are nevertheless relevant for a substantive assessment of the Spanish procedural rules (cf. paras. 104-105 and 115-117). 

• The first element is the 'reversal of the dispute' or 'shift of initiative' to the client/consumer, who needs to oppose the claim before the proceedings become contradictory (para. 41). Only then, the case will be more closely examined on the merits (paras. 44-47). 
• Secondly, the decision of the Secretario Judicial is non-appealable and immediately enforceable, even though it does not obtain res judiciata force (paras. 48-50 and 91). In AG Kokott's view, enforcement of the decision is equated - by the Spanish legislator! - with the enforcement of judicial decisions, just like judgments given in preliminary relief proceedings (paras. 51-60). This means that there is neither an obligation for the Secretario Judicial to ex officio examine possible unfair terms, nor an opportunity for the client/consumer to raise a defence that would suspend the enforcement proceedings. 
• Thirdly, the jura de cuentas procedure concerns a legal dispute (paras. 83-86) and has a mandatory, binding character, even though it is optional for lawyers (paras. 87-88). 
• Fourthly, even if an ex officio examination of unfair terms would be possible at the enforcement stage, that would not be sufficient, for reasons of both process efficiency and the effectiveness of EU law (paras. 133-136). A decision would still be given and the client/consumer would receive a demand to pay, exercising pressure. Therefore, there is a risk that payment would take place without enforcement proceedings being necessary. 
• Fifthly, filing opposition against enforcement cannot be compared to having the opportunity to oppose the claim before a decision is given (para. 136). Such an opposition would not suspend the proceedings, and would thus pave the way to the payment of potentially unfair claims (para. 137). 

Although these elements are not listed as such by AG Kokott, they directly support her conclusion that the procedural rules at issue are contrary to Article 47 of the Charter as well as Directive 93/13/EEC (read in conjunction with Directive 2005/29/EC concerning unfair business-to-consumer commercial practices). All these elements resonate with the right to effective judicial protection, which includes - inter alia - the right to an effective, proportionate and dissuasive remedy, respect for the rights of the defence, the right to be heard and the principle of equality of arms. The opinion demonstrates that Article 47 of the Charter can provide a framework for the assessment of procedural rules that govern legal disputes falling within the scope of EU law, in this case: a dispute about a contract possibly containing unfair terms (and unfair commercial practices). If and to what extent Article 47 and the principle of effectiveness or the 'full effect' of EU law overlap, remains to be seen. In this respect, the 'referring court' makes a distinction between judicial review in general (question 1) and ex officio examination under Directive 93/13/EEC (question 2). AG Kokott does not separate the notion of judicial review and Article 47 of the Charter from the context of Directive 93/13/EEC, probably because Article 47 has an accessory character: it always requires a connecting link with a substantive provision of EU law. That does not mean that Article 47 does not have anything to contribute. AG Kokott seems to recognise this in her opinion. 

The question of admissibility has not been addressed in this blog. However, AG Kokott's views as regards the independence of the Secretario Judicial (paras. 71-81) are worth reading. It is interesting to note that the Spanish government has argued that the Secretario Judicial cannot be considered as an 'externally' independent authority, which has sparked a discussion about the transfer of quasi-judicial competences away from the judiciary and the Rule of Law (cf. para. 86). If the CJEU follows AG Kokott's conclusion that the request should be declared admissible, it will be difficult to avoid a reference to Article 47, which is an expression of "the fact that the Union is a community based on the rule of law" (see the Explanations relating to the Charter of Fundamental Rights). 

Handbook on access to justice in Europe

In partnership with the European Court of Human Rights (ECtHR), the EU Agency for Fundamental Rights (FRA) has published a handbook which highlights and summarises the key principles in the area of access to justice, in particular those developed under Article 47 of the EU Charter of Fundamental Rights (EUCFR) and Articles 6 and 13 of the European Convention on Human Rights (ECHR). The handbook is meant to raise awareness and knowledge about the different avenues available to access justice.

Access to justice is a core fundamental right according to the EUCFR and a human right under the ECHR. Access to justice enables parties whose rights have been infringed to effectively enforce their rights and obtain a remedy. The handbook provides an accessible summary and analysis of the relevant case law of the EU Court of Justice and the ECtHR, supplemented by – where available – national jurisprudence, on key topics in the area of access to justice.

With respect to consumer law, the handbook refers to EU initiatives on ADR in the field of consumer protection, as well as specific remedies for consumers.

Extended legal effect of court rulings in unfair contract term cases – AG's opinion and the recent reform of Polish law

The curious case of Amazon EU was not the only one, in which Advocate-General Henrik Saugmandsgaard Øe presented his opinion last Friday. By giving his views on the case C-119/15 Biuro podróży Partner, he also put forward a solution to a long-standing dispute among the Polish legal scholars as to whether a judicial ruling, recognising particular standard contract terms as unfair, may have a binding force vis-à-vis traders, who were not parties to the proceedings. Whereas the legal framework in Poland has meanwhile undergone a substantial reform and no longer provides for the erga omnes effect of judgements in cases of unfair standard contract terms, the AG's opinion touches upon several highly relevant issues, which are certainly worth discussing.

Polish legal framework now and then

At the time the dispute arose, the Polish legal framework provided for the following mechanisms of reviewing unfair clauses included in B2C contracts as a result of an unilateral decision of the trader.

• Individual control carried out in judicial proceedings by common courts, whose rulings are binding inter partes.

This type of review follows directly from the Art. 385(1) of the Civil Code, which states that provisions of B2C contracts which have not been agreed individually are not binding on the consumer if his rights and obligations are set forth in a way that is contrary to good practice, thereby grossly violating his interests. This principle does not apply to provisions setting forth the main performances of the parties, including price or remuneration, if they are worded clearly. The individual review mechanism has not been affected by the recent amendments to the Polish law.

• Abstract control of standard contract terms carried out in judicial proceedings by the specialised Court of Competition and Consumer Protection (SOKiK) in Warsaw.

In this system, which has recently undergone a significant revision, an action for injunction could be brought to SOKiK by every person, who could have concluded the contract following an offer by the trader. The rulings of SOKiK were subsequently published in the register of unfair standard contract terms and from that moment on had an effect on the third parties, pursuant to Article 479[43] of the Code of Civil Procedure. What is more, inclusion of an unfair standard clause into the register could give rise to administrative control, addressed also at other traders. During the control the President of the Office of Competition and Consumer Protection (UOKiK) would verify if standard contract terms used by the investigated trader are identical or similar to the clauses contained in the register. Should that be the case, the President of UOKiK could impose sanctions on the trader concerned, including a fine of up to 10% of his revenue in the preceding year. Ambiguous wording of Article 479[43] was a source of continuous academic controversy. However, in practice the dominant interpretation was that judgements entered into the register are effective vis-à-vis all traders who include identical or similar clauses in their standard contract terms proposed to consumers (not only defendant in the case, based on which the entry was made).

On 5 August 2015 an Act Amending the Act on Competition and Consumer Protection was adopted, introducing a fundamental overhaul of the aforementioned system. As of 17 April 2016 abstract review is conducted by the President of UOKiK in an administrative procedure and is only binding on investigated traders. The President may still impose severe sanctions, but his decision can subsequently be appealed to SOKiK, which would also analyse the case on the merits. The register of unfair standard contract terms, which presently contains more than 6000 entries, will continue to exist until 2026 (for cases brought before SOKiK prior to the entry into force of the new Act). 

Request for a preliminary ruling

Given this highly disputed nature of the described mechanism, which had been present in the Polish legal system for more than a decade, it seems both regrettable and surprising, that the reference for a preliminary ruling of the CJEU came so late. The opportunity was finally seized by the Court of Appeal in Warsaw, which examined an appeal from the decision of the President of UOKiK imposing a fine of PLN 27 127 (approx. EUR 4 940) on a trader who – in his contracts with consumers – made use of standard clauses which were previously introduced in the register. The referring court requested the CJEU for clarification of two aspects. However, the AG Saugmandsgaard Øe not only limited himself to analysing one of them, but also decided to rephrase the question by adding an explicit reference to the Charter of Fundamental Rights. As a result, in his opinion the Advocate-General sought to establish whether:

Directive 93/13/EEC on unfair terms in consumer contracts, in conjunction with Articles 1 and 2 of Directive 2009/22/EC on injunctions for the protection of consumers’ interests, and Article 47 of the Charter of Fundamental Rights of the European Union should be interpreted as precluding a provision of national law, according to which 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 the register of unlawful standard contract terms can be regarded, in relation to another undertaking which was not a party to the proceedings culminating in the entry in the register of unlawful standard contract terms, as an unlawful act forming the basis for imposing a fine in national administrative proceedings.

Advocate-General's opinion

The Advocate-General heavily criticised the analysed system of abstract review, concluding that it is not only incompatible with the Directive 93/13/EEC, but also disproportionately restricts a trader's right to be heard and is questionable in the light of several other fundamental rights. The following arguments were raised:

• Although the Directive 93/13/EEC introduces a minimum harmonisation level, this does not mean that national legislators are absolutely free to introduce more restrictive laws. Pursuant to Article 8 of the Directive more stringent provisions adopted or retained by Member States have to be compatible with the Treaty (paras. 41-42).
• Pursuant to Article 4(1) of the Directive, unfairness of a contractual term shall be assessed by referring to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent. Therefore contractual terms should always be analysed in a broader context and on a case-by-case basis (paras. 46-49).
• Furthermore, according to the AG, the term "adopt provisions" refers to statutes and administrative provisions adopted in a legislative process, and does not include black lists developed by the courts. Such a system would, in his view, be difficult to reconcile with the principle of legality laid down in Article 49 of the Charter (paras. 54-56). Intransparent character of the register, resulting from the rapidly growing number of entries, makes it also questionable in view of the principle of legal certainty (para. 57). 
• According to Article 3 of the Directive, where a seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. From the wording of this provision the Advocate-General concludes that Directive 93/13/EEC establishes a right of the defendant to prove that the provision was negotiated individually. Moreover, this right should be viewed as a part of a much broader fundamental right to be heard, guaranteed in Article 47 of the Charter. In the case at hand, the trader was unable to present his arguments in the course of both administrative and judicial proceedings, as the latter did not require to court to examine the case on the merits. Such limitation of the right to be heard cannot be described as proportionate (paras. 64-71).
• Finally, the Advocate-General noted that a parallel cannot be drawn from the CJEU judgement in case C‑472/10 Invitel as the latter only refers to an extended effect that a judgement may have on behalf of third parties and not against third parties. In other words, the Invitel judgement only confirms that a system in which unfair clause used in contracts by a particular trader and which a national court has ruled to be invalid has no legal effect in any consumer contract concluded by that seller or supplier, is compatible with the EU law. AG Saugmandsgaard Øe also pointed to the following passage of AG's Trstenjak opinion in the Invitel case: "the erga omnes effect of the judgment against [the defendant] does not apply indiscriminately to every other seller or supplier using a similar term but not involved in the proceedings that led to the finding that the term in question was not binding. If that were the case, serious doubts would arise from the point of view of procedural law and fundamental rights" and fully supported this view (paras. 80-83). He also did not identify any provisions in Directive 2009/02 which would support an opposite conclusion (para. 88).

Concluding remarks

In his opinion in case C-119/15 the Advocate-General Saugmandsgaard Øe discussed a number of highly relevant issues, such as the scope of Member States' procedural autonomy and the extended legal effect of judicial rulings. He also invoked the Charter of Fundamental Rights of his own motion and presented a fairly detailed interpretation of the right to be heard. On the one hand, the conclusion reached by the AG seems justified – the Polish abstract review mechanism was indeed open to criticism, not least because of the register's intransparency. On the other hand, one may wonder if the argumentation of the Advocate-General does not go too far. As the analysed factual background refers to a system, which was not only unique in Europe, but is also no longer in force, the question may arise whether the case C-119/15 provides a proper basis for such fundamental considerations. It is questionable whether judicially developed lists of unfair standard terms can generally be considered as irreconcilable with the principle of legality (any common lawyers reading this post?). Having this in mind, it will be very interesting to see how this intriguing issue is handled by the Court of Justice.