Ex officio and package holidays - CJEU in RTG v Tuk Tuk travel SL (C-83/22)

 Dear readers,

do you remember when the Package Travel Directive (2015/2302) and package travel rules all of a sudden seemed very current, back at the heights of the pandemic, after having been mocked for years as the 2015 rules for 1980s holiday-making? Well, in a reminder that we all sit in our little bubbles :), it turns out consumers may not have noticed all the fuss in the legal community after all - but ex officio is there to make courts watch. 

Here's the story: yesterday the CJEU published its decision in RTG v TUK travel SL, which concerned a refund claim by a consumer who had planned and cancelled a trip to a faraway location in 2020. When trying to get his money back, the consumer was informed by the travel organiser that they would only be able to recover a very tiny sum. Subsequently, he sued for recovery claiming the contract was terminated due to force majeure, demanding ca 75% of the original sum - in acknowledgement of what the consumer thought were reasonable expenses incurred by the organiser. 

The national court seised with the case had its quandaries with the claim: on the one hand, the judge knew that the Package Travel Directive's article 12(2) entitled the consumer to a full reimbursement in cases like the one at hand; on the other hand, rules of Spanish civil procedure did not allow the court to modify the consumer's claim. The Court asked the parties to clarify - had the trader in fact informed the consumer, at the moment of concluding the contract, that he had a right to termination without consequences if the trip had to be cancelled? Apparently they had not. 

I will not discuss here the first question asked by the court, which rested on a misunderstanding of the text of the directive. The second question, however, in essence asked - to what extent are courts required to apply the Package Travel Directive ex officio? 

The CJEU gave a reasonably helpful answer to this question. In essence, national courts in similar situations will have to ex officio examine whether the rules in the Directive have been complied with, on the basis of the information available within the procedure. If the Court ascertains a violation - like, in this case, of article 12(2) - it will allow the consumer to amend their claim. Courts are not required or allowed, however, to go on and apply the remedy ex officio "rewriting" the consumer's claim without further ado. 

This is a somewhat systematically ambitious judgement to the extent that the CJEU (para 54-57) ventures into expressly translating previous case-law into a series of requirements without which ex officio cannot take place:

• the court must have a judgment pending about the specific contract at hand brought by one of the parties
• the involved provision (right to terminate) must be relevant to the object of the dispute as identified by the parties
• the court must have all the necessary elements available and
• the consumer must not have expressly objected to the application of the provision at hand. 

The first three requirements appear taken almost verbatim from the CJEU's previous decision in Lintner (C-511/17 - see our comment here), concerning unfair terms; the last one also seems to reflect case-law in the same area, and namely Dziubak (C-260/18 - see our comment here). 

Different to many ex officio cases, this case did not concern an absentee consumer - only one who had gone to court without a lawyer and maybe therefore (and because of the trader's failure to comply with consumer protection law) had not formulated their best possible claim. Also contrary to Duarte Hueros (C-32/12 - see our comment here), this consumer had in fact formulated a successful claim - but one that was not as advantageous as the one that he was allowed under consumer law. In this respect the decision is both far-reaching - it's not obvious that the consumer would have not received effective protection without ex officio, so the "public order" reason for control seems to feature prominently - and rather modest in not prescribing an outcome (which seems to make it less of a public order reasoning). In any case, this being Friday afternoon, I will say that it's not particularly easy to feel in this case for the trader who had actively tried to mislead the consumer as to his rights. Not nice of you, Tuk Tuk travel!

Case C‑511/17 Unicredit Bank Hungary: Ex officio unfairness assessment limited to subject matter and to existing legal and factual elements

In  the case C-511/17, the CJEU followed the AG’s opinion closely (about which we wrote here). The case deals with the scope of the obligation to assess the unfairness of contractual terms ex officio, under Directive 93/13/EEC (Unfair Terms Directive).

The CJEU clarified that the Unfair Terms Directive does not oblige national courts to conduct any unfairness assessment beyond the subject matter of the dispute (paragraph 28). In other words, as AG Tanchev also defended, the CJEU highlighted the importance of protecting the ne ultra petita principle. However, the CJEU considered that it is within the subject matter of the dispute that national courts examine ex officio the unfairness of contractual terms in order to guarantee a high consumer protection, particularly to prevent the consumer’s claim from being rejected when it could have been upheld had the consumer invoked the unfair nature of that particular term (paragraph 32).

In addition, the CJEU established that national courts are only obliged to carry out an ex officio assessment of unfairness regarding those contractual terms whose unfairness can be determined by existing elements of law and fact available to the court (Profi Credit Polska case). However, in order to implement the duty of ex officio examination, national courts should not be confined exclusively to the elements of law and fact provided by the parties (paragraph 36). This means that national courts can, of their own motion, take investigative measures in order to complete the case file. However, national courts should only do this if the existing elements of law and fact ‘give rise to serious doubts as to the unfair nature of certain clauses which were not invoked by the consumer but which are related to the subject matter of the dispute’ (paragraph 37).

Finally, the CJEU reiterated that in order to assess the unfairness of a contractual term (on which the claim is based) the national court must take into account all the other terms of the contract (Banif Plus Bank, C‑472/11). This obligation is justified by the fact that the assessment of one or more specific terms must be contextualized, and the ‘cumulative effect of all the terms of that contract’ must be taken into account (paragraph 47). This does not mean, however, that there is an obligation for the national court to ex officio assess the unfairness of all individual clauses in the contract – it is rather a duty to contextualize the assessment of unfairness. The CJEU also calls for a non-formalistic consumer protection, that is, an interpretation of the claim that is based on the comprehension of its content and of the laws it invokes (paragraph 33).

Therefore, the CJEU concluded that Article 6(1) of the Unfair Terms Directive does not require national courts to examine every individual contractual term ex officio. Instead, the Unfair Terms Directive must be interpreted as imposing an obligation to examine only the contractual terms which are connected to the subject matter of the dispute, as long as the national courts have the legal and factual elements required for that assessment (which can be supplemented by measures of inquiry). The CJEU also determined that, while Articles 4(1), 6(1) and 7(1) impose a duty to take all contractual terms into account, there is no duty for the national court to individually assess the unfairness of each term.

In this specific case, the CJEU determined that the terms that the consumer did not challenge but whose unfairness assessment is required of the referring court are not connected to the subject matter of the dispute in the main proceedings. Therefore, the national court does not have a duty to ex officio assess the unfairness of those terms (paragraph 39).

Ex-officio powers of national courts in enforcing Directive 2008/48/EC: the CJEU in C-679/18 OPR-Finance

Earlier today the European Court of Justice (CJEU) delivered its judgment C-679/18 OPR-Finance s.r.o. v GK on the interpretation of Articles 8 and 23 of Directive 2008/48/EC on Consumer Credit (CCD).

The facts

In April 2017 the consumer concluded a revolving credit agreement with OPR Finance for 192 EUR. After defaulting on payment of due installments, the creditor started enforcement action infront of the District Court of Ostrava (Czech Republic), claiming 307 EUR plus statutory interest. It appeared to  be clear for the referring court that OPR Finance did not claim they have assessed the consumers creditworthiness prior to granting the loan, and it was also clear that the consumer did not raise the objection of nullity  of the contract, the applicable penalty for failing to assess creditworthiness under Czech law.

The legal issues

The referring national court was unsure whether Article 8 on creditors obligation to assess consumers creditworthiness read in conjunction with Article 23 on the obligation of Member States to provide for effective, proportionate and dissuasive penalties for the breach of national provisions adopted pursuant to the CCD, provides for the national courts ex officio obligation to act i.e. obligation of national courts to examine on their own motion whether the creditors have complied with their obligation to assess consumers creditworthiness and ex officio obligation to apply the appropriate penalties provided by national laws.

At second instance, the national court asked whether the national provisions that provide for an obligation of consumers to raise the objection of nullity of the credit agreement within a 3 year time limit are contrary to the said provisions.

The ruling

The first question the CJEU answered positively, ruling that there is an ex officio obligation of national courts to examine whether creditors have complied with their obligation to assess consumers creditworthiness. Not only that national courts must assess ex officio whether the duty of creditworthiness assessment has been complied with but they should also apply the appropriate penalties ex officio, provided they are compliant with Article 23.

In its reasoning the CJEU referred to its previous case-law on establishing an obligation of national courts to rule ex officio on infringements of EU consumer law (para. 18), reinforcing the justification for such approach the weaker position of consumers vis-a-vis businesses in their contractual relationships (para. 19). It has also considered the importance of ex officio powers for achieving the objectives of the CCD. Importantly, it has highlighted that the purpose of Article 8(1) is to make creditors accountable for their lending decisions and to prevent them from providing consumers with unaffordable credit (para. 20). Moreover, the CJEU emphasized the importance of ex officio powers for the protection of consumers against the risks of over-indebtedness and bankruptcy and for the emergence of a well-functioning internal market in consumer credit with a high level of consumer protection (para. 21).

The CJEU further ruled that where national courts find the infringement of Article 8 on their own motion, they should also apply the appropriate sanctions without waiting for consumers to make applications to that effect, provided that national provisions on penalties are compliant with Article 23 and the associated CJEU on its interpretation (paras. 25-27). As mentioned above, under the applicable provisions of Czech law, the penalty of nullity of the contract only applied under the condition that consumers raised an objection of nullity within the limitation period of 3 years. The sanction of nullity itself relieved consumers from paying interest and associated costs to the credit, only requiring the repayment of the principle sum borrowed (para. 29). The CJEU examined the these requirements from the aspects of equivalence and effectiveness (paras. 32-33) and concluded that they are contrary to principle of effectiveness (para. 36). The said conditions make the sanction impossible or excessively difficult to operate in practice. Importantly, the CJEU dismissed the relevance of administrative penalties of competent supervisory authorities, emphasizing the separation of civil and administrative penalties for breaches of consumer credit law (para. 37), given that such penalties have no effect on harmed consumers, consumers to whom the credit was granted in the infringement of Article 8 of the CCD (para. 38).

Concluding thoughts 

This seems to be a well reasoned judgment that provides additional important protection for consumers against the risks involved in borrowing and raises the responsibility of creditors for complying with their obligation to assess consumers creditworthiness. It is now important that national courts follow the judgment and use their powers where appropriate.

Ex officio unfairness assessment limited to contractual clauses connected to the dispute – Opinion of AG Tanchev in Case C‑511/17 Unicredit Bank Hungary

On the 19^th of December 2019, AG Tanchev delivered an Opinion on Case C-511/17 (found here), which deals with the scope of the obligation to assess the unfairness of contractual terms ex officio, under Directive 93/13/EEC (Unfair Terms Directive). As AG Tanchev starts by noting, this case is related to other cases on the Hungarian framework on consumer credit agreements denominated in a foreign currency (for example, Sziber C‑483/16, OTP Bank and OTP Faktoring C‑51/17 and Dunai C‑118/17).

The ex officio obligation in question is well established in the CJEU’s case law. This obligation is aimed at ensuring an effective protection of the consumer under the Unfair Terms Directive and it intends to restore the balance between the consumer and the professional party (see, for example, OTP Bank and OTP Faktoring C‑51/17 and Pannon GSM C‑243/08). As the AG acknowledges, the interpretative framework of the obligation to assess unfairness of contractual terms ex officio affects the civil procedure principle that the subject matter of an action is delimited by the parties and the court can go no further than that subject matter (ne ultra petita). In fact, the existence of this obligation means that under national procedural law the court must go beyond the object of the dispute as originally defined by the parties (para 44).

The main question raised in this case was, as summarized by the AG, whether a national court is required under Articles 6(1) and 7(1) of Directive 93/13 to examine ex officio the unfairness of all of the terms of the contract even if they are not necessary to decide on the parties’ claims in the dispute. In other words, the question underlying this case is whether that obligation should be unlimited and, if not, what the limits of that obligation are. Must all contractual terms be examined for unfairness based on the courts’ own motion?

To clarify, there are three different dimensions to this issue. First, whether national courts must only assess the unfairness of the terms invoked by the consumer or also the unfairness of other terms that the consumer did not invoke (ex officio). Second, whether the courts must take the whole contract into account when assessing the unfairness of the terms invoked. Third, whether there is an ex officio obligation regarding investigative measures, if the court does not have all the necessary elements to assess the unfairness of a term.

All the parties’ observations – as well as the AG’s – agreed that an unlimited obligation to assess the unfairness of contractual terms ex officio would largely (and unnecessarily) hinder fundamental principles of national procedural law. Illustratively, UniCredit Bank Hungary defended a triple criterion to limit the ex officio obligation: a national court must examine unfair terms ex officio only if i) the court has ‘the necessary legal and factual elements’ for that examination, ii) if the term concerned is relevant to the decision to be given and iii) if the term has a material and logical relationship with the case. In its statement, Hungary followed the same lines of reasoning, arguing that the court must examine ex officio ‘terms whose unfairness can be clearly established, as a matter of fact, on the basis of the available evidence’.

Following the same logic, the AG concludes that Articles 6(1) and 7(1) of the Unfair Terms Directive require national courts to assess ex officio the unfairness of contractual terms which are related to the object of the dispute and have a link with the legal or factual elements in the case file. This opinion suggests, therefore, a double criterion to limit the ex officio obligation to assess unfair terms: a relation between the clause and the object of the dispute and a link with existing legal or factual elements in the case. In other words, the courts’ obligation to assess ex officio the unfairness of contract terms does not extend to all contract terms, but only those with a link to the case in question. Consequently, AG Tanchev’s opinion is that national courts do not have to examine ex officio all the other contractual terms for unfairness, but merely to take all the other terms into account when examining the unfairness of a specific term, according to Article 4(1) of the Unfair Terms Directive.

This interpretation also means that it is not enough that the contractual term is relevant to the object of the dispute, but it is also necessary that the court possesses some legal and factual elements to determine the unfairness of the term. AG Tanchev also states that Articles 6(1) and 7(1) of Directive 93/13 allow national courts to ‘take ex officio investigative measures to complete the case file’ (e.g. asking for clarification or documentary evidence from the parties) in order to obtain the necessary legal and factual elements to carry out an ex officio examination of unfairness (para 55). The AG’s opinion follows the CJEU decision in VB Pénzügyi Lízing (C‑137/08). According to the AG, it appears that if the national courts do not have the necessary legal or factual elements, they are not obliged to assess the unfairness of the term, although they are able (but not obliged) to request those elements from the parties.

While this interpretation seems reasonable and it strikes a balance between fundamental principles of civil procedure law and EU consumer protection, this last argument regarding ex officio investigative measures is slightly more confusing than the previous ones. In fact, as the AG acknowledges, the CJEU has previously highlighted the need for ‘sufficient evidence’ in order to assess the unfairness of the contractual terms (para 62). The AG addresses this aspect by stating that ‘this may be viewed as lending support for the position that the national court has at its disposal sufficient legal and factual elements for the ex officio examination if necessary by being able to take ex officio investigative measures to that effect’. More clarification on this aspect in the final CJEU decision would be desirable.

Ex officio control in European order-for-payment procedure

A case we have not reported yet on this blog but is certainly of interest in the light of several other cases on (national) expedited debt collection procedures - such as Salvoni, Profi Credit and Addiko Bank - is Bondora (Joined Cases C-453/18 and C-494/18), a Spanish preliminary reference on ex officio control of unfair terms in the context of a European order-for-payment procedure. In short, the CJEU held that national courts can request from the creditor additional information relating to the terms of the agreement on which the claim is based. For a more extensive discussion of the case, we refer to this blog on ConflictofLaws.net.

Cofidis II: on ex officio and limitation periods - Opinion AG Kokott

Seventeen years ago, the CJEU gave judgment in Cofidis, one of the first and well-known cases on the ex officio application of EU consumer law. In short, the CJEU held that a limitation period of 2 years under French law, which prevented the court from examining (at its own motion or at the request of the consumer) the unfair nature of terms in a credit contract, was contrary to the principle of effectiveness. According to the CJEU, traders would merely have to way until the expiry of the time-limit before seeking enforcement of the (unfair) terms they would continue to use in consumer contracts.

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AG Kokott recently delivered an Opinion in Cofidis II, a French case as well, on a very similar issue. In an action for the enforcement of a credit contract against two consumers, Cofidis had argued that the court could not address of its own motion a possible infringement of the requirements of the Consumer Credit Directive, because it had been raised by the court more than 5 years after the conclusion of the contract and thus, was time-barred. Kokott's Opinion also covers another case, from the Czech Republic, on the question whether the court could be prevented from imposing a 'penalty' - nullity of the credit contract - only if the consumer brought an objection within 3 years. Both cases therefore give rise to the question to what extent national courts must establish and penalise the trader's failure to comply with its obligations under the Consumer Credit Directive ex officio, irrespective of national rules on limitation periods. 

Kokott's Opinion is interesting for three reasons. Firstly, she discusses the rationale of ex officio. Secondly, she looks at the (a)symmetry between consumers and traders in their possibilities to bring an action on the basis of long-term contracts, which impacts the (in)compatibility of limitation periods with the principle of effectiveness. And thirdly, she argues that a 'penalty' can be imposed ex officio as a means of defence in an action brought against consumers, which would still be within the subject-matter of the dispute - as long as the right to be heard is observed. 

Rationale of ex officio

Kokott starts by referring to the difference between Radlinger and Bankia, also noticed and analysed by Candida Leone in a recent paper on the New Deal for Consumers. Bankia shows that not every obligation arising from EU directives in the field of consumer protection must be examined by national courts ex officio. While the Unfair Contract Terms Directive stipulates the legal consequence of the use of unfair terms - i.e., they are not binding - the Unfair Commercial Practices Directive leaves it to the Member States to establish the necessary means to combat such practices (point 38). The CJEU's case law on the UCTD cannot be automatically extended to the Brussels I regulation either; see Salvoni. 

Kokott then continues with listing relevant factors that determine the need for ex officio examination. Firstly, both Czech and French law attach legal consequences to infringement of (the provisions transposing) the Consumer Credit Directive for the benefit of consumers (point 46). This suggests it does not matter that the Directive leaves it to the Member States to lay down penalties (points 44-45). Secondly, it follows from Radlinger that compliance with the Directive must be examined ex officio where necessary (point 48). In this respect, Kokott draws attention to the weak position of consumers in terms of knowledge and bargaining power, and the risk that they will not invoke protective norms due to a lack of awareness. Furthermore, the Directive aims to make creditors accountable and to prevent them from granting loans to consumers who are not creditworthy (point 51). In addition, "a systematic judicial review of compliance (...) contributes to ensuring a level playing field" (point 52; emphasis added). 

Asymmetry between consumers and traders

Limitation periods as such are not necessarily incompatible with the principle of effectiveness. However, this is different where they lead to an asymmetry of the possibilities to bring an action, i.e. the trader/creditor can assert its payment claims for longer than the consumer-debtor can assert the invalidity of the contract (point 63). Again, like in the first Cofidis case, the trader may circumvent consumer protection by simply waiting for the time-limit to expire before bringing an action. Credit contracts for consumers typically entail long-term obligations, so limitation periods that begin to run when a contract is entered into are questionable (point 65) - especially when there is generally only cause to carry out an examination of compliance with the Directive in the event of default, likely after expiry of the limitation period of 3 or 5 years. Therefore, consumers are at risk of losing their rights without ever having been aware of them.

In Kokott's view, legal certainty does not require limitation periods that begin to run when a contract is entered into. The creditor itself has caused the risk that consumers claim their rights over relatively long periods of time by breaching its obligations under EU law (point 68). 

Penalties 

Lastly, Kokott considers the 'penalty' for the creditor's breach of its obligations, which must be effective, proportionate and dissuasive (point 74). Kokott distinguishes supervisory penalties from 'sanctions' as an effective means to enforce the Directive's requirements, which also serves to protect the individual (point 82). Individual consumers are not specifically aided by general supervisory measures, but they are by e.g. the creditor's loss of entitlement to interest; see Home Credit Slovakia and LCL Le Crédit Lyonnais. 

Kokott submits that, whereas national courts cannot apply of their own motion a penalty which amounts to a counterclaim, it can impose such a penalty ex officio "if this merely averts a form of order sought by the applicant" (points 83-84). This does not run counter to 'the principle of party disposition'. We might add that ex officio examination of an infringement clearly falls within the subject-matter of the proceedings if the action is based on (enforcement of) the contract. The step to ex officio imposition of a 'penalty' is not so big, in the light of the Directive's aim to protect consumers. Of course, the right to be heard as guaranteed by Article 47 EUCFR must be observed in this context. 

Putting a brake on fast-track proceedings in consumer credit cases? CJEU rules in Profi Credit Polska (vol. 2)

Earlier today the Court of Justice delivered its judgment in joined cases C-419/18 and C-483/18 Profi Credit Polska. The case follows the earlier judgment involving the same party, in C-176/17, as well as the order in C-632/17 PKO Bank Polski. Both of these earlier rulings dealt with the Polish fast-track order for payment proceedings (postępowanie nakazowe) for the enforcement of promissory notes and bank ledger excerpts, respectively (see: Effectiveness of the UCTD revisited... and Ex officio control of unfair terms...). In both cases the Court found that the procedure was not compatible with Directive 93/13/EEC on unfair terms (UCTD) as it required the consumer to lodge a complaint (zarzuty) under comparably strict conditions (as regards time, content and costs) before the national court could analyse the fairness of the underlying credit agreement of its own merits. The order in PKO also included the analysis of Directive 2008/48/EC on consumer credit and in that context established that the national court should also be able to perform ex officio control of the trader's compliance with information duties regardless of consumer's complaint. In the second Profi Credit judgment delivered today, the Court had a chance to clarify what exactly national courts should be examining ex officio, at what stage of the order for payment proceedings and based on what evidence. The judgment brings a bit more clarity to the reading of EU law than its predecessors, but does not dispel the interpretative doubts entirely.

Facts of the case

The case involved several Polish consumers who entered into credit agreements secured by blank promissory notes. Following the debtors' failure to fulfill their contractual obligations, Profi Credit completed the notes with relevant amounts and moved to their enforcement in the order for payment procedure. Under the applicable Polish law, the court hearing the dispute in which an initially blank promissory note is relied upon, is authorised to verify whether the promissory note had been completed in accordance with the promissory note agreement concluded with the consumer. However, such an assessment can only be made in the event of a complaint raised by the debtor, which the latter had failed to do. The creditor, in turn, refused to provide the court with additional documents arguing that he was only obliged to present the duly completed and signed promissory note. In these circumstances the courts in Warsaw and Opole decided to stay the proceedings and ask the Court of Justice for its interpretation of Directives 93/13 on unfair terms and 2008/48 on consumer credit.

Judgment of the Court

First question

In the first part of the judgment, the Court of Justice analysed whether the possibility under national law to secure the payment of a debt arising under a consumer credit agreement by means of a blank promissory note is at all compatible with Articles 3(1), 6(1) and 7(1) of Directive 93/13 and Article 10 of Directive 2008/48. The Court responded in the affirmative, but qualified its answer in several important respects.

According to the Court, both the provision in the consumer credit agreement, requiring the issuance of a blank promissory note, and the more specific promissory note agreement, detailing the rules in accordance with which that note may be lawfully completed by the lender, may fall within the scope of Directive 93/13. The inclusion of such clauses in the standard terms (and its subsequent enforcement in the order of payment proceedings) can, therefore, comply with that directive provided that national courts undertake the assessment of these two types of terms in light of the UCTD. The judgment further synthesizes the criteria of such an assessment, that is good faith, balance and transparency (see para. 54 et seqq). A particularly strong emphasis is placed on that last criterion. Specifically, the national court must determine whether the consumer has received all the information that may have an impact on the scope of his or her obligations and that enables him or her to assess, in particular, the procedural consequences of securing debts arising under a consumer credit contract by means of a blank promissory note and the possibility of subsequent recovery of the debt solely on the basis of that note. The contractual term in question must also be drafted in plain, intelligible language and the consumer must be given the opportunity to examine its content. Finally, in line with Article 10(2) of Directive 2008/48, the national court is required to examine of its own motion whether the obligation to provide information laid down in that directive has been complied with and if not, establish the relevant consequences.

Second question

 

The second part of the judgment centred around the question whether a national court, which has serious doubts as to the merits of an application based on the initially blank promissory note, must examine of its own motion whether the provisions agreed between the parties are unfair and if so, based on what evidence. The Court, unfortunately, does not clearly specify which provisions agreed between the parties are covered by this reasoning. It seems reasonable to align this part of the judgment with the scope of the previous question and relate it to: a) fairness control of the provision in the consumer credit agreement requiring the issuance of a blank promissory note and provisions of the promissory note agreement; b) compliance with disclosure duties from Directive 2008/48. However, the wording of the judgment is not particularly accurate and the Court appears to switch between the analysis of Directive 2008/48 and the UCTD in a somewhat confusing way (cf. paras. 69 and 70). 

Overall, the key takeaway from this part of the judgment is that the national court should be able to demand the production of the documents on which the creditor's application is based, including the provision in the promissory note agreement. This confirms that the requirement for the national court to undertake ex officio control in the presence of legal and factual evidence required for that task, should not be interpreted restrictively. Rather the national court must investigate of its own motion whether a term in the B2C contract falls within the scope of the UCTD and, if so, to assess whether such a term is unfair. In doing so, the court should interpret national procedural rules, so far as possible, in the light of the Union law and disapply any national legislation or case-law which precludes the ex officio control of the relevant contract term, for example by requiring that such a control can only take place following a consumer's complaint.

Concluding thought

The judgment of the Court in joined cases C-419/18 and C-483/18 Profi Credit Polska seeks to establish a high level of consumer protection also in the fast-track order for payment proceedings. Polish procedural law provides for such proceedings if the facts supporting the claim are evidenced by an exhaustive list of documents, such as invoices accepted by the debtor; request for payment along with a written recognition of the debt; or a duly completed promissory note, the truthfulness and content of which do not give rise to any doubt (Art. 485 of the Polish Code of Civil Procedure). The order of payment is issued ex parte: the debtor is notified of the order and is able to raise a complaint under the conditions described by the Court in the first Profit Credit judgment. It is worthy of note that Polish Code of Civil Procedure was reformed as recently as June 2019 and the order of payment procedure was significantly affected by the reform. Nonetheless, the amendments do not seem to be linked to the CJEU case law or even more generally with consumer protection. The only pro-consumer change is the removal of the order of payment procedure based on bank excerpts - a move, which appears to be linked to the 2015 judgment of the Polish Constitutional Court on bank enforcement titles (a similar legal concept). For the time being, the Polish legislator seems to be unaware of the Court's case law on the UCTD. Time will tell, therefore, if national courts will indeed be inclined to put a brake on fast-track proceedings in consumer credit cases.

CJEU judgment in Salvoni: no extra consumer protection in cross-border enforcement

In May we reported on this blog on AG Bobek's Opinion in C-347/18 Salvoni v Fiermonte. The referring Italian court that was requested to issue a Certificate for the cross-border enforcement of an order for payment against a consumer in Germany under the Brussels I Regulation (Recast). The order appeared to be in breach of the Regulation's jurisdiction rules; the consumer was domiciled in Germany, not in Italy. Should the court review and rectify the order, or inform the consumer of the possibility to challenge its enforcement? In this respect, the court referred to the CJEU's case law on Article 47 EUCFR and the Unfair Contract Terms Directive. According to AG Bobek, however, such an "extra layer of protection for consumers" could not be read into the provisions of the Regulation.

The CJEU confirms this in its judgment of 4 September. First, it found that the Certificate-procedure under the Brussels I Regulation can be qualified as judicial in the sense of Article 267 TFEU. Therefore, the preliminary reference was admissible. Secondly, it held that the court that issues the Certificate does not have to (re-)examine (ex officio) the jurisdiction of the court that has given the underlying judgment, even if it involves a consumer. The CJEU made a distinction between jurisdiction (see e.g. Article 17(1) of the Regulation for specific rules on consumer contracts) and recognition and enforcement. In the latter phase, it is the party against whom enforcement is sought who must oppose it. Because jurisdiction is one of the opposition grounds, there is no violation of Article 47 EUCFR. The CJEU's case law on the Unfair Contract Terms Directive does not apply in the context of the Brussels I regulation, which contains rules of a procedural nature. 

As we pointed out earlier, this outcome is understandable in light of the Regulation's framework, which aims to enhance the free movement and rapid enforcement of judgments within the EU, in the light of mutual trust based on legal certainty. From a consumer protection perspective, it possibly leads to a gap in the effective judicial protection of consumers. Not only is a court that has failed to apply mandatory jurisdiction rules (ex officio) in violation of the Regulation not allowed to rectify this; it is not allowed to subsequently inform the consumer of her defence possibilities either.  

When CJEU case law travels from Spain to Slovenia: C-407/18 Addiko Bank

What happens when a Slovenian court asks the EU Court of Justice a question to which the answer should already clearly follow from previous case law on Directive 93/13? Then the Advocate General might not give an Opinion, but in Case C-407/18 Kuhar v Addiko Bank the Court provides a concise overview of its case law pertaining to, in particular, Spain and Poland, and explains what this means for Slovenia. Thus, the Court seems to understand what the referring court was looking for: back-up for its interpretation of Slovenian procedural law.

To readers of this blog, the case will look familiar: it reminds us of e.g. Banesto, Aziz, Profi Credit Polska and PKO Bank Polski. The CJEU also refers to Banco Popular Español, ERSTE Bank Hungary and Finanmadrid. What these cases have in common with Addiko Bank, is that they all concern the (limited) role of the court in expedited debt-collection procedures, i.e. mortgage enforcement or order-for-payment proceedings. The court only performs a formalities check and cannot assess the merits of the claim. It is the debtor who must initiate a contentious debate by challenging the claim or opposing the enforcement, and it is the (consumer-)debtor who must apply for a declaration of nullity of allegedly unfair contract terms and/or the loan agreement. The court cannot review unfair terms ex officio, and the enforcement is not automatically suspended. As the CJEU recalls, there is a real risk that consumers are unaware of their rights, especially if they do not receive legal aid and lack the financial means for legal representation. In Slovenia, an additional problem is that (consumer-)debtors must provide security for the payment of the debt when they apply for suspension of the enforcement. For a summary of the restrictive procedural conditions at issue, see para 50 of the judgment.

In paras 53-63, the CJEU elaborates why the constellation of procedural rules runs counter to the effectiveness of the Unfair Contract Terms Directive. The link with the Directive is that the mortgage loan agreement at hand appeared to contain an unfair foreign currency clause. In the enforcement proceedings, however, the emphasis was on the debtors' duty to meet their payment obligations rather than the question whether the enforcement was based on unfair terms. Whilst notaries can have a "preventive" role in respect of unfair terms in mortgage loan agreements and notarial deeds, the right of consumers to effective judicial protection must be observed by giving them the opportunity to exercise their rights under reasonable procedural conditions, in particular in respect to time-limits and costs. The mere existence of a means of recourse is not sufficient, as the Slovenian rules at issue show. If there is no ex officio control of unfair terms in the enforcement proceedings, and unfair terms control only takes place at a later stage, consumers will only be protected ex post. Financial compensation will not prevent the loss of their family home.

The Court does not only provide a synthesis of its case law on effective judicial protection in the context of the UCTD; it also discusses Slovenian procedural law in detail. Apparently, the Spanish and Polish cases (still) do not give enough guidance as to what level of procedural protection is required in light of the Directive. What happens in Spain, stays in Spain, and is not 'translated' to other jurisdictions - certainly not Slovenia, and as Padraic Kenna has pointed out, not in Ireland either. The CJEU has repeatedly urged national courts to apply their national laws in such a way as to ensure the full effect of the Directive (reiterated in paras 65-66 of the judgment), but Addiko Bank demonstrates this may not happen without CJEU back-up. The CJEU's case law must 'travel' from Spain and Poland to Slovenia first. Hopefully, the judgment will signal once again that effective judicial protection requires a genuine opportunity for consumers to exercise their rights, not a mere formality; and that the CJEU's case law on unfair terms control (ex officio) in mortgage enforcement proceedings transcends specific EU Member States.

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.

CJEU on equivalence as to consumer associations' intervention in individual proceedings (C-448/17)

One of the latest instalments in unfair terms adjudication was delivered yesterday by the Court of Justice in case C-448/17 (EOS KSI Slovensko), concerning a Slovak consumer who had concluded a consumer credit contract. 

In this case, the most prominent substantive problem with the contract itself was that it did not mention the APR. Only a mathematical formula was provided, with no further information that would allow the consumer to calculate the applicable rate. 

The creditor - a debt recovery company - sought an order for payment, which was granted though a procedure taking place on the basis of documental evidence, without a hearing. Under Slovakian law, this procedure involved not a judge but a civil clerk. Once the order was granted, without any assessment being carried out under unfair terms rules, nor consideration being given to the lack of APR, the consumer had 15 days to file their opposition. This, in turn, required an indication of substantive reasons for opposing enforcement. 

Intervention by an interested consumer association was rejected in follow-up proceedings on the basis of the fact that previous action by the consumer was required before other interested parties could intervene - in other words, the association could intervene in a case that was already pending thanks to the consumer's action, but not initiate a new case. 

A Slovak court took stakes with a number of issues in the scenario above: 

First, it asked whether it was open to Slovak law to restrict the possibility for interventions by consumer associations in the way it did, in particular in light of the fact that for claims regulated entirely by "Slovak" (vis à vis "European") law the criteria for considering a case to be pending are looser than in cases where EU consumer law plays a role. 

The Court of Justice answered this question by, on the one hand, re-affirming that article 7 of the UCTD does not require member states to allow consumer associations to intervene in individual proceedings (para 41 - no problems, thus, on the effectiveness front); on the other hand, the Court recalls, in these cases the member states are anyhow bound by the principles of effectiveness and equivalence. In particular, the latter principle precludes a national legislation which sets different pendency requirements for purely "national" cases and cases connected to EU (consumer) law. Thus, should the national court indeed find the existence of one such difference here, the stricter pendency rule would be incompatible with EU law (para 40). 

Second, the referring court asked the CJEU to test the procedure for granting the order for payment and, subsequently, the enforcement, for compatibility with the Directive. The CJEU recalls its previous case-law to the effect that the absence of unfairness assessment in the order for payment procedure is not per se problematic as long as the consumer is protected by the possibility of (ex officio) unfair terms control at the stage of enforcement.  However, insofar as Slovak law requires the debtor to file a motivated objection within 15 days, there is a concrete risk that no assessment will take place since the requirements make it rather difficult for the consumer to take action (para 53). This situation is not in line with the Directive. 

Third, concerning the specific contract at stake, the court asked whether the provisions in the credit contract could be considered as transparent in spite of the lack of mention of the APR and interest rate. Mentioning of the APR is required on the basis of the 1987 consumer credit directive - but what impact does a violation of that requirement have on  the unfairness assessment? According to the CJEU, the consequence of this omission is that the consumer cannot be considered as liable for having actually accepted the terms of the contract (para 67), with the consequence that, to the ends of unfair terms control, the missing APR can be considered as a decisive factor in assessing whether the interest terms are drafted in plain intelligible language. This finding, of course, will then open the way to a possible finding of unfairness. 

CJEU judgment on ex officio control of unfair terms in Belgium

Today the EU Court of Justice gave judgment in a Belgian case we have reported earlier on this blog: Karel de Grote-Hogeschool v. Suzan Kuijpers (C-147/16). The case concerned a repayment scheme between a student and an educational institution in Belgium regarding tuition. When the student failed to meet her payment obligations, the institution brought a claim against her before the peace court in Antwerp. The student did not appear in the proceedings and did not have legal representation.

The referring court wanted to know if it could examine ex officio whether the contract fell within the scope of the Unfair Terms Directive (and, consequently, whether it contained unfair terms). The CJEU's answer to this question is - unsurprisingly - positive. Moreover, the concept of 'seller' has a wide meaning and includes the educational institution insofar as it provides a service that is complementary and ancillary to its educational activities. The CJEU reiterates that

"(...) it must be borne in mind, as the Court has consistently held, that when national courts apply domestic law, they are bound to interpret it, so far as possible, in the light of the wording and the purpose of Directive 93/13 in order to achieve the result sought by the directive and consequently comply with the third paragraph of Article 288 TFEU. This obligation to interpret national law in conformity with EU law is inherent in the system of the FEU Treaty, since it permits national courts, for the matters within their jurisdiction, to ensure the full effectiveness of EU law when they determine the disputes before them (see, by analogy, judgment of 21 April 2016, Radlinger and Radlingerová, C‑377/14, EU:C:2016:283, paragraph 79 and the case-law cited)."

It is noteworthy that the CJEU has answered the question as to the ex officio examination to be carried out by the national court on the basis of the principle of equivalence (rather than effectiveness or the right to effective judicial protection):

"It follows that, where the national court has the power, under internal procedural rules, to examine of its own motion whether a claim is contrary to national rules of public policy, which, according to the information provided in the order for reference, is the case in the Belgian judicial system for a court giving judgment in default, it must also exercise that power for the purposes of assessing of its own motion, in the light of the criteria laid down in Directive 93/13, whether the disputed term on which the claim is based and the contract containing that term come within the scope of that directive and, if so, whether that term is unfair (see, by analogy, the judgment of 30 May 2013, Asbeek Brusse andde Man Garabito, C‑488/11, EU:C:2013:341, paragraph 45)." 

Between equivalence and effectiveness: Opinion of AG Sharpston on unfair terms control in default proceedings

Today, Advocate General Sharpston delivered her Opinion in a Belgian case (C-147/16: Karel de Grote Hogeschool v Susan Kuijpers) on the scope of Directive 93/13 as well as the powers and obligations of national courts under that Directive. The case concerns the 'Europeanization' of (national) civil procedure and the 'proceduralization' of unfair terms control. More particularly, it concerns the role of the civil court in default proceedings, i.e. when the defendant does not appear.

Judicial districts in Belgium

A claim was brought by an educational establishment against a student who had borrowed the amount of money she needed to pay her registration fee, but subsequently defaulted on her repayments. The student did not take any (active) part in the proceedings the school initiated to recover the outstanding debt. In Belgium, when a judgment in default is given, civil courts are only required to apply national rules of public policy (Article 806 of the Judicial Code, amended in 2015). This caused uncertainty within the judiciary as regards the rules on unfair contract terms [*]. Could and should a court examine of its own motion (ex officio) whether the contract at hand falls within the scope of the Directive as implemented in Belgian law, and if so, whether its terms are unfair?

AG Sharpston first reiterates that the procedural autonomy of the EU Member States is limited by the principles of equivalence and effectiveness. She then refers to Asturcom (C-40/08) to point out that the principle of effectiveness "cannot be stretched so far as to mean that a national court is required to make up fully for the total inertia on the part of the consumer" (para 28). However, the principle of equivalence entails that inasmuch as the court is required to assess whether a term conflicts with domestic rules of public policy, it must do the same with the rules under Directive 93/13. Thus, those rules should be treated as rules of public policy.

In a forthcoming article [cited below], the Belgian scholar Janek Nowak explains the two approaches very clearly. The difficulty with the effectiveness approach is, in short, that Belgian civil courts would have to disregard Article 806 insofar as it limits them in their tasks. The equivalence approach is less 'disruptive': it reconciles EU law requirements with national civil procedure, while it also avoids the issue of the (lack of) horizontal direct effect of directives. AG Sharpston shares the Belgian Government's view that Article 806 provides room for a broad interpretation of the national court's powers and obligations in light of Directive 93/13. Yet she also refers to the effective legal protection guaranteed by the Directive which must be ensured "whatever the rules of domestic law":  the Directive must be applied "irrespective of the status afforded to the national rules" implementing it in the national legal order and irrespective "of the parties' procedural actions or submissions" (para 33). The only exception is that national courts do not have to - and cannot - intervene where none of the parties has brought proceedings. In all other cases, they must exercise ex officio control.

The second part of the Opinion addresses the meaning of 'seller or supplier'. AG Sharpston advocates a broad interpretation (see para 67). She focuses on "the capacity of the contracting parties" (para 66). In this respect, there is a link between the first and the second part: the substantive imbalance between the parties (in terms of both bargaining power and level of knowledge) is accentuated by a procedural inequality. A consumer is, in the words of AG Sharpston, "likely to find himself on the receiving end" of the proceedings, which "will affect his legal situation, whether he participates in the proceedings or not" (para 32). This would justify an active role of national (civil) courts as decentralized EU-judges, even though such a role might 'clash' with their position in the domestic (procedural) framework. Especially in default proceedings with consumers as defendants, national courts struggle with the practical problem of having to deal with a great number of cases, insufficient factual information and the need to take the interests of the claimant into account (as follows from the CJEU's case law on the right to a fair hearing as safeguarded by Article 47 of the EU Charter of Fundamental Rights). The stream of preliminary references on procedural questions is not likely to stop anytime soon.

[*] J.T. Nowak, 'On the impact of EU law on national civil procedure. Some considerations and recent examples from Belgium', draft paper (to be published) presented on 25 November 2016 during the 21st annual conference of the Ius Commune Research School.

Spanish 'floor clauses' (cláusulas suelo) - EU Court of Justice steps in: nullity is nullity

Judgment of the EU Court of Justice in Joined Cases C-154/15, C-307/15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López)

Yesterday the EU Court of Justice gave its long-awaited judgment in the joined cases from Spain on the infamous 'floor clauses' (cláusulas suelo). It is a real Christmas present to Spanish consumers and house-owners: the CJEU has "overruled" national case law that limits the temporal effects of the declaration of nullity of an unfair term. Nullity is nullity. The impact of this judgment on the Spanish banking sector is huge: banks will have to pay back an estimated amount of 3.000 to 5.000 million euros (source: El País). The judgment has already been called a "formidable varapalo judicial a la banca", a tremendous judicial blow to the banks.

'Floor clauses' in mortgage loan agreements establish a minimum rate below which the variable rate of interest cannot fall. Until the Spanish Supreme Court (Tribunal Supremo) found them to be unfair in 2013 due to a lack of transparency, they were widespread. The biggest question for Spanish consumers after yesterday's judgment, which has been widely covered in Spanish media, is: how much money do we get back?

The reason why they ask this question, is the Supreme Court's decision to limit the temporal effects of its judgment to after the date of its publication, 9 May 2013, both in respect of collective actions for an injunction and individual actions by consumers claiming repayment. Only the amounts overpaid on the basis of 'floor clauses' after that date had to be paid back. One of the considerations of the Supreme Court was that retroactive (i.e. restitutory) effect of the invalidity of the clauses at issue would give rise to serious economic repercussions. Lower courts in Spain, however, doubted whether the Supreme Court's approach was compatible with Directive 93/13/EEC on unfair terms in consumer contracts. Last July, we reported on this blog that it was permissible in the opinion of the Advocate General. The CJEU has now decided otherwise, which means that Spanish consumers can also claim repayment of the amounts overpaid to the banks on the basis of 'floor clauses' during the period before 9 May 2013, from the beginning of their contract.

For the readers of this blog, the judgment may not be entirely unexpected. The CJEU refers extensively to its previous case law about the interpretation of "not binding on the consumer" under Article 6(1) of Directive 93/13. It reiterates that it is for the national court "purely and simply" to exclude the application of an unfair term (para. 57). The national court may not revise the content of unfair terms, "lest it contribute to eliminating the dissuasive effect of the straightforward non-application with regard to the consumer of those unfair terms" (para. 60). The determination of unfairness "must, in principle, have the consequence of restoring the consumer to the legal and factual situation that he would have been in if that term had not existed" (para. 61). Thus, the national court must impose the repayment of amounts that prove not to be due, which entails "a corresponding restitutory effect" (para. 62). The absence of such restitutory effect would call into question the dissuasive effect that Articles 6(1) and 7(1) of Directive 93/13 are designed to attach to a finding of unfairness.

The CJEU then proceeds to consider that national (case) law may not alter the scope and, therefore, the substance of the protection guaranteed to consumers by the Directive. The Supreme Court was entitled to hold that its judgment did not affect situations in which a judgment with the force of res judicata had been given. While it is compatible with EU law to lay down reasonable time-limits for bringing proceedings, only the CJEU can decide upon a temporal limitation of the effects of a rule of EU law. National (case) law may not aversely affect the substance of the right that consumers acquire under that rule. The temporal limitation made by the Supreme Court is tantamount to depriving any consumer having concluded a mortgage loan contract before 9 May 2013 containing a 'floor clause' of the right to obtain repayment in full of the overpaid amounts. The CJEU concludes that national case law, such as that following from the Supreme Court's judgment of 9 May 2013, ensures only limited protection for consumers. Such protection is incomplete and insufficient and does not constitute either an adequate or an effective means of preventing the continued use of 'floor clauses'.

The CJEU rejects the argument brought forward by, among others, the Spanish government that the question of the effects of the finding of unfairness as regards 'floor clauses' does not fall within the scope of Directive 93/13, because that finding would afford a higher level of consumer protection than guaranteed by the Directive. The review of the substantive unfairness of a clause relating to the main subject-matter of the contract, where the consumer did not have the necessary information on the conditions and consequences of that contract before entering into it, falls within the scope of the Directive.

The CJEU brushes aside the Supreme Court's considerations in one fell swoop. It does not matter whether the 'floor clauses' were in themselves lawful, that their use had long been tolerated on the market, that the banks had complied with the regulatory requirements for information, or that there could be serious economic repercussions. The judgment was a bombshell: "Ahora mismo sale gratis disparar contra la banca" ("Right now, the banks have been made fair game"; source ABC). It is perceived as yet another setback for the Spanish banking sector. A string of preliminary references to the CJEU, starting with the well-known Aziz case, has strengthened the judicial protection of consumers against unfair contract terms. Still, yesterday's judgment comes as a surprising end to a long-running battle between Spanish consumers and the banks, supported by the government. It remains to be seen how the European judgment will be implemented at the national level; most banks do not seem eager to accept an obligation to automatically repay all their clients.

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

presov.virtualne.sk

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

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

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

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

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

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

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

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

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