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.

Unfair terms, ECJ reaffirms important principles

In two cases delivered today the Court of Justice had the chance to confirm its previous case law and add a new tile to the (ascertained) coverage of Directive 93/13.

To start with this last bit, in Asbeek Brusse and da Man Garabito v Jahani BV, the CJEU clarified that residential tenancy contracts concluded with professional landlords are also covered by the unfair terms directive.

In particular, the fact that the Dutch provision implementing the directive did not use a general term (  to identify the consumer counterpart (the English version is "seller or supplier"), but mentioned the "seller" (verkoper) instead, should not prevent the directive from applying to contracts which involve no sale.

As concerns the duties and prerogatives of courts faced with unfair terms, two important principles have been reaffirmed:

- first, on the ex officio nature of unfair terms control: appellate courts are not exempted from the duty to independently ascertain a term's unfairness under the Directive when they are allowed to act ex-officio to enforce public policy; in other words, the Directive and in particular its rules concerning the non-binding nature of unfair terms are equal to internal public policy rules;

- second, as concerns the consequences of unfairness, an effective implementation of the Directive requires that courts declare the terms wholly unbinding: reducing a penalty instead of considering it as never stipulated would "weaken the dissuasive effect on sellers and suppliers" (par.58) of the European rules.

This extension of ex officio control to second instance cases where the issue has not been raised in the first instance, was also reaffirmed in today's second case, Jőrös v Aegon. 

The most interesting part of this decision, though, concerns jurisdiction. The referring court asked in this case whether, having identified one term as unfair, it should proceed with a declaration of invalidity even though in principle the application of unfair terms control is demanded to a different and higher jurisdiction. 
After having paid lip-service to the Member States competence to "determine which court or tribunal has jurisdictions to hear disputes involving individual rights derived from European Union law" (par 50), the court  states that , once a court has found a term unfair, effective protection requires that the court "must draw all the consequences" from its finding. Thus, notwithstanding the national rules on jurisdiction, the "incompetent" court should still proceed to declare the term invalid and check whether the contract can still exist without that term. 

In both cases, the CJEU and the Advocate General agreed that there was no need to request an Opinion- which underlines how the Court considers the issues settled. On the other hand, the fact that cases keep coming in where the consumer (and her lawyer) did not seem to be aware of her rights under the (legislation implementing the) Directive seems to confirm the need for a judge-driven application of this branch of consumer protection.      

Public policy, good morals and social justice in European private law

On 26 and 27 October, the Groningen Centre for Law and Governance (GCL) organises a conference on the theme of 'Public policy, good morals and social justice in European private law':

'The focus of the session on Friday will be social-justice-inspired interpretations and applications of legal concepts of public policy and good morals as limitations to the validity of contracts and other acts of private autonomy (e.g. testaments). For what concerns contract law, the EU Commission, at least for the time being, does not seem to be willing to include a norm over immoral contracts or contracts contrary to public policy in its proposed Regulation on a Common European Sales Law (CESL). In the CESL preparatory works, a norm over illegality/immorality was proposed by scholars but this was not included in the Commission draft. Does this mean that there will be no European harmonisation of interpretations and applications of private law concepts of public policy and good morals altogether? Will this playing field for socio-economic justice in contract law remain the domain of national law? Or could perhaps some sort of European harmonisation take place through horizontal governance, especially horizontal judicial governance? A spontaneous, step-by-step convergence could be fostered by increasing judicial cooperation, especially if public policy and immorality norms are interpreted and applied in the light of the common European fundamental rights.

The Saturday session will be a round table on the comparison of the interpretation and application of public policy rules in private law, private international law and primary EU law in the light of EU fundamental rights and principles of social justice.'

More information regarding the programme will follow shortly on the conference website.

Conference visitors interested in questions of European private law might want to combine this event with (a part of) the Maastricht conference on 'EU law and the private sphere' that was announced on this blog earlier.