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

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

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

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

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

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

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

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

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

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

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

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

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

Repayment of the loan amount by a consumer

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

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

Immediate enforceability of consumer repayments

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

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

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

Consequences of unfair core terms - CJEU in mBank (C-140/22)

Last Thursday the CJEU issued a new judgment in the saga of Swiss francs mortgage loan contracts (C-140/22 - there is no English language text available yet). It was a Polish court who asked for a clarification of a few issues related to voiding such contracts as a result of them containing an unfair contract term, the removal of which would not enable the contract to remain in force.

Declaring unfairness 

The CJEU recalls its past judgment emphasising the obligation of national courts to assess (un)fairness of contract terms and ensure that any finding of unfairness results is fully remedied (Karel de Grote-Hogeschool Katholieke Hogeschool Antwerpen C-147/16 - with our comment - and Abanca C-70/17 - with our comment) (paras 53-55). Previous case law mentioned that consumers could, however, object to national courts attaching all the consequences resulting from finding of an unfair contract term, pursuant to the UCTD. Namely, when consumers are informed by courts about the presence of an unfair contract term in their contract, they could then decide, while fully informed, to still be bound by that term, which would give effect to the freedom of contract  and the UCTD's protection (para 57). The CJEU rightly emphasises now that this right for consumers to object to courts applying the UCTD provisions should not be interpreted as placing an obligation on consumers to declare that they do not object to the UCTD's application (para 56). This could deter consumers from benefiting from the scope of the UCTD's protection and further discourage traders from agreeing to consumers' out-of-court settlement claims (para 61). The CJEU reminds also that even if consumers are not present at court, the CJEU has an obligation to ex officio assess the unfairness of a contract term and apply the consequences following from the UCTD (para 60).

In short, the CJEU decided that the Unfair Contract Terms Directive should not be interpreted by national courts as requiring consumers to declare: 1) their consent to voiding an unfair contract term; 2) their awareness of the consequences that this voidness would have (voiding the whole contract); and 3) their consent to voiding the whole contract.

Financial consequences of unfairness

The CJEU recalls that when a mortgage loan contract is declared void, due to the finding of an unfair core term, consumers should only reimburse the bank by the amount of a borrowed loan, and possibly also statutory interest if they delay this reimbursement (para 62; also Bank M, C-520/21 - see our comment). Any further claims for reimbursement by banks would limit the deterrent effect of the UCTD (para 63).

Consequently, if as the result of finding an unfair core contract term the entire mortgage loan contract is voided, the UCTD prohibits national courts from calculating the impact of that voidness in a way that deducts from the consumer compensation of loan amounts paid to the bank, amounts of interest that the bank would have received if the contract remained in force.

Alternative terms on performance, average consumers... tune in to CJEU in mBank (C-139/22)

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Today the CJEU decided another case on unfairness in mortgage loan agreements with an index-link to Swiss francs - in the Polish mBank case (C-139/22). The first part of the judgment is Poland-specific, as it refers to the validity and effect of a national register of unlawful terms, which Poland happens to have. This issue has already been considered in the previous Biuro case (see our comment on case C-119/15 here). The Court now reiterated that as long as the register is transparent, kept up to date, and the traders have an opportunity to question the applicability of the register in their particular case, national courts could benefit from such registers (paras 41-43). Hence, contested terms could be declared by national courts as unfair if their content has previously  been registered as unfair, provided that the court warns parties to the proceeding about this and gives the trader the opportunity to challenge this finding (para 45). 

The second question was more interesting: What happens if the mortgage loan contract contains a term that is likely to be unfair, however, it also contains another term, which allows consumers to disregard the unfair term and follow a different path for contractual performance? In this case, the contract included a term that obliged consumers to reimburse a loan index-linked to Swiss francs 'exclusively in the national currency as converted according to a rate of exchange freely determined by the bank' (para 52). This term was previously determined as unfair by Polish courts. However, the contract also included a term that allowed consumers instead to reimburse the bank directly in Swiss francs. This would allow consumers to choose where to obtain Swiss francs from, avoiding the conversion rates set by mBank. According to the bank, consumers could have then avoided the detrimental effect of the first term, which, again pursuant to the bank. would not lead to unfairness. The Court rightly rejects this argumentation. Contrarily, it emphasises that a contract containing such a mechanism - two alternative terms referring to the same obligation, one of which is unfair and one of which is lawful - per definition should be considered unfair (para 55). The trader could be seen as counting on consumers' 'lack of information, failure to pay due attention or a lack of understanding', which would lead them to re-pay the loan in the way set out by the detrimental, unfair term, with the other term then only providing a mechanism to avoid liability by the trader (para 55).

Interestingly, the Court makes the above-finding fully aware of the average consumer standard that applies to the interpretation of the UCTD provisions. On its basis, we could expect that reasonably well-informed and circumspect consumers, who are to read and attempt to understand the contract and its consequences, should recognise the better of the two options for re-payment. And yet... the Court does not think so.

The average consumer is mentioned by the Court when giving the answer to the third question: Does the fact that one of the borrowers worked for the bank exclude them from the scope of protection of the UCTD? The answer is: No. As the concluded contract does not pertain to the employment relationship, the sole fact that it is concluded with the employer does not mean that it could change its non-commercial purpose (para 69). Further, even if the consumer in this case had insights into exchange rates of mBank, which were not available to consumers not working for this bank, this did not mean that their 'more specialised' knowledge should exclude them from the scope of protection of the UCTD. The CJEU reminds that we refer to the objective benchmark of an average consumer and their knowledge. Thus neither less nor more consumer knowledge in a given case will matter (para 66).

Upon unfairness of mortgages, banks may suffer financially - CJEU in Bank M. (C-520/21)

Last Thursday the CJEU issued a much-awaited judgment in the Polish case Bank M. (C-520/21), another case dealing with the fallout of mortgage loans concluded by consumers in a foreign currency. This time the questions asked by the national court pertained to the consequences for the parties of the court declaring the whole contract null and void. When a mortgage loan contract is invalidated, it is clear to the referring court that that parties need to reimburse the sums payment (the bank should receive the loan principal, consumers - monthly payments, fees, commissions and insurance premium). But could other sums be claimed, mainly on the basis of unjust enrichment under national law? For example, could consumers claim from banks interest on the amounts they overpaid over the years, due to changes to currency exchange rates? Could banks in turn claim from consumers interest on the sum of money they were not able to otherwise invest as they provided it as a loan principal? Polish banks have indeed threatened consumers pursuing the unfairness of mortgage loan terms by asserting claims against consumers in such cases on the basis of the non-contractual use of the capital (Banki pozywaja frankowiczow, by przerwac bieg przedawnienia). 

The court relies heavily in its opening statement on the previous judgment in the case Gutiérrez Naranjo and Others (see our comment here), recalling the importance of the restitutory effect of the declaration of unfairness: Consumers must be brought back to the position (legal and factual), they would have been in if the unfair term had not existed (paras 61, 65). The second important function of the consumer protection against unfairness is to deter sellers and service providers from imposing unfair terms on consumers. National law then, in order to be compliant with the UCTD, needs to facilitate restoration of consumers to the position they would have been in if not for unfairness, as well as needs not to undermine the deterrent effect of the UCTD (para 68).

In this light, if national laws facilitate consumers claiming additional compensation from banks than the reimbursement of the monthly sums paid etc, this should not undermine the objectives mentioned above. To the contrary, such legal options may enhance the deterrent effect of the consumer protection framework against unfairness (paras 69-71). The Court recalls the need to adhere to the principle of proportionality though, which means that national courts should assess whether consumer claims do not go beyond what is necessary to achieve the above-mentioned objectives (para 73).

The same reasoning could not be applied to assess the compliance of national laws allowing banks to claim further compensation from consumers than the reimbursement of the loan principal. Such a legal option would undermine the deterrent effect of the protective framework (para 76). It could also discourage consumers from seeking to complain against unfair terms, as it may be more economically beneficial to continue with the performance of a contract containing unfair terms (para 79). The Court is not dissuaded from concluding this by arguments raised by banks indicating the fragility of the financial market at the moment, as well as claims that consumers will be receiving their loans 'free of charge' (para 80). The Court falls back on the principle nemo auditur turpitudinem allegans (no one may rely on their own wrongdoing). As banks chose to use unfair terms in their mortgage loan contracts, they may not now complain that they will lose their profits (para 82).

This judgment follows previously issued AG Collins' opinion. It has been rejoiced in Poland, where banks started counter-suing consumers not only for the return of the loan principal but also for the compensation for its use during the loan period, before the mortgage contract is annulled. Banks generally estimated such compensation to equal at least 50% of the loan principal, which would seriously impede any consumers' winning claim as to unfair mortgage loan terms. Now, if only the Polish courts were given additional resources to actually be able to handle all these cases, so that consumers could find their redress in a timely fashion.

Transparent language of consumer credit contracts - CJEU in A. S.A. (C-212/20)

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On November 18, the CJEU issued a judgment in the Polish case A. S.A. (C-212/20), which once again inquired as to what exactly Polish consumers would need to prove to claim unfairness of a term in a credit contract indexed to Swiss francs, and as to consequences of finding such a term unfair. Consumers in a given case signed a statement, when concluding the mortgage contract, that they were aware of the risks of indexing their credit to a foreign currency. Further, the statement mentioned that consumers were informed about their credit rates being determined in a foreign currency, but needing to be paid back in PLN (Polish zlotys) pursuant to the rules in the attached bank regulation.

The contested provisions of the bank regulation refer to the way in which the indexation in the foreign currency should be calculated, which could be interpreted in more than one ways. Further, the national court inquired as to the feasibility of placing on banks an expectation to precisely determine how the credit rates should be paid back (and following which indexation mechanisms for a foreign currency), when a credit contract is concluded for 40 years and these mechanisms are likely to keep on changing (para 25). The national court asked whether it could look for a common intention of the parties as to the calculation of the credit rates to determine the precise effect of the indexation clause (para 26).

The judgment in this case unsurprisingly reiterates previously mentioned key points that courts should follow when interpreting consumer credit contracts and assessing their terms' fairness: 1) transparency is crucial; 2) courts may not interfere to alleviate the consequences of unfairness for the banks.

Ad 1)

The court clarifies first that the current case does not pertain to core terms, which means that the consumer credit terms needed to be transparent pursuant to Article 5 UCTD (which de facto is not much different than transparency requirement of Article 4(2) UCTD - see again para 38). The CJEU reiterates the most recent requirement for the national court to interpret and apply transparency requirements broadly (from BNP Paribas judgment, see here) (paras 41-42). An average consumer needs to understand the specific functioning of the calculation method of the interest rate to be able to assess on the basis of unambiguous and comprehensible criteria potentially significantly adverse economic consequences for consumers' financial obligations (para 42). The CJEU generally agrees that a credit contract concluded for 40 years may hinder the lender in foreseeing all the possible financial consequences which the indexation mechanism may lead to (para 51). However, this should not excuse the lender not specifying all the criteria used to determine the interest rate (para 53), which here seemed to be left unsaid (paras 46-48). The consumer may not know exactly how much they will need to pay at which point of time in the future, but they should know exactly how at any one point of time that interest rate will be calculated (paras 53-54). This would protect consumers against their information asymmetries.

Ad 2)

The CJEU reiterates that non-transparency of a standard term is one of the elements that courts should consider in the unfairness test (para 58). However, the Court does not doubt the unfairness of a term that prevents consumers from estimating the scope of their financial obligations under a credit contract (para 64). Further, the national courts continue to have to refrain from supplementing unfair contractual provisions in a way that would give them effect by eliminating the unfair element (paras 67-68). That prohibition applies even if the interpretation by the national court of the standard term attempted to give effect to the shared understanding of the clause by the parties.

Of unfair terms, novation agreements and other not so magical creatures - CJEU in C-19/20

Dear readers, 

as the spring advances (not really, for those of us in continental Europe, but we keep faith), we should catch up with some case-law developments from the past weeks. 

Hereby, thus, a quick overview of a somewhat convoluted case decided by the CJEU on 29 April - IW v Bank BPH SA. After Dziubak, it is no surprise that more cases would be pouring in from Poland on the subject of credit in Swiss francs. 

In the case under discussion, the referring court was of the opinion that the consumers had been sufficiently informed about the risks associated with the mortgage contract, so that the main indexation interest was not unfair; however, within this mechanism, the bank had included an indication that the final cost to the consumer would incorporate a resale margin for the bank which was not further elaborated upon in the contractual documents. This left the bank unconstrained in determining such margin and the consumer unaware of what factors may affect the bank's determination.

The blank resale margin clause was later amended by means of an agreement between the parties which, according to the Court, established a sufficiently clear mechanism - thus "fixing" the term. 

While the consumers did not agree with the referring court's assessment of the main indexation terms, ultimately the questions for the CJEU all concerned the situation with regard to the resale margin mechanisms. 

The first question concerned the effect of the agreement amending the resale margin clause on the unfairness assessment: must a court exert unfair terms control in spite of the agreement? According to the Court, in substance, the agreement prevails when the consumers have signed it in full awareness of the fact that they were waving their rights to unfair terms control. Otherwise, the Court is supposed to assess the term and, where it finds it unfair, establish that the consumers are entitled to be put in the same position where they would have been without the agreement. 

The second and third questions concerned the admissibility of a finding that only the resale margin term should be invalidated, while leaving the rest of the indexation mechanism in place. Would such approach go against the CJEU-sanctioned prohibition of court revision of unfair terms? The Court does not give a final answer to this question, but instructs the national court to establish whether the resale margin determination can be considered as a "contractual obligation distinguished from he other contractual terms, capable of being the subject of an individual examination of its unfairness" [para 71]. The removal should not, on the other hand, remove an unfair element within a term, altering "the substance" of such term [para 80]. This is an interesting question in fact: on the one hand, it is obvious that the combination of indexation and resale margin was, taken together, the mechanism through which the cost of credit was fixed. On the other hand, the clause determining the bank's resale margin could very well be separately set at zero, without - as the referring court observes, creating a gap. This sounds, at first appraisal, like a question that would be best addressed in legislation. While the referring court mentioned the existence of legislation dealing with the unfair term in the MS, this legislation, which was passed after the contract was entered into, is in essence irrelevant to the dispute according to the CJEU.

The fourth question is more straightforward and concerns the consequences of finding that the resale margin term was unfair: when should the contract be invalidated? According to established case-law by the CJEU, whether a contract should be held in place after a finding of unfairness depends on whether, under national law, it is capable of continuing to function - based on an objective assessment and thus not on the subjective position of one of the parties [90]. The referring court wondered whether the contract's invalidation had a sanctioning character and to what extent the consumer's preference played a role, to which the court replied by summarising its case-law to the effect that the judge must first determine the consequences of unfairness on the contract and then, when relevant, allow the consumer to decide whether they prefer invalidation of the contract or maintaining the unfair term.

The fifth and final question went into the referring court's role with respect to the consumer's choice between invalidation and preservation of the unfair term: should the court actively inform the consumer about their options and the implication of their choices, or could this function be entrusted to the consumer's legal representation when they have one? The CJEU's answer in this respect is very clear: since it is upon the court to make sure that the consumer's rights in the procedure are respected, and in particular that their decision in respect of the outcome of unfair terms control is the result of "free and informed consent", the court must also inform the consumer about their choices [95].

Nothing in this decision comes particularly as a surprise. The more difficult points, ultimately, go back to the referring court who needs to decide whether the consumer has in fact waived the term's invalidity via the novation agreement and, if not, must assess whether the resale margin mechanism can be severed from the overall indexation mechanism (and, if not, must decide on the future of the contract). Unlike in Dziubak, it is not obvious in this case that the consumers would gain from the contract's overall invalidation, which could or could not add to the case's complexity. Curious what the Polish colleagues in the blog team may have to say on this case!

Replacing unfair terms with supplementary rules - not a mission impossible? AG Kokott elaborates on Dziubak in C-81/19 Banca Transilvania

Amid the current crisis it is worth taking a step back in order to catch up on some of the ongoing cases before the Court of Justice. Case C-81/19 Banca Transilvania is one of such noteworthy disputes. On March 19th the Advocate-General Kokott issued the opinion in the case, addressing a number of important points concerning consumer protection against unfair terms in foreign currency loan agreements. The opinion engages with the scope of fairness assessment, focusing on the exclusions of the terms reflecting mandatory statutory provisions and conditional exclusion of core terms. It further elaborates on the legal consequences to be drawn by national courts if a term governing the exchange rate risk is found to be unfair. In the latter regard, the dispute follows up on the widely commented Dziubak ruling, decided by the Court at the end of last year.

Facts of the case

The case was brought by a number of Romanian consumers, who, despite receiving their income in Romanian leu, entered into a credit agreement for a sum denonminated in Swiss francs. As a result of the fall in value of the leu, the amount to be paid increased very significantly. The consumers argued that the bank failed to provide them with adequate information on the exchange rate risk, which they found unreasonably disadvantagous. The bank responded that the contested term reflected the principle of monetary nominalism expressed in the Romanian Civil Code and, therefore, fell outside the scope of the unfairness test in line with Article 1(2) of Directive 93/13.

Opinion of AG

Against this background, the referring court firstly asked whether a contractual term that reflects a general principle established by law (such as the principle of monetary nominalism) is subject to the provisions of Directive 93/13. According to the AG,  the exemption in Article 1(2) extends to the statutory provisions - including both mandatory and default rules - which were adopted "specifically for the type of contract concerned" or which are applicable to the contract according to a legislative reference. This conclusion was justified by a teleological argument, according to which it is only possible for the national legislature to "strike a balance" between the parties inasmuch as the specific arrangement between the parties was indeed envisaged by it (para. 42). If the provision is not intended to create a balance between consumers and sellers or suppliers, the trader should not be able to rely on Article 1(2), which is for the national court to verify. Although the interpretation does not actually lie too far off from the previous case law of the Court of Justice, such as RWE Vertrieb or Aqua Med, it could potentially further reduce the improtance of Article 1(2) exemption.

Assuming the referring court should go forward with a substantive fairness assessment, a further question was raised as regards the analysis of core terms under Article 4(2) of Directive 93/13. In this regard the AG recalled, following the Andriciuc case, that a term under which a loan denominated in a foreign currency is to be repaid in that currency may concern the 'main subject matter of the contract' within the meaning of Article 4(2) of Directive 93/13. Terms of this kind escape fairness assessment under UCTD (provided Member States have not increased the level of consumer protection, see Ahorros) in so far they are in plain intelligible language. According to the AG, the relevant criteria have already been explained by the Court. The trader is thus required to comprehensively inform the consumer about the potential risks of variations in the exchange rate and the fact that they must be borne entirely by the borrower (para. 59).

Finally and perhaps most importantly, the referring court sought to find out whether freezing the exchange rate at the rate applicable on the date of signature of the agreement offers a solution which ensures the full effectiveness of the consumer’s rights under UCTD. According to that court, the agreement could not continue to exist without the contested term, yet its annulment would not be favourable to the consumer either, as it would put the latter at the risk of having to repay the entire loan at once. To recall, full annulment was an outcome welcomed by the consumers in the Dziubak case. This, however, has not been case in Banca Transilvania. According to AG Kokott, previous case law of the Court of Justice significantly limits the scope of actions that the national court can take in situations of this kind: among others, the court may not assume that the consumer is bound by the unfair term and may not modify the contract by revising the content of the unfair term. However, in view of the AG, a national court cannot be prohibited from plugging a gap in a contract left by the removal of the unfair term with a supplementary rule that restores the balance between the reciprocal rights and obligations of the parties, simply because one of the parties is a consumer (para. 73). Such a conclusion is not to be mistaken with a judicial interpretation of the term and with reduction of its content to a permissible extent, as this would indeed reduce the directive's dissuasive effect. However, where disuassive effect is also not achieved by the anullment, national courts should be able to substitute the unfair term with a supplementary rule that replaces the formal balance between the rights and obligations of the parties with an effective balance which re-establishes equality between them (paras. 79, 87). While the possibility of, exceptionally, replacing an unfair contract term with a supplementary provision of national law if the nullity of the contract would have particularly negative consequences for the consumer has already been recognized in prior case law (Kásler, Abanca), the interpretation of the concept of 'supplementary provisions of national law' has remained underdeveloped (see Guidance Notice to the UCTD, p. 42). Reference of the AG to the rules that "replace the formal balance between the rights and obligations of the parties with an effective balance which re-establishes equality between them" could be of help in this regard. The AG herself, however, did not give her opinion whether freezing the exchange rate at the rate applicable on the date of signature could provide such a solution. The mission given to national courts, therefore, remains quite challenging.

Concluding thought

Overall, the opinion brings the discussion on the legal consequences to be drawn by national courts if a contract term is found to be unfair back on its previous track, following the more fact-specific Dziubak judgment delivered last year. It does not go against the prior case law of the Court, since one of the proposed conditions for allowing the court to replace the unfair term with a supplementary rule is the finding that annulement would have particularly unfavourable consequences for the consumer. With this condition in mind, it does not seem unlikely the interpretation laid down in the opinion will eventually be followed by the Court.

On a more general note, the commented case reminds us of the crucial role of the UCTD as a vehicle of consumer protection following the financial crisis of 2008. While the potential economic downturn caused by the COVID-19 pandemic would likely have a different nature, it is worth remembering the lessons learnt from previous times of hardship. In her opinion, AG Kokott seeks to provide for a high level of consumer protection while highlighting the importance of an "effective balance" between the rights and obligations of both parties, in line with their reasonable expectations. Lifting the economy following current crisis will be a challenging endevour and will likely require a similar balance to be struck. Yet the consumers' weaker position should not be forgotten along the way.

CJEU in Dziubak (C-260/18) - no replacement of unfair terms with "usages"

This morning, the CJEU published a much-awaited decision (only available in French and Polish ATM) on unfair terms in foreign currency-indexed loans. In Dziubak, a Polish couple has sued Raffeisen bank over the terms setting the indexation mechanism in the credit contract that the consumers had concluded with the bank. Said terms applied a known mechanism - indexing outstanding amounts in line with the PLN-CHF buying rate and quantifying instalments (due in Zloty) via the selling rate. The particularity in this case was that the bank used its own exchange rate tables, hence being able to directly determine the applicable rates. 

The referring Polish court had no doubts that the terms were, as the Dziubaks had claimed, unfair. However, the court was in doubt as to what the consequences of such finding should be. 

The concerned consumers maintained that the contract should be invalidated. In the alternative, they demanded the court to remove the indexing mechanism and leave the interest determination terms in place - meaning that the contract would become one in national currency, but with an interest rate indexing which is not the one typical for contract in Zlotys.

According to the referring court, such a solution would transform the nature of the contract and hence be in contrast with basic principles of the Polish legal order, such as freedom of contract. As the parties had concluded a foreign currency-indexed credit contract, replacing it with a regular variable interest mechanism would denature the original agreement. 

Raffeisen, on the other hand, suggested that the gap resulting from the removal of the unfair terms could be filled by resorting to general principles of fairness and customs. Interestingly, according to the referring court, one possible outcome of such exercise would be... to reintroduce the unfair terms to the affected contracts, as a reflection of what is "customary" in the relevant market.

As we know, previous CJEU case-law has set very strict limits to the possibility of replacing an unfair term by means of national rules - in particular, the Kásler decision allowed making use of national supplementary or default rules when the contract would otherwise be invalid and such invalidity would be contrary to the consumer's interest. But one crucial question in Dziubak is precisely this - who decides what is (not) in the consumer's interests? Can a court decide that maintaining an unfair term in place is better for the consumer than invalidating the whole contract, even as the consumer maintains otherwise?

Against this background, the CJEU (by and large in line with AG Pitruzzella's opinion, that we discussed earlier) reached a number of conclusions:

1) If national legislation requires a contract to be considered invalid when the removal of an unfair term would change its nature given the resulting difference in its main object - such as could be the case if a foreign-currency indexed rate is turned into a regular variable interest mortgage - such legislation is compatible with the Directive;

2) In this case, the Kasler standard means that invalidation of the contract must be the outcome where the consumer so prefers: given that the Court's case-law grants the consumer final word on whether an unfair term must be considered as binding on them, a fortiori they must be able to decide whether rescuing the contract is or not in their own interest. In this respect, the "interest of the consumer" can only be assessed with reference to the moment when the controversy takes place;  

3) General principles or rules are not tantamount to supplementary or default rules which apply when the parties have not made specific provisions. As these rules do not equally express the legislator's view as to what would make a reasonable balancing of interests in a specific constellation, the application of general principles by a national court cannot be considered to enjoy the same "presumption of fairness" as default rules and hence cannot be used to replace unfair terms; they can thus not be used to supplement the contract in order to prevent its invalidity. 

Back in Poland, the Dziubaks' legal team seems to have taken this judgement as a victory:

Source: twitter

This appears slightly puzzling from a legal point of view: in fact, by indicating that no replacement by means of general principles can take place, the Court seems to have indicated that either the unfair terms are maintained or the contract (and other similar contracts) must be invalidated - would this not be getting many consumers "stuck" with unfair terms if they do not have the money to return all the outstanding capital immediately?

The concrete circumstances may however be of importance - since in 2015 the Swiss franc underwent a major appreciation against (the Euro and, as a consequence, other European currencies such as) the Zloty, which had already depreciated significantly in 2008-2009, many consumers have paid very high instalments which were supposed to mainly cover interests. If the original contracts are invalid, however, it could be possible to claim that only the capital sum is due - and then a settlement of accounts may counterintuitively play in favour of quite a few consumers. Furthermore, it could be that the decision will trigger a wave of settlements or renegotiation, which again may turn out as a gain for Polish lenders.

As far as other consumers are concerned, however, the decision looks like a mixed bag - first, the deference to national rules of contract law may mean quite diverging levels of protection across Member States; second, the Court's resolve to prevent all sort of gap filling interventions when no supplementary rules are readily at hand may actually have a chilling effect on consumers who may not want to start proceedings if the result is that they have to choose between an invalid contract and the original unfair term. On the bright side, the prospective of courts starting to replace unfair terms with equally unfair customs seems to have been washed away. Congratulations to Ms Dziubak and her lawyer's daytime drinking improv!