No international jurisdiction when consumers move countries? - AG Sánchez-Bordonna in Commerzbank (C-296/20)

On September 9 AG Sánchez-Bordonna issued an opinion in the case Commerzbank (C-296/20) on whether the Lugano II Convention was applicable in the case to determine the jurisdiction over consumer credit contract.

Image by iXimus from Pixabay

Lugano II Convention is an international convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters to which the EU is a party. It provides consumers with an additional layer of protection in order to restore the balance in the complex situation of international jurisdiction matters (paras 23-24). There is a question of whether this Convention should apply to the case at all, as at the moment of the conclusion of the consumer credit contract both parties were domiciled in the same Member State - Germany. There was, therefore, no international element to their transaction at that time that could have required the use of international conventions to determine the appropriate forum for their dispute resolution. However, when the bank sought to recover payments from the consumer of their debit balance on their current account, the consumer has changed it domicile to Switzerland. This has prompted the reference to the Lugano II Convention.

AG Sánchez-Bordonna emphasises that the Lugano II Convention should not be applicable in a situation where the foreign, international element of the legal relationship between the parties to a contract arises subsequently to the contract's conclusion. AG's reasoning is based partially on the historical reasons for the adoption of the special consumer jurisdiction rules, as well as economic arguments, which support an interpretation that only if a trader or service provider established in one Member State pursues a commercial activity and directs it at consumers in another country, these special rules could apply. By such active targeting of consumers in another country, the professional willingly takes on themselves the risk of having to accept international jurisdiction if there is a dispute between them and their consumers (e.g. para 56). If a consumer with whom the trader has a contract decides to change domicile, that lies beyond what the trader can reasonably foresee, however (e.g. para 72).

The AG proposes an alternative solution as well, that is to accept the fact that a different international jurisdiction may be applicable to the dispute when the consumer has moved their domicile after the contract's conclusion but only if the country to which they moved is one where the trader pursues their economic activity, as well. As the trader would have needed to foresee the possibility of the application of the foreign jurisdiction in such cases, their interests would have been protected more (para 100).

Overall, AG Sánchez-Bordonna recommends the Court to conduct a careful balancing of interests exercise to ensure that both consumers' and traders' interests are protected.

Which court has jurisdiction over an online defamation case? AG Hogan's Opinion in Case C-251/20

A person or a company that has been defamed on the Internet may demand not only the removal or rectification of discrediting comments, but also compensation for any material or non-material damage suffered. The question is which court should be addressed, since comments posted on the Internet may be accessible in various Member States. This query is the focus of the dispute in case C-251/20 Gtflix Tv vs. DR pending before the Court of Justice. Last Thursday (16.09.2021) Advocate General Gerard Hogan issued his opinion. 

According to the general rule of jurisdiction, arising from Regulation No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, persons domiciled in a Member State may, regardless of their nationality, be sued in the courts of that Member State (Article 4(1) of Regulation No 1215/2012). Various exceptions to this rule are laid down, establishing different criteria for connecting a dispute to the courts of other Member States. For example, Article 7(2) of the Regulation stipulates that a person may also be sued in another Member State - in matters relating to tort, delict or quasi-delict, before the courts for the place where the harmful event occurred or may occur. This exception is justified by the need to ensure the sound administration of justice, legal certainty and to "avoid the possibility of the defendant being sued in a court of a Member State which he could not reasonably have foreseen" (see recital 16 of the Regulation). In such situations, the court of the place where the event giving rise to the damage has occurred or is likely to occur is more competent in the sense that it is closer and better placed to assess the extent of the damage and its consequences. Unfortunately, determining the place of the damage and the competent court is sometimes dubious in cases of online damage caused by posting false or infamous statements, which can be accessed in different Member States. The implications of such statements may be diverse in each jurisdiction. For example, negative comments about a person or a company may considerably affect their good name or professional standing in a certain state because they are well-known or economically active there. In such a case, the extent of the damage may be significant. Conversely, in another state, where the person or company is not known, access to defamatory comments may not have negative consequences. 

The dispute in the Gtflix case concerns precisely whether the Czech company Gtflix (as it was nicely expressed in the Opinion - "which produces and distributes what is sometimes euphemistically described as as adult content television programmes") can bring a claim against a Hungarian citizen (also a producer and distributor of pornographic films) before a French court? Gtflix accuses the Hungarian producer of posting disparaging remarks on websites and forums, and seeks, inter alia, an order requiring DR to cease all acts of disparagement against Gtflix and to pay compensation for both economic and non-material damage. However, the French courts have raised doubts as to whether they have jurisdiction in this case. In other words: may Gtflix, while seeking both rectification of the data and removal of the content and compensation for material and non-material damage, bring such proceedings before the courts of each Member State in the territory of which the content was accessible on the Internet, or must it bring such proceedings before the court having jurisdiction to order the rectification of the data and removal of the defamatory comments? 

The question referred by the French court refers to some divergence in the case-law of the Court of Justice arising from the judgments in cases eDate Advertising and Others (C‑509/09 and C‑161/10) and  Bolagsupplysningen and Ilsjan (C-194/16). In the former, the Court held that a claimant as a result of online defamation may bring an action before the court having jurisdiction over the defendant's domicile, the place where the harmful event occurred or the place where the claimant's centre of interests is located (understood, for example, as the place of habitual residence or professional activity). In such cases, the court may rule on the entirety of the damage suffered. Furthermore, according to the Court, the claimant may also bring an action before other courts of the Member States in which the publication in question is or has been accessible, but in that case the court may rule only in respect of the damage or injury caused in the territory of the Member State concerned. This construction is sometimes also referred to as the 'mosaic approach', as it introduces a principle of jurisdiction sharing. 

In case Bolagsupplysningen and Ilsjan the Court stated, however, that a claim for rectification or deletion of online comments cannot be brought before the courts of each Member State (despite the ubiquity and accessibility of information on the Internet in various places), but only before the same courts as those which had been granted jurisdiction to hear the merits of the case for full compensation for damage. With this in mind, Advocate's opinion focused on a detailed analysis of the mosaic approach, trying to find arguments both for the Court's retention and possible abandonment thereof. Ultimately, AG concluded that he is not convinced by either solution (see point 79 of the Opinion). He therefore suggested that a good practice would be to complement the mosaic approach with an additional "focalisation criterion", i.e. a criterion verifying that the publication in question (such as discrediting content) is targeted specifically at the public in the territory of a given Member State. The application of this criterion would make it possible in practice to reduce the number of courts having jurisdiction to hear the dispute. 

In conclusion, in the AG's view a claimant who seeks both the rectification/deletion of certain content and compensation for the non-material and economic damage resulting from the dissemination of disparaging statements on the Internet, may bring an action or claim before the courts of each Member State in the territory of which content published online is or was accessible, for compensation only for the damage caused in the territory of that Member State. Nevertheless, the claimant should be able to demonstrate that it has "an appreciable number of consumers in that jurisdiction who are likely to have access to and have understood the publication in question". 

Now we are awaiting the judgment of the Court. We will keep you informed, so stay tuned! 

A look back at consumer data protection - what has happened this year?

Today we rush to provide a brief summary of interesting developments at the interface of consumer law and data protection that have taken place since the beginning of this year. A lot has happened and so far we have only reported on selected cases. In this post we take a closer look at significant decisions and opinions issued this year, which will likely see continuation in the near future. 

We begin with a fairly recent decision adopted by the Irish Data Protection Commission (DPC) in the WhatsApp case. The decision captured headlines earlier this month - and not without a reason. After all, it is not every day that Facebook (as the parent company of WhatsApp) is hit with a fine of €225 million for its violations of the General Data Protection Regulation. The proceedings are interesting for both material and procedural reasons. Firstly, the ultimate decision reached by the DPC provides an extensive analysis of the GDPR’s transparency provisions, as applied to the case at hand. For a start, the decision points to the “over-supply of very high level, generalised information” and the possibility of creating an “information fatigue” - a well-known issue in consumer law and policy. Aside from problems of volume and presentation (e.g. multiple cross-references), violations of substantive transparency are also identified (e.g. not sufficiently specific categories of data recipients). Secondly, the proceedings reveal the relevance of the GDPR’s consistency mechanism in cases involving cross-border data processing (for related controversies and case law see our comment here). In the WhatsApp case, the Data Protection Commission was acting as the lead authority - and its original draft decision had not been quite as sweeping as the one eventually adopted. It was the interventions of the other supervisory authorities and the binding

decision adopted by the European Data Protection Board in late July that led the DPC to take a harsher stance - in relation to both identified infringements and calculated fines. Facebook has reportedly challenged the decision before a competent court, so stay tuned!

An even greater fine was imposed in July on Amazon; the Luxembourg data protection authority fined the company with €746 million (record-breaking so far) for illegal ad targeting and ordered the company to review its practices. As La Quadrature du Net (French privacy rights group that issued a complaint) explains, Amazon was targeting data subjects for advertising purposes without their freely given consent and was therefore processing consumer data without a legal basis. Unfortunately, the Luxembourg authority did not publish the content of the decision due to professional secrecy. According to a published statement, the authority views decision publication as an extra sanction. To be sure, the decision may ultimately see the light of day, yet only after all legal remedies have been exhausted and the publication is not likely to cause disproportionate harm to the parties involved. 

Another interesting case - this time at the online/offline interface - has been handled by the Swedish supervisory authority, which reviewed the activities of a public transport operator in Stockholm. The case involved ticket inspectors equipped with video and audio recording cameras worn on their clothing. The use of this type of technology was intended to counter possible dangerous events during ticket checks, documenting incidents and ensuring that the right person is punished for travelling without a ticket. The problem was that the controllers had to have cameras on throughout their shifts and could thus potentially record every traveller. In addition, images and sounds were overwritten in the cameras only every minute. The authority considered this period disproportionately long and maintained that the storage time should be reduced to a maximum of 15 seconds. While this case involved recording undertaken by a trader’s employees, one can well imagine similar problems being posed in the context of increasingly sophisticated smart devices carried by consumers themselves. Recently unveiled Facebook glasses (Rayban Stories) provide a prominent case in point - and the competent authorities have already voiced concerns. 

Last but not least, as regards the decisions of national authorities, TikTok's sorrowful saga of alleged violations of children’s privacy continues to unfold. Previously it was the Italian data protection authority that ordered the platform to limit the processing of users’ data whose age could not be established with certainty (we informed about it here). This time the Dutch authority investigated TikTok’s privacy policy and concluded that the company had failed to inform its users, including children, in a clear and transparent way how their data is processed via app. More specifically, the language of the information remained of relevance, as the information was provided only in English, and not in Dutch. In consequence, the authority imposed (a comparably modest) fine of €750,000. This, however, may not be the end of TikTok’s legal problems, as the launch of two further inquiries by the Irish DPC demonstrates.

Finally, there are two additional pieces of news we consider noteworthy. The first, which has probably caught our readers' attention, is the Commission's decision on data transfers between the EU and the UK, issued on 28th of June. The decision is a direct follow-up of Brexit and confirms that the UK guarantees an essentially equivalent level of data protection to that which is provided in the EU. However, we are curious to see how these data transfers will develop in the future, especially in the context of recent reports about planned changes to the UK data protection law (we briefly touched upon this here). The second matter is a joint opinion of the European Data Protection Board and the European Data Protection Supervisor concerning the proposal for a regulation laying down harmonised rules on artificial intelligence. The opinion highlights several key points that need further elaboration (e.g. clarifications on a risk-based approach and the EDPS’ role as a market surveillance authority) and calls for “a general ban on any use of AI for an automated recognition of human features in publicly accessible spaces”. 

** Agnieszka Jabłonowska contributed to this post.

Interest free loans: why should they be regulated?

In recent days an increasingly popular high-cost short-term credit called 'buy now pay later' (BNPL) is frequently in the news headlines. BNPL is a type of loan that enables consumers to delay the payment; usually 14 to 30 days in full or to spread the cost over several months in installments. The attractive feature of the loan is that it is interest-free. 

This loan is essentially used when consumers buy goods online. The option to defer or slice up payment comes up at check out (for more see here). Unsurprisingly, the product is very popular with younger generations (so-called millennials and Generation Z). However, 'fashion-conscious' shoppers are not the only consumers of this product; it is increasingly being used by those in financial difficulties. On the provider side, BNPL is a world of fintech, many established and newly emerged financial technology companies such as Klarna and Paypal are offering this product, even the highly successful and popular Revolut is currently working on developing their own BNPL. Most recently Amazon teamed up with Affirm to offer BNPL to their customers.

However, as with any credit product, BNPL is not without dangers. Research shows BNPL users might not be fully aware of the potential of this product to contribute to the accumulation of large debt. The seemingly innocent, interest-free feature of the product encourages consumers to spend irresponsibly and beyond their means. BNPL tends to be heavily advertised, often resulting in unplanned and impulsive purchases. Klarna even commissioned a research study into consumers' shopping behavior, providing evidence for partner retailers on 'how to persuade shoppers to make 'emotional' purchases instead of 'logical' ones'. Although free to enter into the contract; for consumers who do not pay back the loan on time or miss a payment, the BNPL product acts as any other loan. It potentially triggers additional fees and charges such as late payment charges, and even (backdated) interest; impacts the consumer's creditworthiness and credit score; and it is subject to debt enforcement and potentially harmful debt collection practices. In the UK around the third of BNPL customers faced these consequences.

Given the nature of these credit products and the way they are sold, there is no question BNPL loans deserve regulatory attention. It is particularly positive that the EU Commission's newly presented Proposal for a Directive on Consumer Credits now proposes to regulate interest-free credit and thus these types of loans. 

New blog author announcement: Adrianna Michałowicz

Dear readers,

Regrettably, we said goodbye to one of our regular contributors, dr Anna van Duin (University of Amsterdam). Due to her other obligations she had to step down from publishing on the blog in the past year, although we do hope she will return to us in due course!

However, we are happy to share that we have gained a new contributor for the blog: Adrianna Michałowicz, who is working on her PhD at the University of Łódź (Poland). Welcome Adrianna! I had a pleasure to meet her in person in 2018 at the conference I organised in Amsterdam on 'Consumer Law in the Data Economy' (which moment was even documented for history, see the photo). It will not come as a surprise then that Adrianna's research interests lie in the area of data protection. We are looking forward towards her forthcoming contributions!

Waves of change - CJEU in Irish Ferries (C-570/19)

Usually, we focus on and discuss air passengers' rights on this blog, as Regulation No 261/2004 is one of the instruments of consumer protection that seems to raise a lot of questions. Last week, however, the CJEU issued a judgment in the Irish Ferries case (C-570/19) pertaining to the rights of passengers of the sea transport. This time it was then Regulation No 1177/2010 concerning the rights of passengers when travelling by sea and inland waterway that required clarifications. We have elaborated on the facts of the case in our previous blog post addressing AG Szpunar's opinion, see here: The Tide Is High.... 

Just like the AG's opinion, the judgment is lengthy. The detailed approach can very well be explained by the novelty of interpreting provisions of this Regulation No 1177/2010. Generally, the CJEU confirms AG Szpunar's findings:

1. Regulation No 1177/2010 applies when a carrier cancels a passenger service with a several weeks' notice prior to the originally scheduled departure time due to the vessel, which was supposed to provide that service, not having been delivered in time and which could not be replaced. This means that the CJEU considers the notion of passengers 'travelling on' the service to be a broad one, encompassing also passengers who made a reservation or purchased a ticket for the service (para 51).

2. Article 18 obliges carriers to offer a re-routing option to passengers of the cancelled service. Re-routing could take a form of offering a maritime service on a different route combined with the use of other transportation modes (rail or road), thus carriers retain flexibility as to how they would want to organise re-routing (para 64). Carriers are to bear any additional costs, which passengers were subject to when re-routed to their final destination, e.g. costs of fuel or road tolls to reach a different embarkation/disembarkation port or costs of using a landbridge (paras 66-67). Passengers need to be able to demonstrate that they incurred such costs.

3. Articles 18 and 19 may be applied together. This means that re-routed passengers have a right to compensation if their re-routed journey leads to a delay in reaching the final destination, which would cause a serious inconvenience (para 89). If passengers of a cancelled service decide to choose reimbursement rather than re-routing, they are not entitled to claim compensation for a delay (para 88).

4. Compensation mentioned in Article 19 is calculated based on the 'ticket price'. This notion includes costs relating to the additional optional services chosen by the passenger, e.g. booking of a cabin or a kennel, or access to premium lounges (para 95). This means that the amount of compensation owed to passengers may differ amongst passengers of the same cancelled service.

5. Late delivery of the vessel does not qualify as 'extraordinary circumstances', which would release the carrier from the obligation to pay compensation. The CJEU borrows the interpretation of this notion from the air passenger rights' area, which means that only events not inherent in the normal exercise of the activity of the carrier and beyond their actual control would qualify as extraordinary circumstances (para 107, 112).

6. The complaint handling procedure of Article 24 is not applicable to compensation claims on the basis of Article 19, as that complaint handling procedure provides carriers with certain discretion as to what actions to take upon receiving a complaint, which lacks when the compensation is triggered (para 118 and 121).

A new era in consumer credit law? The Commission's proposal on the new Directive on Consumer Credits

This summer might prove significant for improving the financial well-being of European consumers. On 30 June 2021 the EU Commission presented its long-awaited Proposal for a Directive on Consumer Credits, a key piece of legal instrument in the area of financial consumer law.

Overall, the proposal does seem to suggest an overhaul of the current consumer credit regime. The proposed scope of the new directive is much wider and far-reaching than the current 2008/48/EC Directive on Credit agreements for consumers (Consumer Credit Directive). The structure and content of the proposed directive resemble more to Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive) than to the current Consumer Credit Directive.

We could highlight the following major improvements:

Article 2 significantly broadens the scope of the new Directive, which would apply to small loans below 200EUR, to loans provided by crowdfunding platforms, and to the increasingly popular 'buy now pay later' credit products.

Article 14 regulated tying and bundling practices, prohibiting the former.

Article 17 bans unsolicited credit sales.

Article 18 introduces a stricter consumer-centric creditworthiness assessment. It now bans lending to consumers where the creditworthiness assessments end with a negative result. Where the assessment involves automated data processing or profiling, consumers will have a right to demand human intervention to review the machine's decision. 

Article 31 requires the Member States to introduce or maintain price caps. The Proposal requires caps on the interest rate, the annual percentage rate of charge, and/or the 'total cost of credit to the consumer'.

Article 32 introduced conduct of business requirements for the staff of financial firms to act honestly, fairly, transparently, and professionally and take account of the rights and interests of the consumers when they create or sell credit products or when the credit contracts are enforced.

Article 34 requires the Member States to promote financial education, especially in relation to responsible borrowing and debt management.

Article 35 requires the Member States that creditors have adequate policies and procedures in place to reasonable forbearance (such as loan extensions or payment deferrals) before enforcement proceedings are initiated when consumers find themselves in financial difficulties. 

Even the above short summary signals that the proposal is much more in line with the times that we live in than the present Consumer Credit Directive. Focusing on the need to enable consumers to make informed decisions, and disregarding modern financial products such as high-cost short-term loans and those brought about with the rapid development of technology such as products provided by crowdfunding platforms. BEUC welcomed the Proposal, emphasizing that it came just at the right time to prevent further predatory lending practices by high-cost short-term credit providers and to address consumers' financial difficulties created by the current coronavirus pandemic.

The Proposal is a result of a long and thorough process; fitness check of the Consumer Credit Directive, stakeholder consultation, use of expertise, and impact assessment. There was a clear and sustained focus around some problematic areas of the Consumer Credit Directive such as its deficiency in the provision of responsible lending. However, some issues have been left out from the process of evaluation, such as the need to carve out the meaning of the 'total cost of credit for consumers' currently in Article 3(g) which was recently shaped by the CJEU. Thus, there may be more work to do in polishing the proposal. Everyone involved in the EU's complex legislative process should take the opportunity to re-evaluate the Proposal's coverage and reach, to make it as good and protective as possible for European consumers.

Unfair terms case law in the first half of 2021: a retrospect

With the fall approaching, and the new case law season gradually unfolding, we decided to take a look back at the first half of 2021 and survey the developments in various consumer protection domains. In this post we present a short recap of the CJEU unfair terms case law, highlighting the cases we have not yet commented upon.

Firstly, for your convenience, here is a list of judgments on unfair terms on which we already reported in past months:

• Unfair terms and supplementary rules after Dexia (Joined Cases C‑229/19 and C‑289/19): rolling a dice?
  
• Of unfair terms, novation agreements and other not so magical creatures - CJEU in C-19/20
  
• No, Escobedo Cortés does not imply that double interest rates must be secured for traders (but nice try, Prima banka Slovensko)
• Sanctions for breaching national rules on consumer credit: the CJEU in C-303/20 [focused on Directive 2008/48/EC, but referring also incidentally to Directive 93/13/EEC]
• Cancelling credit contracts due to unfair terms: when does the view of the consumer matter? A quick judicial recap in OTP Jelzálogbank (C‑932/19)
  

As seen from above, credit agreements (including contracts for loans denominated in a foreign currency) continue to be of primary concern to the courts applying legislation implementing Directive 93/13/EEC. The same was also true the other decisions delivered by the Court in the first half of 2021. Most of them revolved around the questions which the Court had already considered before - the procedures thus often skipped written opinions or led up to the reasoned orders. 

 

Consider the following decisions - each concerned with the loan agreements denominated in a foreign currency:

• Case C‑364/19 Credit Europe Ipotecar IFN  

Should a contested term (here: relating to the exchange rate risk) be examined, as a matter of priority, in the light of the exception of the terms reflecting mandatory statutory or regulatory provisions (here: the principle of monetary nominalism) set out in Article 1(2) of the UCTD or in the light of the requirement of transparency arising from Article 4(2) of the Directive? This was the key question considered in case C‑364/19. According to the Court, the former is correct. In reaching this conclusion the Court referred among others to the judgment in Banca Transilvania, in which it similarly denied a stronger consumer protection in the context of Article 1(2). Accordingly, the second part of the preliminary reference, pondering the consequences of finding non-transparency, was deemed irrelevant.

• Case C-609/19 BNP Paribas Personal Finance 

The judgment in case C-609/19 considered three main questions. Firstly, do the terms stipulating that repayments at fixed intervals are allocated first to interest and providing for an extension of the term of the agreement to pay the account balance, and for an increase in monthly instalments qualify as the ‘main subject matter of the contract’ within the meaning of Article 4(2) UCTD? The Court recalled that the latter concept relates to the terms that lay down the essential obligations of the contract and, as such, characterise it - as opposed to ancillary conditions. As emerging from prior case law, terms that merely determine the conversion rate of the foreign currency, without any foreign exchange service being supplied by the lender, do not fall under Article 4(2) exception. By contrast, terms which relate to the foreign exchange risk define the main subject matter of that agreement. In the present case, the terms relating to the conditions for the repayment of the loan could be regarded as ancillary repayment arrangements, but could also be seen as giving concrete expression to the foreign exchange risk. It was ultimately for the national court to verify whether contested terms "relate[d] to the actual nature of the debtor’s obligation to repay the amount made available to it by the lender" (para. 38), and thus laid down an essential element characterising the agreement.

 

As regards the assessment of transparency the Court reiterated and systemathised its prior findings. Ultimately, the transparency requirement in foreign currency loans is seen as satisfied where the seller or supplier has provided the consumer with sufficient and accurate information to enable the average consumer, who is reasonably well informed and reasonably observant and circumspect, to understand the specific functioning of the financial mechanism in question and thus to evaluate the risk of potentially significant adverse economic consequences of respective terms on his or her financial obligations throughout the term of the agreement. The judgment higlighted the temporal dimension of B2C relationships (long term) and listed relevant factors, such as the scope of information, the language used in the pre-contractual and contractual documentation and the potential existence of unfair commercial practices. The judgment also specified conditions under which quantitative simulations can be useful to the consumer.

 

Finally, as regards substantive unfairness, the Court recalled that non-individually negotiated terms in B2C contracts are liable to cause a significant imbalance in the parties’ rights and obligations where the seller or supplier could not reasonably expect, in compliance with the transparency requirement, that the consumer would have agreed, in individual contract negotiations, to a disproportionate foreign exchange risk. The Court stressed the importance of transparency, as referred to in Article 5 UCTD, among the elements to be taken into account in the assessment of whether that term is unfair. Attention was further drawn to recital 16, referring to the strength of the bargaining positions and inducement of the consumer to agree to the term concerned.

• Joined cases C‑776/19 to C‑782/19 BNP Paribas Personal Finance

Considerations of the Court in these multiple joined cases were largely similar to those recounted above in respect of case C-609/19. This is especially the case in relation to the main subject matter to the contract, transparency and substantive unfairness. A further part of the judgment engaged with the principle of effectiveness in the context of transparency as well as limitation periods. Most notably, the Court elaborated that the burden of proving that a contractual term is plain and intelligible, for the purposes of Article 4(2) of the UCTD, should not be borne by the consumer (para. 79 et seq.). Pro-consumer findigns were also made in respect of limitation periods - both in the commented decision and in an earlier judgment C‑485/19 Profi Credit Slovakia.

Cancelling credit contracts due to unfair terms: when does the view of the consumer matter? A quick judicial recap in OTP Jelzálogbank (C‑932/19)

Yesterday the Court of Justice delivered its judgment in case C‑932/19 OTP Jelzálogbank, which like many previous cases dealt with unfair terms of foreign currency-denominated loans. The judgment largely reiterates CJEU prior case law - especially related to the possibility for national authorities to deem particular terms unfair and void and replace them retroactively with state-mandated provisions (see e.g. our previous comment on Dunai) and to the finding whether a contract is capable of continuing to exist without the unfair terms. An aspect of the judgment which is especially worth highlighting is the role of the consumer in the latter context.

Facts of the case

 

The case involved a Hungarian consumer who entered into several contracts for loans denominated in a foreign currency in 2007 and 2008. The loans contained terms which later proved very problematic, ultimately leading to a legislative action by the Hungarian legislature finding that terms establishing an asymmetry between the exchange rates applied when the loan was paid out and when the loan was repaid were to be void. Instead such unfair clauses were to be replaced by a provision intended to apply a single exchange rate, fixed by the National Bank of Hungary.

The consumer in the case at issue was not quite happy with the above solution and would rather have had the entire agreement cancelled. The consumer believed that this view found support in the CJEU decision in Dziubak, published in 2019. However, in the case at hand the Court did not quite share the consumer's opinion and instead reiterated prior case law related more specifically to legislative actions aimed at replacing terms deemed void. In doing so, the Court also recalled some limitations of such actions, remarked when courts can contuinue to review unfairness and remarked on the role of the consumer at the stage of finding whether an agreement containing unfair terms should be cancelled or not.

 

Judgment of the Court

 

When it comes to legislative actions mentioned above, attention should be drawn to the Dunai case. Here the Court found that, firstly, terms replacing unfair term under national legislation, in so far as they reflect mandatory statutory provisions, do not fall within the scope of Directive 93/13 in line with Article 1(2) of that directive. Secondly the Court observed that "in so far as the Hungarian legislature has remedied the problems connected with the practice relating to agreements containing a term relating to the exchange difference, by requiring the replacement of that term and by safeguarding the validity of the agreements concerned, such an approach corresponds to the objective pursued by the Union legislature in the context of [Directive 93/13 on unfair terms], namely to restore the balance between the parties while in principle preserving the validity of the agreement as a whole, and not to cancel all agreements containing unfair terms" (para. 40). 

While the Court had indeed made that finding in Dunai, and has now reiterated it in OTP Jelzálogbank, it is interesting to have a look at it once again in the light of recent judgment in Banca Transilvania. Here the Court explicitly found, disagreeing with the AG, that the fact that a balance between the rights and obligations of the parties has been struck does not constitute a condition for the application of the exclusion in Article 1(2) of Directive 93/13, but a justification for such an exclusion. In the present context, however, the question whether mandatory provisions aim to restore a balance seems more consequential. Such a dissonance can arguably be exaplained by the ex post nature of the intervention in the commented case and the Dunai judgment.

Nothwithstanding the above, the judgment in Dunai also contained an important caveat which the Court reiterated in OTP Jelzálogbank. Specifically, the Court recalled that Article 6(1) of Directive 93/13 does not preclude national legislation preventing the court seised from granting an application for the cancellation of a loan agreement on the basis of the unfair nature of a term relating to the exchange difference, provided that the finding that such a term is unfair allows the legal and factual situation that the consumer would have been in in the absence of that unfair term to be restored (para. 42). The consumer should, in particular, be provided with a right to repayment of the sums wrongly received by the sellers or suppliers concerned (para. 44).

Finally, the Court also made clear that any legislative action taken in respect of one term does not preclude the court from reviewing the unfairness of other terms of the contract, such as those relating to exchange rate risk (para. 45). Such a review can also lead to court to conclude that the contract is no longer capable of continuing in existance without unfair terms and should be cancelled in its entirety. The latter finding, however, cannot be based solely on a possible advantage for the consumer of the annulment of the agreement as a whole. The decision should rather be based on the criteria laid down in national law, and the situation of one of the parties to the agreement cannot be regarded, under national law, as the decisive criterion determining the fate of the agreement (para. 49). There is therefore a subtle, yet important, difference between the role of consumer's opinion in OTP Jelzálogbank and in Dziubak. In the former case, we consider an objective assessment whether the contract can continue in existence or not. In the latter, we speak about a situation when the court had already found that the contract cannot continue in existence without the unfair terms and the question is whether the entire agreement should thus be cancelled or rather gaps therein should be filled - here, following Dziubak, the view of the consumer remains decisive.

=> Blog updates: We will soon publish a wrap-up post about the developments in unfair terms case law over past months, signalling judgments we have not yet commented upon. Stay tuned!

UK using their right to forget the right to privacy again?

UK's government named Mr John Edwards as the new Information Commissioner (ICO). His task: to move away from the EU data protection rules, which are at least to an extent perceived as 'pointless' (see BBC's news 'Data protection 'shake-up' takes aim at cookie pop-ups'). For example, the pop-up notices that a website is using cookies could only be required in the future when the website brings about 'high risk' to privacy. How the 'high risk' will be determined? - remains to be seen. Generally, privacy is to be protected through 'a light touch' though, which likely means that the new UK rules will not be compatible with GDPR rules. This, in turn, may inhibit trade with EU countries (if UK is recognised as a country deviating too much from GDPR rules to guarantee safe transfer of data), which could not be worth creating the regulatory haven the UK government is dreaming about. But then again, the right to privacy was never perceived as a human right in the UK and it seems Brexit could give an excuse to strip it away again.