Guarantee statements and subjective consumer satisfaction – CJEU in LACD (C-133/22)

On Thursday, the CJEU (in C-133/22) ruled on the precise meaning of "commercial guarantee" as defined by point 14 of Article 2 of the Consumer Rights Directive ("CRD").

The referring court (German Federal Court of Justice) specifically asked whether the provision must be interpreted as meaning that a "commercial guarantee" includes, as "any other requirements not related to conformity set out in the guarantee statement" (Art. 2), an undertaking made by the guarantor regarding "circumstances specific to the consumer, in particular his or her subjective attitude towards the item purchased (in this case, the consumer's personal satisfaction with the item purchased (...) without it being necessary that those personal circumstances relate to the condition or features of the item purchased" (ruling). 

Consumers, reading this case, will be interested in this question: Can an intelligibly worded guarantee cover reasons for dissatisfaction with the product which are exclusively subjective and only concern how the consumer feels about the product? 

Let's take a look at the facts of the case. LACD is a company which distributes sports and fitness products both via online merchants and retailers. On LACD products, consumers could find a tag defining a pretty wide "LACD Warranty". The tag stated: 

"Every LACD product comes with our lifetime guarantee. If you are not completely satisfied with any of our products, please return it to the specialist dealer from whom you purchased it. Alternatively, you can return it to "LACD" directly but remember to tell us where and when you bought it." 

BB Sport, a retailer of sport and fitness products, purchased two LACD t-shirts through a mystery shopper and upon reading the tag brought an action before the Regional Court of Munich seeking an injunction which would prohibit LACD form attaching those hangtags. BB Sport considered the tags not to meet the statutory requirements applicable to guarantee statements, as detailed under Article 443 and 479 of the BGB.  The provisions establish that: 

"the specific undertaking by the seller (...) set out in a statement (...) constitutes a guarantee in addition to the guarantee of conformity, the purpose of which is to reimburse the purchase price, to replace or repair the goods sold or to provide any other service in connection with those goods in they do not meet the specifications or any other requirements not related to conformity set out in that guarantee statement" (ruling). Such statement "must be worded in plain, intelligible terms" and must list "the elements which that statement must include" (ruling)

The first court dismissed the action, while the Higher Regional Court of Munich upheld the appeal. LACD brought an appeal before the Federal Court of justice, which referred to the CJEU with the question detailed above. 

The CJEU first observed that nothing, in the way Article 2 of the CRD is worded, excludes from its scope of application a guarantor's undertaking regarding the consumer's subjective and personal satisfaction with the product purchased. "Any other requirements" is a wide expression, as observed by the AG, and there is no need for those requirements to refer to an "objective consideration related to the features or properties of those goods". This interpretation is consistent with the objective of the CRD, which is aimed at providing a high level of consumer protection by ensuring consumers have all the information necessary to make a decision before purchasing. Consumers purchasing from LACD will know that they are guaranteed a high level of protection, also as regards their very personal dissatisfaction with a product.

The Court observes that, after all, in making this undertaking LACD is only using its right to conduct business, established by Article 16 of the Charter of Fundamental Rights of the European Union. 

Finally, the Judges rule that, because the statement provides guarantees related to the consumer's subjective satisfaction with the products, the failure to satisfy the expectation "cannot, by definition, be subject to objective verification" (ruling). A mere statement of the consumer must be considered sufficient. 

This ruling can certainly be regarded as ensuring a high level of consumer protection, allowing at the same time traders to offer a very wide guarantee and thus conduct their business as they think is best. Clearly, the wording of the statement must comply with clarity requirements and always be worded intelligibly and plainly. 

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).

Double jeopardy in Volkswagen cases - CJEU in Volkswagen Group Italia and Volkswagen Aktiengesellschaft (C-27/22)

Last Thursday the CJEU adjudicated in the Volkswagen Group Italia and Volkswagen Aktiengesellschaft case (C-27/22 - see here). We have previously written about the Volkswagen scandal on the blog (see here) - that is, on the unfair commercial practice that Volkswagen engaged in by installing a defeat device in its cars, which led to marketing them as more environmentally-friendly in 2009. As our past blog posts mention, various national authorities were active in their investigation of Volkswagen's conduct. And here lies the problem that the CJEU tackled in this new case: Could different national procedures against Volkswagen (for the breach of consumer protection rules, esp. prohibition of unfair commercial practices) breach the principle of ne bis in idem? 

Eliott Van Buggenhout on Unsplash

Two national authorities' decisions were at stake here. The Italian authority (AGCM) imposed a fine of 5 million Euro on Volkswagen in August 2016 for the unfair marketing practices in Italy. This decision was promptly challenged in court by Volkswagen. Then, the German authority (Public Prosecutor's Office of Braunschweig) imposed a fine of 1 billion Euro for the 'negligent breach of the duty of supervision' in developing and installing relevant software worldwide. Volkswagen did not challenge this decision and paid the fine, which means it became final in June 2018. Part of the German decision indicated that the amount of 5 million Euro from the total fine would indeed penalise for the conduct mentioned in the Italian decision, whilst the rest of the fine aimed at taking away the economic advantage that Volkswagen derived from engaging in the unfair practice (para 19). This then led to Volkswagen claiming that the Italian authority's decision infringes the principle of ne bis in idem (embedded in Article 50 of the Charter of Fundamental Rights), as it would duplicate the penalty for the same acts against the same person when it became final. To be able to claim this, Volkswagen argued that administrative fines placed on it were of a criminal nature. 

The Court of Justice agreed that administrative fines for breach of unfair commercial practices may be of a criminal nature. What is necessary is that the penalty has a punitive aim and a high degree of severity (determined on the basis of its amount compared to maximum allowed penalty under relevant provisions) (paras 45, 53-54). If these criteria are fulfilled, the penalty should be seen as of a criminal nature, even if national law classifies it as an administrative penalty (para 48). The Court mentions that if the fine was merely trying to repair the damage (possibly take away the unfair advantage), then it would be unlikely that it had a punitive or deterrent character, which characterises criminal sanctions (para 49). However, e.g. the fact that there is a maximum amount that can be set as a fine suggests that it would not always allow for taking away the achieved unfair advantage (para 52).

Consequently, if the Italian and German procedures penalise Volkswagen on the basis of identical material facts, not just similar facts and regardless of the national legal qualification of these facts, Italian law would not be able to allow for maintaining of the proceedings (paras 66-67, 70). This would indeed infringe the principle of ne bis in idem. This would only be different if the following three conditions were satisfied (para 96): 1) duplication of proceedings would not excessively burden Volkswagen (interestingly, since the Italian fine amounts to only 0.5% of the German fine, CJEU would not consider awarding it alongside the German fine as an excessive burden - para 97); 2) there needs to be transparency and predictability of which acts or omissions could be subject to duplication of proceedings (could Volkswagen predict then that their practices could give rise to proceedings in various countries? - para 98); 3) proceedings should be duplicated within a proximate timeframe and coordinated (and it seems that the Italian authority did not engage in any attempts initiated by the German authority to coordinate these proceedings - paras 101-102).

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

 Dear readers,

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

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

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

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

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

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

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

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

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

Tomorrow Never Dies: VLOPs debacle

Most of us in the consumer protection field celebrate that as of tomorrow, August 25th, the obligations of the Digital Services Act (DSA) will start binding very large online search engines (VLOSEs) and online platforms (VLOPs). 

By James Yarema on Unsplash

The European Commission designated the first set of VLOPs and VLOSEs on April 25th (see here). To recall, VLOSEs encompass Bing and Google Search, whilst VLOPs are: Alibaba AliExpress, Amazon Store, Apple AppStore, Booking.com, Facebook, Google Play, Google Maps, Google Shopping, Instagram, LinkedIn, Pinterest, Snapchat, TikTok, Twitter, Wikipedia, YouTube and Zalando. 

The designation occurred on the basis of the self-reported user data (more than 10% of EU population as active users) and the platforms were given 4 months to start complying with the obligations that the DSA introduced for VLOPs and VLOSEs. These obligations aim to improve transparency (detailed reporting obligations etc), user empowerment (improved content moderation, opt-out from profiling/recommenders systems, enhanced minors protection, bans on advertisements based on sensitive data etc) and facilitate enforcement (via reporting and cooperation obligations).

Unsurprisingly, we have already seen some pushback against these new obligations. Namely, Amazon Store brought an action to the General Court claiming that it should not have been seen as a VLOP (see case T-367/32) and that some of the DSA obligations should not be applicable to it (duty to provide users with an option for reach recommender system that is not based on profiling; duty to compile and publish an advertisement repository). The arguments that Amazon Store brings in are based on the principle of equal treatment and the need to protect Amazon's fundamental rights. The latter is quite ironic, considering that one of the contested obligations, on ensuring that users may opt for not being profiled, aims to protect the fundamental right of users' privacy.

This claim may have just been a strategy from Amazon Store to delay its compliance with the DSA. It is hard to imagine that they would be successful in proving that they are not a VLOP (see also BEUC's commentary on this here). We will follow this case but for now, let us hope that tomorrow brings a positive change!

Bad faith of sellers in unfairness cases - CJEU in CAJASUR Banco (C-35/22)

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In a recent case, from 13 July, in CAJASUR Banco (C-35/22), the CJEU reflects further on the need of national laws providing effective and equivalent consumer protection against unfair contract terms. In this Spanish case, the consumer succeeded in claiming unfairness of terms in a mortgage loan agreement. However, the bank appealed the order to repay consumer fees for the legal proceedings. Pursuant to Spanish law, only defendants who were in bad faith would need to pay such costs. The bad faith would be established if before the legal action the bank 'has received a due and substantiated demand for payment, mediation proceedings have been initiated or a request for conciliation has been made...' (paras 9 and 29-30). The consumer did not take such actions in this case. 

The question posed to the CJEU boiled down to: Whether if national laws prevented consumers from claiming back costs of legal proceedings, when such consumers have not taken any actions prior to brining proceedings against sellers, this would contradict Article 6 UCTD - providing effective sanctions against unfairness of contract terms. As the Member States have procedural autonomy, they may set rules regarding costs of legal proceedings, provided that these comply with the principles of effectiveness and equivalence (para 24). The CJEU reiterates its various previous rulings on the impact that awarding (or not) of costs may have on consumers' willingness to exercise their rights against unfair contract terms (paras 25-28). 

In light of facts of the given case, what struck the CJEU was the one-sidedness of the Spanish law requirement to initiate mediation/conciliation before legal proceedings. This burden is purely placed on consumers as plaintiffs in cases against unfairness (para 31). Whilst taking of such steps may help with releasing the pressure on the judicial system (argument of the Spanish Government), the CJEU legitimately then expects this burden to be shared between the parties. For example, banks could be expected to pro-actively approach consumers with contracts containing terms that have been established as unfair in settled national case law (para 32). If national law places such burdens solely on consumers, it does not encourage sellers 'to draw, voluntarily and spontaneously, all the consequences of the case-law on unfair contract terms and thus promotes the continuation of the effects of those terms.' (para 34). The CJEU, expecting active behaviour from the sellers, then continues to state that if in case of 'inertia on the part of the seller...' in contacting consumers and disapplying unfair terms to them, consumers start legal actions, this should not be held against them (para 35). Conclusively, the CJEU then recognises that national law could choose bad faith as a requirement for awarding costs of proceedings (para 38). However, national courts should be ready to recognise such bad faith also when banks, aware of consumers' weaker position, wait with admitting the claim until consumers' take action, just to avoid having to pay the costs of proceedings, instead of informing them of terms' unfairness of their own will (paras 36-37).

What looked at a glance as another judgment focused on a small procedural issue, actually  could have far-reaching consequences for consumer protection. If the reasoning of the CJEU is extrapolated to other situations when sellers have knowledge of unfairness of consumer terms but do not act on it, which would lead to the recognition of sellers acting in bad faith, in various national laws this could have further ramifications for award of damages, burden of proof, etc.

Consumer Law Scholars Conference 2024 - call for abstracts

The Sixth Annual Consumer Law Scholars Conference will take place at Berkeley Law from February 29 to March 1, 2024. This is a small but prestigious event in the field of consumer law, with participants supporting in-progress scholarship and building valuable networks. To achieve this aim, workshop sessions are organised during which commentators rather than authors present the papers. All participants are expected to read papers and participate in the discussion. Some authors may choose to present their sessions in plenary 'lightning round' with brief author presentations encouraged. If you have an unpublished paper, which you plan to finalise by January 26, to send in an abstract by September 8! (all details may be found here)

Average consumers not expected to conduct legal research - CJEU in Banco Santander (C-265/22)

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On July 13th, the CJEU issued a judgment further clarifying the principle of transparency under the Unfair Contract Terms Directive in variable-rate mortgage loan contracts, in the case Banco Santander (C-265/22). In such contracts the interest rate is variable with time, here: a new rate was to be determined every year for the following 12 months.  

In the Spanish case referred to the CJEU, consumers' interest rate was calculated with reference to the Mortgage Loan Reference Indices (IRPH). Consumers claimed that they were not informed as to the full impact of having such a reference rate, with relevant information either missing from the mortgage loan agreement or not being properly communicated to them. Whilst the Unfair Commercial Practices Directive was not yet applicable at the time the mortgage loan contract was concluded (2006), the Court could not consider whether the bank engaged in a misleading commercial practice. It was, however, able to assess that the UCTD may have been infringed if the bank's practice did not allow for applying to the IRPH a negative margin, in order to align the interest rate with the market rate.

The CJEU reiterates the main points on transparency from the Andriciuc and Others judgment (see our comment): Consumers require sufficient information to take prudent and well-informed decisions; mainly average consumers need to be able to estimate the total cost of the loan (para 53). This translates into an obligation, when variable-rate mortgage loan contracts are concluded, for average consumers to understand: the specific functioning of the method used for calculating that rate (para 55). This requires consumers to have easy access to the main elements relating to the calculation of the reference index (para 56). The national court in the given case needs to check whether the information provided in the agreement (with the index being published by the Bank of Spain and having been described in Annex VIII to the agreement) was sufficient for average consumers to become aware of the method of calculation of the variable interest rate (paras 57-58). Further, the national court should consider whether the lack of information in the loan agreement on a non-binding circular issued by the Bank of Spain could have been detrimental to the average consumer's ability to estimate the total loan cost. This in light of the circular stressing its significance for credit institutions (para 59). The CJEU seems to imply in para 60 that it would go to far to expect average consumers to conduct legal research, that is to try to find other documents of the Bank of Spain that could be applicable to the variable-rate mortgage loans, which have not been referenced in the agreement.

Whilst the CJEU reiterates the finding from the order in Gómez del Moral Guasch that the lack of transparency of a term does not render it, in itself, unfair, it would weigh in on the unfairness test (para 66). Further, the national court, when estimating whether the contract term introduces significant imbalance between parties' rights and obligations, has to look at what rules would apply in the absence of the agreement and assess to what extent the contractual provisions put the consumer at a detriment (Banco Primus - see our comment). With variable-rate mortgage loans this means comparing the interest rate to the statutory interest rate and the interest rates applied on the market at the date of conclusion of the agreement at issue... for a loan of a comparable sum and term (para 65).

UPDATED:

Readers interested in finding out more about the intricacies of the financial indexes used in Spain for calculating variable-rates in mortgage loan contracts, the legal value of circulars issued by the Bank of Spain, and the possible misconstruction of Spanish law by the CJEU - please check the comment of Prof. Ernesto Suárez from ESADE and UPF Law Schools in Spain.

Limits of unfair terms control, limits of harmonisation: CJEU in First Bank SA (C-593/22)

Is unfairness, like beauty, foremost in the eyes of the beholder('s Member State)?

Yesterday, the Court of Justice has decides a seemingly obvious case the systematic implications of which may be a bit more serious than they seem at first glance. In First Bank SA, the Court was asked to interpret the scope of application of Directive 93/13, in particular to the extent that its Article 1(2) declares that

"contractual terms which reflect mandatory statutory or regulatory provisions and the provisions or principles of international conventions to which the Member States or the Community are party, particularly in the transport area, shall not be subject to the provisions of this Directive." 

This is a more radical exclusion than the one dictated by Article 4 for core terms, which was inserted at a relatively late stage in the legislative process and in any event requires terms to be drafted in plain and intelligible language, in accordance with the same Directive's Article 5. 

The justification for this exclusion is a presumption in favour of national laws - the latter being trusted to have established a fair balance between the rights and duties of the parties to the contract. The exclusion of Article 1(2), in this sense, is an absolute presumption: As the Court has put it, the idea of a national fair balance is not a requirement for the exclusion, but just a rationale. Whether the legislatively established balance is fair or not does not really matter. 

Against this background, some Romanian customers tried to challenge terms in credit contracts that put all the risk for currency exchange fluctuations onto them. It appeared plausible, however, to claim that such terms were in line with a general provision in Romanian contract law expressing the principle of "monetary nominalism", namely the idea that the debtor always owes the amounts agreed in the given currency and not a specific value in terms of purchase power. 

Two questions were raised in this context: 1) whether the exception only applies when the contract terms literally reproduce legal provisions; 2) whether it matters, to the ends of applying the exception, that the consumer may have not understood that the term at stake was in fact equivalent to valid provisions of national law. 

Both questions were answered rather swiftly and without intervention of an AG. As to the first, the Court [see para 25] concluded that national courts must ascertain whether the clause at stake incorporates the same "normative content" as the corresponding provisions of national law; in that case, the terms can be assumed to "reflect" legal provisions, with no need for literal reproduction. 

Only slightly more interestingly, the Court dismissed the idea that understanding by the consumer may matter: relying on an unpublished order [see para 32], the Court clarifies that it has already once established that the professional's compliance with its disclosure and transparency obligations is not relevant to the ends of Article 1(2). This is ultimately the necessary implication of assuming that the exclusion must be interpreted objectively and not on the basis of parties' understandings. 

All in all, this is hardly a surprising decision. However, from a consistency perspective, it brings to the fore interesting questions concerning the tensions implied in the Directive's original choices - isn't it a problem [that this not-all-too-restrictive interpretation of] Article 1(2) further undermines the harmonising effects of the Directive? How does it fit with the role of transparency in respect of core terms? Is it acceptable that obviously extractive interest fluctuation clauses are assessed differently in the different Member States? 

In other words, if the Directive trusts both states (in respect of national rules) and private autonomy (in respect of core terms and price-service ration), why does the subjective understanding of the consumer not play even the least role in (applying) the exception? It looks like the stark reliance on the exemption rules as entirely formalistically interpreted and objectively applied reinforces the differences between Member States and takes the position of individual contractual parties in very little consideration. The reader will point to the obviously different formulation of the two provisions in Article 1(2) and 4 explained at the beginning of this post; whether a different formulation in the future would be acceptable to Member States and not end up diluting rather than improving consumer protection, in all honesty, is a prediction we will have to leave for another day.

PS In case you are wondering, immediate inspiration for today's title was provided by a paper written by my colleague Chantal Mak in re Gutierrez Naranjo a few years ago - also on dynamics of EU and national unfair terms rules. You find it on SSRN.

Suspending payments of monthly loan instalments for consumers awaiting finding of unfairness - CJEU in Getin Noble Bank (C-287/22)

Photo by Towfiqu barbhuiya on Unsplash

On June 15th, aside the Bank M judgment (see our previous comment here), the CJEU addressed Polish law implementing the Unfair Contract Terms Directive also in the case Getin Noble Bank (C-287/22). Also in this judgment the CJEU chose for a consumer-friendly interpretation of the UCTD, precluding national courts from dismissing a consumer's application for the grant of interim measures (namely, a suspension of the payment of the monthly instalments due under a loan agreement) when a decision on the invalidity of the loan agreement, due to unfairness of its terms, is pending. Such interim measures should be granted by national courts, if this is necessary to ensure 'the full effectiveness' of the invalidity decision. 

Polish consumers in the given case claimed unfairness of terms in a loan agreement converting the loan amount into Swiss francs at the purchase rate fixed by the bank, with monthly instalments repayable in Polish zlotys at the Swiss francs sale rate, also unilaterally fixed by the bank. What interests us, and the courts, however, is that in their claim they asked for the following interim measures being granted: 1) suspension of the obligation to pay monthly instalments until the final judicial decision; 2) prohibiting the bank to issue consumers with a notice of termination; 3) prohibiting the bank to publish any information that the applicants are in default on their loan payments during this time. The first sought measure could help with the improvement of the financial situation of consumers, who are likely to await the first court's decision for min of 2-3 years (para 53). The second measure would prevent the bank from taking punitive measure as a result of consumers' pursuing their claims. The third measure would not allow the bank to tarnish consumers' credit score.

Polish law allows to grant interim measures only when there is a 'legitimate interest' of the applicants in them, which amounts to showing that "the failure to grant interim measures would prevent or seriously impede the enforcement of the forthcoming judgment in the main proceedings or the achievement of the purpose of the proceedings in that case" (para 19). Polish courts have so far not been willing to recognise the existence of such an interest in Swiss francs loan cases, due to either of the following: 1) invalidity of a contract as a result of unfairness not leading to enforcement; 2) the need for interim measures to help avoid consumer harm, which could e.g. occur if the bank was in a poor financial situation; 3) consumers possibly being required to repay the loan capital when unfairness and invalidity is declared, which means that their continued payment of monthly instalments would be beneficial to them, limiting the final repayment amount (para 20).

The CJEU first refers to the past judgment in Aziz case (see our comment on it here), recalling that it already precluded national law from not allowing to grant interim measures to consumers awaiting a declaration of unfairness (and its consequences), when interim measures were necessary to ensure that the final national judgment is effective in protecting consumers (para 41). In Aziz case the interim measures were related to staying enforcement proceedings when consumers defaulted on paying their mortgages, which in Spain led to accelerated proceedings of mortgage enforcement.

Further, it reminds that in the case Fernández Oliva and Others (joined cases C-568/14-570/14 - see here) it considered granting of interim measures as necessary to protect consumers from the risk of paying higher than necessary monthly instalments during lengthy judicial proceedings (para 42).

As, pursuant to Polish law, consumers may only claim repayment of monthly instalments already paid at the moment of bringing an unfairness claim to court, this means that without the interim measures, they would need to bring a second claim to courts after succeeding in the first one (para 22). They would also be obliged to pay legal costs for the second time (para 50). The CJEU highlights that such an application of Polish law would make at least partially the forthcoming final decision ineffective, as it would "not have the effect of restoring the legal and factual situation of that consumer in the absence of that unfair term" (para 48).

Importantly, it is up to national courts to consider how likely the finding of unfairness is in a given case. If there is sufficient evidence of unfair terms, the removal of which could lead to invalidating the contract, plus there is evidence that consumers are likely to overpay banks without courts granting interim measures - the latter should be awarded (para 59).