The Council Directive 93/13 EEC on unfair terms in consumer contracts has as an objective to ensure a high level of consumer protection. Τwo recent, high profile, judgments of the Court of Justice of the European Union (hereinafter called the «Court») in June 2023 prove exactly that.
This article will briefly examine the two judgments which are indicative of the sensitive approach that the courts of the Member States, should show when dealing with cases concerning the protection of consumers.
CJEU C- 520/21
- AS and ES (Polish consumers) concluded a mortgage loan with Bank Μwhich was indexed to the Swiss Franc. The contract terms were not individually negotiated. It was a term of the contract that the monthly loan instalments were to be paid in Polish zlotys after conversion using the selling rate of the Swiss franc in accordance with the table of foreign exchange rates applied by Bank Μ on the date of payment of each monthly instalment.
- Polish courts uniformly regard such conversation clauses as unlawful clauses.
- The case involves a debt recovering action deriving from the use of funds from a mortgage loan agreement that had to be annulled on the ground that that agreement cannot continue to exist after the removal of the unfair term. The District Court of Warsaw (hereinafter called the «Referring Court ») stayed the proceedings and in essence asked the following question to the Court:
« Whether, in the context of the annulment in its entirety of a mortgage loan agreement on the ground that it cannot continue in existence after the excision of the unfair terms, Article 6(1) and Article 7(1) of Directive 93/13 must be interpreted as:
- precluding a judicial interpretation of national law according to which the consumer is entitled to seek compensation from the credit institution going beyond reimbursement of the monthly instalments paid and the expenses paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served; and
- precluding a judicial interpretation of national law according to which the credit institution is entitled to seek compensation from the consumer going beyond reimbursement of the capital paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served».
- The consequences of the invalidity of a contract concluded between a seller/supplier and a consumer after the excision of the unfair terms in that contract are not governed by the Directive 93/13. Therefore, it is for the Member States to determine the consequences of such a finding. At the same time, those rules must be compatible with EU law and with the objectives pursued by the Directive 93/13.
- According to Polish law, the basic result of annulling a contract is the return of all benefits obtained by the parties, which, in the case of a loan agreement, means that the borrower must pay back to the bank the (nominal) amount of the loan that was disbursed along with all capital and interest instalments that were paid, as well as any extra payments (such as fees, insurance premiums and commissions).
Decision of the Court
- It does not appear that the ability of a consumer to make claims if a mortgage loan agreement is annulled that extend beyond the reimbursement of monthly payments made and costs incurred in carrying out that agreement, as well as, where applicable, the payment of default interest at the statutory rate from the date on which notice is served, undermines the objectives of Directive 93/13.
- On the contrary, given that the inclusion of such terms could result in financial consequences beyond the restitution of the amounts paid by the consumer and, where appropriate, the payment of default interest, it is possible that such a ruling may help to deter sellers or suppliers from including unfair terms in contracts reached with consumers. Therefore, such ruling from a court in a Member State, could have the deterrent effect sought by Article 7(1) of Directive 93/13. Additionally, such a ruling by a court in a Member State will not be regarded ascontrary to the principle of legal certainty, as it constitutes the practical implementation of the prohibition of unfair terms provided for by Directive 93/13.
- Therefore, the answer to the referred question is that Article 6(1) and Article 7(1) of Directive 93/13 must be interpreted as not precluding a judicial interpretation of national law that grants the consumer the right to seek compensation from the credit institution beyond reimbursement of the monthly instalments paid, costs incurred in carrying out that agreement, and payment of default interest at the statutory rate from the date notice is served, provided that the goals of Directive 93/13 and the proportionality principle are met.
On the other hand, due to the fact that the inclusion of unfair term in the loan agreement was the bank’s fault, the national law should not be interpreted in a way entitling the bank to receive compensation from the consumer which goes beyond reimbursement of the capital paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served.
CJEU C- 287/22
- YQ and RJ (hereinafter called the «Applicants») concluded a mortgage loan agreement (hereinafter called the «Loan Agreement») with Getin Noble Bank (hereinafter called the «Bank») for an amount of 643 395.63 Polish zlotys (PLN), which contained a clause converting that amount into Swiss francs (CHF) at the purchase rate fixed by the Bank, with a variable interest rate. The CHF-calculated monthly instalments were repayable in PLN at the CHF sale rate, which was also unilaterally set by the Bank.
- The Applicants brought an action before the Regional Court of Warsaw (hereinafter called the «Referring Court») seeking to have the Loan Agreement declared invalid based on unfair contract terms. In addition, the Applicants filed an application for the grant of interim measures. The Applicants were seeking the following interim measures:
(A) Suspend the obligation to pay the monthly instalments provided for in Loan Agreement, in the amount and on the dates specified therein for the period from the filing of the action until the conclusion of the proceedings,
(B) prohibiting the Bank from terminating the Loan Agreement,
(C) prohibiting the Bank from publishing information with the Economic Information Office in Poland about the failure by the Applicants to make payments on the loan concerned during the period from the grant of the interim measures sought until the conclusion of the proceedings.
- The Referring Court stayed the proceeding and referred the following question to the Court for a preliminary ruling:
‘In the light of the principles of effectiveness and proportionality, do Article 6(1) and Article 7(1) of Directive 93/13 preclude an interpretation of national legislation or of national case-law according to which a national court may, in particular because of a consumer’s obligations to settle payments with a seller or supplier or the sound financial situation of the seller or supplier, dismiss a consumer’s application for an interim measure (securing of the action) to suspend, during the course of the proceedings, the performance of a contract which is likely to be declared invalid as a result of the removal of the unfair terms from it?’
Decision of the Court
- The protection granted by Directive 93/13 also applies after the performance of the contract and does not limit its application to the duration of the contract. It is the responsibility of the Member States to regulate the effects of the invalidation of the contract, but that must be done in compliance with the protection granted by the Directive to consumers. Therefore, the national court must be able to grant an appropriate interim measure if that is necessary to ensure the full effectiveness of the upcoming decision on the unfairness of contractual terms.
- It seems more necessary to grant such an interim measure in cases where the consumer has paid the concerned bank an amount greater than that of the sum borrowed.
- Considering the above, the Court held that the answer to the referred question is that Articles 6(1) and 7(1) of Directive 93/13 must be interpreted as precluding national case-law according to which a national court may dismiss an application for the grant of interim measures filed by a consumer seeking the suspension of the payment of the monthly instalments due under that loan agreement, pending a final decision on the validity of the loan agreement that was entered into by that consumer on the ground that that loan agreement contains unfair terms, where the grant of those interim measures is necessary to ensure the full effectiveness of that decision.
These decisions are of particular interest and demonstrate the breadth of consumer protection that the European Court of Justice is seeking to achieve in the European Union.
In the last few years, there is a tendency in Cyprus to increase the protection offered to consumers in line with the general goals of the Union. This tendency is evident from:
(a) the enactment of the new Consumer Protection Law (Law 112(I)/2021), (b) the recent court decisions, (c) the decisions of the financial ombudsman and (d) the actions of the consumer protection service.
Having said that, the above-mentioned decisions should be carefully considered so as not to arrive at arbitrary and erroneous conclusions.
It must be kept in mind that, although the substantive consumer protection law is similar in the Member States, it is not the same. At the same time, the civil procedural rules and the case law of the Member States are different. For example, the courts in Cyprus do not automatically regard conversion clauses as unlawful clauses and/or unfair terms. Additionally, there are areas, for example the effects of the invalidation of a contract, that are regulated by the Member States and hence every Member States may have its own approach.
Our team is available to assist individuals and/or companies and/or financial institutions to assess and handle the implications of the above court judgments and the changing approach to consumer protection in Cyprus.