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Doc 0304/2015 23 March 2015
Vers. 1.0 SBA
27th Legal and Retail Committee
17 April 2015, London
6. Items of informative relevance
Item 6.1 Recent jurisprudence of the Court of Justice of the European Union
in the banking area
>> Read the .pdf version of the ESBG overview
Members of the Legal and Retail Committee are invited to take note of a selection of recent jurisprudence of the Court of Justice of the European Union in the banking area, and to signal any other case which may be of relevance.
1. Judgment in Joined Cases C‑482/13, C‑484/13, C‑485/13 and C‑487/13 - Unicaja Banco, SA v José Hidalgo Rueda et al. (C‑482/13), etc.
This case deals with Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. The directive lays down that such terms will not be binding and that when possible the contract will continue to apply without them. Background is that Spanish banks wrote mortgage contracts which contained a term setting high default interest rates and a term allowing a lender to demand immediate payment if the borrower fails to meet his payment obligations.
The Court of Justice of the European Union (Court/Court of Justice) ruled that the directive did not preclude a national provision under which the relevant national court is required to reduce a default interest rate deemed unfairly high (as exists in Spain), provided that the application of that national provision: a) is without prejudice to the assessment by that national court of the unfairness of such a term; and b) does not prevent that national court removing a term deemed unfair.
Between 5 January 2007 and 20 August 2010, Unicaja Banco and Caixabank arranged several mortgages for amounts of between EUR 47 000 and EUR 249 000. The mortgage loans were subject to default interest rates of between 18% and 22.5%. In addition, all the loan contracts contain a clause authorising the lender, if the borrower fails to meet his payment obligations, to bring forward the maturity date initially agreed and require payment of all the outstanding capital debt, together with the interest, default interest, commission, expenses and costs agreed.
This second clause was enacted between 21 March 2012 and 3 April 2013, when Unicaja Banco and Caixabank brought enforcement proceedings before the national court for the amounts due after application of the default interest rates. As part of those actions, that court questioned whether the above-mentioned clauses were 'unfair'. If they were found unfair, it would fall to the national court to adjust them under Spanish law. This potentially contradicted the directive, which would have the national court declare the relevant clause void instead.
In those circumstances, it was decided to stay the proceedings and to refer three questions to the Court of Justice for a preliminary ruling. These questions asked, in summary, if the relevant Spanish law contravened directive 93/13. The Court found that there was no contravention, so long as two provisions applied: the national provision must be without prejudice to the assessment of the unfairness of such a term; and it must not prevent the national court from removing a term deemed unfair.
2. Judgment in case C‑143/13 - Bog Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA
This case deals with Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. That directive stipulates that a national court can invalidate certain terms in a consumer contract if it finds them unfair. However, the directive specifies certain terms (for example relating to 'subject-matter' or 'price') which are excluded from this provision so long as they are in 'plain intelligible language'; that is, a national court cannot invalidate them on grounds of unfairness providing they are in plain intelligible language. In this case, two borrowers brought an action against Volskbank seeking to have certain unfair clauses invalidated, namely regarding variable interest rates and risk charges.
The appeals court referred requested a preliminary ruling from the Court of Justice, which ruled that the exclusion in the directive did not apply to these particular terms; that is, under the directive the national court was permitted to rule on the fairness or unfairness of variable interest rates and risk charges.
The borrowers concluded two credit agreements with Volksbank in March 2008, totalling roughly €120 000. Under the agreements, the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets. Additionally, the agreements stipulate that, for making available the credit, the borrower may be required to pay the bank a 'risk charge', calculated on the basis of the balance of the loan and payable monthly throughout its duration, and totalling roughly €40 000.
In 2010 the borrowers took the view that several terms in the credit agreements, including the terms relating to the variable rate of interest and the 'risk charge', were unfair and therefore invalid, under a Romanian law implementing Directive 93/13. The borrowers brought an action before a national court of first instance seeking a declaration to this effect.
In December 2011 that national court found that certain terms were unfair (and therefore invalid), including the term relating to variable rate of interest because of its vagueness. However, it did not find the 'risk charge' clauses unfair since it was not for the national court to determine the specific risk the bank was exposed to or the effectiveness of the contractual guarantees.
Both the borrowers and Volksbank appealed against that judgment to a higher national tribunal, which observes that, while the Court has not already decided whether the specific contractual terms are covered by Directive 93/13, certain Romanian courts have already held that such terms are covered by it—or, more specifically, a Romanian national law which exactly replicates the relevant section of the directive. Those national courts have taken the view that those terms can be assessed for their unfairness since the lender does not provide any service which would justify the risk charge and, additionally, the drafting of those terms is unclear.
In those circumstances, the Romanian tribunal decided to stay the proceedings and to request a preliminary ruling from the Court regarding whether Directive 91/13 can be interpreted as covering the APR of a credit agreement secured by a mortgage (which is in particular made up of: the interest rate, whether fixed or variable; bank charges; and other costs included and defined in the credit agreement).
The Court ruled that Directive 93/13 must be interpreted as meaning that 'main subject-matter of the contract' and 'adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other' do not, in principle, cover the types of terms in the credit agreements in question, meaning that these terms can be assessed for their unfairness.
3. Judgment in case C‑502/13 - CA Consumer Finance SA v Ingrid Bakkaus, Charline Bonato, Florian Bonato
CA Consumer Finance (CA CF) sued the defendants for non-payment of loans. The national court raised the question that the interest might be forfeited because CA CF had not fulfilled certain consumer protection responsibilities, namely ensuring creditworthiness and making sure the defendants understood the contract fully. In one contract CA CF inserted a standard clause stating that the borrower had taken note of a form explaining the details of the loan; the national court questioned whether this was permissible under the directive, since CA CF had shifted the burden of proof (of whether the to the consumer understood the implications of the loan) to the consumer.
The Court of Justice ruled on several questions, generally upholding consumer rights, clarifying that the burden of proof should be on the lender, and in particular that the clause mentioned above was invalid by itself.
The defendants took out loans with CA CF in 2011. When repayments under the loans ceased, CA CF brought proceedings against the borrowers for repayment of the balance due, together with interest. However, the national court raised the possibility that the lender might have to forfeit interest under the French Consumer Code. This is because the Consumer Code states that a lender must check a potential borrower's creditworthiness and provide the borrower with sufficient information to enable them to understand the details of their loan, failing which the interest due is forfeit. CA CF did not produce any documentation showing that it had fulfilled these obligations in the case of Mr and Mrs Bonato.
However, Ms Bakkaus's loan is different for two reasons. First, CA CF produced an income and expenses statement signed by the borrower. Second, her loan contract contains a standard term which is worded as follows: 'I, the undersigned, Bakkaus Ingrid, acknowledge that I have received and taken note of the Standard European Information form'. This is a European form which contains the relevant information sufficient to make an informed credit decision. The national court considers that such a clause could cause difficulties if it were to have the effect of reversing the burden of proof to the detriment of the consumer; it therefore stayed the proceedings and referred several questions to the Court of Justice for a preliminary ruling, all of which seek to clarify what constitutes acceptable behaviour on the part of the creditor, specifically what it is the creditor's responsibility to prove:
(1) [Under the directive, is] the onus on the creditor to prove that it has correctly and fully complied with its [credit obligations mentioned above]?
(2) [Is a standard term in a loan contract, such as that mentioned above, sufficient to prove that the creditor has complied with its credit obligations] without that term being supported by documents issued by the creditor and supplied to the borrower?
(3) [Under the directive, is it sufficient for the creditworthiness check to be] carried out solely on the basis of information supplied by the consumer, without such information being effectively scrutinised against other evidence?
(4) [Under the directive, must a creditor check the consumer's financial situation and needs beforehand in order] to provide adequate explanations to the consumer … ? [Additionally, under the directive, is it inadequate for] explanations to be supplied to the consumer … only in the contractual information mentioned in the credit agreement, without a specific document being drawn up?'
The Court, after deliberation, ruled that the directive must be interpreted such that:
(1) it cannot be the responsibility of the consumer to prove a creditor's non-performance of obligations;
(2) a national court is not obligated to recognise a standard term in a consumer contract such as that mentioned above, in which the borrower acknowledges having received all relevant information, since that term results in a reversal of the burden of proving the performance of those obligations, which undermines the effectiveness of the rights conferred by the directive;
(3) a consumer's creditworthiness assessment may be carried out solely on the basis of information supplied by the consumer, provided that information is sufficient and well-documented, and thus the creditor is not required to double-check the veracity of the information supplied by the consumer; and
(4) although it is possible for a creditor to provide the consumer with the adequate contractual explanations before assessing the consumer's financial situation, it may be the case that the explanations need to be adapted after the creditworthiness has been assessed; in that case, those explanations must be communicated to the consumer in good time before the credit agreement is signed, although this does not require a specific document to be drawn up.
4. Judgment in case C‑567/13 - Nóra Baczó, János István Vizsnyiczai v Raiffeisen Bank Zrt
This case concerns procedural rules in Hungary. There, a consumer may bring an action before a national local court to have a consumer contract annulled on most grounds, but if the consumer wishes to have a clause annulled on the specific grounds of unfairness, this action must be brought before a (higher) county court. This procedure is more expensive and thus potentially prevents consumers from enjoying their consumer protection rights as mandated by Directive 93/13 on unfair terms in consumer contracts.
The Court of Justice ruled that the added expense in the Hungarian national rule did not contravene the directive in principle, as long as the resulting procedural difficulties did not render the exercise of those rights 'excessively difficult'. The Court ruled that it was for the national court in each case to determine if that was so.
In 2013 the applicants in the main proceedings brought an action before a national district court ('kerűletí bíróság') for a declaration of invalidity of a 2007 mortgage loan agreement with a Hungarian bank, Raiffeisen Bank Zrt. The applicants argued that the agreement was invalid on several grounds, and additionally asked that one of its clauses be declared invalid because it was unfair. This was an arbitration clause, pursuant to which disputes arising from the loan contract fall within the jurisdiction of an arbitral tribunal.
In 2013 the case was referred to a (higher) county court ('törvényszék') because the district court found it did not have jurisdiction. Hungarian law provides that actions seeking to have unfair contract terms set aside fall under the jurisdiction of the county courts.
The applicants challenged this referral because it entailed higher costs. The county court asked the Court whether, because of this extra cost, the Hungarian national rule contravenes Directive 93/13 on unfair terms in consumer contracts. The directive requires Member States to put in place adequate and effective means to prevent the continued use of unfair terms in contracts concluded with consumers. The county court asks if, in this case, there a disadvantage for the consumer, given that, in proceedings brought by the other party to the contract, the consumer can rely on the unfairness of a contract term before the local court, and a transfer to the county court will burden the consumer with higher costs. Second, the court asks if the situation would be more equal if, local courts had jurisdiction in this case.
The Court rules that it is for Member-States to organise the details of implementation, so the current situation in Hungary is permissible (that is, it is permissible for a local court to have jurisdiction to rule on an action brought by a consumer seeking a declaration of invalidity of a standard contract, but to lack jurisdiction to hear an application by the consumer for a declaration of unfairness of contract terms in the same contract), 'unless declining jurisdiction by the local court gives rise to procedural difficulties that would make the exercise of the rights conferred on consumers by the European Union legal order excessively difficult. It is for the national court to carry out the necessary verifications in that respect.'
5. Judgment in cases C‑220/14 P – Ezz et al. v Council; C‑585/13 P - Europäisch-Iranische Handelsbank (EIH) AG v Council
These cases are both unsuccessful appeals against previous Court judgments which froze funds. One involves an Egyptian politician, Mr Ezz, whose European funds were frozen in the context of the Arab Spring. The other involves a German international foreign trade bank which attempted to circumvent EU sanctions against Iran for nuclear proliferation.
Following the political situation in Egypt in 2011, the Council of the European Union adopted Decision 2011/172, in which the European Union declared its intention to support the peaceful and orderly transition to democracy. This involved sanctions against those responsible of misappropriating Egyptian state funds. In this context the Decision froze the assets of Mr Ezz and his three wives. The Decision's provisions were repeated in Council Regulation 270/2011.
In 2014 Mr and Mmes Ezz brought an action before the General Court of the European Union in Ezz and Others v Council (T‑256/11) for annulment of Council Decision 2011/172 and Council Regulation 270/2011, in so far as those acts concern the appellants. That action was dismissed. This appeal involves six grounds, such as misinterpretation of the TFEU, but they were all dismissed.
The EIH case is in the context of Iranian nuclear proliferation, beginning with United Nations Security Council's Resolution 1737 (2006) on Iranian nuclear proliferation, which lists a series of persons and entities whose funds were required to be frozen for involvement in nuclear proliferation. The Council implemented this resolution in Common Position 2007/140, and over the years adopted further measures in this regard. In particular, Decision 2011/299 of 23 May 2011 included EIH on the lists of persons and entities whose funds were to be frozen, on the grounds that: 'EIH has played a key role in assisting a number of Iranian banks with alternative options for completing transactions disrupted by EU sanctions targeting Iran.'
EIH brought an action before the General Court in 2011 to have the EU actions targeting it annulled in so far as they concern EIH. EIH admitted in its pleadings that it had carried out transactions involving designated Iranian banks, but was claiming that those transactions were lawful. The General Court dismissed this action in 2013, and EIH appealed this dismissal on four grounds, none of which were successful.
6. Judgment in case C‑502/13 - European Commission, supported by Council of the European Union, v Grand Duchy of Luxembourg, supported by Kingdom of Belgium
The Grand Duchy of Luxembourg applied a 'super-reduced tax rate' of 3% on electronic and digital books. By contrast, Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ('the VAT Directive') specifies that VAT shall be set at 15%, or, in the case of a reduced rate, at 5%. Luxembourg argued that electronic books were exempt from this on two different grounds specified in the VAT Directive, but the Court sided with the Commission, finding that Luxembourg did not fulfil its obligations under the directive. As a consequence, the VAT would have to be increased.
>> Read the .pdf version of the ESBG overview