A victory for the banks? Opinion AG Mengozzi in high-profile cases on Spanish 'floor clauses'

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This morning, Advocate-General Mengozzi presented his Opinion in three high-profile cases that have generated a lot of attention in Spain (Joined Cases C-154/15, C-307-15 and C-308/15 (Gutiérrez Naranjo v. Cajasur Banco, Palacios Martínez v. BBVA and Banco Popular Español v. Irles López). I reproduce the summary I wrote for the blog on 'Recent developments in European Consumer Law' here:



The cases discussed in this blog post go far beyond the parties' interests and are perceived as being part of an ongoing battle between "the banks" on the one hand and "the consumers" on the other. They originate from a disagreement between the Spanish Supreme Court (Tribunal Supremo) and lower courts about the required level of protection under the Unfair Contract Terms Directive (93/13/EEC). The subject matter of the three cases are the so-called cláusulas suelo (literally: 'floor clauses'), i.e. minimum interest rate clauses, used by banks in mortgage loan agreements. In Spanish media, today has already been called "D-Day" for cláusulas suelo. 

What are cláusulas suelo? AG Mengozzi explains: "Those clauses allow a banking institution which grants a variable rate mortgage loan to impose a lower limit on the variable interest rate, so that even if the applicable interest rate [e.g. EURIBOR] is below a certain threshold (or 'floor'), the consumer will continue to pay minimum interest equivalent to that threshold." Such 'floor clauses' were common practice in Spain. In a judgment of 9 May 2013, the Tribunal Supremo declared cláusulas suelo to be unfair. In short, it found that those clauses were not transparent: consumers were unable to foresee the economic and legal burden the contract would place upon them.

The present cases concern the effects of this judgment, more specifically the question of retroactive effect. Under Spanish law, the general penalty for unfair terms is invalidity, which creates a right to full restitution. To what extent can consumers claim restitution of the amounts paid on the basis of 'floor clauses'? According to the Tribunal Supremo, such a refund is only due from the date of the judgment, 9 May 2013. It held that the temporal effects of its judgment could be limited under the principles of legal certainty, fairness and prohibition of unjust enrichment, because the banks had acted in good faith and there was a risk of serious economic difficulties (cf. the CJEU's judgment of 21 March 2013, C-92/11, RWE Vertrieb). However, lower courts have questioned the date from which the refund should begin. Is the Tribunal Supremo's limitation of the restitutory effects produced by an unfair - and therefore, under Spanish law, invalid or void - contract term compatible with the interpretation of "non-binding" in Article 6(1) of Directive 93/13? Should the refund of the amounts paid by the consumer on the basis of the unfair term arise only on the date of a court decision confirming the unfairness, or from the date the contract was concluded?

Advocate-General: Tribunal Supremo's approach is permissible 
AG Mengozzi first establishes that the Tribunal Supremo, by classifying 'floor clauses' as unfair terms in particular because of a lack of sufficient prior information, has not afforded a higher level of protection to consumers than that offered by Directive 93/13 and that thus, ascertaining the requested interpretation is relevant (paras. 43-50). He refers to the CJEU's case law (inter alia, its judgment of 30 April 2014, C-26/13, Kásler) to conclude that the requirement of transparency within the meaning of Article 4(2) of Directive 93/13 must be understood in a broad sense: not only should the relevant term be grammatically intelligible to the consumer, but the consumer should also be able to assess the economic consequences resulting from the application of that term, including the calculation of the repayments and interests.

As regards Article 6(1) of Directive 93/13, AG Mengozzi considers that the expression "non-binding" is neutral. He then moves on to say that the CJEU seems to have considered the invalidity of unfair terms not as the only way to satisfy the requirement that unfair terms are non-binding (para. 60). The CJEU has not decided that national courts must declare those terms invalid and create a corresponding right to restitutio in integrum (para. 64). From 9 May 2013, 'floor clauses' must cease to exist in the Spanish legal order: they must be eliminated from existing contracts and can no longer be included in new contracts. Therefore, the full effects of invalidity under Spanish law are guaranteed from 9 May 2013 and the effectiveness of Directive 93/13 is fully assured pro futuro. With regard to the prior period, AG Mengozzi observes that EU law harmonises neither the applicable penalties nor the circumstances in which a supreme court decides to limit the effects of its judgments. This means that the present situation falls within the national procedural autonomy of the Member States (para. 68). In AG Mengozzi's view, the Tribunal Supremo's approach - the temporal limitation - is permissible in the light of the principles of equivalence and effectiveness, provided that it remains quite exceptional (p. 73). While he disagrees with the alleged "innovative nature" of the judgment of 9 May 2013, AG Mengozzi points out that the Tribunal Supremo struck a balance between the protection of consumers and "the macroeconomic challenges to the already weakened banking system of a Member State" (para. 72). The safeguarding of legal certainty is "a concern shared by the EU legal order", "on account of the many legal situations which are potentially affected and which could undermine the stability of an economic sector" (para. 74).

A victory for the banks?
AG Mengozzi's consideration of "macroeconomic challenges" is in line with the Tribunal Supremo's argument that its judgment, without a restriction of the retroactive effect, would cause a risk of serious economic difficulties. It has been said that the risk for the Spanish banking sector is 3.500 million euros; no wonder that the AG's Opinion is perceived as a victory for the banks. Yet, the Opinion passes over a number of counter-arguments, brought forward on behalf of the consumers involved as well as by the referring courts.

First, it has been doubted whether the banks have actually acted in good faith.[1] As AG Mengozzi concludes, the judgment of 9 May 2013 was not really "innovative"; the CJEU's case law after that date is "nothing other than the logical continuation of a series of earlier judgments" (para. 49). Can it be said that the banks' "good faith" only ceased to exist on 9 May 2013? In addition, the banks themselves, who drafted and used the highly disputed 'floor clauses', were the cause of the lack of transparency making those clauses unfair. In this respect, AG Mengozzi's remark that the conditions governing the circumstances in which a supreme court may limit the effects of its own judgments fall within the scope of the Member States' national procedural autonomy (para. 80) is unsatisfactory, especially given the emphasis he puts at the same time on the balance struck by the Tribunal Supremo (paras. 72-74). If the Tribunal Supremo's reasoning is subjected to scrutiny in the light of the principle of effectiveness, the part on good faith could be more closely examined as well.

Secondly, the question has been raised whether the Tribunal Supremo's approach is contrary to the prohibition imposed on national courts of revising or altering the content of an unfair term (see, e.g., the CJEU's judgment of 14 June 2012, C-618/10, Banco Español de Crédito). AG Mengozzi does not answer this question directly. Perhaps limiting the effects of invalidity is not the same as varying the content of contract terms, the ratio behind this prohibition might nevertheless apply equally.[2] It is not entirely clear why the required "deterrent effect" (para. 71) should not date further back than 9 May 2013. One could argue that the banks are now rewarded for awaiting the Tribunal Supremo's judgment before changing their practice. In the words of Prof. Francisco de Elizalde (footnote [1]): "It could lead possible infringers to believe that the greater the damage, the more lenient the remedies."

Thirdly, AG Mengozzi appears to pay strikingly little attention to the position of consumers. Admittedly, achieving the balance sought by Directive 93/13 is not the same as favouring the consumer. But AG Mengozzi dismisses the plight of Spanish consumers too easily, where he says that a consumer who had concluded a loan agreement containing a 'floor clause' could simply repay one loan with another from a different banking institution, and that application of the 'floor clause' would not have led to a substantial change in the monthly amounts payable by consumers anyway (para. 73). He seems to overlook the economic risk mortgage loan agreements and 'floor clauses' pose to the consumer's household finances. His statement is all the more curious in relation to the finding of unfairness of those very same 'floor clauses'.

Finally, it is a pity that AG Mengozzi only spends one brief paragraph at the very end of his Opinion on the relationship between collective and individual actions (para. 81). In Case C-308/15, a specific question was asked by the referring court about the meaning of the right to effective judicial protection as enshrined in Article 47 of the EU Charter of Fundamental Rights in this respect (see para. 32). Not only does AG Mengozzi seem to deny the precedent effect of the Tribunal Supremo's judgments, he also does not seize the opportunity to propose a more systematic solution to the disparities between the Tribunal Supremo and lower courts (see also para. 23). He just presumes that the implementation by the lower courts is "likely to safeguard the principle of equality and the principle of economy of procedure" (para. 81), without even mentioning Article 47. Is this another missed opportunity? We will know when the CJEU renders its judgment in the cláusulas suelo saga. To be continued. 

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[1] See further: Francisco de Elizalde, 'The Rain in Spain Does Not Stay in the Plain - Or How the Spanish Supreme Court Ruling of 25 March 2015, on Minimum Interest Rate Clauses, affects European Consumers', EuCML 5/2015, pp. 184-187; link.
[2] The Commission, for example, has argued that the declaration of an unfair term as invalid "is not compatible with a limitation of the effects of such invalidation, unless such limitation is necessary to preserve the principle of res judicata" (see EurActiv).

Researchers in Utopia? Benefits and dangers of case-law databases

Research on European law can without doubt benefit enormously from case-law databases, including the recently introduced European Case Law Identifier Search Engine (ECLI Search Engine, made available at the European e-justice Portal) and the Centre for Judicial Cooperation Database (CJC Database, available through the European University Institute Centre for Judicial Cooperation’s website).

ECLI Search Engine    
The ECLI Search Engine already comprises 4 million judicial decisions, coming from 8 EU Member States (Spain, France, the Netherlands, Germany, Austria, the Czech Republic, Slovakia, Slovenia and Finland), the Court of Justice of the EU, the European Court of Human Rights and the Board of Appeal of the European Patent Office. One can search this database on the basis of simple search terms, or on the basis of numerous criteria such as country of origin, judicial institution, date, field of law, reference to EU law, et cetera. This creates the great opportunity for both researchers and practitioners to search – only by pressing the enter button once – within the decisions of all these courts.

CJC Database

The CJC Database comprises a selection of judicial decisions, made by scholars and accompanied by case notes. The CJC works on several highly interesting topics: European judicial cooperation in the fundamental rights practice of national courts; General principles of EU law and development of judicial remedies and the interaction between international and domestic courts; Migration related judicial dialogue and legal issues. Thus, not only the outcomes of the CJC research project is promising, but also the possibilities its database will create for further research.

But be careful…         
Yet one should also be aware of the drawbacks that come with (the present version of) the ECLI Search Engine. It is, for instance, still far from complete. Moreover, references to EU law are not always made uniformly, which makes them hard to find even with this database. And available translations in English or French of judicial decisions are sometimes not included in the search engine. Experts have therefore suggested continuous amelioration on these points.[1] As for the CJC database, it should be used carefully, being conscious of the fact that it comprises only a selection of cases, made in course of a specific research project. 

More generally, researchers should be mindful of possible biases that come along with the use of databases. By searching for a specific law, one might exclude results that could be relevant for one’s type of research, e.g. because they have a similar subject-matter. And available key words might guide the researcher’s way of thinking, even sub-consciously. The same holds true for practitioners. Their search biases, leading to a limited, not necessarily representative set of cases, could have persuasive influence on new judicial decisions, which could eventually influence the way in which our positive law develops.

Digital possibilities     
But whilst carefully keeping in mind these dangers, legal researchers will mostly we very happy with the possibilities the 21st century offers. Those who are not so much at home in the digital world should not hesitate to ask for help when using databases. The whiz kids who created them included handy tools that some lawyers (including myself) are not immediately aware of, even when having read the manual. To search deeper within the obtained results using a smart search term, for example, can avoid a lot of unnecessary reading work.

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[1] M. van Opijnen & B. Veenman ‘Jurisprudentie zoeken op Europese schaal’ NtER (2016) 4, 137-140

Effective judicial protection: some reflections on Case C-49/14 (Finanmadrid)

Dear readers,

Earlier this month, Professor Chantal Mak announced that my colleague Laura Burgers and I would join her as authors of this blog. My name is Anna van Duin, and the topic of my PhD research is 'Article 47 of the EU Charter of Fundamental Rights in European Private Law Adjudication'. In the present blog post, I will discuss Article 47 of the Charter in reference to the EU Court of Justice's judgment in Case C-49/14: Finanmadrid.

Effective judicial protection: what is expected from national judges?
Article 47 of the Charter safeguards the right to effective judicial protection against the violation of rights falling within the scope of EU law. In essence, Article 47 expresses the premise ubi ius ibi remedium: rights cannot be enforced without effective remedies and adequate procedures (for further reading, see Professor Mak's 2012 paper 'Rights and Remedies'). For national judges, it is important to know what is expected from them in terms of the level of protection they should offer: does their national procedural framework meet 'European' standards? However, in practice it is difficult to assess whether national law lives up to EU law requirements, not in the last place because it is unclear which test should be applied and when: the principle of effectiveness, or (also) the principle of effective judicial protection as enshrined in Article 47 of the Charter? And what does that mean in a concrete case? 

The difficulty becomes clear in the Finanmadrid case, which concerned a preliminary reference of a Spanish court - one out of many - regarding Directive 93/13 on Unfair Contract Terms. In short, ex officio examination by a judge of the (possible) unfairness of contract terms was not mandatory under Spanish procedural law. In uncontested 'payment order proceedings' (proceso monetorio), such an examination would only take place if the court registrar (secretario judicial) deemed it appropriate, or if the debtor opposed the requested payment order. Thus, the 'burden' was primarily on the debtor, i.e. the consumer. Judicial examination could not take place at the enforcement stage either, because the payment order had become binding by then. This was clearly against the requirements developed by the CJEU in its case law on Directive 93/13, e.g. Banco Español de Crédito. According to Advocate-General Szpunar, the fact that there had been no ex officio examination of unfair contract terms at any stage of the proceedings rendered Spanish procedural law contrary to the principle of effectiveness, which entails that the exercise of EU rights must not be rendered "practically impossible or excessively difficult". Although an examination of unfair contract terms at the enforcement stage may not be desirable, the effectiveness of Directive 93/13 prevails over the binding force of the payment order. The CJEU shared the Advocate-General's conclusion. 

The Finanmadrid case demonstrates that the mere existence of a particular remedy or procedure - the consumer could have filed an opposition - is not always sufficient to provide effective judicial protection. In Finanmadrid, the contract terms at issue were presumed to be unfair, but the referring court was prevented from examining them. It could be said that, apart from the specific requirements of Directive 93/13, the right to an effective remedy before a court of law (cf. Article 47 of the Charter) is at stake here. What does Article 47 mean for national judges who find themselves confronted with a legislative gap or shortfall in the protection of rights derived from EU law, like the Spanish court in Finanmadrid? 

A missed opportunity

This is a pressing issue for national civil courts in private law cases, as is illustrated by the high number of preliminary references from Spain referring to Article 47 of the Charter (e.g., C-307/17 and C-308/15, C-503/15, C-380/15, C-7/16, C-92/16 and C-120/16). In the Finanmadrid case, the referring court had also asked whether Spanish procedural law was contrary to the Charter, in particular the right to effective judicial protection and the right to be heard. Apparently, Article 47 of the Charter and the principle of effectiveness do not entirely coincide. This raises the question why judges would refer to Article 47: is it simply ‘window-dressing’ (i.e. rhetorical), is it used as an additional supporting argument, does it operate as an ultimum remedium in lack of another adequate response, or are there other explanations? 

The relation between Article 47 on the one hand and the principle of effectiveness on the other has not been clarified yet. In previous judgments (e.g. Sánchez Morcillo), the CJEU has held that the right to an effective judicial remedy is a mandatory requirement, which is also applicable in the context of Directive 93/13. In Finanmadrid, Advocate-General Szpunar concedes that Article 47 of the Charter applies to every claim brought before a (national) court by individuals seeking protection of their EU rights. What is more, he brings forward that an "effective remedy" encompasses the rights of the defence, including the right to be heard. Indeed, an effective judicial remedy presupposes access to justice, and access to justice implies a fair trial. Rights, remedies and procedures are so closely connected that they cannot be distinguished or separated easily.

Against this background, it is unclear why neither the Advocate-General nor the CJEU addresses the link between Article 47 and the principle of effectiveness. It could, for example, be argued that Article 47 puts more emphasis on individual rights protection (cf. Articles 6 and 13 of the European Convention on Human Rights) than on the effective enforcement of EU law in general. In addition, while the principle of effectiveness entails a 'negative' test, Article 47 seems to be phrased positively: it guarantees both an effective (substantive) remedy and 'due process' (procedural) rights. Unfortunately, the CJEU's judgment does not give any clarification or guidance as regards the role and scope of Article 47 of the Charter. On the day the judgment came out (18 February 2016), I published a short blog in which I called this 'a missed opportunity'. 

Stay tuned!

Together with Professor Mak, I attended a transnational training workshop for judges, organised by the Centre for Judicial Cooperation at the European University Institute in May 2016; click here for more information about the ACTIONES project. The focus of this workshop was on consumer protection and judicial interaction techniques in the application of the Charter; one of the topics was the role of Article 47 of the Charter. Next year, we will organise a national workshop for Dutch judges about the application of the Charter in European private law matters. In February 2017, the University of Parma hosts a workshop focused on Effective Judicial Protection; a call for judges will be published on the website of the ACTIONES project. 

In my PhD research, I will further investigate how and why Article 47 of the Charter is mentioned, interpreted and applied in European private law adjudication, more particularly cases concerning Directive 93/13. What factors trigger a reference to Article 47? What role is there for Article 47 in the judicial assessment and development of (national) remedies and procedures? Relevant news and findings will be published on this blog. Therefore, stay tuned!

For any questions, comments or suggestions, please do not hesitate to contact us. 

A new Chapter

As of today, two new authors will join me in writing this blog: Anna van Duin and Laura Burgers, who are both working on PhD research within the Judges in Utopia project.

snoopy.com

Anna van Duin’s research concerns the role of Article 47 of the EU Charter of Fundamental Rights - the right to effective judicial protection - in European private law adjudication, more particularly cases the Unfair Contract Terms Directive. She focuses on the process of linking national remedies to (infringements of) EU rights against the background of Article 47: how and why is Article 47 mentioned, interpreted and applied in legal disputes between private parties before national civil courts? And what does it mean for the assessment and development of remedial and procedural rules?

Laura Burgers’ research looks into the democratic legitimacy of judicial law-making in European private law. Using a normative framework of political theory on deliberative democracy (Habermas), her research project explores the boundaries of legitimate judicial law-making in European private law, with a case-study on judicial decisions in the area of environmental liability.

Our intention is to post 1 or 2 updates per month, giving a brief analysis of relevant developments in case law, literature, and academic and societal debates on the role of national and European courts in private law.

The Dutch Supreme Court & European contract law

Dutch-speaking readers of this blog may be interested in an article I wrote on the Dutch Supreme Court (Hoge Raad)'s handling of EU law in private legal disputes (published in Ars Aequi 2015, p 716-722). In brief, the main conclusion is twofold: On the one hand, the Court integrates EU law in Dutch private law in line with a monist (constitutionalist) perspective on the relationship between European law and national law. On the other hand, the Supreme Court seems hesitant to interfere in the system of private law laid down in the Dutch Civil Code, opting for interpretation of private law provisions in line with EU law rather than amendment of the Code.

Fair time limits for unfair terms control - AG Szpunar's opinion in case C-8/14 BBVA v Fernández Gabarro

The interaction between the CJEU and Spanish national judges in procedures regarding unfair terms assessment in mortgage enforcement proceedings offers a good example of judicial contributions to the fine-tuning of rules of private law. This morning, Advocate General Szpunar delivered his Opinion in the case of BBVA SA v Fernández Gabarro and others - I reproduce part of the summary I wrote for the blog on 'Recent developments in European Consumer Law' here:

The BBVA case is a follow-up to the law reform that was set in motion by the CJEU's Aziz judgment (on which we reported earlier; see also a posts on CJEU Sánchez Morcillo and CJEU Unicaja Banco). Following this judgment, Spanish procedural was changed so as to make it possible to stay mortgage enforcement proceedings while an assessment of the fairness of the contract terms governing the client/bank relationship is pending. The present case concerns the possibilities for effective judicial policing of unfair contract terms in disputes that had been brought to court before the law reform came into force and had not yet been concluded.

The question raised by the national judge is whether the time limit of 1 month for raising a claim of unfairness of the contract terms is in line with EU law. Fernández Gabarro et al, the consumers in this case, claim that it is not in accordance with the Unfair Terms Directive to impose such a time limit. Furthermore, a limit of 1 month in their view was in any case far too short to prepare a claim, given the great number of requests made to lawyers at the time the reform law came into force, which lawyers could not handle in such a short time.

AG Szpunar observes that the question essentially regards the compliance of the Spanish provision with the principles of effectiveness and equivalence (para. 26). This implies that national rules safeguarding EU rights must not be less favourable than those governing similar domestic transactions that are not subject to Union law (equivalence), nor may they be framed in such a way as to render impossible or excessively difficult the exercise of rights conferred by Union law (effectiveness).

As regards the time limit of 1 month, the AG is of the opinion that it is in compliance with EU law: although short, it gives sufficient opportunity to raise a claim against the fairness of the contract terms governing the mortgage enforcement procedure (para. 46-47).

As concerns the date on which Art. 4 took effect, however, the AG indicates several problems. This provision, stipulating the time limit of 1 month for raising unfair terms claims in pending procedures, entered into force the day after Ley 2013/1 was published. Moreover, the consumers in the present case were not informed of this. The AG expresses doubts as to whether Art. 4, thus, complies with the principle of equivalence, but observes that it is for the national judge to investigate whether similar procedural time limits apply in comparable domestic cases (para. 53).

More importantly, in the AG's opinion, several factors justify the conclusion that the time limit renders the exercise of the consumers' rights under Directive 93/13 impossible or excessively difficult (para. 54 ff). These include the facts that procedural time limits in Spanish law hardly ever take effect the day after publication of new legislation, that consumers could only have taken full benefit of the time period set in Art. 4 if they had known about the provision coming into force, and that legal representation was required for raising a claim under Art. 4. Furthermore, on the basis of previous CJEU case law, in respect of national legislation which comes within the scope of Union law, it is for the Member States to establish those periods in the light of, inter alia, the significance for the parties concerned of the decisions to be taken, the complexities of the procedures and of the legislation to be applied, the number of persons who may be affected and any other public or private interests which must be taken into consideration (para. 61, referring to CJEU Sopropé and Pontin) - on all of these points Art. 4 raises concerns. Consequently, the AG reaches the conclusion that a transitional provision as is at stake in the present case does not comply with the Unfair Terms Directive in light of the principle of effectiveness.

Secola conference 2015

The Society of European Contract Law (Secola) announced that the theme of its annual conference will be 'EU Charter of Fundamental Rights and European Contract Law'. 

Save the dates: the conference will take place in Oxford on 26 and 27 June 2015. 

More information is available here.