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European Private Law LL.M course 2014-2015
THESIS
Aikaterini-Paraskevi (Kate) Papadatou
UvA ID: 10761683
Supervisor: Dr. Marija Bartl
The influence of EU Fundamental Rights on the assessment of unfair
terms in consumer mortgage contracts
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Table of Contents
Abstract: ... 3
CHAPTER I: Introduction ... 3
CHAPTER II: The effect of fundamental rights in private relations ... 6
a. Fundamental Rights Instruments ... 6
b. The application of fundamental rights in horizontal relations ... 8
c. EUCFR: Effecting directly or indirectly? ... 10
2. Unfair Contract Terms Directive and Fundamental Rights ... 11
3. The importance of mortgage contracts for the consumers ... 13
CHAPTER III - The CJEU case-law on consumer mortgage loan contracts ... 14
1. The turning point: Deciding on Aziz ... 15
a. The ex officio doctrine and the interim relief measures ... 16
b. The compensatory remedy is not enough ... 17
c. The concept of disproportion ... 18
2. Morcillo/Garcia case: In the footsteps of Aziz ... 20
a. The establishment of the legal framework after the Aziz Judgment ... 21
b. The right to appeal under the effectiveness test ... 22
3. The Kušionová case: The consumer’s fundamental right to accommodation ... 23
4. Aziz continued? ... 25
CHAPTER IV- The Mortgage Credit Directive ... 27
1. UCTD and MCD provisions ... 29
2. MCD and CJEU case law on unfair terms ... 31
CHAPTER V - Conclusion ... 34
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The influence of EU Fundamental Rights on the assessment of unfair terms in consumer mortgage contracts
Abstract: This study examines the confluence of the EU Fundamental Rights
and the Unfair Terms Directive for the protection of the consumers in mortgage loan contracts. Beyond the theoretical background on the effect of fundamental rights over private relations, it will be argued that the CJEU used certain fundamental rights under certain circumstances in its rulings to argue in favor of the debtor, under the social imperative to protect consumers from losing their homes in the Euro Crisis era. It will be also shown that the new Mortgage Credit Directive has very little to offer for the substantive protection of the debtor from the housing bubble that has been present in Europe since 2007.
CHAPTER I: Introduction
53 years ago, President John F. Kennedy in his famous speech before the Congress, acknowledged the importance of the protection of the consumers and proposed the establishment of basic consumer rights.1 As far as the European Union is concerned, consumer protection was firstly introduced as a distinct Community policy in Maastricht Treaty in 1992.2 Nowadays, consumer law is not only a tool for promoting market integration; due to market expansion and technological innovation, it has changed significantly the last decades and now plays a key role in social welfare as well. In this frame, consumer protection has become directly linked to fundamental rights, as consumers are seen as “vulnerable individuals” who require protection by the state, but also as carriers of ethical values during the purchasing procedures.3
Taking the human rights/consumer law discourse into consideration, the EU legislator included consumer protection in the Charter of Fundamental Rights of the European Union (“EUCFR” or “the Charter”)4 explicitly in article 38.
In the era of Euro crisis, the protection of the consumer became a social demand. The consumers affected by the negative economic consequences of the
1
Four rights: The right to safety, the right to be informed, the right to choose and the right to be heard. See J.F. Kennedy, Special Message to the Congress on Protecting the Consumer Interest. March 15, 1962 [online]
2
Treaty on European Union (Treaty on Maastricht), OJ C 191 of 29.7.1992; M.Hesselink. (2007).
European Contract Law. A matter of consumer protection, citizenship or justice?, at p. 324
3 A.Fagan. (2006). Buying Right: Consuming Ethically and Human Rights, at p.115 4
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Economic Crisis, are in many cases found stuck in contracts in which they eventually cannot fulfill their financial obligations. The main question which arises in these cases is whether the fundamental rights are recognized in practice and through which mechanisms their application in consumer law disputes may strengthen consumer protection.
In this contribution more specifically, we will concentrate on financial transactions, -exclusively on loan contracts- between consumers and sellers, which involve the registration of mortgage on consumer property as a guarantee for the loan. More specifically, we will focus our attention on mortgage loan contracts which contain unfair terms and we will examine the possible influence of fundamental rights on the protection of the debtor/consumer, in that cases where the consumer property is threatened with enforcement proceedings due to default in payments.
The structure of this study will be as follows: Firstly, we will give a general picture concerning the nature of EU Fundamental Rights contained in the Charter of Fundamental Rights of the European Union, the impact they may have on private relations and to what extent they are directly applicable in relations between private individuals (Chapter II.1). Then we will concentrate on the EU Contract law field and more specifically, on the special status of the Unfair Contract Terms Directive (“UCTD”).5
At this point, we will underline the need for substantive protection of the consumers entering contracts, which include unfair terms and analyze the role that Fundamental Rights may play towards the achievement of that protection (Chapter II.2). Adding to that, we will also refer to mortgage loan contracts and we will underline the reasons why these financial transactions are of great importance for the consumers (Chapter II.3).
At the main core of this study, we will focus on cases of the European Court of Justice ("CJEU") concerning mortgage enforcement. We are going to see how the CJEU interpreted the provisions of the UCTD : in all of the cases, the national courts are referring for preliminary ruling to the CJEU with the same legal basis: Unfair contract terms Directive – consumer contracts – mortgage loan agreement. At the peak of this analysis, though, we will especially refer to three judgments which are of a great importance concerning the relationship unfair terms-mortgage enforcement- fundamental rights; we will discuss the Aziz case, the Kušionová case, the Sanchez
5 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993
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Morcillo & Abril Garcia case.6 We will argue that in these cases, the Court did not stay at the black letter of the UCTD provisions, but also took under consideration the social consequences of the enforcement procedure: the debtor/consumer losing his home, which is a matter of great importance in the era of Euro Crisis. Our main objective is to show that the CJEU in these cases managed to give a very radical interpretation of the private law principles in order to safeguard the consumer’s fundamental rights under the wire in cases where the foreclosure proceedings have already started and the debtor is threatened to lose his home.
In addition, we will refer also to other judgments of the Court on the interpretation of unfair terms in consumer mortgage contracts with the view to show that in these preliminary rulings for the assessment of the core terms in a contract, the Court does not make use of the fundamental rights as the same need for the administration of social justice is not met. (Chapter III).
In this era of recent progress and given the fact that there is no harmonization in the national laws concerning mortgage enforcement proceedings between the MS, it would be interesting also to mention the new Mortgage Credit Directive (MCD). That Directive, which was recently adopted and has to be implemented by the Member States (“MS”) by 2016, introduces a new set of rules on retail mortgages for all the MS to follow. Concerning this point, it will be shown that the MCD does not contribute something innovative to the interpretation of unfair terms in consumer contracts nor offers the debtor/consumer any substantial protection from the repossession orders issued by the banks. Still the problem remains, as the enforcement proceedings that MS adopt many times conflict to the interpretation of the EU law by the CJEU and as a result, prove to be insufficient and inadequate for the protection of the consumer/debtor. The new Directive does not manage to smooth out the differences among the enforcement proceedings in the MS – as it does not touch upon this subject -; the hot potato is in the hands of the MS and the CJEU when interpreting their conformity with the EU law. (Chapter IV).
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ECJ 14 March 2013, Case C-415/11, Mohamed Aziz v Caixa d´Estalvis de Catalunya, Tarragona i
Manres; ECJ 17 July 2014, Juan Carlos Sánchez Morcillo,María del Carmen Abril García v Banco Bilbao
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CHAPTER II: The effect of fundamental rights in private relations 1.
a. Fundamental Rights Instruments
Originally, the objective of fundamental rights has been to limit the power of the State over individuals; so in the first place, human rights regulate the relationship between individuals and the public institutions (vertical effect), because of the distinction between public and private law.7 Taken that defined role of the fundamental rights, private law relations and, by extension, the contract law - as a pure expression of private law life - was considered to be untouched from their effect.8
During the last years though, in many European legal systems, starting with Germany, contract law and fundamental rights begun approaching each other; now we have reached a point where, fundamental rights influence to such an extent private parties through contract law, so some academics speak about the propensity for the “constutionalization of private law”.9
Nowadays, all European countries acknowledge the influence that fundamental rights have on private relations to a greater or a lesser extent; in most European countries, constitutional legislation provides that fundamental rights affect private relations in a more indirect way, via the function of the judiciary which have to ensure that fundamental rights are reflected throughout the whole legal system and are taken into consideration every time national provisions have to be interpreted.10 Additionally to the national constitutions, the impact of fundamental rights on private relationships is also acknowledged in European level through two main legislative acts: the European Convention of Human Rights (“ECHR”) and the Charter of Fundamental Rights of the European Union (“EUCFR”).
The ECHR came into force in 1953 and was the first instrument which gave binding effect to the rights declared in the Universal declaration of Human Rights.
7
O.O.Charednychenko. (2008). Subordination of Contract Law to Fundamental Rights. In: S.Grundmann Constitutional Values of European Contract Law. 13th vol., at p.36.
8
O.O.Charednychenko. (2007). The harmonisation of contract law in Europe by means of the
horizontal effect of fundamental rights?, at p. 39.
9
For the primary introduction and genuine use of the term “constitutionalization” see O.O.Cherednychenko, at supra note 7, at p.36 footnote 1.
10
H.Collins. (2014). On the (in)compatibility of Human Discourse and Private Law. In: H.Micklitz Constitutionalization of European Private Law, at p.30; for further elaboration on the increasing application of fundamental rights to private relationships in many European Countries, see also ibid at footnote 4.
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The impact of the ECHR in private relation may be expressed in two ways: either because of the “monist” perspective that the international instruments are part of national legal systems or because of the view that national judges are obliged to respect the decisions of the European Court of Human Rights ("ECtHR") when interpreting national laws or cases which involve an alleged violation of a right included in the ECHR.11 The EUCFR was drafted by the European Convention (1999-2000) and became finally binding when the Treaty of Lisbon entered into force.12 It includes carbon copied the civil and political rights contained in the ECHR and adds to them some more economic and social rights, inspired by the European Social Charter of the Council of Europe.13 Pursuant to article 6(3) of the Treaty of the European Union (TEU), the EUCFR shall have the same legal operation and binding force as the Treaties between the MS.14
For the purposes of this study, we will concentrate on the EUCFR. This choice has been made for specific reasons: first of all, the EUCFR not only literally duplicates the civil and political rights contained in the ECHR, but also additionally, lists some more as we mentioned above. Second, the EUCFR introduced for the first time the right on consumer protection, in article 38. This innovative provision was founded on Article 169(ex 153) TEU, which includes detailed indications concerning the effective consumer protection and furthermore underpins that it must be respected by all other EU legislations and polices.15 Until then, consumer law was regulated mostly through Directives and the national legislation of the MS.16 Last but not least, as we will see from the case law analysis below in Chapter III, the CJEU quotes articles of the EUCFR in order to build arguments in its reasoning.
11
It would be interesting to mention here that the ECtHR in its Pla and Puncernau v. Andorra judgment (359/13-7-2004), instead of suggesting the national courts to interpret the will in question under national private law norms, demonstrated that since the court forms part of the State, the interpretation of the private law dispute (of the will at that specific point) should be in compliance with the fundamental rights as laid down in the Convention.
12 http://www.europarl.europa.eu/charter/composition_en.htm 13
Chapter I: dignity, Chapter II: freedoms, Chapter III: equality, Chapter IV: solidarity, Chapter V: citizens’ rights, Chapter VI: justice, Chapter VII: general provisions
14
Supra note 10 at p.31
15 “[…] consumer protection may develop as a new extension or ‘generation’ of international human
rights law, emerging in response to globalization and recent technological evolution.” in: I.Benöhr
(2014). EU Consumer Law and Human Rights, at p.48 [Online]
16 I. Benöhr and H.Micklitz. (2010). Consumer Protection and human rights. In: G.Howells, I.Ramsay, T.Wilhelmsson, D.Kraft Handbook of Research on International Consumer Law, at p. 27.
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b. The application of fundamental rights in horizontal relations
As we mentioned at the beginning of that chapter, traditionally, fundamental rights had vertical effect on private relations. Since the last years it is observed that fundamental rights and private law are converging and inevitably, the relations between individuals are also affected.17 The question that emerges at this point is to what extent fundamental rights affect contractual relationships.
Mainly, there are two models of how fundamental rights become effective in horizontal relationships: direct horizontal effect and indirect horizontal effect. On one hand, the direct horizontal effect model is based on the theory that fundamental rights are binding not only for the State, but also for private individuals.18 In other words, the parties in a private law dispute can invoke before the court the infringement of a fundamental right against each other. In these cases, the competent court to hear the case, has the only task to apply fundamental rights directly in the relationship, without relying on the contract law norms in order to leverage the outcome and balance the conflicting rights under a “private law” frame.19
Consequently, the validity of a contractual term (or even a whole contract) is dependent on the recognition of an alleged violation of a fundamental right; if that proves to be the case, the court has to declare the term invalid and award damages to the claimant.
On the other hand, according to the indirect horizontal effect model, it is not possible for a private party to build a claim against the other party only on fundamental rights grounds, for example: the individual (X) can bring a claim or a defense against the other contracting party (Y) based on private law norms (i.e. based on the Civil Code, especially invoke general contract law clauses like good faith), which is influenced by fundamental rights and must be interpreted in compliance with them.20 In this case fundamental rights bind only the State; the State, by drafting laws and implementing acts, and the court (as a State institution) by interpreting the law, have the duty to observe and ensure that citizens’ fundamental rights are respected
17 C.Mak. (2008). Fundamental Rights in European Contract Law, at pp 54-146 18
M.Fornasier. (2015). The Impact of EU Fundamental Rights on Private Relationships: Direct or
Indirect effect? at p.31.
19
Supra note 7 at p.55
20 O.O.Cherednychenko divides into two sub-categories the “indirect effect” model: “strong indirect horizontal effect” and “weak indirect effect”. See supra note 7 at p.57-59.; see also on this topic, C.Mak (2007). Fundamental Rights in European Contract Law, at pp.49-57, where she distinguishes between the strong direct effect, the strong indirect effect, the weak indirect effect and the procedural effect.
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also in private relations and moreover, to actively protect them against infringements committed by other citizens in the context of contractual transactions.21
The major advantage of the direct horizontal effect method is that it offers the most multifaceted protection possible for individuals, as the violation of a right can be invoked not only against the State, but also between private parties. On the contrary though, there are some arguments against the direct horizontal application of fundamental rights to private relations that may eventually deter the Courts from applying it. Firstly, since both parties in the contractual relationship are bearers of rights, each one can bring a claim or a defense against the other on the same ground. Thus, in a dispute where both parties rely on fundamental rights to build up their arguments, this could lead to a clash of rights that are in the same hierarchical position. Being trapped in situations like this, the competent court will not be able to balance this conflict of rights exclusively on constitutional cogitations.22
Secondly, if we accept that fundamental rights should be the denominator for solving all private disputes, then neither individuals nor courts will need to find grounds in private law in order to build their claims and justify their decisions respectively. As a result, contract law will cease to form an autonomous legal structure that regulates the private relations under specific private rules and norms and will be “subordinated” to fundamental rights, as the latter will govern its content.23
The situation may get even more difficult due to the fact that Fundamental Rights are very unspecific in nature and this could increase the discretion of the courts.
For these reasons, courts have the tendency to follow the middle way, by adopting the indirect horizontal effect model. In this way, they manage to give effect to fundamental rights in private relations by taking those rights under consideration when interpreting private law provisions, and by applying general values of private law like good faith lying behind those rights.24 By following this path, the court hearing a private law dispute, has as yardstick the contract law values and norms but at the same time fulfils its obligation to take into account the fundamental rights of the
21
M.W. Hesselink. (2003). The horizontal effect of social rights in European contract law., at p. 3.; see also C.Mak. (2007). Harmonizing effects of fundamental rights in European contract law, at p. 61. 22
A.S.Hartkamp. (2008). Fundamental Rights, Fundametal Freedoms and Contract law. In: S.Grundmann Constitutional Values of European Contract Law, at pp 100-101.; see also supra note 21 at p.4.
23 O.O.Charednychenko. (2007). Fundamental rights and private law: A relationship of subordination
or complementarity?, at pp 3-4.
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parties, when interpreting the (national/European)contract law and applying the values underlying those rights.25 According to O.Cherednychenko, this will allow fundamental rights to enter into “a relationship of complementarity” with private law, where contract law will lead the way to the resolution of private law disputes, being inspired by fundamental rights at the same time.26
c. EUCFR: Effecting directly or indirectly?
In the spirit of the above mentioned analysis, in this short part we will examine the way that the rights included in the EUCFR effect private relations, based on the legal background and wording of the Charter.27 As we mentioned above, according to article 6 TEU, the Charter has the same legal value as the Treaties. 28 But this assumption contravenes the wording of article 51(1) of the Charter which states briefly that the provisions of the Charter are addressed to EU institutions and to MS during the implementation procedures of EU law. Since the article does not contain any reference to private parties, we can reasonably assume the will of the legislator to bind only the public authorities in EU and MS level.29
Another argument that could enhance the view that the Charter effects private relations indirectly lays on articles 51 and 52 of the same legal act. According to these provisions, the Charter recognizes two types of guarantees: the rights which must be “respected” and the principles which must be “observed”. More specifically the latter, become legally binding under the implementation procedure in EU and MS level and “judicially cognisable” only under the interpretation and reviewing procedure of these legislative acts; consequently, the principles are indirect applicable to private relations.30 However, it is difficult to distinguish the circumstances when a provision is a right or a principle, as the Charter does not provide any further information on
25
Supra note 7 at pp. 58-59 26 Supra note 21 at pp. 23-24 27
D.Leczykiewich has introduced two different approaches concerning its binding nature between private parties: the regulatory effect doctrine and the economic imbalance doctrine, see D.Leczykiewich. (2013). Horizontal Application of the Charter of Fundamental Rights, at pp 493-494. 28
See for example the interpretation of articles 45 and 157 TFEU by the CJEU in cases ASBL v Bosman (C-415/93) and Defrenne v Sabena (C-43/75)
29
Supra note 18 at pp 37-38
30 See the Explanations on the Charter, OJ 2007 C303, p.19:“[the principles] become significant for the Courts only when such acts [i.e. legislative or executive acts implementing the principles] are interpreted or reviewed. They do not however give rise to direct claims for positive action by the Union’s institutions or Member State’s authorities.”; Supra note 21 at p.37; see also D.Leczykiewich Supra note 27 at p.488
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that issue.31 For the above mentioned reason, the CJEU will burden the task to determine in its case law the nature of the provisions of the Charter and whether they fall under the category of rights or principles.
2. Unfair Contract Terms Directive and Fundamental Rights
The UCTD was primarily adopted with the purpose to provide to the consumers a concrete system to control the content of the contractual terms in conjunction with the promotion of the principle of transparency.32 Briefly, this Directive gives the consumer the possibility to challenge the terms of a contract he concluded with a seller as unfair, except concerning terms which reflect mandatory provisions or regulations and provisions stemming from international agreements to which the Community or the MS are parties. A non-individually-negotiated term (: drafted in advance by the seller, depriving the consumer of the possibility to influence the content of that term) should be considered always unfair, if it engenders significant imbalance between the rights and obligations of the parties to the consumer’s disadvantage. In order to assist national in this assessment procedure, the UCTD provides a non-exhaustive list of 17 terms that “may be regarded unfair”.33 When performing the (un)fairness test to a term, all the conditions and circumstances which led to the conclusion of the contract should be taken under consideration, except the definition of the aim of the contract and the price agreed in combination with the services to be provided, if the latter terms are clearly worded. Finally, consumers are not bound by the unfair terms included in a contract signed with a professional and in the event of any doubts concerning the content of a contractual term, the interpretation which is most favorable for the consumer should prevail.34
The UCTD was drafted with the ultimate goal to promote the establishment of the Internal Market by achieving a high level of consumer protection in cases where unfair terms are included in a consumer contract.35 Moreover, it is recognized in the Directive that often the consumer is a weak vis-à-vis the seller or supplier position
31
Supra note 18 at p.37
32 M.Ebers.(2008). Unfair Contract Terms Directive (93/13), in: Hans Schulte-Nölke/Christian Twigg-Flesner/Martin Ebers (eds.), EC Consumer Law Compendium, The Consumer Acquis and its transposition in the Member States, at p.343
33
O.Gerstenberg. (2015). Constitutional Reasoning in Private Law: The role of the CJEU in Adjudicating
Unfair Terms in Consumer Contracts, at p.2 ; see also the ANNEX attached to the UCTD.
34 Act summary at EUR-Lex.(2011). Unfair Terms. Available: [online]. 35
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concerning his bargaining power and level of knowledge.36 For that reason, the European legislator introduces the notion of “good faith” as the countervailing factor for the abovementioned unevenness between the contractual parties. In recital 16 of the preamble, it is explained that the good faith principle works as the base for the evaluation of the parties’ conflicting interests. The “good faith” principle can be the basis for a contractual claim and simultaneously, the vehicle for promoting fundamental rights under claim’s interpretation by the courts. More specifically, the seller is required to conduct business fairly and equitably, respecting the legitimate interests of the consumer at the same time. Furthermore, the seller must not take advantage of the consumer’s force of circumstance, lack of knowledge and experience or weak bargaining position.
Since we are examining the wording of the directive, it is true that the UCTD, in contrast to more recent consumer law Directives, does not refer to the EUCFR.37 But we have to take under consideration the article 38 of the Charter which is of crucial importance in consumer law as it underlines that “Union policies shall ensure a high level of consumer protection”. Thus, all the provisions of the Directive and the national laws of the MS concerning unfair contract terms must be interpreted and applied in a way that is compatible with article 38 of EUCFR, fact that also the Court underlined in the Pohotovost judgment.38
Since the concept of “unfair terms” in the Directive is a very broad notion, we could argue, that depending on the thematic of the consumer contract containing the terms at stake, various provisions of the Charter could be applicable each time in order to enhance consumer protection. If we choose for example specifically the subject that we are interested in: “unfair terms in mortgage loan contracts”, it is likely that articles 7 (Right to accommodation), 17 (Right to property) read in combination with article 34 (Right to social and housing assistance) and last but not least article 47 of the Charter (the right to an effective remedy and fair trial ) could be used to effect the interpretation of the provisions of the Directive concerning unfair terms in contracts mortgaged with the property of the consumer when conducting the
36
See also the Commission’s Proposal for the Council Directive on Unfair Terms in consumer contracts, COM(90) 322final –SYN 285 (1990) at pp 9-12.
37 I.Benöhr (2014). EU Consumer Law and Human Rights. at p. 66. :“For example, the recent Directive 2011/83/EU on consumer rightsexpressly states in its recital 66 that it ‘respects the fundamental rights and observes the principles recognized in particular by the Charter of Fundamental Rights of the European Union’.”
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effectiveness test of a procedural law.39 Last but not least, also the contractual relationships between the private parties may be affected in a direct way, as all the terms included in a contract can be assessed through the fundamental rights review of European legislation and national legislation acts for the implementation of the Directive; that review of the contract may lead to the invalidity and further to the disapplication of the eventually unfair terms and as a result to enhancing the position of the consumer as the weaker party in the transaction.40
3. The importance of mortgage contracts for the consumers
In this part of the second chapter, we will concentrate on the importance of the mortgage contract for the consumer involved in this financial transaction. It is undeniably true, that from all the possible investing decisions a consumer will take throughout his life, the decision of concluding a loan contract by setting as a guarantee part of his personal property, is one of the most significant. This assumption can be based on many reasons. First, a mortgage loan is the most extensive loan with regard to the amount that a consumer will ever take.41 Second, the duration of the mortgage loan is another noticeable fact; in most of the secured loans take for the consumer approximately thirty years to repay the total amount plus interest and fees.42 Beyond the amount borrowed and the long duration for repayment, a mortgage loan is a complicated financial structure, which includes additional rates, costs and fees. So, the consumer must be well informed and duly aware of the economic consequences of his decision to conclude a contract.
The major characteristic of this kind of loans is that in order the bank to grant the amount agreed, the consumer must set his personal property as collateral to secure the transaction. This contractual obligation of the borrower is in fact a legal mechanism pursuant to which the lender is allowed to take over and sell the property mortgaged in order to get repaid, in cases where the debtor defaults on his agreed payments. The situation becomes even more difficult for the consumer who has set as guarantee for the loan his family home; in such circumstances, if he fails on his
39
H. Collins, (2005). European Social Policy and Contract Law, at pp 115-117. 40
Supra note 37 at pp 66-67
41See for a simple indicative example :Expatica.(2013).Your guide to Dutch mortgages. Available: [Online] :“As a rough guideline, you can borrow up to five times your gross salary. There is no mandatory minimum deposit, and a mortgage can cover up to 105 percent of the purchase price of the property …”
42
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obligation to repay the amount borrowed, the bank will bring foreclosure proceedings and as a result he and his family will be evicted from the house and the property will be sold throughout auction procedures.43 We cannot overlook that fast that the economic crisis in Europe has lead to cassation of payments in many financial sectors and as a result, also loan financial transactions have been severely affected. Nowadays, more and more consumers/debtors in many European Countries live under the threat of losing their homes as they result unable to fulfill their obligations to repay the mortgage loans that they have concluded with banks.
CHAPTER III - The CJEU case-law on consumer mortgage loan contracts For almost 10 years “the constitutionalization of private law debate” has been one of the favorite subjects of private law research. But it would be interesting also to examine how and to what extent the CJEU is taking fundamental rights under consideration in practice through its case law reasoning concerning the interpretation of the UCTD. At the peak of this chapter, we will concentrate on CJEU three cases in which the Court implicitly or explicitly made use of fundamental rights in order to argue in favor of consumer protection: Aziz case, Morcillo/Garcia case and Kušionová case. Also, we will briefly refer to former and later cases of the CJEU on consumer mortgage loans in order to see the Court’s different approach before and after these landmark cases; in that way we will have a more comprehensive view of over the Courts arguments concerning the assessment of unfair terms and the possible influence of fundamental rights in circumstances where consumers are threatened with mortgage enforcement proceedings.
It is worth mentioning that before the Aziz case, the references addressed to the CJEU for preliminary rulings on consumer mortgage loan contracts, were not under the frame of UCTD. In the Heininger case and in Crailsheimer Volksbank case for example, the CJEU was asked to interpret the mortgage loans under the Doorstep Selling Directive; in the first case the Court ruled that the right to cancellation should be applied also in consumer mortgage loan contracts and in the second, that the directive allows for a national law which requires the consumer to return the amount borrowed (plus interest) to the lender after exercising the right to cancellation.44 In the Hypoteční banka case, the Court interpreted the Regulation 44/2001 on jurisdiction
43J.M. Guttentag.(2010). Are Mortgage Assumptions a Good Deal?. Available: [online] 44
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and enforcement of judgments in circumstances in cases the consumer who concluded the mortgage loan contract has unknown domicile.45 Last but not least in SC Volksbank România case it gave the national law the discretion to apply the provisions of the Consumer Credit Directive also in mortgage loan contracts, even if the latter are explicitly excluded from its scope.46
1. The turning point: Deciding on Aziz 47
On the 14th March 2013 the Aziz judgment was published. It was the first time that a national court challenged with its question the unfairness of terms in consumer mortgage loan contracts and their possible impact on national enforcement procedure. This is not the only reason that makes this case “landmark”: as we will further analyze, in its ruling the Court reflects the social aspect of mortgages and the need to protect the over-indebted consumer effectively.
In order to understand this innovative human approach of the Court in a type of transaction purely financial and contractual in nature, we have to refer to the national social background of the case: for the time 2007-2012 more than 600,000 evictions and foreclosures had occurred in Spain; consequently, in November 2012, massive public anger at the huge number of bank repossession orders issued against householders, resulted in the banks consenting to refrain from the exercise of enforcement proceedings for two years.48 Then the Court issued its decision and gave the Spanish campaigners against evictions a reason to hope. 49 More specifically:
On July 2007, Mr. Aziz, concluded a mortgage loan contract with Caixa D' Estalvis de Catalunya (“Catalunyacaixa” or “the bank”). The property subject to that mortgage was the family house of Mr. Aziz, who was married and his family was composed of two other members. The borrowed capital amount was 138.000 € with annual default interest automatically chargeable on unpaid amounts without any notice. In addition, according to the clause 6 of the contract, Catalunyacaixa had the power to declare the entire loan payable at the time where the debtor fails to fulfill his obligation to pay part of the capital or the interest of the loan. Also, pursuant to the clause 15, Catalunyacaixa not only had the right of resorting to foreclosure to collect
45 ECJ 17-11-2011, C-327/10 46
ECJ 12-7-2012, C-602/10
47 ECJ 14 March 2013, C-415/11, Mohamed Aziz v Caixa d´Estalvis de Catalunya, Tarragona i Manresa 48 M.G.Lamarca.(2013). Resisting evictions Spanish style. Available: [Online]
49
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the debt but for the purposes of the proceedings, of unilaterally determining the amount owed.
Mr Aziz defaulted on payments, so the bank calculated the debt with a notary deed and brought proceedings for the repossession of the property. One week before the eviction, Mr. Aziz responded by seeking a declaration for the annulment of the clause 15, on the grounds that it was unfair and correspondingly challenged the validity of the enforcement procedure. There was no provision in Spanish law for such a legal act, nor was there any possibility for interim relief measures; under Spanish law, the seizure of the mortgaged property by the lender was generally irreversible, even if the debtor succeeds to prove the unfair nature of a term included in the loan contract by a declaratory court decision.50 Besides that, parallel to the enforcement procedure, the debtor was only able to bring declaratory proceedings for the assessment of the unfairness of the contractual term(s) and the only protection that he could get was purely compensative in nature.51 The Spanish Court seized the objection of Mr. Aziz stayed the proceedings and referred to the CJEU, as it had doubts concerning the conformity of the Spanish law with the UCTD.
In an overall, both the Advocate General Kokott (“AG”) and the CJEU, held that the Spanish law contravened EU law as it weakened the protection sought by the UCTD, by making it impossible for the debtor to lodge an objection to the mortgage enforcement proceedings arguing that a term of the mortgage loan contract is unfair. In the legal analysis that follows, we will concentrate on the arguments of the AG and the Court with the view to highlight their tension to interpret the national law under the light of social values in order to protect the consumers who lost their homes in the Euro Crisis era.52
a. The ex officio doctrine and the interim relief measures:
It is settled case law of the CJEU that the national courts have the power to assess of their own motion the unfairness of the terms in consumer contracts.53 But in
50
Supra note 47 at par.57: the only exception to that procedural provision which made the final vesting of the property reversible, was in cases where the debtor has made a preliminary registration of the application for annulment of the mortgage prior to the actual registration of the mortgage. 51 Ibid par. 60
52
H.Micklitz. (2013). Mohamed Aziz – sympathetic and activist, but did the Court get it
wrong?. Available:[online]
53 Supra note 47 at par.46; More analytically, for the ex officio obligation of the national judge to assess of his own motion the unfairness of a contractual term, see the CJEU reasoning in cases
17
that case, the referring court did not ask anything on that; neither the Court commented anything on the role and impact of that doctrine on the Aziz case. The AG though, took this argument a step further: taking the principle of effectives as the conceptual base, underlined the need to grant interim injunction measures in order to protect the rights of the debtors against the catastrophic results of the distinct separation of the declaratory and enforcement proceedings in Spanish procedural law.54 According to the AG, the fact that the consumer could not challenge the fairness of the contractual terms during the enforcement proceedings deprives him the appropriate protection provided under the UCTD. The Court agreed with that argument by underlining that even though it is a matter of the MS legal order to regulate the enforcement proceedings according to the principle of procedural autonomy, in that case the Spanish law did not pass the effectiveness test, since the distinct separation between the declaratory and enforcement proceedings “make[s] it
in practice impossible to exercise the rights conferred on consumers by the European Union law”.55
The AG and the Court by combining the rights conferred to consumers by the UCTD and the urgent need for consumer protection under national law, basically introduced a new procedural remedy according to which procedural laws and substantial laws remain interconnected.56
b. The compensatory remedy is not enough:
Because of the above mentioned distinction between declaratory and enforcement procedures under Spanish law, another major issue occurred in cases where the foreclosure proceedings took place prior to the issuing of the court’s declaratory decision which eventually declared the term(s) of the loan contract unfair and as a result the contract should be declared void. Pursuant to Spanish law, under these circumstances, the consumer was only able to obtain compensation for the loss of his property. To begin with the AG, the crucial argument is identified in the paragraph 52 of her opinion, where she argues that in circumstances where the mortgaged property to the loan is the family house of the debtor, a mere claim for damages is not enough to guarantee the effective protection offered by the UCTD, as
Pannon(C-243/08), Asturtcom (C-40/08), Penzugyi (C-137/08), Photovost(C-76/09), Invitel(C-472/10), BancoEspanol(C-618/10) and Banif(C-472/11).
54 Opinion of the AG Kokott in case Mohamed Aziz C-415/11 at par.46ff 55 Supra note 47 at par 50-59
56
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when it comes to unfair terms in a mortgage contract, the consumer is “defenseless” in accepting the foreclosure of his home and being evicted from his dwelling. The First Chamber confirms this point and it takes it a step further: in the paragraphs 61 and 62 of the judgment, it underlines that the purpose for which the credit has been granted is the family house establishment.57 Furthermore the Court stresses that comparing to the loss of his home which is irreversible, the compensation offered to the consumer whose rights have been infringed, is an “incomplete” and “insufficient” measure, which undermines the protection offered by the UCTD.58
c. The concept of disproportion
With its second question on “how is the concept of disproportion to be
understood with regard to [the acceleration clause, the default interest clause and the
unilateral quantification clause]”, the referring court asked in essence, for clarification of the “constituent elements of the concept of ‘unfair term’”.59 The Court answered by using the terms “significant imbalance” and “good faith” and underlined that the
(un)fairness test must be conducted according to the needs of each specific case.60
First, in order to determine if there is significant imbalance between the parties, the national court must conduct “a comparative analysis” between the national laws that would apply in the dispute in the absence of the contract and evaluate whether the contract at stake treats the consumer less favorable than the national laws.61 Second, as far as the “good faith” notion is concerned, the national court has to ascertain whether the seller having treated the consumer in a fair and impartial way, could reasonably assume, that the consumer would have given his consent in concluding such a term during individual negotiations.62
Then the Court applied the above mentioned criteria to the tree contract terms challenged and ruled that the national court must assess whether: a)the seller’s right to claim the whole amount at once (acceleration clause) was of essential importance in
the context of the contractual relationship, the non-compliance of the debtor was sufficiently serious and the debtor was adequately and effectively protected from the
57
H.Micklitz, Unfair Contract Terms – Public Interest Litigation before European Courts Case C-415/11
Mohamed Aziz, In: Landmark Cases of EU Consumer Law – in Honour of Jules Stuyck, Intersentia, 2013
at p. 650
58 Supra note 47 at par. 60 59
Ibid at par 31 and 66 respectively 60 Ibid at par.71
61 Ibid at par.66-68 62
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consequences of the loan being totally called in; b)the default interest rate must be appropriate, necessary and hedged with the statutory rate, in order to be considered fair and c)the clause of unilateral quantification of the debt by the bank must be evaluated under the paragraph 1(q) of the annex to the UCTD and the “comparative analysis” against the national law otherwise applicable in order to be ensured that the consumer had the opportunity to legally challenge the clause and defend himself against its application.63
Critique: It is obvious from the wording of the judgment and the opinion, that neither the AG nor the Court explicitly referred to the fundamental rights, when building their arguments. But it is clear from their way of thinking, that Aziz case had a strong constitutional dimension.64 Most of the times the enforcement of security rights in residential property, often results in the consumer losing his family home. This “right to housing” is stressed in article 34(3) of the Charter, but in a feeble wording.65 In our opinion, this provision affected the reasoning of both the AG and the Court, mostly when assessing as “insufficient and incomplete” the compensatory in nature provisions offered to the consumer by the national law when it comes to enforcement proceedings, with the view to provide more adequate and efficient measures to block the application of unfair terms in consumer mortgage loan contracts.66
Secondly, it is evident from the whole wording of the opinion and the judgment that the UCTD aims at a high level of consumer protection which is not reached when it comes to national procedural law like the Spanish in the main proceedings, which impedes this achievement.67 Consumer protection is explicitly worded in the Charter in art. 38, which can shed some light in the interpretation of the
63 Ibid at par. 73-75
64
For that reason, H.Micklitz, aptly describes that case as an example of “hidden constitutionalisation” of private law. See supra note 57, at p.649.
65
Article 34(3) of EUCFR: “In order to combat social exclusion and poverty, the Union recognizes and respects the right to social and housing assistance so as to ensure a decent existence for all those who lack sufficient resources, in accordance with the rules laid down by Union law and national laws and practices.”
66 S.Sánchez. (2014). Unfair terms in mortgage loans and protection of housing in times of economic
crisis: Aziz v. Catalunyacaixa, at p. 971.
67
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notion “mandatory statutory or regulatory provisions” in article 1par2 of the UCTD towards that orient.68
As we can conclude from the above, the AG and the Court choose to not openly address to the Fundamental rights in that case. As H.Micklitz argued, this surreptitious constitutionalization of this private law conflict can be explained by the tension of the Court to be cautious of not turning every private law dispute into a constitutional one by underlying in every private claim its constitutional dimension.69 But inevitably, this CJEU judgment opened the Pandora’s Box and showed the interrelation between fundamental rights and mortgage enforcement proceedings: shortly after the Aziz judgment, the same AG Wahl in his opinion in case Macinsky referred straightaway to the fundamental rights implications of the national procedural legislation and to the ECHR case law on that subject. Interestingly he cited many times the Aziz case and finally concluded:
“That said, I should stress, however, that where the property concerned by the procedure at issue is the consumer’s home, there must be specific guarantees. Failure to provide such guarantees may prove problematic from a fundamental rights perspective. Indeed, the loss of a family home is one of the most extreme forms of interference with the rights of the consumer. As respect for the home is a right guaranteed under Article 7 of the Charter of Fundamental Rights of the European Union, in the light of which Directive 93/13 must be interpreted, any person at risk of an interference of this magnitude should be able to have the proportionality of such a measure reviewed by an independent judicial body.”70
2. Morcillo/Garcia case: In the footsteps of Aziz
Despite the fact that the above mentioned case showed the way for sweeping changes in Spanish enforcement law, almost one year after Aziz, the Court again had to decide on the conformity of the Spanish enforcement law to consumer protection; the judgment on Morcillo/Garsia case was issued on the 10th September 2014.71 According to the facts of the dispute, Mr Morcillo and Mrs Garcia (“debtors”)
68
A.Las Casas, M.Rosaria Maugeri and S.Pagliantini. (2014). Cases: ECJ – Recent trends of the ECJ on
consumer protection: Aziz and Constructora Principado, at p. 464.; see also S.Sánchez supra note 66 at
p.973 69
Supra note 57, at. p.650 70
Opinion of the AG Wahl in Case C-482/12. 21 November 2013, par.82. No CJEU judgment was published, as the referring court finally withdrawn the preliminary question.
71
ECJ 17 July 2014, C-169/14, Juan Carlos Sánchez Morcillo,María del Carmen Abril García v Banco Bilbao Vizcaya Argentaria, SA
21
concluded a loan contract of 300.500€ with default interest 19%/year, with Banco Bilbao (“Banco”) secured by a mortgage on their property. Concomitantly, that agreement conferred Banco the right to accelerate the loan, if the debtors fail to fulfill their repayment obligations. As at some point, when the debtors defaulted on their payments, Banco brought foreclosure proceedings demanding the whole amount borrowed plus ordinary and default interest. Following the mortgage enforcement proceedings, the debtors lodged an objection which was finally rejected by a decision; then they lodged an appeal against that decision, but it was declared inadmissible and sent to the Provincial Court.
According to the Spanish law, whilst the creditor is allowed to appeal against a decision that stays the proceedings for the time the debtor’s objection is pending, the debtor on the contrary, is not allowed to challenge the decision that dismissed his objection.72 Under that light of the aforementioned procedural provisions, the Spanish court, doubtful as to whether the national legislation is consistent to the consumer protection offered by the UCTD, referred to the CJEU by citing the article 47 of the Charter at the same time. In an overall, the Court decided that such national legislation like in the main proceedings that deprives the consumer the right to appeal, must be precluded as being unfair and not respecting the principle of equality of arms safeguarded by article 47 of the Charter; such national procedural law treats the parties to the proceedings in a different and unequal way.73 The Court also stressed that the aforementioned national procedure in conjunction with the fact that the national judge may assess the unfairness of a term but constrained by specific time frames and eventually able only to award monetary compensation74 to the consumer, does not offer the adequate and effective protection enshrined in article 7 of the UCTD. Legal analysis:
a. The establishment of the legal framework after the Aziz Judgment:
The question referred stemmed from the legislative amendment to the Spanish law following the Aziz Judgment.75 According to the reform of article 695(1) of the Spanish procedural law, the court seized can now stay the mortgage enforcement proceedings, if the debtor’s objection challenging the fairness of term(s) is pending.
72 Ibid at par.9 73 Ibid at par.45-47 74 Ibid at par. 43 75 Ibid at par.30
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According to sub-paragraph (4) of the same article though, the law allows an appeal to be lodged against a decision that disapplies an unfair term or stays the enforcement proceedings for the time the debtor’ objection is pending, but forbids the exercise of an appeal against the decision upon the debtor’s objection.76
Moreover, pursuant to article 695(2) if the objection is founded –among the other reasons – on the unfairness of a contractual term, the national judge has the discretion to summon the parties, hear their arguments, take into consideration their documents and within five days, issue a decision on that matter.
Last but not least the Court repeated itself like in Aziz case (par. 55-59), and mentioned that according to Spanish law, once the enforcement proceedings have started, any other objection based on various legal reasons considering the enforcement will be seized by separate court in a different procedure, without having any effect on the pending enforcement proceedings.77 As a result, the debtor faces the high risk to lose his house during the accelerated auction procedure and even if he eventually succeeds in proving a term unfair he can only be awarded an “insufficient
and incomplete” monetary compensation.78
b. The right to appeal under the effectiveness test:
As the Court stresses, according to the principle of procedural autonomy, it is for the MS to designate the rules governing the right of appeal against a decision with the procedural nature mentioned above, as soon as they do not differentiate between similar national and foreign situations (principle of equivalence) and do not make it impossible or difficult for the consumer to exercise his rights under the UCTD (principle of effectiveness).79 Furthermore, it underlines that the duty of the MS to ensure the effective protection of the consumer under the Directive implies the demand for judicial protection as enshrined in article 47 of the Charter not only as regards the role of the judiciary to hear the dispute and interpret the law, but also the content of the laws at the service of these procedures.80
Interestingly enough, the Court mentions that in fact the principle of effective judicial protection does not require two levels of jurisdiction, but only a single level is
76 Ibid at par.9 77 Ibid at par.42 78 Ibid at par.43 79 Ibid at par. 31-33 80 Ibid at par.35
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enough for the protection of the claimant.81 However, the Court by facing up to the big picture of the case focuses on the importance of the family house and emphasizes that Spanish procedural law protection is not effective enough to shield the consumer and his family from losing an asset that meets an essential need.82 The Court seems to understand that the dwelling is not like any other kind of property: it is the property where the debtor and his family live and in case of eviction they face the risk of remaining homeless. This time the Court underlines explicitly the basic need that the mortgaged property serves for the debtor and uses it to give a radical interpretation of the private principles in order to safeguard it. Under any other circumstances the fact that the national law did not offer the individual a second jurisdictional level, would be in compliance with EU law; but since it is the house of the consumer which is at stake and the bank pro rata is given a second jurisdictional level, article 47 must be given a broader interpretation and the consumer must enjoy the same right.
The constitutional touch: In that case the referring court stressed from the very beginning the possible violation of a fundamental right and the Court was at least obliged to answer on that. However, the Court took a step further and triggered by the question concerning the (in)equality of procedural defense mechanisms between the contracting parties, gave a broader interpretation concerning the principle of equality of arms as enshrined in article 47 of EUCFR.83 To support that opinion, it stressed the crucial significance of the consumer family home obviously inspired by “the right to housing” as enshrined in article 34(3) of the EUCFR when running the effectiveness test over the Spanish procedural law on mortgages.
3. The Kušionová case: The consumer’s fundamental right to accommodation84
Almost three months after the Morcillo/Garcia case the Third Chamber issued one more important judgment in the spirit of the above mentioned cases. On the 26 February 2009 Mrs Kušionová concluded a loan agreement for the amount of 10.000 € with Smart Capital secured with the family home. The contract agreement conferred to the bank the right to start foreclosure proceedings without a court having opportunity
81 Ibid at par 36 82
Ibid at par38-43
83 C. Mak. (2014). Aziz continued - CJEU judgment in Case C-169/14 Sánchez Morcillo and Abril García
v Banco Bilbao. Available:[online]
84
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to assess the clause. This contractual term derived from the article 151j of the Slovak Civil Code, but before the hearing of the CJEU the Slovak legislature amended this provision so to provide the court review of the clause.
Furthermore, under that national law the debtor can challenge the sale by auction within 30 days of the notice of enforcement of the charge to the immovable property. Additionally, even if the public auction eventually takes place, the debtor has a three-month timeframe in order to contest the conditions under which the sale was held. Adding to that, the national courts not only can adopt every interim measure available to stay the enforcement proceedings during an extrajudicial enforcement of charge, but also if they found the contractual term at stake to be unfair they can declare the sale by auction void.85 Contrary to the Spanish cases, the national law this time deemed to be in compliance with EU law. The CJEU held that, since the national law allowed for a court review of the unfairness of the contractual terms before the loss of the property mortgaged and offered a complete remedy to the consumer (not merely compensatory in nature), then the procedural provision which allows recovery of the debt is lawful.
Whilst the referring court mentioned only the article of the Charter concerning the high level of consumer protection when posing the question, the Court pointed out that not only article 38 but also article 47 – the right to an effective remedy and fair trial- of the Charter are interrelated for the interpretation of the UCTD.86 The Court underlined that in that legal frame like the one in the main proceedings, the consumer is in weaker position than the seller and for his more effective protection, it is necessary to make use of the rights conferred him in the Charter.
The Court stressed that in order a national penalty to be effectively and proportionally applicable to the infringements of the UCTD provisions, it is necessary to give particular attention that subject to the enforcement procedure is not any kind of property, but the consumer’s family home.87
What make that kind of property so important -according to the Court- are the consequences that the consumer and his family have to suffer in case of eviction, as an imminent loss of the family home
places the family of the consumer concerned in a particularly vulnerable
85 E.Tscherner. (2014). Unfair terms, mortgage enforcement and a consumer's fundamental right to
accomodation - CJEU in Kušionová (C-34/13). Available: [online]
86 Supra note 84 at par. 47 [Article 38 of the Charter and Article 47] are mandatory requirements applicable to the interpretation of Directive 93/13
87
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position.88Moreover, in order to strengthen this argument the court quotes case-law of the ECtHR, where it is underlined that the loss of the home is one of the most serious violations of the right to respect for home and the article of accommodation as enshrined in article 7 of the Charter, which the referring court must take into consideration when implementing the UCTD.89 This time the Court made it explicitly clear: when it comes to national measures applying in mortgage loan agreements, the courts must take under consideration that the possession at stake is the house of the consumer; a property of fundamental importance and social interest for him and his family that should be respected as enshrined in the human rights instruments.
4. Aziz continued?
In all above cases, the Court challenged the national foreclosure procedural rules for their effective and adequate protection they offer to over-indebted consumers threatened with auction proceeding by the banks. In fact, in the first case Mr Aziz was indeed evicted from his house, in the second the bank had lodged enforcement proceedings against the claimants and in the third the bank had made preparatory actions in order to sale the property mortgaged.90 So, the Court was asked to assess the effectiveness of the protection offered by the national enforcement provisions literally at the last minute: being presented with a fait accompli, it had to respond to the call for social justice in the Euro Crisis era that first Spain addressed.
Above all, it had to respond to the hopes of the over-indebted consumers who had already lost or were threatened to lose their principal family home and expected from the CJEU, the court of the last resort to save their houses literally at the last minute. It would be interesting to mention at this point that in the Morcillo/Garcia case the Court aware of that social-time pressure accelerated the preliminary procedure in order to diminish the probability for the debtor’s house to be sold before the Court’s ruling. Under that societal pressure, the Court needed to give private law norms a thoroughgoing interpretation and could achieve that only by invoking the debtor’s human rights and basically the crucial right to housing; by seeing the consumer not as an economic factor, but as a human being suffering from the crisis consequences.
88
Ibid at 63
89 ECHR McCann v United Kingdom, application No 19009/04, par. 50 and Rousk v Sweden application No 27183/07, par. 137; See also supra note 83 at par.64-66
90
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Given that approach of the Court when testing national enforcement procedures, it does not proceed towards the other preliminary rulings concerning the interpretation of core terms in mortgage loan contracts similarly. As we can see from the more recent case law the Court still underlines the high level of consumer protection that must be achieved under the UCTD, but does not refer to fundamental rights at all. To specify our argumentation, in the cases that we are briefly going to see hereinafter, neither the AG nor the Court made explicitly or implicitly any reference to fundamental rights of the debtor.
InKásler case the Court had to examine a Hungarian mortgage loan contract in which the outstanding amounts owed were calculated in Swiss francs: in an overall, it decided that the monetary difference between the buying and selling rate of the currency retained by the bank does constitute “remuneration” of the bank; that the transparency requirement means that the term not only needs to be drafted in a grammatically intelligible way that helps consumer understand the economic consequences of the contract; last but not least allows the national court to replace an unfair-invalidated term in the mortgage contract with a supplementing national provision.91
Under the same thematic as in Kásler, in Matei case the Court was asked about the terms that formulate the subject matter and the price of the contract and as a result should be exempted by the unfairness test.92 Briefly, the Court held that it is for the national court to assess the nature of terms like the Risk Charge and whether they are forming part of the subject matter or price of the contract, but in principle terms like these in the main proceedings should not fall within the exclusion laid down in article 4(2) of the UCTD.
Following Matei in the most recent CJEU case on the interpretation of unfair terms in mortgage contracts -the Van Hove case-, the Court was asked whether a term in an insurance contract indented to ensure that that the repayments of the mortgage loan will be payable to the lender in case of the borrower’s total incapacity for work, falls into the scope of the “core” terms of the contract, which are excluded from the (un)fairness test.93 The Court ruled that is for the national court to assess the nature of the term, but in any case an insurance term like that in the main proceedings should be
91 ECJ 30 April 2014, C-26/13 92 ECJ 26 February 2015, C-143/13 93
27
deemed a “core term” only in cases where that term formulates essential part of the contract and it is written in such way that allows the consumer to understand the complexity of the contractual arrangements between the insurance and the mortgage loans.94
An explanation for the Court’s attitude concerning the above mentioned cases could be that in all these cases, the Court was not under time-pressure and social pressure to deliver justice through its decisions, since the no enforcement proceedings have touched the home of the debtor yet. Also, in all the cases the consumer was the one who brought proceedings to challenge the fairness of the terms included in the mortgage contract, which proves that he is somewhat suspicious that some terms in the mortgage contract may be unfair; so he is not that vulnerable in order for the Court to explicitly invoke fundamental rights for his protection.
There are many discussions that can be stemmed out from the CJEU rulings on the interpretation of national foreclosure laws and unfair terms concluded in consumer contracts. Taking also into consideration the diversity of the national laws regulating mortgages, it is expected that more and more references are about to follow on that subject.95 The Court may give an outline to the national courts on how to interpret terms in mortgage loans but an appropriate European mechanism on mortgage foreclosure is needed to provide national legislators with the coherent guidance on that crucial contractual relationship for the consumer. In our opinion, a mechanism of this nature could help the consumers/debtors to understand more deeply the complexity of a mortgage loan contract and foresee the ramifications of a prospective default on payments, especially in the era of economic crisis when the cessation of payments becomes an everyday phenomenon in many European countries.
CHAPTER IV- The Mortgage Credit Directive
Aziz, Morcillo/Garcia, Kusionova etc, are not just individual cases; behind them there are thousands of other EU citizens-consumers who have already lost or are threatened to lose their homes. Nowadays, more than ever, this negative consequence
94
C.Leone. (2015). The core of insurance contracts and its transparency (ECJ in C-96/14). Available: [online]
95 See for example C-8/14 referred the 10-1-2014, C-90/14 referred the 24-2-2014, C-93/14 referred the 26-2-2014 and C-122/14 referred the 14-3-2014
