Top European Court Punts Consumer Contract Dispute

The European Court of Justice in Luxembourg. (Courthouse News photo/Molly Quell)

LUXEMBOURG (CN) — It’s up to national courts to decide whether consumer contract clauses are legal when they fall outside of European Union laws, the EU’s highest court found Thursday. 

The European Court of Justice held that specific provisions in a Romanian mortgage agreement were not subject to EU legislation governing consumer contracts and left it to a Romanian court to decide if the contract was fair. 

The Luxembourg-based court found provisions in the 2006 mortgage taken out by two people identified by the court only as N.G. and O.H. did not fall under the criteria set out in the EU’s Unfair Terms in Consumer Contracts Directive. 

The 1993 legislation protects consumers from predatory contracts. However, it doesn’t apply to provisions in contracts that are legislated by national governments.

“The court has repeatedly held that that exclusion from the application of the rules of the [Unfair Terms in Consumer Contracts Directive] is justified by the fact that, in principle, it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts,” the five-judge panel found. 

N.G. and O.H. obtained a mortgage worth 90,000 Romanian leu ($20,8000) from Volksbank România, which was later taken over by Banca Transilvania. When they refinanced that mortgage two years later, the loan was denominated in Swiss francs.

As the pair were repaying the loan in Romanian leu, they were beholden to currency fluctuations. Between 2008 and 2017, the leu fell in value dramatically against the Swiss franc, leaving N.G. and O.H. with a much larger debt. After extensive correspondence with the bank, they eventually brought a complaint before Romania’s Special Tribunal Cluj, arguing that the bank did not properly inform them of the risks of the loan.

The tribunal disagreed, finding the terms of the contract are “drafted in plain, intelligible language so that any consumer could have foreseen that they might be exposed to the risk of fluctuations in the exchange rate.” N.G. and O.H appealed and the tribunal found that Romania case law was unclear, so they referred the case to the EU’s highest court.

“Since the term contained in the general terms and conditions, which is alleged to be unfair by the applicants in the main proceedings, reflects a provision of national law which is supplementary in nature, it comes within the exclusion,” the Court of Justice wrote. 

A court magistrate held in an advisory opinion earlier this year that “a national court is not prevented from removing an unfair term and substituting it with a supplementary rule that replaces the formal balance between the rights and obligations of the parties with an effective balance which reestablishes equality between them.” 

But the judges on the court disagreed, writing: “It is for the national court to determine whether the contractual term in question reflects mandatory provisions of national law.”

Though not required, rulings from the Court of Justice often follow the same legal reasoning as advisory opinions.

The case will now return to the Romanian court for a final decision. 

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