Insights | August 17, 2020

CJEU: Directive on unfair terms in consumer contracts does not apply to terms reflecting supplementary provisions of national law

The Directive 93/12/EEC was found by the CJEU to be inapplicable to consumer contracts that reflect supplementary national provisions applicable to the contract by default when no other arrangements exist.

Case C‑81/19 of the Court of Justice of the European Union concerned the scope of Council Directive 93/13/EEC on unfair terms in consumer contracts. The main point of the case was whether a contractual term which has not been individually negotiated, but reflects national provisions which the parties may contract out of, is excluded from the scope of the Directive by virtue of Article 1(2). The CJEU examined the wording of the Directive and concluded that such contractual terms fall outside the scope of the Directive.

The case

In the case referred to the CJEU, Romanian consumers and a Romanian bank had concluded a refinancing agreement denominated in Swiss francs. The general terms and conditions of the refinancing agreement provided that all payments made pursuant to the agreement were to be made in the currency of the loan. According to the referring Romanian court, that term reflects provisions of Romanian law that apply unless the parties have agreed otherwise. Fluctuations in the exchange rate between francs and Romanian lei resulted in a significant increase in the sum borrowed (when expressed in Romanian lei). The consumers then claimed that the contractual term under which they were obligated to repay the loan in foreign currency is unfair as per the Directive.

The point of departure for the assessment of the case was the wording of Article 1(2) of the Directive, pursuant to which “contractual terms which reflect mandatory statutory or regulatory provisions” are outside the scope of the Directive. Thus, the main question before the CJEU was whether the relevant clause in the terms and conditions applicable to the refinancing agreement reflects such a provision of national law that it falls outside the scope of the Directive.

The reasoning and conclusion

The CJEU proceeded to consider the meaning of the term “mandatory provisions” in Article 1(2), and stated that the correct meaning of the term must be determined in light of the purpose and objective of the Directive. Pursuant to the 13th recital of the Directive, in addition to mandatory provisions on which the parties cannot agree otherwise, the term also encompasses provisions that apply to a contract by default, i.e. supplementary provisions that become mandatory in the absence of another arrangement between the parties. The exclusion of contractual terms reflecting national law from a fairness assessment under the Directive has been considered reasonable as it may be legitimately assumed that when enacting legal provisions, the legislator has balanced the rights of the parties. Consequently, the terms reflecting such provisions may hardly be considered unfair.

On the above basis, and with reference to a vast body of its previous case law, the CJEU concluded that Article 1(2) of the Directive must be interpreted as meaning that a contractual term which has not been individually negotiated but which reflects a rule that, under national law, applies between contracting parties (provided that no other arrangements have been established in that respect) falls outside the scope of the Directive. This ruling clarifies that, despite the wording “mandatory” in Article 1(2), the Directive does not even apply to contractual terms that reflect provisions from which the parties, in principle, may contract out of by a mutual agreement.