The following are summaries of two recent Court of Justice of the European Union judgements. Both concern interpretation of the unfair contract terms provisions found in Council Directive 93/13/EEC as concern terms of consumer credit agreements.
This case concerned unfair contract terms in a mortgage agreement, and the extent to which a novation agreement can be affected and can have an effect on the original agreement and in turn on the “fairness” of the terms of both agreements.
It was held:
- Article 6(1) of the Directive must be interpreted as not preventing an unfair term in a contract from being the subject of a novation agreement, but only where the novation amounts to the consumer waiving the effects that would have otherwise resulted from the term being found to be unfair. This said waiver must also be demonstrably given by the free and informed consent of the consumer, which a national court can verify.
- Article 3(2) of the Directive must be interpreted as meaning that a contract concluded for the purpose of amending a potentially unfair term in a previous contract (or for the purpose of dealing with the consequences of that term being unfair) may itself be regarded as not having been individually negotiated and could be found to also be unfair.
- Article 3(1) and 6(1) of the Directive must be interpreted as meaning, where a term in a contract is included to resolve an existing dispute, whereby the consumer waives the right to submit the dispute to the national court, may be regarded as unfair where the consumer could have submitted the case in the absence of this term.Where such a term is added in relation to future disputes, whereby a consumer waives right to take legal action under the Directive, it is automatically unfair and simply not binding on the consumer.
This case concerned the alleged unfairness of a term of a refinancing agreement which was denominated in a foreign currency.
The refinance loan agreement used a different currency than was used for the original loan agreement, in order to circumvent lending requirements dictated by the bank’s internal regulations. However, the terms of the loan required it to be repaid in the same currency as specified in the agreement.
Fluctuation in the exchange rates resulted in the total borrowing amount increasing due to devaluation in the currency which the borrower derived nearly all income, but this was in line with the terms of the loan agreement. The borrower claimed this term was unfair as the bank did not make the consequences of such an arrangement clear.
The Court held:
The terms of the refinance agreement were not unfair. Article 1(2) of the Directive should 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.