Apr 19

Court of Justice of the EU decision protecting borrowers

  Decision of the Court of Justice of the European Union (CJEU) issued March 14, 2014 in Case C 415/11 has been given in preliminary ruling proceedings asked for by the Spanish court from the CJEU under Article 267 of the Treaty on the Functioning of the European Union (TFEU) on the interpretation of Directive 93 / 13/EIO the Council of 5 April 1993 on unfair terms in consumer agreements (Council Directive 93/13/EEC of 5 April 1993). The preliminary ruling proceedings were initiated in consideration of а dispute before the Spanish court between Mr. Aziz and Caixa d”Estalvis de Catalunya, Tarragona i Manresa (hereinafter "Catalunyacaixa") concerning the validity of certain provisions of a mortgage credit agreement concluded between those two parties.

  In short, Mr. Aziz, a Moroccan citizen who had worked in Spain for many years, entered into a credit agreement with Catalunyacaixa, which was secured by mortgage over the family estate of Mr. Aziz. Like all such mortgage agreements signed between Bulgarian banks and individuals, the agreement between Mr. Aziz and the Spanish credit institution included provisions giving the bank the right to unilaterally change the amount of the interest, demand an early credit payment in its entirety in case of even the merest default by the client and to charge the client with default interest of more than 18% of the outstanding amount in cases of default. Soon after he began to repay the credit, Mr. Aziz defaulted in the installments repayment and the bank quickly obtained an enforceable title and the mortgaged estate was taken to public tender. The property was sold, and Mr. Aziz was expelled from it. And even though he had missed all deadlines for objections against the enforcement order, just before the public tender buyers were given possession over the property, Mr. Aziz filed a declaratory claim in which he asked the Court to declare a certain provision of his agreement void because it was unfair, which in turn would lead to the inadmissibility of the pending enforcement proceedings. Similarly to our law, however, according to which the court has no right to stop the course of enforcement proceedings initiated by an immediate enforcement order, unless the debtor provides convincing evidence that he/she has paid or given security for the debt, according to Spanish law, there were no legal grounds for the court to seize the enforcement proceedings against Mr. Aziz until solving the issue of unfairness of the terms of his credit agreement.

  In this connection the Spanish court had doubts about the coherence of the Spanish national law with EU law and especially with Directive 93/13/EEC of 5 April 1993. The court therefore seized the court proceedings and asked for a preliminary ruling by the CJEU on the following:

- Whether the limited legal opportunities for the debtor to object within enforcement proceedings over mortgaged or pledged property (which is the situation with Bulgarian legislation as well) lead to an unacceptable restriction of the debtor rights as a consumer and his/her capabilities for effective protection thereof?

- What is the criterion for unfairness of an agreement provision within a bank-consumer credit agreement?

  In its detailed reply the CJEU ruled that Directive 93/13/EEC of 5 April 1993 was to be interpreted in a way that it does not permit the legislation of a Member State as that at issue in the main proceedings (in this case Spanish legislation, which is however similar to Bulgarian legislation in the respect in question) to lack enforcement proceedings provisions giving the debtor the right to plead against the unfairness of a contractual provision on the grounds of which the execution title has been issued, or provisions allowing the court, approached with a claim for abolishing the unfair agreement provisions, to order interim measures (in particular the suspension of that enforcement proceedings) when granting such relief is necessary for ensuring the full effectiveness of its final decision.

  This interpretation of the court in any case leads to the necessity for amending civil proceedings legislation not only of Spain and a number of other Member States, but also of Bulgaria, which has largely adopted its new enforcement proceedings legislation from the legislation of these Member States. With a great percentage of certainty it could be affirmed that even only on the grounds of that decision of the CJEU, when being approached with the issue of the unfairness of an agreement provision from a bank-consumer mortgage credit agreement within separate claims proceedings, Bulgarian court shall have the power to order the suspension of pending enforcement proceedings until the final court decision on the claimed unfairness.

  In the operative part of its decision the CJEU rules upon another important issue as well – therein it establishes the criterion for the definition of substantial unfairness, which lawyers could well use from now on when defending the rights of their clients against banks.

  Undoubtedly with its judgment from March 14, 2014 as an EU body the CJEU made an important step in the direction of humanity and the protection of consumers against the economic dictatorship of the banking sector. Yet the question remains open whether this protection is not delayed as it comes only now that so many people have already been taken out on the street by banks, which have already categorically established their financial strength in recent years. As even the best form of defense is useless when it is not timely.