Portugal, Appeal Court of Guimarães, 25 February 2016 240/11.7TBVRM.G1

Identification of the case

• Right to an effective remedy and to a fair trial (art. 47 CFREU)

• Decree-law 446/85, 15 of October – Regime jurídico das cláusulas contratuais gerais (transposes the Unfair Contract Terms Directive, but was pre-existing as it was passed in 1985)

• Directive 93/13/EEC, Unfair Contract Terms Directive

Summary of the case

Two Consumers, A and B, executed a mortgage loan with a Bank (“Bank”) in 1998.

Said loan had had a life insurance contract associated, executed between the Consumers and an Insurance Company (“Company”).

The Bank was the beneficiary of the insurance contract (“Contract”).

The Contract was executed in order to ensure that, in case of death or total incapacity resulting from an accident or illness of the insured parties (the two Consumers), payment of the existing debt would be made by the Company to the Bank.

A was diagnosed in 2006 with an illness that prevented him to continue his professional activity (as a construction worker). Furthermore he was diagnosed, by the competent public authority, with a 64% level of global incapacity and as a result was allocated an invalidity (public) pension.

As a result of the above, the Consumers decided to call on the Contract, in order for the Company to pay the exiting debt to the Bank. The Company refused to do so.

The Bank, as a consequence of the breach of the loan agreement by the Consumers, sued the Consumers in order to obtain payment of the exiting debt.

As a result of this action, the income of B was partially seized for payment of the Banks’ credit.

The Consumers started a legal procedure against the Company in order to obtain payment by the latter to the Bank of the existing debt.

The Insurance Company argued that it was not under the obligation to do so, as (i) the Contract had been terminated, as a result of the lack of payment of the insurance premium and (ii) A’s condition did not trigger, under the Contract, the insurance coverage.

The first instance court absolved the Company, on the basis that the requirements for the Company to be under the obligation to pay had not been met.

The Insurance Contract stated that insurance coverage depended on the insured party not being able to perform an income-generating professional activity and needing permanent assistance from a third party to perform everyday life actions (“Clause”). The Court concluded that proof that A was not able to perform everyday life actions without assistance from a third party had not been made, and that therefore the Company was not under the obligation to pay.

The Consumers appealed from the decision to the Tribunal da Relação de Guimarães, arguing the invalidity of the Clause, based on the non-fulfillment by the Company of the duty of information it was subject to by Decree-law 446/85.

In addition to the above, in what regards relevant facts, the Appeal Court concluded that:

• The insurance premiums were not being paid since 2010;
• A did not have the “cultural capacity” to perform a professional activity different from the one he had always been performing (construction work).

• Civil judicial enforcement

The appellants sought for the declaration of nullity and voidness of a contractual provision, based on a violation by the Company of its information duties, under Decree-law 446/85.

The court decided:

1. To annul the decision of the lower court (Tribunal de Primeira Instância);
2. To declare the provision under analysis an unfair contractual term, null and void, under Decree-law 446/85;
3. To order the Company to pay the Consumers’ existing debt to the Bank;
4. To order the Company to reimburse the Consumers of all of the amounts that were seized from B’s salary to pay the Bank, under the execution proceeding.

The court understood that its decision depended on the analysis of two questions:

1. The validity of the Clause;
2. The absence of communication and negotiation of such Clause.

(1) On the validity of the Clause

The Court starts by stating that the Contract is a pre-formulated standard contract, subject to the rules set forth in Decree-law 446/85, that implements Directive 93/13/EEC.

Under article 6 of the Directive, the court continues, Member States have to ensure that unfair contract terms are not binding on the consumer.

It follows from the CJEU case law, the court continues, that:

• in order to ensure application and effectiveness of such principle, the national court which has found of its own motion that a contractual term is unfair is not obliged, in order to be able to draw the consequences arising from that finding, to wait for the consumer, to submit a statement requesting that that term be declared invalid; and
• article 6, 1, of the Directive is a mandatory provision which aims to replace the formal balance which the contract establishes between the rights and the obligations of the parties with an effective balance which re-establishes equality between them.

As a result of the above, the CJEU has stated that the national court is under the obligation to examine of its own motion, the possible unfairness of a contractual term.

Furthermore, considering the CJEU’s case law on the notions of “good faith” and “significant imbalance”, contained in article 3, 1, of the Directive, namely under Aziz (and Kásler), the Court stated that:

• In order to ascertain whether a term causes a ‘significant imbalance’, the court must consider what rules of national law would apply in the absence of an agreement by the parties in the relevant situation.
• In order to ascertain whether such imbalance is contrary to the good faith requirement, the national court must assess whether the company, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to such a term in individual contract negotiations.

In applying such criteria to the case the Court concluded:

• The concept of total incapacity, under national civil and labour law, does not depend on the “need of permanent assistance from a third party to perform everyday life actions”. In fact this requirement, the Court considered, is completely alien to the purpose of the Insurance Contract, which is to ensure that payment of the loan to the bank is made although the debtor is unable to work for health related reasons.
• The Company could not have reasonably expected that the Consumers would have agreed to such a term in individual contract negotiations.

As a result of the above, the Consumers could not have reasonably expected the contractual provision under analysis (the Clause) to be inserted in the Contract.

The Clause creates a significant imbalance that is contrary to the good faith principle.

Accordingly, the clause is an unfair contractual term. The court refers other national decisions of superior national Portuguese courts that have considered clauses similar to the one under analysis unfair and therefor null and void.

(2) On the absence of communication and negotiation of such Clause.

In light of the above, the Court considered unnecessary to determine whether or not the duties of information were complied with by the Company.

Role of the Charter and role of the general principles on enforcement

Article 47 of the Charter was referred to, briefly, to justify the need for the court to hear the parties when it found, of its own motion, that a contractual term is unfair.

• Explicit reference to Art. 47, CFREU (right to an effective remedy and a fair trial)

Article 47 of the Charter was referred to, to justify the need for the court to hear the parties when the court found, of its own motion, that a contractual term is unfair.

• Effectiveness

In order to ensure the effectiveness of consumer protection (art. 6, 1 of the Directive), national courts are not dependent on the parties submitting a statement requesting the declaration of invalidity of a contractual term.

Courts are under the obligation to determine, on their own motion, that a contractual term is unfair and draw the consequences arising from that finding.

Elements of judicial dialogue

• Direct dialogue between CJEU/ECtHR and National court (out of preliminary reference procedure)
• Dialogue between high court - lower instance court at national level

• CJEU C-26/13, Kásler
• CJEU C-415/11, Aziz
• CJEU C-472/11, Banif
• CJEU C-397/01, Pfeiffer
• CJEU C-268/00, Impact
• CJEU C-240/99, Skandia

CJEU and National court (out of preliminary reference procedure)

The Court makes reference to CJEU’s case law on:

1. the interpretation of art. 6, 1 of Directive 93/13;
2. the need for a uniform interpretation of EU law by MS and, as a consequence, the need for an interpretation of national legislation in harmony with the ratio of EU legislation, in particular in what regards the need to ensure an effective protection of consumers.
3. the interpretation of the concepts of good faith and significant imbalance contained in art. 3, 1 of Directive 93/13.

Dialogue between high court - lower instance court at national level.

The decision under analysis is the result of an appeal from a lower instance court. Accordingly, when deciding on the appeal, the court makes reference to the first decision.

In addition to that, the Court makes reference to other national decisions, either appeal courts or Supreme Court decisions’, to justify its decision to determine, of its own motion, that a contractual term is unfair.

The indirect judicial dialogue was used as an instrument to justify the courts’ interpretation of Portuguese Law (the law on unfair contractual terms) that was contrary to the one of the lower court.

Contrarily to the lower court, the appeal court considered that courts should, of their own motion, and in order to ensure consumers’ protetion analyze contractual standard terms that are brought to them in light of the law on unfair contractual terms, regardless of whether or not the parties have submitted a request for their invalidity.

Additional notes on the decision