Romania, Cluj Specialized Court, 17 June 2013 Case no. 4893/211/2011

Identification of the case

• - Law No 193/2000 on unfair terms in contracts concluded between traders and consumers, art. 4

• Directive 93/13/EEC on unfair terms in consumer contracts

Summary of the case

The claimants (B. M. and I. O. M.), acting as borrowers, concluded two credit agreements with Volksbank SA, acting as lender. The first agreement, concluded on the 4th of March 2008, was to cover ongoing personal expenditure of EUR 8 000. That loan, to be repaid over a five-year period, was granted at a fixed annual rate of interest of 9% and an APR of 20.49%.

   The second agreement, concluded on the 7th of March 2008, concerns a loan of CHF 103 709 intended to finance the purchase of immoveable property which is secured by a mortgage on it. Since that loan is to be repaid over 25 years, its current annual rate of interest is 3.99% and its APR is 19.55%.

   Pursuant to Clause 3(d) of the Special Terms of those two agreements, relating to the variable nature of the rate of interest, ‘the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets, the new rate of interest being notified to the borrower; the rate of interest thereby altered shall apply from the date of notification’.

   Clause 3.5 of the general conditions of the credit agreements at issue in the main proceedings, which is headed ‘Risk Charge’, provides that, for making available the credit, the borrower may be required to pay the bank a risk charge, calculated on the basis of the balance of the loan and payable monthly throughout its duration.

Clause 5 of the Special Terms of those agreements, also headed ‘Risk Charge’, states that that charge is to be equal to 0.74% of the credit balance in Euros, 0.22% of the credit balance in Swiss Francs. The total amount of that charge amounts to EUR 1 397.17 for the credit balance in Euros, and CHF 39 955.98 for the credit balance in Swiss Francs.

After the 22nd of June 2010, the date of entry into force of the Emergency Government Ordinance No 50/2010, Volksbank SA took steps to ensure that the credit agreements at issue in the main proceedings complied with the provisions of that order. Thus, in the draft supplementary agreements to those credit agreements, Volksbank proposed to replace the heading of the terms relating to the ‘risk charge’ to ‘Credit Management Charge’, since charging that commission was expressly authorised by Article 36 of that order, without at the same time modifying the content of those terms. The borrowers refused to accept that proposal and, therefore, to sign the supplementary agreements.

Taking the view that a set of terms in the credit agreements at issue in the main proceedings, which included the terms relating to the variable rate of interest and the ‘risk charge’, were unfair within the meaning of Article 4 of Law No 193/2000, the borrowers, after contacting the National Consumer Protection Authority which failed to respond to their communication, brought an action before the Court of First Instance of Cluj-Napoca, seeking a declaration that the terms at issue are unfair and, therefore, invalid.

By its first instance judgment of the 12th of December 2011, that court upheld the borrowers’ action in part.

The Court of First Instance of Cluj-Napoca held that certain terms were unfair and must therefore be regarded as invalid. It held that that is the case with respect to the term relating to variable rate of interest because the notion ‘significant changes in the money market’ was so vague that it enables the bank to alter the rate of interest in a discretionary manner.

However, the Court of First Instance of Cluj-Napoca held that the terms concerning the ‘risk charge’ and the draft term relating to ‘credit management charge’ cannot be classified as unfair since, in particular, it was not for the court to determine the specific risk the bank was exposed to or the effectiveness of the contractual guarantees.

Both the claimants and Volksbank appealed the Court of First Instance of Cluj-Napoca’s decision to the Cluj Specialized Court, which observed that, while the CJEU had not yet decided the issue whether contractual terms, such as those relating to the ‘risk charge’ at issue in the main proceedings, are part of the main subject-matter’ and/or the ‘price’ within the meaning of Article 4(2) of Directive 93/13, certain Romanian courts have already held that such terms do not fall within those concepts, as they are set out in Article 4(6) of Law No 193/2000, which replicates in full the wording of Article 4(2) of Directive 93/13. Those terms are accordingly not excluded from an assessment of their unfairness. Those courts have taken the view that that exclusion does not apply to the terms in question since, in particular, the lender does not provide any service constituting consideration which would justify the risk charge and, additionally, the drafting of those terms is unclear.

In those circumstances, the Cluj Specialized Court decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling. The question was registered with the CJEU under no. C-143/13.

On the 3rd of April 2013, the appellants and the respondent bank reached a settlement, subsequent to a full reimbursement of the loans.

By an interlocutory decision, the Cluj Specialized Court sanctioned the settlement in part, limited to the pecuniary terms of the settlement; the Cluj Specialized Court declined to sanction the settlement as regards the issue of the alleged unfairness of the contractual terms relating to the ‘risk charge’ applied by Volksbank SA, since that issue had to be regarded as a question of public order on which the parties cannot compromise. Therefore, the Cluj Specialized Court held that it was still seised with the borrowers’ and the bank’s appeals as regards the alleged unfairness of the contractual terms relating to the ‘risk charge’ applied by Volksbank SA and the alleged unfairness of the contractual terms relating to the variable rate of interest according to the ‘significant changes in the money market’.

• Civil judicial enforcement

Invalidity of specific unfair contract terms:

- Clause 3(d) of the Special Terms of the two loans, relating to the variable nature of the rate of interest, ‘the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets, the new rate of interest being notified to the borrower; the rate of interest thereby altered shall apply from the date of notification’.

 -  Clause 3.5 of the general conditions of the two loans at issue in the main proceedings, which is headed ‘Risk Charge’, provides that, for making available the credit, the borrower may be required to pay the bank a risk charge, calculated on the basis of the balance of the loan and payable monthly throughout its duration + Clause 5 of the Special Terms of the two loans, also headed ‘Risk Charge’, stating that that charge is to be equal to 0.74% of the credit balance in Euros, 0.22% of the credit balance in Swiss Francs.

The Cluj Specialized Court refered the following question to the Court: ‘Having regard to the fact that, in accordance with Article 4(2) of Directive 93/13, the assessment of the unfairness of contractual terms must not concern either the definition of the main subject-matter of the contract or to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, in so far as these terms are in plain intelligible language, and given that, under Article 2(2)(a) of Directive 2008/48, the definition provided in Article 3(g) thereof of “the total cost of the credit to the consumer”, which includes all the fees which the consumer is required to pay in connection with the credit agreement, does not apply for the purposes of determining the subject-matter of a credit agreement secured by a mortgage, can the concepts of “subject-matter” and/or of “price” referred to in Article 4(2) of Directive 93/13 be interpreted as meaning that such terms — namely the “subject-matter” and/or the “price” of a credit agreement secured by a mortgage — also cover, among the elements which make up the consideration owed to the credit institution, the [APR] of such a credit agreement secured by a mortgage, which is in particular made up of: the interest rate, whether fixed or variable; bank charges; and other costs included and defined in the credit agreement?’.

The Cluj Specialized Court’s grounds for dismissing Volksbank SA’s appeal included the following line of reasoning:

 “In accordance with the Supreme Court’s established jurisprudence, the court notes that unfair terms in a contract concluded between a seller/supplier and a consumer are null and void. Stipulating unfair contract terms in a consumer contract may be associated with bad faith, i.e. illicit causa, thus it is affected by absolute nullity. Furthermore, art. 6 of Law no. 193/2000, that transposes Directive 93/13/EEC into the national law, explicitely provides that unfair contract terms … shall not be binding on the consumer … .

   The terms allowing the appellant [the bank] to unilaterally alter the interest rate in the event of significant changes on the financial markets, to impose a ‘risk charge’ / ‘credit management charge’ on the respondents [the borrowers], to accelerate the maturity of the debt or to impose additional charges on the respondents are part of the general terms and of the special terms of the credit agreement, that were pre-formulated; therefore, the burden of proof that those terms had been individually negotiated lied with the appellant, as provided by art. 4, para. 3 of Law no. 193/2000; the appellant failed to prove those terms had been individually negotiated…

 The mere fact that the respondents [the borrowers] had the initative to conclude the credit agreement by contacting the appellant, stating their intention to conclude a certain type of credit agreement, according to their needs does not have the significance of their free and unconditional acceptance of the bank’s general and special terms. As long as the appellant [the bank] has not proved that the alleged unfair terms had been individually negotiated with the consumers [the borrowers], the mere facts that the consumers had the initiative of concluding the contract and that the consumers were in the position of declining the bank’s offer are irrelevant, as stated above…

The court will not reason in the same line with the first instance regarding the unfairness of the terms allowing allowing the appellant [the bank] to unilaterally alter the interest rate. The court agrees that giving credit is an operation implying certain risks for the lender; yet, such risks must be assessed in relation to each borrower’s individual situation, taking into account elements such as: the borrower’s financial capacity to reimburse the loan, the collaterals brought by the borrower to secure the repayment of the loan etc. The appellant [the bank] has not proved it assessed the borrowers’

The court also holds that, contrary to the requirement of good faith, the alleged unfair terms caused a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the respondents [the consumers]

The term allowing allowing the appellant [the bank] to unilaterally   alter the interest rate, claimed to be a fair term by the appellant, … brings into question the contract’s entire balance, since it allows the appellant [the bank] to alter the interest rate without negotiating the new interest rate with the consumers.

Indeed, in principle, art. 1, letter a of the Law no. 193/2000’s Annex allows a supplier of financial services to unilaterally alter the interest rate, such a term not being unfair per se; yet, the supplier of financial services may only alter the interest rate for a valid reason, stated in the contractual terms and the supplier is required to inform the consumers and that the latter are free to continue or to terminate the contract immediately. A ‘valid reason, stated in the contractual terms’ is a clearly described situation, that allows the consumers to know, from the very beginning of the contractual relationship, that if such an event will occur, they will have to pay a higher interest rate. Futhermore, should litigation occur, that court would have to assess whether that ‘valid reason’ had occurred or not.

The court notes that the terms in the contract under review do not state a ‘valid reason’. A ‘change on the financial markets’ that the appellant [the bank] thinks of as significant may be assessed as insignificant by another person.

The imbalance in the parties' rights and obligations arising under the contract occurs also when the seller / provider imposes contractual terms that provide the seller / supplier an advantage detrimental to the consumer, such as the terms allowing the bank to alter the charges and the interest rate without stating objective reasons for such an alteration or without stating those reasons in a clear manner…

The terms employed by the appellant bank to reserve its right to alter the interest rate have … do not allow the consumers to know beforehand and to assess for the future the interest rate they will have to pay under the contract…

The purpose of the ‘risk charge’ / ‘credit management charge’ has not been defined in the general [or in the special] terms of the contract; therefore, the court holds that the consumers were not in the position to effectively negotiate the term imposing that charge, as they were not able to bring any arguments relating to that charge’s purpose, that charge’s quantum or percentage. The appellant’s attempt to impose the ‘credit management charge’ through the draft supplementary agreements after EGO No 50/2010’s entry into force … does not have the significance of negotiating that particular term, as long as the appellant did not prove that the consumers had a real chance to expose their point of view on that charge and to influence in any way the drafting of those supplementary agreements.

The court cannot accept the appellant’s view that the term imposing the ‘risk charge’ / ‘credit management charge’ escapes the court’s assessment as it relates to the definition of the main subject matter of the contract or to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other.

Art. 4 para. 6 of Law No 193/2000, transposing into the national law Directive 93/13/EEC, states that ‘Assessment of the unfairness of the terms shall not cover the definition of the main subject-matter of the contract or the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other, in so far as these terms are in plain intelligible language.’…

The appellant claimed that APR’s definition in EGO No 50/2010 and in Art. 3 let. i of Directive 2008/48: ‘the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, where applicable including the costs’ leads to the conclusion that the ‘risk charge’ is a part of the credit’s price, that includes all costs and the bank’s profit margin and is therefore excluded from the judicial unfairness test, according to Art. 4 para. 6 of Law no 193/2000.

The appellant’s argument lacks merit. Both Art. 3 let. i of Directive 2008/48 and Art. 7 pt. 6 of EGO No 50/2010, that transposes that directive into the national law, define ‘the total cost of the credit’ in a wide manner, but they place the seller / the supplier under the obligation of clearly stating in the contract all costs and charges imposed on the consumer, according to the principle of transparency embedded in Directive 2008/48, as CJEU has held in C-143/13 - M.

Contrary to the wide definition of the ‘total cost of the credit’ in Art. 3 let. i of Directive 2008/48, the notions the expressions ‘main subject-matter of the contract’ and ‘the adequacy of the price and remuneration on the one hand, as against the services or goods supplied, on the other’ in Art. 4 para. 2 of Directive 93/13 laying down an exception to the mechanism for reviewing the substance of unfair terms, such as that provided for in the system of consumer protection put in place by that directive, must be strictly interpreted … the exact scope of ‘main subject-matter’ and ‘price’ within the meaning of Art. 4 para. 2 of Directive 93/13 cannot be determined by the concept of ‘the total cost of the credit to the consumer’ within the meaning of Art. 3 let. g of Directive 2008/48.

Since the criteria employed for defining the scope of ‘the total cost of the credit to the consumer’ by Directive 2008/48 and EGO No 50/2010 are not applicable for defining the scope of ‘main subject-matter’ and ‘price’ when assessing the unfairness of the terms in consumer contract, the court must rely on other, appropriate, criteria, that are to be found in CJEU’s judgment in C-26/13 – K.: ‘the notion of the ‘main subject-matter of the contract’ […] must be understood as being those that lay down the essential obligations of the contract and, as such, characterise it. By contrast, terms ancillary to those that define the very essence of the contractual relationship cannot fall within the notion of the ‘main subject­matter of the contract’ within the meaning of Article 4(2) of Directive 93/13. It is for the referring court to determine, having regard to the nature, general scheme and the stipulations of the loan agreement, and its legal and factual context, whether the term setting the exchange rate for the monthly repayment instalments constitutes an essential element of the debtor’s obligations, consisting in the repayment of the amount made available by the lender.’

It follows that the court must establish in the present case whether the ‘risk charge’ is an essential element of the debtor’s obligations and, thus, is an essential obligation of the contract or, by contrast, is a term ancillary to the present credit agreement.

The court notes that it cannot carry out a precise judicial assessment of the term imposing the ‘risk charge’ since the contract does not provide a clear definition of that respective term. The court cannot find any correspondent lender’s obligation for the debtor’s risk charge. Neither the general terms, nor the special terms define the ‘risk charge’; they barely mention its quantum and percentage. The appellant’s pre-defined general and special terms do not specify any grounds for charging the consumer this ‘risk charge’, contrary to the seller’s / supplier’s obligation to ensure that all consumer’s obligations are stated in a clear, precise and transparent manner, related to the factual context in which the seller / supplier and the consumer have concluded the contract. The appellant if fully liable for this defect in the contract, since the ‘risk charge’ is mentioned in the general terms of the contract, pre-defined by the appellant. The court is unable to assess whether the bank actually had any presumable consideration for such a ‘risk charge’ or whether the ‘risk charge’ constituted consideration for any essential obligation of the bank…

During the litigation, the appellant put forward in its defence and in its appeal a definition of the ‘risk charge’ / ‘risk management charge’, claiming that such a charge would cover its costs to maintain the services of evaluating, monitoring and managing its ‘banking risks’. Furthermore, it claimed that an indefinite part of the funds thus obtained were provisioned for non performing loans.

The court cannot accept such arguments and will not analyse their merits, since the contract terms governing the ‘risk charge’ should have been clearly drafted, in plain, intelligible language and such a definition should have been made available to the consumers at the time the contract was concluded, not after the parties initiated litigation.

Finally, the court concludes that the terms imposing the ‘risk charge’ are unfair, noting that all the conditions in the judicial test are met: the terms have not been negotiated, they were stipulated in bad faith, they caused a significant imbalance in the parties’ rights and obligations, and the ‘risk charge’ was nothing else but a supplementary interest rate disguised as a ‘charge’. The appellant splitted the real interest rate into two components: a diminished ‘interest rate’ and a ‘risk charge’, in order to make its banking product more attractive to the consumers… Such a business practice is contrary to the requirement of good faith and it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

By its judgment passed on the 26th of February 2015, CJEU held that “Article 4(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as meaning that ‘main subject-matter of the contract’ and ‘adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other’ do not, in principle, cover the types of terms in the credit agreements concluded between a professional and consumers such as those at issue in the main proceedings, which, on one hand, allow, under certain conditions, the lender unilaterally to alter the interest rate and, on the other hand, provide for a ‘risk charge’ applied by the lender. However, it is for the referring court to verify that classification of those contractual terms having regard to the nature, general scheme and stipulations of the agreements concerned and the legal and factual context of which they form part.

On the 10th of March 2015, the borrowers discontinued their appeal.

By its final and definitive decision no. 79/R passed on the 20th of March 2015, the Cluj Specialized Court took note of the borrowers’ notice of discontinuance and dismissed Volksbank SA’s appeal in accordance with the reasoning described above.

Tribunalul Specializat Cluj has strictly observed CJEU’s judgments in C-143/13 – M., and C-26/13 – K..

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

The object of the case falls within the ambit of the Charter’s scope (consumer protection, right to a fair trial).

• Right to an effective remedy before a tribunal

The decisions do not include any explicit reference to the Charter.

The principle of access to justice has been observed; according to Law No 146/1997 and to EGO No 80/2013, consumers are exempted from the obligation to pay any court fees for any claims against the sellers/suppliers (including damages).

• Effectiveness
• Dissuasiveness

The decisions do not include any explicit reference these principles.

It should be mentioned that the court, on it own motion, limited the effects of the parties’ out-of-court settlement, qualified the issue of the unfairness of the contract terms governing the variance of the interest rate and the ‘risk charge’ as being a ‘public order’ issue and, again on its own motion’ assessed the unfairness of the respective contract terms. Thus, the court has given effect to the principles of effectiveness and dissuasiveness of EU law.

(See above)

Elements of judicial dialogue

• Direct dialogue between CJEU and National court (preliminary reference)

• CJEU C-143/13, M.
• CJEU C-26/13, K.

Preliminary reference to the CJEU.

Whether a bank charge (such as the ‘risk charge’ in the present case) is / is not covered by the ‘main subject-matter’ of a credit agreement has been the subject of a vivid controversy in the Romanian caselaw. In a significant number of cases, such a defence put forward by the lending banks has been accepted by the courts, preventing the courts from assessing the unfairness of such terms in consumer contracts. No binding judicial precedent on this point of law was available at the time Tribunalul Specializat Cluj referred the question to CJEU. Since the scope of the term ‘main subject-matter of the contract’ is a matter of EU law interpretation, Tribunalul Specializat Cluj addressed the question to the only court having jurisdiction to clarify this point of (EU) law.

Additional notes on the decision

No impact on national legislation / policy has been identified.

CJEU’s judgment in C-143/13 – M. has had a highly significant harmonizing impact on the Romanian caselaw, making the ‘main subject-matter of the contract’ defence irrelevant.

The decision passed by Tribunalul Specializat Cluj in case no. 4893/211/2011 has had little or no effect on the national caselaw, since the parties to the case have reached an out-of-court settlement partially sanctioned by the court.