Case summary

Deciding Body
Court of First Instance No 38, Barcelona
Juzgado de Primera Instancia No 38 de Barcelona
Spain
National case details
Date of decision: 18.10.18
Registration ID: Execution Procedure n. 301/2014 – 4A
Instance: 1st Instance
Case status: Pending
Area of law
Consumer protection
Unfair terms

Relevant principles applied
Effectiveness
Preliminary ruling
Judgement of the CJEU (Fifth Chamber), 7 August 2018, Case C-96/16 Banco Santander SA v Mahamadou Demba, Mercedes Godoy Bonet (C‑96/16), and Rafael Ramón Escobedo Cortés v Banco de Sabadell SA (C‑94/17)

Life-cycle diagram

  1. 22 April 2015

    Decision of Tribunal Supremo - Case Law

  2. 7 September 2015

    Decision of Tribunal Supremo - Case Law

  3. 8 September 2015

    Decision of Tribunal Supremo - Case Law

  4. 2 February 2016

    Preliminary Reference, Juzgado de Primera Instancia

  5. 22 February 2017

    Preliminary Reference, Tribunal Supremo

  6. 7 August 2018

    Judgment of the CJEU, joined cases C-96/16 e C-94/17

  7. 18 October 2018

    Follow up decision - Juzgado de Primera Instancia

  8. 14 January 2019

    Follow up decision - Juzgado de Primera Instancia

Identification of the case

Fundamental rights involved
  • Consumer protection (art. 38 CFREU)
National law sources
  • Codigo Civil: Article 1535;
  • Ley 1/2000 de Enjuiciamento Civil: Articles 17 and 540;
  • Real Decreto Legislativo 1/2007 (Ley General para la Defensa de los Consumidores y Usuarios y otras leyes complementarias): Articles 82 and 85.
  • Case Law of the Tribunal Supremo: judgments No 265/2015 of 22 April 2015, No 470/2015 of 7 September 2015 and No 469/2015 of 8 September 2015
EU law sources
  • Directive n. 93/13: 13th Recital; Article 1; Article 3 (1) and (3); Article 4 (1); Article 6 (1); Article 7 (1); Article 8; Annex – Point 1(e)

Summary of the case

Facts of the case

Case C-96/16: After applying for enforcement of its claims toward two debtors, Banco Santander had assigned, by officially recorded instrument, the credit towards the two debtors to a third party according to the Civil Code. The assignment occurred pursuant to a business practice and was not explicitly laid out in the contractual agreement between the debtors and bank. In light of Art. 1535 of the Codigo Civil the debtor has the right to buy back his/her debt but only in case of “disputed debts”, i.e. debts subject to a substantive challenge in the context of declaratory proceedings, therefore excluding enforcement proceedings. The Court wonders whether such limitation impairs consumer protection. In the assessment of the possible unfairness of some terms, the Court also questions the compliance, with Directive n. 93/13, of the case-law of the Tribunal Supremo, ruling that default interests are unfair when exceeding by more than two percentage points the rate of the ordinary interest agreed.

Case C-94/17: The plaintiff had brought an action against Banco de Sabadell claiming the unfairness of contractual terms regarding default interests and also claiming that, in light of such unfairness, agreement should no longer bear either default or ordinary interest, contrary to what established by the Tribunal Supremo through case-law.

Type of enforcement
  • Civil judicial enforcement
Measures, actions, remedies claimed/applied
  1. It is questioned the right of the debtor to buy back his/her debt during an enforcement proceeding
  2. Annulment of allegedly unfair terms regarding loan interests
Preliminary questions

Case C-96/16

  1.  
    1. Does the business practice of assigning or purchasing debts without offering the consumer the opportunity to extinguish the debt by paying the price, interest, expenses and costs of the proceedings to the assignee comply with European Union law, and specifically with Article 38 of the [Charter of Fundamental Rights of the European Union] … and Articles 4(2), 12 and 169(1) [TFEU]?
    2. Is that business practice of purchasing a consumer’s debt for a negligible price without his consent or knowledge, without including that practice as a general condition or unfair term imposed in the agreement, and without giving the consumer the opportunity to participate in that operation by purchasing and thus extinguishing the debt, compatible with the principles laid down in Directive [93/13] and, by extension, with the principle of effectiveness and with [Article] 3(1) and [Article] 7(1) of that directive?
  2.  
    1. For the purpose of safeguarding the protection of consumers and users and the Community case-law which develops it, is it in accordance with European law, Directive 93/13 and in particular Article 6(1) and Article 7(1) thereof, to establish as an unequivocal criterion that, in unsecured loan agreements concluded with consumers, a non-negotiated term which sets a rate of default interest that exceeds by more than two percentage points the basic contract rate of interest (“ordinary interest”) is unfair?
    2. For the purpose of safeguarding the protection of consumers and users and the Community case-law which develops it, is it in accordance with European law, Directive 93/13 and in particular Article 6(1) and Article 7(1) thereof, to establish, as a consequence, that ordinary interest will accrue until the debt has been paid in full?’

Case C-94/17

  1. Do Article 3, in conjunction with point 1(e) of the annex, [and Article] 4(1) of Directive [93/13] preclude a judicial interpretation that declares that a term in a loan agreement setting a rate of default interest that exceeds by more than two percentage points the annual ordinary interest fixed in the agreement constitutes disproportionately high compensation imposed on the consumer who is late performing his obligation to pay and is, therefore unfair?
  2. Do Article 3, in conjunction with point 1(e) of the annex, [and Article] 4(1), [Article] 6(1) and [Article] 7(1) of Directive [93/13] preclude a judicial interpretation that, when a term in a loan agreement that sets the rate of default interest is declared unfair, identifies, as the object of the review of unfairness, the fact that that rate exceeds the ordinary interest rate, on the ground that it constitutes “disproportionately high compensation imposed on the consumer who has not performed his obligations”, and establishes as the consequence of the declaration of unfairness that that additional charge must cease to apply, so that only ordinary interest continues to accrue until the loan has been repaid?
  3. If the second question were to be answered in the [affirmative], must a declaration that a term setting a default rate of interest is void, because unfair, have other effects in order to be compatible with Directive 93/13, such as, for example, the total elimination of both ordinary and default interest, or the charging of statutory interest, when the borrower fails to perform his obligation to make the loan repayments within the time limits stipulated in the agreement?
Reasoning (legal principles applied)

In first place the CJEU holds that Directive n. 93/13 does not apply:

  • To business practices, in absence of correspondent contractual provisions;
  • To Article 1535 of the Codigo Civil, since Art. 1(2) of the Directive excludes its application to mandatory statutory or regulatory provisions other than those relating to the control of unfair terms. 

In second place, the CJEU jointly examines questions n. 2(a) of C-96/16 and n. 1 of C-94/17, which question the compliance with Directive n. 93/13 of the case-law of the Tribunal Supremo setting a standard of term unfairness, i.e, default interests exceeding by more than two percentage points the ordinary interest rate. After upholding the admissibility of the questions, the CJEU moves on assessing the main point, i.e. the relation between Directive n. 93/13 and the case-law of the Tribunal Supremo. Such case-law established an irrebuttable presumption of unfairness. Lower courts can decide to judge differently but their decisions may be then set aside by the Tribunal Supremo since they are not consistent with its case-law. The CJEU notes that, on account of the weak position of consumers in economic transaction, the Directive prohibits unfair clauses, leaving it to National Courts to verify the unfairness by taking into account all the circumstances of the case. Art. 7 of the Directive indeed prevents national legislation from setting criteria of unfairness and impeding the judge to assess the unfairness of terms not meeting those criteria. This is, however, not the case here. Moreover, as noted by the Advocate General, national Supreme Courts, “in their role of ensuring consistency in the interpretation of the law (…) may elaborate certain criteria in the light of which the lower courts must examine the unfairness of contractual terms”. Even if the Tribunal’s case-law, not having force of law, is not measure to ensure a higher level of consumer protection pursuant to Art. 8 of the Directive, it nevertheless is fully consistent with the Directive’s scope.

With regard to question n. 2(b) of C-96/16 and n. 2, the CJEU notes that “the objective pursued by that directive consists in protecting the consumer and restoring the balance between the parties by not applying those contractual terms held to be unfair, whilst maintaining, in principle, the validity of the other terms of the agreement at issue”. In light of the Directive, it cannot be inferred the nullity of the clause regarding ordinary due to the unfairness of the default interest. Indeed, the ordinary interest aims at “remuneration for the lender making a sum of money available until that sum has been repaid”. The case-law of the Tribunal Supremo is consistent with this conception, since it empowers the judge to refrain from applying the unfair term while maintaining the validity of the other contractual terms.

Given the negative answer to question n. 2, the Court does not address question n. 3 of Case C-94/17.

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

Relation to scope of the Charter

The Court applies Art. 38 of the CFREU while assessing the role played by National Courts in upholding a high level of protection for consumers within the EU and the legal and logic relation between case-law driven criteria and the provisions of Directive n. 93/13.

Reference to national provisions

The Court refers to Art. 1535 of the Spanish Codigo Civil (Civil Code) in order to assess its compliance with Directive n. 93/13 and states that such Directive cannot apply to the provision. Indeed, Art. 1535 does not specifically refer to assessment of unfair clauses and provides for a mandatory provision regarding the general regime of obligations in Spanish law, thus not falling within the scope of the Directive.

Relevance of CFREU and ECHR articles or related rights

The Court employs the notion of high consumer protection as laid out in Art. 38 of the CFREU and upholds that National Courts are empowered to lay out standards and criteria for the assessment of unfair clauses by case-law, in order to ensure such high level of protection.

Relevant principles applied
  • Effectiveness
Principle of effectiveness

The Court implicitly refers to the principle of effectiveness when mentioning (§ 62) that the Tribunal Supremo, when laying out the criteria for the assessment of the unfairness of default interests, “the guidelines identified by the Court of Justice as regards the assessment of the possible unfairness of a contractual term”. In perspective of dialogue, therefore, the Tribunal Supremo sought to harmonize the national judicial standards of review with the European ones, so to ensure a harmonization of the concept of consumer protection pursuant to Art. 38 of the CFREU.

Elements of judicial dialogue

Vertical dialogue type
  • Direct dialogue between CJEU and National court (preliminary reference)
  • Dialogue between high court - lower instance court at national level
Dialogue techniques

Preliminary reference

Conform interpretation with EU law as interpreted by the CJEU

The CJEU initiates a dialogue with the Tribunal Supremo, by assessing the compliance of its case law with European Law. Furthermore, it shapes a role for national case law in the implementation of European standards of Consumer Protection, while also reminding the boundaries of such intervention. Furthermore, the CJEU examines the reasoning followed by the Tribunal Supremo in laying out its case law, highlighting the references to CJEU guidelines and criteria.

Purposes of using judicial dialogue

To define the role of national case law in the implementation of European standards of Consumer Protection.

Expected effects of judicial dialogue

It is expected that national courts will rationally establish and consolidate case law patterns in light of the standards of consumer protection they deem reasonable to establish pursuant to European law.

Additional notes on the decision

Impact on national case law

It is to be expected that national courts will apply the case law of the Tribunal Supremo but will uphold their power to judge about the unfairness of a clause related to default interest even if it falls behind the threshold of the two percentage points set by the Tribunal Supremo. This in light of the considerations expressed by the CJEU and on the basis of a case-to-case assessment.

Case author

Dr Gianmatteo Sabatino, University of Trento

Published by Chiara Patera on 12 September 2019