Czech Republic, Regional Court of Prague, 24 June 2014 KSPH INS 2983/2013

Identification of the case

• Consumer protection (art. 38 CFREU)
• Right to an effective remedy and to a fair trial (art. 47 CFREU)

• Article 410 of the Law No 182/2006 on bankruptcy and the modes of its resolution (zákon č. 182/2006 Sb., o úpadku a způsobech jeho řešení) as amended by Law No 185/2013
• Articles 55(2), 56(1) and 56(3) of Law No 40/1964 establishing the Civil Code (Zákon č. 40/1964 Sb., občanský zákoník) (in the version in force until 31 December 2013)
• Articles 6(1) and 8 of the Law 145/2010 concerning consumer credit and amending certain laws in their original version (Zákon č. 145/2010 Sb., o spotřebitelském úvěru a o změně některých zákonů)

• Directive 93/13/EEC [Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ 1993 L 95, p. 25)]
• Directive 2008/48/EC [Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (OJ 2008 L 133, p. 66)]

Summary of the case

The case concerns a request for preliminary ruling on the validity of national procedural rules that prevent a judge from examining compliance of a consumer credit contract with the protections granted to consumers in Directive 2008/48 and Directive 93/13 in the context of insolvency proceedings.

In 2011, Mr and Mrs R. (the “Rs”) concluded a consumer credit agreement. Based on claim of fault in precontractual disclosure by the R., the lender accelerated the debt and asked immediate payment of the outstanding debt. The Rs then defaulted and were declared bankrupt.

In the course of the insolvency proceedings the Rs filed a request to resolve the bankruptcy by way of discharge and simultaneously challenged the validity of the credit agreement on grounds of violation of the principle of morality. These latter claims were dismissed on a procedural ground, because national rules prevent the judge, either of its own motion or at the request of the debtor, to examine the validity, amount or the ranking of claims before adoption of a decision on the application for discharge.

Once the regional court approved the Rs’ joint discharge from bankruptcy based on a schedule of repayments, the R lodged an incidental application to contest the validity of the original contract and the amounts of the registered debts. At this stage, however, according to national insolvency rules, a debtor may only dispute unsecured debts and on the sole grounds that the debt is time-barred or has been repaid.

Given that the agreement at issue is a consumer credit agreement, within the meaning of Directive 2008/48, and a contract concluded between a consumer and a seller or supplier, within the meaning of Directive 93/13, the Prague Regional Court filed a request for preliminary ruling asking for guidance as to whether such national procedural rules, which prevent it from considering whether the debtors benefit from the protection rules in the above mentioned Directives are consistent with EU law. The National Court is thus asking to what extent it is obliged to examine those provisions ex officio when national procedural rules prevent it from doing so, and, more specifically, whether the obligation on creditors to provide information pursuant to Directive 2008/48 should be taken into account in its assessment, how penalties under the credit agreement are to be assessed in the context of Directive 93/13 and what effects should flow from a finding that such penalties are, cumulatively, unfair.

• Civil judicial enforcement
• Other

Declaration of unlawfulness in part or in full of a creditor’s claims within an insolvency proceeding

With respect to the question concerning the extent of the ex officio powers of national judges the Court recalls that:

• following art. 7 of the Directive 93/13, consumer shall be granted effective judicial protection against the use of unfair terms, which includes the possibility to contest the merits of the claims arising from a credit agreement which contains terms likely to be unfair;
• the principle of procedural autonomy is limited by the principle of equivalence and by the principle of effectiveness. Therefore, provided that a “national procedural provision that makes the application of EU law impossible or excessively difficult must be analysed by reference to the role in the procedure, its conduct and its special features, viewed as a whole, before the various national bodies”, such specificity, however, shall not affect “the legal protection from which consumers must benefit under the provisions of Directive 93/13” (para. 50, with explicit reference to EUCJ, 10 September 2014, Kušionová, C 34/13, EU:C:2014:2189);
• the existing imbalance between the consumer and the seller or supplier requires a positive action by judges who shall have the power and the duty to examine on their own motion whether contractual terms falling within the scope of Directive 93/13 are unfair (para. 52, with reference to EUCJ, 1 October 2015, ERSTE Bank Hungary, C 32/14, EU:C:2015:637, and para. 70);
• such powers and duties shall further include, in the case of contracts falling within the scope of Directive 2008/48 on credit agreements for consumers, the examination of compliance with the EU law requirements related to pre-contractual information;
• in such cases, “the obligation to examine ex officio the unfairness of certain terms and the presence of mandatory information in a credit agreement constitutes a procedural rule placed not on an individual but on the courts” and it follows directly from the duty of Member States to take all the measures necessary to achieve the results prescribed by Directive 2008/48, which aims at providing full and mandatory harmonization in certain key areas;

and from all of the above the Court concludes that:

"Article 7(1) of Directive 93/13 must be interpreted as precluding national legislation […] which, in insolvency proceedings does not permit, firstly, the court hearing the action to examine of its own motion any unfairness of contractual terms on which the claims declared in those proceedings are based, even when it has available to it the matters of law and fact necessary to that end, and which, secondly, permits that court to examine only unsecured claims, solely in respect of a restricted number of complaints related to whether they are time-barred or have been paid”

and that:

“Article 10(2) of Directive 2008/48 must be interpreted as meaning that it requires a national court hearing a dispute concerning claims based on a credit agreement within the meaning of that directive to examine of its own motion whether the obligation to provide information laid down in that provision has been complied with”.

With regards to the other questions raised by the referring judge concerning matters related to credit agreements for consumers, the EUCJ further states that:

1. provided that Member States shall lay down dissuasive, effective and appropriate penalties applicable to infringements of the national provisions adopted pursuant to Directive 2008/48 and that they shall take all measures necessary to ensure that such penalties are implemented (para. 72), it follows that “where a national court has found an infringement of the obligation to provide information, it must draw all the consequences provided for under national law, provided that the penalties laid down therein satisfy the requirements of Article 23 of Directive 2008/48” (para. 73);
2. in order to assess whether the amount of compensation required of a consumer who does not fulfil his obligations is disproportionately high, national courts shall examine “the cumulative effect of all the penalty clauses in the contract in question, regardless of whether the creditor actually insists that that they all be satisfied in full”
3. pursuant to the principle of dissuasiveness, national courts may only declare void an unfair contractual term, without being authorised to revise its content (para. 98), so that in case of finding that certain terms are unfair, national courts must, pursuant to Article 6(1) of that directive, establish all the consequences of such finding and exclude all terms found to be unfair in order to ensure that the consumer is not bound by them.

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

The Charter is not explicitly cited, even if in its reasoning the Court refers to the need and the importance of ensuring effective judicial remedies to consumers.

• Right to an effective remedy before a tribunal
• Explicit reference to Art. 6 ECHR
• Explicit reference to Art. 13 ECHR

In order to answer the questions of the referring judge concerning the degree of ex officio powers conferred by the Directive 93/13 on consumer protection, the EUCJ comments on the duty of Member States to provide, pursuant to art. 7(1) of the Directive, effective means of protection including provisions that guarantee consumers effective judicial protection of their rights.

On this specific point, which is related to the interpretation of art. 47 of the Charter, the EUCJ makes a few important remarks.

Firstly:

• effective judicial protection implies that consumers shall be given the possibility to bring proceedings against disputed contracts, even in the course of insolvency proceedings,
• more specifically, consumers shall be permitted to contest the merits of the claims arising from a credit agreement which contains terms likely to be unfair, whether or not those claims are secured;
• any procedural limitation to such rights shall be reasonable and shall not make it excessively difficult or impossible to exercise the rights guaranteed by Directive 93/13;
• it follows that the principle of procedural autonomy is limited by the need of ensuring the effectiveness of the judicial protection of consumers’ rights, which in turn may lead national judges to disregard certain national procedural provisions.

Secondly:

• it can be inferred from the reasoning of the Court that in cases where the relationship between the parties is structurally umbalanced (such as the case of the relationship between a consumer and the supplier or seller), in order to achieve effectiveness in the judicial protection of the weaker party, national courts shall be required to take positive action and, therefore, shall have the right (and to a certain extent the duty) to examine on their own motion compliance with EU law.

• Effectiveness
• Dissuasiveness

Provided that there exists an imbalance between the consumer and the seller or supplier, in order to ensure effectiveness in consumer protection, the CJEU asserts that:

• national courts have a duty to assess of their own motion whether a contractual term falling within the scope of Directive 93/13 is unfair and whether, in matters related to credit agreements for consumers, the information requirements provided by Directive 2008/48 have been complied with; and
• national procedural rules that prevent the national court to assess such substantive questions where it has available to it the legal and factual elements necessary to that end, shall be deemed in contrast with EU law.

The EUCJ refers to the principle of dissuasiveness in the case at hand in connection to the requirement set out in art. 23 of the Directive 2008/48 for member states to adopt dissuasive penalties in respect of infringements of national provisions adopted pursuant to such Directive. Specifically, the Court states that in order for such measures to be dissuasive, they must be assisted by a judicial enforcement mechanism that takes into account the disparity of power between the parties and the aim of achieving full and mandatory harmonization in the area, and that, therefore, national courts: (i) shall have the power and the duty to examine ex officio compliance of credit agreements for consumers with the national provisions enforcing rights based on Directive 2008/48 and on Directive 93/13; (ii) shall not be authorised to revise the content of unfair contractual terms and, on the contrary, in the case certain terms are declared unfair within the meaning of Directives 2008/48 and 93/13, shall establish all the consequences of such finding in accordance with national law and thus exclude all terms found to be unfair in order to ensure that the consumer is not bound by them.

Elements of judicial dialogue

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

• CJEU C-32/14, 1 October 2015, ERSTE Bank Hungary, EU:C:2015:637
• CJEU C-565/12, 27 March 2014, LCL Le Crédit Lyonnais, EU:C:2014:190

Disapplication of national law in favor of EU law

Amending a law which was not in conformity with EU law.

Redressing procedural rules in insolvency proceedings that excessively limited consumer protection.

Legislative reform of the insolvency law.

Additional notes on the decision

In the subsequent judgment, the Regional Court of Prague ruled on the merits of the debtor’s claims, asserting that certain clauses of the original credit agreement were unfair and reduced the debt in the insolvency proceeding to that recognized by the Rs. The creditor filed an appeal against the first instance judgment.