Spain, Supreme Court, 11 September 2018 483/18

Identification of the case

• Articles 1, 5 and 7 of the of the Ley de Condiciones Generales de la Contratación (Law on General Terms and Conditions)

• Articles 3(2) and 4(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts

Summary of the case

In February 2007, Mrs V. entered into a mortgage loan contract with Caja Rural del Sur Sociedad Cooperativa de Crédito. The contract included a ‘floor clause’ under which variable interest rates could not fall below an annual nominal rate of 4,250%.

The court of first instance declared the floor clause null and void because of its lack of transparency and requested the lender to reinstate the debtor of the monetary amounts received as a result of the application of the unfair contract term, with its interests.

The defendant appealed the decision of the first instance court. The appellate court reversed the judgement of the court of first instance based on the following reasons: (i) the terms were considered to be clear and easily understandable; (ii) the financial conditions of the operation (including the floor clause) were the same as those listed in the public deed and were the object of a warning by the notary; and (iii) consequently, the transparency requirements were met. Hence, the appellate court reversed the appealed decision and dismissed the case.

• Civil judicial enforcement

Mrs V. challenged the transparency of some contract terms in a loan contract she entered into with a financial institution. The First section of the Spanish Supreme court held the contract term providing for an interest floor clause was unfair and hence non-binding on the consumer. The court further provided the unfair term was null under Spanish law and the lender had to return the amounts received as a result of the application of the contract term. 

The Supreme Court first recalled its own case law and European case law on the application of transparency controls (cases C-92/11, RWE Vertrieb; C-26/13, Kásler y Káslerne Rábai; C-143/13, Matei; C-96/14, Van Hove). According to these cases, it is not only necessary that the clauses be written in a clear and understandable way, but also that the consumer be able have a real knowledge of them, so that an informed consumer can foresee the legal and economic burden of the contract based on precise and understandable criteria. In line with Article 4(2) of Directive 93/13, the Supreme Court has also always required in its case law that general terms and conditions in consumer contracts be transparent.

According to the Spanish Supreme Court, this transparency control is intended for the adherent to know with simplicity both the economic burden that the contract actually entails, that is, the capital sacrifice made in exchange for the economic benefit he wants to obtain, as well as the legal burden thereof, that is, the clear definition of its legal position both regarding the typical elements of the contract and the allocation of risks it involves.

General terms and conditions that deal with essential elements of the contract are required to provide additional information that allow consumers to adopt their decision to contract with full knowledge of the economic and legal burden that the contract will entail, without requiring to conduct a thorough and detailed analysis of the contract.

This analysis aims at excluding any element that could aggravate the economic burden that the consumer perceived the contract involved through contract terms whose legal or economic significance went unnoticed by the consumer because it was given inappropriate secondary treatment and the consumer was not provided with clear and adequate information on the legal and economic consequences of that clause.

Regarding the possibility of knowing the clause at the time of the delivery of the binding offer, the court highlighted that this document was not even signed, and in any case, from its simple reading, it could not be interpreted that there was a limitation to the variability of the interest rate.

Regarding the public deed, the court held that simple grammatical clarity –formal transparency – was not enough. Without taking into account that the contract did not contain more information about the fact that the floor clause was a defining element of the contract (it affected the price of the loan), the clause was masked among other information related to the variability of the interest rate, there were no simulations of possible scenarios, nor had the defendant clearly and understandably warned about the comparative cost with other alternative products offered by him.

The court further explained that, in this case, the contract design resulted in that a variation of the reference index could only benefit the bank, because although the Euribor index fell significantly, the borrower could hardly benefit from such decrease, whereas if the Euribor index increased, the consumer would be hurt by such a rise. Further, the court established that the floor clause itself was a simple subsection within an extensive and cumbersome section referring to the interests of the loan, in a loan that is offered, prima facie, as a variable interest loan, with a reference to an official index (Euribor). The court considered that that paragraph of just a few lines completely modified the economy of the contract.

As a result, the court reversed the appellate court’s decision and upheld the first instance’s court decision.

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-92/11, Vertrieb
• CJEU C-26/13, Kasler
• CJEU C-143/13, Matei
• CJEU C-96/14, Van Hove

Conform interpretation with EU law as interpreted by the CJEU.