Commentary to CJEU judgment C-520/21 of 15 June 2023
Background to the case: the question for a preliminary ruling from the District Court for Warsaw-Śródmieście
In its judgment C-520/21[1] of 15 June 2023, the Court of Justice of the European Union shared the views contained in the Advocate General’s Opinion of 16 February 2023. The judgment was rendered in response to a question for a preliminary ruling referred by the District Court for Warsaw-Śródmieście, as to whether the parties – in the event of the invalidity of a loan agreement indexed to or denominated in Swiss francs (CHF) – may pursue claims against each other beyond the repayment of the monetary consideration provided in performance of the invalid agreement.
The background to the judgement is therefore CHF loan cases, involving, essentially, challenges by borrowers to the validity of loan agreements. Under Polish law, the basic consequence of annulment of an agreement is the mutual return of performances received by the parties, which in the case of a loan agreement means the repayment by the borrower to the bank of the (nominal) amount of the loan disbursed and the repayment by the bank to the borrower of all capital and interest instalments paid, together with any additional performances (such as commissions, fees and insurance premiums).
The question referred for a preliminary ruling concerned the issue of whether the parties to an invalid contract are entitled to pursue additional claims against each other, such as remuneration, compensation, reimbursement of expenses or indexation of the amounts paid.
The Court answered this question, noting that while it is common ground that it is not for the Court to rule on the interpretation of provisions of national law, the fact remains that the question referred does not concern the interpretation of Polish law but the interpretation of Articles 6(1) and 7(1) of Directive 93/13 and of the principles of effectiveness, legal certainty and proportionality[2].
Decision of the Court of Justice of the European Union
The judgment rendered by the Court makes the admissibility of further claims by the parties to an invalid contract clearly dependent on the status of such parties.
As regards the borrower’s claims, the Court held that Directive 93/13 does not preclude claims being made against the bank which go beyond the reimbursement of monthly instalments and expenses paid in respect of the performance of the loan agreement (together with interest, if applicable)[3] – however, the merits of those claims will be analysed by the national court, having regard to all the circumstances of the dispute in question and, as the CJEU expressly stated – “provided that the objectives of Directive 93/13 and the principle of proportionality are observed”, therefore provided that it is assessed whether such a claim is necessary to achieve the objectives of Directive 93/13 and the related protection of the consumer against unfair contractual terms, as well as whether the claim constitutes an abuse of the consumer’s position vis-à-vis the bank after the annulment of the loan agreement.
Earlier, in Opinion of the Advocate General, it was stated that to assess the legitimacy of such additional claims made by the borrower, the Polish courts will need to take into account whether there has indeed been any unjust enrichment of the bank at the expense of the consumer and whether such a consumer action constitutes an abuse of rights[4].
The responsibility for making the final decision as to whether the borrower is entitled to additional compensation, going beyond the reimbursement to the borrower of the monthly instalments paid, has thus been shifted to the national courts.
In this context, it is worth quoting the view of the referring court with regard to the potential claims of borrowers, which stated in its question that there is no justification for creating the possibility (to the consumer – author’s note) of asserting so many claims simultaneously, as otherwise the principle of proportionality would be infringed. According to that court, to grant such a possibility would also conflict with the principle of legal certainty, which must be understood as meaning that, if an agreement is declared invalid in its entirety, both parties are obliged to repay all the monetary consideration provided in performance of that agreement, to the exclusion of any other claim.
However, as regards analogous claims of the bank (being a trader), the Court took a critical stance[5], however leaving the final assessment of the possibility of formulating such claims under Polish law to the national courts. According to the CJEU, a bank may not receive compensation for the adverse effects of the annulment of a loan agreement where those effects are the result of the unlawful conduct of the trader itself.
A different approach would, according to the CJEU, deprive Directive 93/13 of its effectiveness and frustrate the intended purpose of Articles 6(1) and 7(1) of Directive 93/13, which is to effectively deter traders from using prohibited contractual terms.
The Court’s views were not altered by arguments – raised both by the bank, litigated against in the case in question and by the Polish Financial Supervision Authority (KNF) – as to the total loss of profit by the trader and the threat to the stability of financial markets in Poland and across the EU.
The banking community has previously warned that a CJEU decision coinciding with the Advocate General’s Opinion could generate losses for the sector of around PLN 100 billion.
In this context, it is interesting that the CJEU emphasises the need for restoring the legal and factual situation that the consumer would have been in if that unfair term had not existed[6].
It seems to have escaped the attention of the CJEU as to what a privileged position the CHF mortgage borrowers are in (vis-à-vis the banks and also vis-à-vis the borrowers who at that time took out loans in PLN – adequately to their income earned in PLN and moreover acting in accordance with the recommendations of the Banking Supervision Commission (KNB) and subsequently then the Financial Supervision Authority (FSA) at that time[7]) given that they would now only have to reimburse the bank for the principal of the loan, the purchasing power of which is, after all, much lower after several years.
In addition, borrowers will (as a rule) have used the capital made available by the bank to purchase real estate, the value of which will have increased dramatically in the meantime, over the course of several years from the conclusion of the loan agreement. This raises the fundamental question as to what extent, in the reality of CHF mortgage disputes in Poland, the allegation of “unfairness” of the terms of CHF loan agreements is currently being instrumentally used by borrowers, especially in a situation where these borrowers had a creditworthiness in PLN (albeit usually lower), but nevertheless decided to take on debt for a higher amount in CHF.
Moreover, in situations where the CHF loans challenged in court have already been repaid, and the relief sought is for the banks to repay all the consideration provided under an already performed agreement, the question also arises as to whether the need to challenge the allegedly prohibited contractual terms arose due to the violation of any interests of the consumers, or whether it stems from a desire of the consumers to use the law to obtain free financing for their investments over several years and to enrich themselves due to a significant change in the value of the properties purchased years ago.
However, it must be emphasised that in its judgment the CJEU defined the potential claims as ‘compensation’, while, as we know, the legal nature of each claim is different.
The final decision as to whether the ruling also applies, for example, to the indexation of the loan principal will therefore also be up to the national court.
It is worth recalling that the legitimacy of the bank’s claim concerning the indexation of the capital made available was upheld by the Regional Court in Warsaw, XXV Civil Division in its judgment of 10 February 2023, Case No. XXV C 1039/20.
Accordingly, the question of admissibility and legitimacy of such claims in the Polish legal system remains open.
Implications of the judgment
The CJEU judgment obviously does not resolve all the dilemmas related to CHF loan cases (including the assessment of whether a given loan agreement is indeed invalid, as well as the assessment of the merits of the claims raised by the parties in relation to such invalidity, is a matter exclusively for the national court hearing the case), but may nevertheless cause an increase in the number of court disputes, and thus increase the, already unprecedented, burden of CHF loan cases on courts.
This judgment may also undoubtedly affect the financial situation of banks (if only by forcing them to significantly increase their level of reserves) – with potentially negative consequences for the entire economy, of which banks are, after all, an important (if not key) part.
In the context of subsequent questions referred for a preliminary ruling by the Polish courts and in view of the ever-increasing burden of CHF loan cases on the judiciary, a solution could be a law, which, however, has for a long time remained only in the phase of old election promises, declarations and plans.
At the beginning of its judgment, the CJEU stressed that Directive 93/13 does not expressly govern the consequences of the invalidity of a contract concluded between a seller or supplier and a consumer after the excision of the unfair terms in that contract, which would suggest that it is legitimate to introduce such a solution in national legislation. Finally, an alternative to litigation is the conclusion of a (court or out-of-court) settlement agreement by the parties, an area in which banks are currently showing increased activity.
See also: Questions and answers following CJEU judgment C-520/21 of 15 June 2023
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[1] The judgment with the reasoning (Polish language version) can be found here.
[2] Cf. par. 52 of the Judgment
[3] Operative part of the CJEU Judgment: “Article 6(1) and Article 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as not precluding a judicial interpretation of national law according to which the consumer has the right to seek compensation from the credit institution going beyond reimbursement of the monthly instalments paid and the expenses paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served, provided that the objectives of Directive 93/13 and the principle of proportionality are observed”
[4] Cf. par. 51 of the Attorney General’s Opinion of 16 February 2023.
[5] Operative part of the CJEU Judgment: “Article 6(1) and Article 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts must be interpreted as precluding a judicial interpretation of national law according to which the credit institution is entitled to seek compensation from the consumer going beyond reimbursement of the capital paid in respect of the performance of that agreement together with the payment of default interest at the statutory rate from the date on which notice is served”
[6] Cf. paras. 57 and 61 of the Judgment
[7]Cf. e.g. Recommendation of S KNF of 2006.
