European Business Law, the fourth volume in our series, shows how the European authorities simultaneously abolish all restrictions on access to and exercise of economic activities and support the growth of domestic markets, through the harmonization the internal legislation or the enactment of genuinely unified regulations.

European Business Law

Directive No 93/13  fulfills a twofold objective: to protect consumers and prevent any competitive distortion between sellers or providers of services in the context of the sale of their products or services in other Member States. However, it only carries out minimum harmonization since, pursuant to Article 8, the Member States remain free to adopt or maintain more stringent provisions to ensure a higher degree of protection for the consumer. As a harmonization instrument, Directive No 93/13 applies even to situations which do not have a cross-border element, unlike the provisions of the Treaty on the Functioning of the European Union on freedom of movement . Moreover, as a general directive for consumer protection, it is intended to apply in all sectors of economic activity, including that of air fares . An annex to Directive No 93/13 lists the gray terms which may be regarded as unfair. The annex, which is only an indicative list, does not limit the discretion of the national court which is not obliged to declare unfair a term which is included in it or to recognize the validity of a term which is not included in it . However, the contractual terms which reflect mandatory statutory or regulatory  provisions and the provisions or principles of international conventions  to which the Member States or the Union are party, are not subject to the provisions of  the directive (Art. 1(2).

In application of Article 7 of the directive, the Member States must ensure that adequate and effective means exist to prevent the continued use of unfair terms in contracts. Thus, in the absence of harmonization of the national mechanisms for enforcement, the rules fixed by the national legal order of each Member State must satisfy the two conditions: that they are no less favorable than those governing similar domestic actions (principle of equivalence) and do not make it in practice impossible or excessively difficult to exercise the rights conferred on consumers by EU law (principle of effectiveness). The national transitional provision which fixes a time-limit of one month from the day of its publication in the official journal aiming to ensure that consumers, the defendants in mortgage enforcement proceedings in progress in which the normal period within which to object to enforcement has already begun to run or has expired, have the possibility, in the same proceeding, to raise a new ground of opposition which was not foreseen when the legal proceedings concerned were brought, based on the unfairness of contractual terms, is contrary to the principle of effectiveness, not with regard to the length of the period which is reasonable and proportionate, but with regard to the mechanism chosen to start the period running, given that, as the consumers concerned were not personally informed of this new possibility, there is a significant risk that the time-limit will expire without them being able effectively and usefully to exercise their rights . EU law also precludes national legislation which provides that a consumer against whom a credit institution has brought proceedings for the forced performance of a loan agreement is not permitted to plead the existence of unfair terms beyond a period of 15 days from the notification of the first procedural stages, even if the consumer is otherwise entitled to take legal action to establish the existence of unfair terms without being subject to any time-limit, since the solution resulting from the enforcement proceedings may be binding on the consumer before the outcome of the action to establish the existence of unfair terms . On the other hand, the introduction - in the course of pending court proceedings brought by a consumer and seeking to challenge the unfairness of certain terms in a contract concluded with a professional - of an additional level of jurisdiction cannot be regarded as contrary to EU law, where the consumer has in fact been able to bring such proceedings and where the additional legal remedy insofar as it benefits both professionals and consumers, helps to strengthen the effectiveness of the rights which the latter derive from Directive No 93/13 .

The directive only protects consumers it defines in Article 2 as “any natural person who, in contracts covered by this directive, is acting for purposes which are outside his trade, business or profession”. Thus a lawyer who concludes a credit agreement with a bank, in which the purpose of the credit is not specified, is a “consumer” within the meaning of the directive where that agreement is not linked to that lawyer's profession regardless of the fact that the debt is secured by a mortgage taken out by that person in his capacity as representative of his law firm and involves goods intended for the exercise of that person's profession . The employee of an undertaking and his spouse, who conclude a loan contract with that undertaking, reserved, principally, to members of staff of that undertaking, with a view to financing the purchase of real estate for private purposes, must also be regarded as consumers within the meaning of the directive . Legal persons are thus excluded from its scope of application . However, a natural person, who, by means of a novation agreement, has contractually undertaken to repay to a commercial operator, which is a professional lending institution, loans originally granted to a company for purposes inherent in that company’s business activity, constitutes a consumer within the meaning of the directive, in the case where that natural person has no evident link with that company but acted in that way on the basis of links, outside his trade, business or profession, with the person who controlled the company which received the original loans and also with the persons who signed contracts ancillary to the original loan contracts . 

The directive applies to unfair terms in contracts concluded between a seller or supplier and a consumer, with the exception of those terms which reflect mandatory statutory or regulatory provisions. It defines those contracts to which it is applicable by reference to the status of the contracting parties . Subject to contractual terms which reflect a mandatory national provision, Directive No 93/13 therefore applies to a residential tenancy agreement concluded between a landlord acting for purposes relating to his trade, business or profession and a tenant acting for purposes which do not relate to his trade, business or profession . It also applies to provisions in general terms and conditions, incorporated into contracts concluded between a supplier and a consumer, which reproduce a rule of national law applicable to another category of contract to which they are not subject . The directive also applies to standard form contracts for legal services concluded by a lawyer with a natural person acting for purposes which are outside his trade, business or profession . Likewise, a free educational establishment, which, by contract, has agreed with one of its students to provide repayment facilities for sums due by the latter in respect of registration fees and costs connected with a study trip, must be regarded, in the context of that contract, as a “seller or supplier” within the meaning of the directive . On the other hand, the legal and regulatory provisions on national mechanisms for enforcement, the rules for giving effect to the grounds of objection allowed in mortgage enforcement proceedings and the powers conferred on the national court fall neither within the scope of Directive No 93/13, nor under the principles of EU law on consumer protection and the balance in the parties' contractual rights and obligations, when there is no contractual term altering the effect or ambit of those national provisions . This is also the case for a contractual term in a contract concluded by a seller or supplier with a consumer if that contractual term reflects the content of a mandatory statutory or regulatory provision, which must be established by the referring court . 

A contractual term which has not been individually negotiated is unfair where, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligation to the detriment of the consumer (Article 3) . A term is regarded as not individually negotiated where it has been drafted in advance without the consumer having been able to influence its substance, particularly in the context of a pre-formulated standard contract (contract of adhesion). The fact that certain aspects of a term or one specific term have been individually negotiated does not exclude the application of this article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a standard form contract. The mere signing of a contract which stipulates that the consumer accepts all terms drawn up in advance by the professional does not rebut the presumption that such terms have not been individually negotiated . The concept of a term which has not been individually negotiated covers, inter alia, a contractual term amended by a mandatory national statutory provision adopted after the conclusion of a contract with a consumer, for the purpose of removing a term which is null and void from that contract . The question whether that significant imbalance exists cannot be limited to a quantitative economic evaluation based on a comparison between the total value of the transaction which is the subject of the contract and the costs charged to the consumer. The existence of a significant imbalance does not necessarily require that the costs charged to the consumer by a contractual term have a significant economic impact having regard to the value of the transaction in question, but can result solely from a sufficiently serious impairment of the legal situation in which that consumer, as a party to the contract, is placed by reason of the relevant national provisions, whether this be in the form of a restriction of the rights which, in accordance with those provisions, he enjoys under that contract, or a constraint on the exercise of those rights, or the imposition on him of an additional obligation not envisaged by the national rules .  Thus, an express termination clause and a penalty clause in a contract concluded by a consumer with a seller or supplier, drafted in advance by the latter and drawn up exclusively in his favor, are likely to constitute unfair terms . This is also true of a jurisdiction clause, incorporated in a contract between a consumer and a seller or supplier, that was not  subject to an individual negotiation and which confers exclusive  jurisdiction on the courts in whose territory that seller or supplier is  based . On the other hand, a clause which has the object or effect of giving the consumer good reason to believe that he is required to fulfill all his contractual obligations, even though he considers that certain payments are not due, is not unfair  provided that it does not alter the consumer's legal position in view of the applicable national legislation . This is also the case of a contractual term which authorizes the seller or supplier to assess unilaterally whether the consumer's obligations were performed in accordance with the contract. Further, a contractual term which has not been individually negotiated and which has the effect or object of reversing the burden of proof to the detriment of the consumer does not qualify as unfair without further examination . Similarly, a term relative to the management charges of a loan contract, which does not make it possible to unambiguously identify the nature of the services  provided in return for the consideration supplied does not, in principle, cause a significant  imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer notwithstanding the requirement of good faith . On the other hand, in a loan agreement concluded with a consumer, a non-negotiated term fixing the default interest rate applicable is unfair when the consumer who is late performing his payment obligation is required to pay a disproportionately high sum in compensation, as the rate of which exceeds by more than two percentage points the ordinary interest rate provided for in that agreement .

Under Article 4(2), “assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other, insofar as these terms are in plain intelligible language” . The Court of Justice  held that the requirement that a contractual term must be drafted in plain intelligible language is to be understood as requiring not only that the relevant term should be grammatically intelligible to the consumer, but also that the contract should set out transparently the specific functioning of the mechanism to which the relevant term refers and the relationship between that mechanism and that provided for by other contractual terms, so that that consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it. Financial institutions must provide borrowers with adequate information to enable them to take well-informed and prudent decisions, insofar as a term relating to the foreign exchange risk must be understood by the consumer both at the formal and grammatical level and also in terms of its actual effects, so that the average consumer, who is reasonably well informed and reasonably observant and circumspect, would not only be aware of the possibility of a depreciation of the national currency in relation to the foreign currency in which the loan was denominated, but would also be able to assess the potentially significant economic consequences of such a term with regard to his financial obligations . According to the Court , the terms of a consumer credit agreement are not drafted in plain intelligible language where they neither mention the APR (annual percentage rate of change) - and contain only a mathematical formula for the calculation thereof without the information necessary to make that calculation - nor the rate of interest. On the other hand, the requirement that a contractual term must be drafted in a clear and comprehensible manner does not require contractual clauses that have not been individually negotiated contained in a loan agreement concluded with consumers, which precisely set out the amount of management charges and a disbursement commission payable by the consumer, their method of calculation and and the date when they have to be paid, must also indicate all the services provided in return for the amounts charged .

Unfair terms are not binding on the consumer. The conditions by which unfair terms are voided are provided by the national law of each Member State (Art. 6). Gaps in a contract caused by the removal of the unfair terms contained in that contract cannot be filled solely on the basis of national provisions of a general nature which provide that the effects expressed in a legal transaction are to be supplemented by the effects arising from the principle of equity or from established customs, which are neither supplementary provisions nor provisions applicable where the parties to the contract so agree . However, it may provide that it will still bind the parties if it is capable of continuing in existence without the unfair provisions. According to the Court of Justice, a Member State may provide that a contract concluded with a consumer by a trader which contains one or more unfair terms is to be void as a whole where that will ensure better protection of the consumer . Member States are not precluded from adopting annulment procedures producing effects with regard to all consumers having concluded a contract to which the same terms apply, including with regard to those consumers who were not party to the injunction proceeding brought by a consumer protection body . Further, Union law does not preclude the sanctioning of the unfairness of a non-negotiated term fixing the default interest rate in a loan agreement concluded with a consumer by the complete elimination of that interest, while the ordinary interest provided for in that agreement continues to run .

Directive No 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95 of 21 April 1993, 29.

Case C-483/16 Sziber, Szeder, Judgment of 31 May 2018, LawLex202000001649JBJ.

Case C-535/16 Bachman, Order of 27 April 2017, not available in English. 

Case C-74/15 Tarcau v Banca Comerciala Intesa Sanpaolo România SA, Judgment of 19 November 2015, LawLex201700001304JBJ: the directive applies to a contract providing immovable property as security or to a guarantee contract concluded between a natural person and a credit institution in order to guarantee the obligations which a commercial company has entered into with that institution in the context of a credit agreement, where that natural person has acted for purposes outside their trade, business or profession and has no connection in terms of function with that company.

Case C-488/11 Asbeek Brusse, Judgment of 30 May 2013, LawLex201300000881JBJ.

Case C-92/11 RWE Vertrieb AG, Judgment of 21 March 2013, LawLex201300000471JBJ.

Case C-537/13 Siba v Devenas, Judgment of 15 January 2015, LawLex201500000049JBJ.

Case C-147/16  Karel de Grote - Hogeschool Katholieke Hogeschool Antwerpen VZW, Judgment of  17 May 2018, LawLex201800000725JBJ.

Case C-280/13 Barclays Bank (SA), Judgment of 30 April 2014, LawLex201400000640JBJ.

Case C-34/13, Monica Kušionova, Judgment of 10 September 2014, LawLex201400000884JBJ.

See Case C-415/11 Mohamed Aziz, LawLex201300000362JBJ: in order to assess whether the imbalance arises “contrary to the requirement of good faith”, it must be determined whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably assume that the consumer would have agreed to the term concerned in individual contract negotiations.

Case C-211/17  SC Topaz Development SRL, Order of 24 October 2019, not available in English.

Case C-290/16 Air Berlin plc & Co. Luftverkehrs KG, Judgment of 6 July 2017, LawLex201700002058JBJ.

Case C-51/17 OTP Bank Nyrt., Judgment of 20 September 2018, LawLex201800001347JBJ: even if a contractual term relating to the foreign exchange risk is not excluded from the scope of Directive No 93/13, per se, that provision does not cover terms which reflect mandatory provisions of national law, inserted after the conclusion of a loan contract concluded with a consumer and intended to remove a term which is null and void from that contract, by imposing an exchange rate set by the National Bank.

Case C-226/12 Constructora Principado (SA), Judgment of 16 January 2014, LawLex201400000030JBJ.

Case C-211/17  SC Topaz Development SRL, Order of 24 October 2019, not available in English, cited above.

Case C-519/19 Ryanair DAC, Judgment of 18 November 2020,  .

Case C-34/18 Ottília Lovasné Tóth v ERSTE Bank Hungary Zrt, Judgment of 19 September 2019, LawLex201900001260JBJ.

Case C-621/17 Kiss v CIB BAnk Zrt, Judgment of 3 October 2019, LawLex202100004976JBJ.

Case C-96/16, C-94/17 Banco Santander SA, Escobedo Cortés, Judgment of 7 August 2018, LawLex201800001207JBJ.

Case C-212/20 Compagnie des pêches de Saint-Malo, Judgment of 18 November 2021, LawLex202000002408JBJ, which recalls this requirement when the terms of the contract concluded between the seller or supplier and the consumer are in writing.

Case C-26/13 Árpád Kásler, Judgment of 30 April 2014, LawLex201400000641JBJ, which added that the term “subject matter of the contract” of Art. 4(2), only refers to an essential obligation of the agreement which, as such, characterizes it.

Case C-478/99 Commission v Sweden and others, Judgment of 7 May 2002, LawLex200900000953JBJ ; CJUE, 14 mars 2013, Mohamed Aziz, aff. C-415-11

Case C-51/17 OTP Bank Nyrt., Judgment of 20 September 2018, LawLex201800001347JBJ.

Case C-448/17 EOS KSI Slovensko s.r.o. Judgment of 20 September 2018, LawLex201800001355JBJ.

Case C-621/17 Kiss v CIB BAnk Zrt, Judgment of 3 October 2019,LawLex202100004976JBJ

Case C-260/18 Dziubak v Raiffeisen Bank International AG, Judgment of 3 October 2019, LawLex202000001652JBJ.

Case C-453/10 Jana Perenicová, Judgment of 15 March 2012, LawLex201200000615JBJ.

Case C-472/10 Nemzeti Fogyasztóvédelmi Hatósàg v Invitel, Judgment of 26 April 2012, LawLex201200001761JBJ.

Case C-8/14 BBVA (SA) v Peñalva López, López Durán, Fernández Gabarro, Judgment of 29 October 2015, LawLex201500001371JBJ.

Case C-75/19 MF v BNP Paribas Personal Finance Paris SA Sucursala Bucuresti, Secapital Sàrl, Order of 6 November 2019, not available in English.

Case C-381/19 SC Banca E SA, Order of 15 January 2020, not available in English.

Case C-110/14 Horatiu Ovidiu Costea, Judgment of 3 September 2015, LawLex201500001033JBJ.

Case C-590/17 Pouvin v Electricité de France, Judgment of 21 March 2019, LawLex201900000382JBJ.

Case C-541/99 and C-542/99 Cape and Idealservice MN RE [2001] ECR I-9049, LawLex201100000276JBJ. Case C-590/17 Pouvin v Electricité de France, Judgment of 21 March 2019, LawLex201900000382JBJ: but, an undertaking must be regarded as a “seller or supplier” for the purposes of the directive on unfair terms, where it concludes a loan contract reserved, principally, to members of staff with a view to financing the purchase of real estate for private purposes even if granting loans does not constitute its main activity.

218. Scope of application