On 16 January 2014, the Court of Justice of the European Union ("ECJ") responded to a preliminary question from a Spanish court relating to unfair consumer contract terms (Case C-226/12, Constructora Principado SA v. José Ignacio Menéndez Álvarez).
Under the property purchase contract at issue, the consumer was responsible for paying various surcharges such as a tax on the increase in the value of urban land and various utilities. After paying these charges, the consumer claimed that they should be reimbursed because of the unfair nature of this contractual term which had created a significant imbalance in the rights and obligations of the parties. Under general Spanish law, the seller has the obligation to pay these charges.
The Spanish Court sought guidance from the ECJ as to the interpretation of the term "significant imbalance", which is one of the general criteria, set out in Article 3(1) of Council Directive 93/13/EEC on unfair terms in consumer contracts (the "Directive"), for defining an unfair term.
The referring court essentially sought to determine whether obliging consumers to pay for expenses that, by law, are to be borne by the seller is, in itself, enough to demonstrate the existence of a significant imbalance when determining the fairness of a contractual term.
The ECJ applied the test for significant imbalance contained in its earlier case law, under which the national court must look at the rules that would apply in the absence of an agreement between the parties. If, based on that analysis, the consumer may be said to have been placed in an unfavourable position, a significant imbalance may exist.
The ECJ held that a national court must not, therefore, limit its assessment to a simple quantitative economic evaluation based on a comparison of the total value of the transaction which is the subject of the contract and the costs charged to the consumer under that clause. Rather, a significant imbalance may occur solely as the result of a sufficiently serious impairment of the legal situation of a consumer through the contractual provision denying him his legal rights or limiting their enforcement.
Reiterating its judgment in Banif Plus Bank v. Csaba Csipai and Viktória Csipai (judgment of 21 February 2013 in case C-472/11), the ECJ went on to say that the unfairness of a contractual term is to be determined by taking into account the nature of the goods or services involved, and by referring to all the circumstances attending the contract's conclusion, aswell as other contractual clauses (See, VBB on Belgian Business Law, Volume 2013, No. 2, p. 8, available at www.vbb.com).
The ECJ left it to the national court to decide whether, based on the guidance set out by the ECJ for determining the unfairness of a term, a particular contractual term is actually unfair in the circumstances of the case.
In this regard, the ECJ pointed out that the national court must also check whether, as the seller claimed, the consumer had acquired a discount on the sale price in exchange for taking the responsibility to pay surcharges. Interestingly, the ECJ emphasised that it is not sufficient for the seller simply to point to a contractual term providing for such a reduction which has not been individually negotiated to meet its burden of proof.
The ECJ's ruling is a reminder of how important it is for businesses to ensure that suspected unfair contractual terms are assessed and, if necessary, amended. At the very least, such terms should be individually negotiated with the consumer, rather than drafted in advance or included in a standard contract. This is because the Directive does not apply to individually negotiated terms. However, it is important to recall that the burden of proving that a term has been individually negotiated rests on the seller or supplier.
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