Courts must assess unfair terms in consumer contracts, says ECJ

Out-Law News | 04 Jun 2009 | 5:05 pm | 3 min. read

Courts in the EU must examine and rule on terms in consumer contracts that may be unfair even if no consumer has complained about them, the European Court of Justice (ECJ) has said. The duty will exist when a company seeks to enforce a consumer contract.

The European Union's Directive on unfair terms in consumer contracts governs contracts because consumers have no bargaining power when presented with pre-written contracts to sign. It says that any term that is unfair will not be binding.

A Hungarian woman was taken to court by her mobile phone provider Pannon. It enforced a term of its contract with her which said that the court in Budaörsi had jurisdiction over the contract. The woman, Sustikné Győrfi, lived 275 kilometres away from Budaörsi. She receives invalidity benefit and there is no direct public transport between where she lives and Budaörsi.

The Budaörsi court said that the normal place of jurisdiction would be the court where Győrfi lives, and asked the ECJ whether it had the right or an obligation to examine the contract term governing jurisdiction for unfairness, even if the consumer in question had not raised an objection to its fairness.

The ECJ, the European Union's highest court, said that the court had not only the right to make its own analysis of the contract's fairness, but an obligation to do so. Only if courts do that, it said, are consumers protected in the way the EU legislation envisages.

"The system of protection introduced by the Directive is based on the idea that the consumer is in a weak position vis-à-vis the seller or supplier, as regards both his bargaining power and his level of knowledge," said the ECJ ruling. "This leads to the consumer agreeing to terms drawn up in advance by the seller or supplier without being able to influence the content of those terms."

Referring to an earlier ECJ ruling involving Salvat Editores, the ruling said that "the aim of Article 6 of the Directive would not be achieved if the consumer were himself obliged to raise the unfairness of contractual terms, and that effective protection of the consumer may be attained only if the national court acknowledges that it has power to evaluate terms of this kind of its own motion".

"Article 6(1) of the Directive must be interpreted as meaning that an unfair contract term is not binding on the consumer, and it is not necessary, in that regard, for that consumer to have successfully contested the validity of such a term beforehand," it said.

The ruling said that previous ECJ decisions indicated that courts had not only a right but a duty to assess terms on behalf of consumers.

"The nature and importance of the public interest underlying the protection which the Directive confers on consumers justify the national court being required to assess of its own motion whether a contractual term is unfair, compensating in this way for the imbalance which exists between the consumer and the seller or supplier," it said.

"The court seised [i.e. having ownership] of the action is therefore required to ensure the effectiveness of the protection intended to be given by the provisions of the Directive. Consequently, the role thus attributed to the national court by Community law in this area is not limited to a mere power to rule on the possible unfairness of a contractual term, but also consists of the obligation to examine that issue of its own motion," it said.

The ECJ was also asked what factors should be taken into account to determine fairness. It said that distance, which was the primary concern in Győrfi's case, could itself deny people access to justice.

Referring again to the Salvat Editores case, the ruling said that: "a term [deciding jurisdiction] obliges the consumer to submit to the exclusive jurisdiction of a court which may be a long way from his domicile. This may make it difficult for him to enter an appearance. In the case of disputes concerning limited amounts of money, the costs relating to the consumer’s entering an appearance could be a deterrent and cause him to forgo any legal remedy or defence".

"The Court therefore concluded that such a term falls within the category of terms which have the object or effect of excluding or hindering the consumer’s right to take legal action," it said.

The ECJ did say, though, that it could not rule generally on whether a term was unfair, that national courts had to make decisions based on the facts of the case in hand.