CJEU, judgement of 17 July 2014, Case C-169/14, Sanchez Marcello I, EU:C:2014:2099
CJEU, order of 16 July 2015, Case C-539/14, Sanchez Marcello II, EU:C:2015:508
Equality of arms - Enforcement proceedings concerning mortgaged or pledged assets - EU Consumer Law
The ECJ was asked to clarify the impact of Article 47 CFR on national procedural rules in the field of consumer law. The Court decided whether Article 47 CFR precludes a national legislation according to which, in relation to enforcement proceedings concerning mortgaged or pledged assets, an appeal can be brought only against an order discontinuing the enforcement proceedings or disapplying an unfair clause, and not against an order rejecting the objection of unfairness of the contractual term.
The Court of First Instance n. 3 of Castellon rejected the objection of a consumer regarding the enforcement of a bailiff act that allowed a bank (Banca Bilbao) to demand payment of the entire loan together with ordinary and default interest and the enforced sale of the mortgaged property.
The decision was appealed before the Audiencia Provencial. Although neither the consumer nor the First Instance Court had raised the existence of unfair terms, the Audencia Provencial deemed that the relevant provisions applicable to the case - namely, Art. 695.4 CCP (which at the time permitted to bring an appeal for appeal only in case of dismissal of the execution based on the unfairness of the title) – could be incompatible with the objective of consumer protection pursued by Directive 93/13, and with the right to an effective remedy as guaranteed by Art. 47 CFR.
Despite similar questions were pending before the Constitutional Court, on 2 April 2014 the Audiencia Provencial de Castellon made a preliminary reference to the CJEU, asking the following:
“[whether] it is compatible with Article 7(1) of Directive 93/13 a procedural rule, such as that laid down in Article 695(4) CCP, which, as regards the right to an appeal against a decision determining the outcome of an objection to enforcement proceedings in relation to mortgaged or pledged assets, to permit an appeal to be brought only against an order discontinuing the proceedings or disapplying an unfair clause and to exclude an appeal in other case.
[Whether] the principle of the right to an effective remedy, to a fair trial and to equality of arms, guaranteed by Article 47 of the Charter, precludes a provision of national law, such as that laid down in Article 695(4) CCP”.
The CJEU decided the case in a very short time (the decision was indeed published on 17 July 2014).
The Court, which examined the two questions together, focussed on whether the national procedural provisions at issue respected the fundamental right to effective judicial protection, as laid down by Article 47 CFR. The Court affirmed that, although EU law does not generally require a second level of jurisdiction, in the specific case at issue the right to appeal should be granted. This was due to the fact that the foreclosure proceeding had as its object the consumer’s family home, and it was based on an enforceable bailiff instrument that was not subject to an ex ante judicial scrutiny.
It is important to note that the CJEU analysed the Spanish procedural system as a whole: first, it considered that the national judge, pursuant Art. 552(1) CCP, had only a discretionary power to examine of its own motion the unfairness of contract clauses; secondly, it acknowledged that the consumer could claim the unfairness of the clause in a separate declaratory proceeding, but these proceedings may not affect the foreclosure proceedings in the absence of the possibility for the judge to make an order for interim relief with suspensive effect of the latter. The result of this system was that the consumer could only be granted a purely compensatory remedy, which, according to the CJEU, could not be deemed as providing effective judicial protection to the consumer.
The Court also stressed that the limitation of the consumer’s right of appeal “accentuate[d] the imbalance existing between the parties to the agreement” (para. 43), and that remedying such an imbalance was the objective sought by the Unfair Contract Terms Directive, in particular through judicial scrutiny of unfair contract terms.
Thus the CJEU decided that:
“Article 7(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, read in conjunction with Article 47 [CFR] must be interpreted as precluding a system of enforcement, such as that at issue in the main proceedings, which provides that mortgage enforcement proceedings may not be stayed by the court of first instance, which, in its final decision, may at most award compensation in respect of the damage suffered by the consumer, inasmuch as the latter, the debtor against whom mortgage enforcement proceedings are brought, may not appeal against a decision dismissing his objection to that enforcement, whereas the seller or supplier, the creditor seeking enforcement, may bring an appeal against a decision terminating the proceedings or ordering an unfair term to be disapplied”.
The case concerned national procedural provisions that, although were not adopted specifically on the purpose to implement EU law, in practice had such effect, because they came at issue in relation to a proceedings falling within the scope of the Unfair Contractual Terms Directive.
This is an interesting case from the perspective of the scope of application of the Charter, because the CJEU and the AG endorsed different solutions on this point (thus, they diverged as regards the interpretation of Article 51(1) CFR). In effect, in his Opinion, the AG contested the applicability of the Charter to the case. It must be stressed, however, that the position of the CJEU (whereby a national provision that affects the application of EU law, despite the fact that it was not adopted on this specific purpose) is confirmed by extensive case law.
After the judgement of 17 July 2014, the Spanish legislator reacted quickly to the decision of the European Court of Justice and enacted on 5 September 2014 the Real Decreto Ley 11/2014 (Spanish BOE nº 217, 6 September 2014, pag. 69767, hereinafter RDL 11/2014).
According to the Audencia Provencial de Castellon, the legislative reform did not fully implement the decision of the CJEU. Thus, on 10 October 2014, it notified to the parties its intention to present a second preliminary reference within the same proceeding.
The Court delivered its Order on 16 July 2015 and the Audencia Provencial de Castellon then decided the case on 3 September 2015.
National Law
Sanchez Morcillo I
Sanchez Morcillo II
On the system of protection for consumers
On the principle of equivalence and effectiveness
On the application of Article 47 CFR
On the principle of equality of arms
The ECJ decided on two references for preliminary ruling issued by the Audiencia Provencial de Castellon (Court of Appeal, Spain).
Background of the dispute
On 14 May 2013, the Law (Ley) No. 1/201329 amended several provisions of the Spanish Code of Civil procedure and related laws, with a view to reinforcing the protection of mortgage debtors, notably those belonging to vulnerable categories. The reform was enacted following to the CJEU’s decision in Case C?415/11 Aziz.
In particular, the Spanish legislator introduced a new ground of objection based on the unfairness of the contractual terms within the foreclosure proceeding. This ground of objection led to an incidental and separate procedure within the executive one, where the parties could only submit the documents that they consider pertinent, as provided by art. 695(2) CCP. If the judge deemed the ground as well?founded, the enforcement was suspended and the execution was terminated. By contrast, if the judge deemed the ground as unfounded, the enforcement continued. According to 695(4) CCP, the order declaring the unfairness of the clause and the dismissal of the execution or non?application of the unfair term was subject to appeal. On the contrary, the order rejecting the objection was not subject to appeal.
This different treatment as regards the possibility of appeal was (repeatedly) brought to the attention of the Spanish Constitutional Court by the Tribunal of Lower Instance of Aviles, which questioned the compatibility of 695(4) CCP with the principle of equality of arms. This principle is indeed granted protection under Art. 24(1) of the Spanish Constitution.
The Spanish Constitutional Court, however, declared the questions inadmissible, stating that the Tribunal of Aviles did not justify the connection between the specific provision and the solution of the proceedings.
Interestingly, the question was brought also to the attention of the CJEU (actually, before the Spanish Constitutional Court declared the pending requests inadmissible)