The matter at hand

In mortgage enforcement proceedings initiated by the Spanish bank Bankia, the borrowers took the position that the mortgage contract contained terms contrary to the general prohibition of unfair commercial practices laid down in Article 5(1) of the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market.  In addition, they asserted that the conditions enabling them to avoid enforcement and to discharge the debt by giving the property in payment while remaining there as tenants were satisfied in accordance with the Code of Good Banking Practice, so that, being bound by that code, Bankia should have accepted the giving of the property in payment as suggested by the defendants in the main proceedings. On this basis, they lodged an objection to those proceedings with the referring court.

The referring questioned whether Bankia’s actions constitute unfair commercial practices for the purposes of that Directive. In that regard, the court explained that, under national law, an objection to mortgage enforcement proceedings may be based only on one of the grounds exhaustively listed in the relevant national provisions, which did include the existence of an unfair term in the agreement but not the existence of unfair commercial practices, which can be reviewed only by way of a separate action. However, the bringing of such an action would not entail a stay of the mortgage enforcement proceedings, as the court adjudicating on the substance would not have jurisdiction to stay those proceedings according to the applicable national provisions.

In that context, the referring court asked the ECJ, in essence, whether EU law enabled it to review the alleged unfair commercial practice during the mortgage enforcement proceedings, just as Directive 93/13 (on unfair terms in consumer contracts) enables it to do with regard to unfair terms, and to assess the validity of the loan agreement secured by a mortgage. In addition, it questioned whether national laws which do not ensure compliance with a code of conduct if the trader decides not to apply that code, is in accordance with the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market.

The judgment of the ECJ

With reference to its judgment in UPC Magyarország (C-388/13), the ECJ states that the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market “restricts itself to providing, in Article 5(1) thereof, that unfair commercial practices ‘shall be prohibited’ and that, accordingly, it leaves the Member States a margin of discretion as to the choice of national measures intended, in accordance with Articles 11 and 13 of that directive, to combat those practices, on condition that they are adequate and effective and that the penalties thus laid down are effective, proportionate and dissuasive (paragraph 31). In addition, the ECJ notes that pursuant to recital 9 of that directive, it is without prejudice to EU and national rules on contract law, including the rules on the validity, formation or effect of a contract. “Consequently, a contract being used as an enforceable instrument cannot be declared invalid solely on the ground that it contains terms that are contrary to the general prohibition of unfair commercial practices laid down in Article 5(1) of that directive” (paragraph 33).

The ECJ rejects the European Commission’s assertion that the judgment of the ECJ in Aziz (C-415/11), delivered against the background of Directive 93/13 (on unfair terms in consumer contracts), must be extended to the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market “given that, although those directives aim to provide a high level of protection for consumers, they nonetheless pursue that objective by different means” (paragraph 36). The ECJ explains that Directive 93/13 clearly provides that unfair terms are not to be binding on the consumer, and that it is for this reason that the ECJ has held that procedural rules impair the protection sought by that directive, in so far as they render it impossible for the court adjudicating on the substance — before which the consumer had brought proceedings claiming that the contractual term on which the right to seek enforcement was based was unfair in the light of Directive 93/13 — to grant interim relief capable of staying or terminating the mortgage enforcement proceedings, where such relief was necessary to ensure the full effectiveness of its final decision. This is not the case as regards the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market, as this directive merely requires Member States to ensure that adequate and effective means exist to combat unfair commercial practices, with the purpose of putting an end to such practices.

The ECJ concludes that, accordingly, “solely on the basis of the provisions of [the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market], a contractual term cannot be declared invalid even if it was agreed on between the parties to the contract on the basis of an unfair commercial practice” (paragraph 43).

That being said, the ECJ stresses that where the court hearing mortgage enforcement proceedings reviews the validity of the enforceable agreement in the light of Directive 93/13, it will be open to that court to assess, in the context of that review, the unfairness of a commercial practice on which that agreement was based. “Although a finding that a commercial practice is unfair is not such as to establish, automatically and on its own, that a contractual term is unfair, it is one element among others on which the competent court may base its assessment of the unfairness of contractual terms, an assessment which, under Article 4(1) of Directive 93/13, must take all the circumstances of the particular case into account” (paragraph 49)).

Having regard to the foregoing, the ECJ rules that answer to the first question is that the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market must be interpreted as not precluding national legislation which prohibits the court hearing mortgage enforcement proceedings from reviewing, of its own motion or at the request of the parties, the validity of the enforceable instrument in light of the existence of unfair commercial practices and, in any event, prohibits the court having jurisdiction to rule on the substance regarding the existence of those practices from adopting any interim measures, such as staying the mortgage enforcement proceedings (paragraph 51).

As to the invoked code of conduct, the ECJ holds that it is true that Article 6(2)(b) of the Unfair Commercial Practices DirectiveDirective No 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market provides that non-compliance by a trader with a code of conduct may constitute an unfair commercial practice, but that the directive does not require the Member States to provide for there to be direct consequences for traders solely on the ground that they have not complied with a code of conduct after subscribing thereto. Member States are therefore not required to confer a legally binding nature on a code of conduct.