Lessons learned from recent ECJ case law

ECJ C-625/21 - VB v GUPFINGER Einrichtungsstudio GmbH

The recent decision ECJ C-625/21 - VB v GUPFINGER Einrichtungsstudio GmbH ("Gupfinger") has had a huge impact on the design of GTC. At its core, Gupfinger deals with the question, whether supplementary national law is precluded if the sellers' or suppliers' GTC contain an unfair term.

The underlying case: A consumer bought a kitchen for EUR 10,924.70 and withdrew from the contract because he eventually could not buy the house for which the kitchen was intended. The consumer had no right to withdraw and the furniture store's GTC contained the following term: "If the customer withdraws from the contract – without being entitled to do so – or requests its cancellation, we have the choice of insisting on the performance of the contract or agreeing to the cancellation of the contract; in the latter case, the customer is obliged to pay, at our discretion, a flat-rate compensation amounting to 20% of the gross invoice amount or the loss actually suffered."

Interestingly, the furniture store did not request compensation based on the GTC but instead requested to receive compensation based on supplementary national law (and claimed for the compensation of damages). Nevertheless, the consumer objected that the GTC is unfair and that his liability has to be limited to payment of no more than the flat-rate compensation.

The Austrian Supreme Court filed a preliminary ruling to the ECJ stating that the flat-rate compensation in the term must be seen as unfair and is, therefore, void. The referring court question was if this result - which would relieve the consumer of any obligation to pay compensation for the damage caused - is contrary to the values of the civil law, aiming for a fair balance between the interests of the parties involved.

Indeed, the ECJ declared that if the contract may exist without the unfair and, therefore, void term, the seller or supplier is not entitled to seek compensation based on the dispositive law, which would have been applicable in the absence of the unfair term. As a result, the seller or supplier receives no compensation for the damage caused by the consumer.

The fact that the seller does not seek compensation based on the unfair term (not applying the void term) is irrelevant and does not lead to a change in the ECJ's assessment.

The potential implication of this decision should not be neglected, and every user of GTC should consider the following when evaluating them:

Any term in GTC needs to be assessed for its necessity or if the underlying (dispositive) law already suffices. If so, there is no need to include the term in the GTC. If a clause is at risk of being evaluated as unfair, which is - as the past has shown indeed almost every clause - the consequences may be more extensive than the benefit of the self-designed clause.

ECJ decision C-593/22 First Bank

The second ECJ decision C-593/22 First Bank may be perceived almost as a follow-up question on the Gupfinger judgment. In it, the ECJ was approached with the following underlying case:

A consumer entered a loan contract for CHF 78,180, which required the applicant to deposit, at the latest on the due date, the repayment amount in the currency indicated in the repayment schedule. The consumer objected that the terms are unfair and invalid because the consumer bears the foreign exchange risk.

The obligation to repay the loan in the currency as granted (Swiss francs) reflected Article 1578 of the former Romanian Civil Code. The referring court was uncertain how to assess that the term of the underlying case did not refer to the specific article of the Civil Code and was not reproduced or paraphrased. The court therefore questioned if the term should be regarded as "reflecting" the article in civil law.

It should be borne in mind that Article 1(2) of Directive 93/13 clarifies that contractual terms which reflect mandatory statutory or regulatory provisions (among other) must not be subject to the provisions of this Directive.

The ECJ ruled that it is not necessary to quote the national law verbatim or to refer to it expressly. Instead, it suffices that the term used towards the consumer is "substantively equivalent" to the mandatory provision, that it has the "same normative content". The consumer's knowledge that the term used reflects a mandatory statutory or regulatory provision of national law is irrelevant.

Following these two rulings, the user of GTC should first evaluate which terms are indeed crucial to be regulated in deviation from or in addition to the law. Secondly, if a clause describes the content of legal provisions, it should either reproduce the content of the legal provision or describe it in a substantively equivalent manner to avoid the application of Council Directive 93/13/EEC on unfair terms in consumer contracts.

authors: Manuela Zimmermann, Nadja Mihalits-Suitner