A seller or supplier is not expected to anticipate and inform the consumer of subsequent changes to contractual terms which were not foreseeable at the time of the conclusion of the contract, Advocate General (AG) Nils Wahl has recently opined.

This means that in the case of a loan agreement, it is perfectly legal for a bank to impose an obligation to repay a loan in the same foreign currency in which the loan was originally granted.

Such a contractual term cannot be considered as unfair simply because of eventual fluctuations in the exchange rates of a currency.

The EU’s Unfair Contract Terms directive protects consumers in their contractual relationships with traders or service providers, and lays down that the legal requirement for contractual terms be drafted in plain, intelligible language. It provides that a contractual clause may be considered to be unfair if it causes, to the detriment of the consumer, a significant imbalance in the parties’ rights and obligations in terms of the contract.

This unfairness or otherwise of a contractual term must be assessed by taking into account the nature of the goods or services for which the contract was concluded.

All the circumstances at the time of conclusion of the contract must be taken into consideration.

However, the law provides that the clause relating to the actual subject matter of the contract is not taken into account for the purposes of assessing unfairness or otherwise provided that such a clause is drafted in plain intelligible language.

The facts of this case examined by the AG were briefly as follows: A number of persons concluded loan agreements in Swiss francs with a Romanian bank.

The borrowers were obliged to make monthly repayments of the loans in Swiss francs.

The exchange rate between the Swiss franc (CHF) and the Romanian leu (RON) more or less doubled between 2007 and 2014.

The borrowers alleged that the bank was in a position to foresee fluctuations in the CHF exchange rate. They therefore brought an action before the Romanian courts, arguing that the term providing for repayment of the loan in CHF placed the foreign exchange risk on them, thus constituting an unfair term and hence illegal.

A contractual term has to be drafted in plain and intelligible language

The Romanian Court of Appeal seized of the case filed a preliminary reference before the Court of Justice of the European Union (CJEU) requesting guidance as to whether the term at issue ought to be considered as relating to the main subject matter of the contract and whether it was drafted “in plain, intelligible language”.

In the latter case, in terms of the EU’s Unfair Contract Terms Directive, its potentially unfair nature cannot be examined.

The CJEU was also asked to clarify at which moment in time the existence or otherwise of a ‘significant imbalance’ between the rights and obligations of the parties should be assessed.

In his Opinion, Advocate General Nils Wahl took into consideration both the actual wording of the contractual term at issue as well as the factual and legal context in which the loan agreements were concluded.

He observed that loan agreements in foreign currency were generally subject to a lower rate of interest than those in national currency, due to the foreign exchange risk to which may occur in the event of a fall in the value of the national currency.

In the Advocate General’s view, a clause in a loan agreement which stipulates that the borrower must repay the sum in the same currency as that in which it was granted must be considered as falling within the “main subject matter of the contract”.

This therefore means that it cannot as a rule be assessed for unfairness or otherwise if it is drafted in plain, intelligible language.

The AG then proceeded to explain that the requirement for a contractual term to be drafted in plain, intelligible language means that the term in question must be understood by the consumer both on a formal and grammatical level as well as in terms of its concrete effect.

In practical terms, and within the context of the case at hand, this would mean that an average consumer, who is reasonably well informed and observant, would not only be aware of the possibility of a rise or fall in the value of the foreign currency, but would also be able to assess the potentially significant economic consequences of such a term for his financial obligations.

The AG concluded that the requirement for contractual terms to be drafted in plain intelligible language does not mean that the seller or supplier is obliged to anticipate and inform the consumer of subsequent changes which were not foreseeable, such as fluctuations in the exchange rates of the currencies or to bear the consequences of such changes

In so far as the point in time at which the assessment of the existence of a “significant imbalance” between the rights and obligations of the parties ought to take place, the AG opined that a seller or supplier cannot be held responsible for developments subsequent to the conclusion of the contract and which are beyond his control.

Otherwise, not only would disproportionate obligations be imposed on him/her, but the principle of legal certainty would also be undermined.

It is therefore necessary to take into consideration all the circumstances that the seller or supplier could reasonably have envisaged at the time of conclusion of the contract.

One now needs to see whether the CJEU will affirm the views expressed by the AG in his Opinion.

The protection of the weaker party – that is, the consumer – in contractual dealings with traders is the primary objective of the EU’s consumer policy acquis and is often the driving force behind most decisions dealing with consumer laws.

Nonetheless, as is evident from the AG’s Opinion, this does not mean traders are expected to go beyond their obligation to deal in a fair and just way with their clients to the extent of anticipating unexpected conditions which might arise after the conclusion of their dealings.

Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.

mariosa@vellacardona.com