New ECJ ruling – possible solution for the Swiss Franc case?
The Court of Justice of the European Union (“CJEU”) issued on September 20, 2017 judgement C-186/16 (the “Judgement”), which could have significant consequences in the Republic of Croatia in context of the Swiss Franc case.
The Judgment is related to the request of the Court of Appeal in Oradea (Romania) for a preliminary ruling concerning the interpretation of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. Ms Ruxandra Paula Andriciuc and sixty eight other clients of Banca Românească SA requested from the Romanian local court to determine whether consumer loan contracts terms related to the foreign currency clause are fair. After the dispute came before the appellate court in Oradea, it submitted the request for preliminary ruling to the CJEU to interpret the meaning of above-mentioned European law applicable to the dispute. The
CJEU ruled that “…financial institutions must provide borrowers with adequate information to enable them to take well-informed and prudent decisions and should at least encompass the impact on instalments of a severe depreciation of the legal tender of the Member State in which a borrower is domiciled and of an increase of the foreign interest rate.” This would mean that currency clauses in consumer loan contracts must be drafted in plain intelligible language so that consumer can understand it not only at the formal and grammatical level, but also in terms of its effects.
The significance of the Judgement in the context of the Swiss Franc case is reflected in the fact that Croatian banks implemented the same currency clause in consumer loan contracts without proper disclosure of its actual effects. Banks did not set out the possible variations in the exchange rate and the risks inherent in taking out a loan in a foreign currency in case where the consumer borrower does not receive income in that currency. Croatian CHF borrowers could therefore not foresee the real consequences of the Swiss Franc currency clause and exposure to a foreign exchange risk.
The Judgement may have an impact on the Republic of Croatia in the light of investment arbitration. Due to unfavourable economic effects of the CHF consumer loans, Croatia passed the amendments to the Credit Institutions Act and the Consumer Credit Act. With these amendments banks will be required to convert the CHF denominated loans into EURO denominated loans. Banks deemed such statutory obligation as a breach of the international obligations arising from Bilateral Investment Treaties. Consequently, the banks filed claims before International Centre for Settlement of Investment Disputes (“ICSID”) seeking compensation for incurred losses.
Croatian courts already brought judgements regarding Swiss Franc consumer loans. It is to be seen if Croatian CHF borrowers will seek damage compensation from the Republic of Croatia, whereby the Judgement could be used for arguing in favour of consumers’ rights to damages.
