On 14 March 2013, the Court of Justice of the European Union (CJEU) ruled, in Mohamed Aziz v Catalunyacaixa , that evictions carried out in Spain under harsh property repossession laws violate EU consumer protection laws.
The Spanish Commercial Court by way of preliminary reference asked the CJEU about firstly, the compatibility of Spanish legislation on mortgage enforcement proceedings with Council Directive 93/13 on unfair terms in consumer contracts, and secondly, about the essential characteristics of the concept of ‘unfair term’ within the meaning of that directive.
Under Spanish legislation, consumers are not able to contest the fairness of contract terms in mortgage enforcement proceedings, but only in separate, declaratory proceedings, which have no bearing upon the enforcement of the loan agreement. If a court decides that a term of a loan agreement is unfair, the judgment can only enable the debtor to obtain protection of a purely compensatory nature after the enforcement proceedings have taken place. The judgment would not allow the person evicted from their home the ability to recover ownership of their property.
In considering the first question, the CJEU found that where a term in a loan agreement is found to be unfair, Spanish legislation precludes the court from staying mortgage enforcement proceedings and only provides for subsequent protection that is purely compensatory in nature. The Court found that this impairs the effectiveness of the protection which the Directive seeks to achieve. The CJEU emphasised that in the case of the family home, the protection of a purely compensatory nature is incomplete and insufficient as it means that consumer protection is limited to payment of damages and interest only and does not make it possible to prevent the definitive and irreversible loss of the home.
The second question sought clarification of the concept of ‘unfair term’ under the Directive. The Unfair Contract Terms Directive provides that, in a business to consumer contract, any term which is not individually negotiated is invalid, and thus unenforceable, if it is deemed to be “unfair”. A term is unfair if it “causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”. The CJEU stated that, where a ‘significant imbalance’ arises, the term must be assessed in conjunction with rules which would apply under national law in the absence of an agreement by the parties. Further, an assessment of the legal situation of the consumer having regard to the means at his disposal, under national law, to prevent continued use of unfair terms, should also be carried out.
The Spanish government is now under an obligation to reform its legislation, and Spanish homeowners facing eviction may be able to delay that eviction until new rules are in place which provide for an assessment of unfair contract terms in mortgage enforcement proceedings.
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