The CJEU has handed down judgment in Banco Primus SA v Jesus Gutierrez Garcia (Case C‑421/14, 2017). This was a request for a preliminary ruling from a Spanish court on the interpretation of the Unfair Terms in Consumer Contracts Directive 93/13/EEC.

During the course of possession proceedings in relation to Mr Garcia’s home, the Spanish court had made an order deeming clause 6 of the mortgage (which provided for default interest) an ‘unfair term’. This resulted in the suspension of the eviction, but by a subsequent decision the suspension was terminated. A few months later Mr Garcia lodged another application objecting to the enforcement proceedings on the ground that clause 6 was an unfair term. The Spanish court found that it was precluded by res judicata from re-examining the fairness of clause 6.

The CJEU stated that the imbalance between consumer and supplier was compensated for by the requirement upon national courts to assess the fairness of terms of their own motion (at [43]). The issue was whether the need to address this imbalance also required the national court to carry out a new appraisal of the loan agreement of its own motion, notwithstanding domestic provisions about res judicata [45]. The principle of res judicata is important to ensure stability of the law and legal relations, as well as the sound administration of justice and “consumer protection is not absolute” [46]-[47]. Accordingly, the Unfair Terms Directive should not be interpreted so as to preclude a national court from applying the principle of res judicata [49]. However, the principle of res judicata should not be extended so as to prevent the national court from examining the fairness of other terms in the same contract which were not the subject of the original decision [52].

The section of the judgment relating to the assessment of fairness of the accelerated payment clause is also of interest. In this case clause 6a empowered the lender to demand accelerated payment as a result of failure to pay “any amount” owed. On the facts the lender waited until  seven successive monthly instalments were missed before issuing possession proceedings. However, the CJEU held that this was not relevant to the national court’s assessment of the fairness of the term, which depended on its “potentially unfair nature”, rather than the manner in which the lender had exercised its rights in this instance [74]. The fairness of a term could not be contingent on whether that term was actually applied or not [73].

Full judgment text available here. 93/13/EEC